24 February 2014 17:57 [Source: ICIS news]
Interview article by Jonathan Lopez
LONDON (ICIS)--Borealis will look for investment opportunities in the eastern European fertilizer sector where farm land is cheaper and consumers have become more affluent, instead of focusing on German and French production where potential has almost been exhausted, the company’s CEO said on Monday.
CEO Mark Garrett said east Europe presents a good opportunity for Borealis because average-sized farms in the region are much larger than in west Europe and there are lower crop yields, resulting in substantial productivity gains which together with more affluent consumers demanding more and better quality food will bring "true potential" in fertilizers in the region.
“In fertilizers, we are trying to draw a line south and north of the rivers Seine, Rhine and Danube. We are aiming to work on that corridor using the river ways and with the plants we have next to those rivers allow supply to the whole continent,” Garrett said.
The CEO said Borealis is likely to acquire more companies and facilities in east Europe, although he did not disclose possible targets or countries where investment could take place.
Aiming to become a fertilizer main player in Europe, Borealis has been involved in a series of acquisitions (France’s GPN, Belgium’s Rosier and Bulgaria’s Neochim AD) which the company expects to start bringing positive financial results in 2014.
“Overtime, we’ve seen fertilizers have been nicely profitable for us and we believe there is strong potential in that sector so we would hope Borealis keeps expanding. If we want to continue feeding ourselves in Europe, it will come from east Europe. French and German productivities have almost maxed out,” said Garrett.
As well as expanding in fertilizers, the Vienna-headquartered company this year is awaiting the opening of the Borouge 3 cracker in Abu Dhabi, after a €4.6bn investment, something which the companies' executives highlighted as a part of a process to move from the polyolefins market in Europe to other business segments to maintain profitability.
Borouge 3 is a joint venture between Borealis and the Abu Dhabi national oil company (ADNOC), based in Ruwais.
Garrett said Borouge 3 will start up in March or April, with the first products being delivered by July, although he said the positive financial results of Borouge will be felt more in 2015 than this year, as during the first half, products will not be delivered and the full workforce is already in place.
“Moreover, the first 12 months of a project like this always involves a lot of testing, fixings. It’s a huge project for which we’ll see returns more in 2015 and following years than in 2014.
"Operators at production, workers at the supply chain or at sales… they are all already in place, but we are not selling anything, i.e. The financial results will take time to show positive aspects, most likely in the second half of 2014,” said Garrett.
For 2014, the company expects similar financial results as it reported earlier on Monday, with net profit at €423m in 2013, and sales surpassing for the first time the barrier of €8bn.
As for plant closures, Borealis announced in 2013 the closure of its plant in Burghausen, Germany, but both Garrett and CFO David Shook said they did not expect any other closures in Europe in 2014, despite the depressed economic environment.
Shook said 2014 will be stable as long as the oil price and feedstock profits for fertilizers remain stable. For 2013, he said Borealis’ net debt stood at €1.8bn, up €225m on the back of acquisitions and capital expenditure.
“We paid €60m in dividends and €340m or so in acquisitions, so we can see the business generated some nice cash during the year and we are pleased with that,” said Shook.
The CFO added Borealis always aims to keep a gearing ratio in the range of 40-60% as the company’s two shareholders International Petroleum Investment Company (IPIC, 64%) and Austria’s oil refiner OMV (36%) want to keep a strong balance sheet in case of pronounced crisis, like 2008’s.
“They recognise we are in a cyclical business and they know that if you have a strong balance sheet, if things change dramatically, you will still be able to continue investments, like we have been doing since 2008 until now,” said Shook.
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