LyondellBasell Reports 2023 Earnings
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Insights
The financial results of LyondellBasell Industries (NYSE: LYB) for the fourth quarter and full year 2023 indicate several key performance indicators that are vital for stakeholders. The reported net income of $185 million for Q4 and $2.1 billion for the full year, alongside the EBITDA figures, reflect the company's profitability during a period characterized by market challenges. The cash conversion rate of 171% for the quarter and 98% for the year is notably high, suggesting efficient management of working capital and profitability. This strong cash generation and the subsequent return of $406 million in dividends to shareholders underscores a commitment to shareholder returns, which could be attractive to investors seeking income-generating stocks.
Furthermore, the company's strategic moves, such as the divestiture of the Ethylene Oxide and Derivatives business for $700 million and the investment in a commercial-scale catalytic advanced recycling plant, signal an active portfolio management approach aimed at optimizing its business model for sustainability and long-term growth. These strategic decisions could have a positive impact on the company's valuation as they may improve LYB's competitive position and adaptability to evolving industry trends.
LyondellBasell's performance must be contextualized within the broader petrochemical industry, which faced headwinds from soft global demand and capacity additions in 2023. The company's ability to maintain a stable net income despite these conditions is a testament to its operational resilience. The lower gasoline crack spreads and the impact on refining and oxyfuels margins are industry-wide concerns that have affected LyondellBasell's refining operations, prompting a strategic exit from this segment. This move could potentially mitigate future exposure to volatile commodity pricing and refining margins, allowing for a more focused investment in higher-margin businesses.
The investment in the Saudi Arabian PDH/PP joint venture reflects a strategic international expansion, tapping into the growth potential of emerging markets. This venture may provide cost advantages and access to new markets, which could be a catalyst for future revenue growth. Additionally, the focus on recycled and renewable solutions aligns with global sustainability trends and could open up new revenue streams, catering to the increasing demand for environmentally friendly products.
LyondellBasell's financial performance and strategic initiatives must be evaluated against the backdrop of the global economic environment. The company's operations in 2023 were influenced by economic uncertainty and soft demand for durable goods, which typically correlates with broader economic cycles. The proactive management of its portfolio, such as the divestitures and strategic investments, suggests that LYB is seeking to optimize its asset base to better withstand cyclical downturns and capitalize on economic recoveries.
The company's incremental Normalized EBITDA target of $3 billion by 2027 is an ambitious goal that would require sustained operational efficiency and successful execution of strategic initiatives. Achieving this target would likely depend on the company's ability to adapt to changing economic conditions and maintain cost competitiveness. The focus on a three-pillar strategy to drive profitable and sustainable growth may provide a framework for navigating future economic challenges and capitalizing on opportunities, which could be instrumental in driving long-term shareholder value.
Fourth Quarter 2023 Highlights
- Net Income:
$185 million $411 million - Diluted earnings per share:
$0.56 $1.26 - EBITDA:
$639 million $910 million - Generated
$1.5 billion 171% cash conversion(b) - Returned
$406 million - Took final investment decision to build first commercial-scale catalytic advanced recycling plant utilizing LYB's proprietary MoReTec technology
- Announced divestiture of Ethylene Oxide and Derivatives business for
$700 million
Subsequent Event
- Entered agreement to acquire
35% of NATPET, a Saudi Arabian PDH/PP joint venture, for$500 million
Full Year 2023 Highlights
Delivered resilient results amid bottoming markets
- Net Income:
$2.1 billion $2.8 billion - Diluted earnings per share:
$6.46 $8.65 - EBITDA:
$4.5 billion $5.2 billion - Generated
$4.9 billion - Achieved
98% cash conversion(b)
Launched new strategy
- Three-pillar strategy to create a more profitable and sustainable growth engine for LYB
- Significant progress on the strategy in 2023
- Successful start-up of world's largest propylene oxide plant
- Active management of portfolio through divestiture, capacity rationalization and investments
- Unlocked more than
$300 million $400 million - Built foundation for a profitable Circular and Low-Carbon Solutions business
Continued commitment to disciplined capital allocation
- Increased quarterly dividend by
5% , 13th consecutive year of annual dividend growth - Returned
$1.8 billion - Issued inaugural green bond for
$500 million
(a) | See "Information Related to Financial Measures" for a discussion of the Company's use of non-GAAP financial measures and Tables 2-9 for reconciliations or calculations of these financial measures. "Identified items" include inventory adjustments for lower of cost or market ("LCM"), impairments and refinery exit costs. |
(b) | Cash conversion means net cash provided by operating activities divided by EBITDA excluding LCM and impairment. |
(c) | Year-end run rate based on 2017-2019 mid-cycle margins and modest inflation relative to 2021 baseline. |
Comparisons with the prior quarter, fourth quarter 2022 and year ended 2022 are available in the following table:
Table 1 - Earnings Summary | |||||
Millions of | Three Months Ended | Year Ended | |||
December 31, | September 30, | December 31, | December 31, | December 31, | |
Sales and other operating revenues | |||||
Net income | 185 | 747 | 353 | 2,121 | 3,889 |
Diluted earnings per share | 0.56 | 2.29 | 1.07 | 6.46 | 11.81 |
Weighted average diluted share count | 326 | 325 | 327 | 326 | 328 |
EBITDA(a) | 639 | 1,356 | 792 | 4,509 | 6,301 |
Excluding Identified Items(a) | |||||
Net income excluding identified items | |||||
Diluted earnings per share excluding identified items | 1.26 | 2.46 | 1.29 | 8.65 | 12.46 |
Impairments, pre-tax | 241 | 25 | — | 518 | 69 |
Refinery exit costs, pre-tax | 50 | 49 | 95 | 334 | 187 |
EBITDA excluding identified items | 910 | 1,410 | 865 | 5,222 | 6,527 |
(a) | See "Information Related to Financial Measures" for a discussion of the Company's use of non-GAAP financial measures and Tables 2-9 for reconciliations or calculations of these financial measures. "Identified items" include adjustments for lower of cost or market ("LCM"), impairments and refinery exit costs. |
LyondellBasell Industries (NYSE: LYB) today announced net income for the fourth quarter 2023 of
Full year 2023 net income was
"During the fourth quarter, LyondellBasell's businesses delivered exceptional cash conversion amid challenging market conditions while we rapidly moved forward with our strategy. We have a clear and focused roadmap to deliver a more profitable and sustainable growth engine for LYB. In the fourth quarter, we announced the divestiture of our Ethylene Oxide and Derivatives business and our decision to build the first catalytic advanced recycling plant using LYB's proprietary MoReTec technology. And just two weeks ago, we announced a new propylene and polypropylene joint venture in Saudi Arabia. These actions demonstrate our laser-sharp focus on execution," said Peter Vanacker, LYB Chief Executive Officer.
Significantly lower fourth quarter gasoline crack spreads impacted refining and oxyfuels margins as well as the value of co-product fuels in the Olefins & Polyolefins Americas segment. In the North American polyethylene market, steady domestic demand and increased exports were supported by lower ethane raw material costs. Seasonally slow demand resulted in low operating rates for most businesses.
Throughout the year, petrochemical markets faced headwinds from soft global demand, capacity additions and economic uncertainty. Markets were broadly pressured by weak demand for durable goods, which impacted margins in the Olefins & Polyolefins, Intermediates & Derivatives and Advanced Polymer Solutions segments. In contrast, oxyfuels margins benefited from tight supply and strong summertime gasoline crack spreads, leading to record annual oxyfuels earnings for LYB.
LYB generated
LyondellBasell's strategy is focused on generating value-added growth to deliver
"In the ten months since we launched LyondellBasell's strategy, the passion, commitment and alignment of our global team is increasingly visible in our actions, culture and results. The successful startup of our new propylene oxide and oxyfuels plant is one example of our commitment to grow and upgrade our core businesses. We built strong foundations for our Circular and Low Carbon Solutions business by forming partnerships to source and sort plastic waste while moving forward on our first tranche of advanced recycling capacity. And our cultural transformation is well underway. Employee enthusiasm for the Value Enhancement Program allowed us to far exceed the original 2023 targets for the program. Outstanding cash conversion bolstered our investment-grade balance sheet and provided strong returns for LYB shareholders," said Vanacker.
OUTLOOK
In the first quarter of 2024, seasonally slow demand and economic uncertainty are expected to provide continued headwinds for most businesses. Relatively low ethane raw material costs are continuing to benefit North American Olefins & Polyolefins margins while regional demand is showing modest improvement. The company expects oxyfuels and refining margins to be within typical winter seasonal ranges. In
(d) | 2027 incremental Normalized EBITDA reflects expected improvement over a 2022 year-end asset portfolio with 2013-2022 historical average margins and operating rates and the benefits associated with our strategic initiatives. Please see "Information Related to Financial Measures" for additional information on Normalized EBITDA. |
CONFERENCE CALL
LyondellBasell will host a conference call February 2 at 11 a.m. EST. Participants on the call will include Chief Executive Officer Peter Vanacker, Executive Vice President and Chief Financial Officer Michael McMurray, Executive Vice President of Global Olefins and Polyolefins Ken Lane, Executive Vice President of Intermediates and Derivatives and Refining Kim Foley, Executive Vice President of Advanced Polymer Solutions Torkel Rhenman and Head of Investor Relations David Kinney. For event access, the toll-free dial-in number is 1-877-407-8029, international dial-in number is 201-689-8029 or click the CallMe link. The slides and webcast that accompany the call will be available at www.LyondellBasell.com/earnings. A replay of the call will be available from 1:00 p.m. EST February 2 until March 2. The replay toll-free dial-in numbers are 1-877-660-6853 and 201-612-7415. The access ID for each is 13742056.
ABOUT LYONDELLBASELL
We are LyondellBasell – a leader in the global chemical industry creating solutions for everyday sustainable living. Through advanced technology and focused investments, we are enabling a circular and low carbon economy. Across all we do, we aim to unlock value for our customers, investors and society. As one of the world's largest producers of polymers and a leader in polyolefin technologies, we develop, manufacture and market high-quality and innovative products for applications ranging from sustainable transportation and food safety to clean water and quality healthcare. For more information, please visit or follow @LyondellBasell on LinkedIn.
FORWARD-LOOKING STATEMENTS
The statements in this release relating to matters that are not historical facts are forward-looking statements. These forward-looking statements are based upon assumptions of management of LyondellBasell which are believed to be reasonable at the time made and are subject to significant risks and uncertainties. When used in this release, the words "estimate," "believe," "continue," "could," "intend," "may," "plan," "potential," "predict," "should," "will," "expect," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Actual results could differ materially based on factors including, but not limited to, market conditions, the business cyclicality of the chemical, polymers and refining industries; the availability, cost and price volatility of raw materials and utilities, particularly the cost of oil, natural gas, and associated natural gas liquids; our ability to successfully implement initiatives identified pursuant to our Value Enhancement Program and generate anticipated earnings; competitive product and pricing pressures; labor conditions; our ability to attract and retain key personnel; operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, supplier disruptions, labor shortages, strikes, work stoppages or other labor difficulties, transportation interruptions, spills and releases and other environmental risks); the supply/demand balances for our and our joint ventures' products, and the related effects of industry production capacities and operating rates; our ability to manage costs; future financial and operating results; benefits and synergies of any proposed transactions; receipt of required regulatory approvals and the satisfaction of closing conditions for our proposed transactions; final investment decision and the construction and operation of any proposed facilities described; our ability to align our assets and expand our core; legal and environmental proceedings; tax rulings, consequences or proceedings; technological developments, and our ability to develop new products and process technologies; our ability to meet our sustainability goals, including the ability to operate safely, increase production of recycled and renewable-based polymers to meet our targets and forecasts, and reduce our emissions and achieve net zero emissions by the time set in our goals; our ability to procure energy from renewable sources; our ability to build a profitable Circular & Low Carbon Solutions business; the continued operation of and successful shut down and closure of the Houston Refinery, including within the expected timeframe; potential governmental regulatory actions; political unrest and terrorist acts; risks and uncertainties posed by international operations, including foreign currency fluctuations; and our ability to comply with debt covenants and to repay our debt. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the "Risk Factors" section of our Form 10-K for the year ended December 31, 2022, which can be found at www.LyondellBasell.com on the Investor Relations page and on the Securities and Exchange Commission's website at www.sec.gov. There is no assurance that any of the actions, events or results of the forward-looking statements will occur, or if any of them do, what impact they will have on our results of operations or financial condition. Forward-looking statements speak only as of the date they were made and are based on the estimates and opinions of management of LyondellBasell at the time the statements are made. LyondellBasell does not assume any obligation to update forward-looking statements should circumstances or management's estimates or opinions change, except as required by law.
This release contains time sensitive information that is accurate only as of the date hereof. Information contained in this release is unaudited and is subject to change. We undertake no obligation to update the information presented herein except as required by law.
INFORMATION RELATED TO FINANCIAL MEASURES
This release makes reference to certain non-GAAP financial measures as defined in Regulation G of the
We report our financial results in accordance with
We calculate EBITDA as income from continuing operations plus interest expense (net), provision for (benefit from) income taxes, and depreciation and amortization. EBITDA should not be considered an alternative to profit or operating profit for any period as an indicator of our performance, or as an alternative to operating cash flows as a measure of our liquidity. We also present EBITDA, net income and diluted EPS exclusive of identified items. Identified items include adjustments for "lower of cost or market" ("LCM"), impairments and refinery exit costs. Our inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") inventory valuation methodology, which means that the most recently incurred costs are charged to cost of sales and inventories are valued at the earliest acquisition costs. Fluctuation in the prices of crude oil, natural gas and correlated products from period to period may result in the recognition of charges to adjust the value of inventory to the lower of cost or market in periods of falling prices and the reversal of those charges in subsequent interim periods, within the same fiscal year as the charge, as market prices recover. Property, plant and equipment are recorded at historical costs. If it is determined that an asset or asset group's undiscounted future cash flows will not be sufficient to recover the carrying amount, an impairment charge is recognized to write the asset down to its estimated fair value. Goodwill is tested for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate that the fair value of a reporting unit with goodwill is below its carrying amount. If it is determined that the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge is recognized. We assess our equity investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If the decline in value is considered to be other-than-temporary, the investment is written down to its estimated fair value. In April 2022 we announced our decision to cease operation of our Houston Refinery. In connection with exiting the refinery business, we began to incur costs primarily consisting of accelerated lease amortization costs, personnel related costs, accretion of asset retirement obligations and depreciation of asset retirement costs.
Recurring annual EBITDA for the Value Enhancement Program is the year-end EBITDA run rate estimated based on 2017-2019 mid-cycle margins and modest inflation relative to a 2021 baseline.
Normalized EBITDA assumes 2013-2022 historical average margins and operating rates and reflects the benefits associated with the following strategic initiatives: Grow & Upgrade the Core, Building a Profitable CLCS Business and Step Up Performance & Culture. Incremental Normalized EBITDA cannot be reconciled to net income due to the inherent difficulty in quantifying certain amounts that are necessary for such reconciliation at the strategic initiative level, including adjustments that could be made for interest expense (net), provision for (benefit from) income taxes and depreciation & amortization, the amounts of which, based on historical experience, could be significant.
Cash conversion is a measure commonly used by investors to evaluate liquidity. Cash conversion means net cash provided by operating activities divided by EBITDA excluding LCM and impairment. We believe cash conversion is an important financial metric as it helps management and other parties determine how efficiently the company is converting earnings into cash.
These non-GAAP financial measures as presented herein, may not be comparable to similarly titled measures reported by other companies due to differences in the way the measures are calculated. In addition, we include calculations for certain other financial measures to facilitate understanding. This release contains time sensitive information that is accurate only as of the time hereof. Information contained in this release is unaudited and subject to change.
LyondellBasell undertakes no obligation to update the information presented herein except to the extent required by law.
Additional operating and financial information may be found on our website at www.LyondellBasell.com/investorrelations. These measures as presented herein, may not be comparable to similarly titled measures reported by other companies due to differences in the way the measures are calculated.
Table 2 - Reconciliations of Net Income to Net Income Excluding Identified Items and to EBITDA Including and Excluding Identified Items | |||||||||
Three Months Ended | Year Ended | ||||||||
Millions of | December 31, 2023 | September 30, 2023 | December 31, 2022 | December 31, 2023 | December 31, 2022 | ||||
Net income | $ 185 | $ 747 | $ 353 | $ 2,121 | $ 3,889 | ||||
add: Identified items | |||||||||
Impairments, pre-tax(a) | 241 | 25 | — | 518 | 69 | ||||
Refinery exit costs, pre-tax(b) | 50 | 49 | 95 | 334 | 187 | ||||
Benefit from income taxes related to identified items | (65) | (17) | (21) | (135) | (43) | ||||
Net income excluding identified items | $ 411 | $ 804 | $ 427 | $ 2,838 | $ 4,102 | ||||
Net income | $ 185 | $ 747 | $ 353 | $ 2,121 | $ 3,889 | ||||
Loss from discontinued operations, net of tax | 1 | 1 | 2 | 5 | 5 | ||||
Income from continuing operations | 186 | 748 | 355 | 2,126 | 3,894 | ||||
(Benefit from) provision for income taxes | (7) | 153 | 34 | 501 | 882 | ||||
Depreciation and amortization(c) | 380 | 367 | 334 | 1,534 | 1,267 | ||||
Interest expense, net | 80 | 88 | 69 | 348 | 258 | ||||
add: Identified items | |||||||||
Impairments(a) | 241 | 25 | — | 518 | 69 | ||||
Refinery exit costs(d) | 30 | 29 | 73 | 195 | 157 | ||||
EBITDA excluding identified items | 910 | 1,410 | 865 | 5,222 | 6,527 | ||||
less: Identified items | |||||||||
Impairments(a) | (241) | (25) | — | (518) | (69) | ||||
Refinery exit costs(d) | (30) | (29) | (73) | (195) | (157) | ||||
EBITDA | $ 639 | $ 1,356 | $ 792 | $ 4,509 | $ 6,301 | ||||
(a) The year ended December 31, 2023 reflects non-cash impairment charges of | |
(b) Refinery exit costs include accelerated lease amortization costs, personnel related costs, accretion of asset retirement obligations and depreciation of asset retirement costs. See Table 9 for additional detail on refinery exit costs. | |
(c) Depreciation and amortization includes depreciation of asset retirement costs in connection with exiting the Refining business. See Table 9 for additional detail on refinery exit costs. | |
(d) Refinery exit costs include accelerated lease amortization costs, personnel related costs and accretion of asset retirement obligations. See Table 9 for additional detail on refinery exit costs. |
Table 3 - Reconciliation of Diluted EPS to Diluted EPS Excluding Identified Items | |||||||||
Three Months Ended | Year Ended | ||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | |||||
Diluted earnings per share | $ 0.56 | $ 2.29 | $ 1.07 | $ 6.46 | $ 11.81 | ||||
add: Identified items | |||||||||
Impairments | 0.59 | 0.05 | — | 1.41 | 0.21 | ||||
Refinery exit costs | 0.11 | 0.12 | 0.22 | 0.78 | 0.44 | ||||
Diluted earnings per share excluding identified items | $ 1.26 | $ 2.46 | $ 1.29 | $ 8.65 | $ 12.46 | ||||
Table 4 - Reconciliation of Net Cash Provided by Operating Activities to EBITDA Including and Excluding | |||
Three Months Ended | Year Ended | ||
Millions of | December 31, | December 31, | |
Net cash provided by operating activities | $ 1,504 | $ 4,942 | |
Adjustments: | |||
Depreciation and amortization | (380) | (1,534) | |
Impairments(a) | (241) | (518) | |
Amortization of debt-related costs | (2) | (9) | |
Share-based compensation | (20) | (91) | |
Equity loss, net of distributions of earnings | (91) | (189) | |
Deferred income tax benefit (provision) | 5 | (43) | |
Changes in assets and liabilities that used (provided) cash: | |||
Accounts receivable | (392) | (110) | |
Inventories | (214) | (18) | |
Accounts payable | (110) | (141) | |
Other, net | 126 | (168) | |
Net income | 185 | 2,121 | |
Loss from discontinued operations, net of tax | 1 | 5 | |
Income from continuing operations | 186 | 2,126 | |
(Benefit from) provision for income taxes | (7) | 501 | |
Depreciation and amortization | 380 | 1,534 | |
Interest expense, net | 80 | 348 | |
add: LCM charges | — | — | |
add: Impairments(a) | 241 | 518 | |
EBITDA excluding LCM and impairments | 880 | 5,027 | |
less: LCM charges | — | — | |
less: Impairments(a) | (241) | (518) | |
EBITDA | $ 639 | $ 4,509 | |
(a) Reflects non-cash impairment charges of |
Table 5 - Calculation of Cash Conversion | |||
Three Months | Year Ended | ||
Millions of | December 31, | December 31, | |
Net cash provided by operating activities | $ 1,504 | $ 4,942 | |
Divided by: | |||
EBITDA excluding LCM and impairment(a) | 880 | 5,027 | |
Cash conversion | 171 % | 98 % | |
(a) See Table 4 for a reconciliation of net cash provided by operating activities to EBITDA |
Table 6 - Calculation of Cash and Liquid Investments and Total Liquidity | ||
Millions of | December 31, | |
Cash and cash equivalents and restricted cash | $ | 3,405 |
Short-term investments | — | |
Cash and liquid investments | $ | 3,405 |
Availability under Senior Revolving Credit Facility | 3,250 | |
Availability under | 900 | |
Total liquidity | $ | 7,555 |
Table 7 - Calculation of Dividends and Share Repurchases | |||
Three Months | Year Ended | ||
Millions of | December 31, | December 31, | |
Dividends - common stock | $ 406 | $ 1,610 | |
Repurchase of Company ordinary shares | — | 211 | |
Dividends and share repurchases | $ 406 | $ 1,821 | |
Table 8 - Reconciliation of Net Income to recurring annual | ||||
Millions of | 2023 | |||
Net income | $ | 300 | ||
Provision for income taxes | 75 | |||
Depreciation and amortization | 25 | |||
Interest expense, net | — | |||
EBITDA | $ | 400 | ||
Note: In 2022, we launched the Value Enhancement Program. |
Table 9 - Refinery Exit Costs | |||||||||
Three Months Ended | Year Ended | ||||||||
Millions of | December 31, | September 30, | December 31, | December 31, | December 31, | ||||
Refinery exit costs: | |||||||||
Accelerated lease amortization costs | $ 10 | $ 11 | $ 55 | $ 110 | $ 91 | ||||
Personnel costs | 17 | 16 | 16 | 76 | 64 | ||||
Asset retirement obligation accretion | 3 | 2 | 2 | 9 | 2 | ||||
Asset retirement cost depreciation | 20 | 20 | 22 | 139 | 30 | ||||
Total refinery exits costs | $ 50 | $ 49 | $ 95 | $ 334 | $ 187 | ||||
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SOURCE LyondellBasell
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