LyondellBasell Industries

Hello, and welcome to the Lyondale-Bissell Teleconference. At the request of Lyondale-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, please go ahead.

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.lyondellbussell.com. Today, we will be discussing our third 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 December 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 137-462-07. Joining today's call will be Peter Vaneker, Lyondell-Bassell'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 Brenman, 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 thank you all for joining today's call as we discuss our third quarter results. The LYB team is making excellent progress on managing the cycle, with meaningful progress from our cash improvement plan, which contributed to our very high cash conversion of 135% in the third quarter. We're well on our way to delivering on our $600 million target by year end. And our actions are expected to increase cash flow by at least $1.1 billion by the end of 2026. Let us first take a moment to review LYB's safety performance with slide number three. Safe operations are fundamental to our core values and essential for our future success. This is demonstrated by our September year-to-date total recordable incident rate of 0.12, which is even better than last year's top decile results. Safety performance improved year on year, and this sustained trend is a direct reflection of the dedication and commitment of all our employees and contractors to operational excellence. Please turn to slide four as we discuss our financial performance. During the third quarter, cash generation improved as LYB continued to navigate the cycle. Earnings were $1.01 per share, with EBITDA of $835 million and $983 million of cash from operating activities. We returned $443 million to shareholders in the form of dividends. Turning to slide five, let's discuss some encouraging trends developing in polyethylene markets. In recent months, PE demand has started to improve following the multi-year post-COVID downturn. In both North America and Europe, 2025 domestic demand for polyethylene is the strongest we have seen since the start of the downturn in the third quarter of 2022. Despite the recent volatility in U.S. exports caused by shifting trade and tariff policies, third quarter year-to-date North American demand is up by 2.5% relative to 2024. After a prolonged weakness following the onset of the Russia-Ukraine conflict, August year-to-date polyethylene volumes in Europe are up approximately 3% compared to the same period last year. Consumer packaging demand remains resilient, reflecting the essential role of polyolefins in everyday applications, despite changing consumer behavior. At the same time, investments in durable goods to support trends in energy, digitalization, and infrastructure are also driving demand growth. Renewable energy and data center construction requires durable, high-performance polymers for wire and cable jacketing, conduits, and water piping. Electric vehicles use approximately 10% more plastic by weight than vehicles powered by internal combustion engines. LOIB's broad portfolio of innovative polymers position as well to meet the stringent performance and sustainability benchmarks required to address these attractive and growing market opportunities. Let me be clear, these are not yet green shoots for our financial results. Markets will need to absorb new capacity, and operating rates will need further improvement before suppliers develop meaningful pricing power. But these inflections in demand trends are encouraging and could be the early indicators of a market recovery. With this in mind, let's turn to slide six and take a longer view on demand growth for polyethylene and polypropylene. As shown in the top chart, global polyethylene demand has consistently grown at GDP plus rates of over 3% for at least 35 years. Unlike other markets like automobiles or housing, polyethylene markets have exhibited consistent growth. Even after recessionary downturns and pandemic-related spikes, polyethylene demand quickly returns to its long-term trajectory. This reflects the power of the underlying trends driving global consumption, population growth, urbanization, and a rising middle class. Some observers questioned whether the flatter growth rates seen in 2022 and 2023 after the 2021 spike were reflective of a secular change. But as you can see, in 2025, we are reverting to long-term global historic growth rates of over 3%. Most consultants are predicting continued growth through at least 2035, with some shifts in share of production from fossil-based feeds towards circular feedstocks. Looking at the bottom chart, mature markets such as North America and Europe lead in per capita consumption aligned with established demand patterns. Meanwhile, emerging regions, such as India and Africa, provide significant long-term growth opportunities as living standards improve in these regions. China continues to demonstrate strong volume growth, supported by its extensive manufacturing base and industrial activity. In contrast, South America reflects comparatively lower consumption, which can attribute it to a smaller manufacturing footprint and lower industrial intensity relative to other regions. These trends reinforce the importance of regional dynamics, shaping the growth of polyolefins in the global market. While mature markets remain critical for stability, demand growth within these regions will be increasingly driven by infrastructure developments, electrification, EV mobility, home care, and pharma, while emerging economies will drive meaningful volume growth. Importantly, this demand growth is not negatively impacted by circularity. In fact, we are seeing growth shifting toward innovation, efficiency, and circularity in these markets. LYB continues to lead in sustainable solutions by investing in innovative feedstock sourcing, positioning us to capture value across diverse markets as we advance our strategy. On slide seven, let's shift to the supply side and discuss how capacity rationalization trends are accelerating and reshaping the global ether lane supply landscape. As seen on the chart to the left, announced and anticipated closures and idling from 2020 through 2028 add up to more than 21 million tons of ethylene capacity, representing roughly 10% of global supply. Asia is leading the way with recent government announcements highlighting the magnitude of this trend. South Korea is targeting closures of up to 25%. while Japan recently announced closures of 1.5 million tons. China is also a critical driver for global rationalization. With high costs for feedstocks, much of the Chinese petrochemical industry is on the wrong end of the cost curve. China's anti-involution measures are focused on reducing uncompetitive capacity and approvals for new facilities are facing increased scrutiny. In Europe, Regulatory burdens, persistently high operating costs, and weak margins are driving massive reductions in petrochemical capacity. Announced rationalizations total approximately 20% of regional capacity, and we expect more announcements will follow. The domino effect of these rationalizations is leading to an acceleration. Smaller petrochemical clusters are finding that the economics for cogeneration or industrial gas partners no longer work when a few assets are shuttered in smaller industrial parks. About 30% of all global closures have been announced in just the past 12 months, underscoring the speed and magnitude of this shift. We're confident that these closures will help to partially offset the overhang from the substantial capacity additions underway in China. At RYB, we're leveraging the market trends that reinforce our strategy. We're growing our presence in cost-advantaged regions, upgrading our challenge positions, and leveraging our technology to ensure a strong presence in attractive markets. We're also cultivating deep partnerships with governments and regulators to ensure a fair trade environment and working towards smart policies, especially in Europe, that will provide critical support for our industry. Now, with that, I will turn it over to Augustine to discuss capital allocation and the progress on our cash improvement plan.