LyondellBasell Industries

Hello and welcome to the Lyondell Bissell teleconference. At the request of Lyondell Bissell, this conference is being recorded for instant replay purposes. Following today's presentation, we will conduct a question and answer session. I would now like to turn the conference over to Mr. David Kinney, head of investor relations. Sir, you may begin.

Thank you, operator. Hello and welcome to Lyondell Bissell's fourth quarter 2021 teleconference. I'm joined today by Ken Lane, our interim chief executive officer, and Michael McMurray, our chief financial officer. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at www.LyndellBussell.com slash investor relations. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that can lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our investor relations website. Additional documents on our investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern time today. until February 28th by calling 877-660-6853 in the United States and 201-612-7415 outside the United States. The access code for both numbers is 13725132. During today's call, we will focus on fourth quarter and full year 2021 results, the current environment, and our near-term outlook. Before turning the call over to Ken, I would like to call your attention to the non-cash lower of cost or market inventory adjustments, or LCM that we have discussed on past calls. These adjustments are related to our use of last in, first out, or LIFO accounting and the volatility in prices for our raw material and finished goods inventories. During the fourth quarter of 2021, we recognized a non-cash impairment of $624 million that reflected our ongoing evaluation of strategic options for the Houston refinery. Comments made on this call will be in regard to our underlying business results, excluding the impacts of the refinery impairment and the LCM inventory adjustments. With that being said, I would now like to turn the call over to Ken.

Thank you, Dave, and good day to all of you. We appreciate you joining us today and as we discuss our fourth quarter and full year 2021 results. Before we begin the business discussion, I would like to take a moment and thank our Board of Directors for the opportunity to lead Lyondell Bazell as interim CEO until Peter Vonneker can join the company at the end of the second quarter. For the past 30 years, I've worked in the chemical industry in roles spanning manufacturing, major projects, strategy, and business leadership, with assignments in Asia, Europe, and the Americas. Since 2019, I've had the pleasure of leading Lion Devil's L's global olefins and polyolefins businesses. Our company is in great shape, and we have good momentum. I want to emphasize that our strategy remains unchanged, and I'll keep our company moving forward, continuing to execute our strategy and ensuring Peter has a successful start. I'll work closely with our board, the Lyondell Bazell leadership team, and our 19,000 talented employees to advance our growth projects, actively manage our business portfolio, and ensure we remain consistent with our goals of being the best operated and most valued company in our industry. Now, moving on to the business discussion, as Dave mentioned, a set of slides accompanies today's call and is available on our website. Let's turn to slide three and review some highlights for the past year. 2021 earnings were $18.19 per share with $9.3 billion of EBITDA. Earnings per share were more than three times higher than 2020, and EBITDA improved by 140%. Our company's growing portfolio of assets delivered EBITDA that exceeded our previous best year by 15%, and resulted in $7.6 billion of cash from operating activities. Altogether, we generated a 25% return on invested capital during 2021. Our results provide an indicator of how Lionel Bezell's earnings power is stepping up relative to the performance we delivered over the prior decade. Our 2021 performance was supported by strong demand for our products, supply constraints across our industry, and our growth investments. Favorable markets drove seven consecutive months of contract price increases for polyethylene in the United States. In our intermediates and derivatives segment, strong demand for polyurethanes drove record earnings from our leading propylene oxide and derivatives business. A robust market for building and construction materials served to increase margins across our acetal's value chain. Also, rebounding demand for transportation fuels, self-help cost reductions, and higher operating rates enabled our refining segment to return to profitability in both the third and the fourth quarters. I want to emphasize that we're maintaining our commitment to a disciplined approach to capital allocation. Our team worked diligently to convert our EBITDA into $7.6 billion of cash from operating activities. After investing $1.9 billion to maintain our assets and fund additional profit-generating investments, $5.7 billion of free cash flow remained. We rewarded investors by deploying $4.44 per share in dividends and repurchasing over 5 million shares. Last but not least, we delivered on our commitments and strengthened our balance sheet with $4 billion of long-term debt reduction. Our strategy is to identify, develop, and capture opportunities through all phases of business cycles, During 2021, we capitalized on those opportunities. Let's turn to slide four. Our core commitments to health and safety remain steadfast. The tragic incident that resulted in two fatalities and several injuries at our acetic acid plant last July reminds us of why we work so diligently toward our goal of flawless safety performance. We learn from experience and seek to further bolster a goal zero work environment to prevent these incidents from recurring. On slide four, you can see that during 2021, our team continued to deliver recordable incident rates that are among the lowest for our industry. I'm particularly proud of our team's performance over the final months of 2021 as we engaged the entire organization and leadership teams of our largest contractors to reduce recordable incident rates across our employee and contractor workforce each month during the second half of the year. Now, please turn to slide five. to review our quarterly profitability. While increased costs for feedstocks and energy continue to compress margins from second quarter highs, demand for our products remains strong. Our business portfolio delivered $2 billion of EBITDA during the fourth quarter, exceeding the results of the prior year quarter by 60%. Increased energy costs were particularly impactful for our European O&P and IND operations, where on Sundays in December, Dutch natural gas prices exceeded $50 per million BTU. Higher natural gas prices directly impact our fuel costs, but also show up as higher costs for our purchased electricity and steam. Nonetheless, seasonal patterns for our businesses typically trend downward at the end of the year, and the $2 billion of EBITDA we earned during the fourth quarter of 2021 is reflective of healthy markets for our products. The downward trends we saw in the fourth quarter seemed to be abating with margins stabilizing in January. During the remainder of the first quarter, we could see inflection on stronger seasonal demand and supply constraints. With most economists expecting 2022 global GDP growth rates to exceed historical averages at roughly 4%, we remain constructive on the outlook for our businesses. New capacity will come online in 2022, but will largely be needed to meet growing demand from well-funded consumers, address order backlogs as supply chains normalize, and support further global reopening from the pandemic. Slide 6 provides a historical view of Lionel Bezell's profitability over the past decade. During the period from 2011 to 2019, we delivered an average of $6.7 billion of EBITDA, Our performance in 2021 exceeded the 2015 peak by 15%. While 2021 was a particularly strong year for our core markets, we have confidence that the growth investments we brought online since 2018 will drive a sustainable step change improvement in our profitability over the next decade. The formation of our advanced polymer solutions segment in 2018 provided visibility into Lionel Bezell's sizable legacy compounding business. The businesses we acquired that year from A. Shulman added approximately $200 million in annual EBITDA. Since 2018, the APS segment has been challenged by production constraints in their largest market, plastic compounds used in vehicle production. Despite high consumer demand, automotive production has been held back by COVID-related manufacturing shutdowns and shortages of semiconductors. With global vehicle production expected to rebound by 9% in 2022 and an additional 10% in 2023, we expect to reach higher utilization across our APS segment. Increased capacity utilization will enable the realization of volume-driven synergies. In 2020, we commissioned the first world-scale plant utilizing Lionel Bazelle's proprietary HyperZone technology for high-density polyethylene. We have a long and successful track record of introducing new polyolefin technologies. Each new generation of technology encounters initial challenges, and we are making good progress working through those with our first HyperZone asset. Our manufacturing and R&D teams have been working diligently to improve reliability. In the fourth quarter of 2021, we decided to bring down the HyperZone plant and make some modifications. While it's still early days, we are highly encouraged by the performance of the plant since restarting in December. It's my expectation that we will realize a greater share of the volume and margin benefits from this investment during 2022. In 2020, we invested in integrated cracker joint ventures in China and Louisiana where new assets were fully built and generated immediate returns. In 2022, we are starting up two new propylene oxide plants, a joint venture in China and a wholly owned asset in Houston that will expand Lionel Bazell's ownership capacity for propylene oxide by nearly 50%. I'm pleased to report that the China plant is already producing on-spec products and rapidly ramping up rates. Our larger POTBA facility in Houston is progressing on schedule for startup during the end of this year. Both propylene oxide facilities are starting up with tight markets and all-time high margins for this intermediate chemical, that is essential for the production of polyurethanes and other downstream products. Taken together, our growth investments give us the confidence that we will step up earnings in the current decade. On slide seven, I would like to highlight how we are also stepping up our progress on sustainability. In April, we introduced our circulant family of polymers produced using recycled and renewable-based feedstocks that reduce our reliance on fossil-based raw materials. These products are targeted at the rapidly growing market for sustainable plastics. In October, we extended the Circulum brand to the compounds and solutions provided by our APS segment. All of this is part of Lionel Bezell's commitment to annually produce and market 2 million tons of recycled and renewable-based polymers by 2030. 2022 will be an exciting year for our proprietary Moortec advanced recycling technology. In December, our team commissioned upgrades to our pilot facility, enabling us to determine the extent of our technology advantage and guide an investment decision for our first commercial-scale facility. This technology provides Lionel Lizell with an opportunity to be a leader in the rapidly growing markets for circular plastics. In late September, we announced accelerated targets and a goal to achieve net-zero Scope 1 and Scope 2 greenhouse gas emissions from our global operations by 2050. We also increased our 2030 ambition and now aim to reduce absolute emissions by 30% relative to a 2020 baseline. In the near term, we don't expect significant increases in our overall capital budget, as reduced spending associated with the completion of our POTBA project in 2022 should offset an increasing share for circular and climate-related investments going forward. I'll turn the call over to Michael for him to describe our financial and segment results in more detail.