OMV AG

Good morning, ladies and gentlemen. Welcome to OMV's earnings call for the fourth quarter 2020.

With me on the call today are the entire OMV Executive Board, and Alfred Stern, the CEO of Borealis. Rainer Seele will walk you through the highlights of the quarter and give you an update on some of our strategic priorities.

And after that, Alfred will give you more details about Borealis. Following the 2 presentations, we are happy to answer your questions.

And without further ado, I will hand it over to Rainer.

Yes. Thanks, Florian.

Good morning, ladies and gentlemen, and thank you for joining us. As usual, my presentation today will include the fourth quarter results, our dividend proposal for the business year 2020 and the outlook for this year.

Additionally, I will give you an update on our divestment program and on our 2025 strategic directions. We are currently working on a full strategic update, which we plan to present to you this summer at our Capital Markets Day.

Following my presentation, I will invite Alfred to give you some insights into the Borealis business. The fourth quarter of 2020 was yet another challenging quarter for our industry, albeit with a more supportive macro environment quarter-on-quarter.

Upstream significantly improved on the back of higher realized oil and gas prices and the resumption of production in Libya. While still impacted by a weak refining margin, downstream benefited from the improved performance of Borealis and the full consolidation of its business into our results since the end of October.

Let me start by providing a brief review of the economic environment. Despite the ongoing oil price recovery at $44 per barrel, Brent was only 3% higher quarter-on-quarter and still 30% lower year-on-year.

While the price fell to $36 per barrel by end of October on the return of Libyan production, uncertainties surrounding the U.S. election and growing pessimism regarding oil demand, Brent finished the year at over $50 per barrel.

The upward momentum was driven by optimism regarding the coronavirus vaccine and economic stimulus measures. European gas prices increased substantially at €14 per megawatt hour.

Central European gas prices were 57% higher than in the previous quarter and up 6% compared to the same quarter of 2019. The substantial increase was driven by a solid demand supported by cold weather and the reduced LNG supply into Europe due to strong demand in Asia.

At $1.7 per barrel, the European refining indicator margin rebounded from the very low level recorded in the third quarter. However, it was still 66% below the fourth quarter of 2019.

The improvement was driven by higher jet cracks, partly offset by the increase in the Brent price and weaker demand following tighter restrictions in Europe. Ethylene and propylene margins were at the similar level to the fourth quarter of 2019, but slightly below the third quarter of 2020.

Despite the unusual tight markets towards yearend, when spot prices traded above contract prices in some periods, C2 C3 margins went under pressure as the rise in naphtha prices outpaced the increase in contract prices in December. Benzene and butadiene margins improved significantly compared to the third quarter, but remained below the level of the fourth quarter 2019.

Our clean CCS operating result rose sharply by 65% to €524 million versus the third quarter on the back of substantially improved upstream and very strong Borealis performance, whose results have been fully consolidated since the end of October. However, the group's results remained 33% below the same quarter of last year.

We were able to deliver a good quarterly cash flow from operating activities, excluding net working capital effects of €830 million, demonstrating the strength of our integrated portfolio. Building on our strong financials, we delivered on our progressive dividend policy.

We will propose a dividend per share of €1.85 for the business year 2020 to the Annual General Meeting. This is an increase of €0.10 versus 2019 and marks a new record in OMV's history.

Looking at the operations, our upstream production was 7% lower year-on-year, primarily due to lower production level in Libya and reduced oil demand. The production cost came down again from the third quarter to below $7 per barrel, and downstream our refineries in Europe ran at 81% utilization despite maintenance activities and strict lockdowns across Europe.

This was significantly above the European average of 68%. Borealis showed an excellent performance quarter-on-quarter with higher polyolefin sales volumes in Europe and Asia.

The fourth quarter was a milestone in executing our strategy. On October 29, we closed the acquisition of an additional 39% share in Borealis.

OMV now owns a controlling interest of 75% in the company. Alongside the Borealis acquisition, we took further significant steps in our previously announced €2 billion divestment program.

In December, we signed the sales agreement of the German OMV retail network and the divestment of the upstream business in Kazakhstan. Both transactions are expected to close in 2021.

Following our goal of reducing the carbon intensity of our product portfolio, we decided to invest €200 million into co-processing the simultaneous conversion of biomass and fossil feedstock in our Schwechat refinery in Austria. This will allow OMV to transform biomass obtained from vegetable oil or waste into up to 160,000 tons of biodiesel starting in 2023.

OMV's annual carbon footprint will, therefore, further decrease by up to 360,000 tonnes. In December, together with Daimler Truck, IVECO, Volvo and Shell, we committed to work together to help create the conditions for the mass market rollout of hydrogen trucks in Europe.

We believe that hydrogen is essential for the complete decarbonization of the truck sector. So let's now turn to our financial performance in the fourth quarter of 2020.

Our clean CCS operating result decreased by €257 million versus the prior year quarter due to a decline in upstream of €275 million caused by the adverse market environment. Downstream earnings were down slightly versus the prior year quarter.

The negative impact of maintenance activities at our refineries and lower demand was almost entirely compensated by a positive hedging contribution as well as the strong performance of Borealis and its full consolidation in our results. The clean CCS tax rate decreased to 33%, which was 10 percentage points lower than year-on-year, driven by a proportionally lower upstream contribution, in particular from countries with high-tech fiscal regimes.

Clean CCS net income attributable to stockholders decreased by 29% to €219 million. Clean CCS earnings per share was €0.67.

With the closing of the Borealis transaction, OMV realized a step-up in the valuation of the previous 36% share in Borealis of around €1.3 billion and tax synergies that raised OMV's equity position by around €300 million via deferred tax assets and further effects. As a result, net income rose strongly to €1.9 billion.

Let me now discuss the performance of our 2 business segments. Compared to the fourth quarter of 2019, the Upstream Clean operating result decreased significantly to €184 million, the main driver were negative market effects of €354 million, a direct reflection of substantially lower oil and gas prices.

OMV's realized oil price decreased by 32%, in line with Brent. The realized gas price declined by 18%, while the Austrian hub prices were slightly higher than the fourth quarter of 2019.

This was due to a decline of gas prices in Romania and in Malaysia, and the 2-month time lag effect for half of our Russian gas volumes. Production decreased by 33,000 to 472,000 barrels per day due to a lower contribution from Libya, natural decline in Romania and weaker demand in New Zealand.

In Russia, production was slightly lower than in the fourth quarter of 2019, due to the works at a booster compressor that will enable increased production starting with the third quarter of this year. In Malaysia, the production more than doubled to 36,000 barrels per day as a result of the startup of the SK408 gas fields.

Total sales volumes declined by 23,000 barrels per day and are thus roughly in line with the decrease of production. Depreciation was €83 million lower than in the fourth quarter of 2019, due to the reduced production and a lower asset base, because of impairments taken in the third quarter.

The clean CCS operating result in downstream decreased slightly year-on-year to €369 million. The impact of the weaker refining margins and lower demand was almost offset by a positive contribution from margin hedges, a strong performance in retail as well as a better performance of Borealis and the full consolidation of its results for the last 2 months of 2020.

Total refined product sales were 16% below the fourth quarter of 2019, mainly driven by the significant drop in jet fuel volumes. Sales volumes in retail were 10% lower than the respective quarter of 2019 due to strict lockdowns across Europe.

But this effect was compensated by strong unit margins, a higher share of premium fuel sales and cost reductions. And the petrochemicals business result increased by €9 million to €43 million.

The contribution from Borealis to downstream results rose substantially from €50 million to €162 million. Yeah, that's a very welcome performance to take, Alfred, on our OMV board.

Good entry ticket, Alfred. On the account of 2 factors, the improvement in the quarterly performance of Borealis and the consolidation of the entire business into our results after the closing of the end of October.

Borealis recorded excellent results in the fourth quarter. In Europe, the company benefited from higher polyolefin sales volumes with stronger margins and positive inventory effects.

This were partially offset by the decreased live feedstock advantage versus naphtha and an unplanned outage of the steam cracker in Finland. In addition, the fertilizer business was down year-on-year, due to the operational issues and decreased margins.

Borouge recorded a significant improvement, mainly driven by increased polyolefin volumes and prices in Asia. The contribution from ADNOC refining and trading came in at minus €33 million due to still depressed refining margins.

ADNOC Global Trading went live in December. Our gas business contributed €79 million to our result, which is a slight decrease versus the prior year quarter.

The results were impacted by a lower performance of the storage business, which was almost compensated for by significantly higher earnings from the power business in Romania. Gas sales volumes rose by 13% on account of increased sales in Germany and the Netherlands, slightly offset by lower sales in Romania.

As a measure, to preserve cash in the challenging year 2020, we initiated another substantial cost-cutting program in March. Our target was savings of around €200 million in OpEx and exploration expenditures.

By the end of 2020, we delivered around €310 million, roughly €180 million is from OpEx savings on a comparable basis to 2019 and around €130 million from the reduction of exploration expenditures. We expect that these savings will be carried through in subsequent years.

As shown in the development since 2016, we are continuously focused on driving efficiency through our cost base, and we have a strong track record of delivery. At €830 million, fourth quarter cash flow from operating activities, excluding net working capital effects, was up 21% from the previous quarter and just 14% lower than in the fourth quarter of 2019.

Net working capital effects generated a cash outflow of €151 million. Looking at the full year picture, cash flow from operating activities, excluding net working capital effects, amounted to €2.8 billion, down 35% compared to 2019.

This is mainly attributable to upstream, which was severely impacted by the decline in oil and gas prices. Since net working capital effects showed a big positive swing in 2020, cash flow from operating activities came in at €3.1 billion.

Despite the very challenging market environment, we were able to deliver an organic free cash flow before dividends of €1.3 billion. The result shows the quality and resilience of our integrated business portfolio.

Our organic free cash flow was more than sufficient to cover the payments of dividends in the amount of €879 million. The inorganic cash flow from investing activities was €4.1 billion, mainly reflecting the acquisition of the additional shares in Borealis.

Let's now have a quick look at the Borealis cash generation. It is very impressive that even in the year of crisis 2020, Borealis delivered a very strong operating cash flow of €1.6 billion, a slight increase versus 2019.

This includes the dividends from the participations, Borouge and Baystar. Building on the cash flow strength, Borealis is currently investing in growth.

In 2020, the company made 2 significant acquisitions, the additional 25% stake of NOVA Chemicals in the US-based Baystar joint venture, where now Borealis holds 50%, and the controlling stake in the South Korean compounder DYM Solution, solidifying Borealis position in the global wire and cable market. In 2020, Borealis also invested into a new propylene plant in Belgium, one of the largest and most efficient PDH plants globally, and into the Baystar complex in Texas.

These projects will significantly increase the Borealis cash generation ability. Net debt, excluding leases, increased to €8.1 billion, following the acquisition of the additional shares in Borealis.

Consequently, our gearing ratio, excluding leases, defined as net-debt-to-equity, rose to 41%. However, this is only a temporary increase as our divestment program will lead to a quick deleveraging.

If we consider the divestments already signed, totaling a net debt reduction of more than €1 billion, our gearing ratio, excluding leases, would be around 35%. Our disposal program continues in 2021 with the second divestment package announced today.

We aim to reach a gearing ratio excluding leases of around 30% by the end of this year. To allow for a better comparability with our industry peers, we have introduced the leverage ratio as a new KPI starting this quarter.

This will be calculated as the ratio of net debt, including leases to capital employed. As of end of 2020, the leverage ratio stood at 32%.

In 2021, we will report both ratios, the gearing ratio excluding leases and the leverage ratio. At the end of December 2020, OMV had a cash position of €2.9 billion and €4.2 billion in undrawn committed credit facilities.

Ladies and gentlemen, as I already mentioned, for the fiscal year 2020, we propose an increase in our dividend per share to €1.85. Since 2015, we have increased our dividend at an average rate of 13% per year.

We herewith reconfirm our progressive dividend policy. I will now move on to the outlook and start with the capital spending.

In 2020, as 1 of the measures to preserve cash, we cut our organic CapEx to €1.7 billion, a decrease of around 30% to the original budget for last year. As we delivered on the planned reduction, however, due to the full consolidation and Borealis in the last 2 months of 2020, total recorded organic CapEx was €1.9 billion.

Going forward, we are planning to spend around €2.5 billion to €3 billion for OMV Group, including Borealis. Borealis is currently in a growth phase and its organic CapEx is expected to be higher in the next 2 years compared to the 2019 level.

In 2021, we are expecting an organic CapEx of around €2.7 billion, which includes non-cash items such as leases of around €200 million. The CapEx split will reflect our new priorities, the investment in chemicals, circle economy and low carbon solutions will account for around 40% of the entire spending.

In Upstream, we plan to invest into our development projects, notably in Malaysia and the UAE. In Downstream, we will invest in sustainable energy projects such as Co-Processing and ReOil and in the expansion of our steam cracker in Burghausen.

At Borealis, the focus will be on the major growth projects in Belgium, the PDH plant, which will come on stream in 2023. The strict capital discipline reflects our capital priorities, reducing our debt following the Borealis acquisition and delivering on our progressive dividend policy.

I would like to give you a bit more insight into the phasing of our synergies program we announced following the Borealis acquisition. We expect synergies of at least €800 million from operational cost savings, combined purchasing, debottlenecking, value chain optimization as well as tax benefits until end of 2025.

The program is well on track. Already in this year, we expect to realize synergies of €50 million to €80 million.

Next year, these will increase to around €150 million. And for the period from 2023 to 2025, we expect around €200 million yearly through 2025.

Let me now give you an update on our divestment program. We are well on track and confident about delivering the envisaged €2 billion by end of this year.

We were able to sign agreements on all 3 divestments in the first package by end of last year, resulting in a deleveraging effect of more than €1 billion. Today, we are announcing the second package, which comprises 2 divestments.

First, Borealis will start the sale process for the nitrogen business, which includes the fertilizer, technical hydrogen and the melamine products. Borealis operates fertilizer production plants at the heart of important crop protecting - producing regions in Austria and France.

With around 60 warehouses across Europe and around 5 million tons of products supplied annually, Borealis is one of Europe's leading fertilizer producers. The company's share in Rosier, which operates the production sites in the Netherlands and Belgium, is not presently being considered within the potential sales process.

Borealis is also one of the global market leaders in melamine, the most valuable and sophisticated product in the nitrogen chain. The majority of the Borealis melamine production is destined for the wood-based panel industry.

Borealis will continue to focus on its core activities of providing innovative solutions and polyolefins and base chemicals. And second, we will start the divestment process for our retail and commercial operations in Slovenia.

We are currently the second largest retail player in the country after the national company, and we are active in the commercial fuel market as well. OMV operates 120 filling stations equipped with forecourts and located on highways in the main demand centers, having a throughput above the OMV average.

However, the integration of our - with our Schwechat refinery in Austria is limited as we partly supply the network through the import storage terminal at Koper on the Adriatic Coast. A third divestment package will follow during the course of this year.

We aim to accelerate cash flow generation to deleverage the company, while at the same time generating value. Let us now come to our main assumptions for this year.

Before I go into details, I would like to mention that starting with the first quarter we have changed our structure to 3 reporting segments: Exploration & Production, Refining & Marketing and Chemicals & Materials. Starting with Exploration & Production for the full year 2021, we assume an average Brent price in the low-50s and an average realized gas price above €10 per megawatt hour.

We expect average production of around 480,000 barrels per day in 2021, depending on the security situation in Libya and imposed production cuts by governments. We currently assume a contribution from Libya of around 35,000 barrels per day.

We have hedged quarter of our production for the first half of the year at a price of around $55 per barrel. We expect increased production in the UAE due to the full ramp-up of the Umm Lulu oilfield, the planned divestments of our oilfields in Malaysia, Kazakhstan and New Zealand will have a negative impact on our production volumes.

The refining indicator margin is projected to be above the previous year level of $2.4 per barrel. We have again hedged part of our middle distillate volumes, and we expect a positive low-double-digit million euro contribution in every quarter of 2021.

The utilization rate of the European refineries is expected to be at the prior year level. There are no major turnarounds planned for this year.

Total product sales volumes are projected to be higher than in 2020. Retail margins estimated to fall below the very strong 2020 level, impacted by the upward trend in Brent price.

Commercial margins are expected to be higher due to an assumed rebound in the aviation industry. Let me now come to Chemicals & Materials.

Starting with the first quarter, instead of the petrochemical margin, which we reported before, we will now publish the ethylene and propylene indicator margin separately. In addition, we will disclose the polyethylene and polypropylene indicator margins and volumes.

The European ethylene margin and the propylene margin are projected to be at prior year level. The European polyethylene and polypropylene indicator margins are estimated to be above the prior year level.

The polyethylene sales volumes are projected to be slightly above the prior year level, while the polypropylene sales volumes are expected to be in line with 2020. We expect the clean tax rate for the year 2021 to be in the mid- to high-30s.

Ladies and gentlemen, since March 2018, when we announced our strategy, we have substantially transformed our portfolio and reached significant milestones. Upstream has developed into a high-quality, low-cost asset base focused on gas.

Production reserves increased and are more regionally balanced. In Downstream, we expanded our refining footprint internationally, and most significantly for the future direction of the company, we have extended our value chain into high-value chemicals.

Following these significant developments in our portfolio, today, I would like to give you a brief update on our main strategic directions to 2025. As I mentioned in the beginning, we are currently working on our strategy update, and we will provide you with a comprehensive picture at our upcoming Capital Markets Day.

As I mentioned, going forward, we have changed our board structure, having established Chemicals & Materials as new business segments to better reflect our future strategic priorities. At group level, we are focusing on chemical's growth, leveraging the integrated value chain and maximizing value through our traditional oil and gas portfolio.

We are aware that reducing emission is the license to operate in a low-carbon future. Therefore, we are focusing on expanding our portfolio of low- and 0 carbon products, natural gas, chemical products and alternative fuels.

Something that will not change in the financial framework we presented to you in 2019, we reconfirm our aim to achieve a clean CCS operating result, and an operating cash flow, excluding net working capital effects, of at least €5 billion by 2025 each. The group strives for ROCE of at least 12%, while maintaining a strong balance sheet and a strong investment credit rating.

While the financial framework remains unchanged, we are revising some of our business targets due to the significant developments in our portfolio and the fast-changing landscape of our industry. In Exploration & Production of the business, we will be run for value, and we will harvest cash flow to enable transformation at group level.

We are revising the previously announced 2025 targets of 600,000 barrels per day in production volume and 1P reserves of 2 billion barrels. We are no longer pursuing growth in production.

Based on the current portfolio, including our organic project pipeline, we expect to maintain a relatively stable production corridor of around 450,000 to 500,000 barrels per day with around 60% gas by 2025. Our unit production cost will remain below $7 per barrel, supported by our various initiatives and digitalization.

The exploration and appraisal activities will concentrate on gas and low-cost opportunities with a total budget of around €200 million per year. Exploration & Production will focus on the target of a 60% reduction in carbon intensity of our operations.

This effort will include portfolio changes, phase out of routine gas flaring and venting, methane emissions reduction and projects like the photovoltaic plant in Austria for electrification of our own operations. OMV will leverage Borealis as a platform for growth, focusing on delivering the organic projects as well as building a material circle economy clean portfolio.

We will invest in chemical and mechanical recycling of post-consumer plastic waste with a clear aim of becoming a leader in this emerging market. In the refining business, we will continue to be an industry leader, focusing on cost and operational efficiency.

We no longer aim to further increase our refining capacity, but we plan to shift the output of our refineries towards petrochemicals to reflect expected demand changes. In addition, we are exploring projects in the area of conventional and advanced biofuels, synthetic fuels, hydrogen and energy efficiency.

We have earmarked investments of €1 billion by end of 2025 in recycling and innovative solutions for energy transition. For our gas business, we reconfirmed the strategy we presented in 2018.

We believe that gas will play an important role in the energy transition towards low to 0 carbon future in the markets we operate in. We have made significant progress since then.

We expanded our market presence to Northwest Europe and increased sales by almost 50%. In Germany, the biggest gas market in Continental Europe, we reached 7% market share by the end of 2020.

Going forward, we will strive to increase sales volumes by an additional 50% with a target of a 10% market share in Germany. We want to become the leading integrated gas supplier from Northwest to Southeast Europe.

Thank you for your attention. Now over to Alfred.

After his presentation, my colleagues and I are more than happy to take your questions. Alfred, it's your turn.

Thank you, Rainer. Ladies and gentlemen, good morning and a warm welcome from my side as well.

It is my pleasure to give you further insight into Borealis today. I would like to start with a recap of who we are.

Borealis is one of the world's leading leaders of advanced and circular polyolefin solutions and the European market leader in base chemicals, vertices and plastics recycling. We have a long history and expertise in the polyolefin business.

Our company was established 25 years ago by 3 oil companies: Neste, OMV and Statoil. Today, we have a global footprint in an approximately 250 million ton global polyolefin market that is expected to grow above the GDP rate.

Our base in Europe is strong, and we have access to international markets through our joint ventures, Borouge and Baystar. We are strong innovators and differentiate ourselves from the competition, thanks to our unique proprietary Borstar technology, which we only license to venture partners.

Our innovation capabilities make us a leading force in the circular economy, and our Borcycle technology ensures our leadership in the field of recycling. Our production assets benefit from access to advantaged feedstock, high feedstock flexibility and olefin integration.

This setup makes us resilient to market price swings and is a hedge against oil price volatility. We have a significant share of specialty products in our portfolio with a wide end-use industry reach and strong growth potential.

A significant part of our polyolefin solutions are used for products with long end-use life. Our innovation and technology capabilities providing solutions for our customers have ensured excellent relationships with them over the years along with a strong Borealis brand name.

Life demands progress. We are reinventing for more sustainable living is the guiding principle for everything we do at Borealis.

We are a global player with a well-balanced production portfolio split between polyethylene and polypropylene. With the total polyolefin production capacity of 5.8 million tons, we rank number 8 globally.

In Europe, our production capacity of 3.8 billion tons puts us second in the market. Borealis is a highly profitable business and has consistently delivered strong financials over the years.

In a very challenging 2020, which featured a global pandemic and economic slowdown, volatile oil prices and significant polyolefin capacity additions, our operating results, calculated as our EBIT plus the net income contributions from our equity participations, came in only 26% low in the previous year. This showcases the resilience of our business model, our innovative product portfolio, our cost discipline as well as our balanced geographical footprint and feedstock profile.

The contribution from our European polyolefin business remained mostly stable, and the contribution from the joint ventures in the Middle East and the United States was only slightly lower. However, our European operations in base chemicals were significantly impacted as a result of negative inventory effects and decreased light feedstock advance versus naphtha in our steam crackers in Europe.

In addition, the fertilizers contribution was down from the strong 2019 figure. Despite these effects, we were able to deliver an operating cash flow above the previous year's level.

If we look at the uses of cash, we differentiate between our running business and our growth and transformation efforts. The underlying CapEx requirement for our business was between €300 million and €500 million per year in the period 2015 to 2019.

In general, we are a high free cash flow company. As Rainer mentioned, we are currently in a growth phase and our CapEx spending will be above-average until 2023.

In response to the difficult situation in 2020, we cut CapEx by approximately 30% from the initial level budgeted for 2020 and leveled out our growth projects to 2023. After that, we expect an increase in cash flows from new projects and a decrease in the level of CapEx for growth projects.

Let me show you briefly how 2020 developed for Borealis. I would like to start by pointing out to you that, generally speaking, the recovery for our business has been remarkable.

Throughout the year, we have seen strong consumer-driven demand for our products. The second quarter was the most difficult with reduced demand in the durable sectors and low prices.

In the second half of the year, we have seen a strong recovery resulting in a strong fourth quarter. You can see our quarterly sales performance, excluding our share from the joint ventures, split into our main 3 product categories: polyolefins, base chemicals and fertilizers.

While our polyolefin business makes up less than 50% of our sales volume, it accounts for around 70% of our sales revenue. In the fertilizers business, we sold around 1 million tons per quarter, slightly lower than in 2019.

However, the results declined significantly in the second half of the year versus the strong year 2019, due to weaker industry margins and operational issues. The price of natural gas, a key feedstock for production, further increased in the fourth quarter, putting additional pressure on margins as price adjustments are usually lagging behind feedstock cost increases.

Base chemicals sales volumes were lower in 2020 than in 2019 with a very strong first quarter, boasting sales around 500,000 tons, followed by a decrease due to our cracker outages in Sweden and in Finland. Both crackers are now operating again, and we expect volumes to pick up in the first quarter.

The base chemicals contribution was also adversely affected by decreased light feedstock advantage versus naphtha, especially in the second and third quarters. Despite a very challenging 2020, the polyolefin sales volumes in Europe increased by over 2% year-on-year.

We sold around 970,000 tons of polyolefins quarterly. In the second quarter, the automotive and construction sectors recorded a significant decline due to the lockdowns across Europe.

However, we managed to compensate parts of the lower demand in these sectors with higher sales in health care and packaging. This shows the significant breadth of applications for our products and the versatility of our portfolio; the sales volumes of both Borouge and Baystar increased by around 10% year-on-year.

On the whole, integrated polyolefin industry margins increased in 2020 versus the previous year, driven by a strong polyolefin market in both Europe and Asia. Borealis benefits from a large share of specialty grades in its portfolio, which ensured robust financial performance in the polyolefin segment in 2020.

These specialty grades account for approximately 60% of the margin and 40% of polyolefin sales volumes. Specialty grades are products with superior differentiated properties and added value for the customer created through innovation and technology.

These products command a higher-margin than the standard industry margin and are less exposed to market volatility. Energy, automotive, and advanced products are the main sectors for which Borealis produces specialty grades.

Polyolefin sales for the energy industry, where Borealis is a global leader, remains stable throughout the year. Borealis polyolefin business operates in 5 industry clusters, focusing on end customer applications.

Innovation is at the core of our operations, and we strive every day to develop innovative solutions for our customers. With around 10,000 patent applications successfully filed and patents granted, we believe we are one of the most innovative polyolefin companies in Europe.

Our guiding principle is to reinvent for more sustainable living. Let me take you briefly through the 5 sectors, starting from the left with the automotive industry.

Borealis focuses on light-weighting of cars in interior, exterior and under-the-bonnet applications. In pipe and fitting, Borealis supplies infrastructure, hot water, and oil and gas pipes.

In consumer products, Borealis' main markets are blown film, thin wall packaging and caps and closures. Advanced products mainly features our health care applications, appliances and polyolefin solutions with a strong position in these markets.

Borealis has one of the largest product offerings in the health care business. Last, but not least, we have the energy cluster, which produces solutions for wires and cables, capacitor films and solar panels, among other applications.

From a volume share perspective, consumer products is the largest segment, accounting for approximately half of our polyolefin sales volumes. The other sectors each account for 10% to 15% of total sales volumes.

Our polyolefin solutions have a long use life. For example, our pressure pipes for gas and water utilities have a life of around 50 years; power cables, 40 years; and automotive components around 15 to 20 years.

I would like to briefly highlight our energy sector. Ladies and gentlemen, Borealis is number 1 in the world in this market.

This is a true specialty business, given the complexity of the required products and can be served by only a few players globally. What puts us in such an exceptional position?

Our Borstar technology is one of the few in the industry to fulfill the very high material requirements of this industry. Our production process meets the exceptional cleanliness requirements, which are necessary to avoid transmission interruptions, for example.

Our boiling technology makes power grids more robust and reliable, thereby reducing transmission losses. With our technology, it is possible to transport energy from renewable sources more efficiently and over longer distances to the end consumer.

Cross linked polyethylene power cables made with our Borlink technology will be used for the majority of the corridor projects in Germany comprising 3 separate corridors. This huge project is the major enabler of the German Energiewende or energy transition.

We further strengthened our global position with the acquisition of a controlling stake in South Korean compounder, DYM Solution, last year. This move ensures a global supply and enlarges our asset footprint and global product offering.

At 250 million tons, the polyolefin market accounts for roughly half of the global plastics market. Its outlook is attractive with a growth rate of 3.4% above global GDP until 2030.

Polyolefins are increasingly being used as a substitute for other energy intensive materials, and they remain essential for various industries such as packaging, construction, transportation, health care, pharmaceuticals and electronics. These sectors underpin the robust overall rise in demand, which stems primarily from Asia.

Demand in mature markets such as Europe and North America is expected to remain generally healthy, in line with economic development. If we look into the developments of polyethylene and polypropylene separately, we expect superior growth for polypropylene due to rising demand for lightweight materials for automotive components, construction equipment and consumer electronic products.

The strong growth trajectory over the last 10 years on this chart illustrates the successful development of the group. Borealis, Borouge and Baystar has a truly global reach with a record sales volume of 8.6 million tons globally, including 100% of each company's sales.

The sales figure more than doubled over the last decade, primarily due to the expansion of Borouge, which is a true success story of the long-term partnership with ADNOC. The joint venture has successfully combined the leading edge Borstar technology with competitive feedstock and access to the Asian growth markets.

Our main sales markets are Asia, accounting for more than one-third of sales and Europe. Currently, Baystar accounts for only a small percentage of sales.

However, with our focus on geographic expansion, the share of sales attributable to North America will grow significantly after the start-up of the expansion project. Another key success factor for Borealis is the operational production setup.

In Central Europe, Borealis benefits from the integration with OMV's refineries in Austria and Germany, where olefins are supplied over the fence. Borealis operates 2 crackers in Stenungsund and in Porvoo, both have high feedstock flexibility and can use naphtha, butane, ethane and propane.

Our crackers can use up to 70% light feedstock and up to 50% naphtha. The cracker intake can be adjusted to the actual market conditions.

In Belgium, Borealis runs a propane dehydrogenation unit based on 100% propane feedstock. In addition, Borealis operates caverns and logistics infrastructure in Sweden, Finland and Belgium, allowing for optimization of the feedstock slate and leveraging market price volatility.

Borealis is thus able to capture significant feedstock advantage. In the Middle East, via Borouge, as well as in North America, via Baystar, Borealis benefits from attractive feedstock cost based on ethane.

The advantage of the setup brings us into a first quartile net cash margin position in our industry. As mentioned earlier, Borealis is actively pursuing a growth and geographic expansion journey.

Europe is Borealis' core and base. Here, we are advancing the largest single brownfield investment in Borealis' history, our new world-scale propane dehydrogenation unit in Kallo, Belgium.

Given the growth in demand for polypropylene and decline in production via the classic cracker route and being based to a higher percentage on ethane, on-purpose propylene production has increased in relevance. With its location in the Antwerp-Rotterdam-Amsterdam area, one of the largest chemical clusters in the world, we are exceptionally well positioned to sell excess propylene to third parties.

About 50% of the project is completed. The plant is scheduled to start operations in the second quarter of 2023.

In North America, the expansion of our Baystar joint venture with Total is progressing well. The 1 million ton cracker is already in the commissioning phase, and we expect start-up in April.

The construction of the new world-scale Borstar polyethylene plant is well underway. The polyethylene capacity of this site will increase by 625,000 tons to more than 1 million tons.

Start-up is expected approximately a year from now. This plant will be the first to use our Borstar technology in North America, enabling us to supply our customers globally with specialty grades.

At the same time, it will benefit from advantaged ethane feedstock. Building on our very successful partnership with Borouge, we are currently building a 5th Borstar polypropylene plant, which will increase our capacity by 0.5 million tons to 5 million tons, and more than 10% capacity increase.

The expected start-up is in the third quarter of this year. We are also analyzing other growth opportunities such as Borouge 4.

This project is currently in the FEED stage. Ladies and gentlemen, in addition, to the significant growth opportunities, we also see changing patterns in our industry.

Demand for recycled plastics is increasing due to increasing awareness of the importance of using our resources sustainably. We recognize this as a significant growth opportunity.

Borealis is a leader in this emerging industry. We were among the first plastic manufacturers to work toward a circular economy several years ago.

Ever since then, we have been consistent in our efforts and have focused on recycling and design for circularity. We currently run 4 mechanical recycling plants in Austria and Germany with a capacity of around 100,000 tons.

Recently, we announced the collaboration on a demo plant for advanced recycling in Germany together with TOMRA, a Norwegian collection and sorting machine manufacturer; and Zimmermann, a German waste management company. The plant is one of the world's most advanced mechanical recycling plants and represents a first step towards developing highly demanding applications for various industries such as automotive and consumer products.

We see fundamental rethinking of the approach toward packaging and products. Packaging is the biggest single use of plastic, accounting for more than 1/4 of global demand.

Large consumer product companies are taking steps to accelerate the use of recycle and renewable materials in their products. Just to give you an example, Unilever, a major global consumer products company recently announced that it aims for all of its plastic packaging to be reusable, recyclable or combustible by 2025.

And it intends to use at least 25% recycled plastic in its packaging by the same year. Additionally, European legislation sets a 50% recycling target by 2025 for all member states.

Using our proprietary Borcycle recycling technology, we are able to transform waste into recycled polyolefins. What is very important is that we can offer a consistent supply of versatile, high-quality recyclate to producers and brand owners in various industries.

We project that the recycling market will expand beyond the average polyolefin growth rate, driven by a change in people's willingness to pay for more sustainable products and government initiatives geared toward reducing greenhouse gas emissions in this emerging market. We aim to make recycled polyolefins a significant part of our portfolio and more than triple the volume produced to 350,000 tons by 2025.

OMV's recycling activities using its ReOil technology complement our efforts in this area. The ReOil technology chemically recycles plastic waste into raw materials, which then can be used by Borealis to produce polyolefins.

Thus, we can offer to customers 100% circular and sustainable polyolefins. Nestlé has now become the first Borealis customer to use these polyolefins in consumer goods packaging.

We are very active in circular economy efforts, and partnerships play a very important role for us. We must work together to build a circular economy.

Three years ago, we created our Everminds collaboration platform dedicated to promoting a more circular mindset in the industry and collaborating with upstream and downstream value chain partners to accelerate the transition to a circular plastic economy. Just to give you one example.

Together with our value chain partners, Neste and Henkel, we produced the first polypropylene from renewable feedstock, derived entirely from waste and residue streams. This premium polyolefin product have the same material performance as virgin polyolefins, yet, with a lower carbon footprint.

Henkel is including renewable polypropylene content in the packaging of one of its major brands. I know you're all waiting for the question-and-answer session, so I won't keep you any longer.

But there are 4 quick things that I would like you to take away from this presentation. We are a growth company and exceptionally well positioned to benefit from strong market growth.

We are a global leading player in specialty products with a strong feedstock position. We are very innovative and focused on circular economy.

And last, but sure not least, we are a company that generates very high free cash flow. Thank you for your attention.

Thank you, Alfred. Let's now come to your question.

I'd ask you to limit your questions to only 2 at a time that we can take as many questions as possible. The first question comes from Mehdi Ennebati, Bank of America.

Hi. So good afternoon all and thanks for taking my questions.

So first, just would like to congratulate you on the strong results and very strong outlook, and I will ask 2 questions, please. So, the first one is about your asset disposal program.

So you've announced a second tranche with the potential sale of the nitro division and some assets in Slovenia. Just regarding the fertilizer division - the nitro division, sorry, how confident are you regarding the disposal of that asset in the current environment?

Would you say that there is an appetite for that kind of assets in the market currently or not really? Did you already start some discussions with some potential buyers or no?

And the second question is about the petchem margin. So my indicator, as you know, show relatively strong petchem margin at the beginning of this year compared to the first quarter, for example, even in the first quarter last year.

So I just wanted to know if you see the same thing happening for Borealis and even for integrated petchem business or no? Thank you.

Well, Mehdi, on the asset disposal program, let us first check the market before I give you a smell what is possible this year. I think it's a little bit too early.

Definitely, I can remember last year, when we made the announcement of our asset disposal program, you were all telling me Rainer is so difficult market, and because of COVID-19, and we could manage. And I am more than convinced that Alfred and his team will manage to sell this asset in the market.

You're absolutely right. It's not easy going, but all the other assets we have sold last year were also not easy going.

So I'm confident we will not disappoint you all, and we will deliver on the package we have announced. Well, on the petchem margins, what I see today is that petchem margins at the moment, starting into 2021, were a little bit under pressure because of rising Naphtha prices.

So the feedstock was going - the feedstock prices went up, and now we see that we can adjust our chemical product prices accordingly, yeah, so it's on the way. But I wouldn't be now over optimistic that the first quarter is now the best we see in 2021.

It's also depending how the naphtha and oil prices are going further up.

Yeah, thanks. Thank you very much, Rainer.

We now come to Raphaël Dubois, Societe Generale. Raphaël, are you there?

Okay. And we come to Michele Della Vigna, Goldman Sachs.

Perfect. Thank you so much for taking my questions and congratulations on a very strong set of results in quite a difficult environment.

2 questions, if I may. The first one is really about the outlook for the polyolefin margins.

It seems like there's quite a few new projects starting up in the next 24 months. I was wondering if you think there is any risk that from the supply side, you get some pressure on the margins over the next 2 years from what has been quite a good environment in the last 3 months.

And then, secondly, on the recycling side, I was wondering if you could perhaps help us understand a bit more the economics of mechanical recycling versus chemical recycling and [MO releases] [ph] and where you think there is the best opportunity in the coming years. Thank you.

Okay. Here is Alfred.

I'll start with the polyolefin margins. Thank you for your question, Michele.

I think you're correct. Last year, in 2020, we did see some additional capacity coming on stream.

And it is also expected that in 2021, globally, additional polyolefin capacity will come on the market. However, what we do see is that many of those projects are delayed, because of the pandemic.

So there's a couple of months delay. And the second piece that we have actually seen is that in 2020, the polyolefin demand was much stronger than anticipated with significant growth rate.

And that resulted in a very strong fourth quarter. Currently, we see still a very good demand for both polyethylene and polypropylene.

However, the further situation will depend on, number one, as Rainer said, the feedstock evolvement; and secondly, in my view, the development of the global pandemic and how that may impact the global demand.

Yes. Michele, Thomas speaking.

I will take the question about the recycling. You're absolutely right.

It's not an easy one with the economics if you have just one type of recycling. But this is the beauty of what we are doing together now with Borealis.

We have, on one hand, the mechanical recycling expertise, and then we have the chemical recycling, because if you do just mechanical recycling, you have the problem that you have a lot of material that's not recyclable, and you can use that in the chemical part. And with that, we think more in the direction of recycling hubs, where we combine these 2 technologies.

And I think there are not many companies who can say that they have the technology to do those 2 things together, plus having the knowledge about the product, having the knowledge about processing the synthetic crude. And all of that is now in our portfolio.

And therefore, we believe that this is definitely something where we can make money with it.

Thank you so much.

The next questions come from Thomas Adolff, Credit Suisse.

Good morning. Good afternoon.

2 questions for me, please, as well. Just firstly, on the upstream, your target previously to go to 600 kbd.

You've now reached to 450 to 500. Let's take the midpoint, 125 kbd difference to your prior target.

Where is this production or which projects are you foregoing or are you just phasing them and extending the plateau of the overall group? And then, secondly, just on the CapEx range of €2.5 billion to €3 billion, I think you mentioned Borealis will peak by - in the next few years and after 2023 will fade.

Where is that - are you going to stay in that range beyond 2023? And if Borealis' spending is declining, which areas are you ramping up spending?

Thank you.

Thomas, Hans speaking. I will take the first question regarding production.

Currently, what we're forecasting for 2021, as Rainer said, is the 480,000 boe per day. Not considering any shut-ins due to security constraints like in Luga as we had last year.

So that's the potential what we have right now. We have a very good and very economic pipeline of projects like Neptun, [Sharoon] [ph], Wisting, Hades & Iris, SARB, Umm Lulu, just to mention some of them, which are good enough, from my point of view, and which have the potential to keep the production level until 2025 where we are right now.

Thomas, I - this is Rainer. I tried to answer your question, yeah.

Well, first of all, the majority of the CapEx we have now planned until 2025, we will use, like Hans said, for our high-value upstream pipeline to keep the production level we see nowadays. Secondly, when we - you are absolutely right.

Borealis is peaking at a point of time, and then Borealis is declining. But I would like to clearly express here that OMV chemicals will be more than Borealis.

So I can leave it to your fantasy what else could be invested for, yeah, but there must be a story upcoming until 2025, which means it's more than Borealis.

Thank you. Can I just come back to the production question, because I do remember early in 2020, we've discussed how production can grow?

You've just talked about how you can sustain production, but you didn't actually discuss which projects you're not developing versus prior expectations. Thanks.

Coming back. Again, it's me again.

You know what we have been saying and what we have been guiding is that we see Achimov IV/V as an opportunity and not as a fixed investments, which we will take. So what I told you, this 450,000 to 500,000 boe range, which will be filled by the projects, which I told you before, is not including Achimov.

And what you need to consider as well that we go also for a divestment program. So we have been selling already Achimov.

We're divesting Maari. We are divesting our oil assets in Malaysia.

So only these 3 here we will lose between 15,000 and 20,000 boe on the yearly basis. So this is also compensated by the project pipeline, which we have.

Does it answer your question?

Okay, thank you. Thank you.

Good.

We now come to Henri Patricot, UBS.

Yes, hello, everyone. Thank you for the presentation today.

I have 2 questions, please. The first one on, Borouge.

I was wondering if you could give us a sense of the CapEx outlook there, if you go ahead with the expansion, in particular, and what that means for the dividend outlook for dividend from Borouge? And then, secondly, also just on the hedging decisions that you've made, can you give us a sense of the policy behind that and what we can expect in the future, on what basis you decide to hedge both on the uptick side, hedging the oil production and also on the refining side.

So should we expect to see ongoing hedging? Is there anything particular while you decided to hedge this time?

Thank you.

Henri, this is Rainer. Let me start with the hedging topic.

First of all, we have clearly hedging as an instrument, both for operations as well as for a defensive financial measure. For operations, specifically in the Downstream side, we see it as a common tool to make sure that we do not have any kind of open positions and make sure that we can have a stable situation of our turnover versus market volatility.

On the Upstream side, when it comes to commodity hedging, we look very carefully on what are the specific goals that we are pursuing with the company. 2021 is certainly a company we're deleveraging and the focus on cash flow delivery is first priority.

So if we have situations in the market where we see a clear upside versus our initial plannings and initial assumptions that we had, there will be certain portions that we keep as a means to hedge. This is exactly happening with the volume that we have hedged now for the first half year, where we have seen very good pricing level on the oil side, and therefore, we decided a certain portion, and it's a modest portion to be honest, to be also hedged in order to make sure that the cash flows for this year and the deleveraging targets are in line.

So I hope this clarifies.

Got it. Thank you.

Yeah, hi, this is Alfred again. On your Borouge question and CapEx, there are 2 different projects in Borouge.

One is the fifth Borstar polypropylene plant, the PP5 project. In this project, we are almost coming to the end.

We are close to 90% complete and anticipating startup in the third quarter of 2021. It's about a 10% capacity increase for the total Borouge complex.

On the bigger project, Borouge 4, the fourth stage there, we are currently in what is called the front-end engineering and design phase, and trying to understand and optimize the complex, what it should look like. So it's too early to make any comments on the CapEx there.

Okay, thank you.

Thanks, Henri. Next is Peter Low, Redburn.

Hi. Thanks for the strategic update.

First is another one on CapEx. Given the shift towards running the Upstream business for cash, can you give an indication of how much of that €2.5 billion to €3 billion of annual CapEx will go into Upstream?

And then, I guess, as a follow-up to that and at a slightly higher level, is the ambition here to have OMV considered a petrochemical company rather than integrated oil company? And over what time frame do you think that transformation could occur?

Thanks.

Well, Peter, this is Rainer. Peter, I can give you an idea about the share of Upstream in our CapEx budget for 2021.

It's about €1 billion to €1.1 billion. The years after, let's wait and see how the projects are going to be executed.

So therefore, take this as an indication for 2021. The timeframe to transform the company, well, I think as early as possible, yeah.

I know that you are disappointed to hear that, but it tells you that I would like to ask you to wait until our Capital Markets Day, because this is the main topic we will discuss with all of you. It will headline our sustainability strategy and the transformation into chemicals.

And because I like all you guys so much, I would like to see you on our Capital Markets Day. That's the reason why we keep it as a secret.

Thank you. I look forward to that.

And next is Josh Stone, Barclays.

Hi, good afternoon. Thanks for the presentation and welcome to Alfred to the presentation as well.

2 questions, please. Firstly, on the gas markets, prices have been very high during the start of this year.

I was wondering if you could comment on to what extent these Upstream portfolio has managed to capture some of that? I see some of your Malaysian assets being linked to LNG in Asia.

And to what extent that could be a feature in the first quarter? And then, secondly, on the waste plastics recycling or chemical recycling, can you just provide an update on the ReOil project, just see, where are we now, how close are we to being able to scale up that business or that project?

And, I guess, just linked to that more broadly, do you think for this industry to grow, does it need further help from the government or not? Thank you.

Josh, this is Thomas. Short update on ReOil, so we have a pilot plant at Schwechat refinery, where we can process 100 kilograms per hour.

So this is, of course, not the big unit that we want to build. But this is a very important one to really understand all the operational topics.

We had really very good progress over the last months. We processed several hundred tons of material there with the different qualities, because it's really about making sure that we fully understand where is the optimal point to process in terms of which parameters do we use for the different feedstocks.

So this is something where we have really clarified what is required for the next stage. And therefore, we are already in the phase where we designed a new unit, and there will be news this year on the next step.

So we are looking forward to give you more on that later on. But good progress, operational topics really developed very nicely and the unit is continuously running, so we are in a good stage.

Josh, I'm going to talk about European gas now. Well, we only can catch the lovely price increase in the European gas market only partially.

I would love to have more. But just remember, it's roughly 40% of the gas we produce in Europe, which is following the pricing in the European spot markets.

And just remember that we have these 2 months' time lag, especially with the Russian volumes and these are very substantial. So it's 50,000 barrels per day production, which is with the time that coming.

So some of these price increases we have seen, especially now in the first quarter, will move into the second quarter in our pricing. So this is just a comment on Europe, and Hans will give you an idea about the pricing in Malaysia.

Hi, Josh. Thanks for the question regarding LNG in Malaysia.

We had a detailed discussion about the LNG prices in Malaysia when we - if I did our share room project just recently. In OMVs what we have seen this - or the last year, we have seen $5, $6 per million BTU gas prices in Malaysia.

We forecasted for the project that those prices will ramp up to $8 per million BTU in 2, 3 years. What we see right now in the market is much higher demand than forecasted just some months ago.

We see already right now that the price is peaking beyond $8 per million BTU. As I said, as we have been forecasting just some months ago, that this will happen only in 2, 3 years from now.

So what we see right now, there's a demand is increasing due to the ramp up in China, but also in India. Just give you one figure regarding India.

India has just announced some, I think, 3, 4 weeks ago, that they are covering the primary energy demand by around 6% by LNG and gas, and they are aiming to increase this coverage rate up to 30% until 2030. This is already giving you a feeling how the demand for gas and LNG in this region will increase in the upcoming years.

Okay.

Good. We now come to Sasi Chilukuru, Morgan Stanley.

Thanks for taking my question. I had one regarding the financial framework, please.

You kind of provided a scenario where in the cash flow from operating activities can go - can increase to more than €5 billion by 2025. CapEx numbers are between €2.5 billion to €3 billion.

So there seems to be a lot of room for the free cash flow that could either go into the dividend or can reduce the gearing levels. Your target for gearing ratio is less than 30%, which you could probably get to in 2022.

Just wondering, how would this additional free cash flow, how - what is the pecking order if it were between shareholder returns and gearing levels? Is there any hard targets for the gearing levels to come down even further and at what level?

And what are you thinking regarding the growth in the dividend levels?

Yeah, happy to take this question. Actually, you're right.

Our ambition is very strong. And I think the operational platforms are already in place that with the economy recovering, a level of €5 billion cash flow is in reach.

Now of course, if you take the CapEx, we have given you indications on the organic CapEx. And organic CapEx certainly is something that if there is a headroom can be also accompanied by some inorganic CapEx.

Now for the next years, we clearly have a prime target to deleverage. We have on the other hand shown that we are able and willing to take shareholders' interests very serious.

We have announced a dividend increase even in this year. So there is not a link that is direct to say if we deleverage, we cannot give dividends or raise dividends.

We are demonstrating that the financial basis is strong enough to do both. And you're right, our ambition by the end of 2021 or in 2022 to have the 30% gearing or below will then start to give us a headroom.

And in that, there will be all levers again to have strong financial framework, to have a solid dividend paid out to our shareholders and ability to strategically grow will all be served by the delta between the 3 and possibly 5.

Sasi, I know Reinhard now since 5 years, and he always wants to keep the cash in his pocket. So the priorities are quite clear, yeah.

We would like to deleverage. We would like to bring gearing down, and then the second priority is our progressive dividend policy, yeah.

So I'll leave it with your fantasy what Reinhard will do with all the cash, but the priorities of capital allocations are set.

That's it. Quite helpful.

Thank you very much.

We now come to Bertrand Hodee, Kepler Cheuvreux.

Yes. Everyone, thanks for taking my question.

2, if I may, 2 related on Borealis. Is there any inorganic CapEx in Borealis as this year?

I'm thinking about the funding of the JV Baystar. And if there is, can you quantify it?

And then the second question, very strong performance in Q4 by Borealis. And overall, obviously, operating profit was down in 2020.

But given what you see, should we expect Borealis operating profit in 2000 - to come back at least to the level of 2019? Is that - would that be a fair, I would say, view at this stage in 2021?

Thank you.

Regarding inorganic CapEx on Borealis, there is the project of Baystar in U.S., where we will still find a couple of investments, respectively, capital injections. And this will be in the magnitude of some €200 million, €300 million in the next year.

Other than that, there is no inorganic CapEx, but of course, the organic CapEx that Alfred described around the project in Borouge well as, of course, projects in Bogus.

Well, Bertrand, as we speak about Borealis, I, of course, do have a big hope that they are coming back to 2019 level, of course. But nobody, especially in the current situation, is giving you a little bit of idea how this in 2021 will deliver - sorry, develop, because I think the uncertainties, especially as we are talking about at the beginning of the year in February, I would say, ask this question again on the Capital Markets Day.

I'm inviting all of you making it worth to come and listen to us then we might have a better idea, because I'm expecting that second half might kick in with a better framework, and then we might - can give you a better answer and a positive - more positive outlook.

Thank you, Bertrand. We…

Can I just squeeze - the last one is on dividends of Borealis to Mubadala minorities? Can you provide us a feel on what would be the Borealis dividend policy going forward?

We are not disclosing dividend policies as Borealis is just between Mubadala and OMV. But for the coming year, for 2021, we're expecting that, in general, not to differ too much from the year 2020.

Thanks, Bertrand. We now come to Tamas Pletser, Erste Bank.

Yes, good afternoon. Thanks very much for taking my questions.

2 questions on my side. First on ADNOC refining.

What was the reason of this negative operating performance of this refining asset? Was it any operational issues or simply the market was too bad for ADNOC?

That would be my first question. And my second question would be regarding your divestment of fertilizers.

What is the reason you chose the fertilizer line to divest? Was it the inferior return or the integration issues similar to your premium retail network?

Thank you.

Tamas, this is Thomas. I'll answer your question about ADNOC refining.

So 2020 was definitely a very difficult year for ADNOC refining. We had a big turnaround in the first half, which is, of course, coming along not only with cost, but also with low utilization rates.

And then the crisis, the COVID crisis, really came in. And we saw that, especially with product portfolio, with Schwechat being an important part of it, but also naphtha, it was a very difficult year and therefore, it was also in terms of - yeah, not only having the technical issues, also having the market issues, it was difficult.

The good news here is that we have solved the technical issues that we had last year. For example, the RFCC, which is a key unit is running now very smoothly above the planned utilization, original planned utilization.

So this is now solved. But still this year will be a difficult one if you look into refining margins.

In general, you can see that we need to get a better situation, and this will only come along with more demand on the middle distillate side. We see all over the place that the low demand of Schwechat, for example, is delivering an oversupply on the middle distillate side.

And therefore, the margins are challenged. But as I said, the good news is the technical issues are gone solved.

Okay. That's clear enough.

Thank you.

Hello, Tamas. Thank you for your question.

This is Alfred. I will answer your question around the nitrogen business.

We have - at Borealis, we have previously and quite consistently actually stated that Europe is an interesting and important fertilizer market and that at the right time, we would - and the right conditions, we would be open to divesting the nitrogen business. Now over the last 2 years, we have successfully completed the turnaround program in the fertilizer business to make it financially more robust, and this has given significantly improved cash flows of the business, and we believe now is actually the right time to take further steps.

At Borealis, we will continue to focus on the core activities, which is basically polyolefin-based chemicals in circular economy, and that also fits well with OMV when it comes to the group strategy development.

Thanks very much.

Thank you. Next is Henry Tarr, Berenberg.

Hi, guys. Thanks for taking my questions.

2 questions, really. One is, I think you talked about upstream CapEx being around sort of €1 billion to €1.1 billion in the next couple of years.

And you pointed to exploration spend coming lower, which you did for 2020. Should we expect exploration spend sort of flattish through 2021?

And then how are you thinking about exploration in the longer term? And then, I guess, my second question is just around - it's more of a strategic question around the recycling activities.

And to what extent do you think over time recycled polyolefins and the recycled demand for recycled polyolefins to cannibalize potentially virgin polyolefin demand? Thank you.

I will take the question regarding exploration CapEx. So we have been spending in 2021 close to €230 million.

We will - we're aiming for the same amount of money for 2021. In the upcoming years, we will focus our exploration activities on Southeast Asia, Norway, and deep layers in Romania and Austria, where we have done already seismic activities.

So we'll see how many wells we can drill there. But the main focus is Southeast Asia because here, we see also the very fast-growing market.

And in Norway, it's a perfect play for exploration because you get 78% no matter whether you are successful with the exploration, whether you found hydrocarbons, yes or no; you get 78% back from the government. So this is the strategic view on it.

So we will keep the exploration will go slightly down, so around €200 million, that's what you can expect for exploration spendings in the upcoming years.

Yes. Hello, Henry, thank you for your question.

This is Alfred. I'll answer your question around the recycling.

Maybe to start with, I would like to say that we anticipate continued strong growth for the polyolefin demand area, that this will grow with 3% to 5% - 3% to 4% going forward, above - growing above GDP rates. So that's the overall demand.

The question that we are treating here is where will the feedstock come from? And we anticipate that increasing recycling rates will come.

Maybe give you 2 data points here. There's a McKinsey study here that was extrapolating that by 2050, up to 60% of the polyolefin demand could be supplied by recycling.

And then there's a European regulation. The plastic packaging waste directive that is requiring that by 2025, half of the plastic packaging should be recycled.

And this is what one should look at this is by OMV and Borealis. We think this is a significant growth area.

We don't see that it will cannibalize the polyolefin demand, but it will change the feedstock supply to the polyolefin production, and that's what we see as our strategic opportunity here with ReOil with Borcycle technology.

That's great. Thanks.

The next questions come from Matt Lofting, JPMorgan.

Thanks, Florian. Congratulations all on strong full years, and thanks for the comprehensive update.

On Borealis and chemicals, appreciated Alfred's sharing his insights so soon after deal completion. The summary on the product markets and recycling expertise was really useful.

And I also thought the comments on Borstar technology was very interesting. I wonder if you could expand on that a little in terms of what it is about the Borstar process that differentiates and enable you to meet the elevated standards that were referenced?

And then, secondly, turning to demand recovery across the energy complex. Clearly, playing out, but likely sort of bumpy through the first part of the year.

With that in mind, I wonder if you could just talk about the sort of the trends early 2021 that OMV is seeing on demand through its key downstream markets. That would be appreciated.

Well, Matt, I think it will be a good guess here, yeah. So the winter helps.

So St. Peter really supported our business in 2021 so far.

If you look down the road, the price curve, it tells you that the gas prices you see now in the forward curve is nearly twice, 3 times as high as we have seen it last year. As we see a real high off-take from gas storages already in January, in some countries, we are already below the 50%.

I think this is supporting the price curve, especially in the traditionally or historically weak to summer quarters. So it could be a good - by far, a better gas pricing here waiting us.

What we can see in the Downstream market? I think first half, and we really have to cut 2021 into 2 halves.

The first half, I think, especially the transportation sector, will really not be helpful on the volumes. So what I can see is that the refining margins, especially in the first quarter, we are now something between $2 and $2.5.

We might move into a $3 to $3.5 in the summer quarters, because driving season will start. But it's going to be a difficult refining year 2021, yeah.

So I would be surprised. Chemicals stable, yeah.

They even persist corona. So that's why I would say 2021 could become a good chemicals year.

The same listening to Alfred, it's music in my ear. This was a very nice welcome gift when I look into the Q4 numbers, and that's a good appetite to continue in 2021, of course.

When we look into the oil markets, I would say I can see that there is a potential, of course, depending on how the global economy recovery will really look like in 2021. But I think there is at least a potential that the oil market can be tight second half of this year.

So what I can smell is, of course, the potential that we move into the 60s in the second half, if we really see economy coming back like many are forecasting. So tells you that jet is making our business difficult also in the first half, but second half comes in with lots of hope.

What else the markets? I think that's it, yeah.

Maybe Elena tells a little bit of retail? Yeah.

You already did. Okay.

That's it.

Yeah, this is Alfred. Thank you very much for your question about Borstar, really nice question, because we are really proud of Borstar.

And not just that we are proud, I think it's also a key differentiator for the company. Let me maybe start with saying that we did over the last 25 years, but continue also to invest significantly into innovation and technology in Borealis and the flagship technology there, the Borstar technology.

With this technology, you can produce both polyethylene and polypropylene. And we use this technology only for ourself or for venture partners in our joint ventures, meaning we don't freely license it to the market, because we believe that the differentiation, we can achieve with it allows us to be more competitive.

So what is that - what happens to the products that we make with our Borstar technology? The products that we make actually lighter, tougher, stronger, and they can be faster processed than with other technologies.

And that means that the customers that use our Borstar product, they can reduce cost, both in material savings, but also in productivity increases when it comes to processing the material. And the last piece I would like to mention here is also that it appears that our Borstar products allow a higher mixing in of recycling content compared to some other products, which is of course important in that context of circular economy that was discussed before.

So what we can do with Borstar then is to make a product range and portfolio that is allowing us to be able to be present in those different segments that I showed in my presentation. And then, like I said, quite some investment into our technology, but also in our catalyst development capabilities to make sure that we can drive these innovations further on together with our customers and continue strengthening our brand name and our customer relationships.

But this is a very long topic, and I will then also say, if you have time and can join in the Capital Markets Day, we can spend hours talking about this. Thank you.

Excellent. I look forward to it.

Thanks, guys.

Thanks, Matt. We have now a follow-up question from Thomas Adolff, Credit Suisse.

Thank you for taking the follow-up question. Just one on the dividend, if you go back to this time last year, and you announced a dividend increase to €2, what magical formula that you base it on?

And, obviously, you ended up keeping it flat, because of COVID. And now, you've announced an increase from €1.75 to €1.85, what magical formula did you use here?

Thank you.

Thomas, considering that dividends always are paid for the previous year, 2019 has been a record year. And therefore, we decided that without the knowledge of the adverse developments due to the pandemic, in January last year, we still anticipated a little bit better economic environment.

Therefore, we felt that for a record year, an increase in dividend is justified. We took it back to €1.75, which still is a record level at that time, because of the pandemic.

But also, we took the leap of faith to say, we will come strong through this difficult year, and therefore, we will not cut back as many of our peers did. I think we showed that we can do that.

And now we are seeing that while 2020, the year for which we pay the dividend, was a very difficult one, we see a little bit light at the end of the tunnel of the pandemic. And therefore, it's not a big increase, but it's a signal of strength.

It's the signal of appreciation for our shareholders that in this situation, we already take this increase, and that is the magic formula. It's a lot of thoughts that go into that, but there is no formula, I'm afraid.

Thank you.

Thanks, Thomas. So this brings us to the end of the conference call.

We would like to thank you for joining us today. Should you have any further questions, please contact the Investor Relations team.

We will be happy to help you. Goodbye and have a good day.