InterviewBorealis to have transitional year in 2013 – CEO, CFO

25 February 2013 20:06  [Source: ICIS news]

By Franco Capaldo

LONDON (ICIS)--Borealis’ CEO and CFO foresee 2013 as a transitional year for the Austria-headquartered plastics, chemicals and fertilizer producer in which the group will reach another level of profitability, they said on Monday.

Although CEO Mark Garrett and CFO Daniel Shook forecast lower profits this year, preparations are being made that will act as a stepping stone to become a significantly more profitable company beyond 2013.

“Our expectation is that we will have lower profits in 2013 and that is because we are pre-investing in the whole start-up of Borouge 3, so we do not expect to receive from Borouge the same profits as last year,” said Garrett.

“We are employing a lot of marketing, sales, technical, advisory and operations people, which are all getting trained up now, but they will not be productive in the sense until the plant starts to operate. However we need them before we start the plant to get it ready," he said.

“That will mean 2013 should be a transitional year for us into another level of profitability. You should then see in 2014, 2015, 2016 …as we line out the Borouge 3 operations, our profitability change significantly,” he added.

Borouge is a joint-venture between Borealis and the Abu Dhabi state oil company, ADNOC. Capacity increases from the Borouge 3 expansion project in Abu Dhabi will lift its production capacity to 4.5m tonnes/year of olefins and polyolefins by mid-2014 from 2m tonnes/year today, the company said. Production capacities for the joint venture have risen sharply in recent years.

Shook also said profits will also be influenced by its acquisitions in the fertilizer industry as the company begins to be fully integrated into the business.

On 6 February, Borealis made firm offers to Total for the company’s 56.86% interest in Belgium’s Rosier and all its outstanding shares of France’s GPN, both suppliers of fertilizers in France and the Benelux (Belgium, the Netherlands, Luxembourg) region. 

The planned transactions must still be approved by the relevant authorities, including antitrust authorities in the countries concerned. Garrett hoped the deal would close around August, adding that it was unlikely that there would be any further acquisitions planned in 2013.

Earlier on Monday, Borealis announced that its Q4 2012 net profits were 72% higher at €100m ($132m) on 18% higher sales at €1.87bn.

The company added that earnings in the comparable fourth quarter of 2011 were hard hit by poor market conditions, while in the fourth quarter last year Borealis benefitted from a tax-rebate in Sweden and also earnings from the group’s acquisition of fertilizer producer PEC-Rhin from GPN, a subsidiary of France’s Total group, for an undisclosed fee in January 2012. PEC-Rhin is a producer of nitrate fertilizers as well as ammonia, ammonia water and nitric acid for industrial use.

Full-year 2012 net profits had fallen by 5% to €480m largely because of the weaker polyolefins margin environment in Europe, despite sales rising by 6% at €7.55bn.

“In 2012, our fertilizer business as well as our joint venture Borouge significantly contributed to our profitability,” said Garrett.

“However, 2012 showed that the polyolefins industry in Europe is still suffering from low growth and margins, and it is likely that this will not improve materially for some time. We will further optimise our European operations in order to be sustainably profitable to grow in these volatile markets," he said.

Beyond 2013, Garrett admitted Borealis could close a number of smaller, older and less efficient plants, particularly in the polyolefins industry and across Europe, as part of its focus to drive productivity and efficiency.

“We have this scrap-and-build [taking down older plants and replacing them with new facilities] programme for the last 10 or so years, and we will continue to drive that – there will be more scrap and less build in the next phase because we have new plants we built that we can stretch further and effectively scrap a couple of plants and move products onto the new plants," Garrett said.

Garrett could not say specifically about which assets would be scrapped but said: “We actively manage our assets and categorise our assets so we know which ones we want to make our top-grade products on and which ones we would favour in a scrap scenario”.

In related news, Borealis said it has reached an agreement to acquire specialty firm DEXPlastomers, a 50/50 joint venture owned by Royal DSM and ExxonMobil Chemical, which Borealis said will fully complement its current polyolefins business. Shook said the transaction should close in the next few weeks.

Borealis is owned by Abu Dhabi’s International Petroleum Investment Company (IPIC) (64%) and Austrian oil company OMV (36%).

($1 = €0.76)

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

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