LyondellBasell Industries N.V. Class A 2026 Q2 Earnings Call

Thank you, operator, 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.lyondellbasell.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. 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 1:00 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, LyondellBasell's Chief Executive Officer, our CFO, Agustín 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, and 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 continued volatility of the conflict in the Middle East. Throughout these dynamic periods, we continue 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 Brindisi site 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 three. 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 reflects 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 Strait 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%-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 U.S. 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 remains 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 demand. 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 five. 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 site 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 I&D, we retain our two PO/TBA sites in Botlek and Fos, 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 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 ceasing refining operations, the divestiture of our EO&D business, acquisition of a 35% stake in NATPET, Saudi Arabia with the purpose of expanding capacity, shutdown of our Maasvlakte PO/SM site, exiting the Australian polyolefins assets, the sale of four European O&P assets, the planned closure of Brindisi, as well as the asset footprints 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 ethylene 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 end. I will now hand over to Augustine to discuss our financial performance in more detail.

Thank you, Peter, and good morning, everyone. Let me begin with slide seven as we outline our cash generation. Over the past 12 months, LyondellBasell converted EBITDA into cash at a rate of 80%, which aligns with our long-term target. This performance reflects our disciplined approach to optimizing working capital while capturing favorable market opportunities. As a result, higher prices and operating rates drove an intentional build of working capital in the second quarter. As Peter mentioned, in the second quarter, our cash balance was $2.6 billion, and our available liquidity remains robust at $7.1 billion. Let's turn to slide eight and review the details of our second quarter capital allocation. During the quarter, we generated $752 million of cash from operating activities. This performance reflects our continued focus on strengthening financial flexibility to capture higher prices while improving cash generation through the quarter.