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 call over to Mr. David Kinney, Head of Investor Relations. Sir, you may begin.

Thank you, Operator. 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.lyondellbussell.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 could 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. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures such as EBITDA and earnings per share, excluding identified items. 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 September 4th by calling 877-660-6853 in the United States and 201-612-7415 outside the United States. The access code for both numbers is 13739183. Joining today's call will be Peter Vaneker, Lionel Bissell's Chief Executive Officer, our CFO, Michael McMurray, Ken Lane, our Executive Vice President of Global Olefins and Polyolefins, Kim Foley, our EVP of Intermediates and Derivatives and Refining, and Torkel Renman, our EVP for Advanced Polymer Solutions. During today's call, we will focus on second quarter results, current market dynamics, our near-term outlook, and our long-term strategy. With that being said, I would now like to turn the call over to Peter.

Thank you, David, and welcome to all of you. We appreciate you joining us today as we discuss our second quarter 2023 results. Starting with slide three, during today's call, we will discuss the resilient results that our team delivered during the challenging marketing conditions of the second quarter. And we will also provide an overview of our outlook for the second half of this year, as well as our plans to optimize our advantage positions to navigate volatile markets and feedstock costs. But first, let's take a few moments to review Linder Basel's foundations and the progress we have made with our long-term strategy. Let's turn to slide four and begin the discussion with our foundational commitment to leadership and safety performance. Our team continues to deliver outstanding safety results. Linder Bazel's year-to-date incident rate for employees and contractors is 0.15, while slightly higher than our results for 2022, our focus on safety continues to deliver performance that exceeds the top 75th percentile for our industry. Our leading safety results produce benefits that are reflected in our operations and ultimately in our financial performance. Safety is a fundamental part of our core values, and it will continue to be a critical enabler for our strategy and our future success. Let's turn to slide five and review the progress on our long-term strategy. As we shared during our Capital Markets Day in March, our strategy is built around three pillars. Grow and upgrade the core, build a profitable circular and low-carbon solutions business, and step up performance and culture. We are confident we have the right strategy. and we are not allowing current business conditions to slow our progress. Let me highlight some of our actions on these pillars over the past few months. Our value enhancement program is providing benefits for two of the pillars in our strategy. The VEP is generating volume growth as part of grow and upgrade decor, and margin improvement captured within step-up performance and culture. I am pleased to see the rapid progress and execution of these VEP initiatives. We are raising our 2023 VEP target for year-end annual recurring EBITDA run rates by $50 million to $200 million based on mid-cycle margins to reflect our accelerated progress. I will provide more details on this progress in a few minutes. In Grow and Upgrade the Core, we are investing in our business that fits with our long-term strategy. Last quarter, we announced the successful startup of our new POTBA facility, the largest propylene oxide plant in the world. This quarter, our team successfully completed technology performance tests to prove out the full capacity of the new facility. We're also managing our portfolio to ensure that all businesses are aligned with our long-term strategy. In May, we announced that we are extending our refining operations to no later than the first quarter of 2025. Let me be clear, we have not changed our decision to exit the refining business. The extension of operations will allow us to develop options to redeploy the site's workforce and assets in support of the company's sustainable growth strategy. Now let's turn to the second pillar of our strategy. We're committed to building a profitable circular and low carbon solutions business to drive our leadership in circularity and address the massive demand for these products from our customers and society. We expect this business will generate at least half a billion dollars of incremental EBITDA by 2027 and one billion dollars of incremental EBITDA by 2030. through multiple acquisitions partnerships and other arrangements we're building a comprehensive business model with powerful competitive advantages that come from new technologies upstream sources of recycled and renewable feedstocks and downstream relationships with our customers and brand owners the third pillar of our strategy is to step up our performance and culture last october We've streamlined our organizational structure to improve our line of sites with clear accountabilities and improved alignment across our commercial and manufacturing functions. We're leveraging the structure of our VEP to drive commercial excellence and improve our customer focus. And Torkel and his team are making solid progress on transforming the performance of our advanced polymer solution segment. Altogether, the three pillars of Lijndel Bazil's strategy are working side by side to provide focus and alignment to drive our progress in capturing value and delivering a more profitable and sustainable growth engine for Lijndel Bazil. Let's turn to slide six and take a closer look at our approach to establishing leadership in circular solutions. As Yvon stated at our Capital Markets Day in March, our circular and low-carbon solutions business is taking a differentiated approach by gaining advantage in three key areas. Technologies, feedstocks, and downstream customer relationships. We believe that our comprehensive strategy based on regional hubs will establish Lionel Basel as the leader in sustainable solutions. We're expanding our participation further up and down the plastic waste value chain to both gain scale and maximize the returns of various waste streams around the world. Today, our team is building supply chains to bring waste feedstocks into our existing facilities and driving innovation through investments in new technologies. As you saw on the previous slide, we are investing in both internal and external technologies, such as Lionel Basel's proprietary MoriTech advanced recycling process, as well as Prime's pyrology process and LMF North's mechanical recycling. In line with our sustainability goals, we are advancing our carbon reduction initiatives through partnerships. In June, We signed an MOU with Technip and Chevron Phillips to develop an electric cracker demonstration unit in Channelview, Texas. We have completed power purchase agreements to support the development and procurement of renewable power for Lionel Basel's locations around the world. These partnerships utilize the unique strengths of each party to deliver superior results with a common goal, reducing the carbon intensity of our products to increase the value of our products for our customers. And we are leveraging the unique capabilities of our APS segment to upgrade our mechanical recycling portfolio while offering tailored solutions for our customers. Most importantly, we are building a business that provides these solutions at scale, Step-by-step, we are making progress toward our 2030 goal to sell 2 million tons of recycled or renewable-based polymers annually. Since 2019, we have produced and marketed approximately 220,000 tons of these polymers. Lionel Basel's differentiated approach uniquely positions us to unlock significant value as we address the needs of our customers and society. On slide seven, we ask that you save the date for a webinar on September 26th, when Jim Stewart, EVP and Chief Innovation Officer, and Yvonne van der Laan, EVP of Circular and Low Carbon Solutions, will share more details on our Moritech technology and our Circular and Low Carbon Solutions business. We hope that you can join us virtually. Let's turn to slide eight and discuss this year's updated target for our value enhancement program. Our company has a well-earned reputation for strong operational excellence and cost leadership. Our goal is to build on these strengths to capture untapped value across the company through modest investments. Since the launch of our VAP, we have inspired a more agile and entrepreneurial mindset throughout our workforce. When we launched the value enhancement program last year, we announced targets to deliver recurring annual EBITDA improvements, run rates of $150 million by the end of 2023, and $750 million by the end of 2025. Our team is progressing ahead of plan for 2023. As we expanded the VEP to Europe and smaller US sites during the first and second quarter, we found the enthusiasm and energy gaining momentum. We now think our recurring annual EBITDA improvement will reach a run rate of at least $200 million by the end of 2023. Let's get a bit more specific about a few of these VEP initiatives on slide nine. At our low-density polyethylene manufacturing facilities in Clinton, Iowa, our team faced recurring reliability challenges related to valve controllers. With an investment of approximately $60,000, our team was able to upgrade the controllers and unlock more than $400,000 of annual value. The project was executed during a planned outage, with VEP providing the resources required to rapidly resolve this chronic issue. A modest investment across our global engineering and procurement teams unlocked an opportunity to expand the supplier pool for electric motors at our manufacturing sites. We expect a direct annual cost benefit of $400,000 as well as an improvement in the security of our supply for these critical motors. These benefits will be realized with a total resource investment of only $70,000 over the next three years. At our channel view facility, we invested the engineering resources required to implement a new process control scheme to improve yields and decrease energy consumption in distillation towers. Through better steam control, and increase butadiene yields, we will realize $1.4 million in annual value at a one-time cost of $50,000. In addition to the direct financial benefits, this project supports our sustainability goals by reducing CO2 emissions by over 9 kilotons. One of our larger VEP initiatives will install a filtration system to remove solids from a byproduct stream at our olefins plant in Channelview. By upgrading the byproducts, we anticipate over $5.1 million in recurring annual EBITDA improvements from higher margins and increased utilization through a modest $550,000 investment. These examples are representative of the hundreds of initiatives in our VEP portfolio. The average annual benefit of our initiative is less than $1 million. But the program is supported by rigorous economic analysis, diligent tracking, and an evergreen process. The Value Enhancement Program has been the catalyst within our organization to rapidly implement good ideas to create value. We look forward to providing you with regular updates on our progress as these initiatives become more prominent in our results. Let's turn to slide 10 and focus on our financial results for the second quarter. During the second quarter, Lionel Bazel's businesses delivered resilient results and strong cash generation despite challenging market conditions. Earnings were $2.44 per share. EBITDA was $1.5 billion. At the end of the quarter, our cash on hand was $2.5 billion, with $6.6 billion of available liquidity. Now let me turn the call over to Michael first, and then to each of our business leaders, who will describe our financial and segment results in more detail.