Q4 2024 LyondellBasell Industries NV Earnings Call
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.
Speaker Change: I would now like to turn the conference over to Mr. David Kinney, Head of Investor Relations. Thank you, sir. You may begin.
Speaker Change: Thank you operator. Before we begin the discussion I would like to point out that a slide presentation accompanies today's call and is available on our website at investors.LyondellBasell.com
Speaker Change: Today, we will be discussing our business 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.
Speaker Change: We encourage you to learn more about the factors that 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: A recording of this call will be available by telephone beginning at 1 p.m. Eastern Time today until March 2nd by calling 877-660-6853 in the United States and 201-612-7415 outside the United States.
The access code for both numbers is 1-37-462-03.
Speaker Change: Joining today's call will be Peter Vanacker, Lined Elm South's Chief Executive Officer, our current CFO Michael McMurray, our incoming CFO Augustine Izquierdo.
Speaker Change: Kim Foley, our executive vice president of global olefins and polyolefins and refining, Aaron Ledet, our EVP of intermediates and derivatives, and Torkel Rhenman, our EVP of advanced polymer solutions.
Peter Vanacker: We will also discuss current market dynamics and our near-term outlook. 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 fourth quarter and full year 2024 results.
Peter Vanacker: I'm very proud of how our people navigated challenges, leveraged our strengths, and remained laser-focused on our strategy throughout a year that was not easy for our industry, particularly the fourth quarter.
Peter Vanacker: Let's begin as we always do with our safety results on slide 3.
Peter Vanacker: During 2024, our employees and contractors demonstrated their commitment to outstanding safety performance.
Peter Vanacker: I am proud to share that our total recordable injury rate for 2024 was 0.13, our second lowest year for the company.
Peter Vanacker: Even more impressive, as LYB continues to grow, we achieved the lowest number of injuries in our history. This truly is a testament to our Goal Zero commitment to safety and operational excellence.
Peter Vanacker: With such an impressive safety record, I would like to take a moment to highlight some of the amazing milestones we have reached this year.
Peter Vanacker: We celebrated six sites surpassing 10-plus years of no injuries. And our APS segment had record-breaking safety performance, reducing their incident rate by 39% compared to 2023.
Peter Vanacker: Operating safely is a prerequisite to achieving high reliability and creating shareholder value.
Peter Vanacker: I applaud our team for what we have achieved in 2024 and look forward to carrying this momentum into 2025 as we continue to strive for goal-zero performance.
[inaudible]
Peter Vanacker: Let's now turn to slide four to discuss our financial results.
Peter Vanacker: There is no getting around it, 2024 was another challenging year for petrochemicals. However, in spite of the headwinds, our strategic focus on value creation maximized cash generation and delivered solid returns to shareholders.
Peter Vanacker: Earnings were $6.40 per share with EBITDA of $4.3 billion. LYB generated $3.8 billion of cash from operations with an outstanding 90% cash conversion ratio.
Peter Vanacker: We returned 1.9 billion dollars to shareholders in the form of dividends and repurchases.
Peter Vanacker: Now let's turn to slide five and take a moment to reflect on where LYB and the industry are in the current cycle.
Peter Vanacker: Across our key businesses, fourth quarter industry margins are about 60% of historical averages, underscoring the depth of the current downturn.
Peter Vanacker: Let me share three thoughts on this challenging environment. First, this deep and prolonged downturn is not permanent.
Peter Vanacker: Global demand for durable goods will inevitably return following this post-pandemic downturn.
Peter Vanacker: Second, LYB has the potential to capture substantial upside from the cyclical recovery in volumes and margins.
Peter Vanacker: And third, LYB's strategic progress in unlocking incremental value could enable us to surpass our historical cycle performance.
Peter Vanacker: The opportunity is apparent in our sizable polypropylene business, where fourth quarter margins are less than 50% of historical averages, and operating rates are at least 5-10% points below industry norms, reflecting the severity of the downturn.
Peter Vanacker: For polyethylene, the margin compression is smaller, but the higher unit margins for the integrated value chain provide meaningful upside.
Peter Vanacker: We do recognize that the current dynamics represent more than just typical cyclical pressures. They also reflect some structural shifts in the industry relative to prior cycles.
Peter Vanacker: Slower global growth, particularly in China, structurally higher energy costs regulatory impacts in Europe, and other regions along with the potential for capacity additions to outpace demand have introduced sectoral challenges. These.
Peter Vanacker: These shifts are contributing to the depth and duration of the current downturn and will likely moderate future mid cycle margins relative to the prior decades.
Peter Vanacker: This is why our strategic initiatives to unlock sustainable value across our portfolio or essential.
Peter Vanacker: These actions are enabling us to pivot to high value opportunities and respond more effectively to changing market dynamics.
Peter Vanacker: Our focal points during 2025 or the transformation of our Houston refinery.
Peter Vanacker: The strategic review of select European assets, and strong execution of our global operating model.
Peter Vanacker: We're confident that these actions will lead to a durable uplift of our EBITA margins and provide lasting benefits for navigating future cycles.
Peter Vanacker: Now if you turn to slide six we highlight the progress on our strategy during 'twenty 'twenty four.
Peter Vanacker: Nearly two years since our capital markets day, Lyondellbasell has unlocked approximately one $3 billion of incremental normalized EBITDA through the execution of our three pillar strategy.
Peter Vanacker: With focus and urgency we are leveraging our strengths and extending our advantages to.
Peter Vanacker: The successful startup of our P O TBA plant in 'twenty to 'twenty, three is adding approximately $450 million on a mid cycle basis to our normalized EBITDA by leveraging our appropriate Terry technology and advantaged feedstock positions in these attractive markets.
Peter Vanacker: And I'm very pleased to report that over to value enhancement program mix is exceeding our expectations in 2020 for the V. P hasn't looked a year end run rate of more than $800 million of recurring annual EBITDA improvements wireless contributing approximately.
Peter Vanacker: $600 million stood at 2024 EBITA.
Peter Vanacker: In addition, we successfully completed the divestment of our noncore U N D business leveraging the sale proceeds to strengthen our portfolio by acquiring a 35% share in net spreads at cost advantaged integrated 40 propylene joint venture.
Peter Vanacker: During 2025, you can expect additional progress towards capturing value through our strategic priorities. We are confident in the progress of our V. P program and expect to exceed our goal to achieve a year end run rate of $1 billion of recurring annual EBITDA improvements.
Speaker Change: As you have seen or a P. S transformation has encountered headwinds from automotive production declines at some of our key customers in North America and Europe.
Speaker Change: But the improved customer focus of our Aps team has allowed <unk> to increase our win rates for new project approvals.
Speaker Change: And even the steam is doing an excellent job in growing volumes in our circular and low carbon solutions business, while our exit from the refining business remains on track.
Speaker Change: At the same time, we're remaining extremely disciplined in how we allocate capital during this downturn by carefully prioritizing high return capital projects and remaining steadfast to our highly selective approach towards M&A.
Speaker Change: As Michael will share our capital expenditures will be lower than our prior guidance, but we have been mindful to ensure our prudence does not meaningfully impact future growth.
Speaker Change: And you can be assured that we will not compromise our M&A discipline to fill growth targets with risky or marginal acquisitions.
On slide seven we provide an update on the growth of our circular and low carbon solutions or C. L. C S business.
Speaker Change: We continue to Bill C. L. C S through a focused strategy that leverages, our existing infrastructure and our competitive advantages such as innovative technologies and leading positions in growing markets with a global network of deep customer relationships.
Speaker Change: Our CLC as business continues to grow at an impressive pace.
Speaker Change: C. L. C. S volumes increased by 65% during 2024 to over 200000 tons across product lines based on mechanical recycling chemical recycling and renewable feedstocks.
Speaker Change: And we are generating attractive margins that are incremental to our fossil fuel based polymers.
Speaker Change: Or C. L. C. As business is targeting $1 billion of incremental EBITDA from 2 million tons of annual volumes by 2030.
Speaker Change: Despite the challenges in the chemical industry over the past year or 2024 C. L. C. S margins and volumes are on track with our 2030 plan.
Speaker Change: Please turn to slide eight let's take a look at our updated views on the supply and demand picture for circular plastics.
Speaker Change: Market demand for circular plastics remains robust.
Speaker Change: Consumer preferences, and Brent honor, our commitments to increase utilization of recycled plastics or driving demand growth in.
Speaker Change: In European regulation is bolstering demand by mandating increased utilization of recycled content and plastic packaging.
Speaker Change: But this transition to circularity it takes time.
Speaker Change: Infrastructure for plastics waste collection and sorting needs to be built.
Speaker Change: Large companies like L y D or developing technologies and building assets to increase supply by smaller companies are having mixed success, improving new technologies and launching businesses. We believe capacity growth will continue to be outpaced by rising demands.
Speaker Change: As rent owners, who discovered the supply of circular plastics is not keeping pace with our growth plans, they or pragmatically deferring their targets for utilizing circular plastics and some brand owners have revised previously ambitious targets to more realistic levels after considering the supply.
Speaker Change: Constraints.
Speaker Change: Demand growth is mirroring being delayed due to lack of capacity, but not being eliminated.
Speaker Change: Such L Y b and other industry observers or incorporating these constraints by scaling back 2030 forecasts for industry capacity and the addressable markets.
Speaker Change: The Mega trends and investment thesis remains intact. The market for circular plastics is expected to be short of supply and supportive of attractive margins for quite some time.
Speaker Change: <unk> strategy has not changed the construction of our first mowry take chemical recycling facility in Germany is progressing well and we are planning <unk> two for Houston brief regional hubs for sourcing and sorting plastic waste in both locations.
We are leveraging <unk> technologies operations, and global marketing network to execute our strategy and build a leading position in these attractive markets.
Please turn to slide nine let's briefly review the evolving regulatory framework for circular plastics in Europe.
Speaker Change: While consumer preference is a dominant driver for circular plastics forward thinking regulation in Europe is also strengthening demand growth.
Speaker Change: In Europe, we see regulation moving into right direction with P. P. W are the new packaging and packaging waste regulation.
Speaker Change: We have mandatory levels of recycled content in packaging, we expect CPW are will drive meaningful incremental demand for circular plastics on the order of four to 5 million tons by 2030, and even more by 2040.
Speaker Change: <unk> is well positioned through its differentiated technologies and solutions to take advantage of this growing opportunity.
Speaker Change: Context sensitive packaging with circular content is likely to require polymers produced using chemical recycling.
Speaker Change: Our appropriate Terry catalytic Moray take technology currently under construction in Germany will provide a profitable commercial scale solution.
Speaker Change: Before I turn over the call I would like to take a moment to share my appreciation for our CFO Michael Mcmurray.
Speaker Change: As we previously announced Michael has decided to retire in line with his personal plan after five years of service to Lyondellbasell.
Peter Vanacker: Michael Hasnt been an incredible friends and thought partner over the past three years as we developed and executed a new strategy for the company. In addition, Michael provided outstanding leadership for our global Finance team Wise counsel to our commercial leaders and oversaw the recapitalization of our.
Speaker Change: Our balance sheet.
Speaker Change: Look in the most favorable rates and maturities were likely to see in our lifetimes.
Speaker Change: Hi, Thank you for your leadership and look forward to continuing or personal friendship for many years to come.
Peter Vanacker: Peter Thank you for your kind words SKU have also been a great friend and partner over the past three years. Thank you.
Speaker Change: I also want to thank my team Mike.
Speaker Change: My colleagues and our board.
Speaker Change: The last five years have been fun rewarding and challenging and.
Speaker Change: Much has been accomplished.
Speaker Change: <unk> is a great company with great people and I'm confident the company is positioned for continued success.
Speaker Change: I look forward to following <unk> progress over the coming years, and finally on my <unk> and last earnings call as a public company CFO I. Thank all of you in the investing community. It has been a good ride.
Mike: Thank you Mike.
Augustine Izquierdo: I'm also pleased to share that our board has selected Augustine is Q.
Augustine Izquierdo: To become lined up our sales next CFO effective March 1st.
Augustine Izquierdo: Have you seen joined <unk> in 2022 after 13 years of service in various commercial and financial roles at <unk>, Ziff and nearly a decade and Morgan Stanley's investment banking Division.
Augustine Izquierdo: More recently Augustine was responsible for <unk> <unk> Americas segment with full P&L responsibility prior.
Augustine Izquierdo: Prior to that he was a member of the <unk> leadership team.
Augustine Izquierdo: We're also pleased that Augustine is <unk> first CFO to have been promoted from within the company. We aim to continue developing top talent across all levels of the organization as we step up our performance and culture.
Augustine Izquierdo: <unk> is with US here today would you like to say a few words are we seeing certainly Peter I am humbled honored and thrilled for this opportunity and I would like to thank our board <unk> Executive Committee and the entire finance organization for their warm welcome I look forward to engaging with the investment community over the coming months.
Speaker Change: Working to build on Michael's strong foundations to drive results for <unk>.
Speaker Change: We've seen Michael can you. Please continue with a few words about our progress on capital allocation.
Speaker Change: Absolutely Peter and good morning, again, everyone, let's continue with slide 10.
Speaker Change: As Peter mentioned, we are laser focused on advancing our strategic priorities, while maintaining a robust balance sheet that serves us well throughout the cycle.
Speaker Change: At the same time, we are committed to returning cash to our shareholders through a growing dividend and share repurchases.
Speaker Change: During 2024, we invested $1 $8 billion in capital expenditures carefully prioritizing projects to balance investment and future profitability.
Speaker Change: Our acquisition of a 35% position in that pet joint venture was offset by the divestment of our noncore ethylene oxide and derivatives business. We ended the year with $3 4 billion.
Speaker Change: Of cash and short term investments and $8 billion of available liquidity.
Speaker Change: Our strong cash conversion enabled us to maintain a resilient balance sheet and fully fund $1 7 billion in dividends and $195 million and share repurchases.
Speaker Change: In May we increased our quarterly dividend by 7%.
Speaker Change: Marking the 14th consecutive year of annual dividend growth and continuing our track record of providing a secure <unk>.
Speaker Change: Rowing and competitive dividend and we are well positioned to extend our track record of growing our dividend in 2025.
Speaker Change: Our capital allocation priorities are unchanged and we remain committed to returning 70% of our free cash flow to shareholders over the long term.
Speaker Change: Please turn to slide 11, and let me begin by highlighting the strong cash performance from our business during 2024.
Speaker Change: Over the past year, our business teams generated $3 $8 billion of cash from operating activities cash on hand remained flat for the year at $3 4 billion. During 2024, we achieved cash conversion of 90% well above our long term target of 80%.
Speaker Change: In addition to typical fourth quarter drawdown of inventories the company was able to pull forward. The release of some of the working capital provided by the closure of the Houston refinery.
Speaker Change: During the first quarter, we will utilize some of our cash on hand to rebuild lean year and inventories in support of our upcoming channel do turnaround and seasonal improvements across our businesses.
Speaker Change: In the U S tax relief associated with Hurricane barrel allowed us to defer cash tax payments during the second half of 2024 and these tax payments will be settled during February 2025.
Speaker Change: Now I'd like to provide an overview of the quarterly results of each of our segments on slide 12.
Speaker Change: <unk> business portfolio delivered $689 million of EBITDA during the fourth quarter sequentially higher ethane and energy cost and lower seasonal demand impacted both of our own P segments overall olefins <unk> polyolefin demand remained soft, particularly in Europe.
Speaker Change: Where utilization rates remained low.
Speaker Change: Additionally margin compression on declining gasoline cracks and oxy fuels impacted profitability within the intermediates and derivatives segment.
Speaker Change: In 2025 refining activities will really will be reported as discontinued operations in our financial results will be reported under the five remaining segments.
Speaker Change: The fourth quarter included the identified items of $852 million net of tax the items included noncash write downs related to our <unk>, Europe Asia, and international and advanced polymer solutions segment of $769 million and $42 million respectively.
Speaker Change: And cost incurred from plans to exit the refining business the impairments reflect the challenging market conditions for these businesses and include <unk> assets in our European Strategic review and an Asian joint venture, while the Aps impairment was incurred in our specialty powders business.
Speaker Change: Across the portfolio are noncash LIFO inventory valuation charge decreased pre tax fourth quarter results by approximately $23 million as a reminder, our fourth quarter LIFO reconciliations reflect changes in inventory valuation over the full year. The LIFO reconciliation is not necessarily linked to our fourth.
Speaker Change: Quarter valuations.
Speaker Change: Before we discuss our segment results in detail, let me discuss our capital expenditures plans for 2025 and beyond.
Speaker Change: Given the difficult operating environment, and our disciplined approach to capital allocation. We are deferring some growth investments until later in the decade for 2025, we expect our capex will be approximately $1 9 billion.
Speaker Change: Our 2025 capital plan includes approximately $700 million for profit generating growth projects and $1 $2 billion of sustaining investments to keep our assets running safely and reliably.
Speaker Change: The reduced capital plan prioritizes strategic investments in our <unk> business.
Speaker Change: Our second tranche of flex capacity in high return projects in our value enhancement program.
Speaker Change: We expect our 2025% effective tax rate will be approximately 17% and our cash tax rate will be approximately 10 percentage points higher the higher cash tax rate is largely due to the deferral of 20 of 2020 for U S tax payments into 2025 that was provided under hurricane Baroque disaster.
Speaker Change: Relief.
Speaker Change: As we always do during the fourth quarter call. We have provided additional 2025 modeling information in the appendix to the slide deck, describing expected impacts from major plant maintenance and other useful financial metrics with that I will turn the call over to Kim Kim.
Kim Kim: Thank you Michael.
Again, the segment discussion on slide 13, with the performance of our Olefins <unk> Polyolefin Americas segment.
Kim Kim: Fourth quarter, EBITDA was $496 million during the quarter integrated polyethylene margins decreased as ethane and natural gas prices increased negatively impacting margins.
Kim Kim: Strong demand from export markets increased our polyethylene volumes, we operated our assets at approximately 80% of nameplate capacity in line with market demand.
Kim Kim: Our olefins crackers ran at approximately 98% rates during the quarter.
Kim Kim: Our strong operational performance allowed us to capture additional spot sales and olefins markets benefiting our results by approximately $40 million.
Kim Kim: During the first quarter, we expect higher ethane and natural gas cost due to winter energy demand with modest improvements in product volumes following seasonal weakness and ongoing strength in export markets.
Kim Kim: We expect to operate our LNP Americas assets at an average rate of approximately 80% during the first quarter due to planned maintenance downtime at our channel the alternative assets as well as the impact of layer storm Enzo.
Kim Kim: Ahead of the storm.
Kim Kim: Proactively reduced rates and shut down some assets, we estimate that lost volume from the storm related downtime will impact first quarter EBITDA by approximately $45 million.
Kim Kim: In line with our commitment to build a profitable <unk> business.
Kim Kim: Remember, we announced our second investment in cyclic joint venture with <unk> and Exxonmobil, reaching final investment decision to build a second cyclic secularity center in Fort Worth Texas.
Kim Kim: The facility will have the capacity to produce more than 130000 tons per year of plastic feedstock for advanced and mechanical recycling and is expected to start up in the second half of 2026.
Now, let's turn to slide 14, and review the performance of our Olefins and Polyolefin Europe Asia and International segment.
Kim Kim: During the fourth quarter European markets remained weak with higher feedstock costs and softer seasonal demand.
Kim Kim: Extended maintenance activities at our next link site, along with additional unplanned downtime in France reduced volumes and impact EBITDA by approximately $20 million during the fourth quarter.
Kim Kim: Due to this downtime we operated our assets at rates of approximately 55%.
Kim Kim: The combined impact of weak demand and lower rates led to an EBITDA loss of $146 million.
Kim Kim: As we move into 2025, we expect improved European seasonal demand to drive higher volumes and margins. In contrast to 2024, our <unk> segment has no major turnaround scheduled for the coming year.
Kim Kim: Nevertheless, feedstock supply for one of our German crackers is currently constrained.
Kim Kim: Unplanned downtime at a nearby refinery.
Kim Kim: With those constraints and ongoing soft market demand, we expect to operate our European assets at a rate of 75% during the first quarter.
Kim Kim: Yeah.
Kim Kim: Our team investing Germany successfully completed our largest turnaround in the region during 2024.
Kim Kim: Our European Strategic review continues and we expect to be in a position to issue an update on the progress in the second half of this year.
Kim Kim: Our CLC business continues to grow.
Kim Kim: In October we acquired a P K, allowing us to integrate its unique solvent based low density polyethylene recycling technology until our comprehensive portfolio for building a profitable <unk> business.
Kim Kim: And construction is well underway for our first commercial catalytic chemical recycling plant more attack one in Germany.
Kim Kim: Yeah.
Kim Kim: Now, let's turn to slide 15, and discuss the results of their finding segment.
Kim Kim: During the fourth quarter, we incurred an EBITDA loss of $24 million margins remained relatively flat, despite falling gasoline and diesel spreads due to improved utilization of our catalytic cracker.
During the quarter, we operated the refinery at approximately 90% of capacity following unplanned downtime in the third quarter.
With an average crude rate of 244000 barrels per day.
Kim Kim: Looking forward refinery shutdown activities began following winter storm and Zoe in January and are expected to be completed within the first quarter.
Kim Kim: While the storm caused a slight delay we remain on track as we have already shut down the first train of crude and coker units with the second train the cat cracker and auxiliary equipment to follow.
In light of these activities, we expect final great finery utilization rates to be approximately 35% over the quarter.
Kim Kim: Our team remains highly focused on a safe and reliable shut down as we wind down operations of a 107 year old refinery.
Aaron Ledet: Our number one priority has and always will be safety I would like to take the opportunity to commend our team for an amazing job. During this journey with that I'll turn the call over to Aaron.
Aaron Ledet: Thank you Kim please turn to slide 16, as we take a look at our intermediates and derivatives segment.
Fourth quarter EBITDA was $250 million.
Aaron Ledet: Fourth quarter Oxy fuels margins were in line with typical winter lows driven by lower prices for crude oil as well as lower gasoline crack spreads.
Aaron Ledet: We experienced modest volume improvement in our derivatives business during the quarter, despite weak demand for durable goods.
Aaron Ledet: Styrene margins remain under pressure, given global supply and demand fundamentals, despite declining raw material prices.
Aaron Ledet: We operated our R&D assets at a rate of approximately 70% during the fourth quarter to match low seasonal demand.
Aaron Ledet: The IMT business achieved several strategic milestones in 2024, including the divestment of our noncore ethylene oxide and derivatives business and the operation of our newest P. O TBA asset at 78% rates for the year, surpassing our 2024 goal of 70%.
Aaron Ledet: With the steady progress operating rates are expected to run at benchmark rates going forward.
Aaron Ledet: These significant milestones highlight the decisive actions, we are taking to exit businesses, where <unk> does not have a path to market leadership, while growing and upgrading our core businesses and assets that are aligned with our long term strategy.
Aaron Ledet: As we began the first quarter, we expect to see moderate demand improvements across most businesses as customers begin restocking after year end inventory management.
Aaron Ledet: Additionally, we anticipate octane premiums will improve with the end of the winter and the favorable butane the crude ratios will continue to support long term oxy fuels fundamentals.
Aaron Ledet: We plan to operate our assets at approximately 80% during the first quarter inclusive of a small amount of unplanned downtime and lost volumes due to winter storm Enzo.
Speaker Change: With that I'll now turn the call over to total.
Speaker Change: Thank you Ara now let's review the results of our advanced polymer solutions segment on slide 17.
Speaker Change: Fourth quarter EBITDA was $15 million volumes were pressured by significantly lower fourth quarter demand from automotive customers across all regions slightly offset by favorable margins.
Speaker Change: Looking ahead, we expect the first quarter will reflect continued progress from our efforts to regain market share where our new renewed focus on customer centricity.
Speaker Change: Our customer centric approach helped drive approximately 20% EBITDA improvement during 2024, and an increase of 46% and our net promoter score from customers versus the prior year.
Speaker Change: The team has made substantial progress in transforming our business with strategic customers by building back trust and increasing our win rates to gain new project qualifications.
Speaker Change: This progress helped us achieve above market global volume growth for our sizable polypropylene compounds and <unk> businesses during 2024.
Speaker Change: In addition to our focus on transforming the business I would like to congratulate the Aps team for achieving record setting safety performance in 2024, surpassing our prior record from 2023.
Speaker Change: I truly believe our progress in defending our growth funnel and achieving superior safety results reflects our attention to detail and confirms we are on the right path to restoring and exceeding our historical performance.
Speaker Change: With that I will return the call to Peter.
Peter Vanacker: Thanks, Darko I would like to thank the entire line of Brazil team for delivering such resilient results.
Peter Vanacker: It's a very challenging macro environments.
Peter Vanacker: To close out on the segments, let's turn to slide 18, and discuss the results for our technology business on behalf of Jim Stewart.
Peter Vanacker: During the fourth quarter catalyst volumes moderated on typical seasonality, while we achieved higher licensing revenue very reaching project milestone step resulted in segment EBITDA of $108 million.
Peter Vanacker: This progress fourth quarter EBITDA exceeded prior year by approximately 40%.
Peter Vanacker: First quarter results for the technology segment are expected to decline to levels at or below the third quarter of 2024.
Peter Vanacker: While catalyst sales should improve with favorable seasonality, we expect moderating licensing revenue as project approvals for polyolefin capacity additions suicide across the world.
Peter Vanacker: Please turn to slide 19, as we discuss the near term outlook by region and end markets.
Speaker Change: As you heard from our business leaders, we expect modest seasonal demand improvements across most businesses during the first quarter.
Speaker Change: In the Americas, we expect typical seasonal demand recovery will be met with tighter supply due to plant downtime across the industry from an unusually high level of spring cracker maintenance, including or channel view turnarounds.
Speaker Change: In Europe, we expect rising energy costs will continue to pressure the European markets.
Speaker Change: Seasonal demand recovery and modest restocking of low inventories should provide some supports moving forward ongoing capacity rationalization appears likely and should help improve market balance between supply and demand.
Speaker Change: In Asia markets are showing slow, but steady improvements in both volumes and margins.
Speaker Change: We are encouraged by China targeted stimulus programs, but remain cautious while monitoring for signs that these efforts can translate into more meaningful market improvements.
For the packaging sector, we expect to continue seeing steady global demands as we move ahead into new year.
Speaker Change: And building and construction.
Speaker Change: U S infrastructure stimulus efforts or supporting increased industrial activity. Additionally, leading indicators for remodeling activity are predicting increased activity for the second and third quarters of 2025.
Speaker Change: In the automotive sector, a modest recovery in seasonal demand could be pressured by elevated inventory levels across the industry. Additionally, we're watchful of our changes in trade policies that could impact production as we move through the year.
Speaker Change: For oxy fuels stronger crude prices in typical spring time improvements in gasoline crack spreads should provide benefits as we move through the quarter.
Our focus remains on reliable operations and continuous optimization across our global footprint to capture market opportunities.
Speaker Change: And as Michael emphasized we are maintaining our laser focus on cash generation.
Speaker Change: Now, let me provide an overview of our outlook and how we are positioning <unk> to be over the longer term in slide 20.
Speaker Change: As we move into 2025, we're beginning to see signs of recovery in key end markets. After two years of declines domestic demand for U S. Polyolefin had a positive inflection in 2024.
Speaker Change: Reduced global interest rates moderating inflation, and pent up demand or provides a supportive backdrop for the inevitable recovery in demand for durable goods.
Speaker Change: But what are you man.
Speaker Change: But we remain watchful of the potential impacts of tariffs could have on affordability and global trade.
Speaker Change: Despite these uncertainties <unk> remains well positioned as the favorable oil to gas ratio continues to provide a cost advantage for our U S and middle East protection.
Speaker Change: Our portfolio transformation is well underway with strategic initiatives to strengthen and upgrade our core businesses.
Speaker Change: Recent milestones include the acquisition of the divestment of our <unk> business ongoing progress for all of our European Strategic review and our exit from refining.
Speaker Change: During 2024, we have made excellent progress towards building a profitable <unk> business by starting construction of our first more to take facility and bolstering our technology position with investments such as APK.
Speaker Change: Recent assessments by equal Validus and sustain analytics rates <unk> b in the top 10% for our industry.
Speaker Change: <unk> is at the forefront of providing sustainable solutions for our customers.
Speaker Change: <unk> is now on track to unlock at least $1 billion of recurring annual EBITDA by the end of this year.
Speaker Change: I am very proud of the progress our teams have made during 2024.
Speaker Change: And I'm confident that <unk> is well positioned to achieve our strategic priorities, while rewarding shareholders now with that we're now pleased to take your questions.
Speaker Change: Thank you, Sir ladies and gentlemen at this time, we'll begin the question and answer session. As a reminder, if you have a question. Please press the star followed by the one on your Touchtone phone.
Speaker Change: If you would like to withdraw your question. Please press star.
Speaker Change: Followed by the two.
Speaker Change: We do ask that you limit to one question each.
Speaker Change: Our first question comes from the line of Steve Byrne with Bank of America. Please proceed with your question.
Steve Byrne: Yes. Thank you I was just curious how much capex you expect to invest.
Speaker Change: To reach that.
Speaker Change: The 2 million ton.
Speaker Change: Lull of circular plastic.
Speaker Change: In the next five years, and presumably that will be largely the circular and revived but.
Speaker Change: How do you get that.
Speaker Change: Margin uplift from that you have a lot of confidence in it is that level of confidence sufficient to.
Speaker Change: To get some long term contracts before you build the plant.
Speaker Change: Thank you Steve This is Peter very good question.
Speaker Change: We alluded to the fact that we have around 20%.
Speaker Change: Of our total capex that is being invested in or C and Lcs business.
Speaker Change: We remain very confident because you have seen the very good growth that we have in the entire <unk> portfolio.
Speaker Change: In 2024.
Speaker Change: And we see the margins that they are in line with what we have said at the capital markets day in March 2023, So remember the incremental margin of $500 per ton.
Speaker Change: And it's incremental because that does not include the margin that is for example in the cracker.
Speaker Change: Taken into consideration as well as that of our portfolio in 2024 did not yet include any substantial chemical recycling so moray sick.
Speaker Change: With technology.
Speaker Change: Products.
Speaker Change: We are investing in the 50000 tons capacity in Cologne.
Speaker Change: You do the back of the envelope calculation that would stand for let's say around 25 million to 30 million incremental.
Speaker Change: EBITDA.
Speaker Change: Starting up towards the end of 2026 and as I said in my prepared remarks as well.
Speaker Change: We are now.
Speaker Change: We're very deeply engaged in the second investment, which is a double capacity. So 100000 tonnes of more <unk> that we can be built at our refinery site in Houston.
A final investment decision, but there is quite a lot of resources in.
Speaker Change: In the meantime that or are busy with the engineering and the preparation to move them into a final investment decision.
Speaker Change: Thank you. Our next question comes from the line of Patrick Cunningham with Citi. Please proceed with your question.
Patrick Cunningham: Hi, Good morning, Peter you painted the picture of material upside in margins just from getting back to normal mid cycle levels, but I think there were some very abnormal things, which may be benefited 10 year averages now sitting with plenty of supply overhang across a number of chains sluggish demand does anything suggest this is the new normal.
Patrick Cunningham: And if it is can you be more aggressive whats your strategy pivots.
Speaker Change: Yeah. Thank you Patrick very good question as well.
Speaker Change: I mean, we showed this chart to show what the upside is as we are moving towards an environment.
Speaker Change: It may be will not happen in Q1.
Speaker Change: But that we believe will continue to develop as we move towards the second half of 2025 in terms of higher demands, we see some uptick in demand.
Speaker Change: You've seen the numbers. If you just look for example at the demands in North America for <unk>, while the year on year domestic demand improved by 4%. The overall demands improved by 8% and polyethylene and that is because.
Speaker Change: There was a very good cost position that continues to be a good cost position that the north American players have in order to be able to export more so export grew by 12% year on year, but you'll see the same already if we looked at all of our propylene oxide and derivatives, even if everybody is saying, okay durable goods I mean, we don't see a big.
Speaker Change: Up tick in demand, while we were able to grow over propylene oxide and derivatives business by 4% year on year 2024, so compared to 2023.
Speaker Change: So we see that there is this uptick.
Speaker Change: Possible.
Speaker Change: Another point I want to repeat we have alluded to that also in our previous earnings calls there is not a huge amount of additional capacity that is coming on stream.
Speaker Change: Record capacity polyethylene and polypropylene capacity.
Speaker Change: This year and also next year and we are well positioned also on the other side I mean, an oxy fuels in propylene oxide and derivatives because we have.
Speaker Change: Our new units, which is performing extremely well.
Speaker Change: Very pleased with that.
Speaker Change: So lowest cost lowest carbon footprint propylene oxides, and very well positioned also as we see continuous demand growth I mean for oxy fuels on a global basis.
Speaker Change: Thank you. Our next question comes from the line of Josh Spector with UBS. Please proceed with your question.
Christopher Perrella: Hi, Good morning, it's Christopher Perrella on for Josh.
Christopher Perrella: With all the moving parts in the first quarter.
Christopher Perrella: As EBITA.
Christopher Perrella: Gross positive in the first quarter with our with the turnarounds.
Christopher Perrella: Can you bracket sort of what your EBITDA expectations are near term.
Christopher Perrella: Yeah, Let me answer that question Christopher of course, I mean, what you always see normally in the first quarter. As you know is that there is.
Christopher Perrella: An uptick in demand I mean that is seasonality.
Christopher Perrella: Of course, I also need to point out to the fact that.
Christopher Perrella: The first quarters are always starts with where the fourth quarter actually is ending.
Christopher Perrella: So we start at a low Poland points.
Christopher Perrella: Higher ethane costs for example, feedstock cost higher energy costs as we move into the first quarter.
Christopher Perrella: What will be of course very important for you to look at over first quarter.
Christopher Perrella: Is that we have a very large turnarounds and channel view. It is not a small one and you've seen them in the financial impacts that that turnaround tests and.
Christopher Perrella: In addition to that we anticipated or we took measures prior to the freeze Enzo.
Christopher Perrella: Hitting let's say Houston and surrounding.
Christopher Perrella: So we did proactively take measures we did shut down a number of lines.
Christopher Perrella: To minimize the impact.
Christopher Perrella: <unk> of the freeze so that will of course.
Christopher Perrella: <unk> Q1.
Christopher Perrella: With slightly lower operating rates as a consequence and open.
Christopher Perrella: We have slightly higher rates than in <unk> slightly higher rates than also in Europe Asia and international for <unk>.
Christopher Perrella: Let me point out that North American demand as I said before.
Christopher Perrella: In PE and pp remains on that trajectory of recovery. So it remains strong.
Christopher Perrella: But as said before I mean, Q1 starts where Q4 and saw.
Christopher Perrella: So a slow start in the year.
Christopher Perrella: But we remain having wider level off.
Christopher Perrella: Confidence as we move I mean towards 2025.
Christopher Perrella: We see I mean points in certain industries are also regionally.
Christopher Perrella: That are not a huge amount of additional capacity is set.
Christopher Perrella: So we see points, whereby I mean demand is starting slowly but steadily to improve.
Christopher Perrella: Peter if I might can I add a comment about the turnaround our turnarounds I think that's a better way to characterize it so I want to help all of you with your modeling.
Christopher Perrella: We're taking down in olefins unit as well as our metathesis, our flex unit and all of our C for processing. So the impact is not just the olefins, it's the propylene and CFR molecules. When we talk in each of these calls about optimizing the cost of alcohol.
Christopher Perrella: Wanted to make sure I highlighted that because last year, we had a turnaround and it was a $70 million impact do you see this time its a 190, so I wanted to help everybody better understand what that is.
Christopher Perrella: Okay.
Speaker Change: Thank you. Our next question comes from the line of Jeff Zekauskas with Jpmorgan. Please proceed with your question.
Christopher Perrella: Thanks very much.
Speaker Change: Why Intel has been characterized by Tim.
Christopher Perrella: Dividend increases through the year.
Christopher Perrella: And EBITDA has been under pressure, but cash flows have been good.
Christopher Perrella: Has the.
Christopher Perrella: This gain.
Christopher Perrella: Dividend increases for alliance outcome come to an end or.
Christopher Perrella: You know our dividends looking like they could increase in 2025.
Speaker Change: Thank you, Jeff good question, as well and I'm going to start and maybe then also hand over to Michael you heard me, saying as well and you heard Mike Michael say as well in the prepared remarks.
Speaker Change: Fantastic cash flow generation.
Speaker Change: Throughout the year 2024, after a year 2023, where we did that as well.
Speaker Change: I'm personally very pleased with the attention that all our people have on cash cash flow generation, you'll see the results out of that because it's not just by coincidence.
Speaker Change: In addition to that of course, we're doing that big transformation during 2025, which helps and having a very focused portfolio.
Speaker Change: That is also helping us to continue the trajectory as we have said that the capital markets day on very good cash flow conversion.
Speaker Change: So if you look at all these sectors, that's why we Michael and I and we set them in the prepared remarks, I mean, we're continuing to be very well positioned.
Speaker Change: To continue the trajectory to increase our dividends of course, not a decision at this point in time as you. All know that's a decision that is following in may and that will be taken then by the boards, but if we look at the numbers we continue to be quite.
Speaker Change: Quiet confidence Michael Yes, I mean, a couple of things a couple of things also that I'd add Peter is one the balance sheet isn't phenomenal phenomenal shape.
Speaker Change: Our maturity profile looks wonderful.
Speaker Change: And then we've been very disciplined and balanced from a capital allocation perspective, so we've been rewarding our shareholders with the dividend. We're also in the market buying back shares as everyone has seen but we've also been very disciplined from a capital.
Speaker Change: Finish your perspective, and if for the benefit of investors, you'll recall that we said on average we're going to spend about $2 billion over the period of 'twenty three 'twenty four and 'twenty five.
Speaker Change: And actually we've taken out about $750 million from those previous plan. So we are being very very disciplined given kind of market conditions, but we're confident that we have the ability to responsibly grow our dividend in the future.
Speaker Change: And that Capex that we are the prioritization that we did very intensively during 2023.
Speaker Change: And 2024 and again, though for 2025.
Speaker Change: Is really I mean, a different view and how we are prioritizing.
Speaker Change: Our capex.
Speaker Change: Diligent view on all the different projects.
Speaker Change: Taking into the consideration the portfolio change.
Speaker Change: That we are making.
Speaker Change: So it's not a major impact that I expect that that has I mean, if you look at all of our growth.
Speaker Change: For the big projects like for example, the <unk> projects like for example, or next flexible Mesa phases. Now reflects two units in China. So it's not impacting those very important strategic growth projects.
Speaker Change: Thank you. Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.
Vincent Andrews: Thank you Peter you made a couple of comments about our capacity one.
Vincent Andrews: Europe, suggesting that we might finally see some some meaningful rationalization there and I think also when you were talking about the technology segment.
Vincent Andrews: Talked about how youre seeing some some future projects from customers get I think you said canceled, but maybe you only said to FERC, but if you could just give us a little insight on what you are hearing and seeing and how meaningful.
Vincent Andrews: Both of those might might be to the.
Vincent Andrews: Near or medium term.
Vincent Andrews: Thank you Vincent a very good strategic questions.
Vincent Andrews: Capacity rationalization in Europe.
Vincent Andrews: As you know is ongoing you know there has been.
Vincent Andrews: Quite some announcements in the meantime out there.
Vincent Andrews: And you know I mean from the market that these have not just been announcements, but actually capacities or being shut down.
Vincent Andrews: And it's.
Vincent Andrews: It's not a coincidence because we all know that.
Vincent Andrews: There is quite some challenges in the European markets.
Vincent Andrews: Energy costs just to point to that's is extremely high.
Vincent Andrews: And everybody is asking I mean four supports.
Vincent Andrews: From the regulators to keep the industry in Europe, but in the meantime.
Vincent Andrews: It takes time until these these decisions are being taken ideal therapies and.
Vincent Andrews: The entire industry is taking action the list is getting longer and longer on rationalizations in Europe.
Vincent Andrews: You know that we have been very early in that entire process with all of our European strategic assessments.
Vincent Andrews: We continue to make very good process progress on.
Vincent Andrews: On the strategic assessments nothing that we can announce at this point in time, but rest assured.
Vincent Andrews: We're making very good progress in that regard.
Vincent Andrews: Youll see the other side and that gives us always a good hedging on a good visibility because in our technology segment we.
Vincent Andrews: We do see that there is a slowdown.
Vincent Andrews: In demands for licenses and that fits very well together with what we have been saying that there was a slowdown additional capacities.
Vincent Andrews: That will be buildup.
Vincent Andrews: During the next years five years as long as we can look forward.
Speaker Change: Thank you. Our next question comes from the line of Frank Mitsch with Fermium Research. Please proceed with your question.
Frank Mitsch: Hey, good morning, and best.
Frank Mitsch: Best wishes again, Michael and best and congrats again Augustine.
Augustine Izquierdo: Thank you Frank.
Peter Vanacker: Yeah, Peter you you offered that.
Speaker Change: We're starting out <unk> at a low level mentioning energy prices ethane prices et cetera, obviously theres a lot of price increases that are on the table I'm speaking, specifically on polyethylene and just O N P Americas in general.
Speaker Change: So we have some price increases on the table. We also have some contract resets how do you how do you view the margin profile for polyethylene playing out as we move through the first quarter.
Frank Mitsch: Thank you Frank and Oh of course also thank you I mean for.
Speaker Change: Send them best wishes to Michael and I'm, absolutely confident that Augustine is going to be a very good successor off Michael.
Speaker Change: Having worked no we've always seen them since a number of years. So to your question. If you look at all the data points.
Speaker Change: No.
Speaker Change: Major capacity increases in North America that are hitting the markets.
Speaker Change: The surprise that we had in Q4 that prices didn't go up for polyethylene, but actually went down. Despite the fact that the quarter was very balanced with a quite a lot of exports outside of the United States.
Speaker Change: You know I mean, these price increases that are out there.
Speaker Change: For both <unk> as well as four P. P.
Speaker Change: So let me hand over now to our head of the business units to Kim.
Speaker Change: Kim how confident are you.
Speaker Change: So I wanted to build a little bit on this story before I talk about confidence in price increases.
Speaker Change: You know in January and December as we've alluded to and you saw these higher feedstock and energy cost that translates to about a five or six cents per pound increase in ethylene.
Frank Mitsch: So we're coming into this market with lower starting mono polymer prices as well as as you've said Frank contract resets.
Frank Mitsch: So L I V and other producers have announced seven and five.
Speaker Change: Do I have a crystal ball and can say that well, what's the probability of that no, but what I want to remind you to help you understand the full picture is 5% of the industry crackers are coming offline. That's a lot of capacity. So if I'm, an integrated producer and I've got an olefins outage and I going to buy expensive ethylene to have a negative margin.
Margin and produce polyethylene I don't think so so I think it's really important that everybody understands the full gist.
Speaker Change: And the important is that we've got to have margin throughout the chain.
Speaker Change: So don't have a crystal ball, but I'm pretty confident that we're going to see some margin or some price improvement in the first quarter.
Speaker Change: It had some impacts of Enzo as well yes.
Speaker Change: Very good.
Speaker Change: Thank you ladies and gentlemen, our final question. This morning comes from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.
Speaker Change: Yes, Thank you and good morning, everyone.
Kevin Mccarthy: My compliments on slide number five.
Speaker Change: Which I think is interesting to.
Speaker Change: Compare and contrast, the degree of depression across some of these markets. Peter I. Appreciate your updated cycle view on the propylene chain or polypropylene it.
Speaker Change: It seems to me on the one hand. These cracker closures should also serve to diminish supply of propylene monomer on the other hand I.
Speaker Change: I think you have.
Speaker Change: A lot of these crude oil to chemical projects around the world, particularly longer term that are meant to maximize propylene coming out of refineries and so forth. So how do you view, maybe the next two or three years in that chain and Mike.
Speaker Change: Might you plan to take strategic action there yourselves.
Speaker Change: Yes. Thank you very much I mean, Kevin let me hand over to Kim on that question.
Kim: So Kevin I think as you've seen the.
Kim: The industry go to lighter feedstocks more ethane versus Knapp that you've seen a decline in propylene a lot of people is.
Kim: And as such have built PD H units, where you can do to converting propane to propylene and you see a lot of that capacity has been in China. So you're seeing China set the floor here for propylene at kit to polypropylene dynamics.
Kim: Lyondellbasell for us being an integrated propylene producer, it's important for us not only on polypropylene propylene oxide.
Kim: We've announced that we are in.
Kim: S D for at what we call our flex two or metathesis unit.
Kim: And we are taking back control of the propylene molecules for us not only as we shut down our refinery and lose our refinery grade propylene, but also as we think about how to have better integration through our chains.
Kim: To add to that of course, we continue to be very engaged in Saudi Arabia.
Kim: With our joint venture that we have buildup.
Kim: Net pets.
Kim: So we have I mean of course that capacity in polypropylene, which is a lowest delivered cost capacity.
Kim: Very good feedstock conditions.
Kim: And we continue to work with our partner on the expansion project to more than double that capacity.
Kim: Other parts I mean on strategic measures is falling in the European assessments.
Kim: Remember before we started with European assessment, we took out capacity in the southern part of Italy.
Kim: And assets, we are still working on the European assessments, we are in the market, making good progress on that as well so you'll see that shift strategically.
Speaker Change: With all these elements are the ones that Kevin alluded to the ones that I mentioned.
Kim: To have.
Kim: To be very well positioned to grow in one hand sites, but grow also with a much lower cost position.
Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. <unk> for any final comments.
Yes. Thank you again for all the excellent questions I also want to again, thank our global team for delivering outstanding value and maximizing cash conversion during these challenging times.
Speaker Change: Operating safely and reliably.
Speaker Change: I would like to leave you with four key messages.
Speaker Change: First of all we continue to make excellent progress on our strategy to make <unk> a much more focused company with a leading streamlines.
Speaker Change: And as the vantage assets footprint and product offering.
Speaker Change: Secondly, we're best positioned to navigate this long down cycle and we see early signs of improvements.
Speaker Change: Our cash conversion and dividend yields continues to be leading in our industry and we are well positioned to extend our track records of growing our dividend in 2025 and fourth we're progressing well with the execution of our company transformation to grow our asset portfolio.
Speaker Change: Of cost advantaged operations from 60% to 70% and we have started work to simplify our operating model as a consequence, then out of that so with that we wish you all a great and safe weekend stay well. Thank you.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.