LYONDELLBASELL INDUSTRIES N.V. GENERAL
This discussion should be read in conjunction with the information contained in our Consolidated Financial Statements, and the accompanying notes elsewhere in this report. Unless otherwise indicated, the "Company", "we", "us," "our" or similar words are used to refer toLyondellBasell Industries N.V. together with its consolidated subsidiaries ("LyondellBasell N.V. "). OVERVIEW Our results demonstrate that we continue to be well positioned to benefit from the ongoing global economic recovery. In our O&P-Americas and O&P-EAI segments, strong demand supported price and margin improvements during the second quarter of 2021. During the second quarter, we operated all of our available capacity at near full rates to begin rebuilding depleted industry-wide inventories and addressing our customers' backlogs. Our growth investments expanded the earnings power of our global portfolio and contributed to our ability to generate a total of$1.9 billion in cash from operations during the quarter. Further, during the second quarter we raised our quarterly dividend by 7.6% while continuing to focus on deleveraging our balance sheet. Significant items that affected our results during the second quarter and first six months of 2021 relative to the second quarter and first six months of 2020 include: •O&P-Americas results increased primarily due to olefin and polyolefin margin improvements; •O&P-EAI results improved as a result of higher margins; and •I&D results increased primarily driven by higher margins across most businesses. Other noteworthy items since the beginning of the year include the following: •InJune 2021 , invested$104 million to purchase a 50% interest in a joint venture with the China Petroleum & Chemical Corporation which will construct a new propylene oxide and styrene monomer unit inChina ; and •In the first six months of 2021, repaid$1,450 million and$325 million outstanding under our Term Loan due 2022 and 4% Guaranteed Notes due 2023, respectively. 28
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Results of operations for the periods discussed are presented in the table
below:
Three Months Ended Six Months Ended
June 30, June 30,
Millions of dollars 2021 2020 2021 2020
Sales and other operating revenues $ 11,561 $ 5,546 $ 20,643 $ 13,040
Cost of sales 8,676 4,894 16,354 11,762
Selling, general and administrative expenses 327 288 614 583
Research and development expenses 32 25 61 52
Operating income 2,526 339 3,614 643
Interest expense (130) (125) (240) (214)
Interest income 5 4 7 7
Other income, net 14 4 39 4
Income from equity investments 148 61 285 61
Income from continuing operations before income taxes 2,563 283 3,705 501
Provision for (benefit from) income taxes 506 (32) 576 43
Income from continuing operations 2,057 315 3,129 458
Income (loss) from discontinued operations, net of tax 2 (1) - -
Net income $ 2,059 $ 314 $ 3,129 $ 458
RESULTS OF OPERATIONS
Revenues-Revenues increased by $6,015 million , or 108%, in the second quarter of
2021 compared to the second quarter of 2020 and by $7,603 million , or 58%, in
the first six months of 2021 compared to the first six months of 2020. Average
sales prices in the second quarter and first six months of 2021 were higher for
many of our products as sales prices generally correlate with crude oil prices,
which increased relative to the corresponding periods in 2020. These higher
prices led to a 99% and 54% increase in revenue in the second quarter and first
six months of 2021, respectively. Favorable foreign exchange impacts resulted in
a revenue increase of 3% and 4% during the second quarter and first six months
of 2021, respectively. Sales volumes were relatively unchanged in the first six
months of 2021 compared to the first six months of 2020. In the second quarter
of 2021, higher sales volumes resulted in a revenue increase of 6% relative to
the second quarter of 2020 as a result of increased demand.
Cost of Sales-Cost of sales increased by $3,782 million , or 77%, in the second
quarter of 2021 compared to the second quarter of 2020 and by $4,592 million , or
39%, in the first six months of 2021 compared to the first six months of 2020,
respectively. This increase primarily related to higher feedstock and energy
costs.
During the first six months of 2020, we recognized LCM inventory valuation
charges of $323 million related to the decline in pricing for many of our raw
material and finished goods inventories during the period. During the second
quarter of 2020, we recognized a $96 million LCM inventory valuation benefit
largely driven by the recovery of market prices of crude oil and refined
products during the second quarter.
Operating Income-Operating income increased by $2,187 million , or 645%, in the
second quarter of 2021 compared to the second quarter of 2020 and by $2,971
million , or 462%, in the first six months of 2021 compared to the first six
months of 2020. In the second quarter of 2021, operating income in our
O&P-Americas , O&P-EAI, I&D and APS segments increased by $1,288 million , $470
million , $469 million and $184 million , respectively, relative to the second
quarter of 2020. The increases were partially offset by declines of $211 million
and $22 million in our Refining and Technology segments, respectively, in the
second quarter of 2021 compared to the second quarter of 2020.
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In the first six months of 2021, operating income in our O&P-Americas , O&P-EAI,
I&D, APS and Technology segments increased by $1,737 million , $594 million , $426
million , $218 million and $13 million , respectively, compared to the first six
months of 2020. The increases were partially offset by a decline of $27 million
in our Refining segment in the first six months of 2021 compared to the first
six months 2020. Results for each of our business segments are discussed further
in the Segment Analysis section below.
Income from Equity Investments-Income from our equity investments increased $87
million , or 143%, in the second quarter of 2021 compared to the second quarter
of 2020 and by $224 million , or 367%, in the second quarter of 2021 compared to
the second quarter of 2020. The increase was primarily due to increases in our
O&P-EAI segment driven primarily by higher margins due to increased demand.
Income Taxes-Our effective income tax rate for the second quarter of 2021 was
19.7% compared with -11.3% for the second quarter of 2020. Our effective income
tax rate for the first six months of 2021 was 15.5% compared with 8.6% for the
first six months of 2020. Our income tax results are discussed further in Note 8
to the Consolidated Financial Statements.
Comprehensive Income-Comprehensive income increased by $1,706 million in the
second quarter of 2021 compared to the second quarter of 2020 and by $3,240
million in the first six months of 2021 compared to the first six months of
2020. These changes were primarily due to higher net income and financial
derivatives activity.
In the second quarter and first six months of 2021, the cumulative after-tax
effects of our derivatives designated as cash flow hedges were net losses of $78
million and net gains of $97 million , respectively. Pre-tax losses of $123
million and pre-tax gains of $100 million related to forward-starting interest
rate swaps were driven by periodic changes in benchmark interest rates in the
second quarter and first six months of 2021, respectively. The fluctuations of
the U.S. dollar against the euro and the periodic changes in benchmark interest
rates, in the second quarter and first six months of 2021, resulted in pre-tax
losses of $22 million and pre-tax gains of $64 million , respectively, related to
our cross-currency swaps. Pre-tax gains of $24 million and pre-tax losses of $68
million related to our cross-currency swaps were reclassified from Accumulated
other comprehensive loss to Interest expense in the second quarter and first six
months of 2021, respectively. The remaining change pertains to our commodity
cash flow hedges.
In the first six months of 2020, the cumulative after-tax effects of our
derivatives designated as cash flow hedges were net losses of $364 million .
Included was pre-tax losses of $532 million related to forward-starting interest
rate swaps, driven by the significant decline in benchmark interest rates in the
first quarter of 2020, primarily due to changes in the economy impacting late in
the first quarter of 2020.
The predominant functional currency for our operations outside of the U.S. is
the euro. Relative to the U.S. dollar, the value of the euro strengthened in the
second quarter of 2021, resulting in net gains reflected in the Consolidated
Statements of Comprehensive Income. During the first six months of 2021, the
value of the euro decreased relative to the U.S. dollar, resulting in cumulative
year-to-date net losses reflected in the Consolidated Statements of
Comprehensive Income. The gains and losses related to unrealized changes in
foreign currency translation impacts include pre-tax gains of $13 million and
$75 million in the second quarter and first six months of 2021, respectively,
which represent the effective portion of our net investment hedges. In the first
six months of 2020, relative to the U.S. dollar, the value of the euro decreased
resulting in net losses in the Consolidated Statements of Comprehensive Income.
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Segment Analysis
We use earnings before interest, income taxes, and depreciation and amortization
("EBITDA") as our measure of profitability for segment reporting purposes. This
measure of segment operating results is used by our chief operating decision
maker to assess the performance of and allocate resources to our operating
segments. Intersegment eliminations and items that are not directly related or
allocated to business operations, such as foreign exchange gains or losses and
components of pension and other postretirement benefits other than service costs
are included in "Other". For additional information related to our operating
segments, as well as a reconciliation of EBITDA to its nearest GAAP measure,
Income from continuing operations before income taxes, see Note 12 to our
Consolidated Financial Statements.
Revenues and the components of EBITDA for the periods presented are reflected in
the table below:
Three Months Ended Six Months Ended
June 30, June 30,
Millions of dollars 2021 2020 2021 2020
Sales and other operating revenues:
O&P-Americas segment $ 3,723 $ 1,433 $ 6,582 $ 3,225
O&P-EAI segment 3,455 1,702 6,502 3,926
I&D segment 2,585 1,157 4,352 2,927
APS segment 1,336 705 2,606 1,801
Refining segment 1,945 919 3,071 2,367
Technology segment 183 177 348 299Other, including intersegment eliminations (1,666) (547)
(2,818) (1,505) Total$ 11,561 $ 5,546 $ 20,643 $ 13,040 Operating income (loss): O&P-Americas segment$ 1,395 $ 107 $ 2,082 $ 345 O&P-EAI segment 551 81 810 216 I&D segment 493 24 581 155 APS segment 101 (83) 205 (13) Refining segment (95) 116 (225) (198) Technology segment 82 104 164 151 Other, including intersegment eliminations (1) (10) (3) (13) Total$ 2,526 $ 339 $ 3,614 $ 643 Depreciation and amortization: O&P-Americas segment$ 142 $ 133 $ 285 $ 257 O&P-EAI segment 50 53 103 106 I&D segment 81 74 161 144 APS segment 27 39 55 83 Refining segment 19 49 38 91 Technology segment 11 8 23 17 Total$ 330 $ 356 $ 665 $ 698 Income (loss) from equity investments: O&P-Americas segment$ 35 $ 7 $ 65 $ 9 O&P-EAI segment 102 51 197 48 I&D segment 11 3 23 5 APS segment - - - (1) Total$ 148 $ 61 $ 285 $ 61 31
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Three Months Ended Six Months Ended
June 30, June 30,
Millions of dollars 2021 2020 2021 2020
Other income (loss), net:
O&P-Americas segment $ 4 $ 1 $ 11 $ 3
O&P-EAI segment 5 - 10 4
I&D segment 11 - 13 -
APS segment 1 - 4 -
Refining segment (5) - (4) -
Technology segment (1) - (1) -
Other, including intersegment eliminations (1) 3 6 (3)
Total $ 14 $ 4 $ 39 $ 4
EBITDA:
O&P-Americas segment $ 1,576 $ 248 $ 2,443 $ 614
O&P-EAI segment 708 185 1,120 374
I&D segment 596 101 778 304
APS segment 129 (44) 264 69
Refining segment (81) 165 (191) (107)
Technology segment 92 112 186 168
Other, including intersegment eliminations (2) (7) 3 (16)
Total $ 3,018 $ 760 $ 4,603 $ 1,406 Olefins and Polyolefins-Americas Segment
Overview-EBITDA improved in the second quarter and first six months of 2021 relative to the second quarter and first six months of 2020 driven by olefin and polyolefin margin improvements.
Ethylene Raw Materials-We have flexibility to vary the raw material mix and process conditions in ourU.S. olefins plants in order to maximize profitability as market prices fluctuate for both feedstocks and products. Although prices of crude-based liquids and natural gas liquids are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. In the second quarter and first six months of 2021 and 2020 approximately 65% of the raw materials used in our North American crackers was ethane. The following table sets forth selected financial information for the O&P-Americas segment including Income from equity investments, which is a component of EBITDA: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2021 2020 2021 2020 Sales and other operating revenues$ 3,723 $ 1,433 $ 6,582 $ 3,225 Income from equity investments 35 7 65 9 EBITDA 1,576 248 2,443 614 32
-------------------------------------------------------------------------------- Table of Contents Revenues-Revenues for our O&P-Americas segment increased by$2,290 million , or 160%, in the second quarter of 2021 compared to the second quarter of 2020 and by$3,357 million , or 104%, in the first six months of 2021 compared to the first six months of 2020. Higher average sales prices resulted in a 146% and 93% increase in revenue in the second quarter and first six months of 2021, respectively, primarily driven by tight market conditions. Volume improvements resulted in a revenue increase of 14% and 11% in the second quarter and first six months of 2021, respectively, due to improved demand in combination with industry-wide supply constraints. EBITDA-EBITDA increased by$1,328 million , or 535%, in the second quarter of 2021 compared to the second quarter of 2020 and by$1,829 million , or 298%, in the first six months of 2021 compared to the first six months of 2020. Higher olefin results led to a 350% and 195% increase in EBITDA in the second quarter and first six months of 2021, respectively. This increase was primarily due to margin improvements as higher ethylene and propylene prices outpaced increases in feedstock costs. Higher polyethylene results led to a 135% and 53% increase in EBITDA in the second quarter and first six months of 2021, respectively, while polypropylene results led to a 58% and 30% increase in EBITDA in the second quarter and first six months of 2021, respectively. These improvements were primarily due to polyolefin sales price increases which outpaced higher feedstock costs. Income from our equity method investments lead to a 11% and 9% increase in EBITDA due to improved results at our Indelpro joint venture inMexico . Results for the first six months of 2020 included a$73 million LCM inventory valuation charge primarily driven by a decline in the price of heavy liquids and ethylene. Results in the second quarter of 2020 included a$38 million LCM inventory valuation benefit related to the reversal of LCM inventory valuation charges recognized in the first quarter of 2020, largely driven by recovery of market prices of heavy liquids and ethylene which were partially offset by declines in the price of polymers. The absence of similar adjustments in the first six months and second quarter 2021 resulted in a 12% and 15% change in EBITDA, respectively. Olefins and Polyolefins-Europe,Asia , International Segment Overview-EBITDA increased for the second quarter and first six months of 2021 relative to the second quarter and first six months of 2020 mainly as a result of higher margins across all businesses and equity income. While the majority of the feedstock used in our EAI segment's ethylene crackers is naphtha, in the second quarter and first six months of 2021 and 2020 approximately 30-40% of the raw materials used in our crackers were advantaged feedstocks. The following table sets forth selected financial information for the O&P-EAI segment including Income (loss) from equity investments, which is a component of EBITDA: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2021 2020 2021 2020 Sales and other operating revenues$ 3,455 $ 1,702 $ 6,502 $ 3,926 Income (loss) from equity investments 102 51 197 48 EBITDA 708 185 1,120 374 Revenues-Revenues increased by$1,753 million , or 103%, in the second quarter of 2021 compared to the second quarter of 2020 and by$2,576 million , or 66%, in the first six months of 2021 compared to the first six months of 2020. Average sales prices in the second quarter and first six months of 2021 were higher across most products as sales prices generally correlate with crude oil prices, which on average, increased compared to the same period in 2020. These higher average sales prices were responsible for a revenue increase of 86% and 47% in the second quarter and first six months of 2021, respectively. Volume improvements resulted in a revenue increase of 10% and 12% increase in sales in the second quarter and first six months of 2021, respectively, primarily due to strong polymer demand in combination with tight market supply. Favorable foreign exchange impacts resulted in a revenue increase of 7% in each of the second quarter and first six months of 2021. 33 -------------------------------------------------------------------------------- Table of Contents EBITDA-EBITDA increased by$523 million , or 283%, in the second quarter of 2021 compared to the second quarter of 2020 and by$746 million , or 199%, in the first six months of 2021 compared to the first six months of 2020. Polyethylene results led to a 96% and 74% increase in EBITDA in the second quarter and first six months of 2021, respectively while polypropylene results led to a 86% and 61% increase in EBITDA in the second quarter and first six months of 2021, respectively. These improvements were largely attributed to higher margins due to strong demand and tight markets. Higher olefins results led to a 52% increase in EBITDA in the second quarter of 2021 primarily driven by higher margins attributable to increased ethylene price which outpaced an increase in feedstock costs. Higher income from our equity investments led to increases in EBITDA of 28% and 40% in the second quarter and first six months of 2021, respectively, mainly attributable to higher polyolefins margins associated with increased demand. Favorable foreign exchange impacts resulted in a 8% and 9% increase in EBITDA in the second quarter and first six months of 2021, respectively. Results for the second quarter and first six months of 2020 included LCM inventory valuation charges of$34 million and$70 million , respectively, resulting from a decline in the price of naphtha in the first quarter of 2020 and a decline in the price of polymers in the second quarter of 2020. The absence of similar charges in the second quarter and first six months of 2021 resulted in a 18% and 19% change in EBITDA, respectively. Intermediates and Derivatives Segment Overview-EBITDA increased in the second quarter and first six months of 2021 compared to the second quarter and first six months of 2020, primarily driven by higher margins across most businesses due to tight market supply from industry outages coupled with strong demand recovery. The following table sets forth selected financial information for the I&D segment including Income from equity investments, which is a component of EBITDA: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2021 2020 2021 2020 Sales and other operating revenues$ 2,585 $ 1,157 $ 4,352 $ 2,927 Income from equity investments 11 3 23 5 EBITDA 596 101 778 304 Revenues-Revenues increased by$1,428 million , or 123%, in the second quarter of 2021 compared to the second quarter of 2020 and by$1,425 , or 49% in the first six months of 2021 compared to the first six months of 2020. Higher average sales prices resulted in a 110% and 51% increase in revenue in the second quarter and first six months of 2021, respectively, as sales prices generally correlate with crude oil prices, which on average, increased compared to the same periods in 2020. Higher sales volumes driven by strong product demand across most businesses resulted in a 10% increase in sales in the second quarter of 2021. Sales volumes in the six months of 2021 declined resulting in a 5% decrease in revenue due to the impact of unusually cold temperatures and associated electrical power outages that led to shutdowns of our manufacturing facilities inTexas in early 2021. Favorable foreign exchange impacts resulted in a revenue increase of 3% in each of the second quarter and first six months of 2021. EBITDA-EBITDA increased by$495 million , or 490%, in the second quarter of 2021 compared to the second quarter of 2020 and by$474 million , or 156%, in the first six months of 2021 compared to the first six months of 2020. Propylene oxide and derivatives results increased by 205% and 60% in the second quarter and first six months of 2021, respectively. This increase was primarily a result of higher margins due to strong demand recovery coupled with tight market supply resulting from industry outages. Similar market conditions drove an increase in margins for intermediate chemicals which resulted in a 153% and 44% increase in EBITDA for the second quarter and first six months of 2021, respectively. Oxyfuels and related products results increased 99% and 10% in the second quarter and first six months of 2021, respectively, primarily driven by margin improvement as a result of higher demand and gasoline prices. Favorable foreign exchange impacts resulted in a 3% and 4% increase in EBITDA in the second quarter and first six months of 2021, respectively. 34 -------------------------------------------------------------------------------- Table of Contents In the first six months of 2020 EBITDA included a$98 million LCM inventory valuation charge primarily driven by a decline in the price of various gasoline blending components, butane, benzene and styrene during the period. EBITDA in the second quarter of 2020 included a$20 million LCM inventory valuation charge primarily driven by a decline in the price of benzene and styrene, despite price improvements for various gasoline blending components and butane since the first quarter of 2020. The absence of similar charges in the first six months and second quarter 2021 resulted in a 32% and 20% change in EBITDA, respectively. Planned maintenance in 2021 is expected to reduce EBITDA by approximately$115 million , which is$30 million lower than previously estimated in 2020, due to reduced scope of work and associated downtime for the maintenance. Advanced Polymer Solutions Segment Overview-EBITDA for our APS segment increased in the second quarter and first six months of 2021 relative to the second quarter and first six months of 2020, primarily due to higher volumes. The following table sets forth selected financial information for the APS segment including losses from equity investments, which is a component of EBITDA: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2021 2020 2021 2020 Sales and other operating revenues$ 1,336 $ 705 $ 2,606 $ 1,801 Income (loss) from equity investments - - - (1) EBITDA 129 (44) 264 69 Revenues-Revenues increased by$631 million , or 90%, in the second quarter of 2021 compared to the second quarter of 2020 and by$805 , or 45%, in the first six months of 2021 compared to the first six months of 2021. Sales volumes increased resulting in a 44% and 20% increase in revenue in the second quarter and first six months of 2021 stemming from higher automotive and construction demand. Average sales price increased resulting in a 37% and 16% increase in revenue in the second quarter and first six months of 2021, respectively, as sales prices generally correlate with crude oil prices, which on average, increased compared to the same periods in 2020. Foreign exchange impacts resulted in a revenue increase of 9% in each of the second quarter and first six months of 2021. EBITDA-EBITDA increased by$173 million , or 393%, in the second quarter of 2021 compared to the second quarter of 2020 and by$195 million , or 283%, in the first six months of 2021 compared to the first six months of 2020. Increased compounding and solutions results led to an EBITDA increase of 164% and 119% in the second quarter and first six months of 2021, respectively, primarily due to volume improvements driven by higher demand. Increased advanced polymer results led to an EBITDA increase of 64% and 36%, in the second quarter and first six months of 2021, respectively, mainly attributable to higher volumes driven by increased demand for our products utilized in the automotive and construction end markets.
Results for the second quarter and first six months of 2020 included LCM
inventory valuation charges of
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Refining Segment
Overview-EBITDA decreased in the second quarter and first six months of 2021
relative to the second quarter and first six months of 2020, primarily due to
lower margins.
The following table sets forth selected financial information and heavy crude
oil processing rates for the Refining segment and the U.S. refining market
margins for the applicable periods. "Brent" is a light sweet crude oil and is
one of the main benchmark prices for purchases of oil worldwide. "Maya" is a
heavy sour crude oil grade produced in Mexico that is a relevant benchmark for
heavy sour crude oils in the U.S. Gulf Coast market. References to industry
benchmarks for refining market margins are to industry prices reported by
Platts, a division of S&P Global.
Three Months Ended Six Months Ended
June 30, June 30,
Millions of dollars 2021 2020 2021 2020
Sales and other operating revenues $ 1,945 $ 919 $ 3,071 $ 2,367
EBITDA (81) 165 (191) (107)
Thousands of barrels per day
Heavy crude oil processing rates 248 237 200 231
Market margins, dollars per barrel Brent - 2-1-1$ 15.32 $ 4.42 $ 12.95 $ 5.87 Brent - Maya differential 6.14 8.85 5.44 9.32 Total Maya 2-1-1$ 21.46 $ 13.27 $ 18.39 $ 15.19 Revenues-Revenues increased by$1,026 million , or 112%, in the second quarter of 2021 compared to the second quarter of 2020 and by$704 million , or 30%, in the first six months of 2021 compared to the first six months of 2020. Higher product prices led to a revenue increase of 116% and 48% in the second quarter and first six months of 2021, respectively, due to an average Brent crude oil price increase of approximately$36 and$23 per barrel in the second quarter and first six months of 2021, respectively. This increase was partially offset by a decline in volumes of 4% and 18% in the second quarter and first six months of 2021, respectively, due to planned and unplanned outages, including the effects of unusually cold temperatures and associated electrical power outages that led to shutdowns of our manufacturing facilities inTexas in early 2021. EBITDA-EBITDA decreased by$246 million , or 149%, in the second quarter of 2021 compared to the second quarter of 2020 and by$84 million , or 79%, in the first six months of 2021 compared to the first six months of 2020. EBITDA decreased by 43% and 69% in the second quarter and first six months of 2021, respectively, due to lower margins. These margin declines were driven by unfavorable byproduct crack spreads of$14 per barrel and$8 per barrel in the second quarter and first six months of 2020, respectively, higher costs of Renewable Identification Numbers ("RINs") of approximately$1 per gallon and the absence of a$50 million of favorable mark-to-market gains on hedges recognized in the second quarter of 2020. These declines in margin were partially offset by an increase in the Maya 2-1-1 market margin during the second quarter of 2021 due to higher demand for refined products and the absence of unplanned outages at our fluid catalytic cracking unit in the first two quarters of 2020, which restricted the yield of higher-margin refined products. In the first six months of 2021, EBITDA decreased by 21% due to lower heavy crude oil processing rates driven by the impact of facility outages as discussed above. 36 -------------------------------------------------------------------------------- Table of Contents Results for the first six months of 2020 included a$13 million LCM inventory valuation charge primarily driven by a decline in the price of crude oil and refined products. Results in the second quarter of 2020 included a$179 million LCM inventory valuation benefit related to the reversal of LCM inventory valuation charges recognized in the first quarter of 2020, largely driven by recovery of market prices during the quarter. The absence of similar adjustments in the first six months and second quarter of 2021 resulted in a 12% and 108% change in EBITDA, respectively. Technology Segment Overview-EBITDA decreased in the second quarter of 2021 compared to the second quarter of 2020 driven by lower licensing revenues and catalyst margins, but increased in the first six months of 2021 compared to the first six months of 2020, primarily due to higher licensing revenues. The following table sets forth selected financial information for the Technology segment: Three Months Ended Six Months Ended June 30, June 30, Millions of dollars 2021 2020 2021 2020 Sales and other operating revenues$ 183 $ 177 $ 348 $ 299 EBITDA 92 112 186 168 Revenues-Revenues increased by$6 million , or 3%, in the second quarter of 2021 compared to the second quarter of 2020 and by$49 million , or 16%, in the first six months of 2021 compared to the first six months of 2020. Licensing revenues decreased by 6% in the second quarter but increased by 5% in the first six months of 2021, respectively. Higher catalyst volumes resulted in a 3% and 5% increase in the second quarter and first six months of 2021, respectively, primarily driven by a strong demand. Changes in average catalyst sales price resulted in a revenue increase of 1% in the second quarter of 2021 and a revenue decrease of 2% in the first six months of 2021. Favorable foreign exchange impacts increased revenue by 5% and 8% in the second quarter and first six months of 2021, respectively. EBITDA-EBITDA decreased by$20 million , or 18%, in the second quarter of 2021 compared to the second quarter of 2020 and increased by$18 million , or 11%, in the first six months of 2021 compared to the first six months of 2020. Lower EBITDA during the second quarter of 2021 was equally driven by lower licensing revenue and lower catalyst margins. EBITDA improvements in the first six months of 2021 was due to higher licensing revenue. Favorable foreign exchange impacts resulted in an EBITDA increase of 5% and 7% in the second quarter and first six months of 2021, respectively. 37
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FINANCIAL CONDITIONOperating, investing and financing activities of continuing operations, which are discussed below, are presented in the following table:
Six Months Ended
June 30,
Millions of dollars 2021 2020
Cash provided by (used in) :
Operating activities $ 2,473 $ 1,834
Investing activities (362) (1,727)
Financing activities (2,470) 1,568
Operating Activities-Cash provided by operating activities of $2,473 million in
the first six months of 2021 reflected earnings adjusted for non-cash items,
payments for employee bonuses, income taxes, income from equity investments, and
cash used by the main components of working capital-Accounts receivable,
Inventories and Accounts payable.
In the first six months of 2021, the main components of working capital used
$1,561 million of cash driven primarily by an increase in Accounts receivable
and Inventories partially offset by an increase in Accounts payable. The
increase in Accounts receivable was driven by higher revenues across most
businesses primarily driven by higher average sales prices. The increase in
Inventories was primarily due to the replenishment of inventory levels to
support anticipated business demands. The increase in Accounts payables was
primarily driven by increased raw material costs.
Other operating activities in 2021 includes the effects of changes in income tax
accruals, primarily driven by the increased pretax income, partially offset by
income tax payments made during the period.
Cash provided by operating activities of $1,834 million in the first six months
of 2020 reflected earnings adjusted for non-cash items, payments for employee
bonuses, income taxes, and cash provided by the main components of working
capital.
In the first six months of 2020, the main components of working capital provided
$465 million of cash driven by decreases in Accounts receivable and Inventory,
partially offset by a decrease in Accounts payable. The decrease in Accounts
receivable was primarily driven by lower sales in our Refining, APS and I&D
segments due to unfavorable market conditions. The decrease in Inventory was
primarily driven by company-wide inventory reduction initiatives as well as
lower prices. The decrease in Accounts payable was primarily due to lower cost
of sales resulting from lower production across multiple segments driven by
unfavorable market conditions.
Investing Activities-We invest cash in investment-grade and other high-quality
instruments that provide adequate flexibility to redeploy funds as needed to
meet our cash flow requirements while maximizing yield.
In the first six months of 2021 and 2020 we received proceeds of $264 million
and $1 million , respectively, from our investments in equity securities.
Additionally, we received proceeds of $291 million in the first six months of
2021 upon the maturity of certain available-for-sale debt securities.
In the first six months of 2021 we made an equity contribution of $104 million
to form Ningbo ZRCC LyondellBasell New Material Company Limited , a 50/50 joint
venture with China Petroleum & Chemical Corporation. The joint venture will
construct a new propylene oxide and styrene monomer unit in Zhenhai Ningbo,
China and startup is expected at the end of 2021. The joint venture is included
in our I&D segment.
Capital expenditures in the first six months of 2021 totaled $771 million
compared to $1,248 million in the first six months of 2020. Approximately half
of our capital spending in both periods was for profit-generating growth
projects, primarily our PO/TBA plant, with the remaining spending supporting
sustaining maintenance. We estimate capital spending to increase in the second
half of 2021 compared to the first half of the year, while remaining flat
year-over-year. See Note 12 to the Consolidated Financial Statements for
additional information regarding capital spending by segment.
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In the first six months of 2020 we invested $270 million in debt securities that
are deemed available-for-sale. We also invested $184 million in equity
securities in the first six months of 2020. Our investments in
available-for-sale debt securities and equity securities are classified as
Short-term investments.
Financing Activities-We made dividend payments totaling $730 million and $701
million in the first six months of 2021 and 2020, respectively.
In the first six months of 2021 and 2020 we received a return of collateral of
$51 million and posted collateral of $238 million , respectively, related to the
positions held with our counterparties for certain forward-starting interest
rate swaps.
In 2021, we repaid $1,450 million and $325 million outstanding under our Term
Loan due 2022 and 4% Guaranteed Notes due 2023, respectively.
In April 2020 , LYB International Finance III, LLC ("LYB Finance III"), a wholly
owned finance subsidiary of LyondellBasell Industries N.V. issued $500 million
of 2.875% guaranteed notes due 2025 (the "2025 Notes") at a discounted price of
99.911%, $500 million of 3.375% guaranteed notes due 2030 (the "2030 Notes") at
a discounted price of 99.813% and $1,000 million of 4.2% guaranteed notes due
2050 (the "2050 Notes") at a discounted price of 99.373%. Net proceeds from the
sale of the notes totaled $1,974 million . We used the net proceeds from the sale
of the notes for general corporate purposes, including to increase our liquidity
and manage short-term debt maturities.
Additionally, in April 2020 we repaid $500 million of our Senior Revolving
Credit Facility and $500 million of our U.S. Receivables Facility borrowed in
March 2020 to increase our liquidity.
In May 2020 , we terminated and cash settled $2,000 million in notional value of
our cross-currency interest rate swaps, designated as cash flows hedges,
maturing in 2021 and 2024. Upon termination of the swaps, we received $346
million from our counterparties.
In the first six months of 2020, we received net proceeds of $212 million ,
through the issuance and repurchase of commercial paper instruments under our
commercial paper program.
Additional information related to the issuance of debt and commercial paper can
be found in Note 6 to the Consolidated Financial Statements.
Liquidity and Capital Resources
Overview
We plan to fund our ongoing working capital, capital expenditures, debt service,
dividends and other funding requirements with our current available liquidity
and cash from operations, which could be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors,
many of which are beyond our control. Cash and cash equivalents, cash from our
short-term investments, cash from operating activities, proceeds from the
issuance of debt, or a combination thereof, may be used to fund the purchase of
shares under our share repurchase authorization.
We intend to continue to declare and pay quarterly dividends, with the goal of
increasing the dividend over time, after giving consideration to our cash
balances and expected results from operations. Our focus on funding our
dividends while remaining committed to a strong investment grade balance sheet
continues to be the foundation of our capital deployment strategy. In the near
term, we are prioritizing debt reduction on our balance sheet.
Cash and Liquid Investments
As of June 30, 2021 , we had Cash and cash equivalents and marketable securities
classified as Short-term investments totaling $1,517 million , which includes
$1,062 million in jurisdictions outside of the U.S. , principally in the United
Kingdom . There are currently no legal or economic restrictions that would
materially impede our transfers of cash.
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Credit Arrangements
At June 30, 2021 , we had total debt, including current maturities, of $14,173
million , and $224 million of outstanding letters of credit, bank guarantees and
surety bonds issued under uncommitted credit facilities.
We had total unused availability under our credit facilities of $2,910 million
at June 30, 2021 , which included the following:
•$2,010 million under our $2,500 million Senior Revolving Credit Facility, which
backs our $2,500 million commercial paper program. Availability under this
facility is net of outstanding borrowings, outstanding letters of credit
provided under the facility and notes issued under our commercial paper program.
A small portion of our availability under this facility is impacted by changes
in the euro/U.S. dollar exchange rate. At June 30, 2021 , we had $500 million of
outstanding commercial paper, net of discount, no borrowings or letters of
credit outstanding under this facility; and
•$900 million under our $900 million U.S. Receivables Facility. Availability
under this facility is subject to a borrowing base of eligible receivables,
which is reduced by outstanding borrowings and letters of credit, if any. At
June 30, 2021 , we had no borrowings or letters of credit outstanding under this
facility. In June 2021 , we extended the term of the facility to June 2024 in
accordance with the terms of the agreement.
We believe that our recent value-driven growth investments should benefit us
over the coming years. With an improving outlook for cash generation, we remain
committed to further strengthening our investment grade balance sheet through
deleveraging. In 2021, we repaid $1,450 million and $325 million outstanding
under our Term Loan due 2022 and 4% Guaranteed Notes due 2023, respectively. Our
top priority for capital deployment in 2021 is debt reduction; we expect total
reduction of our outstanding debt for the year to be between $3 billion and $4
billion .
At any time and from time to time, we may repay or redeem our outstanding debt,
including purchases of our outstanding bonds in the open market, through
privately negotiated transactions or a combination thereof, in each case using
cash and cash equivalents, cash from our short-term investments, cash from
operating activities, proceeds from the issuance of debt or proceeds from asset
divestitures. Any repayment or redemption of our debt will depend on prevailing
market conditions, our liquidity requirements, contractual restrictions and
other factors. In connection with such repurchases or redemptions, we may incur
cash and non-cash charges, which could be material in the period in which they
are incurred.
In accordance with our current interest rate risk management strategy and
subject to management's evaluation of market conditions and the availability of
favorable interest rates among other factors, we may from time to time enter
into interest rate swap agreements to economically convert a portion of our
fixed rate debt to variable rate debt or convert a portion of our variable rate
debt to fixed rate debt.
CURRENT BUSINESS OUTLOOK
We expect demand for our products to remain strong. Three broad themes support
our expectations. First, as we work to overcome the challenges of virus
variants, the phased rollout of vaccines and the progression of societal
reopening around the world should support robust global demand for our products
in both the manufactured goods and service industries for several quarters to
come. Second, as our customers seek to address order backlogs, rebuild
inventories and serve increasing consumer demand, we expect strong integrated
polyethylene margins to continue. Third, increasing mobility during the second
half of 2021 should drive higher demand for gasoline and jet fuel resulting in
improved margins for our oxyfuels and related products and refining businesses.
ACCOUNTING AND REPORTING CHANGES
For a discussion of the potential impact of new accounting pronouncements on our
Consolidated Financial Statements, see Note 2 to the Consolidated Financial
Statements.
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CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. You can identify our forward-looking statements by the
words "anticipate," "estimate," "believe," "continue," "could," "intend," "may,"
"plan," "potential," "predict," "should," "will," "expect," "objective,"
"projection," "forecast," "goal," "guidance," "outlook," "effort," "target" and
similar expressions.
We based forward-looking statements on our current expectations, estimates and
projections of our business and the industries in which we operate. We caution
you that these statements are not guarantees of future performance. They involve
assumptions about future events that, while made in good faith, may prove to be
incorrect, and involve risks and uncertainties we cannot predict. Our actual
outcomes and results may differ materially from what we have expressed or
forecast in the forward-looking statements. Any differences could result from a
variety of factors, including the following:
•the cost of raw materials represents a substantial portion of our operating
expenses, and energy costs generally follow price trends of crude oil, natural
gas liquids and/or natural gas; price volatility can significantly affect our
results of operations and we may be unable to pass raw material and energy cost
increases on to our customers due to the significant competition that we face,
the commodity nature of our products and the time required to implement pricing
changes;
•our operations in the United States ("U.S.") have benefited from low-cost
natural gas and natural gas liquids; decreased availability of these materials
(for example, from their export or regulations impacting hydraulic fracturing in
the U.S. ) could reduce the current benefits we receive;
•if crude oil prices fall materially, or remain low relative to U.S. natural gas
prices, we would see less benefit from low-cost natural gas and natural gas
liquids and it could have a negative effect on our results of operations;
•industry production capacities and operating rates may lead to periods of
oversupply and low profitability;
•we may face unplanned operating interruptions (including leaks, explosions,
fires, weather-related incidents, mechanical failures, unscheduled downtime,
supplier disruptions, labor shortages, strikes, work stoppages or other labor
difficulties, transportation interruptions, spills and releases and other
environmental incidents) at any of our facilities, which would negatively impact
our operating results; for example, because the Houston refinery is our only
refining operation, we would not have the ability to increase production
elsewhere to mitigate the impact of any outage at that facility;
•changes in general economic, business, political and regulatory conditions in
the countries or regions in which we operate could increase our costs, restrict
our operations and reduce our operating results;
•our ability to execute our organic growth plans may be negatively affected by
our ability to complete projects on time and on budget;
•our ability to acquire new businesses and assets and integrate those operations
into our existing operations and make cost-saving changes in operations;
•uncertainties associated with worldwide economies could create reductions in
demand and pricing, as well as increased counterparty risks, which could reduce
liquidity or cause financial losses resulting from counterparty default;
•uncertainties related to the extent and duration of the pandemic-related
decline in demand, or other impacts due to the pandemic in geographic regions or
markets served by us, or where our operations are located, including the risk of
prolonged recession;
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Table of Contents •the negative outcome of any legal, tax and environmental proceedings or changes in laws or regulations regarding legal, tax and environmental matters may increase our costs, reduce demand for our products, or otherwise limit our ability to achieve savings under current regulations; •any loss or non-renewal of favorable tax treatment under agreements or treaties, or changes in laws, regulations or treaties, may substantially increase our tax liabilities; •we may be required to reduce production or idle certain facilities because of the cyclical and volatile nature of the supply-demand balance in the chemical and refining industries, which would negatively affect our operating results; •we rely on continuing technological innovation, and an inability to protect our technology, or others' technological developments could negatively impact our competitive position; •we may be unable to meet our sustainability goals, including the ability to operate safely, increase production of recycled and renewable-based polymers, and reduce our emissions intensity; •we have significant international operations, and fluctuations in exchange rates, valuations of currencies and our possible inability to access cash from operations in certain jurisdictions on a tax-efficient basis, if at all, could negatively affect our liquidity and our results of operations; •we are subject to the risks of doing business at a global level, including wars, terrorist activities, political and economic instability and disruptions and changes in governmental policies, which could cause increased expenses, decreased demand or prices for our products and/or disruptions in operations, all of which could reduce our operating results; •if we are unable to comply with the terms of our credit facilities, indebtedness and other financing arrangements, those obligations could be accelerated, which we may not be able to repay; and •we may be unable to incur additional indebtedness or obtain financing on terms that we deem acceptable, including for refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses. Any of these factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. Our management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and any other cautionary statements that may accompany such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements.
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