Borealis is looking for a partner for its struggling fertilizers division after writing down assets acquired years ago which turned out to be worth less than expected, according to the CEO at the Austrian polymers and fertilizers major.
Alfred Stern (pictured) was speaking after the company had written down fertilizers assets in the fourth quarter by €92m, in a division which accounts for around 20% of company sales and which was already carved out in 2018 in order to streamline its operations.
The write-down in fertilizers, together with weaker margins in its polymers divisions, caused a drop in net profit during the fourth quarter of 62% to €94m. Sales during 2018 stood at €8.3bn.
Privately-owned Borealis does not publish financial metrics for specific divisions. Its two sole owners are Mubadala, the state investment fund in UEA’s Abu Dhabi which holds a 64% stake, and Austrian energy major Austria-based OMV, with the remaining 36%.
The performance of the fertilizers division has been a drag on results for years. In 2014, the previous CEO said that, after acquiring several assets in France, the company was seeking to acquire assets in eastern Europe.
However, Borealis conceded in 2015 that the acquired assets were in a worse state than expected.
Stern said, however, that the company does not regret having acquired several assets in the last 10 years that turned out to be worth less than expected.
“I have learned that regret is not a very good strategy – it is good to look forward … If you look at the market, everybody is having not the best of time. Moreover, when we looked at this enough, we decided that we needed to take an impairment on the assets of €92m. That had a negative effect on results,” said Stern.
“We have always said this is not the end of the journey [for the fertilizers division]. It‘s not enough. This is a very commoditised business, which has also benefited from scale – what we will continue to do is to pursue a long-term plan.”
However, Borealis said that the company had come to the conclusion that it would not be able to undertake a long-term plan for the division on its own, arguing that a partnership would be a better option.
Borealis produces around 4.2m tonnes/year of fertilizers, said its CFO Mark Tonkens, also present in the interview, and the target has always been to more than double that figure to around 10m tonnes/year.
“We want to grow to 10m tonnes/year, but we will not be doing that alone so we feel the right way to go is to form partnership in order to take the business forward. It’s something we won’t do tomorrow – we are exploring opportunities,” said Tonkens, pictured.
“It’s not that we will sit back and wait for a partner to come – we need to continue to improve our own business, and take it from there.”
While fertilizers continues struggling, both the CEO and the CFO said they were quite pleased with the performance of the polymers part of the business.
Borealis’ joint venture in Abu Dhabi with the national crude oil major ADNOC continues running healthily – with capacity utilisation at more than 90%, Stern said – and showed no fear that the large capacities coming on stream in the US’ Gulf region would dampen polymers prices for years to come.
By Jonathan Lopez
Source: ICIS News
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