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    LyondellBasell Industries NV (LYB)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$94.61Last close (Feb 1, 2024)
    Post-Earnings Price$92.60Open (Feb 2, 2024)
    Price Change
    $-2.01(-2.12%)

    What went well

    • Expectation of improved earnings in 2024, particularly in the second half, as the company anticipates better demand due to lower interest rates and increased durable goods consumption.
    • Strong performance and ramp-up of the new PO/TBA plant, exceeding targets by running at over 60% capacity in 2023 and aiming for over 70% in 2024, contributing an estimated $450 million at mid-cycle margins when fully operational.
    • Active management of assets and cash, including optimizing working capital by freeing up $700 million in Q4 2023, shutting down underperforming facilities, and committing to return 70% of free cash flow to shareholders over the long term.

    What went wrong

    • The Olefins and Polyolefins Europe, Asia, and International (O&P EAI) segment has had EBITDA below breakeven in 4 out of the last 6 quarters, indicating sustained underperformance and structural challenges in profitability. Management noted capacity utilization rates reduced to 65%, significantly below guidance of 75%, due to weak demand.
    • Near-term demand remains weak, with management expecting only modest improvements not until the second half of 2024. The first half is anticipated to be challenging with weaker demand, highlighting ongoing headwinds and uncertainty in market recovery.
    • Analysts expressed concerns about increasing capital expenditures potentially impacting shareholder returns, questioning the balance between growth investments and cash returns to investors. Management acknowledged annual growth CapEx ranging between $2 billion and $3 billion, which could pressure free cash flows.

    Q&A Summary

    1. 2024 Earnings Outlook
      Q: Will earnings be up, flat, or down in 2024?
      A: We expect earnings to be better than last year, mainly improving in the second half as interest rates decline and demand for durable goods increases, with recoveries in Europe and China.

    2. O&P EAI Profitability and Strategy
      Q: How will you address O&P EAI's underperformance?
      A: We are examining every option, including shutting down capacity like our Brindisi plant. We reduced capacity utilization to 65% in Q4 to optimize cash flow, freeing up about $700 million in working capital. We continue to focus on maximizing cash flow and evaluating our entire portfolio.

    3. Value Enhancement Program Impact
      Q: What's the impact of the Value Enhancement Program?
      A: We realized approximately $300 million in P&L benefit in 2023 and are guiding to an exit run rate of $600 million in 2024, with confidence in reaching up to $1 billion by 2025.

    4. NATPET JV Investment Returns
      Q: Is the NATPET JV deal at 10x EBITDA reasonable, and what's its growth potential?
      A: The multiple is closer to 9x, not 10x. Beyond mid-cycle EBITDA of $150 million, we expect additional value from sales outside Saudi Arabia, low-cost feedstock, and license income. With potential expansion, IRR could exceed 12%.

    5. NATPET JV Expansion Plans
      Q: Can you explain the NATPET JV expansion and capital allocation?
      A: We're planning to scale capacity from 400 KT to 1 million tonnes. Our 35% ownership will apply to the expanded capacity. The expansion will be financed by the joint venture, and we don't expect to inject additional cash.

    6. China Operations Update
      Q: What's the status of your China operations?
      A: Our polyolefins JV operates at technical minimums due to challenging margins, which are slightly negative. Demand is modestly improving, and we expect better margins in the second half. Our propylene oxide JVs ran above 95% operating rates, with high costs but strong potential as China phases out chlorine-based technologies by 2025.

    7. PO/TBA Plant Contribution
      Q: How did the new PO/TBA plant perform in 2023?
      A: We exceeded our target by running the plant at over 60% capacity, surpassing the minimum of 50%. We plan to ramp up to 70% or more in 2024, reaching full benefits in 2025.

    8. Circular Solutions CapEx
      Q: How much of growth CapEx is for circular solutions?
      A: Approximately 15% to 20% of our CapEx over 2023–2025 is allocated to circular and low-carbon solutions, consistent with our guidance.

    9. Tax Rate and Regional Earnings Mix
      Q: Why is the 2024 tax rate increasing to 20%?
      A: The effective tax rate rises by about 1% due to decreased U.S. tax depreciation and gains from the sale of our EO&D business, not significant changes in regional earnings mix.

    10. Dividend Payout vs. CapEx
      Q: Why base payout targets on free cash flow, not operating cash flow?
      A: It's typical to use free cash flow for payout targets. We've guided sustainable CapEx of $1.2 to $1.3 billion annually, with growth CapEx of $2 to $3 billion, aiding cash flow calculations.

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