LyondellBasell Industries N.V. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company is a global chemicals and polymers manufacturer, crude-oil refiner, and technology licensor. Unless noted, amounts are in U.S. dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $14.838 billion | $11.561 billion | $27.995 billion | $20.643 billion |
| Operating income | $2.141 billion | $2.526 billion | $3.802 billion | $3.614 billion |
| Net income | $1.644 billion | $2.059 billion | $2.964 billion | $3.129 billion |
| Net income attributable to company shareholders | $1.643 billion | $2.058 billion | $2.961 billion | $3.126 billion |
| Diluted EPS | $4.98 | $6.13 | $8.98 | $9.32 |
| Segment EBITDA | $2.387 billion | $3.020 billion | $4.408 billion | $4.600 billion |
Revenue increased 28% year over year in Q2 and 36% in the first half, chiefly from higher product prices. Operating margin was approximately 14.4% in Q2 versus 21.9% a year earlier, and 13.6% for the first half versus 17.5%. The company reported that cost of sales rose faster than revenue in the first half, primarily due to higher feedstock and energy costs. Segment EBITDA margin was approximately 16.0% in Q2 versus 26.1%, and 15.7% for the first half versus 22.3%.
Cash flow, balance sheet and liquidity
- Cash from operating activities was $1.599 billion in Q2 and $3.101 billion for the first half, compared with $2.473 billion in first-half 2021. First-half working capital used $494 million, mainly due to higher receivables and inventory, partly offset by payables.
- First-half capital expenditures were $978 million, versus $771 million. Net cash used in investing activities was $1.034 billion.
- First-half financing used $2.392 billion. The company paid $2.464 billion in dividends, including a $5.20-per-share special dividend, and spent $262 million on share repurchases.
- At June 30, cash and cash equivalents were $1.057 billion; total debt, including current maturities, was $11.475 billion. Cash less total debt was approximately $10.418 billion net debt.
- Total unused availability under credit facilities was $3.841 billion, including $2.941 billion under the revolving facility and $900 million under the receivables facility. Commercial paper outstanding was $309 million; the company reported compliance with debt covenants.
- Current assets were $12.845 billion and current liabilities $7.653 billion. The company said it expects to fund working capital, investment, debt service and shareholder returns from liquidity and operating cash flow.
Material changes and segment trends
- First-half operating income increased 5% year over year, but net income declined 5% and segment EBITDA declined 4%. Lower O&P-Americas and O&P-EAI results and reduced equity earnings offset stronger Refining and Intermediates & Derivatives results.
- O&P-Americas first-half EBITDA fell 26% to $1.816 billion, principally from lower olefin margins as feedstock and energy costs increased.
- O&P-EAI first-half EBITDA fell 69% to $347 million, reflecting lower volumes and margins, reduced equity earnings and unfavorable foreign exchange. European cracker operating rates were approximately 70%–75%, versus 97% in first-half 2021, amid maintenance.
- Intermediates & Derivatives first-half EBITDA rose 57% to $1.221 billion, led by improved oxyfuels margins. Refining moved from a $191 million EBITDA loss to $566 million of EBITDA as refining margins and volumes improved.
- Q2 results improved sequentially: operating income was $2.141 billion versus $1.661 billion in Q1, and segment EBITDA was $2.387 billion versus $2.020 billion.
Outlook, unusual items and risks
- Management expected continued packaging demand strength and favorable oxyfuels margins in Q3 2022, but anticipated moderating demand and elevated feedstock and energy costs to compress margins across most businesses. It expected refining margins to moderate from Q2 levels. Potential benefits from China’s reopening could support results toward year-end.
- The company planned to begin commissioning its U.S. Gulf Coast PO/TBA facility in Q3 2022 and expected incremental earnings from the new capacity in 2023. No specific full-year earnings guidance was provided in the supplied filing text.
- In April 2022, the company announced plans to cease Houston Refinery operations no later than December 31, 2023. It estimated related costs of $580 million–$770 million, primarily lease-asset amortization, decommissioning, personnel and other charges, expected to be recognized over time through 2024. Actual cost and timing may differ materially.
- Q2 included a $69 million non-cash impairment related to the sale of the company’s Australian polypropylene facility for $38 million. A pension annuity transaction transferred $361 million of obligations; related pension settlement loss was $94 million, non-cash, and recognized in Q2.
- Key exposures cited include commodity, feedstock and energy price volatility; economic slowdown and demand weakness; supply-chain and operating interruptions; foreign exchange; regulatory, environmental and legal matters; and execution, timing and cost risks for the refinery closure and growth projects. Management stated that market-risk exposure had not changed materially and that it did not expect pending lawsuits to have a material adverse effect.
- Environmental remediation liabilities were $129 million. The company said additional losses may be reasonably possible but could not estimate a range. Disclosed legal matters included an anticipated EPA settlement involving a $324,000 civil penalty and equipment installation, and a Texas emissions suit for which the company expected a penalty above $300,000.
Most important facts for investors to verify
- Whether weaker demand, margins and elevated input costs developed as management anticipated for the second half of 2022.
- Progress, cost recognition and potential site alternatives related to the Houston refinery closure, including any material deviation from the estimated $580 million–$770 million charges.
- Commissioning progress and the timing of expected earnings contributions from the PO/TBA facility.
- Cash conversion and working-capital trends, capital spending, leverage, and capacity to sustain dividends and repurchases while maintaining liquidity.
- Developments in environmental remediation and legal proceedings, and the impact of any adverse outcomes.