LyondellBasell Industries N.V. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone fourth-quarter report. The company is a global chemicals and polymers producer, with five operating segments: O&P–Americas, O&P–EAI, Intermediates and Derivatives, Refining, and Technology.
Financial performance
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $32.735 billion | $45.608 billion |
| Operating income | $6.122 billion | $5.736 billion |
| Net income attributable to shareholders | $4.476 billion | $4.174 billion |
| Diluted EPS from continuing operations | $9.60 | $8.00 |
| Segment EBITDA | $7.533 billion | $7.050 billion |
| Cash from operating activities | $5.842 billion | $6.048 billion |
| Capital expenditures | $1.440 billion | $1.499 billion |
- Revenue fell 28%, chiefly because lower crude oil and feedstock prices reduced average selling prices; management attributed 23 percentage points of the decline to prices and 5 points to unfavorable euro translation. Sales volumes were relatively unchanged.
- Operating income margin was approximately 18.7% in 2015 versus 12.6% in 2014; net margin was approximately 13.7% versus 9.1%. These calculated margins benefited from lower feedstock costs and favorable product-market conditions, despite inventory valuation charges.
- Operating cash flow less capital expenditures was approximately $4.402 billion, compared with $4.549 billion in 2014. Working capital used $246 million of cash in 2015.
- At year-end, cash and cash equivalents were $924 million and short-term investments were $1.064 billion. Total debt was $8.028 billion ($353 million short-term and $7.675 billion long-term); unused availability under credit and receivables facilities was reported at $2.862 billion. Working capital was $4.386 billion.
- Dividends declared totaled $3.04 per share, up from $2.70. The company repurchased approximately 51.8 million shares for $4.615 billion in 2015.
Changes versus 2014 and fourth-quarter performance
- Net income and operating income rose despite the steep decline in reported revenue. Management said stronger European polyolefins and olefins results, improved refining margins, and higher joint-venture earnings more than offset weaker O&P–Americas olefin margins and other pressures.
- Segment EBITDA: O&P–Americas declined to $3.661 billion from $3.911 billion; O&P–EAI rose to $1.825 billion from $1.366 billion; I&D was broadly flat at $1.475 billion versus $1.459 billion; Refining increased to $342 million from $65 million; Technology rose to $243 million from $232 million.
- Fourth-quarter 2015 revenue was $7.071 billion, compared with $10.290 billion in fourth-quarter 2014. Operating income was $1.052 billion versus $1.077 billion; net income was $795 million versus $791 million; diluted EPS was $1.78 versus $1.54. Fourth-quarter results were weaker than the preceding 2015 quarters, including from refinery outages and inventory charges.
- Noncash lower-of-cost-or-market inventory charges were $548 million pretax in 2015, versus $760 million in 2014. The fourth quarter of 2015 included $284 million of these charges; fourth-quarter 2014 included $715 million.
Outlook, commentary, risks and unusual items
- Management described 2015 as a record-earnings year. Its early-2016 outlook expected healthy U.S. and European polyolefins margins, but lower O&P–Americas ethylene margins; O&P–EAI ethylene margins were expected to hold or possibly grow. Management also cited possible competitor restarts affecting PO markets and additional supply pressuring methanol margins.
- Planned first-quarter 2016 maintenance was expected to reduce O&P–EAI results by about $20 million and Refining results by about $40 million. Refinery processing rates were expected to be similar to fourth-quarter 2015 levels during the maintenance.
- Planned 2016 capital expenditures were $1.833 billion. Environmental, health and safety capital spending was $177 million in 2015; the company estimated $291 million for 2016 and $408 million for 2017.
- Key business risks include commodity-price and feedstock volatility, narrowing North American feedstock advantages, competitive capacity additions, economic and currency risks, unplanned outages, regulatory and environmental costs, and dependence on the Houston refinery as its sole refining operation.
- Environmental remediation liabilities were $106 million; the company said additional losses were reasonably possible but could not be estimated. An IRS matter involving executive stock options could result in company liability from zero to as much as $165 million, depending on audit outcomes. A shareholder-affiliate indemnity dispute also remained unresolved, with no reasonably possible loss estimate available.
- The aggregate pension-plan deficit was $871 million. Inventory valuation is a notable judgment area: $3.3 billion of year-end inventory was described as at risk of further lower-of-cost-or-market adjustment if prices or inventory composition change.
- The company reported effective internal control over financial reporting, and its independent auditor issued an unqualified opinion on the financial statements and internal controls.
Most important facts for investors to verify
- Whether continued low oil and feedstock prices, new capacity, or changing product spreads alter the unusually strong earnings and margin profile.
- Progress and costs for the Corpus Christi ethylene expansion, scheduled turnarounds, and refinery maintenance and reliability.
- Cash generation and liquidity after substantial buybacks and dividends, alongside debt maturities, covenant compliance, and the use of available credit facilities.
- Potential further inventory write-downs, particularly given the filing’s identification of $3.3 billion of inventory as at risk.
- Developments and possible exposure in the IRS, environmental, and Access-affiliate matters, as well as pension funding needs.
- Whether management’s early-2016 segment outlook and planned capital spending were realized; the filing provides no full-year 2016 earnings guidance.