LyondellBasell Industries Q2 2023 Earnings Report

LyondellBasell Industries EPS Results

• Actual EPS: $2.44
• Consensus EPS: $2.30
• Beat/Miss: Beat by +$0.14
• One Year Ago EPS: $5.19

LyondellBasell Industries Revenue Results

• Actual Revenue: $10.31 billion
• Expected Revenue: $10.79 billion
• Beat/Miss: Missed by -$484.51 million
• YoY Revenue Growth: -30.50%

LyondellBasell Industries Announcement Details

• Quarter: Q2 2023
• Date: 8/4/2023
• Time: Before Market Opens
• Conference Call Date: Friday, August 4, 2023
• Conference Call Time: 11:00AM ET

LyondellBasell Industries (NYSE:LYB) (NYSE: LYB) is a global chemical company that produces plastics, chemicals and refined products used in packaging, transportation, construction, healthcare, electronics and other consumer and industrial applications. Its portfolio includes polyethylene, polypropylene, propylene oxide, oxyfuels, acetyls and other intermediate chemicals, as well as advanced polymer compounds and solutions.

The company operates across the petrochemical value chain, converting hydrocarbon feedstocks into materials and specialty products. Its Advanced Polymer Solutions business develops engineered plastics, compounds and masterbatches designed for applications such as automotive components, appliances, electrical equipment and consumer products. LyondellBasell also provides licensing and technology services for olefin and polyolefin production and manufactures catalysts used in chemical processes.

LyondellBasell serves customers in markets worldwide through manufacturing, research and development, and commercial operations across North America, Europe, Asia and other international regions. The company was formed in 2007 through the merger of Lyondell Chemical Company and Basell, a leading plastics and chemicals producer. It is incorporated in the Netherlands and maintains major corporate operations in Houston, Texas, and Rotterdam, the Netherlands.

LyondellBasell Industries Q2 2023 Earnings Call Transcript

Key Takeaways

• Q2 headwinds expected with EBITDA slightly below Q1 due to a sharp decline in refining margins, lack of seasonal demand uplift and a tepid recovery in China.
• Strong cash generation and returns: $5.1 billion of cash from operations over the last 12 months, nearly 90 % EBITDA-to-cash conversion, and $3.5 billion returned via dividends and buybacks.
• New three-pillar strategy aims to deliver $3 billion of incremental EBITDA and reach $10 billion of normalized EBITDA by 2027 through growing core businesses, building circular low-carbon solutions and a value enhancement program.
• Circular and low-carbon solutions business targeting 20 % market share in a $25 billion market, $500 million incremental EBITDA by 2027 and $1 billion by 2030, all while consuming only 15 % of capex with differential MorTeq technology.
• Disciplined capital allocation: 2023 capex of $1.7 billion (below historic levels), average $2 billion through 2025, net debt under 2.5× EBITDA and a commitment to return 70 % of free cash flow to shareholders.

Presentation

[Analyst at LyondellBasell]

Next up is LyondellBasell. With us is the CFO, Michael McMurray. A few brief comments, we'll go into the Q&A portion of the session. With that, Michael, the floor is all yours.

[Michael McMurray, CFO at LyondellBasell]

Thanks, David. Good morning, everyone. I was gonna make a few opening comments before I sit back down and take questions from, from David. These are the, the cautionary statements from our legal team. I'll let you take a quick look at that. We move on. This is kind of a performance snapshot. LyondellBasell reported first quarter results in late April. You know, my comments here this morning will largely focus on kind of current, current conditions. You know, we saw, you know, solid results in moderating, improving market conditions in the first quarter. Since the first quarter, we've, we've really kind of seen three, three things.

[Michael McMurray, CFO at LyondellBasell]

I'd say first and foremost, refining margins, you know, have moved off a good bit since the first quarter, and so that's gonna be a headwind for LyondellBasell in the second quarter. Secondly, you know, normally in the second quarter, we start to see a, a little bit of seasonal demand uplift that, that carries through into the third quarter. That kind of normal seasonality uplift that we traditionally see in the second quarter, that's really not occurred. And then lastly, you know, the, the Chinese recovery has been, I think, tepid and, and far less than what we thought, and I think far less than what, you know, generally people thought was going to occur. You know, that creates a little bit of risk as we think about the second half of the year as well.

[Michael McMurray, CFO at LyondellBasell]

For our results in the second quarter, given all that, we, we likely, will be down slightly versus the first quarter. I mean, as you know, just moving on to the next slide, you know, the company has an outstanding reputation for very strong cash generation. In fact, cash from operating activities totaled $5.1 billion over the last 12 months, and we ended the year with about $1.8 billion of cash on sheet. Again, we have a reputation for converting cash into EBITDA. Over, over the past four quarters, we've converted almost 90% of EBITDA into cash and have very high confidence that looking forward, that we have the ability to convert roughly 80% of our EBITDA into cash, as we have done in the past.

[Michael McMurray, CFO at LyondellBasell]

We remain committed to returning significant amounts of cash to our shareholders. In fact, we've returned about $3.5 billion over the last 12 months to our shareholders in the forms of dividends and share repurchases. As you know, our balance sheet is in excellent shape. Moving on to our new strategy, which we shared in mid-March, at our Capital Markets Day, I'm confident that our new strategy is driving focus, and I'm confident that our new strategy will drive differential growth and differential value creation. Three pillars our strategy is around. The first pillar is around growing and upgrading the core. This is about building upon our core strengths and driving greater resiliency and stronger performance through the cycle. We are in action.

[Michael McMurray, CFO at LyondellBasell]

We are in action in pruning our legacy portfolio, and we've narrowed the aperture for inorganic growth. To be clear, our O&P businesses, our technology business, our I&D business, and our APS business all fit well into this go-forward strategy for long-term growth. The second pillar is around building a profitable, circular, and low-carbon solutions business. This is about meeting the demand for sustainable solutions. It's about becoming a critical partner in helping our customers, like the big consumer packaged goods companies, achieving their sustainability goals. In regards to this new business, I have confidence in its ability to grow at scale and generate attractive returns, and we'll talk about that in a bit more detail in a moment. Then the third pillar is around stepping up performance and culture.

[Michael McMurray, CFO at LyondellBasell]

I think many of you know already that we have a reputation for being a best-in-class operator, which is evidenced by our cost discipline and our really strong safety results. Now it's about putting equal focus around creating value and a value creation mindset, and that's tied to our Value Enhancement Program, again, which I'll talk about in a bit more detail in a few moments. We've identified, and we're acting upon a portfolio of improvement opportunities. When you take all three pillars and add them together on a normalized basis, we see the potential to deliver $3 billion of EBITDA uplift to our current, current portfolio. Now, maybe just a few more words just around, you know, growing and upgrading the core. Again, this is growth in core strengths in our advantage businesses.

[Michael McMurray, CFO at LyondellBasell]

If you, if you take a look at our existing portfolio, there's nothing, there's nothing broken. We're merely building upon the strong foundation that we already have. We've refined the criteria, around our core, so we're looking for businesses that have market-leading positions. We're focused on end markets that have attractive growth, opportunities with attractive returns, and then looking for access to advantage feedstocks or circular and renewable feedstocks, and obviously, a heavy, heavy focus on growing our Circular and Low Carbon Solutions business. I think you know, from an M&A perspective would be, you know, the Louisiana joint venture, that we acquired a 50% interest in from Sasol back at the end of 2020. That fits, you know, beautifully, I think, within this.

[Michael McMurray, CFO at LyondellBasell]

That was a very successful transaction that has created a lot of value for LYB and our shareholders. Again, we are taking decisive actions on different parts of the portfolio which do not fit or where we see that there is a better owner than LYB. You know, great examples would include the refinery, which we've taken a decision on. We announced the strategic review of our EO&D business, and we also sold some O&P assets in Australia last year as well. Again, we will be highly, highly disciplined from an M&A perspective going forward. I think we were pretty clear to Capital Markets Day as well, that we will not be building a world-scale cracker anytime soon on the Gulf Coast.

[Michael McMurray, CFO at LyondellBasell]

To talk a little bit more about our Circular and Low Carbon Solutions business. You know, as we kind of look forward, we're targeting a 20% market share with this comprehensive strategy. We do think that our strategy is differential. It is end-to-end, again, differential. We have confidence that we can grow this business to deliver $500 million of incremental EBITDA by 2027, and a billion dollars of incremental EBITDA by 2030. This is in a $25 billion total addressable market. Obviously, we'll be leveraging our existing asset base, both in Houston and Cologne, with Cologne being the primary area of focus. At our Capital Markets Day, as we looked out towards 2030, we said that this business will consume, you know, roughly 15% of our capital program.

[Michael McMurray, CFO at LyondellBasell]

Relatively capital light or capital efficient for the amount of EBITDA that we're expecting that this business should deliver, and therefore, that should result in a very high return on invested capital as well. I'm confident in our ability to capture a billion dollars of incremental EBITDA by 2020-- by 2030 with our unique end-to-end strategy. Now, maybe a few more comments on our Value Enhancement Program. Again, this is a cultural shift to unlock value. You know, historically, the company had a singular focus on cost, and, and we're, and we're damn good at, at cost. And you wanna be good at cost as a commodity chemicals company, but it also can be your Achilles-- it can be an Achilles heel as well. Again, a cultural shift and igniting passion to unlock recurring value.

[Michael McMurray, CFO at LyondellBasell]

The enthusiasm at our sites is incredibly high, and I think will bring intangible benefits for years to come. Again, we call this our Value Enhancement Program. It's not another cost-cutting program. Cost-cutting tends to lead to kind of one-time, short-term impact. This is long-term, sustainable EBITDA value-creating opportunities that we are working on. It's a continuous improvement process to systematically drive value, and it's becoming part of our operating system. The expectation is that we're gonna generate $750 million of annual recurring EBITDA by 2025, and the expectation for this year is $150 million. I have confidence that I think these numbers actually probably will grow. Maybe just a few comments on financial principles that support our new strategy.

[Michael McMurray, CFO at LyondellBasell]

From a capital expenditure perspective, and what we said at Capital Markets Day, is that you should expect capital spending to be within the historic ranges through 2027. In 2023, will be kind of the low end of the range. The expectation we guided to earlier was about $1.6 billion. With the announcement around extending the life of our refinery by another year, capital probably ticks up to about $1.7 billion this year. Over the next three years, we expect an average of $2 billion of capital spend, with sustaining capital of about $1.2 billion on average. Through 2027, our capital spend should be below the historical high of $2.9 billion.

[Michael McMurray, CFO at LyondellBasell]

Again, you heard me say earlier in my prepared remarks, the capital intensity of our new Circular and Low Carbon Solutions business is actually quite low, quite attractive. Should, should consume about 15% of our capital budget going through 2030. The other piece of new information we shared at our Capital Markets Day is that we gave a, you know, we gave kind of a commitment around returning capital to our shareholders, and we said that it's our plan over the long term, to return 70% of our free cash flow to shareholders in the forms of dividends and share repurchases. We are extending our track record of dividend growth and share buybacks, and perhaps an occasional special dividend. Again, as I said earlier, we expect to continue converting 80% of our EBITDA into cash. I think I have one more.

[Michael McMurray, CFO at LyondellBasell]

Yeah, yeah, yeah. Forgive me. Remain comfortable managing the company with about $1 billion to $1.5 billion of cash on sheet. Expect that net debt should track below 2.5x, you kind of take all these together, we think all these principles support our drive to reach normalized EBITDA of $10 billion by 2027. I'm almost done, David, you can start questioning me. Just to kind of close things out. Again, successful implementation of our new strategy will increase our normalized EBITDA to $10 billion by 2027, and we think will result in a more profitable and sustainable growth engine for LYB going forward. Let me be clear about something.

[Michael McMurray, CFO at LyondellBasell]

Our normalized EBITDA forecast is not guidance for industry cycles or macroeconomic trends, because if I could predict cycles, I would not be here today. We're simply projecting LyondellBasell's average over historical margins on our forward strategy to help you all think about our businesses and, and model our businesses. Again, this translates into normalized EPS of $19 a share in 2025, and $23 a share in 2027. To kinda come back to where I started, we see that tepid demand is providing headwinds near term, but longer term, we are confident in our strategy and the bright future for LYB. With that, I'd be happy to take your questions, David.

[Analyst at LyondellBasell]

Thank you, Michael. Appreciate the comments. On your updated outlook comments for Q2, a little bit below, you said Q1 was out about $1.5 billion in Q1. By end market, where are you seeing this tepid or weak demand most acutely?

[Michael McMurray, CFO at LyondellBasell]

Yeah, I mean, the, the, the biggest, the biggest driver or headwind, kind of quarter-on-quarter sequentially, is gonna be refining margins. Then I, I'd say, durables, you know, kind of broadly speaking, are, are weak.

[Michael McMurray, CFO at LyondellBasell]

We haven't seen kind of the normal seasonality that we see, even in, you know, even in the, you know, the, the consumer space around, you know, polyethylene. You know, as I said in my prepared remarks, you know, China just hasn't bounced back at the speed and pace that we anticipated. I think that creates a bit of uncertainty as we think about the second half of the year as well.

[Analyst at LyondellBasell]

Right. How's Europe in this landscape as well?

[Michael McMurray, CFO at LyondellBasell]

Yeah, I mean, I mean, supposedly, Europe is officially in a recession. It, it felt like there's certainly parts of Europe that have been in a recession for, for, for quite some time. You know, my perspective, I mean, if you kinda think about the adversity and the headwinds that the continent has faced into over the past 12 months, it's actually performed a lot better than, than what I would have anticipated. You know, the, the, the good news is that energy costs have moved off significantly, and they're actually back kinda pre, pre-war as we sit here today. You know, that said, energy costs in Europe are still kinda 3x to 4x higher than what they are here in, in the United States.

[Michael McMurray, CFO at LyondellBasell]

You know, demand is a bit weak in, in Europe, probably, which is not a big surprise. I think consumers are getting impacted not only by inflation, but also, in particular, high energy costs. Again, I mean, I think the continent and our, our markets have performed better than probably what I anticipated, if I kinda think back upon the past year and all the challenges and adversities that the continent is faced into.

[Analyst at LyondellBasell]

Is destocking still impacting Lyondell in Q2, and when will it end?

[Michael McMurray, CFO at LyondellBasell]

It's, it's our point of view that destocking has, has largely concluded. Quite frankly, we think that destocking largely concluded in the fourth quarter. We think, and we don't have-- we don't have great visibility, but we think that our customers and our customer customers are, are being very cautious because of all the macro uncertainty, and so we think their inventories are probably rather low. You know, from an industry perspective, you know, specifically looking at polyethylene and polypropylene, you know, in, in North America, inventories are a smidge elevated, you know, kind of in the low to mid-40s, but it's not problematic.

[Analyst at LyondellBasell]

Right. Looking beyond Q2, what are your expectations for the back half of the year, globally, and is there a recession in the U.S. in your expectation, going forward?

[Michael McMurray, CFO at LyondellBasell]

Yeah. I'm not gonna call a recession. What I will say is it's a bit of a complicated environment, David. I mean, if you look at the various macro indicators, they're pointing in different directions, so it's kinda difficult to make a call. Again, I'd say that even the U.S. economy's probably been a bit more resilient than maybe what I had anticipated as well, and given some of the shocks and challenges that we faced into from, you know, the banking crisis, where interest rates have moved in inflation. As I sit here today, I'm probably a little more cautious on the second half of the year than I was at the end of April.

[Michael McMurray, CFO at LyondellBasell]

Listen, you know, we're a, we're a commodity chemicals company. We know how to, we know how to navigate cycles. That's, that's what we do. You know, and, and we've proven our ability to navigate cycles when you go back to the pandemic, where, I mean, that was a, a black swan event. You know, we covered our dividend, and we covered our capital program with cash from operations because we know the levers that we have to pull when we're entering into a cycle.

[Analyst at LyondellBasell]

Just on China, are you seeing any signs of improvement, any green shoots in that, in that region?

[Michael McMurray, CFO at LyondellBasell]

It's better. you know, and automotive builds are up, but demand is not at the pace that we were anticipating. If you go to polyethylene in particular, I mean, spreads in polyethylene have been at record lows for approaching two years. Historically, when you got to those levels of spreads, it typically lasted, you know, maybe two, three, four months at the most, and we're there for almost two years.

[Analyst at LyondellBasell]

How lever are you to, like, China's recovery overall?

[Michael McMurray, CFO at LyondellBasell]

I mean, so from a direct perspective, it's, it's, it's modest at best. It's about 5% of our, our top line. You know, the indirect exposure is pretty significant because, I mean, China is really important for global growth. China is, is the biggest consumer of petrochemicals globally, and China imports 40% of their polyethylene needs. Obviously, you know, the U.S. is a big exporter of polyethylene, so China is really important to global growth. China is really important to the petrochemical industry. China's, yeah, it's important.

[Analyst at LyondellBasell]

Understood. Switching to Europe, what's your long-term outlook in that region, given lower but still structurally higher energy costs?

[Michael McMurray, CFO at LyondellBasell]

Listen, Europe, Europe for us, you know, Europe for the industry is, is and will always be a, a big, important market. There is no doubt, from an energy cost perspective, you know, that the cost increases that they faced into are, are structural, and, and, and they're going to be structural for a long time. That has big implications, not only for our industry, but, but other industries as well. You know, we've, we've, obviously, you saw us take a lot of short-term actions late last year and early into this year, where we shut in capacity. You know, and we continually look at our, our portfolio everywhere.

[Analyst at LyondellBasell]

On that note, are you thinking about closures of European assets longer term?

[Michael McMurray, CFO at LyondellBasell]

Nothing, nothing to share here today.

[Analyst at LyondellBasell]

Got it. Got it. refining. Last week, you had a fairly big announcement. You delayed the exit of your business until latest Q1, 2025. What went into that decision?

[Michael McMurray, CFO at LyondellBasell]

Yeah. I mean, it's actually, it's pretty simple and pretty logical. I mean, A, you know, margins continue to be, you know, pretty robust. Even though they've moved off of, where they were in the first quarter, margins continue to be robust. The asset, the asset has run incredibly well, this past year. You know, we've done a number of reviews and inspections, and we've concluded that we can safely run that asset, you know, for another year with modest investment. Investment in, you know, call it, you know, kind of $150 million to $200 million, over the next, you know, this year and next year. Also, you know, we have a large, great labor force on site.

[Michael McMurray, CFO at LyondellBasell]

This gives us the ability to, to kind of place those people, gives us another year to, to take that decision. Lastly, it, it gives us another year around our repurposing plans as well, you know, which are, which are, are advancing at a, at a great pace. You know, we see that site as being integral, an integral hub, a part of our Circular and Low Carbon Solutions business. You also have probably seen the consortium for hydrogen that we've announced with Chevron, Air Liquide, and Uniper, and, and, you know, we've applied for IRA funds for, for that consortium as well. You know, the, the decision to delay for a year, very logical, and then, quite frankly, folds very nicely into our forward plans.

[Analyst at LyondellBasell]

Any potential for a further delay of the exit?

[Michael McMurray, CFO at LyondellBasell]

No, this is it. This is it.

[Analyst at LyondellBasell]

Got it. Do we, do we still, still expect cash flow from the wind down to offset any closure costs?

[Michael McMurray, CFO at LyondellBasell]

Yeah, I mean, so timing, obviously, timing won't, won't necessarily match up, but yeah. Working capital release should largely cover, you know, cash decommission costs.

[Analyst at LyondellBasell]

You mentioned the green hydrogen project on site, potentially. What's the timing of that project, and how did it come together?

[Michael McMurray, CFO at LyondellBasell]

Timing, it's, it's, it's, it's too early. It's too early to tell. You know, and, well, I mean, it just came together, obviously, with the, the parties all talking together, and we all bring unique things to the party. It, it made a lot of sense for us to come together and try to work this forward as a consortium, and then work this forward as a consortium to hopefully monetize, some IRA funds as well.

[Analyst at LyondellBasell]

Thanks a lot.

[Michael McMurray, CFO at LyondellBasell]

What's interesting on the IRA, I had a pretty extensive update day before yesterday, you know, when that bill passed, the Feds thought it was going to cost $400 billion. All, all the, the credits are uncapped. The latest estimate is a trillion dollars.

[Analyst at LyondellBasell]

Paid for by?

[Michael McMurray, CFO at LyondellBasell]

Us. Us.

[Analyst at LyondellBasell]

Yeah.

[Michael McMurray, CFO at LyondellBasell]

Just debt, I guess.

[Analyst at LyondellBasell]

Good news for us.

[Michael McMurray, CFO at LyondellBasell]

Forward.

[Analyst at LyondellBasell]

Circular and Low Carbon Solutions, it's an impressive strategy that you and Peter laid out, and done so in a capital light fashion, which was a concern for many people.

[Michael McMurray, CFO at LyondellBasell]

Yep.

[Analyst at LyondellBasell]

Can you focus first on the capital light aspect, how you can do this in a, in an efficient way for investors?

[Michael McMurray, CFO at LyondellBasell]

Yeah, I mean, I can help you pretty easily on the capital light piece, because one, we're going to be using a lot of our existing infrastructure, right? When we make, when we make pyrolysis oil at the Houston refining site with our MoReTec technology, that pyrolysis oil is going to go to our Channelview site, which is interconnected to the refinery site. We're utilizing our existing cracker fleet, right? It, it makes it to be a pretty capital light opportunity. Pricing, you know, pricing for recycled plastic, quite attractive. The demand will outstrip supply for quite some time to come. We have high confidence that pricing should be attractive, demand is attractive.

[Michael McMurray, CFO at LyondellBasell]

Our, our MoReTec technology, we think, is differential and will give us a differential cost advantage versus other technologies that make pyrolysis oil. As we continue to move forward, our confidence continues to build.

[Analyst at LyondellBasell]

What are the biggest challenges to go from today to the $500 million of EBITDA in 2027, and then $1 billion+ in 2030, which is your target, or your target?

[Michael McMurray, CFO at LyondellBasell]

Yeah, I'd say probably one of the biggest single challenges that we're, we're focused on is getting access to plastic waste in the, in the form and, and, and quantities that, that we need. That's where a lot of activities are, are underway today, including around sorting technologies. We're making, we're making great progress. Then what's interesting and differential about our MoReTec technology in that regard, is it can process mixed plastic waste. It doesn't have, it doesn't have to be a particular grade or a particular form, pretty much take anything.

[Analyst at LyondellBasell]

You believe that the markets will be there for these materials, and that they'll be at a premium still by the back half of the decade? Is that still a foundational belief?

[Michael McMurray, CFO at LyondellBasell]

You bet.

[Analyst at LyondellBasell]

Got it. There are a lot of companies, yours, Dow, Westlake, Eastman, many others working in the field of molecular cycle plastics. Why will you be a winner? What makes you differentiated versus those others?

[Michael McMurray, CFO at LyondellBasell]

I think a couple things. I, I think our, our, our end-to-end strategy, you know, which includes getting, getting access to plastic waste. We're, we're going a bit downstream. I think that's differential. Secondly, is our, our MoReTec technology. We think that's differential. And then what we think is unique is this hub strategy we have around Cologne and we have around Houston to start as well. There'll be other satellite hubs as well as we move forward, and, you know, and we've identified, identified locations. Can't share anything today, but we think our... kind of our hub and spoke strategy is somewhat differential as well. Then we're and we're an early mover.

[Michael McMurray, CFO at LyondellBasell]

I think we're, I think, I think it's fair to say that we're, we're out in front, in, in this regard versus a lot of our competition.

[Analyst at LyondellBasell]

Very good. Michael, on capital allocation, no new ethylene crackers, a capital light, Circular and Low Carbon Solutions strategy. Where will your cash go, and is there M&A in Lyondell's future?

[Michael McMurray, CFO at LyondellBasell]

Well, at least 70% of our cash flow is going to go back to our shareholders in, in the forms of, of dividends and, and share repurchases. Then the outlook that we gave out to 2027, you know, the 30, the 30% of cash that kind of quote, unquote, "remains on sheet" is what's kind of funding, you know, funding M&A. Yeah, it's, it's our expectation that we get some M&A done. Our, our aperture around what we think fits, you know, has, has narrowed. You know, we're, we're looking for opportunities that are kind of in and around our existing portfolio, you know, where we can, where we can be a, a better owner, you know, that might have kind of market consolidating effects, effects as well.

[Michael McMurray, CFO at LyondellBasell]

Rest assured, you know, we will be super, super disciplined, much like what we did with this asset towards the end of 2020.

[Analyst at LyondellBasell]

Very clear. back in March, at the meeting, you unveiled, you and Peter, this Value Enhancement Program. There was some pushback from people saying, "How can such an efficient company as Lyondell find more cost savings?" This is not cost savings, correct?

[Michael McMurray, CFO at LyondellBasell]

Oh, no, I mean, well, precisely. I think because, you know, for so long we had this singular focus on cost, and you heard me say a few comments in my prepared remarks, as a commodity chemicals company, you have to be cost-focused. You have to be low cost. If you have a singular focus on cost, that can also become your Achilles heel. We had all these great value-creating ideas at our sites, but they never got funded, so people just gave up. They quit putting them forward. To generate the 150 of benefit that we've, you know, guided to for this year, and we'll probably spend, you know, about $150 million mixed between kind of CapEx and OpEx.

[Michael McMurray, CFO at LyondellBasell]

The fact that we're actually allowing FTEs to be added at, at certain sites, or OpEx, or a bit of CapEx be added to go, chase these ideas, the, the enthusiasm and the energy has just been awe inspiring. I think, you know, the tangible benefits, $750 in, in total, the, the $150 this year, which are, are real and meaningful, I actually think the intangible benefits, are going to be around for a, a long, long time, and ultimately could be bigger.

[Analyst at LyondellBasell]

Are there one or two examples you can share that really capture this program and this excitement?

[Michael McMurray, CFO at LyondellBasell]

Yeah, I'm trying to think of a, I'm trying to think of a good one. Dave, what's a good one that you'd call out? No? Yeah, I mean, these are thousands, these are thousands of things.

[Analyst at LyondellBasell]

Yeah.

[Michael McMurray, CFO at LyondellBasell]

I mean, it's not some big, giant thing that was just sitting in front of us.

[Analyst at LyondellBasell]

Yeah.

[Michael McMurray, CFO at LyondellBasell]

There are thousands, thousands of ideas that, that may generate, you know, $500,000 of ongoing benefit or $2 million, but they're small stuff, but when you add them all up, it's really meaningful.

[Analyst at LyondellBasell]

The potential to exceed the target longer term as you find more ways to invest, to grow, and, and become more productive?

[Michael McMurray, CFO at LyondellBasell]

I mean, listen, you know, so we've, we've done all of our major sites.

[Michael McMurray, CFO at LyondellBasell]

You know, we continue to roll out the program to some of our smaller sites.

[Michael McMurray, CFO at LyondellBasell]

Yeah, I mean, I, I think there's a, a high probability that the, the overall opportunity could get bigger. Hopefully, I mean, it's our plan that we'll give some additional guidance on our second quarter call around what we expect for this year, and then kind of the longer-term outlook as well. It's still early days, David.

[Analyst at LyondellBasell]

Right. Michael, on peak, trough, material earnings, in the last two years, you've seen $9 billion of peak earnings. $4 billion of trough earnings, looking at $9 billion to $10 billion of normalized EBITDA going forward. What's the path from this $4 to $9 range today, called mid-cycle, $7 billion to $9 billion to $10 billion, or even higher going forward? Can you just bridge us that differential? How do you reduce the volatility in line with earnings going forward?

[Michael McMurray, CFO at LyondellBasell]

Well, a couple of things. I'm not going to call the cycle here today. I mean, and again, which was one of the reasons, I mean, and I thought it was a pretty good idea to use this concept of normalized, normalized earnings to kinda take the noise of the cycle out, and then to be clear, we're not guiding, we're not guiding on the cycle. Who knows? Hard to guide in the cycle. What I can tell you, that on a normalized basis, the actions that we are taking, you know, we have confidence that it can generate, you know, incremental EBITDA of $3 billion.

[Michael McMurray, CFO at LyondellBasell]

The actions that we're taking from a portfolio perspective, whether it's growing or pruning, are gonna make, are gonna make the company more resilient through the cycles as well. Higher highs and, and, higher lows, not lower lows.

[Analyst at LyondellBasell]

Very good. Quickly on ethylene, polyethylene, where are we in the cycle? What's the concern over this additional U.S. supply coming on the market that could keep it suppressed for a period of time here?

[Michael McMurray, CFO at LyondellBasell]

I mean, Well, I mean, I say, I guess on the, on the good news front, you know, the, the new builds in the U.S. are, are largely done. You know, the fact that the Shell facility in Pennsylvania, you know, has been having a, a bit of trouble has been, has been helpful, you know, in particular, given that the demand environment hasn't materialized like, like we thought, and I think the industry, industry thought. You know, there, there may be, you know, once the Shell facility comes back online here, you know, there may be, you know, a, a bit of a period where we have to absorb it, but, I'm confident that we'll ultimately work our way through it.

[Analyst at LyondellBasell]

Just on a new PO/TBA facility, how is it operating? When does it ramp up to full targeted run rate EBITDA?

[Michael McMurray, CFO at LyondellBasell]

Yeah, so it's running, it's running really well. Knock on wood. It's actually, it's running better than what, than what we had anticipated. You know, we had planned our turnarounds this year with the anticipation of PO/TBA coming up. Net-net, there's not really a, a big ad of supply this year for us because of, because of turnarounds. You know, we guided that the facility for this year, we should get about a, a, you know, a half, a half of nameplate capacity.

[Analyst at LyondellBasell]

Mm-hmm.

[Michael McMurray, CFO at LyondellBasell]

It's tracking ahead of that, you know, as we, as we sit here today, because the startup has been, been so successful. Just as a reminder, you know, on a cycle average basis, when it's running at nameplate capacity, that asset has the ability to generate $450 million of EBITDA. As we, as we move into next year, you know, that's going to be an additive piece to our portfolio, both from an earnings and a free cash flow perspective.

[Analyst at LyondellBasell]

Demand stays weak, does that mean you run your other assets at lower rates? What does it mean for the overall PO envelope of, of EBITDA?

[Michael McMurray, CFO at LyondellBasell]

I mean, so, I mean, so and we, we have a, we have a, we have a global portfolio, and, obviously, you know, optimize, you know, to make PO and, and, and oxyfuels and other derivatives, and to, to, to maximize, to maximize our profitability. Then obviously, you know, a number of weeks ago, there was a, you know, an announcement where one of the industry participants was, was taking out some capacity in the U.S. as well, which is, again, I think a, a, a positive indicator, and I think also a, a proof point that, that this, this technology is the lowest cost in the industry.

[Analyst at LyondellBasell]

Obviously, TBA, feeds oxyfuels. What's the long-term outlook in that business, given, again, growth in electric vehicles and, and other, other drivers?

[Michael McMurray, CFO at LyondellBasell]

Yeah, I mean, I'd say a couple of things. No, no doubt, so I mean, actually, so the oxyfuels margins today are very healthy, and above long-term averages, meaningfully. Demand is, demand is good. butane costs are low, blend premiums are attractive. I think if you look long, long term, yeah, no, no doubt, no doubt that, you know, EV is a, is a headwind, but there are a lot of markets across the world, that have not been penetrated with, with oxyfuels. We have a big advocacy operation that's underway country by country, you know, getting, getting oxyfuels into markets where they, they aren't today. We think we can, you know, largely offset any headwinds.

[Analyst at LyondellBasell]

Got it. Lastly, Advanced Polymer Solutions. Business does not perform to expectations. Why has it not, and why will, why will it going forward? What will you do to fix it?

[Michael McMurray, CFO at LyondellBasell]

I mean, I'd, I'd say a, a, a couple of things. You know, in, in regards to the inte- integration, there was a, a, a lot of good work and a lot of successes. You know, we took out a lot of cost and a lot of complexity, in particular from, you know, their manufacturing operations. But unfortunately, you know, from a commercial and go-to-market perspective, we tried to make that business look too much like the rest of, rest of LyondellBasell. At the end of the day, you know, it's, it's a business that has, you know, thousands of customers and thousands of SKUs, and, and customers demand speed and flexibility, and we weren't giving our customers what they, what they needed.

[Michael McMurray, CFO at LyondellBasell]

You know, a, a big focus, a big focus of the turnaround effort is actually fixing our go-to-market.

[Analyst at LyondellBasell]

Very good. Look forward to the improvements. Michael, thank you. Team as well, thank you for coming.

[Michael McMurray, CFO at LyondellBasell]

Thank you, David. Thanks, everybody.

Participants

Executives

• Michael McMurray, CFO

Analysts

• Analyst at LyondellBasell