Executive Summary / Key Takeaways

• LyondellBasell is undergoing a significant strategic transformation, exiting non-core, lower-margin businesses like Refining and certain European assets while investing in cost-advantaged operations and high-growth areas like Circular & Low Carbon Solutions (CLCS).
• Despite facing a deep and prolonged cyclical downturn in petrochemicals, exacerbated by volatile trade policies and regional demand weakness, the company is leveraging its cost-advantaged feedstock positions in the U.S. and Middle East and proprietary technologies to maintain resilience.
• Operational performance in Q1 2025 was impacted by planned and unplanned maintenance, particularly in OP-Americas, leading to lower sequential and year-over-year EBITDA, although the absence of prior-quarter impairments provided a sequential boost to overall operating income.
• The Value Enhancement Program (VEP) and the new Cash Improvement Plan (CIP) are key initiatives targeting substantial recurring EBITDA improvements ($1 billion run rate by end of 2025 for VEP) and cash flow enhancement ($500 million annualized savings for CIP in 2025) to bolster performance during the downturn.
• LYB maintains a strong balance sheet and is committed to disciplined capital allocation, including a track record of growing dividends and opportunistic share repurchases, aiming to return 70% of free cash flow to shareholders over the long term.

A Strategic Pivot Amidst Cyclical Headwinds

LyondellBasell Industries N.V. operates at the heart of the global chemical industry, manufacturing essential chemicals, polymers, and fuels, while also developing and licensing polymer production technologies. The company's history is marked by a commitment to operational excellence, particularly safety, where it has consistently achieved industry-leading results. Over the past decade, LYB has navigated significant shifts, including the shale revolution's impact on North American feedstocks and the rationalization of manufacturing sites to optimize its footprint.

Since 2023, LYB has embarked on a decisive strategic transformation, articulated through a three-pillar strategy focused on growing and upgrading its core businesses, building a profitable Circular & Low Carbon Solutions (CLCS) segment, and stepping up performance and culture. This pivot is occurring against the backdrop of a deep and prolonged downturn in the petrochemical cycle, described by management as the longest in their career, driven by factors including slower global growth, elevated energy costs, and supply/demand imbalances. LYB's strategy is designed not just to weather this downturn but to emerge stronger, more resilient, and more profitable.

Central to this strategy is a rigorous evaluation and reshaping of the company's asset portfolio. Non-core, lower-margin businesses are being exited, exemplified by the cessation of refining operations at the Houston refinery in February 2025. This move exits a volatile business that historically delivered only brief periods of profitability and is expected to enhance LYB's average EBITDA margin. Similarly, a strategic review of certain European assets is underway, leading to actions like the announced sale of four assets and the permanent closure of the Dutch PO joint venture with Covestro (COVTY), driven by profitability pressures from global overcapacities and high regional costs. These actions aim to streamline the portfolio and focus on assets that meet LYB's criteria for core businesses: leading market positions, attractive returns, and access to advantaged feedstocks.

Concurrently, LYB is investing in growth projects that align with its strategic vision. The approval of the Flex-2 propylene expansion project at Channelview in Q1 2025 is a key example, leveraging cost-advantaged feedstocks and proprietary technology to enhance self-sufficiency and reduce market volatility exposure. Expansion in cost-advantaged regions is also a priority, highlighted by the acquisition of a stake in the NATPET polypropylene joint venture in Saudi Arabia and the feedstock allocation for a joint project with Sipchem, positioning LYB for growth in regions with favorable economics.

Technological Differentiation and Innovation

Technology is a cornerstone of LyondellBasell's competitive strategy, providing differentiated capabilities and supporting its cost-advantaged position. The company leverages several key proprietary technologies across its segments:

• PO/TBA Technology: This proprietary process produces propylene oxide and tertiary butyl alcohol (oxyfuels). The newest PO/TBA asset, successfully started up in 2023, ran at a 78% rate in 2024 and close to benchmark rates in Q2 2024. This technology produces oxyfuels from butane at a significant discount to crude oil-based gasoline production and provides high octane levels for gasoline blending. Management expects this asset to run at benchmark rates going forward, providing a world-leading cost advantage for PO and oxyfuels.
• Flex-2 Metathesis Technology: Approved for the Channelview expansion, this technology converts ethylene into higher-value propylene. It offers greater reliability, lower capital intensity, and lower carbon intensity compared to alternatives like propane dehydrogenation (PDH). The project is expected to cost approximately $800 million (with peak spend of ~$300 million in 2026), deliver an IRR in the mid-teens, and provide an estimated EBITDA benefit of approximately $150 million per year post-startup (expected late 2028). It will reduce LYB's net long ethylene position and net short propylene position in North America.
• MoReTec Technology: This proprietary catalytic advanced recycling technology is designed for hard-to-recycle mixed plastic waste. The first commercial-scale facility (MoReTec-1) is under construction in Germany, expected to start up in 2026 with a capacity of 50,000 metric tons per year. Key quantifiable benefits include a plastic-to-plastic yield exceeding 80%, low energy intensity, the ability to use 100% renewable electricity, and half the carbon footprint compared to fossil-based feedstocks. Planning is underway for a second, larger MoReTec-2 unit (100,000 tons/year capacity) in Houston, leveraging existing refinery infrastructure.
• Catalloy Technology: Another proprietary LYB technology used for producing specialized elastomeric polyolefins, utilized in high-value applications like roofing membranes. This technology is expected to be included in the planned Saudi project with Sipchem.
• APK Solvent-Based Recycling Technology: Acquired in 2024, this technology is unique for recycling low-density polyethylene, particularly laminated films, expanding LYB's portfolio of recycling solutions.

These technologies provide LYB with distinct competitive advantages. The PO/TBA and Flex-2 technologies enhance cost leadership by enabling efficient production from advantaged feedstocks. The MoReTec and APK technologies position LYB at the forefront of the growing market for circular and low-carbon solutions, where demand is bolstered by consumer preferences, brand owner commitments, and European regulation (PPWR) mandating recycled content. While some competitors are also investing in recycling, LYB's proprietary catalytic process offers differentiated performance metrics. These technological moats contribute to potentially higher margins, access to new markets, and a stronger competitive position against rivals relying on older or less efficient processes.

Competitive Landscape and Market Positioning

LyondellBasell operates in a highly competitive global market against a diverse set of players, including large integrated oil and gas companies (like ExxonMobil (XOM) and TotalEnergies (TTE)), other major chemical producers (like Dow (DOW) and BASF (BASFY)), and smaller regional or specialty players. The competitive dynamics vary by segment and region.

In olefins and polyolefins, LYB's cost position benefits significantly from access to low-cost natural gas and NGLs in North America and the Middle East, providing an advantage over competitors relying heavily on oil-based feedstocks like naphtha. While large integrated players like ExxonMobil benefit from scale and upstream integration, LYB leverages its flexible feedstock capabilities and strong domestic market share in the U.S. (higher than local peers) to optimize profitability. The European market, characterized by higher energy costs and ongoing capacity rationalization across the industry (with Italian capacity rationalizations alone approaching 3 million tons), presents challenges but also opportunities for players with more competitive footprints or differentiated offerings. LYB's strategic review and planned exits in Europe are a direct response to these regional competitive pressures.

In intermediates and derivatives, LYB's proprietary PO/TBA technology provides a cost advantage over older technologies like chlorohydrin-based PO production, which faces regulatory bans in key markets like China by the end of 2025. This positions LYB favorably against competitors still utilizing these older processes. However, the segment remains exposed to volatile feedstock prices (like butane and propylene) and demand fluctuations in end markets like durable goods and fuels, where competitors like BASF and TotalEnergies also operate.

The Advanced Polymer Solutions segment competes in more specialized markets, where performance, innovation, and customer relationships are critical. Despite facing challenging end markets like automotive, LYB's APS segment is focused on increasing win rates for new project qualifications and optimizing costs to gain market share and improve profitability, competing with players offering similar compounding and solutions.

In the Technology segment, LYB competes by licensing its polyolefin process technologies and selling catalysts. The pace of global polyolefin capacity additions directly impacts licensing revenue, and competition comes from other technology licensors.

Overall, LYB positions itself by emphasizing its cost-advantaged asset base (aiming to increase this from 60% to 70% of its portfolio), proprietary technologies that offer efficiency and differentiation, and a focus on high-value and growing markets like CLCS. While some competitors may have greater scale or broader R&D budgets, LYB's targeted investments and portfolio optimization are designed to enhance its profitability and resilience relative to peers, particularly as the industry navigates structural shifts and cyclical pressures.

Financial Performance and Operational Details

LyondellBasell's recent financial performance reflects the challenging market environment and the impacts of its strategic transformation and operational activities.

In the first quarter of 2025, the company reported Sales and other operating revenues of $7,677 million, a decrease from $8,304 million in Q1 2024. Operating income was $114 million, significantly lower than $651 million in Q1 2024. Net income attributable to the Company shareholders was $175 million, or $0.54 per diluted share, compared to $471 million, or $1.44 per diluted share, in Q1 2024.

Segment performance in Q1 2025 showed varied trends. OP-Americas EBITDA decreased significantly to $251 million from $521 million in Q1 2024, primarily due to lower margins driven by higher feedstock costs and reduced volumes from planned and unplanned maintenance, including a major turnaround at the Channelview complex and impacts from Winter Storm Enzo (estimated $45 million EBITDA impact). OP-EAI EBITDA saw a modest increase to $17 million from $14 million in Q1 2024, benefiting from improved margins and utilization following maintenance, although the segment's Q4 2024 EBITDA ($1,156 million) included significant non-cash impairment charges ($837 million in OP-EAI). ID segment EBITDA fell sharply to $94 million from $312 million in Q1 2024, mainly due to margin compression in oxyfuels and acetyls, exacerbated by $117 million in shutdown costs recognized in Q1 2025 related to the closure of the European PO Joint Venture. APS EBITDA increased to $46 million from $35 million in Q1 2024, driven by margin improvements and cost efficiencies despite challenging end markets. Technology EBITDA decreased to $52 million from $118 million in Q1 2024, reflecting lower licensing revenue as global polyolefin capacity additions moderate.

Income from discontinued operations (Refining) was notably higher at $154 million in Q1 2025 compared to $40 million in Q1 2024, primarily benefiting from a $196 million LIFO inventory liquidation benefit net of tax.

The effective income tax rate in Q1 2025 was high at 61%, compared to 20.3% in Q1 2024, largely due to the discrete tax recognition of foreign exchange gains and losses relative to lower pre-tax earnings.

Cash flow from operations showed a significant use of cash in Q1 2025 ($579 million used), primarily driven by a $716 million build in working capital (accounts receivable and inventories) following maintenance downtime and higher cash taxes due to deferred 2024 payments. This contrasts with a $114 million use of cash in Q1 2024. Capital expenditures were $483 million in Q1 2025. The company returned $543 million to shareholders in Q1 2025 through dividends ($433 million) and share repurchases ($110 million).

Despite the Q1 2025 cash use, LYB maintains a strong balance sheet with $1,867 million in cash and cash equivalents and $4,650 million in available liquidity under credit facilities as of March 31, 2025. Total debt was $11,220 million. The company's cash conversion rate was 87% over the past 12 months, exceeding its long-term target of 80%.

Strategic Initiatives and Outlook

LyondellBasell is actively executing its strategic initiatives to improve performance and position for future growth. The Value Enhancement Program (VEP) is a key driver, on track to unlock $1 billion in recurring annual EBITDA by the end of 2025. This program is becoming embedded in the company's culture, contributing through improved product mix, higher volumes from better reliability, and fixed cost reductions.

In response to the challenging market, the company launched a $500 million Cash Improvement Plan (CIP) for 2025, targeting $100 million in CapEx deferral, $200 million in working capital reduction, and $200 million in fixed cost reductions. This plan aims to enhance cash flow and resilience during the downturn.

Looking ahead to the second quarter of 2025, management expects seasonal demand improvements across most businesses. U.S. natural gas and ethane feedstock costs have moderated, benefiting North American operations. European and Asian operations are expected to benefit from lower crude oil costs. Oxyfuels margins are anticipated to improve with the start of the summer driving season and higher gasoline crack spreads.

Specific operating rate targets for Q2 2025 include 85% for OP-Americas assets (improving from Q1 due to Channelview startup), 75% for European OP-EAI assets (balancing seasonal demand and operating constraints), and 85% for ID assets. The Technology segment's Q2 results are expected to be similar to Q1, reflecting the moderating pace of global polyolefin capacity additions.

Management remains watchful of volatile trade policies, particularly escalating tariffs involving U.S. trade, but believes LYB's global supply network provides resilience and the ability to shift trade flows. They note that less than 10% of polyolefin sales volumes are likely to see direct tariff impacts.

The long-term outlook is framed by the expectation of an eventual market recovery, driven by the return of demand for durable goods, moderating inflation, and potentially lower interest rates. The ongoing capacity rationalization in Europe is expected to improve regional supply/demand balances. The CLCS business is a key growth area, targeting $1 billion of incremental EBITDA from 2 million tons of annual volumes by 2030, supported by strong market demand and regulatory tailwinds despite near-term supply constraints leading some brand owners to defer targets.

Capital allocation remains disciplined, with a 2025 CapEx forecast of approximately $1.9 billion, prioritizing sustaining investments ($1.2 billion) and profit-generating growth projects ($700 million) like Flex-2 and MoReTec-1. The company is committed to maintaining an investment-grade balance sheet and continuing its track record of growing dividends, viewing its strong cash generation and financial position as foundational to shareholder returns.

Risks and Challenges

Despite strategic progress and efforts to enhance resilience, LyondellBasell faces significant risks. The most prominent is the duration and severity of the current petrochemical downturn, which could be prolonged by macroeconomic uncertainty, volatile trade policies, and geopolitical factors. While management anticipates an eventual recovery, the timing remains uncertain.

Feedstock and energy price volatility pose ongoing challenges, particularly the oil-to-gas ratio, which can impact the relative competitiveness of different regions. Although U.S. feedstock costs have recently moderated, the forward curve suggests potential caution.

Competitive pressures remain intense across all segments. Global overcapacities, particularly in certain product lines and regions, can compress margins. While LYB's technologies offer advantages, competitors are also investing in new capacity and technologies, including in sustainable solutions. The pace of new capacity additions globally, even if moderating, could still outpace demand growth in some areas.

Execution risk is associated with major strategic initiatives, including the European strategic review (successful divestiture or rationalization), the transformation of the Houston refinery site into a future hub, and the construction and ramp-up of new facilities like MoReTec-1 and Flex-2. Delays or cost overruns could impact financial performance and strategic timelines.

Regulatory risks, including changes in environmental regulations, trade policies (tariffs), and mandates for recycled content, can impact operations, costs, and market dynamics. While European CLCS regulations are seen as supportive, trade policy volatility remains a significant near-term concern.

Operational risks, such as unplanned downtime, maintenance impacts, and disruptions from severe weather events (as experienced with Hurricane Beryl and Winter Storm Enzo), can negatively affect volumes and profitability.

Conclusion

LyondellBasell is navigating a challenging period for the petrochemical industry with a clear strategic vision focused on transformation and long-term value creation. By exiting non-core assets, optimizing its cost structure through initiatives like the VEP and CIP, and investing in advantaged operations and innovative technologies like PO/TBA, Flex-2, and MoReTec, the company is actively reshaping its portfolio to emerge stronger from the current downturn.

While recent financial performance reflects the pressures of the cycle and operational impacts, the underlying strategic actions are designed to enhance profitability, resilience, and cash flow generation. The company's strong balance sheet and commitment to disciplined capital allocation, including a robust dividend policy, provide a foundation for weathering the current environment and capitalizing on future market recovery. Investors should monitor the execution of the European strategic review, the progress of key growth projects, the realization of VEP and CIP benefits, and the trajectory of global demand and trade policies as key indicators of LYB's path towards sustainable future success.