LyondellBasell Industries N.V. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Unaudited consolidated results; dollar amounts are in millions unless stated otherwise. LyondellBasell is a global chemicals and polymers manufacturer, refiner, and technology licensor.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $11,135 | $10,669 | +4.4% |
| Operating income | $1,340 | $1,267 | +5.8% |
| Net income | $944 | $900 | +4.9% |
| Diluted EPS | $1.72 | $1.55 | +$0.17 |
| Operating cash flow | $801 | $799 | +$2 |
| Capital expenditures | $343 | $391 | -$48 |
- Operating margin was approximately 12.0%, versus 11.9% a year earlier. Net margin was approximately 8.5%, versus 8.4%.
- Segment EBITDA was $1,668, up from $1,585. O&P–Americas EBITDA fell to $736 from $898; O&P–EAI rose to $356 from $225; I&D was broadly flat at $375 versus $373; Refining increased to $129 from $20; and Technology rose to $76 from $66.
- Cash from operations was largely offset by working-capital use: receivables, inventories and payables together used $319. Operating cash flow less capital expenditures was $458.
- At March 31, cash and cash equivalents were $2,702 and short-term investments were $1,402, totaling $4,104 of unrestricted cash and those investments. Unused credit-facility availability was $3,617.
- Total debt, including current maturities, was $6,827, compared with approximately $5,835 at year-end 2013. Long-term debt increased by $990, principally following issuance of $1,000 of 4.875% notes due 2044. Interest expense rose to $92 from $71.
- Total assets were $27,827 and total equity was $11,826 at quarter-end. The filing reports no borrowings on the revolving credit facility or the U.S. and European receivables securitization facilities.
Material changes and operating drivers
- Revenue growth reflected higher volumes, including increased Houston refinery processing and the December 2013 restart of the Channelview methanol plant; lower average sales prices partly offset volume gains.
- O&P–Americas was pressured by lower olefins output, operating issues, higher feedstock costs and ethylene purchases ahead of the La Porte turnaround. Improved polyethylene margins and demand partly cushioned the decline.
- O&P–EAI improved on stronger margins and lower feedstock costs, with a $52 benefit from settlement of an environmental indemnification claim. European market conditions remained weak.
- Refining benefited from higher crude processing rates after a major prior-year turnaround and improved margins. Coking-unit operating issues constrained performance.
- I&D results were broadly steady: methanol restart benefits and stronger acetyls were largely offset by weaker oxyfuels and styrene margins, higher natural gas costs and shipping delays.
- Cash declined by $1,748 during the quarter, mainly reflecting purchases of securities and other investments, share repurchases and dividends. The company repurchased approximately 15.0 million shares for $1,314; cash paid in the quarter was $1,201 due to settlement timing.
Outlook, commentary and risks
- Management expected second-quarter 2014 conditions to remain generally consistent with recent quarters and seasonal trends. Significant planned downtime at La Porte was expected during turnaround work and completion of an 800-million-pound-per-year ethylene expansion; inventory buildup was intended to help meet customer demand and mitigate the impact.
- The company expected its refining benchmark crack spread to remain relatively unchanged from Q1. The filing does not provide numerical earnings or revenue guidance.
- Management cited strong underlying business fundamentals, but noted maintenance and severe U.S. weather, volatility in raw-material costs, and the cyclicality of chemical and refining markets.
- Key risks include feedstock and energy price volatility and ability to pass costs through, facility interruptions, industry oversupply and competition, economic and currency conditions, regulatory and environmental costs, project execution, and access to financing.
- Environmental remediation accruals were $116 at March 31; the company said additional losses were reasonably possible but could not estimate an amount or range. Berre refinery exit and disposal costs are expected to continue through 2017, with affected-employee payments substantially complete by 2019; some future dismantling and remediation costs are not determinable.
- The company could not estimate a reasonably possible loss in the Weisfelner litigation or related Access Industries indemnity demands, which include a $100 management-fee demand and other unspecified claims. Management disputed the obligations and said it would defend its position.
- After quarter-end, shareholders authorized a further repurchase of up to 10% of outstanding shares over 18 months, and management was authorized to declare a $0.70-per-share interim dividend, 17% above the Q1 dividend.
Most important facts for investors to verify
- Whether the La Porte turnaround and ethylene expansion proceed on schedule and within expected cost, and how downtime affects Q2 volumes and margins.
- How durable segment results are, particularly the $52 environmental-settlement benefit in O&P–EAI and the recovery in Refining.
- Working-capital needs, investment activity, and the composition and availability of the reported $4,104 in cash and short-term investments and $3,617 in credit facilities.
- The pace and funding of share repurchases and dividends, alongside the increase in debt and interest expense.
- Developments in environmental remediation exposures, Berre closure obligations, and the Access-related litigation and indemnity claims.