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. Please go ahead, sir.

Thank you, operator, and welcome everyone to today's call. Before we begin the discussion, I would like to point out that a slide presentation accompanies the call. and is available on our website at investors.lyondellbassell.com. Today, we will be discussing our second quarter 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 1st by calling 877-660-6853 in the United States and 201-612-7415 outside the United States. The access code for both numbers is 137-46206. Joining today's call will be Peter Vanneker, Wyandell Purcell's Chief Executive Officer, our CFO, Augustine Izquierdo, Kim Foley, our Executive Vice President of Global Olefins and Polyolefins, Aaron Lede, our EVP of Intermediates and Derivatives, and Torkel Remmen, our EVP of Advanced Polymer Solutions. With that being said, I would now like to turn the call over to Peter.

Thank you, Dave, and welcome to all of you. We appreciate you joining us today as we discuss our second quarter results. Let's begin with slide three, where we highlight our continued leadership in safety performance at LYB. Our operational success starts with our core focus on safety. This is demonstrated by our June year-to-date top decile total recordable incident rate of 0.12, and we're proud of our improving safety records. Having maintained this track record during one of our largest turnarounds at our channel view complex, despite significantly higher staffing levels, underscores our commitment to safety and the fantastic performance of our team. Our best safety performance enables our employees and contractors to return home safely day after day, keep our operations reliable, and underpins financial value. On slide four, we highlight the strategic criteria to grow and upgrade the core, which we outlined at our Capital Markets Day in March 2023. You may recall that growing and upgrading our core businesses is one of the three pillars of our strategy. To earn a place in our growth portfolio, assets should have leading market positions, exposure to growing end markets, and offer an attractive rate of return. We're focusing our portfolio around assets with low-cost feedstocks in the United States and the Middle East. while increasing our access to circular and renewable feedstocks in Europe and other regions to support our strategy to grow a profitable circular and low carbon solutions business. Over the past three years, we have established a track record of shaping our portfolio through acquisitions, divestitures and shutdowns in line with these consistent strategic priorities. We've been steadily transforming our company and we're confident we are taking the appropriate steps to build a stronger and more resilient LLYB. On slide five, we give an overview of how we are repositioning our portfolio to enhance our cost advantage across key global regions through focused investments that increase our efficiency while preserving our long-term competitiveness and optionality. As shown in the chart on the top right, North America and the Middle East enjoy structural advantages with access to low-cost NGL feedstocks and energy costs that can serve global markets supporting attractive returns throughout the cycle. And the bottom right chart illustrates that operating rates are expected to remain high and stable in these advantaged regions. This is where LLYB is growing its capacity in a disciplined way. We expect our capacity share in these regions will continue to increase and exceed 70% as we begin the next decade. In Europe, high feedstock and energy costs, coupled with insufficient regulatory support, has challenged the region's global competitiveness. Closures amounting to more than 20% of European-Italian capacity have been announced since the beginning of the decade. Capacity rationalization will help improve regional supply and demand balances, but will not change the fundamentals. LYB's strategy in Europe is to increasingly focus our production on recycled and renewable feedstocks to produce profitable and sustainable solutions to serve the local markets. Recycled and renewable feedstocks sourced in Europe are expected to be cost-advantaged relative to other regions in the world. We also expect markets for circular plastics to be dominated by local drivers rather than global ones. We are right-sizing our European asset base in alignment with our strategy and focusing our resources on innovation and growth in sustainable solutions that create value. An example of this is our commercial-scale Moritech One chemical recycling plant, currently under construction in Germany, which uses LYB's proprietary advanced recycling technology to meet the current and growing demands for circular plastics. The rapid growth of petrochemical capacity in China has created much concern regarding the impact of overproduction on global markets. With high cost of production, Chinese polyethylene has not been globally competitive, and growing capacity in China has been accompanied by falling local operating rates. We're closely following the latest actions from the NDRC in China that potentially could lead to closures of the least competitive assets. Despite the significant growth in capacity, China has shown over the past several years that China remains a net importer of polyethylene from cost-advantaged regions. Our strategy in China is to ensure our access to this important global market by maintaining a strong technical and commercial presence with a relatively light asset footprint that includes APS and circular solutions to effectively support our local customers. These regional trends reinforce our strategy to maintain and grow our presence in cost-advantaged regions, optimize our European footprints, and ensure strong market access in Asia. Turning to slide six, let's review the cumulative cash impact of our actions to conserve and strengthen cash flows into 2026. During last quarter's call, we introduced our cash improvement plan, which is focused on delivering near-term enhancements to cash flow. For 2025, we are targeting approximately $200 million of reductions in working capital driven by the traditional levers of inventory and payables management. But we also have unique opportunities to improve cash flow, such as the monetization of excess precious metals inventories made possible by the innovation of a new catalyst for our vinyl acetate production. In parallel, our fixed cost reduction initiatives remain on track to deliver an additional $200 million through organizational streamlining. We've also decided to delay activities on selected growth investments until market conditions improve. For 2025, this will result in an additional $100 million reduction in CapEx investments and bring our 2025 CapEx guidance down to $1.7 billion. This reflects a $200 million reduction from our initial guidance for 2025. We will continue to invest in sustaining capital to ensure our assets run safely and reliably when the cycle inevitably rebounds. These actions mean that our cash improvement plan is on track to achieve a run rate of $600 million in incremental cash flow for 2025 compared to the $500 million we announced last quarter. And we're taking further steps to maximize our cash flows into 2026. We're identifying measures to free up an additional $200 million through working capital and fixed cost reductions by the end of 2026. In addition, we expect that a timely and successful closing of the sale of our European assets will further free up cash. We're also reducing our 2026 capex by $300 million from 2025 levels, down to $1.4 billion, largely by deferring construction of our Flex 2 project. Economics for the Flex 2 project continue to be highly attractive. and our strategic rationale remains intact. We will reassess timing once market conditions inevitably improve, preserving this real option for profitable growth. In total, these incremental actions, combined with the original cash improvement plan, are expected to increase cash flow by at least $1.1 billion during 2025 and 2026, to further protect our resilient balance sheet, navigate the cycle, and preserve maximum financial flexibility. Our liquidity position remains strong, and our debt maturity profile is very favorable. Please turn to slide seven as we review the financials for the quarter. Earnings were 62 cents per share with EBITDA of $715 million. EBITDA improved sequentially with less downtime and lower feedstock costs. As expected, cash generation resumed this quarter. Cash returns to shareholders remained robust at more than $500 million as we increased our ordinary dividend and continued our opportunistic share repurchases. I will now hand over the call to Augustine to elaborate on our capital allocation strategy and financial progress.