LyondellBasell Industries N.V. — Q1 2021 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2021. LyondellBasell is a global chemicals and polymers manufacturer, refiner, and technology licensor. Results reflect recovering demand and tight industry supply, partly offset by Texas winter-storm outages. Comparative figures are for Q1 2020.
Financial performance
- Revenue: $9.082 billion, up 21% from $7.494 billion. Higher average prices contributed a reported 26% increase and favorable foreign exchange 4%; lower volumes reduced revenue 9%, primarily because of Texas outages.
- Profit: Operating income was $1.088 billion versus $304 million; net income attributable to shareholders was $1.068 billion versus $142 million. Diluted EPS was $3.18, including a $0.01 loss from discontinued operations, compared with $0.42. The reported operating-income-to-revenue ratio was approximately 12.0% versus 4.1%.
- EBITDA: Segment EBITDA totaled $1.585 billion versus $646 million. Results benefited from stronger polyolefin margins and the absence of the prior-year $419 million inventory valuation charge. O&P-Americas EBITDA was $867 million ($366 million); O&P-EAI $412 million ($189 million); I&D $182 million ($203 million); APS $135 million ($113 million); Refining $(110) million ($(272) million); and Technology $94 million ($56 million).
- Cash flow and investment: Operating cash flow was $571 million versus $542 million. Capital expenditures were $340 million versus $660 million; operating cash flow less capital expenditures was $231 million versus negative $118 million. Working capital used $626 million, mainly from higher receivables and inventories, partly offset by higher payables. Investing cash outflow was $59 million; financing cash outflow was $782 million, including $352 million of common dividends and $500 million of term-loan repayment.
- Liquidity and debt: Cash, cash equivalents, and short-term investments totaled $1.835 billion at quarter-end. Total debt, including current maturities, was $15.425 billion, compared with $15.957 billion at year-end 2020. Unused credit-facility availability was $2.905 billion. The company reported compliance with debt covenants.
- Other metrics: Equity-investment income was $137 million versus zero. The effective tax rate was 6.1% versus 34.4%; Q1 2021 included a $120 million net tax benefit associated with a step-up of certain Italian assets. Comprehensive income was $1.149 billion versus a $385 million loss, substantially affected by changes in derivative and currency translation values.
Material changes and notable events
- Higher prices, stronger demand, and supply constraints lifted results in O&P-Americas and O&P-EAI. The Louisiana ethylene joint venture, in which LyondellBasell owns 50%, contributed its first full quarter of results and operated during Texas outages.
- February 2021 cold weather and power outages curtailed Texas production, including Refining and I&D facilities. Refining heavy-crude processing averaged 152,000 barrels per day versus 226,000 a year earlier.
- I&D EBITDA declined 10%, primarily due to lower volumes and weather-related disruption. APS benefited from stronger automotive and construction demand, while rapidly rising raw-material costs compressed margins.
- The prior-year comparison included a $419 million lower-of-cost-or-market inventory charge: $192 million in Refining, $111 million in O&P-Americas, $78 million in I&D, and $36 million in O&P-EAI. No comparable charge was recorded in Q1 2021.
- The company signed an agreement to form a 50%-owned joint venture with Sinopec to build a PO and styrene monomer unit in China. It repaid another $500 million of its term loan in April, bringing 2021 repayments to $1 billion.
Outlook, risks, and contingencies
Management expected near-full global operating rates in Q2, with no significant planned maintenance, to meet demand supported by low inventories and industry maintenance. It anticipated continued strong North American integrated polyethylene margins, improved Refining and I&D margins as mobility recovered in the second half, and better APS margins as feedstock costs moderated. Management identified debt reduction as the 2021 capital-deployment priority and targeted progress toward total debt-to-EBITDA of 2x. These are forward-looking expectations, not guarantees.
- Planned I&D maintenance was expected to reduce EBITDA by approximately $115 million in 2021, $30 million less than previously estimated.
- Key risks include volatile raw-material and energy costs, inability to pass cost increases through, cyclical supply and demand, unplanned outages and weather events, pandemic-related uncertainty, foreign-exchange exposure, and financing and regulatory risks. The Houston refinery is the company’s only refining operation.
- Environmental remediation liabilities were $130 million; the company stated that reasonably possible additional losses could not be estimated. Management did not expect pending lawsuits to have a material adverse effect. Capital commitments included approximately $316 million for the Houston PO/TBA plant.
- The U.S. Receivables Facility, with $900 million of unused availability, was due to expire in July 2021; the company planned to extend all or part of it. It reported no material change in market-risk exposure and no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether demand, product margins, and operating rates sustained the recovery anticipated for Q2 and the second half of 2021.
- The duration and financial impact of weather-related interruptions, planned maintenance, and other outages.
- Cash conversion and working-capital needs, including whether the $626 million Q1 working-capital outflow reversed.
- Progress on debt reduction, the 2x leverage objective, and extension of the U.S. Receivables Facility before its July 2021 maturity.
- The extent to which reported earnings benefited from the $120 million Italian tax benefit and the absence of prior-year inventory charges.
- Potential additional environmental losses, which the filing said could not be estimated.