For companies around the globe, 2020 was one of the most challenging years in recent memory. As Borealis CEO, what will you remember most about this year?
AS The coronavirus pandemic has been a crisis like none before. In 2020 safety was, as always, our primary concern. Keeping our people healthy as the pandemic unfolded was our top priority. But the safety culture that has long been established at Borealis helped us rise to the challenge. The few infections we detected were isolated quickly and we prevented the emergence of clusters. This allowed us to maintain our operations nearly uninterrupted across all of our assets worldwide, even in the face of supply chain disruptions. Our people have been incredibly nimble and resourceful. In Kallo, fever scanners were quickly installed to monitor contractors and visitors to our facilities during a turnaround. In Linz, our meltblown pilot production line was adapted on the fly to manufacture high-quality face mask applications at a time when these were in short supply. So, when I look back on this turbulent year, I will be most proud of what our people have been able to achieve.
I am less satisfied with our mixed record in process and occupational health and safety. One process safety incident in Stenungsund was an unfortunate setback in our Goal Zero journey of no accidents. Our record was also marred by an increase in occupational health and safety incidents in the second half of the year. But our TRI rate of 1.7 incidents per million working hours in 2020 is still world class and is a slight deterioration versus last year’s 1.6.
The past year will also be remembered for the change of ownership that was announced in late October: OMV purchased 39% of Borealis shares from Mubadala and is now the majority owner with 75%. This significant change will yield many promising business opportunities and synergistic effects for both OMV and Borealis going forward.
Mark Tonkens, as Borealis CFO, what stood out most for you in this turbulent year?
MT The first thing that comes to mind is “resilience”: the way in which the entire organisation, and all of our people, have been able to stay the course. Everyone contributed to the solid overall financial performance by maintaining focus despite extensive disruption. However, from a CFO’s standpoint, no financial result is fully satisfactory if we have safety incidents. Safety is always our number one priority. Good safety performance is a key driver of good financial results.
Under the circumstances, it is of course inevitable to experience setbacks in certain industries, such as automotive. But demand has been robust in energy, consumer packaging and healthcare. In the latter two segments, in particular, the coronavirus pandemic has made clear just how essential it is to re-invent for more sustainable living.
What truly stands out is how Borealis has been able to maintain a satisfying level of profitability and an excellent operating cash flow in the face of market and industry turbulence. This is due in great measure to the resilience programme we implemented as COVID-19 gathered speed earlier in the year. Our goal was to maintain sufficient liquidity and optimise our EBITDA (earnings before interest, taxes, depreciation and amortisation), while at the same time working to complete our major global outreach and growth projects in Europe, North America and the Middle East. The fact that these projects are progressing well despite COVID-19 is a most gratifying achievement.
Could you update us on the progress of these growth ventures?
AS Each of these projects plays its own unique role in helping us boost customer centricity by extending and expanding our geographic reach in different parts of the world. We are pleased to report that, on the whole, we were able to mitigate the effects of the pandemic on our active growth projects. In Belgium, for example, we are investing around EUR 1 billion in a new, world-scale propane dehydrogenation plant in Kallo, which is set to start up second quarter of 2023. In 2020, the propylene splitter – one of the largest pieces of equipment ever shipped – was successfully delivered to the construction site at the Port of Antwerp. This project solidifies our long-term role as a key polyolefins supplier in Europe.
MT Another important development in 2020 involves Baystar™. We increased our share in this joint venture from 25% to 50% by acquiring NOVA Chemicals’ previous ownership interest. This project – now a 50/50 joint venture with an affiliate of Total S.A. – is especially exciting because it enables us to supply locally-produced Borstar® polyethylene (PE) to our North American customers for the first time. The start-up of the new cracker and Borstar PE unit that make up this integrated polyolefins site in Texas is scheduled for 2022. Overall, this project significantly expands our North American footprint.
AS We are particularly pleased to be moving towards completion of one of our biggest growth projects, the PP5, or fifth Borstar polypropylene (PP) plant in Borouge. Over 13 million man hours have been clocked without any recordable health and safety incidents, which is quite a feat.
In most parts of the world, it was a relatively quiet year for acquisitions. Apart from the ownership changes with regard to OMV and Baystar, is there anything else to report?
MT Indeed there is. We had been working for quite some time to close on the acquisition of the South Korea-based compounder DYM Solution Co., Ltd. and were able to announce in late summer that we had acquired the controlling stake. This enables us to accelerate growth in one of our key industries, wire and cable, by broadening our portfolio of sophisticated compound solutions and extending our global footprint.
Geographical expansion is one pillar of the Borealis Group Strategy 2035 and transformation is another. What has Borealis achieved in this second area?
AS By “transformation” we mean the evolution towards a completely customer-centric approach in which we provide sustainable solutions that offer added value as well as circular material solutions. By implementing our EverMinds™ approach in practice, we have made significant progress on circular economy solutions in 2020.
We reached a major milestone in March when we started producing renewable PP based on feedstock supplied by our longstanding partner Neste at our Belgian facilities in Kallo and Beringen. This is the first time that Borealis has replaced fossil fuel-based feedstocks in large-scale commercial production of PP. In another strategic co-operation with Neste, Borealis supplied renewable phenol made using renewable hydrocarbons supplied by Neste to the polymer manufacturer Covestro. So, we are taking great strides towards more sustainable production practices and our efforts will be rewarded. We are seeing increased interest from market players in renewably produced propylene and PP and since our production sites are ISCC+ certified by the International Sustainability and Carbon Certification (ISCC) organisation, we will be able to capitalise on this demand.
MT Circular economy solutions are drivers of business growth as we evolve from a linear to a more circular economy of plastics. For the transformation to proceed, we need to generate sufficient income from our existing, ongoing businesses; at Borealis, we call this “leading from the core.” Doing so successfully is what makes it possible to devote resources to innovation. To name just one example of success: in September, we launched the Bornewables™ portfolio of premium polyolefins. These products are based on renewable feedstocks that are 100% derived from waste and residue streams. This is a prime instance of how we engage in Value Creation through Innovation in the circular sphere.
Our efforts to promote plastics circularity are also being boosted by a EUR 250 million loan from the European Investment Bank (EIB) for our research, development and innovation programme. The funds will be put to use in developing novel, value-added circular solutions for a wide range of applications in diverse industries. The loan is not only a clear vote of confidence from lenders with regard to Borealis performance, it is also an affirmation from European policymakers that they are in solid alignment with our efforts to accelerate the transformation to a circular economy.
What has Borealis done in 2020 to use energy more efficiently in its own operations and to reduce its CO2 emissions?
AS Our sustainability strategy framework stipulates that we use renewable sources of electricity for at least 50% of our operations in Polyolefins and Hydrocarbons & Energy by 2030. We made significant progress towards this goal in 2020 by signing a long-term power purchase agreement (PPA) with a sustainable energy supplier, Eneco, for our plants in Belgium. This allows us to reduce our indirect CO2 emissions – referred to as Scope 2 emissions in the Greenhouse Gas Protocol – by around 20 kilotonnes per year (kta). Likewise, in Finland we signed another long-term PPA with a wind farm operator to supply power to our production facilities in Porvoo, thus lowering our CO2 emissions by 16 kta.
How did the year 2020 develop for the Fertilizers and Melamine business areas?
MT The Phoenix transformation programme for our Fertilizers business progressed throughout 2020. The result has been a more competitive positioning through optimised revenues and an improved cost position. After a very solid first half year, the second half of 2020 was characterised by industry margin pressure from increased feedstock prices, among other things. The melamine industry experienced very low market prices which only started to recover in the latter part of 2020. Overall, we are pleased that the Phoenix programme has delivered substantial benefits during 2020.
Predicting the future has seldom been as difficult as it is nowadays. That said, what do you think the year 2021 holds?
AS I think we will see a gradual recovery in the market and in many industries, but we should be prepared for continued volatility. Yet despite this lack of predictability, I do think that things will improve in 2021. At Borealis, we will focus on driving our global growth projects forward and continue our transformation to a more circular business model.
One source of concern is the unprecedented slump in oil prices which has depressed virgin polymer prices as well. By extension, recyclate has become less valuable, even though the cost of producing high-quality recyclate has remained the same. So, we will have to work very hard to come up with viable solutions to these challenges on the journey to plastics circularity. We need the backing of market incentives and sound public policies that are focused on desired outcomes and not individual actions. These must encompass the entire circularity loop and not just one process like recycling. We will remain committed to our fundamental purpose: life demands progress and we are re-inventing for more sustainable living. We will continue to develop new circular technologies, launch innovative and circular material solutions, reduce energy consumption in our own operations, use a higher share of renewable energy, and lower our own CO2 emissions.
MT From a financial perspective, the overall outlook depends on how quickly the global economy recovers from the pandemic. I think it is fair to say that there is much uncertainty. As a company, we must be cautious in our assessments, but remain flexible so that we can move quickly. We have the advantage of having concluded the year with a very strong balance sheet. Our gearing – in other words, our debt-to-equity ratio – is solid, at 29%. We have been able to progress on our growth projects while continuing to drive the transformation to a more circular economy of plastics. As a company, we are in good shape. Our people are dedicated, resilient and highly focused. I think this bodes well for 2021.
The final word goes to you, Alfred Stern.
AS I’ll conclude where I started: with safety. The lessons learned from the first waves of the pandemic are that discipline and a sharp focus on safety and hygiene can mitigate the dangers of the coronavirus in our workplace. As long as the effects of the pandemic are felt, we will use our digital and virtual tools to bring people together. However, we must be more vigilant than ever when it comes to personal and process safety and draw on the training programmes we already have in place to improve our record.
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