LyondellBasell Industries N.V. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited U.S. GAAP results. Dollar amounts are in millions unless stated otherwise.
Business context and results
LyondellBasell manufactures chemicals and polymers, refines crude oil, and develops and licenses process technologies. Management said Q1 results were affected by COVID-19 disruption, sharply lower oil prices, weaker margins in several businesses, and a $419 million inventory valuation charge.
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $7,494 | $8,778 |
| Operating income | $304 | $1,017 |
| Operating margin | Approximately 4.1% | Approximately 11.6% |
| Net income attributable to company shareholders | $142 | $815 |
| Diluted EPS | $0.42 | $2.19 |
| Segment EBITDA, including Other | $646 | $1,428 |
| Operating cash flow | $542 | $657 |
| Capital expenditures | $660 | $599 |
Revenue declined 15%, primarily from lower prices; sales volumes were described as relatively unchanged overall. Cost of sales fell 8% on lower feedstock and energy costs, but included the $419 million lower-of-cost-or-market inventory charge. Operating income fell 70%. Q1 cash flow from operations less capital expenditures was approximately negative $118 million.
Financial position and liquidity
- At March 31, 2020, cash and cash equivalents were $1,596 million and short-term investments were $199 million; together, $1,795 million of unrestricted cash and short-term investments.
- Total debt, including current maturities, was $13,655 million, versus $12,062 million at December 31, 2019. Short-term debt rose to $1,493 million from $445 million; long-term debt was $12,159 million.
- Unused availability under credit facilities was $1,357 million at quarter-end. The company reported compliance with debt covenants.
- Cash and cash equivalents plus restricted cash increased by $745 million during the quarter. Financing provided $884 million, including $500 million drawn on the revolving facility, $500 million from the U.S. receivables facility, and $516 million net commercial-paper proceeds; the company also paid $351 million in common dividends.
Comprehensive loss attributable to shareholders was $387 million, despite net income, largely reflecting $529 million of after-tax other comprehensive loss, including derivative and foreign-currency translation losses.
Material changes and segment performance
- EBITDA declined in each operating segment compared with Q1 2019; Refining moved to a $272 million EBITDA loss from a $15 million loss.
- O&P-Americas EBITDA was $366 million, down 29%, as weaker polyolefin spreads and a $111 million inventory charge outweighed improved olefin results.
- O&P-EAI EBITDA was $189 million, down 36%, reflecting lower polyolefin results and equity income, partly offset by improved olefin volumes and margins; it included a $36 million inventory charge.
- I&D EBITDA was $203 million, down 48%, primarily due to weaker intermediate-chemical margins; it included a $78 million inventory charge.
- APS EBITDA was $113 million, down 24%, as lower compounding and solutions volumes, particularly in automotive-related markets, weighed on results; it included a $2 million inventory charge.
- Refining included a $192 million inventory charge and was affected by lower heavy-crude processing and an unplanned fluid catalytic cracking unit outage. Technology EBITDA declined 33% to $56 million, mainly from lower licensing revenue.
Outlook, risks and unusual items
- Management expected pandemic and crude-oil challenges to increasingly affect Q2. Packaging and medical-related polyolefin demand remained strong, while industrial, durable-goods, automotive, and transportation-fuel demand was weak. The company expected most capacity to operate at 60%–80% of nameplate in Q2.
- 2020 capital-expenditure outlook was reduced to $1.9 billion from a prior budget of $2.4 billion, a reduction of about 20%, with selected growth projects and maintenance postponed and Houston PO/TBA construction slowed.
- Management said it was accelerating cost savings and believed existing liquidity and operating cash flow were sufficient for anticipated needs, while warning that prolonged economic disruption could materially harm results, liquidity, and financial condition.
- Ten of eleven LIFO inventory pools were described as at risk of further adjustment; approximately $3 billion of inventory was in those pools. Further price declines could cause additional charges, while a price recovery could reverse some or all of the Q1 charge.
- After quarter-end, the company issued $2.0 billion of guaranteed notes, receiving net proceeds of $1.974 billion, and repaid $500 million each under the revolving credit and receivables facilities. Credit-agreement amendments changed leverage-covenant treatment to permit specified cash netting and restricted certain dividends and other payments under some agreements.
- The Q1 effective tax rate was 34.4%, versus 19.9%; management attributed the increase primarily to CARES Act-related deferred-tax remeasurement and anticipated a favorable tax impact later in 2020. Management expected a full-year effective tax rate in the mid-teens.
- Capital commitments included approximately $783 million related to the Houston PO/TBA plant. Environmental remediation liabilities were $130 million; management said possible additional losses could not be estimated. A proposed $120,000 settlement related to emissions events at the Tuscola facility was being finalized.
Important facts for investors to verify
- Whether oil, feedstock, and finished-product price movements lead to additional inventory charges or reversals, and how those changes affect margins.
- Q2 demand, production rates, refinery operations, and recovery in automotive and transportation-fuel markets.
- Progress against the $1.9 billion capital-spending outlook and the schedule and remaining cost of the PO/TBA project.
- Liquidity, short-term debt levels, covenant compliance and restrictions, and the effects of the April debt issuance and facility repayments.
- Whether expected favorable tax impacts materialize and whether the mid-teens full-year tax-rate outlook remains appropriate.