Borealis ferts makes €77m profit in 2019, partly offsets poor polyolefins – execs

VIENNA (ICIS)–A strong performance for Borealis’ fertilizers sector in 2019 offset weakness in the polyolefins markets, with the division posting a net profit of €77m after years in the red, executives at the Austrian producer said on Thursday.

CFO Mark Tonkens added the annual profit for fertilizers rebounded from a “three-digit loss” in 2018.

Fertilizers accounts for around 20% of the nearly €10bn sales Borealis made in 2019.

CEO Alfred Stern was also realistic about the polyolefins markets and conceded that low pricing in 2019 is likely to persist this year as new supply continues competing for slowing demand, affecting Borealis’ margins.

The company released earlier on Thursday its annual financial results, posting falls in sales and net profit, year on year. However, Borealis is privately-owned and does not release specific financial metrics for its divisions.

The firm is owned by Austria’s energy major OMV, with a 36% stake, and Abu Dhabi’s investment fund Mubadala, with the remaining 64%.

FERTILIZERS – A BRIGHT STORY
While divisional financial metrics are not normally released in full, this year Borealis’ board wanted to tell the positive story at its fertilizers division, which had been in the red for years.

According to the CFO, Borealis produced 4.7m tonnes of fertilizers in 2019.

The division found tailwinds in low natural gas prices – a key feedstock for production – and a recovery in the markets had brought about the turnaround from losses to profit, said Tonkens.

He also attributed the gains to the restructuring started in 2018, when Borealis carved out the fertilizers division.

Soon after the carve-out, Borealis said it was “exploring opportunities” for the division, with finding a partner the preferred option at the time.

However, on Thursday management said the intention is now to keep the business and turn it profitable, without answering questions about the potential to find a buyer for it.

Asked about the restructuring programme in fertilzers, Tonkens did not expand on specifics, but went as far as saying the business was “on fire” and the company had to act.

“[The programme affected fertilizers and not polyolefins] because polyolefins was not on fire. If you make triple-digit losses you need to act – look at optimisation, at price management, at revenue… By doing that, you now see an improvement which is helping offset more difficult market [in polyolefins],” said Tonkens.

“We’ll continue to see a strong [fertilizers] industry environment … The fertilizers market needs further consolidation [although] we want to retain the business for the foreseeable future … We can come to better partnerships to realise that consolidation.”

Borealis’ management would not answer questions on whether the company is in talks to sell its fertilizers division.

In Europe, Norway’s Yara and Netherlands’ OCI are the big fertilizers players.

On Thursday, investment bank Credit Suisse published a note on OCI saying the firm is likely to divest its methanol business this year, cashing in up to $2.5bn.

Those proceeds, the bank argued, could be used to consolidate its fertilizers business with some acquisitions.

POLYOLEFINS – MORE PAIN AHEAD
Borealis is aware the downcycle in the polyolefins sector is likely to persist as more capacities come on stream in North America and the Middle East.

Borealis is a partner at joint venture Borouge in Abu Dhabi, with a 40% stake; Abu Dhabi’s crude oil major ADNOC holds the remaining 60%.

The firm has capacity to produce 4.5m tonnes/year of several polyolefins grades, and has Asia as its main destination, with one third aimed for China.

However, the slowdown in China’s demand – worsened in 2020 by the coronavirus outbreak which has brought the country’s industrial sectors to a standstill in the first quarter – combined with more supply does not bode well for Borealis’ margins in coming quarters.

Borealis released earlier on Thursday its net profit for 2019, but not EBIT. Speaking to reporters in Vienna, the firm’s executives also made public earnings before interest and taxes (EBIT, or operating profit) for the year, at €605m.

The figure was the only metric to improve compared with 2018, when EBIT stood at €496.

Both figures were down from 2017’s €791m, and even further away from 2016’s €938m, when the European manufacturing sectors went through a revival and chemicals companies’ margins were strong.

“In Europe, [we expect] some pressure on margins driven by both the slowdown in demand growth but also by significant supply increases,” said CEO Stern.

“The coronavirus [crisis] doesn’t help [and] at least for the month to come it will slow down growth.”

Borealis’ management would not answer more specific questions about the coronavirus outbreak and how it could affect its first-quarter results.

French chemicals major Arkema reported on Thursday the crisis had already dented its earnings by €20m during January and February.

Borealis’ executive vice president for growth projects in the Middle East and Asia, Phillippe Roodhooft, also speaking to reporters on Thursday, said an announcement will be made “within months” about a potential polyethylene complex in Kazakhstan for which the feasibility study has been finished.

Roodhooft also said an expansion at Borouge remains on track, as well as ongoing studies for a complex in India with ADNOC, Germany’s major BASF, and the country’s infrastructure major Adani that would be powered fully form renewable energies.

Front page picture: Borealis’ production facilities in Linz, Austria
Source: Borealis 

ICIS will be publishing an interview with Borealis’ CEO and CFO on Monday 2 March