InterviewBorealis will not be complacent after solid Q3 - CEO

27 October 2009 12:55  [Source: ICIS news]

By Franco Capaldo

LONDON (ICIS news)--Borealis' third quarter net profit may have been up on the previous quarter but CEO Mark Garrett said on Tuesday that despite having a positive outlook for the future the company will not be complacent and is sticking to a long term plan.

The Austria-based chemical producer posted a third-quarter net profit of €46m ($68.7m), down 71% year on year, due to poor sales. Additionally, sales for the three-month period ending on 30 September declined 30%.

“The results came out as we hoped, after the last set of results we felt the economy had bottomed out and we were bouncing along the bottom of demand and that seems to have been confirmed in the third quarter,” Garrett said.

However the CEO said he was still cautious looking forward to the fourth quarter after so many companies in the industry were badly hit in the same period last year, and admitted that he felt the final quarter would have less demand than the previous two.

Garrett said Borealis had put a very strenuous cost reduction process in place but would continue to make investments in the company’s Borouge 2, its 350,000 tonne/year low density polyethylene (LDPE) plant in Stenungsund, Sweden, and its innovations centre. It would continue to push growth projects while cutting back on non-essential capital spending.

“It is not so much that we are doing any radical changes, we remain quite conservative since setting a strategy two or three years ago and we are sticking to that," he said

“We said two and a half years ago that problems were coming up and set about getting our gearing very low, down to about 27%, so we entered the recession with a healthy balance sheet,” Garrett added.

“We have allocated what we have available to the big projects - when you invest in this industry you have to invest for a long term, a 30-40 year outlook, because the big plants are not built for the short term - if you invest $5bn its not for 3 or 4 years,” he said.

He also said Borealis would continue its ‘scrap/build’ process, taking down older plants and replacing them with new facilities, as this gave the company the best and newest set of assets.

Borealis recently declared the closure of an HDPE production unit in Beringen, Belgium, with 109 jobs being lost, in order to safeguard the economic viability of the location.

“We want to position ourselves for when the industry starts to pick up in 2011 and have the new plants up and running to give ourselves a competitive advantage for when the upswing happens,” he said.

Volume wise, Garret said Borealis' non durable plastic production, including advanced packaging areas used in medical and food products, had been relatively strong in the third quarter. However, durable plastics used in the infrastructure area (for pipes, cable and wire), had yet to see any benefit from economic stimulus packages and had been, in volume terms, not as strong as the company would have liked.

“I think we are seeing a slow grind upwards, we saw volume improvements in the second quarter in the non durable space where we sell into the advanced packaging. This helped us offset the drop we have seen in the durable space used in infrastructure,” said Borealis’ CFO Daniel Shook.

"On the base chemical side we still see margin pressure on our feedstocks and olefins but we are getting some benefit on our light feed cracking now in the third quarter and we do expect that to continue into Q4,” Shook added.

Focusing on Asia and the Middle East, Garrett said Borealis has not seen as much competition in the third quarter as it first feared.

“We expected more volume to flow from the Middle East into Europe this year than has come so far, some of the Middle East projects had been delayed and some had start up problems but we expect volumes to flow increasingly in the fourth quarter and next year into Europe and China as it continues to grow.

"Thankfully China has sucked up a large share of volume, and has been the bright spot for the industry. If China had not continued to grow in the recession, our outcome would have been much worse,” he said.

Looking towards the future Garrett said major shareholder International Petroleum Investment Comany (IPEC) was making a big effort to become a major player in the polyolefins market.

“With ourselves in Europe, Borouge in the Middle East and Asia with Nova in America, IPEC’s footprint will expand on a glabal scale in the polyolefin industry.”

($1 = €0.67)

Read Paul Hodges’ Chemicals and the Economy Blog
For more on Borealis visit ICIS company intelligence
To discuss issues facing the chemical industry visit ICIS connect

By: Franco Capaldo
+44 (0)20 8652 3214

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