Panel discussion and questions - Todd D. Karran, Fernando Musa, Rebecca Liebert

I have a couple of questions of my own that I'd like to start with, if that's okay, and then we can go to your questions. Thank you very much, Mr. Issa.

Thank you.

Just to remind everyone that there is a digitization seminar this afternoon. The topic that Rebecca just so eloquently introduced to everybody covers the whole seminar at 2:30 this afternoon. We would welcome you all back for that. That's being sponsored by you and hosted by ABB. Rebecca, if I can start with you and pick up on a couple of the themes that you've just put out there on digitization. Just taking a sort of macro view of the region and how it's beginning to adopt that culture, if you like—I mean the data mining culture, the data transparency culture in the GCC—you could argue is not that advanced yet. So how do you think the region and the industry that we're talking about, the petrochemical industry, can sort of take that leap, if you like, at this point in time? Is it an advantage that the data culture here isn't that advanced, and if you like, they can take that great leap forward into transforming their systems, or is it a disadvantage? And what's the hurdle that maybe they need to cross to be able to make these solutions adaptable here?

Yeah, I mean, you just threw out a few figures at the end of your presentation of the additional value, obviously, that can be harnessed from using data and the efficiencies that that can create on operations. Go to a billion dollars, and then what? A billion just for the petrochemicals themselves? So I think the argument of how this data gathering and efficiency tools is—nobody would argue against that. But it's more about the other factors of, essentially, as you said, just getting there, getting the mindset to actually transition and trust those new systems. I mean, you mentioned the cloud solutions, obviously, which were part and parcel of this, and a lot of the data, obviously, goes into these clouds where nobody really feels they have full control of. And again, from a cybersecurity point of view, or from just a data sovereignty point of view, where there are sensitivities around data sovereignty and sharing data, again, do you think that that is something that could prevent this region from progressing on that front, or has that corner been turned already?

How important is it that you have—I mean, from models elsewhere in the world where, you know, Honeywell, for example, has adopted all this technology—how important is it to have critical mass of lots of people participating to make you able to develop these data processes, if you like? And the fact that the whole supply chain actually has to participate for it to be effective. And is that something that—

Thank you very much, Rebecca. And we're going to go to the Slido now. We have quite a few questions. I can't promise that we'll get to all of them. We have about 15 minutes. So, and I won't promise either that I'm going to always take the top question, but we will start with the one on top of our screen. I'm going to put that to the gentleman on stage.

The first one we have is: What would be the effect on Canada only, at Canadian energy and petrochemicals sector, if NAFTA negotiations fail? That's quite a broad question, but would you both like to comment on that?

You're nearby, but anyway, so I could begin. Well, I think what's become clear is that the administration could change the nature of NAFTA somewhat unilaterally without Congress. If that were to happen, there's some discussion whether we would, in Canada, fall back to the previous arrangement, which was a FTA, free-trade agreement, or if it would just be subject to regular WTO-type of arrangements and tariffs. And so I think the outcome that we might see if it fails—and they're midway through the negotiations, so we'd still encourage the groups to come to a conclusion because I think it's the right answer—but I believe what we face is some tariffs for production in Canada going into the US, and likewise from the Mexican perspective, and these would go both ways. And so this is why I'm hopeful that we could land on an arrangement where it works, because you're just taking some friction into the system by adding these tariffs between the US and Canada, and there could be some retaliatory moves and things like this. So in summary, optimistic, but in the case we would see some tariffs, as we do see in other countries as well.

Okay, and I'm going to keep you to answer our second question there, which is very particular to Nova, and it's asking why the company is not engaging in polypropylene. Is that correct? First of all, are you not engaging? I'm very pro-polypropylene, and why not?

No, it's a good question, and it's something that is currently true. So we do have some propylene from our crackers that goes into the market, but we don't upgrade into polypropylene. It's a natural question because it relies on the same core competency in terms of ethylene production, and in fact, a lot of the technology downstream between polypropylene and polyethylene would be comparable. Our sister company, Borealis, indeed has significant presence in both polyethylene and polypropylene. So it's a diversification step that wouldn't take away from my discussion topic around focus in any meaningful way, and it's something we've not closed out as an option. We just haven't pursued it. We did have propylene in the past on a small scale, but it could be part of the future going forward as well.

Okay, thank you for that. I have a question for you. It's two or three questions down on merging corporate cultures, and you mentioned that when Braskem was formed, it merged six different entities, and obviously, it's been a huge success story so far. But what have been the challenges of merging those different companies together? And obviously, this region is going through its own phase of M&A and consolidation, and perhaps a bit closer link. But what would you highlight as any challenges there?

Well, I think the key challenge is to think about people and understand what is joining the family, let's call it. So as I said, the Braskem culture is very strong. The six companies that originally formed Braskem had all similar ownership, so they already shared a lot of this base. So integrating them reinforced that culture and created a base for going forward. I think our approach, especially when we went to the international acquisition, was one of humbleness. We believe in the principles, but we don't pretend to be expert in the US or in Europe or in Mexico. So integrating the local knowledge with our principles and doing this balance, I think, is the key challenge. One aspect that took a lot of time and effort is to build trust on these new teams joining Braskem, to explain the culture in detail and what it means in practice with examples. Through practice, we did employ a system where the number of Brazilians sent to those new geographies was rather limited. In the first acquisition in the US, for example, we acquired a business that had roughly 500 people; we sent four Brazilians only to help on this cultural aspect. But their key task was to communicate the principles and integrate the local reality with our way of thinking. So this balance between local reality, local history, and the assets we bought have different legacies with our core beliefs is the key challenge. And we've been successful so far; hopefully, we'll continue.

You mentioned in your presentation that your focus is now shifting to overseas acquisitions and partnerships going forward, and more of that. Is the GCC an area of interest for you?

There's a question, actually a few questions down, on open innovation, which is kind of related to that in terms of, you know, the new way of thinking is to cooperate and to see what solutions can be devised, you know, with tie-ups like that. And open innovation, obviously, and sharing innovative ideas and R&D, which is obviously what's going to keep this industry and any other industry going in the future. What are your thoughts on that? In terms of, is there enough open innovation happening, or is everybody still very much instead of having the silo mentality of let's keep our research to ourselves for now, and we'll decide later what to do with it, whether to share it? Please, we'll start with you, Todd.

Yeah, and I'll go to everybody for that. Sure, I think we're starting to see that more in the petrochemical space. So I kind of think of three data points. One is in the upstream, the oil and gas business. It's long been very much joint venturing and sharing the risk and the opportunity that way across the various participants in that space. And so, secondly, we saw a lot of integration. So IOCs and NOCs going downstream and integrating in this way. And I think kind of the third logical step is to increase the amount of venturing and creativity and innovation applied among sort of the petrochemicals. And so it's no secret now that, I mean, in the areas where we have that network effect, so the US Gulf Coast is classic, even within the region here, there can be and it's necessary to have a lot of cooperation to manage the infrastructure and the mass balance and so forth. But I think there's room to extend that further. And so this would be among petrochemicals. And then I would add a dimension that we believe strongly at Nova around the collaboration and that innovation that I spoke about, but a little more color on the customer and the supply chain aspect. An opportunity that's there—we work with our customers and again their customers in a very creative way. And I'm really thrilled and proud of our team how they brought this together. Because in May of 2016, we cut the ribbon on a facility in Calgary we call a CPA Centre for Performance Applications. And here we've installed actually all our customers' equipment so we can have a blown film line, we can have thermoforming, we can have cap manufacturing for polyethylene caps on drink bottles and things like this, and other equipment as well. So basically anybody we're selling resin to is using these various types of equipment, and we've got that at our site. And what we do is we invite them to the site. They don't have to shut down their lines; they can keep their full-scale manufacturing facilities running. They can come to us, and we've had special built equipment which is exactly as they have, maybe scaled down, but they can come and test their ideas. They can bring their secret sauce and they can merge it with our resin. We're not totally altruistic; we'd love to have our products blended in with their own, but we can run complex films, nine layers, for instance, and then immediately tear those off and go to our scientists, PhDs, and technicians and test all the attributes. Are we getting those outcomes that we want? But not to let that get in the way of that collaborative effort, that innovation, that joint creativity to create new products and new opportunities. And then just make sure you've done the paperwork and you're consistent with all your agreements and patents and so forth. Make sure everything's secure.

Thank you very much, Rebecca. I have a question here from the audience. It's a few questions down about whether Honeywell solutions are available to utility companies as well as where you're supplying them so far. Is that something that's being implemented already?

And there's a question here which is very technical, but how long does it take to implement a connected plant? I suppose it depends on the plant, right? It depends on the complexity of that. But again, in terms of when people are considering making the investment and what disruption that might actually involve in the interim, it's not sure. I mean, of course, like any new system, you're going to have to do some training and some implementation.

Okay, I think we have time for maybe a couple more questions. Mr. Musa, there's one here specifically on Brazil.

The green PE product is—it's a very interesting product from a sustainability point of view, but from a market demand point of view, it's still a niche product. We do have plans to continue to invest in that arena. Green PE and other renewable-based chemistry and polymers—we set up a very interesting large biotechnology lab in Brazil, have over 40 PhDs working on biotech processes to work on, as I said, renewable-based chemistry and polymerization. So we'll continue to invest in that. At the right time, we'll expand the green PE portfolio and capabilities. Since the beginning back in 2010, we've expanded the portfolio to basically all PE families—I mean, low-density, linear low, high-density—now is available with green ethylene. And at the right time, we'll make a new investment in capacity.

I have one more question I'd like to put to you all before you break for coffee, and we do have a session actually in a speaker after coffee who's from the finance part of the equation, and we'll be looking at a bit more detail into the challenges of, if you like, financing new technology, financing digitization, financing the industry in general. But just to put it to you all, what are your feelings on how, in the last couple of years, obviously with energy companies generally under some pressure because of oil prices dropping, et cetera, how has that filtered through to your companies and how has that impacted investment? Or obviously, it's impacted feedstock in this region as well, feedstock costs and their comparative advantage, but has it impacted the investment culture, if you like, or outlook in your companies in terms of the revenue that's coming in?

Well, if I may start, if you look clearly at the petrochemical sector, our results have been very good in the last few years. So I don't see in our case and in many of our competitors any pressure of reducing investment. On the contrary, when the expectation is that continued growth—Todd mentioned a lot of investments—we're doing a lot of investments. Our project in Mexico was a five-billion-dollar investment. There are many multi-billion-dollar projects being done around the world. I think it's a confirmation of the strength of the petrochemical industry. And IOCs are beginning to diversify more and more to downstream because of the margins.

Yeah, I agree with Fernando. I think when we saw the oil price decrease, it really brought about a little more thinking about sort of worst-case scenarios and downside scenarios and probability. And as I was talking about, you know, that uncertainty range really. And when you think about the volume, and I'll just speak to ethylene and polyethylene as our core, but the numbers are quite astounding. So, you know, globally at 200 million pounds of polyethylene, even slow growth of two or three percent per year requires a number of polyethylene world-scale plants to be built annually. And so it's sort of cyclical, and you'll see pauses and you'll see accelerations. And so we grow in a stepwise function, as we all know, but that demand keeps ticking along. So even though we might see a period here in '18 and '19 globally of supply coming on in excess of demand growth, that very quickly turns around because the planning cycle, as we know, is three to five years for making changes there. So in summary, we have to keep our eye on that long-term horizon with sensitivity around those ranges, but that demand is going to keep pulling us along, and just finding that sweet spot.

Rebecca, I'll let you have the last word on that.