Borealis drives innovation and increases profits in 2005

During 2005, the plastics industry was impacted by high oil and feedstock prices, volatile industry margins, reduced European demand and a severe hurricane season in the Gulf of Mexico. In this environment, net profit improved from EUR 203 million in 2004 to EUR 226 million in 2005, an increase of 11%. The net result corresponds to a return on capital employed (ROCE) after tax of 12% compared with 11% in 2004.Commenting on the annual result, Chief Executive John Taylor said:

"In a challenging market combined with the highest number of production unit turnarounds ever completed in one year, we increased profits and progressed the implementation of our value creation through innovation strategy."

Net interest bearing debt increased EUR 110 million during 2005 and the gearing ratio increased from 40% to 44% - a result of higher capital expenditure combined with increasing prices influencing working capital. For financial backgrounders, visit our Financial Performance page.

Innovation

Borealis introduced 63 new products to the market in 2005, and launched a new generation of proprietary technology – Borstar® PE 2G – a multi-modal process and catalyst system enabling the provision of advanced, customer-oriented solutions. As testimony to the successful implementation of the strategy of value creation through innovation, sales in key market segments increased for the fifth consecutive year.

Operations

In Europe, Borealis significantly strengthened its operations, following on from the divestment of its Portuguese operations completed in 2004. The new 350,000 tonnes per year Borstar PE plant in Austria, which strengthens Borealis' position in the flexible packaging market, started up in the fourth quarter along with a 90,000 tonnes capacity expansion of the existing Borstar PP plant. Simultaneously, 100,000 tonnes of HDPE capacity was closed. In Norway, Borealis expanded the Noretyl cracker, a joint venture with Hydro Polymers, by 100,000 to 550,000 tonnes per year and raised PP capacity by 50,000 to 175,000 tonnes per year.

In Abu Dhabi, Borouge, the joint venture with the Abu Dhabi National Oil Company (ADNOC) serving the Middle East and Asian-Pacific markets successfully completed the first turnaround of its Ruwais plant involving an increase of Borstar PE capacity to over 600,000 tonnes per year.

Safety

In 2005 the Group completed 22 production unit turnarounds involving more than 5,000 contractors and still achieved its best ever safety performance with a Total Recordable Injury frequency of 1.7 per million working hours. In November, Borealis' leadership position within the industry was acknowledged with the receipt of the DuPont Safety Award for Business Impact.

Commenting on the relationship between safety and operational excellence, Chief Executive John Taylor said: "Safety, quality and housekeeping all go together and set a high performance standard. Our success in safety has been a fundamental part of the company's transformation over the past five years and will continue to be a pillar of our success for the years ahead."

Looking ahead to 2006

Concluded in October 2005, International Petroleum Investment Company (IPIC) of Abu Dhabi, and OMV of Austria purchased Statoil's 50% shareholding. The new ownership of Borealis is 65% IPIC and 35% OMV. The ownership change reinforces the future direction of the Group, strengthening its competitiveness and responsiveness to market demands for innovative plastics solutions.¨

During 2006, Borealis will further strengthen its European asset footprint by progressing with plans to expand cross-linked polyethylene (XLPE) capacity in Sweden, add phenol capacity in Finland, expand the Finnish cracker, and close an uncompetitive HDPE unit in Norway. In Abu Dhabi, Borouge will proceed with the Front End Engineering Design of a multi-billion dollar major expansion project to more than triple the existing polyolefins capacity to 2 million tonnes per year, including the addition of 800,000 tonnes per year of Borstar PP.

The business environment is expected to remain volatile throughout 2006. Although high oil prices will continue to put pressure on costs, European polyolefins demand is anticipated to improve. Borealis enters 2006 well positioned to face these challenges and continue in "Shaping the Future with Plastics".

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