Interview with Borealis CEO Alfred Stern and CFO Mark Tonkens
From left: Borealis CFO Mark Tonkens and CEO Alfred Stern
Alfred Stern – from your perspective as the new Borealis CEO, how would you characterise 2018?
AS The year 2018 was an eventful one, with excellent business results, yet full of changes. I personally embrace the idea of change because it is invigorating and keeps things interesting. For me, of course, the biggest change was the opportunity to succeed Mark Garrett as Borealis CEO. For someone who has spent his entire career in the petrochemicals industry, it is a privilege to be able to lead this great company, and I thank the Board for their confidence in me.
Under Mark Garrett’s leadership over the past eleven years, we have had an incredible period of growth, and excellent improvements in business results. Having been along for part of the ride during Mark’s tenure, I’m looking forward to building on these achievements. The important global growth projects we kicked off in 2018 will take Borealis to the next level.
In 2018, we made good progress in regard to process safety, with our Goal Zero journey showing positive effects. I am particularly proud of our people, who consistently put forth creative ideas on how we can make our operations even safer. For example, the first Borealis Safety Day dedicated to raising awareness across the entire organisation took place in November. And we have now been able to reduce the number of high and medium severity process safety incidents. Yet despite our intense focus on personal safety, the total TRI frequency of 1.3 in 2018 falls short of our target, and fails to reach the 1.1 charted in 2017. While it is a top quartile performance within the industry, it is still not good enough for Borealis. We owe it to our employees and their families to do better, and we intend to.
And for you, Mark Tonkens, Borealis CFO, what stood out in 2018?
MT First and foremost, the fact that we achieved very solid financial results for the fourth year in a row, with a net profit of EUR 906 million. In terms of contribution to the bottom line, Borouge has gone from strength to strength and posted an absolute record year in 2018. While the industry environment for polyolefins in Europe has normalised, we are still facing challenges in Fertilizers.
How is Borealis proceeding with its phase of growth and global outreach?
AS In the past decade, our focus has been on expanding Borouge, and optimising our European footprint and performance. A change of CEO often brings about new impulses, and in 2018 this was indeed the case. We are now moving into the next phase of growth with several sizeable projects, and we are fortunate to have the strong backing of our Board in these endeavours.
A first significant project is our Bayport Polymers joint venture with NOVA Chemicals and TOTAL. In 2018, we took the final investment decision to jointly build a one million tonnes/year ethane cracker, and a new 625,000 tonnes/year polyethylene (PE) unit in Texas. This more than doubles the site’s existing PE capacity. We are capitalising on each JV partner’s strengths: NOVA’s strong presence in the US market, TOTAL’s on the Gulf Coast, and our superior technology. The Bayport plant is a genuine milestone and a giant leap for Borealis. It will enable us to bring third generation Borstar® to North America for the first time.
In Europe, we took a second major investment decision to build a new, world-scale propane dehydrogenation (PDH) plant at our existing production site in Kallo, Belgium, after the FEED (front end, engineering and design) phase concluded in June. This plant will have a production capacity of 750,000 tonnes/year, making it one of the world’s largest and most efficient.
MT Borouge, which continues to provide an outstanding contribution to our overall financial performance, is also undergoing another expansion. The pre-FEED study for Borouge 4 is currently underway. In 2018 we also approved the so-called PP5 plant in order to drive growth in Borouge 1, 2, and 3. We welcome the opportunity to step up collaboration with our partner ADNOC in order to seize growth opportunities in the Middle East and Asia.
We should also mention the Joint Development Agreement with United Chemical Company LLP to develop a world-scale PE project with an integrated ethane cracker and two Borstar PE plants in the Republic of Kazakhstan. This particularly promising project is currently in the feasibility study phase, but we expect to proceed to FEED phase in the course of 2019.
What is the strategic rationale behind these major projects?
AS What all of these growth projects have in common is that they will enable us to better support the global growth efforts of our customers. We will have greater global capability to supply differentiated, high-performing Borstar grades thanks to world-scale Borealis, Borouge, and Bayport facilities. For instance, by enlarging our presence in Kallo with the Borealis PDH plant, we are responding to European market demand for propylene, which is growing due to a confluence of factors involving changes to product mixes in refineries, and feedstock mixes in crackers. In recent years, Europe has in fact turned from a net exporting into a net importing, polypropylene (PP) region. It is part of the Borealis mission to be a reliable, high-quality supplier with local production capabilities. We can react quickly to global market fluctuations and varying economic conditions, and also drive innovation together with our customers in a nimble way.
How have acquisitions in 2018 driven the business growth of Borealis, particularly in the circular economy sphere?
MT We always strive to achieve a balance between organic growth, and growth through acquisitions. While acquisitions create value right from the start, organic investments demand more patience. We have a very solid track record with organic growth in the United Arab Emirates. This now gives us full confidence to do the same in other regions. That said, it is already clear that our intention to acquire a controlling stake in South Korean DYM Solution Co. Ltd. in 2018 will be a good move in light of our efforts to expand our global footprint in the Wire & Cable industry. The agreement and transaction are still subject to all required regulatory approvals. Gaining access to an Asian manufacturing base helps facilitate organic growth whilst enabling us to better serve our Wire & Cable customers, in particular.
AS Another key move made in 2018 was our acquisition of Ecoplast, the Austrian plastics recycler. We predict substantial growth in the recycled polyolefins market in the years to come, and have made mechanical recycling a key element within our overall Polyolefins strategy. Following on the heels of a EUR 15 million investment in our 2016 acquisition, mtm plastics, to increase our recycling capacity by nearly 50%, this newest acquisition further boosts our mechanical recycling capabilities. It also consolidates our position as a technology leader within the industry.
But taking the larger view, it is also a significant step in implementing the principles of a circular economy of plastics. We created our Circular Economy Solutions unit to find new growth opportunities in both mechanical recycling and design for recyclability. Because, while it is essential to take active measures to collect plastic waste, it is just as important to create as little waste as possible in the first place. At the same time, we are collaborating with our customers and partners to design products that are more easily recyclable, produce more high-quality recyclates, and also find novel applications for this recyclates. A key enabler for this will be the EverMinds™ platform we launched in December.
What other concrete measures is Borealis taking to create value through innovation?
AS Innovation is of course the lifeblood of Borealis. Our excellent technology portfolio is often decisive in securing partners for global projects, as was the case in Kazakhstan, but also in Texas, where we will build the first plant to use third-generation Borstar technology. Our Value Creation through Innovation strategy consistently pays off: not only for us, but for our customers as well. Working together to develop new applications and products, or to improve existing ones, is the most cost-competitive way to implement innovation. For example, in a core segment like Energy we are a key enabler of the "Energiewende" – the change to a greener energy landscape – thanks to our solar and photovoltaic solutions based on Quentys™. Likewise in Automotive: be it with lightweight material solutions based on Fibremod™ Carbon and Daploy™, or Daplen™ PP compound grades composed of post-consumer recycled and virgin content, we will continue to invest in our proprietary technologies in order to remain an innovation leader.
MT We are harnessing the power of digital solutions to offer more value to our customers. Our Digitalisation Programme has really gained momentum in the past 18 months. It is much more than a programme – it is an entirely new way of working. Digitalisation is the accelerator for initiatives throughout the whole company. We have made great progress thanks to the successful 2018 launches of the NutriGuide within Fertilizers, and the MyBorealis customer platform in Polyolefins. Our new Brussels-based Digital Studio can produce innovative and value-creating products within a very short time frame. This enhances our visibility among our customers. What is more, we can use the process to come up with solutions that our customers truly need, and not with solutions we think they should need.
How did the year 2018 shape up in terms of excellence?
MT The charm and the challenge of excellence is that it is something you can never fully achieve. By the time you have realised your immediate goals, the bar has already been raised. So achieving excellence, whether operationally or commercially, requires a lot of creativity. I am very pleased that in 2018 we were able to achieve production records in quite a number of sites, some of which have been operating for thirty or forty years – and all while heeding “safety first.”
In a similar way, improving commercial excellence is not the sole task of marketing or sales, but rather one for the entire organisation. In 2018 we made great strides in serving our Wire & Cable customers, for example, by ensuring that everyone involved – including those working the factory shifts – understands why cleanliness is so essential. Our people are that much more engaged and passionate when they understand and experience first-hand how the final product is actually used, whether in Energy, Automotive, or Healthcare.
AS Excellence is at the core of our values. For example, Nimblicity™ is really about doing away with waste. It is about eliminating anything in our processes that isn’t necessary in order to deliver a solution that helps the customer. It also dovetails perfectly with our efforts to act in a more sustainable way, because no one wants to produce waste with no value.
Mark Tonkens, looking to 2019 and beyond, which areas make up your strategic focus?
MT Striving for excellence in safety and operations remains paramount. Deeper integration of digitalisation in our operations will also be an important focus. Taking meaningful steps to achieve greater circularity in plastics is another key area.
One important change that will affect our figures starting in 2019 is the realignment of our Fertilizer business. At the end of 2018 we took the decision to create a fully-fledged Fertilizer and Melamine unit which stands apart from our Polyolefins and Hydrocarbons businesses. After analysing the market environment in detail, we determined that a dedicated structure would make our Fertilizer, Technical Nitrogen Products (TEN) & Melamine businesses more agile. Rainer Höfling and his team have managed a very strong start. Empowering a team and encouraging them to find new ways of doing things always builds positive momentum.
Alfred Stern, in 2019 and beyond, which strategic focus areas are most important from the CEO’s perspective?
AS While we have a large number of important focus areas, I’d like to address five main points. First, Polyolefins and Hydrocarbons: we will cement our position as partner of choice for our customers by remaining a reliable global supplier with local operations, and by offering the highest quality. Second, we will drive operational and commercial excellence in our new Fertilizer, Technical Nitrogen Products (TEN) & Melamine business unit. This may include seeking new business partners who can play a role in expanding our global footprint. Third, the ongoing expansion of the Borouge complex, as mentioned previously. The fourth priority also involves global growth projects on the Gulf Coast in Texas, and in the Republic of Kazakhstan. The fifth and final area entails continuing our pioneering efforts in circular economy solutions and digitalisation. Both of these areas are potential industry disruptors. Because we at Borealis are creative and innovative by nature, it is in our blood to embrace disruption. We are confident that we can be an industry leader in both of these areas.
Very last word: what will the year 2019 bring?
MT It will be another exciting year, yet with more uncertainty in both the global economy and the industry. As always, we must continue to focus on the areas we can influence, manage our assets as efficiently as possible, serve our customers in the best possible way, and maintain the ideal framework we have already implemented in order to drive global growth.
AS We live in an era of accelerated change. If we as an organisation are willing to embrace change, we can seize many business opportunities. I believe that our Borealis team can offer solutions to many problems and achieve incredible things if we empower them to do so. Miracles don’t happen when you just think about great ideas, but when you actually make them happen. What distinguishes Borealis is our ability to execute innovation successfully.
A shorter version of this interview was published in our Combined Annual Report 2018.