LyondellBasell Industries N.V. — 2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020, not just Q4; it was filed February 25, 2021. LyondellBasell is a global chemicals, polymers, refining and technology company, reporting six segments: O&P–Americas, O&P–EAI, Intermediates and Derivatives (I&D), Advanced Polymer Solutions (APS), Refining and Technology. The year was shaped by COVID-19, recession, volatile oil prices and industry capacity additions.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $27.753 billion | $34.727 billion |
| Operating income | $1.559 billion | $4.116 billion |
| Net income attributable to shareholders | $1.420 billion | $3.390 billion |
| Diluted EPS | $4.24 | $9.58 |
| Operating cash flow | $3.404 billion | $4.961 billion |
| Capital expenditures | $1.947 billion | $2.694 billion |
| Total debt, including current maturities | $15.957 billion | $12.062 billion |
| Cash and short-term investments | $2.465 billion | $1.054 billion |
Revenue fell 20%, primarily from lower selling prices; volumes declined 2%, partly offset by favorable foreign exchange. Operating margin was approximately 5.6% versus 11.9% in 2019; net margin was approximately 5.1% versus 9.8%. Gross profit was $3.394 billion, approximately 12.2% of revenue, compared with $5.426 billion, approximately 15.6%, in 2019. Operating cash flow less capital expenditures was approximately $1.457 billion, down from $2.267 billion.
Year-end total debt was $15.957 billion; cash and short-term investments totaled $2.465 billion. The company reported $2.777 billion of unused credit availability: $2.020 billion under its revolving facility and $757 million under its receivables facility. It was in compliance with debt covenants at year-end. The reported dividend was $4.20 per share for 2020, and cash dividends paid totaled $1.405 billion.
Q4 2020 revenue was $7.937 billion and net income was $855 million, or $2.55 per diluted share, compared with Q4 2019 revenue of $8.179 billion and net income of $612 million, or $1.83 per diluted share.
Material changes versus 2019
- All six segments reported lower operating income. Segment EBITDA declined to $3.285 billion from $5.692 billion.
- Refining EBITDA was negative $871 million versus negative $65 million; results included a $582 million non-cash Houston refinery impairment. Refinery throughput averaged 223,000 barrels per day, down from 263,000.
- I&D EBITDA fell 46% to $833 million, primarily on weaker oxyfuels and intermediate-chemical margins. O&P–Americas EBITDA fell 21% to $1.810 billion; O&P–EAI fell 22% to $826 million. APS EBITDA declined 11% to $378 million, while Technology EBITDA fell 21% to $324 million.
- Operating cash flow declined $1.557 billion. Capital expenditures fell 28% as projects and maintenance were deferred or slowed amid the pandemic.
- Debt increased, reflecting pandemic liquidity actions and investment. The company issued $2.0 billion of notes in April and $3.9 billion in October, redeemed $1.0 billion of 2021 notes and €750 million of 2022 notes, and invested $2.0 billion for a 50% interest in the Louisiana joint venture.
Outlook, commentary, risks and unusual items
Management said improving trends in late December continued into Q1 2021, with strong margins in O&P supported by tight markets and export demand to China and Latin America. It expected automotive and construction demand to benefit APS and anticipated that increased mobility could support oxyfuels and refining later in 2021. These expectations were subject to pandemic and market uncertainty. Management prioritized debt reduction while expecting 2021 capital spending of approximately $2 billion, with a similar level expected in 2022 and a modest reduction in 2023.
- The Houston PO/TBA project was approximately 50% complete, with completion expected in Q4 2022, about a year later than originally planned. Management expected the delay, expanded civil work and tariffs to increase cost by 40%–50% over the original $2.4 billion estimate.
- February 2021 severe cold and power outages shut down most of the company’s affected U.S. Gulf Coast capacity for at least a week; restart timing and financial impact were still being assessed.
- Management identified commodity price and feedstock volatility, cyclical oversupply, operational outages, pandemic-related demand uncertainty, and environmental, climate and plastics regulation as material risks. Four of eleven LIFO inventory pools were described as at-risk for further valuation adjustments; these pools represented $1.5 billion of inventory.
- Defined-benefit pension obligations exceeded plan assets by $1.482 billion at year-end. Environmental remediation accruals were $133 million; possible additional losses could not be estimated. A Texas air-emissions lawsuit remained pending. The company reached a December 2020 settlement concerning flare-operation allegations, agreeing to pay $4.1 million and invest in equipment.
- The 2020 effective tax rate was negative 3.1%, including an approximately $300 million CARES Act-related tax benefit. Management anticipated an approximately $900 million U.S. tax refund, expected in 2021 but potentially delayed.
- The independent auditor issued unqualified opinions on the financial statements and internal control. Critical audit matters included uncertain tax benefits and the Houston refinery impairment valuation.
Important facts for investors to verify
- Whether chemical margins, volumes and cash generation remained strong after year-end, and how sensitive results are to feedstock and product-price spreads.
- The Houston refinery’s operating plan, recovery in fuel demand and margins, and whether further impairment or restructuring becomes necessary.
- Actual PO/TBA project cost, schedule and returns versus the revised estimate, including remaining construction and tariff risks.
- Progress on debt reduction, covenant headroom, refinancing needs and the timing of the expected tax refund.
- The financial effect of February 2021 Gulf Coast outages and the status of environmental litigation, remediation and regulatory obligations.