LyondellBasell Industries

Hello and welcome to the LyondellBasell teleconference. At the request of LyondellBasell, this conference is being recorded for 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 Dennison, Head of Investor Relations. Sir, you may now begin.

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.landellbasell.com. Today we'll 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 diluted 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 o'clock p.m. Eastern Time today until August 31st by calling 877-660-6853 in the United States, and 201-612-7415 outside the United States. The access code for both numbers is 13746218. Joining today's call will be Peter Vanacker, LeyndellBasell's Chief Executive Officer, our CFO, Agustin Izquierdo, Kim Foley, our Executive Vice President of Global Olefins and Polyolefins, Aaron Ledet, our EVP of Intermediates and Derivatives, and Torkel Rhenman, our EVP of Advanced Polymer Solutions. With that being said, I would now like to turn the call over to Peter.

Thank you, David. Thank you all for joining today's call as we discuss our second quarter results. The global disruption in the petrochemical markets from the conflict in the Middle East impacted production, feedstock availability, logistics and trade flows across the industry. It also led to substantially improved earnings performance for LYB in the second quarter. The LYB team delivered an impressive EBITDA margin of 23%, which clearly demonstrates the power of our value enhancement program and cash improvement plan actions when market conditions are favorable. We continue to believe that market normalization will be a long process extending beyond this year. This is already being demonstrated by the continuous volatility of the conflict in the Middle East. Throughout this dynamic period, we continued to successfully execute our strategy and advance the transformation of LYB while diligently implementing our cash improvement plan. During the quarter, we completed the divestiture of four European assets and combined with the intended closure of our Bryn disease site, we are further reshaping our portfolio toward more advantaged assets. These strategic actions, along with our disciplined capital allocation, support our ability to create long-term value for shareholders. With that being said, let's take a moment to review LYB's safety performance with slide 3. Safety remains foundational to how we operate. Our year-to-date total recordable incident rate of 0.1 is among the best in our sector. and reflect the commitment of our employees and contractors. Importantly, this performance continues the improvement we have achieved over the last several years and is a direct reflection of our disciplined operating culture and unwavering focus on conducting every task safely and reliably at all of our sites. Now turning to slide four, The conflict in the Middle East has created an unusually large disruption to global petrochemical markets, impacting operations, feedstock availability, logistics and trade flows. The scale and duration of the supply loss is unprecedented, and we believe that recovery time will be measured in quarters, not months. Once the trade does open and stays open, we will see some improvement in supply. However, we estimate approximately 6 million tons of polyethylene capacity or around 20 to 25% of Middle East supply sustained damage from the conflict and will not restart until at least 2027. Additionally, we expect delays to some plant capacity growth projects. The conflict has resulted in a shift in buying behavior amid elevated pricing and volatility. We saw a large increase in Asian freight rates, which essentially closed the arbitrage from Asia to Europe and Central America, increasing demand for US and European material. In China, we saw an unusual shift in trade flows. Despite lower operating rates, Chinese producers reduced imports and increased exports, primarily to Southeast Asia, to take advantage of higher export prices and the supply shortfall in that region. As a result, we have seen Chinese polyethylene inventories decline by roughly 30% versus pre-conflict levels, as local operating rates remained in the mid-70% range. The market expects that China may soon have to increase imports again to replenish inventories that have been drawn down, which could provide support for prices. With inventory buffers still limited across the industry, markets remain vulnerable to additional volatility should we see further setbacks in the Middle East or other supply disruptions emerge. We expect inventories to gradually rebuild as supply chains normalize and purchasing patterns return to more typical levels, though pricing is likely to remain above pre-conflict levels. Importantly, We continue to see relatively resilient underlying demands. We have not observed broad demand destruction across key end markets, with packaging remaining stable and continuing to represent the majority of our polyethylene demands. Healthcare and infrastructure applications show steady growth supported by areas such as pipe, wire and cable, and data center-related investments. Housing and automotive demands remain at subdued levels, but are not a new headwind. We expect consumption to return to its pre-conflict trajectory over the next year. As a result, we believe gradual normalization will be driven primarily by supply recovery and inventory rebuilding, rather than a meaningful change in underlying pre-conflict demands. Now let's turn to slide 5. Portfolio transformation is a key enabler of our strategy and is helping reshape LYB into a more advantaged and focused company. We have taken deliberate steps to improve portfolio quality and better position the company for long-term value creation. We completed the divestiture of four O&P assets in May and intend to close our Brindisi side by the end of 2026. Importantly, we remain confident in the strength of our remaining European footprints. In O&P, we continue to operate two crackers with integrated polyolefins at our Wesseling site in Germany, with a portfolio increasingly focused on higher value, less commoditized applications. Construction of our MORETEC-1 facility at Wesseling is also progressing well and will benefit from direct integration with the crackers, supporting our circular and low-carbon solution strategy. In IND, we retain our two POTBA sites in Botlik and Vos, which produce propylene oxide derivatives and oxyfuels from a first quartile global cost position. Our catalyst production facilities and innovation centers in Ferrara and Frankfurt continue to support our technology leadership and differentiated product portfolio. Overall, our remaining European asset base is well positioned and closely aligned with our long-term strategy. These assets are critical to both our grow and upgrade the core strategy and our ambition to build a profitable circular and low-carbon solutions business. At our Capital Markets Day in 2023, we laid out criteria for an LYB core business. That included leading market position, growing end markets, attractive returns above the cost of capital, access to advantaged feedstocks, and a strategic focus on circular and low-carbon solutions. We continue to shape the portfolio with that framework in mind. Over the last three years, We have executed a series of significant portfolio actions, including seizing refining operations, the divestiture of our EO&D business, acquisition of a 35% stake in NETPET Saudi Arabia with the purpose of expanding capacity, shutdown of our mass-flugged POSM site, exiting the Australian polyolefins assets, the sale of four European O&P assets, The planned closure of Brindisi, as well as the asset footprint and product portfolio transformation in APS. We now have a greater concentration of our portfolio connected to cost-advantaged feedstock, including 80% of our global ETL capacity. This will enable us to achieve higher average margins through the cycle, as already demonstrated during the second quarter and to focus capital on the areas where we see the greatest opportunity to create long-term value. Let's now turn to slide six as we discuss our financial performance. During the second quarter, earnings were $4.30 per diluted share with EBITDA of $2.1 billion, which more than tripled sequentially driven by a significant improvement in margins during the quarter. Cash and liquidity remained robust, with balances of $2.6 billion and $7.1 billion, respectively, at quarter ends. I will now hand over to Agustin to discuss our financial performance in more detail.