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CEO - CFO Interview

An Interview with Borealis’ CEO Thomas Gangl and CFO Mark Tonkens

Around this time last year, many in the industry had anticipated the return to a “new post-COVID normal” after nearly two years of crisis. Thomas Gangl, as Borealis CEO, and Mark Tonkens, as Borealis CFO: has a new normality returned?

TG If the “new normal” is crisis mode, then yes, to a certain extent! While we do expect this to change in the future, we anticipate that ongoing high volatility will become the norm.

MT Just when we thought supply chains had stabilised and markets calmed, new crises emerged: the war in Ukraine and ensuing geopolitical conflict, but also the rising energy costs, interest rates, inflation, and of course the increasing urgency of the global climate crisis.

How is Borealis managing this seemingly perpetual crisis mode?

TG Thanks to the resilience and perseverance of our people, Borealis is in a good place to manage these crises. We know that crises can take a toll, but they can also be catalysts for positive change. Our approach to preparing for the effects of crises in the long term is best described in our transformative Borealis Strategy 2030. Next to the strongest pillar in our foundation – our people – a second pillar is our safety mindset. Our aim is to be among the safest companies in our industry. While our TRI rate of 2.9 in 2022 is a slight deterioration versus 2021’s TRI of 2.3, we have defined new and additional measures to reach our “Goal Zero” of no accidents or incidents whatsoever in 2023.

A third foundational pillar is our innovation and technology leadership in the industry, which is increasingly geared towards circular economy solutions. A prime example in 2023 was the launch of our ground-breaking Borstar® Nextension Technology. It sets new standards in performance and will facilitate design for recycling in polyolefins-based applications. We also introduced the Borvida™ portfolio of circular base chemicals containing ISCC Plus-certified sustainable content. Our evolving technologies Borcycle™ M for mechanical, and Borcycle™ C for chemical recycling, are breathing new life into end-of-life plastics. Our Bornewables™ portfolio of circular polyolefins has generated a host of exciting new products and applications with added value, many of which were launched under the motto “Innovate, Collaborate, Accelerate” at the K 2022 in October.

Mark Tonkens: from the CFO’s perspective, please explain how Borealis intends to drive performance in times of crisis.

Performance excellence in all our business areas and activities is the fourth pillar of the company foundation that drives our strategy. We are building on this strong foundation to be a customer-centric provider of advanced and more sustainable solutions for our global partners. One mark of excellence is being able to respond flexibly to expected market downturns. We have acted quickly to counteract the combined effects of a volatile macroeconomic environment, rising inflation, and geopolitical uncertainties by initiating the “Strong Foundation – Performance Excellence” programme, which has been designed from the bottom up in seven different workstreams. Our internal planning process drew on a due diligence-type approach to identify hundreds of improvement initiatives in diverse areas across the Group, from energy savings in production, to contract negotiations with suppliers. Because Borealis line managers “own” these initiatives, their implementation over the next two years will be all the more effective. We are confident that this programme will be instrumental in enabling us to reach our strategic objectives of increasing the volume of circular products and solutions and expanding global production capacity, all while significantly reducing our CO2 emissions.

What, specifically, is Borealis doing to reduce its own emissions and improve its environmental footprint?

TG Our decarbonisation efforts are targeted to reduce our current Scope 1 and Scope 2 CO2 emissions by 60% by 2030. As Borealis leads the industry in transforming to a circular economy of plastics, we also foresee significantly lower Scope 3 emissions, which while not directly generated by Borealis are still a consequence of our activities. In order to increase the share of renewable energy sources used in our Polyolefins and Hydrocarbons businesses to 40% by 2025 – and to 100% by 2030 – Borealis has signed a number of long-term power purchase agreements with renewable energy suppliers across Europe. We are also picking up the pace in installing photovoltaic arrays adjacent to our production facilities. Borealis production operations in Sweden, Finland, Belgium, Austria, and Italy are already being powered in part by greener energy.

MT Our emission reduction portfolio also includes clean energy partnerships, such as our joint project with Austrian energy company VERBUND for industrial-scale production of green hydrogen. We are exploring several carbon capture and storage partnerships, and expect projects to come on stream in the second half of the 2020s. One recent example of how we are using digitalisation to drive decarbonisation is our novel CO2 emissions calculation tool, Neoni. It was designed by our in-house Borealis Digital Studio and provides our customers with cradle-to-gate data for over 500 polyolefins grades.

The joint venture Borouge in Abu Dhabi has been in the media spotlight over the past year. What can you tell us about Borouge and the growth projects taking place there?

TG The decision taken with our JV partner ADNOC to float 10% of Borouge in February – shortly before the market environment became even more turbulent – ultimately produced the largest-ever IPO in Abu Dhabi, drawing interest of around USD 83 billion. It was oversubscribed by a phenomenal 42 times in aggregate! The June IPO is one of the most memorable highlights of 2022 and crowns what has been a 25-year journey in which Borouge grew from a small company in Abu Dhabi, to a major international enterprise with a market capitalization in excess of USD 20 billion.

MT Overall, our Borouge JV continues to be a major growth driver. The new Borouge PP5 plant successfully started up in February and is now boosting the site’s total polypropylene capacity by more than 25%. In February we also celebrated the groundbreaking for our massive Borouge 4 expansion, a key project in our growth portfolio. Borouge 4 will play a crucial role in meeting growing regional demand for polyolefins by supplying feedstock to the TA’ZIZ Industrial Chemicals Zone in Ruwais. By leveraging our Borstar technology and increasing production capacity, we are ideally positioned to deliver larger quantities of more sustainable and recyclable polyolefins-based solutions to a wide range of industries, from packaging to infrastructure. Like Borealis, Borouge has pledged to pursue a zero-waste circular economy and implement sustainable solutions for infrastructure and energy. We are pleased to report that the new Borouge 4 plant will eliminate continuous flaring altogether, and that we are exploring the feasibility of establishing a carbon capture unit on site to further reduce CO2 emissions.

How have the Borealis Group’s other major growth projects progressed in the past year?

TG As outlined in the Borealis Strategy 2030, we intend to nearly double our global polyolefins production capacity by establishing a stronger market presence not only in the Middle East and Asia, but in North America as well. In July we reached an important milestone with Baystar™, our joint venture with TotalEnergies in Texas, with the start-up of the new ethane-based steam cracker. Once construction and ramping up of the new Borstar polyethylene unit is completed, we will have transformed a non-integrated business into an integrated one, and brought our proprietary Borstar technology to North America for the first time. Our customers and partners will now be able to meet demand for larger volumes of more specialised polyolefins-based products and solutions.

MT This summer, construction was temporarily halted on the world-class propane dehydrogenation (PDH) plant expansion in Kallo, Belgium, after misconduct on the part of the site’s contractor, IREM, was uncovered. Borealis has zero tolerance for any kind of misconduct, whether among Borealis employees or our contractors! We are committed to setting and maintaining benchmark standards for industrial construction works. Immediately after learning of the serious allegations against IREM, we terminated all contracts due to noncompliance with contractual principles. In a subsequent re-tendering process, the majority of works were awarded in August to contractor Ponticelli, which put in place comprehensive on-site worker monitoring. Now that work has resumed, we anticipate start-up of the new PDH plant during the second half of 2024.

The divestment process for the Borealis nitrogen business unit has been protracted. Can you give us on update on where things stand?

MT The war in Ukraine and the sanctions imposed as a consequence have led to some delays. On careful deliberation, we declined the initial binding offer received from EuroChem in March and restarted the process. AGROFERT emerged in June as the best bidder in the next divestment round. While the transaction is subject to regulatory approval, closing is currently expected for the first quarter of 2023. We are exceedingly pleased that our nitrogen business has found a new home within a growth-oriented company whose core business is nitrogen products and fertilizers. AGROFERT is a major player in the European fertilizer market with a strong commitment to the Borealis nitrogen business unit, including fertilizers, melamine and technical nitrogen products. We believe that this deal will ensure security of supply as well as the long-term development of the production facilities. The conclusion of this transaction enables Borealis to sharpen our focus on providing innovative and value-added solutions in the fields of advanced circular polyolefins and base chemicals.

Will growth continue for Borealis in turbulent times? Which endeavours are planned for the near future and beyond?

MT Our strong balance sheet and cash flow enable us to continue on our path of sustained investment. World-scale growth projects such as Borouge 4 and Kallo are essential for long-term success. There are other major projects in the pipeline, including construction of a large advanced mechanical recycling plant based on Borcycle M in Schwechat, Austria. The results of a feasibility study for the establishment of a new chemical recycling unit at our production location in Stenungsund, Sweden, are expected shortly. And many of our other growth projects are playing an outsized role in advancing plastics circularity: for example, our new entity Recelerate is rethinking the way lightweight plastic waste is sorted and recycled in order to increase market volumes of high-quality recyclates. In sum, we are leveraging our strong customer partnerships and innovation leadership to create the kinds of valueadded products the world needs to become more circular and sustainable.

The last word goes to Thomas Gangl. Going forward, what is your outlook for 2023?

TG Looking to 2023, we expect the general market environment to worsen. Ours is a cyclical industry, and we expect the market to remain challenging over the next two years. We must manage costs tightly in our core businesses. Yet despite these headwinds, we are resolute in our aim to expand globally and drive the transformation towards circularity. Both strategic aims have sustainability at their core, and both entail reinventing essentials for sustainable living. Managing growth and transformation successfully is what will enable us to weather any storm. We also look forward to welcoming our new shareholders, ADNOC, who have recently acquired the 25% share in the Borealis Group previously held by Mubadala. Working together with both ADNOC and the OMV Group will be central to achieving sustained growth and successful transformation. Yet Borealis owes the past and future success of our company to our people. We appreciate the effort it takes to persevere through multiple crises – and we laud your resilience. Your efforts are the key to our ongoing success.

Combined Annual Report 2022 (PDF)

English and German Version available

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This online report contains only highlights and excerpts from Borealis’ Combined Annual Report 2022. 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 2022. A copy of the Combined Annual Report 2022 can be downloaded here.