Interview with Mr. Alfred Stern, CEO, Borealis, Austria

Mar 2020 Interview with Mr. Alfred Stern, CEO, Borealis, Austria

Prisma Reports (PR): Borealis is Austria’s flagship petrochemical producer, providing polyolefins, base chemicals, and fertilizers. It has grown into a global giant, with close to 7,000 employees, a strong presence on 5 continents. It is owned 64% by Mubadala and 36% by OMV, which shows the strong internationalisation of the group. To start with, can you give me a rapid overview of Borealis, and a couple of facts and figures to illustrate your global importance and contribution?

Alfred Stern (AS):Borealis is active in three different areas: 1) in plastics, where we focus on polyethylene and polypropylene, called polyolefins together; 2) in base chemicals, which are partly the feedstock for the plastic production and the chemicals; 3) in the fertilizer industry. Borealis is the second largest plastics industry player in Europe. We have European roots, but over the last 15-20 years, Borealis has experienced a last international growth across all geos. A large part of this growth was attributable to our Borouge from joint venture, which was formed with ADNOC (Abu Dhabi National Oil Company), and which is now a company that has grown to be even bigger than Borealis. As a company we are highly focused on value creation through innovation; this fuels our growth. Borealis supplies all the technologies for polymer plants as an example, and we are quite proud of that. Our Borstar® multi-modal proprietary technology has a good portfolio of technologies that enable to create differentiated products. We are aiming for higher value applications, so that we can really make a difference with our products. This is what we continue to develop and supply to the Borouge joint venture and we think that this is also a good basis for us to continue to grow. At the moment we have a number of significant growth projects, such as our Propane Dehydrogenation Plant project in Belgium, to produce propylene. This is one of the first sizeable investments of this kind in Europe, and this also reflects our commitment to the region. Indeed, we believe real value creation through innovation comes from local supply capabilities. You need to be able to produce together with your customers and be able to drive that forward with innovation.

(PR): How has a shareholder like Mubadala helped internationalize the group, what’s been the benefits and impact of having such prestigious name on board?

(AS): Borealis is owned 36% by OMV and 64% by Mubadala, a great combination as these two shareholders are long-term, strategic investors who understand the industry quite well. Together we have been able to continue investing in innovation, in state of the art production facilities, and also to invest counter-cyclically in our industry. We are in a cyclical industry and you can drive long-term business performance by taking advantage of this. They have supported this in a very good way and that gives us a differentiated position. You can see that our performance is outstanding compared to the industry.

(PR): 2018 has been another great year for the group, since Borealis achieved a strong financial result with a net profit of EUR 906 million. In line with this, the group registered a net profit of EUR 200 million in Q1-2019, announcing another promising year. What have been the key drivers and the key market rationals behind this growth, and what’s your outlook for 2019?

(AS): If you look at the products that we produce, a lot of them are driven by polyolefins, polyethylene and polypropylene products. If you look at some of the keys markets that we are in like the automotive market, engine and electric cars should become more efficient in terms of combustion, more light-weight, safer, more stylish – and all these are only achievable through the plastic solutions that we provide. Another area where we are very active in is the area of wire and cable solutions. We make insulation material for household cables, but also cables for renewable energy producers that can withstand extremely high voltage. In Germany for example, there are many wind farms in the North Sea – since the end consumers are far away, the producers need to export the energy out, and this is where they need those cables. Together with our customers we have progressively developped better insulation cables, so that now only two cables are needed to export electricity for 3 million households instead of several before – which altogether reduces the cost for renewable energy. As a result, we are a major enabler for energy change. Going forward the global population will only increase, people will become wealthier, and Borealis will continue to deliver some of the most efficient, cost-effective and environmentally friendly solutions, in turn allowing you to use such renewable energy products with less energy and water. We think that this is what drives our growth.

(PR): Austria is the EU’s second biggest R&D spender, dedicating 3,19% of GDP to R&D activities in 2018, the Government aims to push that number to 3,76%. Innovation is no vain word in Borealis: last year the group filed a total of 117 priority patent applications, a record for the past 10 years. How does innovation translate at Borealis, and what’s your strategy to continue to “Keep Discovering” and bring innovation to the market?

(AS):The local newspapers have dubbed Borealis the “Patentkaiser” because we are the company with the most patents in Austria. Thanks to our shareholders, we have been able to continuously invest in innovation over the last few years, without any fluctuation. We have very big innovation centres in Austria, Sweden and Finland. And together with Borouge we have now built one in Abu Dhabi and one in Shanghai. We continue to invest in R&D and we still see a lot of potential in developing new applications together with our customers. We are always looking at increasing the performance of our products and at bringing the costs down for customers. We need to be able to foster automotive development for instance, we need to be able to make thinner, stronger materials that are even more lightweight. In the medical industry, we just launched materials where you can put liquids in and then sterilize them at higher temperatures so that the whole process goes faster, and you can kill more germs. These kinds of developments will continue to drive the key areas of energy, mobility, healthcare and advanced packaging. We also put a lot of focus into developing our technology portfolio. In this industry, Borealis has one of the most complete portfolios, making different products using different process technologies. The core technology that we have is called Borstar® Technology. But that development never ends. We are just about to build a new plant in Texas together with Total and Nova Chemicals, n our Baystar joint venture. That Baystar Plant will be the first full scale, third generation plant – bigger, and more energy and cost efficient. It will allow us to make even more sophisticated products. We continuously develop our technology portfolio and make sure that we have a set of leading technologies in our areas.

(PR): How about Borealis’s commitment to sustainability? What’s your vision to transform the industry and implement a more circular economy?

(AS):Over the years, we have shifted a significant part of our resources towards sustainability. In our sustainability strategy we have defined three focus areas: health and safety, emissions reductions and circular economy. When it comes to health and safety Borealis offers world-class safety performance. We are one of the leading companies in that regard. Last year, we had a Total Recordable Injury (TRI) of 1.1 which is a record, and we continue to work on maintaining that. We are also focused on energy emissions reduction on our own production and processes. We have a lot of optimization activities to reduce emissions and to use energy more efficiently. For example, last year we launched the first commercial application of a chemical pump together with a start-up, called Qpinch, which allows you to bring low energy heat up to a high quality heat that you can use in industrial processes through a chemical heat pump. This is a world-first in terms of application and could really be a breakthrough because you can’t normally use heat for anything else. We will install this technology in one of our plants. This is the kind of continuous improvement Borealis is working on, we are always wondering how we can reduce our energy consumption, and trying to invest in new technologies to do things more efficiently and reduce our energy consumption. The third front we have is around the circular economy where we are investing a lot of resources at the moment and aiming to be a leader providing advanced recycling technologies.

(PR): Indeed, last year the group commited to quadruple its recycled plastics solutions by 2025. How is Borealis fostering new recycling technology investments? How does your EverMinds™ platform work in that regard?

(AS): If you look at the way we are running things today, we take, make things and then throw it away. What we believe in Borealis is the circular economy, where you can’t dispose it but bring back to reuse it. This isn’t an easy thing to implement and on the contrary it makes things even more complicated. In order to become a leading force in the circular economy, we needed much more collaboration – not just in our value chain but beyond our value chain – and this is why we started EverMinds. Since entering the recycling industry, we have accelerated our discussions with waste management and sorting companies, so as to close the loop. We needed to communicate with communities to find out how they collect waste and how we can bring this back. This is how we came to launch EverMinds™– a communication platform to bring those people together, which aims also to figure out how to bring these concepts forward. Austria has the advantage of being a small country where it is easy to connect with other stakeholders. We have many fantastic leading companies in this area of the circular economy, with fantastic waste management and recycling. With our EverMinds platform we are bringing all key stakeholders together so as to create lighthouse projects. We started recycling in 2014 and launched some products related to recycling; but in 2016 we decided that we wanted to become a recycler. We made a first acquisition in Germany, followed by a second one in Austria, in order to reinforce our capacities in the recycling industry. Borealis is fully committed to grow its plastic recycling capacities. Plastic waste could very well become just another feedstock in twenty years from now, everyone will think that that’s normal. In order to get there, we need to create those networks and dedicate a lot of development resources, we need to create opportunities for us to lead, and push this forward.

(PR): How important is it for you to also lead by example and communicate on your efforts, not only with other industry partners, but also with the general public?

(AS):I think Borealis is in a great position, we are innovative and have good people who are creative. We have a great culture and strong values, which allow us to think at the forefront. Such kind of environment enables you to tackle challenges faster and to create opportunities out of them. This is how we see ourselves – we want to turn current challenges into business opportunities, and we have it as an imperative to fix some really significant issues with plastics. I think we can lead the industry with this. We also dedicate significant time and effort to work in various associations. For example, we were the first plastic producer to become a member of the Ellen MacArthur Foundation. At that time, it was considered a strange move but by sitting together with these people, you can learn what the challenges are and translate them into opportunities and go on the journey to fix it together. We also participated in the creation and launch of the Polyolefin Circular Economy Platform (PCEP)in Europe, where we bring together the EverMinds concept and the whole value chain mix – not just the plastic producers, but also the converters and users of plastics, to see how we can make things more circular, to create standards. We are also involved in trying to provide input and making contributions to shaping European policies. We may not be able to do everything we said, we should at least make the effort so people can make decisions based on complete facts.

(PR): How is digitalisation pacing up in the chemicals industry, and how important is it for Borealis?

(AS): The chemical industry is certainly one of the late adopters when it comes to digitalization, which is also not very surprising. Big facilities also have safety risks so one needs to be careful and make sure that this is done properly. Two years ago, we created a digital studio where we create digital products. It’s nice to see how this agile approach to working has been applied in this digital studio, but it’s now actually going beyond just that. Other people in Borealis are watching them and asking, “can’t we use this agile method for something else?”. So, I think that’s not just digitalization, but also adopting agile working methods to implement things. The second one where we see some signification potential – we’ve launched a couple of things. One of the very interesting things is in the area of fertilizers, where we have created NutriGuide, a tool on hand-held devices for our customers. For example, a farmer can get information about the soil composition and what they want to plant there, what kind of fertilizer is needed and how much. This enables to make sure that we don’t over fertilize but apply the optimal fertilizer composition that is actually needed. The response that we have gotten from customers was actually quite positive, and we aim to drive these concepts further. This is more on the customer interface. We are also trying to digitalize internal processes, using robotics to complete standardized work for instance. We are also starting to digitalize the manufacturing environment to ensure higher productivity, easier and safer work environments for our operators, through making things more visible and ensuring that we run our factories in the most ideal and safe way.

(PR): What is the importance of the US market for Borealis? What’s your positioning in the US, what are some of your priority segments and opportunities in the US at present?

(AS): The US market is a big and attractive market for Borealis. The big opportunity in the US is shale oil and shale gas, which creates a very competitive environment there driving further our investments in the US, and our Baystar venture there. In the US we want to capitalize on our differentiated products and technology. We see a lot of potential in the US in the wire and cable production for the renewable energy industry, and this will continue to drive grow. We are one of the companies that provide the US automotive industry with grades (plastic raw materials) for bumpers and dashboards. Our plant in North Carolina very much focuses on that. We offer top performing products, and we are working closely with our customers to develop new applications. We sit together with them to figure out how to make cars lighter by using our products to make a certain part. We want to create a similar growth and position in the US as we have in Europe, through our plant in North Carolina. Through our JV Borouge, we can be a supplier to the Asian and global automotive market. Asia and the Middle East are the regions with the most population and income increase for the next 30 years, that will have more disposable income to consume our products, and that will fuel our growth. We are now building a fifth polypropylene plant in Abu Dhabi and are working on the fourth complex to supply those markets.

(PR): You’ve been with Borealis since 2008, and occupying the CEO seat for almost a year now. As new captain of the boat, where would you like to take Borealis? What would you like to achieve most for the group?

(AS): Borealis is a great company to work for, I can’t think of a better one. We are in a good momentum, will continue to see growth, and thanks to the new projects that we have initiated we will consilidate our global position. Circularity and sustainability are of primary importance for Borealis. Borealis can make a difference in that regard, reinforcing its position as global leader in doing so, while also taking this opportunity to consolidate its growth. People and safety are also important aspects that we emphasize, and which are closely linked. We are a very safe operator, even though the safety performance of yesterday doesn’t guarantee that of tomorrow.