Page 5 - FSUOGM Week 08 2020

FSUOGM COMMENTARY FSUOGM
Exports will be an important source of revenue, but Sibur is also focused on the large Russian market as well.
to grow and per capita consumption in the devel- oping markets is still way behind that in devel- oped markets we are not really worried,” Konov told bne IntelliNews.
Sibur’s revenues fell from RUB569bn ($8.8bn) in 2018 to RUB531bn ($8.2bn) last year, while EBITDA fell by 15% over the same period from RUB201bn to RUB170bn, although the EBITDA margin remains a health 32%, but slid a little from 35% recorded the year previously.
Amongst revenues of its main products, while plastics and intermediate products fell a bigger 44% to RUB20bn over the same period, this was compensated by a 30% increase in the sale of olefins and polyolefins, which grew by 30% to RUB49bn in 2019 y/y, the company said.
The net debt to EBITDA ratio was also up slightly to 2.1x, but that increase was also partly caused by exchange effects as five sixths of Sibur debt is in foreign exchange.
ZapSib comes online
Despite the mild decline in revenues Sibur counts 2019 as a successful year. The major event was the completion of its new ZapSib facility.
ZapSib is a major expansion of Sibur’s pro- duction capacity and includes a steam cracker made by Germany’s Linde that has a capacity of 1.5mn tonnes per year of ethylene, around 500,000 tpy of propylene and 100,000 tpy of butane-butylene fraction (BBF), along with other units with a total capacity to produce 1.5mn tpyof various grades of polyethylene and a polypropylene unit of 500,000 tpy.
The facility uses natural gas liquids (NGLs) and liquefied petroleum gas (LPG) derived from associated petroleum gas (APG), a by-product, from Russia’s oil and gas majors, as feedstock. ZapSib adds a new type of polyethylene to the company’s portfolio and moves production up the value chain to improve the margins.
ZapSib started producing polypropylene in the first quarter and then polyethylene in the third quarter – basic plastics that mostly go for export to be used in the construction and pack- aging industries amongst other things -- but its still early for revenues earned from this produc- tion to make an impact on the company’s results in 2019 as it will take another six to 12 months to bring ZapSib up to full production, according to Konov.
“It’s like an orchestra,” Sergey Komyshan, the executive director, told bne IntelliNews in an exclusive interview. “It talks time to warm up and fine tune the instruments.”
Exports will be an important source of reve- nue, but Sibur is also focused on the large Rus- sian market as well where demand is a long way from being satiated and provides a foundation to Sibur’s business.
“The Russian market is not yet saturated and consumption of polyethylene in Russia is at half the level of European and American markets in percapitaterms,”saysKomyshan.
The company’s net income was boosted in 2019 by FX gains as while the ruble appreciated
over the year it fell in the last quarter which is when assets, including its debt which is five sixth in foreign currency, has to be re-valued and marked to book.
“The upshot is we made a short-term FX gain due to the currency dynamics,” Sibur’s CFO Alexander Petrov told bne IntelliNews.
Petrov went on to say that FX effects are less important than they used to be as the ruble has become more stable in recent years. The gov- ernment use of the so-called budget rule which forces the Ministry of Finance to sterilise any oil revenues when oil prices climb over $42 per barrel has in effect greatly weakened the link between the ruble exchange rate and the price of oil.
ESG & environmental concerns
As a large chemical producer, like most of its industrial peers Sibur has decided to take the rapidly changing attitudes to the climate crisis serious and put in place policies to address the issues before governments around the world start to regulate. In December 2019 the com- pany adopted a comprehensive ESG (environ- ment, social and corporate governance) strategy to make sure it compliant when the time comes. But Konov argues that the way packaging and materials are used needs to be completely rethought and Sibur is actively investing into research to facilitate these changes.
“We have to change the way we think about how plastics are used. For example, the emissions from making a plastic bottle are half as much as those produced in making a glass bottle,” says Konov. “Moreover, rather than making single use bottles we should think about multi-use plastic bottles. That would also greatly reduce both emissions and waste. From this perspective plastic doesn’t look as bad.”
Sibur argues that apart from things like waste in the sea, plastics are not necessarily a problem for the environment as they capture and lock up CO2.
Another programme Sibur is pursuing is to develop more and better ways of recycling plas- tics. The company is already considering adding some recycled plastics to the production of its products and through a variety of mechanical, chemical and other means it hopes to increase the share of recycled plastics in some of its prod- ucts to 25%.
The new ESG strategy now affects all the investment decisions as well as the way the com- pany is run and set itself targets that it has been meeting so far as part of a strategy that runs through to 2025.
“ESG is not always about incurring costs. We often have choice when building facilities between using different technologies that pro- duce the same results. We are already assessing the environmental impact of these technologies when making investment decisions and have excludedsomechoicesonthebasisoftheirenvi- ronmental impact alone,” says Komyshan.
As bne IntelliNews reported, while
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