LyondellBasell Industries N.V. — 2023 Third-Quarter 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results are in U.S. dollars; amounts below are in millions except per-share data. The company manufactures chemicals and polymers, refines crude oil, and licenses process technologies.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $10,625 | $12,250 | $31,178 | $40,245 |
| Operating income | $1,014 | $812 | $2,738 | $4,614 |
| Net income | $747 | $572 | $1,936 | $3,536 |
| Net income attributable to company shareholders | $745 | $570 | $1,931 | $3,531 |
| Diluted EPS | $2.29 | $1.75 | $5.90 | $10.74 |
| EBITDA | $1,356 | $1,108 | $3,870 | $5,509 |
Cash flow and investment: Nine-month operating cash flow was $3,438, down from $4,515. Capital expenditures were $1,047, versus $1,417. The company returned $1,415 to shareholders through $1,204 of dividends and $211 of share repurchases. Cash and cash equivalents were $2,833 at September 30, 2023, including $1,638 held outside the U.S.
Debt and liquidity: Total debt, including current maturities, was $11,106, compared with cash and cash equivalents of $2,833. Unused availability under the senior revolving credit and U.S. receivables facilities totaled $4,150; neither facility had borrowings or letters of credit outstanding. Commercial paper outstanding was zero. The company reported compliance with debt covenants.
Material changes and operating trends
- Against Q3 2022, revenue fell 13% and nine-month revenue fell 23%, principally reflecting lower average selling prices as product prices tracked lower crude-oil prices. Nine-month operating income declined 41% and net income declined 45%.
- Management said Q3 results were slightly below Q2: EBITDA was $1,356 versus $1,383. Lower olefins and polyolefins margins, higher feedstock costs, subdued U.S. and European polymer demand, and new capacity pressured results. Increased North American polyethylene exports partly offset these pressures.
- Q3 Intermediates and Derivatives EBITDA rose to $708 from $472 in Q2, mainly on stronger oxyfuels margins. Technology EBITDA increased to $146 from $79, reflecting licensing milestones. O&P-Americas EBITDA fell to $479 from $679; O&P-EAI moved to a $45 loss from $84 of EBITDA.
- Nine-month EBITDA was lower year over year in O&P-Americas, O&P-EAI, Refining and Advanced Polymer Solutions (APS). I&D EBITDA was broadly stable at $1,606 versus $1,581. APS included a $252 non-cash goodwill impairment; a separate $25 non-cash impairment related to O&P-Americas capital project costs.
- Interest expense for the first nine months rose to $356 from $202, partly due to lower capitalized interest after the new PO/TBA plant started up and the effects of interest-rate swaps amid higher rates.
Outlook, strategy and notable items
- For Q4 2023, management expected seasonally softer demand, with feedstock costs, new capacity and slow Chinese demand growth continuing to pressure global olefins and polyolefins margins. Oxyfuels and refining margins were expected to decline after the summer driving season, though oxyfuels margins were expected to remain above historical averages.
- Expected average operating rates for Q4: 85% for O&P-Americas, 75% for European O&P-EAI, and 70% for I&D.
- The 2023 capital expenditure plan was approximately $1.7 billion, with about 70% allocated to sustaining maintenance. The value enhancement program was progressing ahead of schedule; management raised its year-end 2023 target to $150 million of recurring annual net income improvement and $200 million of recurring annual EBITDA, and expected to exceed it. The longer-term target is $575 million of recurring annual net income improvement by end-2025.
- The company approved a plan to sell its U.S. Gulf Coast ethylene oxide and derivatives business and classified related assets and liabilities as held for sale. It also extended Houston refinery operations from the prior end-2023 plan to no later than the end of Q1 2025. Management estimated refinery asset retirement obligations at $150–$450 million and recorded $257 million; it does not anticipate material cash payments for the refinery exit in 2023.
- Environmental remediation liabilities were $119 million. Management said additional losses may be reasonably possible but could not estimate an amount or range; it did not expect pending lawsuits to have a material adverse effect. Two Texas environmental matters were settled and paid in 2023 for $2.6 million and $1.1 million.
- Other risks identified include commodity and energy price volatility, oversupply and weak demand, operating disruptions, project execution, foreign exchange, regulatory and environmental matters, and the costs and timing of the refinery exit. Management reported no material change in previously disclosed risk factors and said disclosure controls were effective.
Most important facts for investors to verify
- Whether demand, feedstock costs and industry capacity improve or further compress margins, particularly in O&P-Americas and O&P-EAI.
- Whether the Q4 operating-rate assumptions and the value enhancement program’s year-end targets are achieved.
- Progress and terms of the planned EO&D sale, and the Houston refinery’s operating, shutdown and retirement costs through the revised Q1 2025 timeline.
- Debt refinancing and liquidity needs, including current maturities of $781 million, alongside the planned capital budget and shareholder distributions.
- Potential additional environmental remediation losses, which the filing says cannot currently be estimated, and the assumptions underlying the APS goodwill impairment.