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CEO - CFO Interview

An Interview with Borealis CEO Alfred Stern and CFO Mark Tonkens

Looking back on 2019, what stands out most?

AS I would start with safety, which always comes first at Borealis. Although we made good progress on process safety, and even though we are still an industry leader when it comes to personal safety, our 2019 TRI rate of 1.6 incidents per million working hours is an increase versus 2018. Most incidents were what one could call “slips and trips,” but a fatality at the beginning of the year marks our overall safety record in 2019. We must do better – and we will.

How would each of you sum up the year’s highlights?

AS It was a fast-paced year full of changes. We made substantial progress on our numerous growth projects. And we have entered into promising new partnerships with Neste, EREMA, and OMV to drive the circular economy of plastics – this is EverMinds™ in action! In terms of business performance, the first half of 2019 was quite satisfactory, but later on, tougher conditions prevailed as the olefins and polyolefins industry environment became more challenging.

MT In our Fertilizer business we achieved a turnaround, and results are significantly better than in 2018. This positive development is the result of our joint effort to drive the transformation of this business. In olefins and polyolefins, our long-term strategy of investing in feedstock flexibility on the one hand, and Value Creation through Innovation with specialty polymers on the other, is truly paying off. We have been able to achieve solid results in 2019 despite the lower price environment in Asia, which has negatively impacted the profitability of Borouge.

Borealis has a number of global outreach and growth projects. Please update us on their status.

AS Overall, we have made excellent progress in our overarching aim to enhance customer centricity, in part by extending and deepening our geographic reach. A definite highlight in 2019 was the groundbreaking ceremony of our new, world-scale propane dehydrogenation (PDH) plant in Kallo, Belgium. This is a huge step for us and the biggest single investment Borealis has ever made in Europe. We are also implementing an 80 kilotonne capacity increase in our polypropylene (PP) plant in Kallo that will benefit from the feedstock supply from the new PDH. This investment will enable us to consolidate our strong position as a key polyolefins supplier in Europe in the long term. In Texas, US, construction continues on the new Borstar® polyethylene (PE) unit and steam cracker as part of our Baystar joint venture with NOVA Chemicals and TOTAL. This project allows us to bring third-generation Borstar to our North American customers for the first time.

MT Another major project already in the execution phase is the fifth Borstar polypropylene plant of Borouge. At the same time, the next and fourth phase of Borouge expansion is currently in the FEED (front end, engineering, and design) phase, moving forward as we speak.

AS A truly global effort centres on the Memorandum of Understanding we signed at the beginning of 2019 with our Borouge joint venture partner, ADNOC, to explore strategic opportunities in the polyolefins industry. We have already identified a promising investment opportunity in India, where we plan to establish a world-scale PDH plant in Mundra together with our partners BASF and Adani. We would also build a PP complex based on our Borstar technology that would be jointly owned by ADNOC and Borealis and – ideally – be 100% powered by renewable energy. Should these ambitious plans be affirmed by our feasibility study, we see this petrochemicals complex as a great opportunity to expand our presence in one of the strongest growth markets in Asia. On a completely different note: we won two German brand awards in 2019. A strong brand reputation also supports us in generating and capturing business value for Borealis in the long-term.

Mark Tonkens, could you discuss another focus area, Fertilizer and Melamine?

MT In 2018, we took the decision to separate our Fertilizer, Melamine and Technical Nitrogen Products businesses from Polyolefins and Hydrocarbons & Energy. We are very pleased to see that our Fertilizer business has turned the corner and posted good results in 2019 after three straight years of under-par performance. Of course the overall fertilizer market environment has also been challenging, but we recognised that our own organisation needed to change. The internal improvement programme launched at the end of 2018 to revitalise this unit showed that our people are open to change: there is a true sense of excitement in being a dedicated unit with the flexibility to respond to its own market conditions, as opposed to being just one part of the larger Borealis business. That said, we do see a need for consolidation within the European fertilizer market.

But for the time being, we intend to build on our track record of solid business and safety performance in order to further enhance our status in the fertilizer industry.

Across the polyolefins industry, the move towards a circular economy of plastics appears to be accelerating. How has Borealis helped lead this transformation in 2019?

AS At Borealis, we re-invent for more sustainable living. Plastic is a fantastic and versatile material, and for many applications it is the best material. The challenge now is to make it even better by making it circular.

Circular economy principles are present at all levels of our organisation. In October, we announced a strategic collaboration with Neste for the production of renewable PP in Kallo. This is the first time we have used bio-based feedstock as a partial replacement for fossil feedstock in the commercial production of PP, and the first time ever that renewable propane dehydrogenation has been carried out on an industrial scale.

We have more than doubled our total mechanical recycling capacity since 2016. This is due in part to recent investments in our own Ecoplast factory in Wildon, Austria, where we have boosted capacity by 60% thanks to a new state-of-the-art production line. In 2019, we also stepped up our partnership with EREMA. We also joined forces with OMV in May to advance the chemical recycling of post-consumer plastics as part of the ReOil project. Developing these three areas – renewable feedstock, mechanical, and chemical recycling – will close the loop completely, and make plastics more circular than any other material.

MT The drive towards circularity and sustainability is also a business imperative. The circular economy remains very high on our agenda because it is a true business opportunity that will bear fruit in the longer-term future. Although we still generate the most value from virgin polymer products, we will continue to drive the transformation by using the profits and cash flow we generate from our virgin business to invest in our efforts for the circular economy. The transformation process will likely take many years, and must be managed in a balanced way. We will remain focused on sustaining our current core business and providing our customers with solutions that deliver added value.

How does the Borealis philosophy of Value Creation through Innovation manifest itself in the circular economy sphere?

AS Creating added value for our customers through innovation is what drives us as a company. We all know that we must develop more sustainable ways of living, working, and manufacturing. Borealis is fortunate to have the ideal material to build upon in order to create an expanding range of circular technologies and material solutions.

We showcased many of these at the K 2019 in Düsseldorf: our new state-of-the-art recycling technology, Borcycle, which transforms plastic waste streams into value-adding, versatile recycled polyolefins. We also launched a number of flexible packaging solutions developed in tandem with value chain partners, including PP- and PE-based monomaterial pouches as well as novel flexible packaging formats which contain up to 35% post-consumer recyclate. In caps and closures, we introduced a new BorPure resin which can be used to make monomaterial hinged caps that are 100% recyclable.

We were especially excited to offer our stand visitors – and we had 20% more than at the K 2016 – the chance to interact with a number of more sustainable products resulting from value chain co-operation: the stunning NIO ES8, an electric SUV which contains a range of lighter weight Daplen™ and Fibremod grades in its interior and exterior parts. Or the reusable and 100%-recyclable drinking cups made using Borstar PP and developed together with Bockatech.

MT In addition to developing these very visible proof points for greater sustainability, we are also harnessing the power of innovation in the area of energy and climate. For example, Borealis is one of five major petrochemical players to form the Cracker of the Future Consortium, which is exploring the use of technology to reduce the level of CO2 emissions from steam crackers. And in Finland, Borealis is working with Neste to explore whether excess heat from our operations in Porvoo can be used to deliver district heating in the Helsinki area.

A new corporate programme is in the works. Tell us more about StepChange2020.

AS StepChange2020 is the umbrella programme we have created to empower us to become more agile, efficient, and cost competitive. In 2019, we kicked off this broader company transformation, which will accelerate into 2020. It is essential to start the transformation process now so that we can remain one step ahead of the market. Nearly 180 initiatives have been proposed throughout the company. In 2020, we will implement, then track and gauge the effectiveness of these initiatives in a review of the programme due around the end of June 2020.

Mark Tonkens, what are your views on StepChange2020, and does it involve one of your focus areas, digitalisation?

MT In a cyclical industry like ours, it is important to enact measures in a timely way in anticipation of a downturn – because the downturn always comes, sooner or later. The StepChange2020 transformation programme will make our organisation more resilient and enable us to keep investing in value drivers for the future, like innovation, circularity, customer focus and of course, digitalisation.

We continued our digitalisation journey in 2019 by launching and further developing several value-enhancing solutions in businesses, operations, and support functions. For example, MyBorealis, our online customer portal, as well as an essential internal customer relationship management tool.

Looking beyond 2019 or even 2020, which areas of sustainability focus will take centre stage?

AS We clearly see that momentum is growing to achieve greater sustainability and circularity in all areas of life, not only in our own operations and products. However, this means a paradigm shift for the industry and the most significant changes ever seen – at least in my lifetime. This shift will affect supply and demand and the way polymers are produced. It will even change our business models and the way we deliver value to customers and society.

It was thus essential to update our strategy now in order to address and anticipate these industry challenges and opportunities. Our Group Strategy 2035 builds on the foundational strengths of Borealis: our people, excellence, and sustainability. We call this approach “leading from the core.” To ensure continued solid growth in the future, we will make the transformation to a circular economy and a truly customer-centric, value-adding organisation on a global scale. We will also expand our geographic reach to capitalise on demand and feedstock opportunities in growing global markets.

MT The Group Strategy 2035 we are rolling out at the beginning of 2020 offers the right building blocks to respond to change. It encourages us to create even more value for our customers in an increasing number of global markets, and helps find ways to reduce energy consumption and emissions from our plants. It also underscores our commitment to the health and safety of our people. All in all, I think it is an excellent plan to move the company forward and make our business more competitive and profitable

From a financial perspective, what should we expect in 2020, Mark Tonkens?

MT Our focus will be on delivering our major and capital-intensive growth projects in a safe, timely and cost-efficient way. We expect to be operating in a weaker economic environment in 2020 as the industry “super cycle” comes to an end. The year may be especially challenging given the uncertainty that prevails in the Asian markets in particular. With regard to Fertilizer, I am optimistic that we will be able to capitalise on what is likely to be a stable market environment in 2020.

And the last word goes to Alfred, how do you see 2020 shaping up?

AS We must focus more than ever on operational excellence in our existing businesses, even as we drive company transformation.

If we keep our eyes on the aims of our StepChange2020 programme, we can remain competitive, solidly profitable, and enjoy sufficient cash flow. And we can achieve this with the full support from everybody in the organisation. Given the excellent 85% response rate of our 2019 People Survey, I think we can rely on our employees to keep “building a better Borealis,” as the motto of our biennial survey says.

Most importantly, however, we must stay focused on the safety of our employees and our assets. Our safety performance is the leading indicator for excellence in all aspects of business. If we are a safe company, we are an excellent company!

Combined Annual Report 2019 (PDF)

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This online report contains only highlights and excerpts from Borealis’ Combined Annual Report 2019. Only the entire report is legally binding and it must be read in full to gain a comprehensive understanding of Borealis’ performance and activities in 2019. A copy of the Combined Annual Report 2019 can be downloaded here.