LyondellBasell Industries N.V. — Q2 2015 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2015. LyondellBasell manufactures chemicals and polymers, refines crude oil, produces gasoline blending components, and licenses process technologies. Results are unaudited and presented in U.S. dollars; amounts below are in millions except per-share data.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $9,145 | $12,117 | $17,330 | $23,252 |
| Operating income | $1,845 | $1,613 | $3,420 | $2,953 |
| Net income attributable to shareholders | $1,330 | $1,178 | $2,496 | $2,123 |
| Diluted EPS | $2.82 | $2.23 | $5.22 | $3.94 |
| Operating cash flow | — | $2,914 | $2,598 | |
| Capital expenditures | — | $584 | $758 |
- Revenue fell 25% in both comparisons, principally due to lower commodity-linked selling prices and adverse euro translation. Lower crude oil and feedstock costs reduced cost of sales and supported higher operating income.
- Calculated operating margin was approximately 20.2% in Q2 2015 versus 13.3% a year earlier; for the first half it was approximately 19.7% versus 12.7%. Net margin was approximately 14.5% versus 9.7% in Q2 and 14.4% versus 9.1% for the first half.
- First-half free cash flow, calculated as operating cash flow less capital expenditures, was approximately $2.33 billion, versus $1.84 billion in 2014. Investing activities used $1.17 billion and financing activities used $1.42 billion.
- At June 30, cash and cash equivalents were $1.325 billion and short-term investments were $1.989 billion. Total debt was $8.313 billion, up from approximately $7.107 billion at year-end 2014; cash and short-term investments less total debt imply net debt of about $5.0 billion. Current assets were $11.990 billion and current liabilities $5.229 billion.
- Cash returned to shareholders in the first half included $2.137 billion of share repurchases and $702 million of dividends. The dividend was increased from $0.70 to $0.78 per share in Q2.
Material changes and segment results
- Total segment EBITDA was $2.188 billion in Q2, compared with $1.935 billion, and $4.138 billion for the first half, compared with $3.607 billion.
- O&P-Americas EBITDA increased to $1.014 billion in Q2 and $2.045 billion for the first half. Higher U.S. volumes and stronger polyolefin results offset weaker olefin margins.
- O&P-EAI EBITDA rose to $492 million in Q2 and $849 million for the first half, reflecting improved margins and supply constraints, partly offset by euro weakness.
- I&D EBITDA was $466 million in Q2 versus $430 million, and $803 million for the first half versus $805 million. Strong styrene results were partly offset by inventory valuation charges and weaker acetyls and C4 results.
- Refining EBITDA increased to $159 million in Q2 and $308 million for the first half, benefiting from improved by-product spreads and lower feedstock costs. The Houston refinery strike ended after a new labor agreement was ratified in May.
- Technology EBITDA declined to $57 million in Q2 and $133 million for the first half, mainly due to lower licensing and services revenue and unfavorable currency translation.
Liquidity, outlook, risks and unusual items
- Unused credit-facility availability was $2.899 billion at quarter-end. Commercial paper outstanding was $500 million; the $2 billion revolving facility was extended to June 2020. The company reported compliance with its quarterly leverage covenant.
- Management said early Q3 demand and margins were generally good, with high operating rates, but anticipated that industry outages resolving could ease product shortages and margin support. It cited oil-price and macroeconomic uncertainty, including conditions in the Eurozone and China.
- Planned maintenance at the Muenchsmünster cracker was expected to reduce second-half 2015 results by about $25 million; maintenance at the Fos-sur-Mer PO/TBA and La Porte acetyls facilities could reduce second-half results by about $50 million. These are management estimates, not guarantees.
- Inventory valuation was a notable earnings sensitivity: first-half 2015 included $83 million of lower-of-cost-or-market inventory charges and $35 million of emission-credit amortization. Management stated that inventory pools representing $2.7 billion of inventory were at risk of further valuation adjustments if prices declined; recoveries could also reverse charges.
- Environmental remediation liabilities were $100 million, with possible additional losses that the company said it could not estimate. An Access Industries affiliate demand includes a claimed $100 million in management fees and indemnity demands linked to litigation; the company disputes the obligations and said it could not estimate possible losses.
- The company identified commodity-price volatility, feedstock availability and spreads, industry capacity and outages, foreign exchange, regulation, project execution, litigation, and financing access as risks. It reported no material changes to the risk factors in its 2014 Form 10-K.
Most important facts for investors to verify
- Whether earnings and segment margins remain resilient if product prices, supply constraints, or feedstock advantages change.
- The sensitivity of inventory carrying values and earnings to further commodity-price movements, given the disclosed at-risk inventory pools.
- Actual impact and timing of planned maintenance, construction projects, and any operating interruptions.
- Debt growth, commercial-paper use, covenant headroom, and liquidity after dividends and share repurchases.
- Developments in environmental remediation exposure and the Access-related litigation and indemnity demands.