Lyondellbasell Industries N.V. annual report, FY2022

LyondellBasell Industries N.V. — FY2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. This is an annual filing, not a standalone fourth-quarter report. LyondellBasell is a global chemicals and polymers producer, technology licensor and, during 2022, refiner. It reports six segments: O&P-Americas, O&P-EAI, Intermediates and Derivatives (I&D), Advanced Polymer Solutions (APS), Refining and Technology.

Financial performance and position

Metric	FY2022	FY2021
Revenue	$50.451 billion	$46.173 billion
Operating income	$5.101 billion	$6.773 billion
Net income attributable to shareholders	$3.882 billion	$5.610 billion
Diluted EPS	$11.81	$16.75
Cash from operating activities	$6.119 billion	$7.695 billion
Capital expenditures	$1.890 billion	$1.959 billion

• Revenue increased 9%, reflecting higher average selling prices; management attributed a 13% increase to pricing, partly offset by a 4% unfavorable foreign-exchange impact. Cost of sales rose 17% to $43.847 billion, mainly due to higher feedstock and energy costs.
• Calculated from reported figures, gross margin was approximately 13.1% versus 19.0%, operating margin 10.1% versus 14.7%, and net margin attributable to shareholders 7.7% versus 12.1%.
• Calculated operating cash flow less capital expenditures was approximately $4.229 billion. Cash dividends and share repurchases returned about $3.7 billion to shareholders; dividends included a $5.20-per-share special dividend.
• At year-end, cash and cash equivalents were $2.151 billion and total debt, including current maturities, was $11.321 billion. Available capacity under the revolving credit and receivables facilities totaled $3.844 billion; the company reported compliance with debt covenants.
• The effective tax rate was 18.5%, compared with 17.1% in 2021. No customer accounted for 10% or more of revenue.

Material changes versus FY2021

• Operating income fell 25%; net income attributable to shareholders fell about 31%. Lower earnings reflected weaker O&P results, sharply lower equity-method investment income ($5 million versus $461 million), and lower Technology and APS results.
• O&P-Americas EBITDA declined 48% to $2.734 billion, primarily on weaker olefins margins, lower demand and higher energy costs. O&P-EAI EBITDA declined 94% to $112 million amid reduced demand, high costs, lower operating rates and weaker joint-venture spreads.
• I&D EBITDA rose 36% to $1.872 billion, led by stronger oxyfuels margins. Refining EBITDA improved to $921 million from a $624 million loss, largely on higher refining margins and the absence of the prior-year impairment. APS EBITDA declined 24% to $312 million; Technology EBITDA declined 29% to $366 million.
• Cash from operations decreased $1.576 billion. Working capital provided $450 million in 2022, versus using $960 million in 2021; 2021 operating cash flow also benefited from an $870 million tax refund.
• Interest expense declined to $287 million from $519 million, largely because 2021 included debt-extinguishment costs and the average debt balance was lower in 2022.

Outlook, management commentary and notable items

• Management said challenging market conditions were expected to persist through the first half of 2023, despite moderating energy and feedstock costs. For Q1 2023, it expected average utilization of about 80% for O&P-Americas, O&P-EAI and I&D; demand in consumer packaging, oxyfuels and refining was described as stable in January.
• The new Houston PO/TBA plant, with approximately $3.7 billion total cost and annual capacity of 470,000 tons of PO and 1.0 million tons of TBA, was on track for startup activities by the end of Q1 2023. The company expected about half of nameplate capacity to be produced and sold during its first operating year.
• The value enhancement program targets approximately $575 million in recurring annual net income improvement by end-2025, equivalent to $750 million EBITDA after stated tax and depreciation/amortization additions. The end-2023 milestone is about $115 million of recurring net income, or $150 million EBITDA, with estimated 2023 costs of $150 million.
• The company plans approximately $1.6 billion of 2023 capital expenditures, about 70% for sustaining maintenance. It decided to exit refining and cease Houston refinery operations no later than year-end 2023. FY2022 included refinery-exit costs, including $91 million accelerated lease amortization and $64 million personnel costs; further exit-related charges were estimated, while no material 2023 cash payments were anticipated.
• The refinery exit is expected to reduce annual Scope 1 and 2 emissions by more than 3 million metric tons. The company also raised its 2030 Scope 1 and 2 reduction target to 42% and set a 30% Scope 3 reduction target, both against a 2020 baseline; it retains a 2050 net-zero Scope 1 and 2 goal.
• Other unusual or forward-looking items: the Australian polypropylene business sale resulted in a $69 million non-cash impairment; following APS product transfers and goodwill reallocation effective January 2023, management expected a non-cash goodwill impairment of approximately $250–$300 million in Q1 2023.
• Principal risks include cyclical chemical and refining markets, commodity and energy price volatility, inability to pass through cost increases, weak global demand and new capacity, operational interruptions, European energy constraints, foreign exchange, climate and plastics regulation, and project execution. Environmental remediation accruals were $127 million; possible additional losses could not be estimated. The filing also reports $271 million of unrecognized tax benefits and a $662 million aggregate pension deficit.
• PwC issued an unqualified audit opinion on the financial statements and internal control over financial reporting; management and the auditor concluded internal controls were effective at year-end.

Important facts for investors to verify

• Whether the Houston refinery is shut down by the stated deadline, and the eventual cash and non-cash closure, remediation and asset-retirement costs.
• Whether the PO/TBA plant starts up on schedule and achieves the expected first-year production and sales levels.
• Progress and realized returns from the value enhancement program, including the $150 million estimated 2023 implementation cost.
• Recovery in demand and margins, particularly in Europe and Asia, and the effect of feedstock, energy and foreign-exchange movements on segment profitability.
• The expected Q1 2023 APS goodwill impairment and any subsequent changes in segment reporting or carrying values.
• Potential environmental, tax and pension obligations beyond recorded amounts, and the company’s ability to maintain liquidity and meet upcoming debt maturities.