Borregaard — Annual Report 2014

Mar 25, 2015

2013

ANNUAL REPORT 2014

«Borregaard provides sustainable solutions based on renewable raw materials and unique competence»

ANNUAL REPORT 2014

The Borregaard Group	4
Message from the CEO	7
The Board of Directors	8
Report of the Board of Directors	10
Sustainability and Corporate responsibility	15
Corporate Governance	27
The Group Executive Management	34
Consolidated Financial Statements 2014	36
Borregaard ASA - Financial Statements 2014	78
Historical Key Figures	88
Group Directory	90

THE BORREGAARD GROUP

The Borregaard Group

Borregaard operates one of the world's most advanced biorefineries. By using natural, sustainable raw materials, the Group produces advanced and environmentally friendly biochemicals that can replace oil-based products. Borregaard also holds strong positions within selected niches of ingredients and fine chemicals.

Borregaard in a nutshell:

• • A biorefinery with high-value added
• • Specialisation in global niches
• • Strong innovation ability and continuous improvement
• • Competence is the main competitive advantage

A biorefinery with high value added

The Group's business model is closely linked to the integrated nature of its biorefinery in Norway, which utilises the three key components of wood (cellulose fibres, lignin and sugars) to produce a diversified portfolio of products. The biorefinery utilises approximately 85% of the feedstock to make Borregaard's products, while the remaining biomass is used to produce thermal energy for its production processes.

In addition to its biorefinery in Sarpsborg, Borregaard has six production sites outside of Norway mainly dedicated to producing lignin-based products. The company also has sales offices in 16 countries in Europe, Asia, Africa and the Americas serving its global customer base. At the end of 2014, the Group employed 1,076 man-years (including 50% of employees in the joint venture LignoTech South Africa).

Specialisation in global niches

Borregaard is a supplier of specialised biochemicals for a global customer base. The Group's main products are ligninbased products and speciality cellulose, but its product portfolio also includes vanillin, bioethanol, fine chemicals and microfibrillar cellulose. Borregaard's niche products serve applications in a wide range of global end-markets including construction, agriculture, food and beverages, transportation and pharmaceuticals.

Borregaard's strong market positions have been developed through a comprehensive understanding of its markets, the production of advanced and specialised products and local presence in the form of a global marketing organisation.

Competence is Borregaard's main competitive advantage

Borregaard is a competence-driven company with production, research and development (R&D) and sales and marketing as core competencies. To maintain its leading position, Borregaard places significant emphasis on training programmes and cooperation between the various disciplines.

Borregaard has a leading research centre combining wood chemistry and fine chemistry and focusing on the development of new or improved products, applications and technologies. The Group has 95 employees in R&D, of whom 80 were located at the R&D centre in Norway as of 31 December 2014.

Borregaard is organised in three business segments:

Performance Chemicals develops, produces and sells ligninbased binding and dispersing agents for use in a wide range of end-market applications, with a particular focus on specialised products in categories such as concrete admixtures, batteries, oilfield chemicals and agro chemicals. In addition, Performance Chemicals includes some trading of chemicals that are either linked to lignin-based products or which have previously been produced by Borregaard.

BALI (Borregaard Advanced Lignin) is a new concept currently under development. The project is organised under Performance Chemicals from 1 January 2015.

Specialty Cellulose develops, produces and sells speciality cellulose mainly for use in the production of cellulose acetate, cellulose ethers and other speciality segments. The production and sale of 2nd generation bioethanol is also part of the Specialty Cellulose business area.

The Exilva project was previously reported as part of Specialty Cellulose, from 1 January 2015 it is reported as part of Other Businesses.

Other Businesses consist of Ingredients, Fine Chemicals and the Exilva project. Borregaard supplies vanillin products to flavour and fragrance companies, as well as to the food and beverage industry. Borregaard is the only producer of wood-based vanillin in the world. Borregaard supplies fine chemicals to the pharmaceutical industry and is the world's largest supplier of intermediates for non-ionic X-ray contrast media.

A facility for the production of Exilva microfibrillar cellulose at the Borregaard site in Sarpsborg is under construction. Production is expected to start in the 3rd quarter of 2016.

Other Businesses also include sales of surplus basic chemicals from its chlor-alkali production in Sarpsborg. In addition, Borregaard corporate functions and R&D, utilities and services at the Sarpsborg site are included in this business segment.

Performance Chemicals Specialty Cellulose Other Businesses

Technology leader and largest supplier of lignin-based products in the world with global market coverage.

Leading global specialty cellulose supplier. Significant producer of 2nd generation bioethanol.

Only producer of wood-based vanillin. Largest producer of C3 -aminodiols for nonionic X-ray contrast media. Exilva project.

Key figures

298 528 539 489 486 8.8% 14.0% 14.0% 12.6% 12.3% 0% 3% 6% 9% 12% 15% 0 100 200 300 400 500 600 700 2010 2011 2012 2013 2014 EBITA1 NOK mill %

EBITA EBITA margin (%)

ROCE2

1. Operating profit before amortisation and other income and expenses. 2. Return on capital employed

Message from the CEO

Borregaard's ambition is to be a world leader in innovation and productivity. In 2014 Borregaard has focused on three strategic priorities: Growth and specialisation within Performance Chemicals, development of the unique biorefinery assets in Sarpsborg and establishment of the Exilva project as a new business.

Growth and specialisation within Performance Chemicals

A key element in our lignin strategy is improvement of the product mix through innovation and market development. Last year saw the introduction of a new speciality line utilising the high quality lignin raw material at the biorefinery in Norway. This investment has increased the overall production capacity for high-value lignin products used in applications like

batteries and oil-well cementing. In addition, the introduction of new technology has improved the performance of existing products.

However, the specialisation of the lignin business consists of a lot more than just one particular investment. We have delivered a broad-based improvement of specialisation in this area and are now capitalising on several long-term initiatives developed over many years. New products within gypsum and ceramics, a technological breakthrough for hardwood lignin in agrochemicals and geographic market penetration are other examples of successful long-term specialisation efforts.

Borregaard has a strong sales and technical customer service organisation operating all over the world. Through wider geographical penetration we move products that can be used in other regions in order to increase specialisation and optimise logistics.

The recent establishment of new contracted lignin raw material sources resulted in more stable deliveries during 2014. In addition, we have developed the BALI technology as a potential strategic lignin raw material option. Our demonstration plant is now producing products verifying the technology and product quality.

Development of the unique biorefinery assets in Sarpsborg

The second strategic priority is to further develop the biorefinery in Sarpsborg. We want to leverage the valuable assets and the unique raw material base in order to maximise value added from this highly integrated production site. This includes further specialisation of our Specialty Cellulose, Bioethanol and Ingredients businesses. We are also in the process of implementing several productivity projects to make the operations greener and more cost effective.

Establishment of the Exilva project as a new business

Finally, the establishment of the Exilva project as a new business is an important strategic priority. This project builds on our core competencies both in wood chemistry and fine chemistry. Exilva will drive the company in an even more specialised direction. The project has now entered the commercialisation phase and consists of two separate business opportunities – Exilva microfibrillar cellulose for industrial applications and SenseFi Advanced Texture Systems for food applications.

We will continue to execute our specialisation strategy in 2015 and are looking forward to harvesting even more successes from long-term market development and innovation efforts in the years to come.

In closing, I would like to take this opportunity to thank all Borregaard employees for dedicated efforts in 2014. I also want to thank all our shareholders for placing their trust in us.

Kind regards,

Per A. Sørlie President and CEO

The Board of Directors

Jan Anders Oksum

Terje Andersen

Jan Erik Korssjøen

Kristine Ryssdal Åsmund Dybedahl Ragnhild Wiborg

Ragnhild Anker Eide Roy Kåre Appelgren

Bente Seljebakken Klausen

JAN ANDERS OKSUM Chair

Member of the Board in Borregaard Industries Limited (BIL) 2007-2012. Member of the Board in Borregaard ASA from October 2012. Mr. Oksum is an independent consultant within organisational and leadership development, strategy and project execution. He has worked in various positions at Norske Skogindustrier ASA including the position as CEO. Mr. Oksum has served as Chair and Director of various national and international companies, such as Norconsult and Södra Cell AB. He holds a degree in Chemical Engineering from the Norwegian University of Science and Technology in Trondheim. Mr. Oksum has attended 8 out of 8 Board Meetings in 2014.

KRISTINE RYSSDAL Member

Member of the Board since October 2012. Ms. Ryssdal is Vice President Legal in Statoil ASA. She has also served as Senior Vice President and Chief Legal Officer of Renewable Energy Corporation ASA (REC). In addition, Ms. Ryssdal has experience from various boards within the REC Group and member of the Audit Committee in Kommunalbanken. She holds a Cand. Jur. degree from the Univesity of Oslo and a Master of Laws from the London School of Economics. Ms. Ryssdal has attended 7 out of 8 Board Meetings in 2014.

TERJE ANDERSEN Member

Member of the Board in Borregaard Industries Limited (BIL) 2005-2012. Member of the Board in Borregaard ASA from October 2012. Mr. Andersen is CEO of Orkla Investments. He has held various positions within the Orkla group including CFO of Orkla ASA. Mr. Andersen holds a number of positions

in various boards, such as Gränges AB, Sapa AB and Jotun AS. He holds a degree in Business Administration (siviløkonom) from the Norwegian School of Economics and Business Administration in Bergen. Mr. Andersen has attended 8 out of 8 Board Meetings in 2014.

RAGNHILD WIBORG Member

Member of the Board since April 2013. Ms. Wiborg is CEO of Wiborg kapitalförvaltning. She has held senior positions in a number of financial institutions and companies, such as Odin Fund Management (CIO/Portfolio manager), Pareto and First Chicago. Ms. Wiborg serves as a Board Member at IM Skaugen, REC Silicon, Gränges AB and Sevan Drilling. She has master studies in Macroeconomics, a Bachelor of Science degree in Economics and a major in International Business. Ms. Wiborg has attended 8 out of 8 Board Meetings in 2014.

JAN ERIK KORSSJØEN Member

Member of the Board since October 2012. Mr. Korssjøen currently holds the position as Industrial Professor at Buskerud University College. He has held a number of positions in the Kongsberg Industry/Gruppen including CEO of Kongsberg Gruppen. Mr. Korssjøen has held a number of positions in various boards, such as Cermaq ASA and Nammo AS. He holds a Master Degree in Mechanical Engineering from the Norwegian University of Science and Technology in Trondheim.Mr. Korssjøen has attended 8 out of 8 Board Meetings in 2014.

ÅSMUND DYBEDAHL Employee representative

Member of the Board since April 2013. Mr. Dybedahl is Leader of The Norwegian United Federation of Trade Unions at Borregaard (Fellesforbundet Borregaard Fagforening), as well as Chair of the Board of the Norwegian Confederation of Trade Unions (LO) at Borregaard. He has attended 8 out of 8 Board Meetings in 2014.

RAGNHILD ANKER EIDE

Employee representative

Member of the Board since October 2012.

Ms. Anker Eide works as a Manager in Mechanical Maintenance at Borregaard Sarpsborg. She is Chair of The Norwegian Society of Graduate Technical and Scientific Professionals (Tekna) at Borregaard and chair of the Board of the Joint Union for Officials and Engineers at Borregaard. Ms. Anker Eide has attended 8 out of 8 Board Meetings in 2014.

ROY KÅRE APPELGREN

Observer

Observer at the Board in Borregaard Industries Limited (BIL) 2010-2012. Observer at the Board in Borregaard ASA from October 2012.

Mr. Appelgren works as a Senior Engineer in Mechanical Maintenance at Borregaard. He is Chair of The Norwegian Society of Engineers and Technologists (NITO) at Borregaard and a member of the Joint Union for Officials and Engineers at Borregaard. Mr. Appelgren has attended 8 out of 8 Board Meetings in 2014.

BENTE SELJEBAKKEN KLAUSEN Observer

Observer at the Board since October 2012.

Ms. Seljebakken Klausen works as a Laboratory Technician at Borregaard R&D. She is Chair of the Norwegian Engineers and Managers Association (FLT) at Borregaard, and secretary of the Borregaard Workers' Shop Stewards Committee (Borregaardarbeidernes tillitsmannsutvalg). Ms. Seljebakken Klausen has attended 8 out of 8 Board Meetings in 2014.

REPORT OF THE BOARD OF DIRECTORS

Report of the Board of Directors

Overview and highlights 2014

2014 proved to be a satisfactory year for Borregaard, both in terms of financial performance, shareholder value creation and business development. For the fourth consecutive year, Borregaard achieved a return on capital employed¹ above its long-term target of 14-15% pre tax. Also, the share price development was strong in 2014 with an increase of 89% assuming reinvestment of dividend.

Borregaard made good progress in implementing its major strategic priorities. Specialisation and improvement within Performance Chemicals continued and new lignin raw material sources were secured and developed. The capacity expansion for high-value lignin products in Sarpsborg completed in late 2013 has further enhanced the Group's specialisation strategy.

Work on several other growth-enhancing initiatives was pursued. Research and development efforts increased and the company capitalised on long-term innovation and specialisation initiatives. The decision to invest NOK 225 million in a commercial-scale production plant for Exilva Microfibrillar Cellulose at the Sarpsborg site was a milestone in Borregaard's ambition to turn the Exilva project into a new and potentially major business area.

Established in 1889, Borregaard celebrated its 125th year of existence in 2014. Today, Borregaard is a leading global player with strong positions within selected niches of bio-based speciality chemicals, ingredients and fine chemicals. In Sarpsborg, the company operates one of the world's most advanced biorefineries with high value-added through full utilisation of the common wood raw material base. The Group's strong research and development competence contributes to continuous specialisation of existing operations as well as new products and applications. Increased research and development efforts in 2014, whether linked to long-term projects or a pilot phase, contributed to maintaining the Group's innovation rate. Borregaard also in 2014 benefitted from financial grants from both Norwegian authorities and the European Union in support of its research and development efforts and energy conservation measures. Furthermore, the company received awards for its achievements in implementing new production technology and for the quality of its external market communication.

Borregaard ASA's head office and main production facilities are located in Sarpsborg, Norway. The Group has global operations as specified in Note 7 in the Financial Statement for 2014 of Borregaard ASA.

Market trends

Borregaard has enjoyed generally favourable market conditions also in 2014 in spite of the weak business climate in a number of traditionally important markets within the Euro-zone. A diversified product portfolio and global market exposure continue to provide flexibility and a natural hedge against the negative impact of regional market fluctuations.

Performance Chemicals saw strong overall demand in major applications and regions. During 2014, Borregaard's strength as the market leader and only global player within lignin-based products made it possible to maintain and reinforce its presence in key markets. Sales volume, however, was lower than last year and constrained by reduced raw material supply. However, the combined impact of an improved product mix, favourable currency development and higher prices more than compensated for the lower sales volume. The recently completed new speciality line in Sarpsborg enabled growth in the high-value segments. Performance Chemicals also capitalised on several long-term innovation and specialisation initiatives launched in 2014.

The high price level for Specialty Cellulose seen in 2011 and 2012 was reduced in 2013 and further into 2014. The market balance for speciality cellulose was affected by new capacity gradually entering the market from 2013.

In Ingredients, the challenging market situation seen since late 2011, largely due to oversupply and stronger competition from Chinese producers, continued. Sales volume increased slightly, but overall, prices remained at a low level. Fine Chemicals' sales of intermediates for non-ionic X-ray contrast media were stable.

Financial performance in 2014

Borregaard's operating revenues in 2014 totalled NOK 3,939 million (NOK 3,886 million2,3). EBITA⁴ was NOK 486 million (NOK 489 million). A significant improvement in Performance Chemicals to an all-time high level was off-set by lower EBITA in Specialty Cellulose and Other Businesses. Currency developments had a beneficial impact in all business areas, but the effect was partly delayed due to hedging activities. Lower production at the Sarpsborg site compared with the record level in 2013 had a negative effect on EBITA.

Other income and expenses amounted to NOK -30 million (NOK 14 million), due to a provision for estimated costs for permanent closure of the Opsund landfill in Sarpsborg.

Operating profit was NOK 456 million (NOK 501 million). Net financial items amounted to NOK -26 million (NOK -41 million). The improvement was due to a favourable FX difference and a decrease in interest expenses. Group profit before tax in 2014 amounted to NOK 430 million (NOK 460 million). Income tax expense was NOK 98 million (NOK 129 million), giving a tax rate of 23% (28%). The lower tax rate in 2014 was due to tax deductions related to exercised share options, a lower effective tax rate in the US and the impact from improved profit and adapting the equity method for the joint venture. See note 14.

Earnings per share were NOK 3.34 (NOK 3.35). The Board of Directors of Borregaard ASA will propose a dividend for 2014 of NOK 1.25 per share, representing a total dividend payment of NOK 124 million.

1. The 2013 figures are restated due to implementation of IFRS 11 Joint Arrangements. See note 2 and 6.

^1. EBITA/(Average net working capital+Average tangible assets+Average intangible assets at cost-Average net pension liabilities-Average deferred tax excess value)

^3. Figures in parantheses are from the corresponding period previous year.

^4. Operating profit before amortisation and other income and expenses.

0 2010 2011 2012 2013 2014 0 1 2010 2011 2012 2013 2014

Cash flow and financial structure

Cash flow from operating activities in 2014 amounted to NOK 600 million (NOK 526 million). The increase in cash flow from operating activities was mainly due to a reduction of net working capital in 2014. Replacement investments in 2014 were at the same level as in the preceding year, while expansion investments increased moderately compared with 2013. During 2014, the Group has sold and repurchased treasury shares with a net payment of NOK 28 million. Norway 73% Man years by geographical areas Norway 73% Man years by geographical areas Norway 73% Man years by geographical areas

At year-end, the Group had net interest-bearing debt totalling NOK 608 million (NOK 728 million). In 2014 Borregaard refinanced its long-term debt. A five-year NOK 400 million bond was issued in February and a ten-year EUR 40 million loan was signed in March 2014 with the Nordic Investment Bank. The long-term multicurrency revolving credit facilities with Svenska Handelsbanken, DNB Bank and Skandinaviska Enskilda Banken were refinanced in September, with each bank providing NOK 500 million of the aggregate amount of NOK 1,500 million. The facilities have a tenor of five years, plus two one-year extension options. See note 26. Asia 5% Americas 10% Europe 12% (ex. Norway) Asia 5% Americas 10% Europe 12% (ex. Norway) Asia 5% Americas 10% Europe 12% (ex. Norway) 3 000 4 000 Operating revenues 3 380 3 763 3 838 3 886 3 939 NOK mill 528 539 489 486 8.8% 14.0% 14.0% 12.6% 12.3% 500 600 700 EBITA1 NOK mill %

At the end of 2014, the Group was well capitalised with an equity ratio of 52.0% and a leverage ratio5 of 0.83. Trends in sickness absence Trends in sickness absence 6.0% 1 000 200

Business segments 4.8% 5.0% 4.8% 5.0% 4.8% 5.0% 0

Performance Chemicals had operating revenues in 2014 of NOK 1,822 million (NOK 1,645 million). EBITA reached NOK 419 million (NOK 314 million), an alltime high level. An improved product mix, favourable currency impact and higher sales prices more than compensated for a 3% reduction in total sales volume. There were positive contributions from the new speciality line in Sarpsborg as well as from several long-term innovation and specialisation initiatives. High-value products' share of total sales volume was 18% in 2014 (17%), while mediumvalue products accounted for 70% in 2014 (71%). 4.1% 3.8% 3.4% 1.0% 3.0% 4.0% 2010 2011 2012 2013 2014 4.1% 3.8% 3.4% 0 1.0% 2.0% 3.0% 4.0% 4.1% 3.8% 3.4% 0 1.0% 2.0% 3.0% 4.0% 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 EBITA EBITA margin (%)

Specialty Cellulose had operating revenues in 2014 of NOK 1,463 million (NOK 1,597 million). EBITA amounted to NOK 129 million (NOK 224 million). Reduced sales prices, weaker product mix, lower production and sales volume and increased Exilva project costs were partly compensated by the beneficial impact

Cash flow from operations1 NOK mill Cash flow from operations1 Cash flow from operations1

of a weaker NOK. The share of highly specialised products was 63% of total sales volume in 2014, compared with 67% in 2013.

Other Businesses mainly includes Borregaard's Ingredients and Fine Chemicals businesses, but also sales of surplus basic chemicals from its chlor-alkali production in Sarpsborg. In addition, the segment includes corporate functions and R&D, utilities and services at the Sarpsborg site. In 2014, operating revenues in Other Businesses were NOK 723 million (NOK 703 million). EBITA was NOK -62 million compared with NOK -49 million in 2013. The decline is mainly related to higher costs associated with the BALI project and a weaker result in the Ingredients business.

From 1 January 2015, BALI project costs will be reported as part of Performance Chemicals (previously reported as part of Other Businesses) and the Exilva project as part of Other Businesses (previously reported as part of Specialty Cellulose). See Note 37.

Sustainability and Corporate Responsibility

Sustainability is an integrated part of Borregaard's business model. This is reflected in the Group's main objective: Providing sustainable solutions based on renewable raw materials and unique competence. Borregaard's 2014 report on sustainability, corporate responsibility and EHS is found from page 15. This report is an integral part of the Report of the Board of Directors.

Financial and operational risks

Borregaard is financially exposed to currency risk for most of its sales, primarily in USD and EUR. A substantial part of this exposure, defined as estimated net cash flow in USD and EUR, is routinely hedged with a nine-month time horizon. Subject

3.17 3.35 3.34 3 4 NOK 5.0% to certain criteria being met, the hedging horizon for USD and EUR exposure may be extended up to 36 months. In 2014, a substantial EUR amount was hedged within a 3-year time horizon. See Note 28.

1.80 0 2010 2011 2012 2013 2014 Cash flow from operations1 NOK mill 1.0% 3.0% Borregaard is also exposed to price risk for wood, energy (thermal energy and electric power) as well as other strategic raw materials. There is also supply risk for lignin raw material. In sales, all Borregaard's business segments are exposed to price risk in international markets. Furthermore, there is production risk inherently associated with the operation of processing plants. Borregaard has a strong commitment to "continuous improvement" throughout its worldwide operations, calling on a wide range of measures both on the revenue and cost side. Credit risk in Borregaard is perceived to be modest due to the quality of its customer base and its stringent credit management policy.

432 542 531 526 527 600 ^{646 683 715} 400 500 600 800 4.0% 5.0% Short-term liquidity risk associated with cash flow fluctuations is low because Borregaard has ensured ample short-term and long-term credit facilities from a group of major Nordic banks. As of 31 December 2014, the undrawn portion of available long-term facilities amounted to NOK 1,500 million.

0 100 200 Cash flow from operating activities (IFRS) Interest & taxes paid and share of dividend/profit from JV EBITDA 2010 2011 2012 2013 2014 0% 1.0% The company's business activities and financial position, together with the factors likely to affect its future development and performance, are set out above. With its considerable financial resources together with contracts with customers and suppliers across different geographic areas and industry sectors, the company is well placed to manage its ongoing business risks. With a strong equity ratio and good liquidity the company has adequate resources to continue its operations for the foreseeable future. Hence, in accordance with the Accounting Act §3-3a), we confirm that the financial statements have been prepared under the assumption of a going concern. See Note 28 for further disclosure of financial and operational risk.

Corporate governance

Borregaard's governance systems are based on principles set out in the Norwegian Code of Conduct for Corporate Governance. An overall report on Corporate Governance at Borregaard may be found from page 27.

Remuneration of Group Executive Management

The Board of Directors has established a Compensation Committee which deals with all important matters related to pay and other remuneration of senior executives before such matters are decided by the Board of Directors. In accordance with Norwegian company legislation, the Board of Directors has also established guidelines on the pay and other remuneration of senior executives, included in Note 9 to the consolidated financial statements.

Shareholder matters

All shares in Borregaard ASA have equal rights and are freely traded. The company has established a programme enabling employees to purchase shares at a discounted price. In connection with this programme and the share option programme for

the Group Executive Management and other key employees, Borregaard ASA held 777,883 treasury shares both as of 31 December 2014 and as of 17 March 2015. In 2014, 2,081,200 share options have been exercised and 500,000 new share options have been granted. Outstanding share options as of 31 December 2014 were 958,800.

The company is unaware of any agreements between shareholders aiming at restricting the free trading of the company's shares or limiting the exercise of ownership rights for such shares.

The company has not entered into any material agreements which become enforceable, altered or will expire in the case of an offer being made to acquire the company.

Allocation of profit

In 2014 Borregaard ASA posted a profit of NOK 49 million. The Board of Directors proposes the following allocation (NOK million):

Dividend	124
Retained earnings	-75
Total	49

The Borregaard Group posted a profit of NOK 332 million in 2014.

The Board of Directors will propose the distribution of an ordinary dividend of NOK 1.25 per share for the 2014 financial year, except for treasury shares. Total dividend proposed is thus NOK 124 million. The equity in Borregaard ASA is sufficient after payout of the proposed dividend, with an equity ratio of 78%.

Outlook for 2015

Performance Chemicals continues to benefit from strong demand in major applications. Sales volume in 2015 is forecast to be in line with 2014.

In 2015, average cellulose prices in sales currency are expected to be approximately 7% below their 2014 level. In addition, product mix in 2015 is forecast to be marginally weaker than in 2014.

No major changes are expected in market conditions for Ingredients and Fine Chemicals. Exilva operating expenses are expected to increase, while other corporate costs will remain at largely the same level as in 2014.

If maintained, the recent weakening of the NOK will contribute positively in all business areas in 2015. The full impact of exchange rate fluctuations will, however, be delayed due to currency hedging.

Sarpsborg, 17 March 2015 The Board of Directors of Borregaard ASA

Jan A. Oksum (chair)

Terje Andersen

Jan Erik Korssjøen

Kristine Ryssdal Ragnhild Wiborg

Åsmund Dybedahl

Ragnhild Anker Eide

Per A. Sørlie (President and CEO)

Sustainability and corporate responsibility in Borregaard

Borregaard's main objective is to develop and deliver sustainable solutions using natural raw materials and its unique competence. Hence, both the company's aspirations and challenges are linked to corporate responsibility and its sustainable development.

Borregaard executes its corporate responsibility by developing and running its operations profitably in a manner that conforms with fundamental ethical values and respect for individuals, the environment and society as a whole. This approach also involves maintaining a dialogue with the Group's key stakeholders and taking them into consideration when running the business and making decisions.

Main areas

Corporate responsibility is a broad concept that covers many areas. With a view to specifying and prioritising the Group's corporate responsibility activities, Borregaard has defined the following main areas:

Stakeholder dialogue

Maintaining good contact with the Group's various stakeholders is important in terms of creating trust in Borregaard and an understanding of what the company does within local communities and society at large. Every Borregaard unit has to consider issues relevant to the relationship between the company and the wider community, facilitate good dialogue and ensure that complaints and other enquiries from external stakeholders are handled efficiently. Borregaard must assess the need to implement improvement projects in areas where specific challenges exist.

Organisation and responsibilities

Corporate responsibility is a line management responsibility in Borregaard. This means that corporate responsibility must form an integral part of what the Group's management team, various units and departments do. The management team also has the overall responsibility to monitor the company's aspirations, initiatives and results in this area as well. Borregaard has a number of guideline documents and reporting procedures as part of its corporate responsibility policy. These documents and reporting on corporate responsibility are the responsibility of the HR & Communications department. The documents are also approved by Borregaard's Board of Directors.

References

• • Guidelines on corporate responsibility
• • Ethical guidelines
• • Competition law manual
• • Guidelines on responsible procurement
• • Guidelines on human rights
• • Guidelines on whistleblowing
• • Guidelines on Environment, Health and Safety (EHS)
• • Anti-corruption manual

Borregaard ASA is subject to the reporting requirements of the Norwegian Accounting Act, Section 3-3c with regard to Corporate Social Responsibility. This requires Borregaard to account for "what the company is doing to integrate consideration of human rights, labour rights and social issues, the environment and anti-corruption in their business strategies, in daily operations and relationships with its stakeholders." This chapter responds to these requirements.

Borregaard's fundamental understanding of sustainability and corporate responsibility is that the business model itself and the company's products are sustainable and meet global needs.

A Sustainable business model

In the years ahead, the world will face numerous challenges associated with population growth and urbanisation. Borregaard's bio-based products are alternatives to petrochemical-based products, thereby contributing towards resolving some of the long-term global

challenges associated with access to resources and the impact on the environment and climate.

Borregaard has engaged an independent third party, Ostfold Research, to conduct a life cycle analysis (LCA) in accordance with the ISO 14044/48 standard. This involves analysing all environmental and resource-related impact of the products throughout their entire life cycle. This analysis confirms that Borregaard's bio-based products do well from a climate perspective when compared with petrochemical alternatives. Borregaard has also made efforts to reduce greenhouse gas emissions in its own processes, including elimination of heavy oil consumption and increasing the amount of energy derived from more eco-friendly energy sources.

Key initiatives and results in 2014

Energy investments replacing heavy oil during the last few years have resulted in significantly reduced local emissions (NOx, SO2 and dust) to air and greenhouse gas emissions (CO2) in 2014. See pages 20 and 21.

Borregaard's biological purification plant for treatment of waste water and production of biogas had its first full year of operation in 2014. This led to a reduction in the emissions of organic materials (COD) to water to a historically low level, as well as to a reduction in phosphorous emissions. The investment also

led to increased production of biogas that substituted fossil fuels as an energy source and thereby further improved the environmental footprint of the biorefinery concept.

In 2014 Borregaard decided to invest in a facility for the production of microfibrillar cellulose at the Group's site in Sarpsborg. The facility is now under construction and is expected to produce sustainable biomaterials that substitute non-renewable materials for industrial applications from 2016. The Group also acquired technology and built a large-scale pilot plant for SenseFi advanced texture systems at its site in Wisconsin, USA. The BALI project (short for Borregaard Advanced Lignin) has run its course through 2014 further developing the technology and testing raw materials. These projects both entail a continuation and a further specialisation of the biorefinery concept.

Innovation plays an important role in maintaining sustainability. In 2014, 12% (13%) of Borregaard's revenues came from products launched during the previous five years.

Key targets 2014	Achieved
Continue developing the BALI technology
Achieve further reduction in the company's emissions
Increase the level of innovation measured in terms of new product sales

Key targets 2015

Update life cycle analysis (LCA) for Borregaard products
Increase the level of innovation measured in terms of new product sales
Strengthen Borregaard's business model by developing Exilva into a new business

Borregaard's business model:

• • Renewable raw materials
• • High raw material utilisation
• • Environmentally friendly substitutes for petrochemicals

Environment, health and safety are an integral part of Borregaard's business plan. The Group makes active efforts by adopting measures that can contribute to proper environmental and resource management. Borregaard's aspiration is to make a positive contribution to its employees' health through a zero-tolerance policy in terms of injuries to employees or other persons as a result of company activities. health and safety

Borregaard's aspirations and recommendations concerning EHS are set out in a separate guideline document (see list on page 16).

Borregaard has established a risk assessment and management system, which is a part of the Group's business management activities. This system is regularly reviewed (at least every year) by management Groups and the Board of Directors. Risk management covers every aspect of Borregaard's activities, but self-assessments are carried out on environment, health and safety matters.

EHS factors are a management responsibility. Borregaard also has its own dedicated support functions for environment, health and safety and risk management.

Health and the working environment

Borregaard strives to ensure that working conditions are conducive to good health for its employees. To meet this objective, preventive activities and initiatives have been introduced to reduce stressful aspects in working conditions. Employee health is regularly monitored through health and working environment surveys. The working environment is generally considered to be good, and improvement efforts are continually implemented.

There is an emphasis on closely following up employees on sick leave and on adapting tasks for individual employees. Temporary facilitation in the working environment by providing appropriate work tasks or shorter working hours for a period of time are examples of measures made to accommodate employees with different needs. A number of preventive initiatives related to exercise, diet and smoking have been continued at the plant in Sarpsborg during 2014.

Results in 2014

The sick leave rate in the Borregaard Group was 3.4% in 2014, representing a decrease of more than 10% compared to the 2013 rate of 3.8%. The sick leave rate at the Borregaard plant in Sarpsborg was historically low in 2014 and fell by almost 9% from 2013 to 2014 (from 4.6% to 4.2%). The sick leave rate at Borregaard's plants outside Norway has historically been low and declined even further in 2014. A health programme which was introduced at the plant in Germany in 2013 showed further improvement by reducing the sick leave rate by 35% (from 5.7% in 2013 to 3.7% in 2014), which is well below the average for the industry. The programme mainly comprises physical exercise, lectures about healthy nutrition and ergonomics in the workplace. Although sickness rates are low in LignoTech South Africa (0.24%) the company initiated a health club reimbursement for all employees who wanted to join a fitness club in 2014.

Workplace safety

Safety is integrated in every aspect of Borregaard's operations. Borregaard also has a worldwide safety programme called Zero Harm. Important measures aimed at achieving fewer injuries include: basic EHS training, focusing on personal responsibility for own safety, clearly defining safety management, reviewing rules for and the practical use of protective equipment, and observing rules on order and tidiness in the workplace. All injuries are investigated to identify root causes, implement corrective actions and document lessons that can be learned. Safety is also a permanent agenda item at the shift handover meeting for all workers in Sarpsborg who are starting a new shift period.

Results in 2014

In recent years Borregaard has worked hard to reduce the number of injuries and the seriousness of these incidents. In 2014 there were no lost time injuries at Borregaard's plants outside Norway.The plants in the UK and Germany marked eleven and seven years respectively since the last recorded lost time injury.

The Group's lost time injuries rate, measured as H1 value (number of injuries resulting in sick leave per million hours worked), rose from 2.2 in 2013 to 2.7 in 2014. The total number of injuries, measured as H2 value (number of injuries per million hours worked), was reduced from 15.1 in 2013 to 10.6 in 2014.

The Sarpsborg plant had a total of 19 injuries in 2014, five of which resulted in sick leave. The H1 value in Borregaard Sarpsborg rose from 3.2 in 2013 to 3.9 in 2014. However, the H2 value was reduced from 21.3 in 2013 to 14.6 in 2014. Most injuries occur during the performance of daily tasks such as handling sharp and heavy equipment causing cuts and strain injuries. The main cause of injuries has historically been exposure to chemicals. In 2014 only one injury was caused by chemical exposure. Years of systematic work on reducing chemical exposure through training and safety management are now showing positive results.

In 2014 LignoTech South Africa maintained its OHSAS 18001:2007 certification – an international occupational health and safety management system specification. The company organised a "Safety Day" raising awareness about safety risks in the workplace. In addition all new Performance Chemicals employees undergo hazard awareness training and testing, and sign a safety pledge when joining the company.

A new EHS manual for Borregaard Sarpsborg was published in 2014. In 2015 Borregaard will install a new and improved deviation system which will provide even better monitoring of EHS incidents.

B Environment,

Initiatives in 2015

Continuous follow-up, communication and focus on behaviour are needed to create a good safety culture. In 2015 we will focus on training to enhance employees' risk awareness in their daily work environment as well as monitoring, visible presence of and follow-up by management. Work on reporting, analysing root causes and implementing measures in connection with near accidents and hazardous conditions as well as frequent inspections at the plants, will continue in 2015.

EHS training will continue to be a key area of focus in 2015, both within and outside the organisation, starting with a safety training programme for external workers at the site in Sarpsborg.

Borregaard will also continue its initiative to reduce exposure to gas emissions. This will involve various technical measures and information campaigns about potential hazards.

Public safety

Safety work includes not only issues related to personal safety and security during work activities. Borregaard also continuously assesses the safety conditions in relation to the wider community outside the company. This applies in particular to Borregaard's large plant in Sarpsborg, which is regulated by the Norwegian Major Accident Regulations (Storulykkeforskriften).

Environment

Borregaard is making efforts to reduce its environmental impact in a number of areas. The most significant environmental challenges are associated with the Sarpsborg plant. Its greenhouse gas emissions are primarily due to thermal energy production, which is also relevant to other emissions to air. There was also a particular focus on reducing emissions to water in 2014 through efforts to devise measures aimed at meeting new permit requirements. Borregaard Group 5%

A. Energy consumption and production

The total amount of energy consumed by all Borregaard units

amounted to 1.88 TWh in 2014 (1.30 TWh of thermal power and 0.58 TWh of electricity-specific consumption). The majority of the energy was consumed by Borregaard's plant in Sarpsborg, where total consumption amounted to 1.64 TWh in 2014; 1.14 TWh of thermal power and 0.5 TWh electricity-specific consumption.

Steam consumption at Borregaard's plant in Sarpsborg was slightly higher compared with 2013 due to an increased number of plant start-ups requiring more energy.

During the past decade, Borregaard has implemented an energy strategy to replace the use of heavy oil with more climate- and eco-friendly energy sources. At present, Borregaard meets its baseload energy needs in the form of steam through recovery of thermal energy from production, bioenergy and energy recovered from waste. There are some periods when more energy is required (peak load). During these periods, Borregaard has historically produced steam using heavy oil and electrical power. Autumn 2013 Borregaard commissioned a new plant based on liquefied natural gas (LNG) which, together with use of electrical power, is the energy source for peak loads. This means that Borregaard has phased out the use of heavy oil as an energy source. After the LNG plant's first full year of operation, we are experiencing environmental improvements in terms of reduced emissions to air. Using natural gas instead of heavy oil has reduced NOx emissions by 90% and CO² emissions by 50%. Total emissions of NOx and CO² depend on the use of LNG versus electrical power for peak load. The sulphur dioxide (SO2) and dust emissions from peak load steam production are almost eliminated. Sick leave Sick leave Borregaard Group 6% 5% 4% 3% 2% 1% 0% 2011 2012 2013 2014 Sick leave Sarpsborg site 2010

In 2014 Borregaard initiated a new energy conservation programme at the plant in Sarpsborg, which will mainly reduce thermal energy consumption and, in turn, emissions to air. The project involves making better use of the surplus thermal energy and waste energy to be able to reduce the amount of natural gas and electricity used. 400 500 700 2013 6% 5% 3% 2%

Sick leave Borregaard Group

200000

Sick leave

Emissions to air Lost time injuries Borregaard Group

2010 2011 2012

Copper

2013

AOX KOF

Tonnes/day kg/day H2 value=number of recordable injuries per million hours worked

The programme receives financial support from Enova, which provides 42% of the total investment of NOK 107 million. Borregaard has the goal, within three years, of reducing annual energy consumption at the Sarpsborg site by around 60 GWh, as well as reducing CO2 emissions by up to 16,000 tonnes. Borregaard will carry out an additional pre-project in 2015 to investigate new energy efficiency activities. In 2014 the Sarpsborg site installed a new control system in the spray driers. This system enables the use of more green energy in the form of biogas at this plant. Emissions to air NOx 400 500 600 700 Sick leave Borregaard Group 0 2 2010 2011 2012 2013 0,6 0,7 0,8 1 2010 2011 2012

B. Greenhouse gases

Borregaard's direct emissions of the greenhouse gas CO2 primarily derive from fossil fuels used in thermal energy production. 0 2011 2012 2013 2014 0 2010 2011 2012 2013 2010 2011 2012

In 2014 Borregaard completed an Enova-supported biological purification plant, the Eco-friendly plant, which significantly reduces emissions to water and produces green energy in the form of biogas, replacing fossil fuel for spraydrying of lignin. Emissions to air 180000 200000 Sick leave Sarpsborg site Fosfor Emissions to water 15 Tonnes/day kg/day

The total emissions generated by all of the Group's plants amounted to 163,922 tonnes in 2014, a reduction of 3,600 tonnes from 2013. CO2 emissions at Sarpsborg accounted for 129,371 tonnes. The Sarpsborg site reported a decrease in CO² emissions in 2014 of about 8,500 tonnes. This was mainly due to a change in the peak load energy source from heavy oil to LNG as well as a switch in energy source from propane to biogas to operate the spray driers in Sarpsborg. The plant in Germany increased its CO2 emisions due to higher production in 2014. Emissions to water 0 20000 40000 60000 80000 100000 120000 140000 Lost time injuries 2011 2012 2013 2013 2014 0 10 20 30 40 50 60 70 2010 2011 2012 2013 5 2.5 7.5 0 10 2011 2012 2013 2014 COD (tonnes/day – organic material)

Replacing fossil fuel for spraydrying of lignin with biogas from the Eco-friendly plant will yield a yearly reduction of CO² emissions of more than 8,000 tonnes from 2015. 80 100 120 Borregaard Group emissions Sarpsborg site SO2

C. Reduction in emissions to air 4,7

In 2014, SO2 emissions were discharged from both the cellulose processes and bioethanol and biogas production. 4,6 2010 2011 2012 2013

Total SO2 emissions amounted to 301 tonnes in 2014, 166 tonnes of which were produced in Sarpsborg. Borregaard has invested in a number of initiatives that have reduced SO2 emissions in Sarpsborg over the last 17 years from 1,200 tonnes annually to less than 200 tonnes annually. During 2014 the SO2 emissions were reduced by over 100 tonnes (40% compared with 2013). The introduction of new energy sources such as natural gas and biogas as well as investments in purification technology have resulted in considerable environmental improvements in 2014. 2 4 8 10 12 14 Copper 2010 2011 2012 2013 2013 0 20 40 60 80 100 120 AOX KOF

Sarpsborg municipality measures local air quality in terms of SO2-content. The results of these measures show a reduction in the concentrations of SO2 in the local environment, but isolated incidents at Borregaard can lead to short-term elevation of values. In 2014, Sarpsborg municipality registered 16 exceedances of the SO2 level in the air around Borregaard's plant. 0,7 0,8 0,9 1 AOX KOF 450 Nitrogen

Borregaard is continually working on measures to reduce the frequency of extraordinary emissions of SO2. These include additional facilities for monitoring and controlling SO2 emissions from its plants. An ongoing programme aimed at replacing the pipework system by 2017 is also helping to cut SO² emissions. The overall result of these measures will be better local air quality in Sarpsborg. 0 0,1 0,2 0,3 0,4 2010 2011 2012 2013 2010 2011 2012 0 50 150 200 300 2010 2011 2012 2013

Local air quality shall be taken into account in the municipality's land use planning. There are special regulatory requirements related to the localisation of activities which may involve exposure of vulnerable groups such as health institutions and nurseries. These requirements were made stricter in 2014. In 2015, in cooperation with local authorities, Borregaard will prepare a dispersion map showing potential exposure of SO² and taking new requirements into consideration. 20 30 40 60 70 80 Fosfor Sarpsborg 5 7.5 12.5 10 15 Tonnes/day kg/day 50 70 90 process Total SO2 emission 2013

H1 value=number of lost time injuries

92 94 96 98 00 02 04 06 08 10 12 14

1.800

SO2 process Total SO2 CO2 emissions Borregaard Group

The total amount of NOx emissions from Borregaard was 246 tonnes in 2014, representing a 13% reduction over 2013. The reduction in emissions is mainly due to no consumption of heavy oil at the Sarpsborg site, where 179 tonnes of NOx emissions were discharged in 2014, compared with 223 tonnes in 2013. Sick leave Sarpsborg site

D. Emissions to water

In 2014 Borregaard inaugurated a new biological purification plant. After its first full year of operation, Borregaard's emissions of organic materials (COD) dropped to 69 tonnes per day in 2014. This marks a historically low level and a 9% reduction compared with 2013 and is within Borregaard's permitted maximum for COD emissions. 2011 2012 2013 4% 3% 2% 1% 0% 2010

The figures only reflect COD emissions in Sarpsborg since the Group's other operations do not have any significant emissions to water.

The investments in a new biological purification plant also led to a 36% reduction in phosphorus emissions, a positive contribution to the aquatic environment in the Glomma river. 18 16 14 700

In 2014 Borregaard discharged 11 kg of copper emissions per day, as a consequence of its activities in Sarpsborg. This is equivalent to an increase of 1.5 kg/day compared with 2013. Reorganisation of production flows in 2015 will reduce the copper emissions and return them to the 2013 level. 2011 2012 2013 2014 10 8 6 4 2 2010 0 100 200 300 400 2013

E. Salmon cultivation facility H1 value=number of lost time injuries per million hours worked

Emissions from industrial operations and water level control can have negative consequences for spawning and growth conditions of the wild salmon stock in River Glomma, the river that runs past Borregaard's Sarpsborg plant. In 2012, in partnership with two other companies, Borregaard constructed and financed a salmon cultivation facility on Borregaard's premises. The goal is to achieve the salmon stock target for River Glomma in the period of four to five years. The electronic fish measurements taken by NIVA (Norwegian Institute for Water H2 value=number of recordable injuries per million hours worked Emissions to air 60000 100000 120000 140000 160000 180000 200000 2013

Research) show that there was a substantial rise in the number of salmon fry in the Glomma during 2013 and 2014, as well as natural self-cultivation in the river.

F. Waste

Plants in the Borregaard Group practise source separation and the material recovery rate is high. The waste is processed by certified waste operators. The Sarpsborg plant has developed waste plans for both the industrial plant and the company's harbour. Total waste was 8,924 tonnes in 2014, compared with 5,786 tonnes in 2013. The rise in waste volume is due to clearance and tidying projects in several warehouses. The waste incineration plants are not included in the reported figures. 0 20000 40000 60000 80000 100000 120000 140000 180000 200000 2013

In addition, bark is included in Borregaard's reported waste to the authorities, although most of this bark is sold as a soil improvement additive or as fuel. The amount of bark in 2014 was 43,494 tonnes of dry matter. Emissions to water Sarpsborg Tonnes/day kg/day

The Opsund landfill, a waste dosposal site on Borregaard's premises in Sarpsborg, was taken out of use in 2009. Late 2014, a plan for permanent closure of the landfill by end of 2019 was submitted to The Environment Agency ("Miljødirektoraratet"). The plan was approved in March 2015. 7.5 12.5 10 40 60 100 10 12 14 Copper Fibre (organic suspended materials)

G. Water consumption 0 6 2013

Borregaard Sarpsborg is self-sufficient in terms of water, thanks to its own water purification facility. Water is used in processes such as cooling, thermal energy and hot water production, transporting biomass through production and washing. The Sarpsborg plant consumed a total of 22.7 million m3 of water in 2014, while the consumption in 2013 was 23.2 million m3 . SO2 emissions Sarpsborg site 2011 2012 2013 2014 COD (tonnes/day – organic material) Copper (kg/day) 2010 0 2 4 2010 2011 2012 2013 4,7 4,8 AOX KOF

The amount of water consumed at Borregaard's production facilities outside Norway is moderate and the water is sourced from public waterworks or adjoining industrial areas. 1400 1600 100

H. Transport

Borregaard strives for effective and eco-friendly road, rail and 400

maritime transport solutions. This applies to both the transportation of raw materials into the plants and the transportation of products out to the customers around the world.

The large number of decentralised production units for lignin on three continents reduces the need to transport both raw materials and finished products over very long distances.

Borregaard wants to transport more goods by sea and rail, but current capacity constraints due to Norway's port infrastructure and the railway network reduce the probability of increased use of these forms of transport.

In 2012 Borregaard received a grant of approximately NOK 6.5 million in funding from the EU project "Marco Polo". The aim of the project is to reduce CO2 emissions through increased sea transport while also relieving the growing levels of traffic on European roads. The funding is subject to Borregaard moving 50,000 tonnes of its outgoing transport from road to sea per year until 2016.

In 2014 Borregaard switched transportation of 13,000 tonnes of goods from road to sea. This equals a CO2 reduction of 1051 tonnes. In total Borregaard moved around 45% of its goods by sea, 40% by road and 15% by rail.

Key EHS targets 2014	Achieved
Lower the sick leave rate
Zero lost time injury rate
Reduce greenhouse gas emissions
Ensure proper commissioning of the new biological purifi cation plant so that emissions of organic material into River Glomma will be below the new permit level
Key EHS targets 2015
Lower the sick leave rate
Zero lost time injury rate
Reduce greenhouse gas emissions

Improve SO2 safety and emission level

The number of man-years in Borregaard rose by 27 during 2014, reaching 1,076 by the end of the year (including 50% of employees at the joint venture Ligno Tech South Africa). This rise was attributable to an increase in staff relating to innovation projects and the overlap required to be able to replace employees with special functions who are expected to retire in the near future.

Strong corporate culture

C Competence and employees

Borregaard has developed a strong corporate culture over many years and through changing times, which helps create a common mindset, core values and an understanding of the business across functions, business areas and geographical boundaries. A sound corporate culture that supports Borregaard's objectives and strategies provides a vital basis for the development of the company and every one of its employees.

Borregaard produced a description of the company's corporate culture and core values after it was listed on the stock exchange at the end of 2012. This work has continued throughout 2013 and 2014 by involving a number of different groups of staff followed by a roll-out of "The Borregaard Way" throughout the organisation. Borregaard's corporate culture and core values are subsequently incorporated into various introduction and development programmes and included in internal discussions about how the company is described externally.

The corporate culture and core values also include standards and objectives for sound business ethics. Borregaard has a set of guideline documents for corporate responsibility and ethical guidelines, as well as manuals and more specific guide- lines for different areas such as anti-corruption, competition legislation, responsible procurement, environment, health and safety and human rights (see list on page 16).

Developing core competence

Borregaard's core competence lies in the areas of sales and marketing, research and development, and production.

At present, the company's competence within these areas - and the interaction between them - is Borregaard's most important competitive advantage. Therefore, it is crucial that the company manages to maintain and strengthen this unique competence base, both through recruitment and employee development.

Borregaard has set up internal training programmes within its areas of core expertise. Almost 10% of its employees work in sales and marketing. This means that it is important to know the various customers' needs and the value of Borregaard's products and solutions. With a view to maintaining this knowledge, Borregaard runs an "Application School" and an international sales training academy for its employees all over the world.

Since Borregaard's production processes are complex and involve a significant degree of integration, great importance is attached to knowledge and expertise in the areas of production and the biorefinery concept. This means that Borregaard arranges extensive training programmes for its operators and

apprentices (Norway and Germany). The Group has its own "Competence Centre" for training its employees and it runs its own production academy in collaboration with Orkla.

Every second year, Borregaard arranges a special research conference involving both internal and external contributors. In 2014, the conference was held in May under the theme "New possibilities in the biorefinery".

The Group invests significant resources in management training. Its objective is to recruit most of its managers internally by devising career development plans and having replacement candidates and management programmes that combine management training and corporate culture develop- ment. In order to help increase the number of female manag- ers and strengthen the company's international competence, women and managers from operations outside Norway are overrepresented in these programmes. Among the 19 participants involved in the Borregaard Management Programme in 2014, five were women and 12 came from units outside Norway.

Borregaard believes it is important to create an internal job market and therefore favours a high degree of job rotation and internal recruitment to fill vacancies. This provides employees with new challenges, while the company retains, develops and spreads its competence around the Group.

Research and development (R&D)

Innovation, research and development are important for renewing and strengthening operations and are also necessary to improve the company's financial and environmental sustainability. Borregaard's research and innovation efforts increased in 2014 with expenditures amounting to some NOK 186 million, close to 5% of the company's revenues. Borregaard has an R&D team of 95, including 34 employees with doctorates. Research is primarily carried out at the Group's joint research centre in Norway, which at year-end 2014 had 80 employees from 7 countries. R&D activities are also conducted in Spain, South Africa, India and USA. Part of the research work is carried out via an extensive partnership with customers, universities and research institutions in a number of countries.

In 2014 Borregaard received NOK 26.5 million in funding for ongoing research projects and obtained new research grants totalling NOK 37 million from Innovation Norway, the Research Council of Norway and Vinnova for projects which will be running from 2014 to 2016. The funds will be used for innovation projects based on products from biomass.

Borregaard measures the results of its innovation activities by registering the share of its sales generated by new products that the company did not have five years ago. The innovation rate in 2014 was 12% (13%).

Restructuring and organisational development

Borregaard strives specifically to maintain its global competitiveness through innovation, technology, productivity and cost-efficiency. The plant in Sarpsborg has achieved improve-

ments through better and higher production and quality, as well as through improved EHS conditions, thanks to continuous improvements, based on greater expertise and interaction at a joint operations centre. An extensive training programme and the introduction of new technology remain key to this. The restructuring processes are demanding, partly because of the need to reduce employee numbers. However, Borregaard believes it is important to involve and maintain a dialogue with the employees and trade unions during restructuring processes.

The improvement programme for Borregaard's operations in Sarpsborg has continued throughout 2014 to focus fully on a project aimed at reducing the number of control consoles at the Control Centre in Sarpsborg from six to four. This is to be achieved by reducing the operators' workload and stabilising operations through training, alarm optimisation and technical improvements. During 2014, all necessary technical equipment was installed with comprehensive involvement throughout the organisation. The aim is to achieve staff reductions without entailing redundancies, using such means as attrition through normal retirement and internal job rotation.

The Borregaard plant in Sarpsborg is also assuming greater responsibility for training skilled workers through targeted contact with and providing lessons in schools, as well as by increasing the number of apprentices it accepts. The company has its own training and presentation centre, the "Knowledge Factory", available for this purpose. In 2014, 1338 students visited the centre, coming from schools that took part in educational programmes that combined technical training, career advice and a company presentation.

Based on today's age composition of the workforce as well as planned up-scaling of innovation projects, Borregaard Sarpsborg will have a growing need for qualified employees in the years to come. To meet these challenges, Borregaard is accelerating its recruitment activities aimed at middle school students choosing upper secondary school programme options that provide relevant qualifications. In the next few years, Borregaard will increase the number of apprentices practising at the site in Sarpsborg.

Diversity

Borregaard wants to contribute towards positive diversity among the company's employees and will combat discrimination based on gender, ethnicity, religion and functional ability. Borregaard has its own guidelines for this area.

Borregaard has initiatives aimed at promoting the recruitment of female managers and employees. It purposely has a high proportion of women in management and technical programmes and in the company's recruitment base. Around 23% of Borregaard's employees were women in 2014. The lowest proportion of female employees is in production, while the female ratio is high in R&D and Customer Service. Three of the company's seven board members are women (ratio of women: 43%). A total of 28% of the managers at Borregaard are women, while the executive management team included one woman (ratio of women: 11%).

Borregaard's South African production plant is consciously striving to ensure that the profile of its labour force reflects the country's demographics, with a particular focus on representation in management. The company is B-BBEE (Broad-Based Black Economic Empowerment) certified with the common goal to distribute wealth across as broad a spectrum of previously disadvantaged South African society as possible.

The challenges mainly lie within the public education system, although the company is trying to compensate for this through extensive employee training and study programmes.

Whistleblowing procedures

Borregaard wants transparency and a strong corporate culture to help ensure that difficult or undesirable situations are discussed and resolved. However, situations may arise where

D Suppliers and business partners

Borregaard has several thousand business partners such as customers, suppliers and other partners. This often involves well-established, long-term relationships that go back many years. Borregaard endeavours to ensure that this contact and cooperation are characterised by trust, integrity and mutual respect, and for transactions and business practices to comply with laws, regulations

and recognised ethical standards. A number of documents containing guidelines have been drawn up to regulate matters and help employees cultivate good relationships and sound business practices. The guidelines cover the general ethical framework (Code of Conduct) and more specific guidelines on competition law, anti-corruption and human rights.

Borregaard basically imposes the same ethical requirements on its suppliers as it does on its own business operations. These requirements and expectations are set out in separate guidelines for choosing suppliers and are also incorporated into major purchase contracts.

The company's key suppliers undergo regular audits in accordance with ISO 9001/14001/18000 accreditations.

Anti-corruption measures

Borregaard has its own guidelines for anti-corruption. In 2014 the Group completed new training programmes on anticorruption for all relevant employees, approximately 350 people.

Purchase of certified wood

Borregaard's biorefinery relies on the raw materials also meeting environmental and sustainability criteria. Borregaard purchases more than 1 million solid cubic metres of wood for its Sarpsborg plant. The Group attaches great importance to purchasing wood from forests that are managed in a properly sustainable and eco-friendly manner. The wood mainly comes reports from employees about adverse situations do not reach the right person or where they feel unfairly treated and cannot find a solution to their problems. In such circumstances, there are established procedures and guidelines for whistleblowing, in terms of contacting various specific functions in the organisation or by using a special telephone number and email address.

from Norway and Sweden. In 2014, 86% of the wood came from Norwegian forests while the remaining 14% came from Swedish forests.

All the wood that is purchased is cut according to the country of origin's laws on felling. The Norwegian suppliers supply wood in accordance with the PEFC standard for silviculture and biodiversity.

Key suppliers and business partner targets 2014	Achieved
Develop further guidelines and standards for responsible procurement
Run new training programmes on anti-corruption

Key competence and employee targets 2015

Roll out guidelines and standards for responsible procurement throughout the Group

Profitable and sustainable jobs are a prerequisite for welfare and social security. This manifests itself through income and meaningful activity for individuals, as well as through financial contributions such as taxes and duties that companies and their employees provide to the countries and local community in which they operate. Those countries where Contribution

Borregaard has production operations see significant ripple effects from suppliers and other activities around the plants.

As of 31 December 2014, Borregaard employed 1,076 manyears in 16 countries. Its production plants are located in Norway, UK, Germany, Spain, the Czech Republic, South Africa and USA.

NOK 164 million in tax payments

E

to society

Borregaard paid taxes totalling NOK 164 million in 2014. The taxes paid for operations in Norway amounted to NOK 87 million, while the tax payment for the other locations was split into NOK 14 million for the rest of Europe, NOK 34 million in the Americas, NOK 1 million in Asia and NOK 28 million in Africa.

Borregaard uses OECD's guidelines for internal pricing, which is an important factor in ensuring that profits and taxes are distributed fairly among different countries.

Shared interests with the local community

Borregaard's companies impact and interact with the local communities where they are located. Borregaard's plants are relatively small outside Norway, but the Group has been a cornerstone company in Sarpsborg for generations. Borregaard still plays an important role in the city and region as an employer, a customer of many suppliers, and a socio-economic contributor through taxes and duties from its operations. A social audit report produced by the Confederation of Norwegian Enterprise (NHO) in 2015 shows that, overall, Borregaard's operations in Sarpsborg create and finance 5,028 man-years in the company itself, as well as for suppliers and publicsector.

Borregaard and its suppliers (companies and employees) contributed a total of about NOK 1.2 billion in taxes and duties to the Norwegian society in 2014.

Support for social development

Borregaard has a broad network of contacts in Sarpsborg and Østfold County. The company participates in various forums and organisations involved in urban and regioal development, and has also provided venues for socially beneficial activities.

The company also contributes around NOK 3 million to support measures that mutually benefit both the company and the region. Borregaard's sponsorship strategy has two main pillars. One covers cultural and sports experiences and activities that help make the city and region a more attractive place to live and work. This is important to Borregaard in terms of creating a longterm source of recruitment. The other area supports measures that stimulate young people's interest in and understanding of disciplines that are important to Borregaard and society as a whole. This is illustrated by Borregaard's support and cooperation with the Inspiria Science Centre, the Young Entrepreneurship scheme and Borregaard's Knowledge Factory.

Social and ethical work in South Africa

LignoTech South Africa has its own social and ethics committee tasked with monitoring social and ethical issues. The committee is composed of members of the company's management team and employees. One measure taken during 2014 involved conducting internal and external audits of the entity and its suppliers regarding the principles set out in the United Global Compact Principles and OECD's recommendations regarding corruption. In 2015, all senior employees will take part in anticorruption training programmes initiated by Borregaard.

The company in South Africa has also become involved in the social and financial consequences of the HIV/AIDS issue. One important area has been to combat discrimination based on the disease, to disseminate information about the disease and its treatment, and to carry out testing for those employees who want it. The company also offers medicines to those who are affected. In addition, the company supports a local school and selected charitable causes.

Collaboration with educational institutions

Borregaard in Sarpsborg works closely with schools and educational institutions in the area. The Group has created its own academy, The Competence Centre, which functions as both an in-house training centre and as a showroom and venue for school visits. It offers educational programmes that tie in with schools' curricula, using examples taken from the company. Borregaard also contributes to a University Educated Teacher II scheme for the teaching of chemistry in upper secondary schools in Østfold County, whereby researchers from Borregaard have created a company-related teaching plan for chemistry. Every year students from a number of colleges and universities perform practical tasks and conduct projects or get internships in the company.

Borregaard has programmes and instructors for apprenticeship schemes involving cooperation with vocational schools in the region. These provide apprentices with relevant experience to supplement their theoretical training. Borregaard has also taken on a major responsibility by establishing a scheme for vocational education training (the so-called YSK scheme) whereby students attend a four-year course leading to both a certificate of technical training and university and college admissions certification. In 2014, Borregaard had a total of 41 apprentices and 4 YSK students at the biorefinery in Sarpsborg.

Awards and recognitions

Over the years Borregaard has received several awards and recognitions from external bodies. In 2014 the Group received the following awards:

"Norway's smartest industrial company", an award given out by the Federation of Norwegian Industries and Siemens for implementing smart technology in a smart way.

"The Stockman Award", an award given out by the Norwegian Society of Financial Analysts for the best external market communication in the small and mid-cap category.

Certification and affiliation

Borregaard has established links with various external schemes that contribute to tighter control, improvements and inspiring a systematic way of working. This also applies to issues and topics relating to corporate responsibility and sustainable development and operation.

The company has committed itself to the Responsible Care guidelines and objectives, which are the European chemical industry's environmental responsibility initiative. Borregaard also reports greenhouse gas emissions to the local authorities. These figures are published in this report and are available to the public.

Borregaard is ISO certified in accordance with several standards:

• • ISO 9001 (Quality Management)
• • ISO 14001 (Environmental Management)
• • ISO 50001 (Energy Management)

In 2014 Borregaard became a participant of the UN's Global Compact initiative, thereby providing its support to universal principles on human rights, labour relations, the environment and anti-corruption. Borregaard also reported on progress according to Global Compact's scheme.

CORPORATE GOVERNANCE

Corporate Governance

Borregaard's principles for good corporate governance will form the basis for long-term value creation benefitting shareholders, employees and society. These principles underpin

1. Corporate governance report

Borregaard is subject to the requirements of the Norwegian Accounting Act, Section 3–3b, the Norwegian Code of Practice for Corporate Governance, Clause 7 and the Continuing Obligations of Stock Exchange Listed Companies. Electronic versions of the Accounting Act, Code of Practice and Continuing Obligations are freely available at www.lovdata.no, www. nues.no and www.oslobors.no respectively.

This report follows the system used in the Code of Practice. It covers all clauses of the Code and describes how Borregaard has complied with it. If there is a discrepancy, this is discussed and the reason given. The Board of Directors approved the report at its meeting on 17 March 2015. The statement is cited on page 85. The General Meeting will consider the statement at its meeting on 15 April 2015.

work to promote a healthy corporate culture in which openness, sustainability, responsibility and equality are fundamental values.

The Board of Directors will work to ensure that the Company complies with the requirements in the Accounting Act, Section 3–3b and the Code of Practice. The principles of good corporate governance are integrated into the Board's decisionmaking process, and the Board will continually discuss and evaluate the principles and their implementation.

The Borregaard Group will contribute to the sustainable development of society through responsible commercial operations and systematic enhancement work. The Group has ethical guidelines and guidelines for corporate responsibility. The Sustainability and Corporate Responsibility report can be found from page 15 in this Annual Report. From page 22, the report gives an account of Borregaard's systematic work in areas important for employees, business partners and the community.

2. Business

According to the Articles of Association, Borregaard's purpose involves:

"...the development, production and sale of biochemicals, biobased speciality products and other chemicals, as well as other business operations that are naturally related therewith."

Borregaard's activities focus on Performance Chemicals, Specialty Cellulose, Ingredients and Fine Chemicals. For a more detailed description, see section The Borregaard Group.

Borregaard's goal is to deliver good profitability and over time perform better than average compared with our peers in the industry. For a more detailed account of corporate goals and strategies, see section The Borregaard Group.

3. Equity and dividends

The Group's equity as of 31 December 2014 was NOK 1,941 million. The Board of Directors has made the following statement about the dividend policy:

"Under the current dividend policy adopted by the Board, Borregaard intends to pay regular and progressive dividends reflecting the expected long-term earnings and cash flows of the Borregaard Group, targeting an annual dividend between 30% and 50% of the company's net profit for the preceding financial year."

The Board has proposed a dividend of NOK 1.25 per share for the financial year 2014, up from NOK 1.10 per share in 2013. Dividend will be paid on 24 April 2015 to shareholders registered in the company's shareholders' register as evidenced in a transcript as of 17 April 2015. If acquired shares are subject to

ordinary settlement in the Norwegian Securities Register (VPS), shares acquired up to and including 15 April 2015 will carry the right to receive dividends.

The Board has no authority to issue new shares, and the authority to purchase treasury shares is limited to defined purposes and applies until the next General Meeting. The General Meeting votes on each individual purpose to be covered by the authorisation.

At the General Meeting in 2014, the Board was authorised to buy treasury shares within a total nominal value of NOK 10 million, corresponding to 10% of the current share capital.

The authorisation is valid until the General Meeting in 2015,

but no longer than until 30 June 2015. The authorisation may only be used in connection with share-based incentive programmes for Borregaard's employees and to repurchase shares for cancellation. As of 31 December 2014, Borregaard held 777,883 treasury shares to be used in share-based incentive programmes.

There are no provisions in Borregaard's Articles of Association concerning the buy-back or issue of shares. Transactions in treasury shares have taken place on the market at stock exchange prices, according to the Oslo Stock Exchange safe harbour rules and according to good stock exchange practice in Norway.

4. Equality of treatment of shareholders and transactions with close associates

Borregaard has one class of shares, and each share entitles the holder to one vote. The nominal value is NOK 1.00. A more detailed account of the terms and conditions relating to the entitlement to vote at the General Meeting is given below under item 6.

It is the Company's policy that shareholders shall not be diluted by the issuance of new shares. If the Board should propose a deviation from the pre-emption rights of existing shareholders in the event of an increase in capital, it must be possible to justify this as being in the common interest of the Company and its shareholders. This justification must be stated in the notice of the General Meeting.

The Instructions for the Board of Directors of Borregaard ASA include rules for dealing with cases of transactions with close associates. The Instructions for the Board of Directors are publicly available under "Investor Relations" on the Company's website. According to the Instructions, the Chair of the Board must be informed about the transaction and decide on how to deal with the case.

Transactions with related parties are disclosed in note 34 in the Group accounts. In the case of transactions between the

Company and a shareholder, the shareholder's parent company, a member of the Board, executive personnel or close associate of any of these, the Board will ensure that a value assessment is carried out by an independent third party. Similarly, the Board will arrange for a value assessment by an independent third party in the case of transactions between companies within the Group, if there are minority shareholders in one of the companies.

The Instructions for the Board of Directors have regulations about impartiality. They establish that members of the Board may not take part in the handling of, or decisions in, cases in which the member of the Board or a close associate has a prominent personal or financial interest. Members of the Board shall also at all times consider whether there are any circumstances which, from an objective point of view, are likely to weaken confidence in the member's impartiality, or which may open up conflicts of interest in connection with the Board's handling of the case. Such circumstances must be discussed with the Chair of the Board.

With regard to the Group's ethical guidelines, employees on their own initiative must inform their superiors of any case of impartiality or conflict of interest, and they must not take part in the processing of such items.

5. Free negotiability

All of Borregaard's shares confer equal rights and are freely negotiable. There are no provisions in the Articles of Association restricting the free negotiability of shares.

6. General Meeting

Borregaard will arrange for the shareholders to be able to exercise their shareholder rights at the General Meeting. The General Meeting should be an effective meeting place for shareholders and the Board. The notice of the General Meeting and administrative documents must be available on Borregaard's website no later than 21 days before the General Meeting. The final date for registration is no more than three days before the General Meeting. The external auditor and members of the Board and Nomination Committee will be present at the General Meetings. The Board will decide who should attend in addition to the Chair depending on which issues are to be dealt with. Shareholders may either appoint a proxy or submit a vote in advance using the

Internet, using either DNB's or the Norwegian Central Securities Depository´s (VPS) investor services. There are links to these services on the Company's website. It is stipulated in the Articles of Association that the notice of the General Meeting must indicate the rules established by the Board for advance voting.

The Articles of Association contain no special provisions with regard to the opening and chairing of the General Meeting. In line with the Code of Practice, the Board will arrange for the General Meeting to be opened and chaired by an independent person. The Chair is chosen by the General Meeting, but in the notice of a General Meeting the Board will indicate who will

open the meeting and propose a Chair who satisfies the independence requirements of the Code of Practice.

If shares have been transferred, the shareholder may vote if the transfer has been registered with the VPS before the final date for registration with the General Meeting. If the transfer has been notified to VPS and evidence of this can be provided at the General Meeting, the shareholder will also be allowed to vote. According to Norwegian law, voting is only permitted in relation to shares registered in the owner's name. In order to confer voting rights, shares registered to a nominee account must be reregistered in VPS before the final date for registration with the General Meeting.

Shareholders unable to attend the General Meeting may vote by proxy. If the proxy has been given to Borregaard, the Chair of the Board or the Chair of the meeting will be appointed to vote on the shareholder's behalf. The proxy form has been designed in such a way that the shareholder may provide instructions for each item that will be dealt with, and for each candidate to be elected. Information on the use of proxy voting and shareholders' rights to have items dealt with at the General Meeting is given both in the notice of a General Meeting and on Borregaard's website.

According to the Articles of Association, Clause 7, the Board may decide that documents relating to items that will be dealt with at the General Meeting should not be sent to the shareholders, but instead be made available on the company's website. The same also applies to documents, which by law must be included in, or attached to, the notice of a General Meeting. A shareholder may always demand to have documents sent relating to items that will be dealt with at the General Meeting. The provision in the Articles of Association is consistent with Section 5-11a of the Norwegian Public Limited Liability Companies Act, which is an exception from the main rule stipulated in Section 5-6 (5), whereby the annual accounts, annual report, auditor's report and the Statement from the Board of Directors must be sent to shareholders no later than one week before the General Meeting. The documents will be available on Borregaard's website no later than 21 days prior to the General Meeting.

7. Nomination Committee

The Articles of Association stipulate that the Company shall have a Nomination Committee. The members and Chair of the committee are elected by the General Meeting. Instructions for the Nomination Committee are available under "Investor Relations" on the Borregaard's website. The members and Chair of the Nomination Committee were re-elected in 2014 on the basis of a recommendation from the Nomination Committee as recommended by the Code of Practice.

The Nomination Committee consists of three members, who according to the Articles of Association will be elected for up to two years at a time. There is the option to vote for each individual candidate for a position on the Nomination Committee. The Nomination Committee was elected to serve until the General Meeting in 2016.

The Nomination Committee will propose:

• • Candidates for the election of shareholder-elected Board members and the Chair
• • Candidates for the election of members and the Chair of the Nomination Committee
• • Remuneration for the Board and Nomination Committee

The Nomination Committee has adapted its procedures to comply with the Code of Practice's recommendations.

When the committee is dealing with proposals for the Chair of the Board, it is supplemented by a representative appointed by the employee-elected Board members.

The instructions establish guidelines for the preparation and conducting of elections to the Nomination Committee and Board, as well as the criteria for electability, general requirements for the recommendations and rules for dealing with cases in the course of the Nomination Committee's work. Information about the composition of the Nomination Committee, which members are up for election and how input and proposals can be given to the Nomination Committee, can be found under "Investor Relations" on the Company's website. The Nomination Committee has been put together in accordance with the Code of Practice to safeguard the interests of the shareholder community. The composition meets the Code's requirements for independence. None of the members of the Nomination Committee are members of the Board, nor does the Nomination Committee include the Company's Chief Executive or any other executive personnel. Borregaard's SVP Organisation and Public Affairs serves as its secretary. The members of the Nomination Committee are:

• Terje R. Venold (Chair)
• Mimi K. Berdal
• John-Ove Ottestad

8. The Board: Composition and independence

The Board has been put together with the aim of safeguarding the interests of the shareholder community and the Company's need for competence, capacity and diversity. The Board consists of the Chair, six members and two observers. The employees have elected two of the members and the two observers. The composition of the Board meets the requirements of the Code of Practice. All members are independent of the company's management, main shareholders and important business associates. No one from day-to-day management is a member of the Board. There have been no cases in which members of the Board have been disqualified on the grounds of a lack of impartiality.

According to the Norwegian Public Limited Liability Companies Act, the Board's term of office is two years. Borregaard's Articles of Association comply with this requirement. The General Meeting may set a shorter term of office. It is the task of the Nomination Committee to recommend the term of office of the Board. In 2013 and 2014, the shareholder-elected members of the Board wer elected for a period of one year, as an annual evaluation

of the composition provides the greatest flexibility. The current Board has been elected for the period leading up to the 2015 General Meeting.

The Articles of Association do not require members of the Board to own shares in the Company. This Annual Report provides information about Board members' share ownership, background, qualifications, terms of office, independence and the length of time for which they have been members of the Board at Borregaard. There is also information about any major positions in other companies and organisations, and participation in Board meetings at Borregaard. It has been agreed with the employees that there will be no corporate assembly in either Borregaard ASA or Borregaard AS. Instead, employees have extended representation rights on the companies' Boards. In accordance with the Norwegian Public Limited Liability Companies Act and a resolution by the Corporate Democracy Committee, employees are entitled to elect two members and two observers to the Board.

9. The work of the Board

The Board's tasks

The tasks of the Board are stated in the Public Limited Liability Companies Act and in the Instructions for the Board of Directors, which among other things define the responsibilities and obligations of the Board. The rules governing handling of cases by the Board are also determined in the Instructions for the Board of Directors, e.g. which cases should be handled by the Board, the rules for issuing notices of meetings and the management of meetings. The Instructions for the Board of Directors also include regulations governing the Chief Executive's disclosure requirements and the duty to carry out the resolutions of the Board. There are also guidelines on the preparation of matters for the Board and provisions whereby employees must be informed of the Board's resolutions. Other instructions, and clarification of the obligations, authorisations and responsibilities of day-to-day management, are adopted on an ongoing basis.

The Board adopts an annual plan of meetings and work that covers, among other things, its strategic work, commercial issues and control work. The Board held eight meetings in 2014, with one meeting extending over two days in order to deal with strategic issues. The Board dealt with a total of 68 agenda items in 2014. The Board's annual evaluation discusses the contents of the Board's work in more detail.

The Chief Executive prepares items for the Board in consultation with the Chair of the Board. The Instructions for the Board of Directors contain provisions for the handling of issues, as well as rules concerning impartiality, joint and parallel investments, see item 4. The Board has established two permanent committees, the Compensation Committee and the Audit Committee, both of which are described in more detail below. The committees pass no resolutions, but they do supervise the administrative work on

behalf of the Board and prepare items for handling by the Board. The committees may draw on the resources of the Company and obtain advice and recommendations from sources outside the Company.

Compensation Committee

The Compensation Committee is headed by Jan Oksum. Jan Erik Korssjøen and Åsmund Dybedahl are also members. Borregaard's SVP Organisation and Public Affairs serves as its secretary. The composition of the committee complies with the Code of Practice requirements for independence, and all members of the committee are considered to be independent of the executive personnel. The mandate of the committee has been incorporated in the Instructions for the Board of Directors.

The committee will additionally deal with any specific questions relating to compensation for employees of the Group.

Audit Committee

The Audit Committee is chaired by Terje Andersen. Ragnhild Wiborg and Ragnhild Anker Eide are members, and Vice President Finance serves as its secretary. The composition of the committee meets the Code of Practice requirements for independence and competence. The recommendation of the Nomination Committee provides information as to which members of the Board meet the independence and competence requirements for being members of the Audit Committee. The mandate of the committee has been incorporated in the Instructions for the Board of Directors.

Internal evaluation by the Board

The Board has carried out an annual evaluation of its own activities and competence. The results have been made available to the Nomination Committee.

10. Risk management and internal control

The Board of Directors is ultimately responsible for Borregaard's internal control system. Each member of the management team is responsible for the internal control within their respective areas.

Borregaard's main objective is to provide sustainable solutions based on renewable resources and unique competence. The risk management system is fundamental in achieving the overall objective.

Risk management shall ensure that risks relevant to Borregaard's objectives are identified, analysed and dealt with at the earliest possible stage and in a cost-effective manner.

A sound risk culture in Borregaard's operating units is a prerequisite for a successful risk management process. An operating unit may be a plant, an organisational department, a subsidiary or a business unit.

Comprehensive risk assessments – related to either operations or projects – are carried out on an ongoing basis in all units and reported to the next management level. The risk picture is presented and reviewed annually or when needed by the Board and quarterly by the Audit Committee.

A unit's risk picture identifies the principal risk factors associated with the unit's value chain. The individual unit managers in the Group are responsible for being acquainted with all significant risk factors within their area of responsibility, thus contributing to a financially and administratively sound handling of these risks. A central risk management function has been established at Group level headed by a Chief Risk Officer (CRO), who is responsible for Borregaard's risk management model and implementation support. Furthermore, the Group's CRO shall contribute towards the identification, analysis, handling and use of risk pertinent to Borregaard's objectives across business areas and professional disciplines.

Borregaard's Board of Directors conducts a review of the Group's risk picture at least annually. The aggregate risk picture is consolidated by the CRO and reviewed with the Group Executive Management before it is submitted to the Group's Audit Committee and finally to Borregaard's Board of Directors.

11. Remuneration of the Board

All remunerations of the Board have been disclosed in note 5 in the financial statements for Borregaard ASA. The remuneration of the Board is not dependent on profits, and no share options have been granted to members of the Board. In its recommendation, the Nomination Committee proposed the compensation to the Board for the period to the General Meeting in 2015.

The management prepares monthly financial reports that are sent to the Board. Each legal entity reports into the consolidation system in accordance with the annual financial calendar.

There are monthly meetings among key financial employees to discuss financial results, incidents, projects, estimates, etc. This input is used in the monthly reporting to the Board and the quarterly meetings with the Audit Committee.

When the Group's quarterly reports are to be presented, they are reviewed by the Audit Committee prior to the Board meeting. The External Auditor is also present at the Audit Committee meetings. The External Auditor meets with the Board when the annual financial statements are presented.

Employees within finance/controlling functions perform internal control reviews in the Group's legal entities.

Borregaard has documented its internal procedures, including a description of authority in the Quality Management System (QMS). The Group has a dual control principle for approvals, and SAP as the main ERP system enforces this.

Borregaard has established a whistle-blowing system and a separate channel, currently operated by Borregaard's general counsel. Any reporting of unethical behaviour etc. can be reported by email compliance@borregaard.com or by phone +47 69 11 83 15.

Ethics and corporate responsibility

The Group Companies work continuously with ethics, anticorruption and corporate responsibility, which are integral parts of the basis for decisions by local companies. The status of the work by the business areas involving corporate responsibility is included in the Sustainability report.

Borregaard revised its guidelines on ethics, anit-corruption and corporate responsibility in 2014. The Group Companies must undergo regular review of the risk factors linked to Borregaard's corporate responsibility at a general level, and review the risk of breaches of the ethical requirements.

12. Remuneration of executive personnel

The Board's Compensation Committee makes recommendations to the Board regarding the Chief Executive's salary and terms, and supervises the general conditions for other executive personnel within the Group. The Board assesses the Chief Executive's terms once a year.

The Board's statement on salaries and other remuneration of executive personnel, see note 9 in the consolidated financial statement, contains an account of the remunerations given to executive personnel and the Group's policy on conditions, including the extent and direction of bonus and share valuerelated schemes. A cap has been placed on profit-dependent remunerations. The Board's statement is available to shareholders at the same time as the notice of the General Meeting is given.

13. Information and communication

Borregaard's accounting procedures are transparent and in accordance with the International Financial Reporting Standards (IFRS). The Board of Directors' Audit Committee monitors the company's reporting on behalf of the Board.

Borregaard strives to communicate actively and openly with the market. The company's annual and quarterly reports contain information on the various aspects of the company's activities. The company's quarterly presentations are found on Borregaard's website, along with the quarterly and annual reports, under "Investor

Relations". All shareholders and other financial market players are treated equally as regards access to financial information. The Group's Investor Relations Department maintains regular contact with company shareholders, potential investors, analysts and other financial market stakeholders. Borregaard seeks to comply with Oslo Stock Exchange's recommendation on reporting of investor relation information currently updated on 10 June 2014. The financial calendar for 2015 is found under "Investor Relations" on Borregaard's website.

14. Approach to takeovers

The Board of Directors' approach to takeovers is published on the company's web-site under "Investor Relations". The Board will not seek to prevent or obstruct any takeover bid for Borregaard's operations or shares. In the event of such a bid, in addition to complying with relevant legislation and regulations, the Board will seek to comply with the recommendations in the Code of Practice, including obtaining a valuation from an independent expert. On

this basis, the Board will recommend whether or not the shareholders should accept the bid. There are no other written guidelines for procedures to be followed in the event of a takeover bid. The Board has not found it appropriate to draw up any explicit principles other than the actions described above. The Board otherwise concurs with what is stated in the Code of Practice regarding this issue.

15. External Auditor

The Board of Directors has determined the procedure for the external auditor's regular reporting to the Board.

Annually, the external auditor presents to the Board an assessment of risk, internal control and an assessment of the quality of financial reporting, and at the same time presents the audit plan for the following year. The external auditor also takes part in the Board's discussions on the annual financial statements. The Board ensures to discuss relevant matters with the auditor when the management is not present. Both the external auditor and the Chief Executive attend all meetings of the Board's Audit Committee. For further information, see Section 10 regarding risk management.

Borregaard has guidelines for the general management's use of the external auditor for services other than auditing. Responsibility for

monitoring such use in detail has been delegated to the secretary of the Audit Committee, which is Vice President Finance. The secretary will approve significant assignments in advance and compile an annual summary of services other than auditing provided to the Company. Details of the Company's use and remuneration of the external auditor are disclosed in note 5 to the financial statements of Borregaard ASA. The General Meeting is informed about the Group's overall remuneration of the auditor.

In connection with the auditor's participation in the Audit Committee and the Board of Directors' consideration of the annual financial statements, the auditor also confirms its independence.

Stay up-to-date on investor relations by visiting our website: www.borregaard.com/investor-relations

The Group Executive Management

Per A. Sørlie

Morten Harlem

Tom Erik Foss-Jacobsen

Gisle Løhre Johansen

Ole Gunnar Jakobsen

Tuva Barnholt

Per Bjarne Lyngstad

Dag Arthur Aasbø

Sveinung Heggen

PER A. SØRLIE President and Chief Executive Officer (CEO)

Per A. Sørlie has been with Borregaard since 1990 and was appointed President and CEO in 1999. He has served Borregaard as CFO (1990–1993) and Executive Vice President of the Fine Chemicals division (1993–1999). Previ- ously, Mr. Sørlie held positions as CFO at Bjølsen Valsemølle and Hafslund's US operations. Mr. Sørlie holds a degree in Business Administration (siviløkonom) from the Norwegian School of Economics and Business Administration in Bergen, Norway.

MORTEN HARLEM

Executive Vice President (EVP), Performance Chemicals

Morten Harlem has served as EVP of Borregaard LignoTech (Performance Chemicals business) since 2003. Since joining Borregaard in 1994, he has assumed different roles in sales and marketing. Previously, Mr. Harlem held positions in various marketing roles with Nutreco. Mr. Harlem holds a Master of Science Degree in Business Administration from the University of Colorado in Boulder, USA.

TOM ERIK FOSS-JACOBSEN

Executive Vice President (EVP), Specialty Cellulose

Tom Erik Foss-Jacobsen has served as EVP of Borregaard ChemCell (Specialty Cellulose business) since 2007. Since joining Borregaard in 1996, he has assumed various roles in sales and marketing. Previously, Mr. Foss-Jacobsen worked as a Business Development Manager EMEA at InFocus Corp. Prior to that, he worked as a product manager for the Coca-Cola products at Borg Bryggerier. Mr. Foss-Jacobsen holds a Master's Degree in International Marketing and Strategy from the Norwegian Business School (BI) and a Bachelor's Degree in Civil Engineering.

GISLE LØHRE JOHANSEN

Senior Vice President (SVP), R&D, Business Development and EVP Fine Chemicals

Gisle Løhre Johansen has served as SVP of Business Development/R&D since 2007 and EVP of Borregaard Synthesis (Fine Chemicals) since 2013. Since joining Borregaard in 1991, he has assumed various positions including Site Manager in Sarpsborg (1999–2007) and Site Director of Borregaard Schweiz (2006–2007). Mr. Johansen holds a Master's Degree in Organic Chemistry from the Norwegian University of Science and Technology (NTNU) in Trondheim, Norway.

PER BJARNE LYNGSTAD Chief Financial Officer (CFO)

Per Bjarne Lyngstad has been with Borregaard since 1988 and was appointed CFO in 1998. Prior to that, he assumed various finance and administrative positions in Borregaard and LignoTech USA. Mr. Lyngstad holds a Master of Science Degree (siviløkonom HAE) from the Norwegian School of Economics and Business Administration in Bergen, Norway.

OLE GUNNAR JAKOBSEN

Plant Director of Borregaard's Sarpsborg Site (Norway)

Ole Gunnar Jakobsen has served as Plant Director of Borregaard's Sarpsborg production site since 2006. Since joining Borregaard in 1995, he has assumed various positions in production management in various plants at the site in Sarpsborg. Mr. Jakobsen holds a Bachelor's Degree in Mechanical Engineering and a Master's Degree in Process Engineering from Telemark University College (HiT) in Porsgrunn, Norway.

DAG ARTHUR AASBØ

Senior Vice President (SVP), Organisation and Public Affairs

Dag Arthur Aasbø has been SVP of Organisation and Public Affairs since 2008. Since joining Borregaard in 1993, he has assumed positions in Borregaard relating to communications and public affairs. Mr. Aasbø also has experience as editor and in communication management roles in various organisations. Mr. Aasbø holds a Bachelor's Degree in Business Admin- istration from the Norwegian Business School (BI) and has also studied Com- munications/Journalism and Religion/ Ethics.

TUVA BARNHOLT

Senior Vice President (SVP), Purchasing and Strategic Sourcing

Tuva Barnholt has been SVP, Purchasing and Strategic Sourcing, since 2005. Since joining Borregaard in 1998, she has assumed various positions in Borregaard including Project Manager, Borregaard Energy and Production Manager and Technical Director at the Sarpsborg site. Previously, Ms. Barnholt held positions in engineering management and energy systems development at Nexans, ABB and Oslo Energi. Ms. Barnholt holds a Master of Science Degree from the Norwegian University of Science and Technology (NTNU) in Trondheim, Norway.

SVEINUNG HEGGEN General Counsel

Sveinung Heggen was appointed General Counsel of Borregaard 1 January 2013. Before joining Borregaard, he served as attorney-at-law at Orkla ASA, Legal Department (from 1992). Prior to that, he held different positions in the Ministry of Finance, Tax Law Department (1985–1992). Mr. Heggen holds a Cand. Jur. degree from the University of Oslo.

CONSOLIDATED FINANCIAL STATEMENTS 2014

Income Statement	37
Earnings per share	37
Statement of Comprehensive Income	37
Statement of Financial Position	38
Statement of Cash Flows	39
Statement of changes in Equity	40
Notes	41
Statement from the Board of Directors	85
Auditor's report	86

Consolidated Financial Statements 2014

Income Statement

Amounts in NOK million	Note	2014	20131
Sales revenues	8	3 848	3 822
Other operating revenues		91	64
Operating revenues	7	3 939	3 886
Cost of materials	19	-1 614	-1 638
Payroll expenses	9,10	-763	-739
Other operating expenses	11	-832	-799
Depreciation and write-down of property, plant and equipment	17,18	-244	-221
Amortisation intangible assets	17	0	-2
Other income and expenses	12	-30	14
Operating profit		456	501
Finance income	13	168	156
Finance costs	13	-194	-197
Financial items, net	13	-26	-41
Profit/loss before taxes		430	460
Taxes	14	-98	-129
Profit/loss for the year		332	331
Profit/loss attributable to non-controlling interests	31	-2	-4
Profit/loss attributable to owners of the parent		334	335
EBITDA adjusted2	7	730	710
EBITA adjusted3		486	489

Earnings per share

Amounts in NOK	Note	2014	20131
Earnings per share (100 million shares)	15	3.34	3.35
Diluted earnings per share	15	3.35	3.36

Statement of Comprehensive Income

Amounts in NOK million	Note	2014	20131
Profit/loss for the year		332	331
Items not to be reclassified to P&L
Actuarial gains and losses (after tax)	10, 14	-8	4
Total		-8	4
Items to be reclassified to P&L
Change in hedging reserve after tax (cash flow)	29, 14	-156	-82
Change in hedging reserve after tax (net investments in subsidiaries)	14	-58	-2
Translation effects		99	41
Translation effect joint venture	6	10	-11
Total		-105	-54
Total items not to be and to be reclassified to P&L		-113	-50
The Group´s comprehensive income		219	281
Profit/loss attributable to non-controlling interests		-1	-2
Profit/loss attributable to owners of the parent		220	283

1. Operating profit before depreciation, amortisation and other income and expenses

^1. The 2013 figures are restated due to implementation of IFRS 11 Joint Arrangements. See note 2 and 6.

^3. Operating profit before amortisation and other income and expenses

Statement of Financial Position

Amounts in NOK million	Note	31.12.2014	31.12.20131	31.12.20121
Assets
Intangible assets	17	77	57	39
Property, plant and equipment	18	2 004	1 941	1 893
Deferred tax assets	14	9	0	0
Investment in joint venture	6	106	101	94
Other assets	24	67	51	29
Non-current assets		2 263	2 150	2 055
Inventories	19	610	545	579
Receivables	22	707	693	698
Cash and cash equivalents	23	168	39	134
Current assets		1 485	1 277	1 411
Total assets		3 748	3 427	3 466
Equity and liabilities
Group equity		1 941	1 847	1 691
Non-controlling interests	31	8	9	11
Total equity		1 949	1 856	1 702
Deferred tax	14	7	78	112
Provisions and other liabilities	20	189	63	56
Interest-bearing liabilities	27	784	774	992
Non-current liabilities		980	915	1 160
Interest-bearing liabilities	27	8	6	6
Income tax payable	14	58	101	99
Other liabilities	25	753	549	499
Current liabilities		819	656	604
Equity and liabilities		3 748	3 427	3 466

Sarpsborg, 17 March 2015 The Board of Directors of Borregaard ASA

Jan A. Oksum (chair)

Terje Andersen

Jan Erik Korssjøen

Åsmund Dybedahl

Kristine Ryssdal Ragnhild Wiborg

Ragnhild Anker Eide

Per A. Sørlie (President and CEO)

Statement of Cash Flows

Amounts in NOK million	Note	2014	2013 1
Profit/loss before taxes		430	460
Amortisation, depreciation and impairment charges	17,18	244	231
Changes in net working capital, etc.		59	-17
Dividend (share of profit) from joint venture	6	6	-19
Taxes paid	14	-139	-129
Cash flow from operating activities		600	526
Investments in property, plant and equipment and intangible assets	17,18	-313	-288
Other capital transactions		2	2
Cash flow from investing activities		-311	-286
Dividend		-109	-100
Proceeds from exercise of share options		48	0
Buy-back of treasury shares		-76	-33
Gain/loss on hedges for net investments in subsidiaries.		-72	0
Net paid to shareholders		-209	-133
Repayment of interest-bearing debt		-761	-218
Proceeds from interest-bearing liabilities		767	0
Change in interest-bearing receivables		-3	-1
Change in net interest-bearing liabilities	27	3	-219
Cash flow from financing activities		-206	-352
Change in cash and cash equivalents		83	-112
Cash and cash equivalents as of 1 January		39	134
Change in cash and cash equivalents		83	-112
Currency effect of cash and cash equivalents		46	17
Cash and cash equivalents as of 31 December	23	168	39

Investment by category

Amounts in NOK million	Note	2014	2013 1
Replacement investments	17,18	228	226
Expansion investments	17,18	85	62
Total		313	288

Statement of Changes in Equity

	Share	Share premium	Other paid-in	Retained	Hedging	Transla tion	Actuarial gains/	Total Group	Non control ling
Amounts in NOK million Equity 31 December 2012	capital 100	fund 1 346	equity 302	earnings 7	reserve 50	effect -114	losses 0	equity 1 691	interests 11	Total equity 1 702
Profit/loss for the year	–	–	–	335	–	–	–	335	-4	331
Items in comprehensive income	–	–	–	–	-84	28	4	-52	2	-50
The Group's comprehensive
income	0	0	0	335	-84	28	4	283	-2	281
Paid dividend	–	–	–	-100	–	–	–	(100)	–	-100
Treasury shares	-1	–	–	-32	–	–	–	(33)	–	-33
Option costs
(share based payment)	–	–	–	–	–	–	–	6	–	6
Equity 31 December 2013	99	1 346	308	210	-34	-86	4	1 847	9	1 856
Profit/loss for the year	–	–	–	334	–	–	–	334	-2	332
Items in comprehensive
income	–	–	–	–	-214	108	-8	-114	1	-113
The Group's comprehensive
income	0	0	0	334	-214	108	-8	220	-1	219
Paid dividend	–	–	0	-109	–	–	–	-109	–	-109
Buy-back of treasury shares	–	–	–	-76	–	–	–	-76	–	-76
Exercise of share options	–	–	43	–	–	–	–	43	–	43
Shares to employees			8					8		8
Reduced tax payable of exercised share options	–	–	8	–	–	–	–	8	–	8
Option costs (share based payment)	–	–	–	–	–	–	–	0	–	0
Equity 31 December 2014	99	1 346	367	359	-248	22	-4	1941	8	1 949

Implementation of IFRS 11 has not had any impact on equity.

NOTES

Note 1	General information	42
Note 2	Basis for preparation	42
Note 3	New accounting standards	43
Note 4	Key accounting principles	44
Note 5	Use of estimates	48
Note 6	Joint Ventures	49
Note 7	Segments	49
Note 8	Geographical breakdown	51
Note 9	Payroll expenses and remuneration	52
Note 10	Pensions	55
Note 11	Other operating expenses	57
Note 12	Other income and expenses	57
Note 13	Net financial items	58
Note 14	Taxes	58
Note 15	Earnings per share (EPS)	60
Note 16	Impairment assessments	60
Note 17	Intangible assets	62
Note 18	Property, plant and equipment	63
Note 19	Inventories and Cost of Materials	63

Note 20	Provisions and other non-current liabilities	64
Note 21	Overview of financial instruments	64
Note 22	Receivables (current)	66
Note 23	Cash and cash equivalents	66
Note 24	Other assets (non-current)	66
Note 25	Other liabilities (current)	66
Note 26	Capital management	67
Note 27	Funding and interest-bearing liabilities	68
Note 28	Financial risk	69
Note 29	Derivatives and hedging	72
Note 30	Equity and Share capital	73
Note 31	Non-controlling interests	74
Note 32	Leases, leasing	74
Note 33	Pledges and guarantees	74
Note 34	Related parties	74
Note 35	Government grants	75
Note 36	Other matters	75
Note 37	Subsequent events	76

Note 1 General information

The consolidated financial statements for Borregaard ASA (Borregaard/Group), including notes, for the year 2014, were endorsed by the Board of Directors of Borregaard ASA on 17 March 2015. Borregaard ASA is a public limited company and its offices are located in Hjalmar Wessels vei 10, 1721 Sarpsborg, Norway. Borregaard develops, produces and markets specialised biomaterials, biochemicals and biofuels to a wide range of customers in global niches. Borregaard's business model is linked to its advanced biorefinery that utilises the different components in the biomass to produce high value added products that to a large extent can substitute petrochemical alternatives. Borregaard is an international company with production units and sales offices in the world's most important industrial markets.

The financial statements for 2014 have been prepared and presented in full compliance with the International Financial Reporting Standards (IFRS), as adopted by the EU. The valuation and recognition of the items in the financial statements have been carried out in accordance with current IFRS standards. The consolidated financial statements contain certain items that are crucial to understand the financial results for 2014. The most important principles are described below. Borregaard is exposed to currency risk for most of its sales, primarily in USD and EUR. A substantial part of this exposure, defined as estimated net cash flow in USD or EUR, is routinely hedged on a rolling basis with a nine-month time horizon. Subject to certain criteria being met, the hedging horizon may be extended to three years in order to lock in favourable margins. On the revenue side, most of Borregaard's business segments are exposed

to price risk in international markets. The accounting policies regarding hedging are described in Note 4 and information regarding currency risks is provided in Note 28.

"Other income and expenses" (OIE) are presented as part of operating profit in the Income Statement, but are presented after adjusted EBITA in the segment information in Note 7, which are reported according to management reporting. See Note 12 for details and specifications.

The accounting policies for business segments are described in Note 4 and segment information for the various business areas is provided in Note 7.

Borregaard has business areas as operating segments. The operating segments correspond to the way in which the business areas report figures to the Group executive management (key decision maker). The segments are divided into Performance Chemicals, Specialty Cellulose and Other Businesses.

Borregaard has largely switched to defined contribution pension plans. The contractual early retirement scheme in Norway is accounted for as a defined contribution plan. This may be changed if reliable and consistent data that justify accounting for the plan as a defined benefit plan can be obtained.

Impairment tests that have been carried out confirm that the value of the combined Borregaard Group's most exposed assets is intact as of 31 December 2014. See Note 16 for further details.

Note 2 Basis for preparation

Background

Borregaard ASA was incorporated as a public limited liability company on 22 August 2012. The company was inserted as a holding company of Borregaard AS. The transaction was not a business combination and did not result in any change of economic substance. Accordingly, the consolidated financial statements of Borregaard ASA are a continuation of the existing Borregaard Group. The Biorefinery business was transferred from Borregaard Industries Limited (BIL) to Borregaard AS on 30 March 2012. Historical figures from the transferred business from BIL (continuity) are the basis for the historical figures of Borregaard AS and the Borregaard Group. The Borregaard Group includes subsidiaries and joint venture directly and indirectly owned by Borregaard ASA.

The consolidated financial statements are primarily based on the historical cost principle.

Hedging instruments that satisfy the criteria for hedge accounting are reported at fair value in the statement of financial position and changes in fair value are recognised in comprehensive income. Derivatives that do not satisfy the criteria for hedge accounting are recognised at fair value through profit and loss.

Assets that no longer justify their value are written down to the recoverable amount, which is the higher of value in use and fair value minus selling costs.

The accrual accounting principle and the going concern assumption are underlying assumptions for preparing the combined financial statements.

An asset or liability is classified as current when it is part of a normal operating cycle, when it is held primarily for trading purposes, when it falls due within 12 months and when it consists of cash or cash equivalents on the statement of financial position date. Other items are non-current. A dividend does not become a liability until it has been formally approved by the General Meeting.

The amortisation of intangible assets and "Other income and expenses" are presented on separate lines, broken down by segment.

All amounts are in NOK million unless otherwise stated. The functional currency of the parent company (Borregaard ASA) is NOK and the Group's reporting currency is NOK. Currency exchange rates as of 31 December are used in the balance sheet, whereas average currency exchange rates are used in the income statement.

Consolidation principles

The consolidated financial statements show the overall financial results and the overall financial position when the parent company Borregaard ASA and its controlling interests are presented as a single economic entity. All the companies have applied consistent principles and all internal matters between the companies have been eliminated.

Interests in companies in which the Group alone has controlling influence (subsidiaries) have been fully consolidated, line by line, in the consolidated financial statements from the date the Group has control and are consolidated until the date that such control ends. An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. If the Group controls a subsidiary, the non-controlling interests' share of profit or loss after tax and their share of equity are presented on separate lines.

Interests in companies in which the Group together with others has joint control (joint ventures, see Note 6) are consolidated based on the equity method from 1 January 2014. Previoulsy the proportionate consolidation method was used. The 2013 figures have been restated to reflect the equity method also for 2013, seee note 6. The profit or loss from the joint venture is part of operating profit.

Borregaard ASA does not have any interests in associated companies (normally 20-50% owned companies).

Note 3 New accounting standards

The consolidated financial statements will be affected by IFRS amendments in the future. Many IFRS projects are in the final phases, but many of them have either not been finally adopted or not been endorsed by the EU. It is highly likely that many of these projects will be adopted. The following section covers only the amendments that will or may be of relevance for accounting in Borregaard.

Standards and interpretations that are issued up to the date of issuance of the consolidated financial statements, but not yet effective, are disclosed below. The Group's intention is to adopt the relevant new and amended standards and interpretations when they become effective, subject to EU approval before the consolidated financial statements are issued.

IFRS 9 Financial Instruments

IFRS 9 will eventually replace IAS 39 Financial Instruments: Recognition and Measurement. In order to expedite the replacement of IAS 39, the IASB divided the project into phases: classification and measurement, hedge accounting and impairment. New principles for impairment were published in July 2014 and the standard is now completed. The parts of IAS 39 that have not been amended as part of this project have been transferred into IFRS 9. The Standard is not yet approved by the EU.

The Group will quantify the effect in conjunction with the other phases when the final standard including all phases is issued, however no material changes are expected.

IFRS 15 Revenue from Contracts with Customers

The IASB and the FASB have issued their joint revenue recogni-

tion standard, IFRS 15. The standard replaces existing IFRS and US GAAP revenue requirements. The core principle of IFRS 15 is that revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies to all revenue contracts and provides a model for the recognition and measurement of sales of some non-financial assets (e.g. disposals of property, plant and equipment).The Standard is not yet approved by the EU. The standard is not considered to have a material impact for Borregaard.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

The amendments clarify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendments also clarifiy that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. The amendments are not yet approved by the EU.

IAS 19 Employee Benefits

The amendments introduce the option to recognise contributions from employees or third parties as a reduction in the service cost in the same period in which they are payable if, and only if, they are linked solely to the employee's service rendered in that period. The amendments are not yet approved by the EU.

Note 4 Key accounting principles

Income statement

Sales are recognised when it is probable that economic benefits will flow to the company and the amount of the revenue can be measured with reliability. Sales revenues are presented after deducting discounts, value added tax and other government charges and taxes. Borregaard sells goods in many different markets, and revenues from the sale of goods are recognised in the income statement when the risk and rewards of ownership of the goods are passed to the buyer, which is when the goods have been shipped. Interest income is recognised in the income statement when earned, while any dividends are recognised on the date they are approved for payment. Interest income and dividends are presented under "net financial items".

Contracts. The Group at all times has various contracts for the sale and purchase of goods and services in connection with the production. These contracts are regarded as part of Borregaard's ordinary operating activities and are therefore not specified or indicated in any other way. The contracts are deemed to be strictly sale or purchase contracts with no embedded derivatives. The company also enters into currency derivatives contracts.

Assets

Property, plant and equipment are tangible assets intended for production, delivery of goods or administrative purposes and have a lasting useful life. They are recognised in the statement of financial position at cost minus any accumulated depreciation and write-downs. Annual major maintenance stops are capitalised as part of property, plant and equipment and depreciated over a period of 12 months. All other maintenance and repairs are expensed under operating expenses as and when the maintenance is carried out, while expenditure on replacements or improvements is added to the cost price of the assets. Property, plant and equipment is depreciated on a straight line basis over the useful life. Residual value and useful lives are reviewed annually. If there is any indication that an asset may be impaired, the asset will be written down to the recoverable amount, if the recoverable amount is lower than the carrying value.

Borrowing costs related to the construction of the Group's own property, plant and equipment are capitalised as part of the cost of the asset.

Intangible assets and goodwill. Capitalised expenditure on internally generated or specially adapted computer programmes is presented as intangible assets. The reinvestment need of specially adapted computer programmes is similar to that of other tangible assets, and the amortisation of intangible assets are presented together with Borregaard's other depreciation.

Research and development (R&D) expenditure is the expenses incurred by Borregaard in conducting research and development, including studies of existing or new products and production processes in order to secure future earnings. Expenditure on research is always expensed as incurred, while expenditure on development are recognised in the statement of financial position if the underlying economic factors are identifiable and represent probable future economic benefits of which Borregaard has control. Borregaard has a large number of projects in process at all times, but the number of projects that end in capitalisation is limited. This is due to the considerable uncertainty throughout the decision-making process and the fact that only a small percentage of all projects culminate in commercial products. Furthermore, the portion of the total project expenses that qualify for recognition in the statement of financial position are relatively small, as it is only from the time the decision to develop the product is made it can be capitalised, and that decision-making point comes at a late stage of the process (see Note 17).

The fair value of intangible assets acquired by the company through business combinations is capitalised. Intangible assets with indefinite life will not be amortised while other intangible assets will be amortised over their useful life.

Goodwill is initially measured at cost, being the excess of the aggregate of the transferred and the amount recognised for noncontrolling interest over the net identified asset acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in income statement.

Goodwill and intangible assets with an indefinite useful life must be tested annually for impairment to assess whether the values are recoverable. Borregaard carries out this test prior to preparing and presenting its financial statements for the third quarter. If there are indications of impairments, the assets are tested immediately. A new impairment test is carried out in the fourth quarter when necessary, for instance if the underlying assumptions have changed. Impairment tests are described in Note 16.

Emission rights. Government granted and purchased CO2 emission allowances expected to be used towards Borregaard's own emissions are recognised as intangible assets at nominal value (cost). The amounts are not amortised but are tested for impairment at least annually. Actual CO2 emissions which exceed the level covered by emission rights are recognised as a liability. Sale of government granted CO2 emission rights are recognised at the time of sale at the transaction price. CO2 emission allowances purchased for trading are measured and classified as inventory.

Inventories are valued at the lower of cost and net realisable value. Purchased goods are valued at purchase cost according to the FIFO principle, while internally manufactured finished goods and work in progress are valued at production cost. Deductions are made for obsolescence. Net realisable value is the estimated selling price minus selling costs.

Receivables are initially recognised at fair value which is generally the original invoice amount. Subsequently, receivables are recognised at amortised cost using the effective interest rate method, less write-downs. Receivables are written down if events potentially causing a loss have occurred that can be measured reliably and that will affect collection of the receivable. The interest rate element is disregarded if it is insignificant, which is the case for the majority of receivables.

Cash and cash equivalents are held for the purpose of meeting short-term fluctuations in liquidity rather than for investment purposes. Cash and cash equivalents consist of cash, bank deposits and current deposits with a maturity of three months or less. As far as possible, excess liquidity in wholly-owned subsidiaries is channelled to Borregaard's cash pools or placed as deposits with Borregaard AS, see Note 23. In some countries there are legal or technical impediments on participating in Borregaard's cash pools or making deposits with Borregaard AS.

Debt and liabilities

Pensions. Borregaard mainly has defined contribution pension plans, but also has some defined benefit pension plans, primarily in the USA and Norway.

In the defined contribution pension plans, the company is responsible for making an agreed contribution to the employee's pension assets. The future pension will be determined by the amount of the contributions and the return on the pension savings. Once the contributions have been paid, there are no further payment obligations attached to the defined contribution pension. As a result, there is no liability recorded in the statement of financial position. The pension costs related to defined contribution plans will be equal to the contributions to employees' pension savings in each reporting period. Borregaard uses the covered bonds interest rate on the Norwegian benefit plans. The discount rate is fixed at the rate on high quality corporate bonds with the same lifetime as the pension liabilities (AA-rated corporate bonds).

Defined benefit plans are valued at the present value of accrued future pension benefits at the end of the reporting period. Pension plan assets are valued at their fair value.

Changes in accounting estimates for defined benefit plans are recognised in other comprehensive income and the net interest costs for the period is calculated by using the discount rate for the liability at the beginning of the period on the net liability. As such the net interest cost consists of interest on the liability and the return on the plan assets, whereas both have been calculated by using the discount rate. Changes in net pension liabilities as a result of payments of premiums and pension

payments have been taken into consideration. The difference between the actual return and the accounted return is recognised continuously through other comprehensive income.

The current service cost and net interest income/costs are recognised immediately. The financial part of the pension cost is recognised as part of financial items, the other part is recognised in the salary and personnel cost in the income statement. Changes in value, both in assets and liabilities, are recognised through other comprehensive income.

Gains or losses on the curtailment or settlement of a defined benefit plan are recognised through profit and loss when the curtailment or settlement occurs. A curtailment occurs when the Group decides to make a material reduction in the number of employees covered by a plan or amends the terms of a defined benefit plan such that a considerable part of the current employees' future earnings will no longer qualify for benefits or will qualify only for reduced benefits.

The introduction of a new defined benefit plan or an improvement to the current defined benefit plan will lead to changes in the pension liabilities. These will be charged to expenses in a straight line during the period until the effect of the change has been accrued. The introduction of new plans or changes to existing plans which take place with retroactive effect so that the employees immediately accrue a paid-up policy (or a change in a paid-up policy) are recognised in the statement of comprehensive income immediately. Gains or losses linked to curtailments or terminations of pension plans are recognised in the statement of comprehensive income when they arise.

Provisions. Provisions are recognised in the financial statements in the case of onerous contracts or when restructuring measures have been adopted. Future operating losses will not be part of the provisions. In the case of restructuring provisions, there must be a detailed plan that identifies which parts of the business are to be restructured. The location and number of employees affected and a valid expectation must have been created among those concerned that the restructuring will be carried out. In addition, it must be possible to provide a reliable estimate of the amount of the liability. It is a condition that the restructuring materially changes the size of the business or the way in which it is operated. The provision is calculated on the basis of the best estimate of estimated expenses. If the effect is material, anticipated future cash flows will be discounted using a current pre-tax interest rate that reflects the risks specific to the provision. Provisions as of 31 December 2014 are described in Note 20.

Contingent liabilities and contingent assets. A contingent liability or asset is a possible obligation or a possible asset whose existence is uncertain and will be confirmed by the occurrence or non-occurrence of a future event, such as the outcome of legal proceedings or the final settlement of an insurance claim. Contingent liabilities are recognised in the financial statements if there is a more than a 50% probability that the liability has arisen; if the probability is lower, the matter is disclosed in

notes to the financial statements unless the probability of payment is remote. An asset will only be recognised in the statement of financial position if it is virtually certain (95%) that the Group will realise the asset. The disclosure requirement applies to other contingent assets.

Taxes. Income tax expense consists of the total of current taxes and changes in deferred tax. Current taxes are recognised in the financial statements at the amount that is expected to be paid to the tax authorities on the basis of taxable income reported for entities included in combined financial statements. Current taxes and changes in deferred tax are taken to other comprehensive income to the extent that they relate to items that are included in other comprehensive income.

Deferred tax in the statement of financial position have been calculated at the nominal tax rate based on temporary differences between accounting and tax basis of assets and liabilities on the statement of financial position date. Deferred tax liability relating to goodwill has not been recognised in the statement of financial position. A provision for deferred tax on retained earnings in foreign subsidiaries is recognised to the extent it is probable that dividends will be distributed in the near future. Deferred tax assets are continuously assessed and are only recognised in the statement of financial position to the extent it is probable that future taxable profit will be large enough for the asset to be usefully applied. Deferred tax liability and deferred tax assets are offset as far as this is possible under taxation legislation and regulations.

Financial matters

Foreign currency. Transactions in foreign currencies are recognised at the exchange rate on the date of the transaction, while monetary items in foreign currencies are presented at the exchange rate on the balance sheet date, and any gain/ loss is reported in the income statement as financial items. Revenues and expenses in subsidiaries with a functional currency different from the Group's presentation currency are translated monthly at the average exchange rate for the month and accumulated. Statement of financial position items in subsidiaries with a different functional currency are translated at the exchange rate on the balance sheet date. Translation differences are reported in comprehensive income.

Derivatives. Derivatives are measured at fair value on the balance sheet date and reported as receivables or liabilities. Changes in fair value are reported in the income statement in cases where the derivative is not part of a hedge relationship that satisfies the criteria for hedge accounting. Embedded derivatives in contracts are identified and valued separately. Borregaard currently has no embedded derivatives. Purchases and sales of derivatives are recognised at trade date.

Loans/receivables. Loans and receivables are carried at amortised cost. Thus changes in fair value resulting from changes in interest rates during the interest rate period are not reported in the income statement. Borrowing costs related to the long-term funding are capitalised over the period of the loan facilities.

Hedging. The Group uses the following criteria for classifying a derivative or another financial instrument as a hedging instrument: (1) the hedging instrument is expected to be highly effective in offsetting the changes in fair value or the cash flow of an identified object – the hedging effectiveness is expected to be between 80% and 125%, (2) the hedging effectiveness can be measured reliably, (3) satisfactory documentation is established before entering into the hedging instrument, showing among other things that the hedging relationship is effective, (4) for cash flow hedges, that the future transaction is considered to be highly probable, and (5) the hedging relationship is evaluated regularly and is considered to be effective.

Fair value hedges. Gains and losses on derivatives designated as hedging instruments in fair value hedges are reported in the income statement and are offset by changes in the value of the hedged item. Hedge accounting is discontinued if: (a) the hedging instrument has matured, or is terminated, exercised or sold, (b) the hedge no longer satisfied the above mentioned criteria for hedging, or (c) the Group for some reason decides not to continue the fair value hedge. In the case of a discontinued hedge relationship, the changes in the fair value of the hedged item recognised in the statement of financial position will be amortised over the remaining life of the item, using the effective interest rate method. The same will apply for the hedging instrument.

Hedges of net investments in foreign currencies. Currency risk on foreign net investments is hedged with currency forward contracts and currency loans. Realised and unrealised effects of the effective part of the hedging instrument is recognised through comprehensive income. Effects from ineffective part of the hedging instrument is recognised through profit and loss.

Cash flow hedges. The effective part of changes in the fair value of a hedging instrument is recognised in comprehensive income and reclassified to the income statement when the hedged transaction affects profit or loss and is presented on the same line as the hedged transaction. The ineffective part of the hedging instrument is reported in the income statement. When a hedging instrument is sold, exercised or terminated, the accumulated gains and losses at this point will remain in hedging reserve of equity and will be recognised in the income statement when the hedged transaction affects profit or loss. If the hedged transaction is no longer expected to occur, the accumulated unrealised gain or loss recognised in the hedging reserve of equity will be recognised in the income statement immediately.

Fair value measurement of financial instruments: The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments, by valuation technique (see Note 21):

Level 1: Quoted market prices in an active market (that are unadjusted) for identical assets and liabilities

Level 2: Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable)

Level 3: Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable)

The foreign exchange element in currency forward contracts is measured at observable market prices using the foreign exchange rate set by Norges Bank, Norway's central bank. Different maturity dates add an interest-rate element resulting in an estimated fair value of the currency forward contracts.

Segments

Borregaard develops, produces and markets specialised biomaterials, biochemicals and biofuels to a wide range of customers in global niches. Borregaard's business model is linked to its advanced biorefinery that utilises the different components in the biomass to produce high value added products that to a large extent can substitute petrochemical alternatives. Borregaard's main product groups are lignin-based products and specialty cellulose in addition to vanillin, bioethanol and fine chemicals, serving a wide range of global growth industries such as construction, agriculture, food and beverages, transportation and pharmaceuticals.

Borregaard has business areas as operating segments. The operating segments correspond to the way in which the business areas report figures to the Group executive management (key decision maker). The business segments are divided into Performance Chemicals, Specialty Cellulose and Other Businesses. From 1 January 2015 there have been some changes in the internal reporting, and it will impact the segment reporting from 2015 onwards. See note 37.

Borregaard's Performance Chemicals business develops, produces, markets and sells lignin-based products as a niche supplier and solutions provider. Borregaard's Specialty Cellulose business develops, produces, markets and sells speciality cellulose products as a niche supplier and solutions provider. In addition, Borregaard produces 2nd generation bioethanol.

Performance Chemicals and Specialty Cellulose contribute to more than 80% of the revenue and adjusted EBITA in the Borregaard Group. Borregaard utilises the lignin from the sulphite pulping process to produce wood-based vanillin. Other Businesses consists of the areas Ingredients and Fine Chemicals in addition to utilities (water works, incineration facilities and purification plants) and services at the Sarpsborg site and corporate functions. Borregaard is a supplier of fine chemicals for the global pharmaceutical industry. Borregaard also produces certain of the chemicals used in its production processes in

Sarpsborg and sells excess chemicals from such production to customers. See Note 7.

The arm's length principle is applied to pricing of transactions between the various segments and companies. Borregaard AS provides services to the companies in the Group and charges them for these services.

Figures for the geographical distribution of capital employed, investments in property, plant and equipment, sales revenues and the number of man-years are also presented. See Note 8.

Other matters

Acquisitions. Business combinations are accounted for using the acquisition method. In connection with the acquisition of a subsidiary, the establishment of a joint venture or any acquisitions of significant influence in associates, a purchase price allocation is carried out. The acquisition is reported in the financial statements from the date the Group has control. The date of control is normally the date on which the acquisition agreement takes effect and has been approved by all relevant authorities. Assets and liabilities are valued at fair value at the time of acquisition. If there are non-controlling interests in the acquired company, these will be valued at their share of identified assets and liabilities. Goodwill allocated to non-controlling interests is considered separately in each acquisition. Goodwill is determined as the excess of the purchase price and the amount recognised as non-controlling interest over the fair value of identified assets and liabilities assumed.

Cash flow. The cash flow statement has been prepared according to the indirect method and reflects cash flows from operating, investing and financing activities and explains changes in "Cash and cash equivalents" in the reporting period.

Leasing. Leases are classified according to the extent to which the risks and rewards associated with ownership of a leased asset lie with the lessor or the lessee. A lease is classified as a finance lease if it substantially transfers all risks and rewards incidental to ownership of an asset to the Company. Finance leases will be capitalised and depreciated over the lease period. Other leases are operating leases. Lease expenses related to operating leases are reported as current operating expenses.

Government grants. Government grants are recognised in the financial statements when there is a reasonable assurance that they will be received. The grants are presented either as revenue or as a reduction in costs and, in the latter case, matched with the costs for which they are intended to compensate. Government grants that relate to assets are recognised as a reduction in the acquisition cost of the asset. The grant reduces the depreciation of the asset. The amounts of government grants are specified in Note 35.

Note 5 Use of estimates in preparing the financial statements

The management has made use of estimates and assumptions in preparing the financial statements. This applies to assets, liabilities, revenues, expenses and supplementary information related to contingent liabilities. Areas where estimates have considerable significance are, for example:

Amounts in NOK million	Note	Estimate/assumptions	Carrying value
Property, plant and equipment	18	Recoverable amount and estimation of correct remaining useful life	2 004
Goodwill and other intangible assets	17	Net present value future cash flows/net sales value (NSV)	29
Pension liabilities (net)	10	Economic and demographic assumptions	64
Research and development	17	Assumptions of what is considered as reasearch and development respectively. Some development is capitalised.	34
Closure of Opsund landfill	12	Estimated costs for permanent closure of the Opsund landfill	27

Property, plant and equipment are largely based on a directly paid cost price and depreciated over estimated useful life. In the case of several of Borregaard's tangible assets, changes in assumptions may lead to substantial changes in value.

Other estimates and assumptions are reported in various notes and any information that is not logically included in other notes is presented in Note 36 ("Other matters").

Future events and changes in operating parameters may make it necessary to change estimates and assumptions. New interpretations of standards may result in changes in the principles chosen and presentation. Such changes will be recognised in the financial statements when new estimates are prepared and

whenever new requirements with regard to presentation are introduced. These matters are discussed in both the section on principles and other notes.

Exercise of judgement

The financial statements may also be affected by the choice of accounting principles and the judgement exercised in applying them. This applies, for instance, to the distinctions between operating and finance leases, and to the assessment of items presented as "Other income and expenses" on a separate line. It is important to note that a different set of assumptions for the presentation of the financial statements could have resulted in changes in the lines presented.

Note 6 Joint Ventures

The Group has a 50% interest in Umkomaas Lignin Ltd, a joint venture within Performance Chemicals. From 2014, the Group's interest in the joint venture is accounted for by using the equity method in the consolidated financial statements. The result from the joint venture is accounted for as part of operating revenues. The 2013 figures have been restated to reflect the equity method. Summarised financial information of the joint venture, based in its IFRS financial statements, and reconciliation with the carrying amount of the investment in the consolidated financial statements are set out below:

Joint arrangements IFRS 11
Amounts in NOK million	2014	2013
Operating revenues	370	312
Operating expenses	-219	-214
Net financial items	5	4
Profit before taxes	156	102
Taxes	-44	-28
Profit/loss for the year before dividend	112	74
Items in OCI	0	0
Total comprehensive income	112	74
Borregaard's share of profit for the year	56	37
Non-current assets	104	104
Current assets	142	114
Cash and cash equivalents	36	38
Total assets	282	256
Equity	212	202
Non-current liabilities	12	16
Current liabilities	58	38
Equity and liabilities	282	256
Borregaard's carrying amount	106	101
of the investment
Borregaard's share in joint venture	2014
Amounts in NOK million
Share in joint venture 1 January	101
Share of profit after tax	56
Dividend	-61
Currency translation effect	10
Share in joint venture 31 December	106

No significant capital contribution is required in the joint venture in which Borregaard is a participant. From 2014 the equity method is used for consolidation according to IFRS 11 for joint arrangements. The effects of the change in consolidation principles (IAS) for 2013 are shown in the table below:

JV effect of IAS changes:	2013	Effect of restating	Restated 2013
Operating revenues	3 997	-111	3 886
Operating profit	513	-12	501
Net financial items	-39	-2	-41
Profit before taxes	474	-14	460
Taxes	-143	14	-129
Profit/loss for the year	331	–	331
Earnings per share	3.35	–	3.35
Non-current assets	2 101	-50	2 049
Share JV	–	101	101
Current assets	1 285	-47	1 238
Cash and cash equivalents	58	-19	39
Total assets	3 444	-17	3 427
Equity	1 856	–	1 856
Non-current liabilities	923	-8	915
Current liabilities	665	-9	656
Equity and liabilities	3 444	-17	3 427

Note 7 Segments

The Group applies the same principles for the presentation of segment information as for the rest of its consolidated financial statements, and the operating profit/loss in the segment information is identical to the information presented in the income statement for the Group. There is therefore no need for further reconciliation of these income statement items. Borregaard has a central finance function, and the financing of the various segments does not necessarily reflect the real financial strength of

the individual segments. Financial items are therefore presented only for the Group as a whole.

The segment information tables show the key figures in which management monitors the business, such as total operating revenue, operating expenses, adjusted EBITA, amortisation and write downs of intangible assets, other income and expenses and operating profit for each business area. It does not disclose internal sales between the various segments as it is considered immaterial.

This table shows the revenues generated by the Performance Chemicals segment, the Specialty Cellulose segment and Other Businesses.

The segment information also includes cash flow from operations, replacement investments, expansion investments and working capital for each area.

Segment reporting changed from 1 January 2015, see note 37 for restated segment figures.

Segments 2014	Performance	Specialty	Other		Borregaard
Amounts in NOK million	Chemicals	Cellulose	Businesses	Eliminations	Group
Income statement
Total operating revenue	1 822	1 463	723	-69	3 939
Operating expenses and depreciation	-1 403	-1 334	-785	69	-3 453
EBITA	419	129	-62	–	486
Amortisation and write-downs intangible assets	–	–	–	–	0
Other income and expenses	–	–	-30	–	-30
Operating profit	419	129	-92	–	456
Net financial items					-26
Profit before tax					430
Cash flow
Cash flow from operations4	422	231	106	–	759
Replacement investments	-48	-84	-96	–	-228
Expansion investments	-4	-70	-11	–	-85
Capital structure
Working capital	363	359	7	–	729
Capital employed (see Note 8)5					2 852
Return on capital employed6					16.5%

Segments 2013	Performance	Specialty	Other		Borregaard
Amounts in NOK million	Chemicals1	Cellulose	Businesses	Eliminations	Group1
Income statement
Total operating revenue	1 645	1 597	703	-59	3 886
Operating expenses and depreciation	-1 331	-1 373	-752	59	-3 397
EBITA1	314	224	-49	–	489
Amortisation and write-downs intangible assets	-2	–	–	–	-2
Other income and expenses	-9	–	23	–	14
Operating profit	303	224	-26	–	501
Net financial items					-41
Profit before tax					460
Cash flow
Cash flow from operations	303	302	110	–	715
Replacement investments	-16	-34	-176	–	-226
Expansion investments	-36	-17	-9	–	-62
Capital structure
Working capital	305	358	56	–	719
Capital employed (see Note 8)					2 774
Return on capital employed					16.9%

1. Cash flow from operations according to IFRS adjusted for financial items, taxes paid and share of profit/dividend from joint venture.

2. Average net working capital+intangible assets+tangible assets-net pension liabilities-deferred tax excess value

3. EBITA/(Average net working capital+average tangible assets+average intangible assets at cost-average net pension liabilities-average deferred tax excess values)

Reconciliation Capital Employed
Amounts in NOK million	2014	20131
Capital Employed	2 852	2 774
Other non-current assets	67	51
Cash and Cash equivalents	168	39
Net deferred tax	2	-78
Interest-bearing liabilities	-792	-780
Income tax provision	-58	-101
Other (derivatives, accruals etc.)	-290	-49
Equity	1 949	1 856

Reconciliation Cash flow from operations

Amounts in NOK million	2014	20131
Cash Flow from operating activities	600	526
Financial items, net	26	41
Taxes paid	139	129
Share of JV dividend/(profit after tax)	-6	19
Cash flow from operations	759	715
Replacement investments	-228	-226
Cash flow from operations after replacement investments	531	489
Expansion investments	-85	-62
Reconciliation Working Capital
Amounts in NOK million	2014	20131
Receivables	707	693
Inventories	610	545
Other liabilities	-753	-549
Derivatives etc included in above items	165	30
Working Capital	729	719

Note 8 Geographical breakdown of capital employed, investments, number of man-years and sales revenues

	Capital Employed			Investments		Number of man-years7		Sales revenues
Amounts in NOK million	2014	20131	2014	20131	2014	20131	2014	20131
Norway	2 378	2 420	271	274	747	735	138	162
Rest of Europe	134	96	7	6	127	116	1 678	1 670
Asia	19	8	1	1	53	51	896	1 038
Americas	215	149	34	7	101	100	1 045	921
Rest of the world	106	101	0	0	0	0	91	31
Total	2 852	2 774	313	288	1 028	1 002	3 848	3 822

Sales revenues per product group

Amounts in NOK million	2014	20131
Performance Chemicals	1 779	1 612
Cellulose	1 348	1 484
Bioethanol	112	110
Fine Chemicals	185	193
Ingredients	328	323
Other	96	100
Total sales revenues	3 848	3 822

1. Excluding employees in joint venture in Ligno Tech South Africa.

Note 9 Payroll expenses and remuneration

Amounts in NOK million	2014	20131
Wages	-621	-598
Sharebased payments (options and discounted shares)	-3	-8
Employer's national insurance contribution	-93	-90
Pension costs (see note 10)	-43	-40
Remuneration to Board Members	-3	-3
Payroll expenses	-763	-739
Average number of man-years	1 008	984

Remuneration of the Group Executive Management

2014
Amounts in NOK thousand	Base salary	Bonus	Pension cost	Benefits in kind	Total
Per A. Sørlie	2 953	829	545	213	4 540
Morten Harlem	1 944	943	243	193	3 322
Tom Erik Foss-Jacobsen	1 549	435	163	189	2 337
Gisle Løhre Johansen	1 557	436	174	189	2 357
Ole Gunnar Jakobsen	1 453	409	145	175	2 182
Tuva Barnholt	1 439	403	173	185	2 200
Per Bjarne Lyngstad	1 654	459	188	188	2 490
Dag Arthur Aasbø	1 457	403	149	160	2 168
Sveinung Heggen	1 891	196	253	171	2 511
Total remuneration	15 898	4 513	2 032	1 663	24 106

2013

Amounts in NOK thousand	Base salary	Bonus	Pension cost	Benefits in kind	Total
Per A. Sørlie	2 782	829	523	196	4 330
Morten Harlem	1 644	815	242	193	2 894
Tom Erik Foss-Jacobsen	1 486	484	166	191	2 327
Gisle Løhre Johansen	1 487	503	174	189	2 353
Ole Gunnar Jakobsen	1 391	436	148	171	2 146
Tuva Barnholt	1 374	470	168	189	2 201
Per Bjarne Lyngstad	1 545	634	188	182	2 549
Dag Arthur Aasbø	1 373	634	150	156	2 313
Total remuneration	13 082	4 805	1 759	1 467	21 113

Remuneration guidelines

Borregaard's remuneration guidelines for persons in managerial positions cover base salary, pensions, annual bonus and longterm incentives (LTI).

In general, remuneration shall be competitive and simple with long-term arrangements that have appropriate flexibility. Furthermore, there should be consistency between the personal compensation elements and the Company's goals and results. Borregaard uses recognised external job assessment systems to benchmark its remuneration programme. In addition to the executive management, a few key persons are also included in the annual bonus and LTI plan.

The base salary level should be close to the median for comparable companies and positions.

The pension scheme is based on a defined contribution plan for all employees in Norway. In general, the intention is that the system should give the same relative pension independent of salary level. The contribution level is 5% of salary between 1 and 6 G (1 G is Norwegian National Insurance Scheme's basic amount and was NOK 88,370 as of 31 December 2014), 8% of salary between 6 and 12 G and 20% of salary over 12 G.

Annual bonuses are based on performance within financial results (ROCE8 and EVA9 ) and EHS (safety and sick leave) in addition to specific personal goals. Maximum annual bonus is 50% of the annual base salary. A defined "good performance level" should, over time, give a bonus of 30%. Annual bonus includes holiday payment, but does not provide basis for pension contributions.

New guidelines for the LTI/share option programme

In connection with new share options granted in 2014, more stringent guidelines for the Borregaard LTI/option scheme were adopted by the Board of Directors. The guidelines are within the framework given by the General Meeting in 2014.

General information about the scheme

The Borregaard long-term incentive (LTI) scheme is a share option scheme related to the share price and is part of an overall remuneration programme for senior management and key personnel. The share option scheme implies that employees can obtain options that entitle them to purchase a defined number of shares at a given value after a fixed period of time. In order to adapt the scheme to its objectives, allocation of new share options and opportunities for gain are subject to a number of limitations.

The Board of Directors will consider on an annual basis whether to allocate options, and can provide guidance for such allocation in accordance with the framework of these guidelines. The Board may decide whether the options are to be actual or synthetic.

The share option scheme must be approved by Borregaard's General Meeting. The Board and its compensation committee will ensure that the allocation of options and the administration of the scheme comply with the intentions.

The purpose of the scheme

The scheme is based on two main factors:

• Strengthening of ownership perspective, in that the development of shareholder value (share price) and investment in shares are the criteria for this compensation.

Retention; Providing senior managers and other key personnel an incentive for staying with the company over the long-term.

Allocation criteria

Options may be granted to employees in certain senior positions where there is a particular need for an ownership perspective and a long-term attachment to the company: This applies to the CEO and other members of the Group Executive Management as well as key personnel and specialists in the business areas and corporate staff based on a number of defined criteria.

Restrictions on allocations

• Annually, the total allocation of new share options can only account for a maximum of 1% of the company's shares. The total number of outstanding options can

maximum be 2.5% of the company's shares. The maximum annual allocation of stock options on an individual basis is the number of options multiplied by the share price on the allocation date that corresponds to two annual salaries for the CEO and one annual salary for other employees.

Restrictions on gain

• • Share options shall have a pre-defined strike price based on a minimum share price increase determined at allocation, where actual interest rates are part of the assessment of the strike price. The strike price shall be adjusted for dividends and other factors relevant to share capital (e.g. buy-backs, write-downs and new share issued).
• • The total individual gain on redemption per calendar year can amount to a maximum of two annual salaries for the CEO and one annual salary for other employees.

Time limits

• The share options will expire after five years, the vesting period is three years and the options can be exercised during the last two years.

Requirements for the purchase of shares

• • Employees must use at least half of the gain (after tax) to purchase Borregaard shares, with a lock-in period of three years.
• • The members of the Group Executive Management team are expected to build up and own a holding of Borregaard shares corresponding to two annual salaries for the CEO and one annual salary for other members.

In 2014, The Board of Directors, within these guidelines, issued 500,000 share options (Programme 3), corresponding to 0.5% of the total number of shares, to 21 employees. 285,000 of the options were granted to the members of the Group Executive Management. Strike price was set to NOK 49.25 which was 10% above the share price at the time of allocation. After the allocation, total number of outstanding share options corresponds to 1.0% of the total number of shares.

Share option programmes related to the IPO in 2012

Being part of Orkla ASA up to October 2012, Borregaard was included in Orkla's share option programmes. In connection with the IPO of Borregaard ASA in 2012, the Board of Directors resolved to offer Borregaard employees who held share options in Orkla ASA to exchange these for an equal number of share options in Borregaard ASA at a strike price of NOK 20.03 (average share price first day after announcement of 3rd quarter 2012 results). Total number of share options exchanged was 1,590,000 (Programme 1). The life of the options changed from six to four years and the vesting period changed from three to one year. The incremental fair value granted as a result of the modifications was NOK 3.6 million measured by the Black-Scholes model.

1. EBITA/(Average net working capital+Average tangible assets+Average intangible assets at cost-Average net pension liabilities-Average deferred tax excess value) 9. Economic value added

In addition, members of the Group Executive Management were offered 950,000 new share options at a strike price of NOK 22.50 (Programme 2).

Share based related costs for 2014 for the Group Executive Management was NOK 4 million.

Both option programme 1 and 2 have a maturity of four years, and were vested on 18 October 2013. The maximum total profit resulting from exercise of the share options is limited to the equivalent of twice the base salary for the CEO and

equivalent to the annual base salary for the other members of the Group Executive Management in the period of exercise (i.e. six and three years base salaries respectively). At least 50% of proceeds after tax must be used to purchase shares in the Company until the shareholdings equal twice, or are equal to, the annual base salary for the CEO and the rest of the Group Executive Management respectively.

2,081,200 share options have been exercised in 2014 according to these programmes. Changes in outstanding share options for Borregaard's employees are shown in the following table:

	2014		2013
Number of share options	No.	WAEP1	No.	WAEP*
Outstanding at the beginning of the year	2 540 000	19.95	2 540 000	20.95
Granted during the year	500 000	49.25	0
Exercised during the year	2 081 200		0
Forfeited during the year	0		0
Outstanding at year-end	958 800	34.91	2 540 000	19.95
Exercisable options at year-end**	958 800		2 540 000

* Weighted average exercise price adjusted for dividend. Amounts in NOK.

** Expire dates are 31 October 2016 for 458,800 options and 25 October 2019 for 500,000 options.

Borregaard has used the Black-Scholes model when estimating the value of the options. The volatility is calculated on the basis the average volatility the past years for Borregaard and Borregaard peers. In the model, new option awards have been based on the 2014 assumptions and the IPO awarded options are based on the 2013 assumptions in the following table:

Assumptions	2014	2013
Expected dividend-yield (%)	0	0
Expected volatility (%)	27	34
Historical volatility (%)	27	34
Risk-free return (%)	2.0	2.0
Expected life of option (years)	4.0	4.0
Weighted average share price (NOK)	44.80	30.20

Share options and shares held by
Group Executive Management as of	Programme 1		Programme 2		Programme 3
31 Dec.	Strike NOK 17.93		Strike NOK 20.40		Strike NOK 49.25		Shares
	No. of share options		No. of share options		No. of share options		No. of shares
Amounts in NOK thousand	2014	2013	2014	2013	2014	2013	2014	2013
Per A. Sørlie	–	180 000	250 000	250 000	60 000	–	110 987	69 320
Morten Harlem	–	125 000	–	100 000	40 000	–	45 084	26 367
Tom Erik Foss-Jacobsen	–	115 000	–	100 000	30 000	–	34 740	6 462
Gisle Løhre Johansen	–	110 000	–	75 000	25 000	–	29 184	3 313
Ole Gunnar Jacobsen	6 300	135 000	–	75 000	25 000	–	27 488	0
Tuva Barnholt	–	115 000	–	75 000	25 000	–	28 293	1 701
Per Bjarne Lyngstad	10 000	105 000	–	100 000	30 000	–	52 721	21 605
Dag Arthur Aasbø	12 500	110 000	–	75 000	25 000	–	39 721	18 605
Sveinung Heggen	–	–	–	–	25 000	–	4 209	2 593
Total	28 800	995 000	250 000	850 000	285 000	0	372 427	149 966

The reduction in share options from 2013 to 2014 in programme 1 and 2 are related to exercised share optons during 2014. No outstanding share options had expired as of 31 December 2014.

Special agreements with the CEO

If the CEO, Per A. Sørlie, by mutual agreement and in the best interest of the company, terminates the employment contract, the employee will receive pay and contractual benefits for up to 18 months after the period of notice. 75 % of any income

from another permanent post during the 18-month period will be deducted. The CEO is included in the company's ordinary pension schemes and in addition has a pension agreement to recover 60 % of annual pay including benefits from 65 to 67 years with no deduction for income from other permanent post.

Discounted shares for employees

In 2013, the Group established a programme that gives employees the opportunity to buy a limited number of shares at a discount of 30 % in relation to the market price with a maximum amount of NOK 28,000 (after discount). The programme was available to 1,071 employees in 2014. Shares were purchased by 277 employees, 250 in Norway and 27 outside Norway. Costs in 2014 related to the share purchase programme amounted to approximately NOK 2 million (NOK 3 million in 2013).

Remuneration of the Board of Directors

In the General Meeting of the Company's shareholders in April 2014 it was determined that The Board of Directors is remunerated at annual rates for the period up to the next General Meeting in 2015:

Board of Directors
Board Chair	NOK	410 000	per year
Board member	NOK	246 000	per year
Observer	NOK	82 000	per year
Deputy member	NOK	6 200	per meeting
Audit Committee
Committee Chair	NOK	77 000	per year
Member	NOK	51 000	per year
Compensation Committee
Committee Chair	NOK	46 000	per year
Member	NOK	36 000	per year

Note 10 Pensions

Defined contribution plans

Defined contribution plans comprise arrangements whereby the company makes annual contributions to the employees' pension plans, and where the future pension is determined by the amount of the contributions and the return on the pension plan assets. Contribution plans also comprise pension plans that are common to several companies and where the pension premium is determined independently of the demographic profile in the individual companies (multi-employer plans). Employees in Borregaard are mainly covered by pension plans classified as contribution plans.

Defined benefit plans

Borregaard has pension plans that are classified as funded benefit plans and unfunded benefit plans. Expected contributions for the next year, 2015, to the defined benefit plan obligation is NOK 9 million. The largest part of the benefit plans are in the USA and Norway.

USA

The pension plans in the USA contains three different plans; two defined benefit plans for salaried and hourly employees and one supplemental post-retirement plan.

Remuneration of employee-elected Board members

			Benefits
2014	Base	Board	in kind/
Amounts in NOK thousand	salary	allowance	bonus	Pension
Åsmund Dybedahl	465	245	23	22
Ragnhild Anker Eide	878	245	23	54

Remuneration of the Nomination Committee

The Chair of the Nomination Committee receives NOK 51,000 per year and an additional NOK 8,200 per meeting exceeding four meetings. Other members receive NOK 36,000 per year and an additional NOK 6,600 per meeting exceeding four meetings.

Fees to Group external auditor

Amounts in NOK million	2014	20131
Statutory audit	4	3
Other attestation services	1	1
Tax consultancy services	1	1
Other non-audit services	–	–
Total fees to EY	6	5
Statutory audit fee to other auditors	0	1

Norway

The net pension liabilities consist of unfunded pension plans for key personnel and liabilities related to synthetic contributionbased plans for employees who earn more than twelve times the Norwegian National Insurance Scheme's basic amount (12G). The pension plan for employees in Norway who earn more than 12G is a synthetic contribution-based plan. The sum of the accrued contributions and the return on the plan assets are presented as a pension liability in the company's statement of financial position. The pension plan is therefore presented as a defined benefit plan.

A small part of the pension liability consists also of provisions made to cover the underfunding in the old early retirement scheme (old AFP), as recommended under the Norwegian Accounting Standards. The last year for provision to the old AFP scheme is announced to be 2015.

The new early retirement scheme (new AFP) is recognised as a multi-employer defined contribution plan. This may change if there are sufficient reliable, consistent data to be able to recognise it as a defined benefit plan. The premium for the new early retirement scheme will increase from 2.2% in 2014 to 2.4% in 2015 of total payments of wages between 1 and 7.1 times the average basic amount. This change in premium is in line with

the announced change whereby the premium for the new early retirement scheme for the years 2011-2015 is gradually to be increased as the premiums and employer's contributions for the old AFP scheme are phased out. All employees in Norway younger than 61 years are included, in average 752 employees in 2014, and the cost in 2014 was NOK 8 million.

Assumptions relating to defined benefit plans

The discount rate is fixed at the rate on high quality corporate bonds with the same lifetime as the pension liabilities (AA-rated corporate bonds). As a rule, parameters such as wage growth, growth in G (future social security wage base) and inflation

are set in accordance with recommendations in the various countries. The mortality estimate is based on up-to-date mortality tables for the various countries. (K2013 in Norway and mortality table updated late 2014 in USA).

Pension plan assets

The pension plans with pension plan assets are located in the USA. Pension plan assets are mainly invested in bonds and shares. The estimated return will vary depending on the composition of the various classes of assets. The breakdown of pension plan assets is presented below.

Assumptions defined benefit plans

	Norway		USA
	2014	2013	2014	2013
Discount rate	2.30%	4.00%	4.00%	4.00%
Rate of return on assets	–	–	4.00%	4.00%
Future salary adjustment	2.50%	3.50%	4.00%	4.00%
G-multiplier* / Future social security wage base	2.50%	3.50%	4.50%	4.50%
Adjustment of benefits	0.00%	0.60%	–	–
Turnover	2.00%	2.00%	2.20%	1.89%
Expected average remaining vesting period	12	12	–	–

*1G is NOK 88,370 as of 31 December 2014

Breakdown of net pension costs

Amounts in NOK million	2014	2013
Contribution plans	-35	-30
Current service cost	-8	-10
Net pension costs (incl. national insurance
contributions) 1	-43	-40
1. In 2014, NOK 8 million was recognised in other comprehensive income

Breakdown of net pension liabilities as of 31 December

Amounts in NOK million	2014	2013
Present value of funded pension obligations	-320	-261
Pension plan assets (fair value)	323	261
Net funded pension assets	3	0
Present value of unfunded pension obligations	-67	-44
Capitalised net pension liabilities	-64	-44
Capitalised pension liabilities	-64	-44
Capitalised plan assets	0	0

Changes in the present value of pension obligations during the year

Amounts in NOK million	2014	2013
Pension obligations 1 January	-305	-262
Current service cost (incl. national insurance contributions)	-8	-10
Interest on pension obligations	-13	-11
Actual gains and losses	-8	8
Other changes	0	-16
Benefits paid during the year	10	8
Currency translations	-63	-22
Pension obligations 31 December	-387	-305

Changes in pension plan assets during the year

Breakdown of pension plan assets (fair value) as of 31 December

Amounts in NOK million	2014	2013
Pension plan assets (fair value) 1 January	261	209
Expected return on pension plan assets	11	9
Contributions and benefits paid during the year	-5	8
Other changes	1	16
Currency translations	56	19
Pension plan assets (fair value)	323	261
31 December

	2014	2013
Cash and cash equivalents and money market
investments	1%	1%
Bonds	34%	39%
Shares	65%	60%
Total pension plan assets	100%	100%

Summary of net pension liabilities and adjustments in past five years

Amounts in NOK million	2014	2013	2012	2011	20101
Pension obligations	-387	-305	-262	-245	-207
Pension plan assets	323	261	209	193	183
Net pension liabilities	-64	-44	-53	-52	-24

1. Figures in 2010 are not restated in accordance with the changes in IAS in 2013

Sensitivity

The above pension cost and pension liabilities related to defined benefit schemes, are based on the assumption outlined above. The actuarial calculations are sensitive to any changes in the assumptions. Normally, a 1% increase in wage adjustment would imply a 5% increase in pension liability and 15% increase in pension cost (defined benefit schemes).

Note 11 Other operating expenses

The Borregaard Group has chosen to present its income statement based on the nature of the item of income or expense. Operating expenses have been broken down into the following main items: "Cost of materials", "Payroll expenses", "Depreciation", "Amortisation" and "Other operating expenses". Thus "Other operating expenses" comprises all operating expenses that are not related to cost of materials, payroll and capital costs in the form of depreciation. The most important items have been grouped into the following main items:

Note 12 Other income and expenses

Other income and expenses largely consist of material positive and negative non-recurring items, restructuring costs and any substantial write-downs of both tangible and intangible assets. The main purpose of this line is to present material non-recurring items and items substantially relating to other periods separately to ensure that the changes in and comparability of the lines presented in EBITA are more relevant to the company.

Amounts in NOK million	2014	2013
Gain from sale of property	-	23
Write-down of assets in LignoTech Ibérica	-	-9
Estimated costs for permanent closure of the
Opsund landfill	-30	-
Total other income and expenses	-30	14

A 1% increase in discount rate would imply a 11% decrease in pension liability and 4 % increase in pension cost. The calculation is based on the weighted average of the defined benefit schemes.

Amounts in NOK million	2014	20131
External distribution costs	-308	-300
Repair and maintenance costs	-129	-123
Consultants, legal advisors, temporary staff, etc	-81	-84
Rental/leasing (see Note 32)	-50	-43
Other	-264	-249
Total other operating expenses2	-832	-799

The Opsund landfill, a waste disposal site on Borregard's premises in Sarpsborg, was taken out of use in 2009. Late 2014, a plan for permanent closure of the landfill by the end of 2019 was submitted to The Norwegian Environment Agency ("Miljødirektoratet"). The plan was approved in March 2015. The cost of the permanent closure is now estimated at approximately NOK 30 million. The estimate is based on assumptions that may change, including landfill, transportations and technology uncertainties. Previosuly the estimated costs varied from limited to approximately NOK 50 million and management's estimate was in the lower end of the range, so no provision has previously been made. As of 31 December 2014, the estimated cost of NOK 30 million is part of Other income and expenses.

Note 13 Net financial items

Amounts in NOK million	2014	20131
Interest income	60	8
Foreign exchange gain	108	148
Total finance income	168	156
Interest costs	-88	-42
Foreign exchange loss	-104	-152
Other finance costs	-2	-3
Total finance costs	-194	-197
Net financial items	-26	-41

Note 14 Taxes

Amounts in NOK million	2014	20131
Profit before tax	430	460
Current tax expense	-118	-130
Deferred tax expense	20	1
Total tax expense	-98	-129
Tax as % of "Profit/loss before taxes"	22.8%	28.0%

Reconciliation of the Group's tax rate

In the following table, reported taxes are reconciled with the tax charge based on the Norwegian tax rate of 27% (28% in 2013). The main tax components are specified.

Amounts in NOK million	2014	20131
27% (28%) of profit before taxes (tax rate in
Norway)	-116	-129
Foreign operations with other tax rates than 27%
(28%)	-8	-7
Changes in tax laws	1	3
Joint venture impact of IFRS 11	15	10
Permanent differences	5	-6
Other current taxes	-1	0
Correction previous years	7	1
Other deferred taxes	-1	-1
The Group's total tax expense	-98	-129

The ordinary tax rate in Norway is 27 % in 2014. The tax rate in Norway was reduced from 28% to 27% from 1 January 2014. This was considered in the calculation of deferred taxes as of 31 December 2013.

Entities in countries with tax rates other than 27 % (28 %) have the net effect of increasing the tax expense. The business in the US, subject to a tax rate of 38 % (40 %) including state tax, is in particular contributing to an increased tax expense .

As the profit after tax from the joint venture is accounted for as part of operating profit (due to implementation of IFRS 11), this does not impact the Group's tax expense and thus reduces the Group's tax rate.

Permanent differences in 2014 consist of tax deductions related to exercised share options and additional tax deductions related to the business in the US. The tax deductions are partly off-set by other non-deductible expenses.

Deferred tax liabilities

Deferred tax liability consists of the Group's tax liabilities that are payable in the future. The table below lists deferred tax assets and liabilities relating to the timing differences between tax accounting and financial accounting.

The table shows the composition of the Group's deferred tax.

Amounts in NOK million	2014	20131
Deferred tax on tax increasing/(reducing) differences
Hedging taken to comprehensive income	-70	-12
Intangible assets and Property, plant and equipment	81	85
Net pension liabilities	-18	-11
Gain and loss tax deferral	6	6
Other non-current items	-3	-2
Total non-current items	-4	66
Current receivables	-2	-1
Inventories	21	23
Provisions	-13	-6
Other current items	-3	-4
Total current items	3	12
Losses carried forward	-4	-1
Net deferred tax	-5	77
Deferred tax assets not recognised	3	1
Net deferred tax	-2	78
Change in deferred tax	80	29
Change in deferred tax taken to comprehensive income	-65	-30
Acquisitions/sale of companies, translation effects etc.	5	2
Change in deferred tax income statement	20	1

Net deferred tax presented in statement of financial position

Losses carried forward by expiry date

Amounts in NOK million	2014	20131	Amounts in NOK million	2014	20131
Deferred tax	7	78	2021 or later	10	4
Deferred tax assets	9	0	Without expiry date	2	0
Net deferred tax	-2	78	Total tax losses carried forward	12	4

Tax reducing timing differences with corresponding deferred tax assets

2014
	Tax reducing	Recognised	Unrecognised
	timing	deferred tax	deferred tax	Total deferred
Amounts in NOK million	differences	assets	assets	tax assets
Losses carried forward by country
Spain	10	0	3	3
USA	2	1	0	1
Total	12	1	3	4
Other tax reducing timing differences	389	109	0	109
Total tax reducing timing differences	401	110	3	113
Netted deferred tax	-367	-101	0	-101
Net tax reducing timing differences	34	9	3	12

Deferred tax assets are only capitalised to the extent that it is probable that there will be sufficient future taxable profit for the tax asset to be used, either because the unit recently reported a profit or because assets with excess value have

been identified. If future profits are not likely to be sufficient to absorb the tax reducing timing differences, deferred tax assets are not recognised.

Note 15 Earnings per share (EPS)

The share capital consists of 100 million shares as of 31 December 2014. As of 31 December 2014 there are 99,577,876 diluted shares. There were 99,591,765 diluted shares as of 31 December 2013.

Amounts in million	2014	2013
Profit/loss for the year after non-controlling
interests for continuing operations	334	335
Profit/loss for the year after non-controlling
interests	334	335
Weighted average number of shares outstanding	100	100
Estimated dilution effect option programme	0	0
Weighted average number of shares outstanding
diluted	100	100
Amounts in NOK	2014	2013
Earnings per share	3.34	3.35
Earnings per diluted share	3.35	3.36

Note 16 Impairment assessments

Borregaard has substantial non-current assets in the form of tangible (property, plant and equipment) and some minor intangible assets. An explanation of the details of and changes in these assets is presented separately in Note 17 and 18.

Estimate uncertainty, in some cases considerable, attaches to both property, plant and equipment and intangible assets. Both valuation and estimated useful lifetime are based on future information that is always subject to a great degree of uncertainty.

Tangible assets (property, plant and equipment) are basically capitalised at acquisition cost and, if they have a limited useful life, will be systematically depreciated over that period. Useful life and residual value are based on estimates of future growth.

The value of intangible assets is primarily derived from the Group's own valuations and has generally been capitalised in connection with the Group's acquisition of a new business. Goodwill is to be regarded as a residual in the same acquisition.

Borregaard routinely monitors assets and if there are indications that the value of an asset is no longer recoverable, an impairment test will immediately be carried out to deter-

mine whether the asset can still justify its carrying value. If new estimates conclude that the value is no longer recoverable, the asset is written down to the recoverable amount, i.e. the greater of the net sales value and the value in use (discounted cash flow).

Goodwill is tested at least annually for impairment. At Borregaard, impairment testing is carried out in the third quarter. If there are special indications of a reduction in value, impairment testing is carried out more frequently.

Cash flows relating to the assets are identified (see below) and discounted. Future cash flow is based on specified assumptions and the plans adopted by the entity. If the discounted value of future cash flows is lower than the capitalised value of the unit's capital employed, the assets are written down to the recoverable amount. If the discounted value is higher than the capital employed, this means that the value of the intangible asset or goodwill is recoverable. In cases where the discounted value exceeds the capital employed by less than 20%, a further sensitivity analysis is carried out to check the calculation. When relevant, assumptions and estimates are reviewed and the robustness of the investment is measured in relation thereto.

Borregaard's goodwill is related to the prior acquisition of Biotech Lignosulfonate Handels GmbH:

	Goodwill
Amounts in NOK million	2014	2013
Biotech Lignosulfonate Handels GmbH	29	27
Total goodwill	29	27

Estimate assumptions and cash-generating units

A cash-generating unit (CGU) is the lowest level at which independent cash flows can be measured. Based on the forecasts, expectations and assumptions that were applied, Biotech's CGU justify the capitalised value of goodwill at 31 December 2014 and the fair value exceeds the book value more than 20%.

Calculations of future cash flows are based on a number of assumptions regarding both economic trends and the estimated useful life. Borregaard is affected by fluctuating markets and estimates made in weak markets can differ substantially from estimates made in stronger markets.

The discount rate applied is based on the Group's cost of capital, which in general has been estimated to be in the range of 8-10% before tax, based on a weighted average of required rates of return for the Group's equity and debt (WACC). The required rate of return on the Group's equity is estimated by using the capital asset pricing model (CAPM). The required rate of return on debt is estimated on the basis of a long-term riskfree interest rate to which is added a credit margin derived from Borregaard's marginal long-term borrowing rate. The discount rate is adjusted for country risk, the level of inflation and operational risk, depending on the particular value being calculated.

Future cash flows are estimated on the basis of the budget for next year and the following two forecast years. As from year four a terminal value is calculated. Cash flow estimates are sensitive to changes in raw material prices and thereby other purchase prices and the coherent ability to maintain margin assumptions. The sensitivity of the estimates, even when there is a reasonable possibility of a change in assumptions, did not give grounds for impairment charges.

Note 17 Intangible assets

Amortisable intangible assets are amortised on a straight line basis at the following rates: Development 20% and other intangible assets 10-15%. Development consists mainly of internal resources being involved in development projects. IT consists mainly of external costs.

			Other intan
Amounts in NOK million	Development	IT	gible assets	Goodwill	Total1
Book value 1 January 2014	16	14	0	27	57
Additions	26	3	–	–	29
Depreciation/Amortisation	-8	-3	–	–	-11
Write-downs	–	–	–	–	0
Currency translations	–	–	–	2	2
Book value 31 December 2014	34	14	0	29	77
Initial cost 31 December 2014	56	124	53	55	288
Accumulated amortisation and write-downs	-22	-110	-53	-26	-211
Book value 31 December 2014	34	14	0	29	77
Book value 1 January 2013	11	2	2	24	39
Additions	9	13	–	–	22
Depreciation/Amortisation	-4	-1	-2	–	-7
Write-downs	–	–	–	–	0
Currency translations	–	–	–	3	3
Book value 31 December 2013	16	-14	0	27	57
Initial cost 31 December 2013	30	121	53	55	259
Accumulated amortisation and write-downs	-14	-107	-53	-28	-202
Book value 31 December 2013	16	14	0	27	57

In addition, Borregaard expensed NOK 110 million in 2014 in research and development costs (NOK 86 million in 2013). The amounts include cost deductions/ grants. See Note 35.

Note 18 Property, plant and equipment

Property, plant and equipment are depreciated on a straight line basis at the following rates: buildings 2-4%, machinery, fixtures and fittings 4-15%, vehicles 15-25% and EDP equipment 16-33%. The period of depreciation is reviewed each year and if there are changes in useful life, depreciation is adjusted. The residual value is also calculated and if it is higher than the

carrying value, depreciation is stopped. This applies in particular to buildings. The Group is committed to fulfill contracts amounting to NOK 18 million which is not recorded in the statement of financial position as of December 31, 2014 (NOK 18 million as of 31 December 2013).

	Land, buildings Machinery Assets under		Fixtures, fittings,
Amounts in NOK million	and other property	and plants	constructions	vehicles, EDP etc.	Total1
Book value 1 January 2014	787	1 006	131	17	1 941
Additions	80	70	129	5	284
Disposals	–	-2	–	–	-2
Transferred assets under construction	-3	162	-160	1	0
Write-downs	–	–	–	–	0
Depreciation	-45	-183	–	-5	-233
Currency translation	6	4	3	1	14
Book value 31 December 2014	825	1 057	103	19	2 004
Initial cost 31 December 2014	1 606	4 784	103	155	6 648
Accumulated depreciation and write-downs	-781	-3 728	0	-136	-4 644
Book value 31 December 2014	825	1 057	103	19	2 004
Book value 1 January 2013	721	894	259	19	1 893
Additions	40	108	114	4	266
Disposals	–	–	–	-1	-1
Transferred assets under construction	74	168	-242	–	0
Write-downs	-7	–	–	–	-7
Depreciation	-44	-166	–	-6	-216
Currency translation	3	2	–	1	6
Book value 31 December 2013	787	1 006	131	17	1 941
Initial cost 31 December 2013	1 531	4 566	131	145	6 373
Accumulated depreciation and write-downs	-744	-3 560	0	-128	-4 432
Book value 31 December 2013	787	1 006	131	17	1 941

Note 19 Inventories and Cost of Materials

Inventories are valued at the lower of acquisition cost and net realisable value after deducting selling costs. This has resulted in a total write-down of inventories as of 31 December 2014 of NOK 6 million (NOK 4 million in 2013). There are no reversed write-downs from earlier years. Inventories valued at net realisable value total NOK 27 million (NOK 22 million in 2013).

Amounts in NOK million	2014	20131
Raw materials	87	80
Work in progress	52	45
Finished goods and merchandise	471	420
Total inventories	610	545
Amounts in NOK million	2014	20131
Wood costs	-365	-403
Energy costs	-445	-468
Other materials	-861	-746
Change in work in progress and finished goods	57	-21

Note 20 Provisions and other non-current liabilities

Amounts in NOK million	2014	20131
Pension liabilities (see Note 10)	64	44
Derivatives (see note 21)	95	15
Other provisions	30	4
Total	189	63

Note 21 Overview of financial instruments

The following measurement levels are used for determining the fair value of financial instruments:

Level 1: Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities

Level 2: Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable)

Overview of Financial instruments 2014

Level 3: Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly unobservable)

There were no transfers from one level to another in the measurement hierarchy in 2013 and 2014. A description of how the derivatives are measured is provided in Note 29.

Amounts in NOK million	Note	Measurement level	Financial instruments at fair value through profit and loss	Financial instruments at fair value through com prehensive income	Financial liabilities measured at amortised cost	Deposits and receivables	Total	Of this interest bearing	Fair value
Non-current assets
Non-current financial receivables	24	2	–	–	–	67	67	16	67
Non-current derivatives	24, 29	2	–	–	–	–	0	–	–
Total			–	–	–	67	67	16	67
Current assets
Accounts receivable	22		–	–	–	587	587	–	587
Other current receivables	22		–	–	–	11	11	–	11
Current derivatives	22, 29	2	1	9	–	–	10	–	10
Cash and cash equivalents	23		–	–	–	168	168	168	168
Total			1	9	–	766	776	168	776
Non-current liabilities
Non-current financial liabilities	27	2,3	–	–	784	–	784	784	784
Non-current derivatives	20, 29	2		95	–	–	95	–	95
Total			–	95	784	–	879	784	879
Current liabilities
Current financial liabilities	27	2	–	–	8	–	8	8	8
Accounts payable	25		–	–	326	–	326	–	326
Other current liabilities	25		–	–	2	–	2	–	2
Current derivatives	25, 29	2	4	171	–	–	175	–	175
Total			4	171	336	–	511	8	511
Total financial instruments			-3	-257	-1 120	833	-547	-608	-547
Total measurement level 1							0
Total measurement level 2							-585
Total measurement level 3							-400
For other short-term items, fair value is estimated close or equal to booked value. The bond is determined as measurement level 3. The fair value of the bond is deemed to equal to its book value. The bond carries floating inter

est terms and the isuer's credit quality is not considered to have changed since the bond was issued in February 2014.

Overview of Financial instruments 2013

Amounts in NOK million	Note	Measurement level	Financial instruments at fair value through profit and loss	Financial instruments at fair value through com prehensive income	Financial liabilities measured at amortised cost	Deposits and receivables	Total1	Of this interest bearing	Fair value
Non-current assets
Non-current financial receivables	24	2	–	–	–	51	51	13	51
Non-current derivatives	24, 29	2	–	–	–	–	0	–	–
Total			–	–	–	51	51	13	51
Current assets
Accounts receivable	22		–	–	–	558	558	–	558
Other current receivables	22		–	–	–	45	45	–	45
Current derivatives	22, 29	2	–	4	–	–	4	–	4
Cash and cash equivalents	23		–	–	–	39	39	39	39
Total			–	4	–	642	646	39	646
Non-current liabilities
Non-current financial liabilities	27	2	–	–	–	774	774	774	774
Non-current derivatives	29	2	–	15	–		15		15
Total			–	15	–	774	789	774	789
Current liabilities
Current financial liabilities	27	2	–	–	6	–	6	6	6
Accounts payable	25		–	–	280	–	280	–	280
Other current liabilities	25		–	–	5	–	5	–	5
Current derivatives	25, 29	2	1	30	-	–	31	–	31
Total			1	30	291	–	322	6	322
Total financial instruments			-1	-41	-291	-81	-414	-728	-414
Total measurement level 1							0
Total measurement level 2							-771
Total measurement level 3							0

Note 22 Receivables (current)

Current receivables are both operating receivables and interestbearing receivables. Operating receivables are broken down into trade receivables, accrued advance payments to suppliers and other current receivables. Trade receivables are continuously reviewed and are written down if there are objective criteria that indicate that an event causing a loss has occurred, and the amount of the loss can be reliably measured and will affect payment of the receivable.

558
4
45
607
86
693

Change in provisions for bad debt:

Amounts in NOK million	2014	20131
Provisions for bad debts 1 January	6	6
Bad debts recognised as expense (- income)	0	0
Realised losses	0	0
Translation effects	1	0
Provisions for bad debts 31 December	7	6

Accounts receivables have the following due dates:

Amounts in NOK million	2014	20131
Accounts receivable not due	522	481
Overdue receivables 1-30 days	59	74
Overdue receivables 31-60 days	6	3
Overdue receivables 61-90 days	1	2
Overdue receivables over 90 days	6	4
Accounts receivable carrying amount 31
December	594	564

Note 23 Cash and cash equivalents

Amounts in NOK million	2014	20131
Total cash and cash equivalents	168	39

Cash and cash equivalents are held for the purpose of meeting short-term fluctuations in liquidity rather than for investment purposes. Cash and cash equivalents consist of cash,

bank deposits and current deposits with a maturity of three months or less. Company policy is to channel excess liquidity in wholly-owned subsidiaries to Borregaard's cash pools (with DNB and Nordea) or as deposits with Borregaard AS. In some countries, however, there are legal or technical impediments on participation in Borregaard's cash pools or making deposits with Borregaard AS.

Note 24 Other assets (non-current)

Amounts in NOK million	2014	20131
Receivables interest-bearing	16	13
Receivables non interest-bearing	51	38
Total other assets	67	51

Note 25 Other liabilities (current)

Amounts in NOK million	2014	20131
Accounts payable (see note 21)	326	280
Non interest-bearing derivatives (see note 21)	175	31
Non interest-bearing liabilities (see note 21)	2	5
Total financial liabilities non interest-bearing	503	316
Value added tax, employee taxes etc.	58	54
Accruals	192	179
Total current liabilities	753	549

Current liabilities are operating liabilities (trade accounts payable, unpaid public taxes/charges, prepaid revenues, other accruals, etc.) and financial liabilities (payable interest). All these items are interest-free borrowings. Dividends do not become liabilities until they have been approved by the General Meeting.

Overall objectives

Borregaard's financial policy shall ensure short-term and long-term financial flexibility for the Group.

Borregaard shall aim at maintaining an "investment grade" credit quality (i.e. a rating of BBB- or better) in order to ensure access to

Long-term funding

In February 2014, Borregaard made a five-year NOK 400 million issue in the Norwegian bond market. In March 2014, Borregaard entered into a EUR 40 million term loan with the Nordic Investment Bank with the purpose of refinancing the then recently completed wastewater treatment plant in Sarpsborg and to fund research and development costs associated with innovation projects. The loan has a tenor of ten years with a grace period of three years. Financial covenants are similar to those applicable for the Bank Facilities Agreements described below.

On 30 September 2014, Borregaard refinanced the long-term revolving credit facilities made available to the company by its previous owner Orkla in September 2012 in preparation for the IPO in October 2012. The total amount of the new Bank Facilities Agreements is NOK 1,500 million, with equal portions of NOK 500 million being provided by each of the three banks (Svenska Handelsbanken, DNB and Skandinaviska Enskilda Banken). The tenor of the facilities is 5 years with two one-year extension options at the discretion of the bank. For each revolving loan, Borregaard may select an interest period of one, two, three or six months. All outstanding loans and all other sums due and outstanding must be repaid in full on the termination date specified for each tranche under the Bank Facilities Agreements.

The Bank Facilities Agreements include the following financial covenants:

• 1. Leverage ratio: the ratio of Net Interest Bearing Debt to EBITDA shall not exceed 3,25:1 during the life of the Agreements.
• 1. Equity ratio: the ratio of Total Consolidated Equity to Total Assets shall not be lower than 25%
• 1. Interest Cover ratio: the ratio of Consolidated EBITDA to net Interest Expense shall not be lower than 3.00:1

The Bank Facilities Agreements also contain restrictions i.a. on the Group companies' ability to grant security or guarantees (negative pledge).

Borregaard's policy for long-term funding is for debt to have an average maturity of at least 2.5 years, with a maturity

debt capital on favourable terms and conditions. Borregaard shall manage financial risks, primarily related to currency fluctuations, in a prudent manner, in accordance with established guidelines. Borregaard shall develop and maintain relationships with a core group of banks, based on long-term financing commitments.

profile spread over several years. Refinancing risk shall be actively managed and the refinancing process for maturing loans shall commence at least one year ahead of scheduled maturity. Borregaard shall seek to diversify its long-term funding sources, supplementing bank loans with debt capital markets and other sources, subject to availability and conditions. The company may utilise commercial paper markets and/or short term bank loans as sources of liquidity, provided that such loans can be substituted by undrawn long-term committed loan facilities.

Partially owned companies (joint ventures) or companies whose domestic legislation prevents them from entering into loan agreements with Borregaard AS, will need either to be financed on equal (pro rata) terms by the partners or will have to establish independent funding.

As an industrial group, Borregaard is not subject to any external capital requirements.

Liquidity and cash management

At 31 December 2014, Borregaard had an overdraft limit of 70 million NOK linked to its cash pool (Group account system) with Nordea. This facility was renewed in October 2014. Further, Borregaard had a multi-currency overdraft facility of 125 million NOK linked to its cash pool with DNB established in 2013. Group liquidity shall be managed in cash pools, with Borregaard AS as owner of top accounts and legal counterpart to relevant banks. Group companies shall participate in cash pools to the extent possible, with allocated internal credit lines if required. Group companies which are prevented from participating in cash pools, shall enter into deposit and/or loan agreements with Borregaard AS and shall aim at keeping locally held cash balances at a near-zero level. Excess liquidity shall primarily be used to repay debt. Alternatively, excess liquidity can be placed into relationship banks or other well-rated banks.

Partially owned companies (joint ventures) or companies whose domestic legislation prevents them from entering into deposit and/or loan agreements with Borregaard AS, shall invest surplus cash in low-risk deposits and/or pay dividend.

The Group's capital consists of net interest-bearing liabilities and equity:

Amounts in NOK million	2014	2013
Total interest-bearing liabilities other	792	780
Total interest-bearing receivables	-16	-13
Cash and cash equivalents	-168	-39
Net interest-bearing liabilities (NIBD)	608	728
Group's equity	1 949	1 856
Equity ratio (Book equity/Total assets)	52.0 %	54.2 %
Leverage ratio (NIBD/EBITDA)	0.83	1.03

Note 27 Funding and interest-bearing liabilities

Funding

Borregaard's main sources of financing are proceeds from its NOK 400 million bond issue (maturing in 2019), its EUR 40 million term loan with Nordic Investment Bank (maturing in 2024) and its refinanced long-term revolving loan facilities totalling NOK 1,500 million from three Scandinavian banks. The facilities, granted to Borregaard ASA and Borregaard AS on a joint and several basis, were entered into in September 2014 and mature in 2019. The facilities are unsecured (nega-

tive pledge), but the loan agreements contain certain financial covenants (leverage ratio, equity ratio and interest cover ratio) and some limitations on new indebtedness beside change of control and cross-default provisions. See note 26. In addition, overdraft facilities of NOK 195 million from banks providing cash management services are in place. As at 31 December 2014, there were no term loans in Borregaard subsidiaries or joint ventures.

	Book value		Fair value
Amounts in NOK million	2014	20131	2014	20131
Non-current interest-bearing liabilities
Bank loans/bond	762	750	762	750
Other interest-bearing liabilities	22	24	22	24
Total non-current interest-bearing liabilities	784	774	784	774
Current interest-bearing liabilities
Other interest-bearing liabilities	8	6	8	6
Total current interest-bearing liabilities	8	6	8	6
Total interest-bearing liabilities	792	780	792	780
Interest bearing receivables
Non-current interest-bearing receivables	16	13	16	13
Cash and cash equivalents	168	39	168	39
Net interest-bearing liabilities	608	728	608	728

Total drawings on long-term revolving facilities as of 31 December 2014 were NOK 0 million (NOK 750 million).

The maturity profiles of the Group's interest-bearing liabilities are shown in the table below and are based on the current financing. (See Note 26)

Maturity profile interest-bearing liabilities and unutilised credit facilities

2014	20131	2014	20131
8	6	195	195
63	542	–	70
504	232	1 500	980
96	–	–	–
121	–	–	–
792	780	1 695	1 245
		Gross interest-bearing liabilities		Unutilised credit facilities

Note 28 Financial risk

(I) ORGANISATION OF FINANCIAL RISK MANAGEMENT

Borregaard operates internationally and is exposed to financial risks like currency risk, interest rate risk, commodity price risk, liquidity risk and credit risk. Borregaard uses derivatives and other financial instruments to reduce these risks in accordance with the Group's finance policy.

Responsibility for managing financial risk in Borregaard is divided between business areas, which manage risk related to business processes, and Group HQ, which manages risk related to centralised activities like funding, interest-rate management, cash management, currency risk management and credit management policy. Borregaard's CFO and the Group's Treasury Department are responsible for managing centralised financial risk elements. The treasury service agreement, signed prior to the IPO and providing support from Orkla ASA staff, was terminated in May 2014.

Financial risks

This section describes the most important risk factors within the Group and the management of these risks. In this context, financial risk is defined as risk related to financial instruments. These may either be hedging instruments for underlying risk, or viewed as a source of risk themselves.

Borregaard is exposed to currency risk for most of its sales, primarily in USD, but also in EUR. A substantial part of this exposure, defined as estimated net cash flow in USD or EUR, is routinely hedged on a rolling basis with a nine-month time horizon. Subject to certain criteria being met, the hedging horizon may be extended to three years in order to lock in favourable margins. For USD/NOK exposure, hedging levels may be reduced for hedging rates below 6.00.

On the revenue side, most of Borregaard's business segments are exposed to price risk in international markets. Borregaard is also exposed to price risk on wood, energy (thermal energy and electric power) and other strategic raw materials. In 2011, Borregaard entered into a long-term hydroelectric power contract with Eidsiva Vannkraft AS for delivery of a total of 6.1 billion kilowatt hours (6.1 TWh) to be supplied in the period 2013-2024. The agreement between Eidsiva and Borregaard secures power deliveries for Borregaard's plants in Sarpsborg from 1 January 2013 to December 2024. The deliveries constitute around 15% of Eidsiva's total annual production of power.This is energy to be used by Borregaard solely for production purposes.

(II) CATEGORIES OF FINANCIAL RISK FOR THE BORREGAARD GROUP

Currency risk

As NOK is the presentation currency for the Group, Borregaard is exposed to currency translation risk for net investments in foreign operations. Borregaard hedges this category of risk using currency forward contracts for EUR and USD.

Transaction risk is hedged against each entity's functional currency. Borregaard applies hedge accounting for most hedges of future

transactions, either cash flow hedges or fair value hedges of firm commitments. The different types of hedges are described in Note 29.

The Group's aggregated outstanding currency hedges of future transactions on the balance sheet date are shown in table 1.

Foreign exchange contracts linked to hedging of future revenues and costs

2014
Amounts in		Sale cur
million	Amount	rency	Amount	Maturity
USD	3	NOK	21	2015
NOK	1 012	USD	153	2015
NOK	42	USD	7	2016
NOK	42	USD	7	2017
NOK	45	USD	7	2018
EUR	6	USD	8	2015
NOK	563	EUR	66	2015
NOK	606	EUR	71	2016
NOK	434	EUR	50	2017
EUR	3	NOK	21	2015
SEK	33	NOK	30	2015

2013
Amounts in		Sale cur
million	Amount	rency	Amount	Maturity
NOK	688	USD	114	2014
EUR	2	USD	3	2014
NOK	547	EUR	67	2014
NOK	563	EUR	66	2015
NOK	404	EUR	47	2016
EUR	1	NOK	12	2014
SEK	42	NOK	39	2014

Interest rate risk

Borregaard's interest rate risk is mainly related to the Group's interest bearing liabilities and assets. This risk is managed at parent level. Borregaard shall primarily follow a floating rate strategy, but may consider fixed rates for a maximum of 50% of its debt, using appropriate derivatives.

Liquidity risk

Liquidity risk is the risk that Borregaard is not able to meet its payment obligations. This risk is managed centrally, but in close concert with affected subsidiaries. Borregaard AS initiates measures deemed necessary to maintain a strong liquidity.

Cash flow from operations, which among other factors is affected by changes in working capital, is managed operation-

Maturity profile financial liabilities

ally at Group level, and is relatively stable. Borregaard monitors liquidity flows, short- and long-term, through reporting and selected forecasting routines. Due to the above-mentioned measures, the Group has limited liquidity risk.

The table shows the maturity profile for the Group's contractual financial liabilities . The amounts represent undiscounted future cash flows, and may therefore deviate from recognised figures. The table also includes derivatives recognised as assets on the balance sheet date, as derivatives may include both positive and negative cash flows, and the fair value fluctuates over time. Forward interest rate curves are applied to estimate future interest payments. Similarly, forward prices are used to determine the future settlement amounts for currency derivatives.

2014		Contractual
Amounts in NOK million	Book value	cash flows	< 1 year	1-3 years	3-5 years	5-7 years	> 7 years
Interest-bearing liabilities	792	792	8	63	504	96	121
Interest payable	0	77	17	32	20	5	3
Accounts payable	326	326	326	–	–	–	–
Gross settled derivatives *	260	0	–	–	–	–	–
Inflow		-3 595	-2 426	-1 124	-45	–	–
Outflow		3 828	2 585	1 190	53	–	–
Total	1 378	1 428	510	161	532	101	124
20131		Contractual
Amounts in NOK million	Book value	cash flows	< 1 year	1-3 years	3-5 years	5-7 years	> 7 years
Interest-bearing liabilities	780	780	6	542	232	–	–
Interest payable	0	83	32	41	10	–	–
Accounts payable	280	280	280	–	–	–	–
Gross settled derivatives *	42	0	–	–	–	–	–
Inflow		-2 275	-1 208	-967	–	–	–
Outflow		2 286	1 331	955	–	–	–
Total	1 102	1 154	341	571	242	0	0

* Including derivatives recognised as assets

The financial liabilities are serviced by cash flow from operations, liquid and interest-bearing assets, and, when necessary, drawings on unutilised credit facilities.

Credit risk

The management of credit risk related to accounts receivable and other operating receivables is handled as part of the business risk, but based on guidelines set by Borregaard AS and continuously monitored by the operating entities. There is no significant concentration of credit risk in respect of single counterparts. A credit management policy is in place and is being regularly reviewed. Credit losses are historically modest due to a stable and financially healthy customer base as well as stringent monitoring of trade receivables. For sales to countries or customers associated with high political or commercial risk, trade finance products are widely used to reduce the credit risk. With these risk mitigation measures in place, the current credit risk is considered to be acceptable.

Borregaard considers its credit risk related to other financial instruments to be low. Firstly, only core relationship banks act as counterparts for financial hedge transactions. Secondly, bank accounts are mainly held with relationship banks. For deposits of liquidity with other counterparts in countries where relationship banks are not present, Borregaard has requirements relating to the bank's credit rating.

Maximum credit risk

The maximum credit exposure for the Group related to financial instruments corresponds to total gross receivables. In the hypothetical and highly unlikely event that no receivables are redeemed, this amounts to:

Amounts in NOK million	2014	20131
Cash and cash equivalents	168	39
Accounts receivable	587	558
Other current receivables	11	45
Non-current receivables	67	51
Derivatives	10	4
Total	843	727

Commodity price risk

The Group is exposed to price risks in respect of a number of raw materials, of which electric power and wood are the most substantial. However, prices of sold products are also affected by raw material prices, and it is generally Borregaard's policy to reduce the price risk through commercial contracts.

Sensitivity analysis

The financial instruments of the Borregaard Group are exposed to different types of market risk which can affect the income statement or equity. Financial instruments, in particular derivatives, are applied as means of hedging both financial and operational exposure.

In the table below, Borregaard presents a partial analysis of the sensitivity of financial instruments, where the isolated effect of each type of risk on the income statement and on equity is estimated. This is done on the basis of a selected hypothetical change in market prices/rates on the statement of financial position as of 31 December. According to IFRS, the analysis covers only financial instruments and is not meant to give a complete overview of the Group's market risk, for instance:

• • For currency hedges of contracts entered into, changes in fair value of the hedging instrument will affect the income statement, while changes in the fair value of the underlying hedged contract offset by the hedging instrument will not be shown, as it is not a financial instrument.
• • If one of the parameters changes, the analysis will not take account of any correlation with other parameters.
• • Financial instruments denominated in the entities' functional currencies do not constitute any currency risk and are therefore not included in this analysis. Nor is the currency exposure on translation of such financial instruments to the presentation currency of the Group included, for the same reason.

Generally, the effect on the income statement and equity of financial instruments in the table below is expected to offset the effects of the hedged items where financial instruments are part of a hedging relationship.

Sensitivity financial instruments

2014	Accounting effects on
	income statement of		equity of
Amounts in NOK million	increase	decrease	increase	decrease
Interest rate risk: 100 bp parallel shift in interest curves all currencies	-6	6	–	–
Financial instruments in hedging relationships
Currency risk: 10% change in FX-rate USD/NOK	–	–	-92	92
Currency risk: 10% change in FX-rate EUR/NOK	–	–	-123	123
Currency risk: 10% change in FX-rate SEK/NOK	–	–	2	-2

20131	Accounting effects on
	income statement of		equity of
Operating profit	increase	decrease	increase	decrease
Interest rate risk: 100 bp parallel shift in interest curves all currencies	-7	7	–	–
Financial instruments in hedging relationships:
Currency risk: 10% change in FX-rate USD/NOK	–	–	-51	51
Currency risk: 10% change in FX-rate EUR/NOK	–	–	-110	110
Currency risk: 10% change in FX-rate SEK/NOK	–	–	5	-5

Accounting effects of changes in market risk are classified to income statement and equity according to where the effect of the changes in fair value will be recognised initially. Effects recognised in the income statement will also affect equity beyond the figures presented in the table.

Note 29 Derivatives and hedging

The Group apply the IFRS rules for hedge accounting. The table below shows the fair value of all outstanding derivative financial instruments grouped according to treatment in the financial statements:

	2014		2013
Amounts in NOK million	Assets	Liabilities	Assets	Liabilities
Cash flow hedges
Currency forwards, currency swaps	9	266	1	45
Hedges of net investments
Currency forwards, currency swaps	–	1	3	–
Other derivatives - Fair value changes recognised in income statement
Currency forwards, currency swaps, options	1	3	–	1
Total derivatives	10	270	4	46

Calculation of fair value:

• • Currency forwards and currency swaps are measured at fair value using the observed forward exchange rate for contracts with a corresponding term to maturity at the balance sheet date.
• • The fair value of currency options is calculated using Garman-Kohlhagen's version of the Black-Scholes Option pricing method, and the variables are based on observed indicative market prices at the balance sheet date.

These derivative financial instruments are designated in hedge relationships as follows:

Cash flow hedges

All derivatives designated as hedging instruments in cash flow hedges are carried at fair value in the balance sheet. Changes in fair value are provisionally recognised in the equity hedging reserve, and recycled to the income statement as the cash flows being hedged are recognised in the income statement.

In 2014 a loss of NOK 0.2 million (2013: gain of NOK 0.8 million) was recorded in the income statement as a result of hedging inefficiency. All expected cash flows which have been hedged during 2014 still qualify for hedge accounting.

Hedges of net investments in foreign currencies.

Currency risk on foreign net investments is hedged with currency forward contracts. Changes in fair value and realised effects of the hedging instruments are both recognised in the equity hedging reserve until the net investment is disposed off.

Development in the equity hedging reserve

Amounts in NOK million	2014	2013
Opening balance hedging reserve
before tax	-46	69
Reclassified to P/L - operating revenues	31	-72
Reclassified to P/L - operating costs	-1	1
Reclassified to P/L - net financial income	0	0
Reclassified to Balance sheet	-1	2
Fair value change cashflow hedges	-244	-46
Change in gain/(loss) on hedges of net
investments i subsidiaries	-72	–
Closing balance hedging reserve
before tax	-333	-46
Deferred tax hedging reserve	-85	12
Closing balance hedging reserve
after tax	-248	-34

A negative hedging reserve means a negative recognition in the income statement in the future. In 2014, the operating profit in Borregaard decreased with NOK 51 million (2013: increased with NOK 10 million) related to hedging activities. Accumulated hedging losses from cash flow hedges recognised in the equity hedging reserve as of 31 December 2013 are expected to be recycled to the income statement as follows (before tax):

2015: NOK 162 million (NOK 29 million)

After 2015: NOK 95 million (NOK 15 million)

Fair value hedges

There have not been any significant fair value hedges in the period 2014-2015.

Derivatives not included in IFRS hedging relationships

There are also derivatives not included in hedging relationships according to IFRS for the following reasons:

• • Derivatives are not designated in formal hedging relationships when changes in the fair value of hedging instruments and hedging objects are naturally offset in the income statement, for example currency risk on loans and other monetary items.
• • Meeting strict IFRS hedge accounting criteria is not always possible or practical. Some of the other currency hedges are in this category.

Changes in the fair value of derivative instruments which are not part of a hedging relationship are immediately recognised in the income statement.

Note 30 Equity and Share capital

Borregaard ASA was established on 22 August 2012 with a share capital of NOK 1 million.

Share capital, share premium fund, other paid-in equity and retained earnings are presented from the establishment of the Borregaard Group in 2012.

			Share capital
Date/year	Number of shares	Nominal value (NOK)	(NOK million)
31 December 2014	100 000 000	1	100
31 December 2013	100 000 000	1	100
The 20 largest shareholders as of 31 December 2014

Shareholder	Number of shares		% of capital
FOLKETRYGDFONDET	4 256 551		4,26%
ODIN NORGE	4 056 201		4,06%
J.P. MORGAN CHASE BANK N.A. LONDON	3 715 763	Nominee	3,72%
J.P. MORGAN CHASE BANK N.A. LONDON	3 655 618	Nominee	3,66%
SKANDINAVISKA ENSKILDA BANKEN AB	3 112 524	Nominee	3,11%
J.P. MORGAN CHASE BANK N.A. LONDON	2 806 977	Nominee	2,81%
MORGAN STANLEY & CO. INTERNATIONAL	2 304 832	Nominee	2,30%
STATE STREET BANK & TRUST CO.	2 021 012	Nominee	2,02%
THE BANK OF NEW YORK MELLON	1 887 495	Nominee	1,89%
STATE STREET BANK & TRUST COMPANY	1 820 321	Nominee	1,82%
FONDSFINANS SPAR	1 815 000		1,82%
THE BANK OF NEW YORK MELLON	1 680 278	Nominee	1,68%
STATE STREET BANK AND TRUST CO.	1 460 609	Nominee	1,46%
J.P. MORGAN CHASE BANK N.A. LONDON	1 450 000	Nominee	1,45%
JUPITER EUROPEAN FUND	1 423 032		1,42%
CREDIT SUISSE SECURITIES (USA) LLC	1 326 724	Nominee	1,33%
STOREBRAND NORGE I	1 293 920		1,29%
HOME CAPITAL AS	1 292 634		1,29%
J.P. MORGAN LUXEMBOURG S.A.	1 250 000	Nominee	1,25%
CIP A DEP F ST LIFE INV CO GL SM C	1 187 886		1,19%
Total shares	43 817 377		43,82%

Treasury shares owned by Borregaard ASA
			Fair value
	Nominal value (NOK)	Number of shares	(NOK million)
31 December 2013	1 270 000	1 270 000	38
Exercise of share options / shares to employees	(2 309 168)	(2 309 168)
Purchase/Buy-back of treasury shares	1 817 051	1 817 051
31 December 2014	777 883	777 883	43

Note 31 Non-controlling interests

Amounts in NOK million	2014	2013
Changes in non-controlling interests:
Non-controlling interests' 1 January	9	11
Non-controlling interests' share of profit/loss	-2	-4
Dividends to non-controlling interests	0	0
Translation differences etc.	1	2
Non-controlling interests' 31 December	8	9

There are no material partly-owned subsidiaries in the Borregaard Group.

Note 32 Leases and leasing

Reported costs relating to operating leases reflect the minimum leasing cost during the term of notice.

	Lessee
	Operating leases
Rented/leased property,			Land, building,
plant and equipment	Machinery/plant		property		Fixtures, vehichles etc.		Other assets		Total
Amounts in NOK million	2014	2013	2014	2013	2014	2013	2014	2013	2014	20131
Cost current year	-16	-16	-10	-8	-10	-9	-14	-10	-50	-43
Cost next year	-17	-17	-11	-9	-7	-6	-14	-12	-49	-44
Total costs 2–5 years	-44	-43	-22	-15	-8	-7	-13	-12	-87	-77
Total costs after 5 years	–	–	-1	–	–	–	–	–	-1	0
Total future leasing costs	-61	-60	-34	-24	-15	-13	-27	-24	-137	-121

Borregaard does not have any financial leases.

Note 33 Pledges and guarantees

Borregaard ASA has granted a corporate guarantee for Borregaard's overdraft facility (70 million NOK) with Nordea Bank Norge ASA. By virtue of the Joint Venture agreement

Note 34 Related parties

Activity within the Group is reported in the segment information disclosed in Note 7.

Borregaard has one joint venture, Umkomaas Lignin (proprietary) Limited t/a LignoTech South Africa (50%). This company is jointly owned with Sappi Saiccor. The equity method is used for consolidation according to IFRS 11 for joint arrangements (see also note 6). There are no other material transactions relating to this company.

Internal trading within the Group is carried out in accordance with special agreements on an arm's length basis, and with Sappi Saiccor, Borregaard AS is liable for export accounts receivable (11 million NOK 31.12.2014) in Umkomaas Lignin (Pty) Ltd (Lignotech South Africa).

joint expenses in Borregaard are distributed among the Group companies in accordance with distribution formulas, depending on the various types of expense. For further information on intercompany transactions, see Note 7.

The members of the Group Executive Management of Borregaard hold a total of 563,800 stock options in the Company. Further information regarding the Group Executive Management is disclosed in Note 9.

There have been no other transactions with related parties.

Note 35 Government grants

Borregaard recognised NOK 46 million in government grants in 2014 (NOK 100 million in 2013). Of this amount, NOK 42 million was recognised as reduced costs (NOK 44 million in 2013), while NOK 4 million was recognised as a reduction of the acquisi-

tion cost of the asset concerned (NOK 56 million in 2013). The grants are provided by Norwegian authorities and the European Union mainly on research and development projects, environmental investments and CO2 compensation.

Note 36 Other matters

EHS issues. Sulphur dioxide (SO2) is one of the most important chemicals used in the productions processes at Borregaard. There are several EHS regulations to secure safe operations, safe working environment and low emissions to environment. The use of SO² has been regulated for many years, but the authorities both in the EU and in Norway have enhanced the regulations during the

last years and new demands are coming. The investments and costs related to SO2 risk reduction and necessary environmental improvements are subject to further evaluations and will likely be implemented over several years, although current estimates include scenarios with investments/costs of NOK 100 million.

Note 37 Subsequent events

Changes in business segments from 2015

From 1 January 2015, the Group made changes to the internal reporting of its segments. BALI project costs will be reported as a part of Performance Chemicals (previously reported as part of Other Businesses). The Exilva project will be reported as part of Other Businesses (previously part of Specialty Cellulose).

The changes are in line with how management will monitor the business going forward. Restated figures for 2014 and 2013 are shown in the tables below:

2014	Performance	Specialty	Other		Borregaard
Amounts in NOK million	Chemicals	Cellulose	Businesses	Eliminations	Group
Income statement
Total operating revenue	1 822	1 459	727	-69	3 939
Operating expenses and depreciation	-1 434	-1 296	-792	69	-3 453
EBITA	388	163	-65	–	486
Amortisation and write downs intangible assets	–	–	–	–	0
Other income and expenses	–	–	-30	–	-30
Operating profit	388	163	-95	–	456
Net financial items					-26
Profit before tax					430
Cash flow
Cash flow from operations before net replacement expenditures	391	265	103	–	759
Replacement expenditures	-48	-84	-96	–	-228
Cash flow from operations	343	181	7	–	531
Expansion investments	-4	-19	-62	–	-85
Capital structure
Working capital	363	359	7	–	729
Capital employed					2 852
Return on capital employed					16.5%

2014: Operating revenues in Specialty Cellulose decreased by NOK 4 million and Other Businesses increased by NOK 4 million. EBITA in Performance Chemicals decreased by NOK 31 million, Specialty Cellulose increased by NOK 34 million and Other Businesses decreased by NOK 3 million.

2013	Performance	Specialty	Other		Borregaard
Amounts in NOK million	Chemicals1	Cellulose	Businesses	Eliminations	Group1
Income statement
Total operating revenue	1 645	1 596	704	-59	3 886
Operating expenses and depreciation	-1 349	-1 352	-755	59	-3 397
EBITA	296	244	-51	–	489
Amortisation and write downs intangible assets	-2	–	–	–	-2
Other income and expenses	-9	–	23	–	14
Operating profit	285	244	-28	–	501
Net financial items					-41
Profit before tax					460
Cash flow
Cash flow from operations before net replacement expenditures	285	322	108	–	715
Replacement expenditures	-16	-34	-176	–	-226
Cash flow from operations	269	288	-68	–	489
Expansion investments	-36	-2	-2	–	-62
Capital structure
Working capital	309	358	56	–	723
Capital employed					2 774
Return on capital employed					16.9%

2013: Operating revenues in Specialty Cellulose decreased by NOK 1 million and increased by NOK 1 million in Other Businesses. EBITA in Performance Chemicals decreased by NOK 18 million, EBITA in Specialty Cellulose increased by NOK 20 million and EBITA in Other Businesses decreased by NOK 2 million.

Notes

BORREGAARD ASA – FINANCIAL STATEMENTS 2014

Income Statement		79
Statement of Financial Position		79
Cash Flow		80
Stetement of Changes in Equity		80
Notes to the Financial Statements		81
Statement of the Board of Directors		85
Auditor´s Report		86

Income Statement

Amounts in NOK thousand	Note	2014	2013
Other operating expenses	5	-5 437	-5 722
Operating profit		-5 437	-5 722
Finance income	6, 9	82 268	26 823
Finance costs	6	-9 563	-14
Net financial items	6, 9	72 705	26 809
Profit/loss before taxes		67 268	21 087
Taxes	8	-18 186	-5 926
Profit/loss for the year		49 082	15 161
Proposed dividend		-124 028	-108 603

Statement of Financial Position

Amounts in NOK thousand	Note	2014	2013
Assets
Deferred tax assets	8	44	43
Shares in subsidiaries	7	1 158 347	1 158 347
Loans to Group companies	9	1 211 745	891 147
Non interest-bearing receivables		1 048	0
Non-current assets		2 371 184	2 049 537
Receivables	9	50 069	82
Cash, cash equivalents and deposits in Group cash pool		1 899	2 215
Current assets		51 968	2 297
Total assets		2 423 152	2 051 834
Equity and liabilities
Share capital	11	100 000	100 000
Treasury shares		-778	-1 270
Share premium		1 758 347	1 758 347
Other paid in equity		21 914	79 003
Retained earnings		0	0
Equity		1 879 483	1 936 080
Interest-bearing liabilities	10	400 000	0
Non-current liabilities		400 000	0
Dividends		124 028	108 603
Income tax payable	8	18 187	5 964
Accounts payable	9	2	881
Other liabilities		1 452	306
Current liabilities		143 669	115 754
Equity and liabilities		2 423 152	2 051 834

Sarpsborg, 17 March 2015 The Board of Directors of Borregaard ASA

Jan A. Oksum

Terje Andersen

Jan Erik Korssjøen

(chair)

Kristine Ryssdal Ragnhild Wiborg

Åsmund Dybedahl

Ragnhild Anker Eide

Per A. Sørlie (President and CEO)

Cash Flow

Amounts in NOK thousand	1.1 - 31.12.2014	1.1.-31.12.2013
Profit / loss before taxes	67 268	21 087
Changes in net working capital, etc.	-50 768	-529
Taxes paid	-5 964	-1 771
Cash flow from operating activities	10 536	18 787
Cash flow from investing activities	0	0
Dividends	-108 953	-99 993
Proceeds from sales of treasury shares	94 513	8 293
Buy-back of treasury shares	-75 814	-41 665
Net paid to/from shareholders	-90 254	-133 365
Change in interest-bearing liabilities	400 000	0
Change in interest-bearing receivables	-320 598	115 358
Change in net interest-bearing liabilities	79 402	115 358
Cash flow from financing activities	-10 852	-18 007
Change in cash and cash equivalents	-316	780
Cash and cash equivalents as of 1 January	2 215	1 435
Change in cash and cash equivalents	-316	780
Cash and cash equivalents as of 31 December	1 899	2 215

Statement of Changes in Equity

		Treasury	Share	Other paid-in	Retained
Amounts in NOK thousand	Share capital	shares	premium	equity	earnings	Total equity
Equity 31 December 2012	100 000	0	1 758 347	204 540	0	2 062 887
Profit/loss for the year	–	–	–	–	15 161	15 161
Proposed dividend 2012	–	–	–	100 000	–	100 000
Actual paid-out dividend 2013	–	–	–	-99 993	–	-99 993
Proposed dividend 2013	–	–	–	-93 442	-15 161	-108 603
Buy-back/sales of treasury shares	–	-1 270	–	-32 102	–	-33 372
Equity 31 December 2013	100 000	-1 270	1 758 347	79 003	0	1 936 080
Profit/loss for the year	–	–	–	–	49 082	49 082
Proposed dividend 2013	–	–	–	108 603	–	108 603
Actual paid-out dividend 2014	–	–	–	-108 953	–	-108 953
Proposed dividend 2014	–	–	–	-74 946	-49 082	-124 028
Buy-back/sales of treasury shares	–	492	–	18 207	–	18 699
Equity 31 December 2014	100 000	-778	1 758 347	21 914	0	1 879 483

Notes to the Financial Statements

Note 1 General information

Borregaard ASA ("The Company") was incorporated as a public limited liability company on 22 August 2012. On 17 September, The Company was inserted as a holding company of Borregaard AS.

Note 2 Accounting principles

The financial statements for Borregaard ASA have been prepared and presented in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway (Norwegian GAAP). The annual accounts give a true and fair view of assets and liabilities, financial status and result.

All amounts are in NOK thousand unless otherwise stated. The functional currency of Borregaard ASA is NOK.

Classification of items in the financial statements An asset or liability is classified as current when it is part of a normal operating cycle, when it is held primarily for trading purposes, when it falls due within 12 months and when it consists of cash or cash equivalents on the statement of financial position date. Other items are non-current.

Shares and other securities

Long-term investments in subsidiaries, associated companies and other shares and bonds, which are held to maturity date, are classified as non-current assets in the balance sheet and entered at the lower of cost and market value.

Tax

Deferred tax shows the company's tax liability assuming its assets and debt are realised at book value by year-end. Positive temporary differences state that book value is higher than taxable value, and vice versa for negative differences. Taxes in the profit and loss statement, consists of two elements: The tax payable, and the change in deferred tax. Deferred tax/tax benefit is reflected as long-term debt/non-current assets in the balance sheet.

Cash flow

The cash flow statement has been prepared according to the indirect method and reflects cash flows from operating, investing and financing activities and explains changes in "Cash and cash equivalents" in the reporting period.

Note 3 Payroll and pensions

Borregaard ASA has no employees and therefore no pension plan.

Note 4 Guarantees

Amounts in NOK thousand	2014	2013
Guarantees to subsidiaries	1 570 000	820 000
Total guarantee commitments	1 570 000	820 000

Borregaard ASA is jointly and severally liable as guarantor and as borrower for the long-term credit facilities entered into by Borregaard AS (NOK 1,500 million). Borregaard ASA has granted a parent guarantee for Borregaard AS' overdraft facility (NOK 70 million) with Nordea Bank Norge ASA.

In addition, Borregaard ASA is jointly and severally liable borrower with Borregaard AS for the EUR 40 million term loan contracted with Nordic Investment Bank.

Note 5 Remuneration and contractual arrangements

Remuneration to the Group Executive Management

The Group Executive Management is employed in Borregaard AS. For matters relating to the remuneration of the executive management, reference is made to Note 9 to the Consolidated Financial Statements for the Borregaard Group.

Remuneration of the Board of Directors

In the General Meeting in April 2014 it was determined that the Board of Directors is remunerated at annual rates for the period up to the next General Meeting in 2015:

Board Chair	NOK	410 000	per year
Board member	NOK	246 000	per year
Observer	NOK	82 000	per year
Deputy member	NOK	6 200	per meeting
Audit Committee
Committee Chair	NOK	77 000	per year
Member	NOK	51 000	per year
Compensation Committee
Committee Chair	NOK	46 000	per year
Member	NOK	36 000	per year

Remuneration of the Nomination Committee

The Chair of the Nomination Committee receives NOK 51,000 per year and an additional NOK 8,200 per meeting exceeding four meetings. Other members receive NOK 36,000 per year and an additional NOK 6,600 per meeting exceeding four meetings.

President & CEO Per A. Sørlie 110 987 Shareholder-elected Board members Jan A. Oksum2 8 000 Terje Andersen 3 571 Employee-elected Board members Ragnhild Anker Eide 2 012 Åsmund Dybedahl 4 817 Employee-elected Board observers Bente Seljebakken Klausen 2 080 Roy Kåre Appelgren 1 845 Total 133 312

1. Total share ownership including related parties

2. Ownership through the related company JAAG Consult AS

Fees to external auditor

Amounts in NOK thousand	2014	2013
Statutory audit	312	340
Other attest services	–	–
Tax consultancy services	–	–
Other non-audit services	–	–
Total	312	340

Note 6 Net Finance income and finance costs

2014	2013
50 000	0
32 231	26 794
37	29
82 268	26 823
-9 563	-14
-9 563	-14
	26 809
	72 705

Shareholdings of CEO and members of the Board of Directors

Amounts in NOK Number of shares1

Note 7 Shares in subsidiaries

Only directly owned subsidiaries are included in the below table.

Amounts in NOK thousand	Book value	Group´s share of capital
Borregaard AS	1 158 347	100%

The Group also has indirect ownership in the following subsidiaries and joint venture, of which the profit/loss and equity are important in the valuation of the above company.

Company	Group's share of capital
Indirectly owned:
Borregaard, Inc.	100%
Nutracell AS	100%
Biotech Lignosulphonate Handels GmbH	100%
Borregaard (UK) Ltd.	100%
Borregaard Deutschland GmbH	100%
Borregaard S.E.A. Pte. Ltd	100%
Borregaard Poland sp. z.o.o.	100%
Borregaard France SarL	100%
Borregaard Iberica, S.L.	100%
LignoTech Iberica SA	60%
Borregaard Middle East FZE	100%
Borregaard Synthesis Inc.	100%
LignoTech USA, Inc.	100%
Borregaard North America, Inc.	100%
LignoTech Brasil Ltda	100%
LignoTech Brasil Produtos de Lignina Ltda	100%
Borregaard Shouth Asia Pvt. Ltd	100%
Borregaard Shanghai Company Limited	100%
SenseFi, Inc.	100%
Indirectly owned joint venture:
Umkomaas Lignin (Pte) Ltd	50%

Note 8 Taxes

Tax expense

Amounts in NOK thousand	2014	2013
Profit before tax	67 268	21 087
Current tax expense	-18 187	-5 963
Change in deferred tax	1	37
Total tax expense	-18 186	-5 926
Tax as % of "Profit before taxes"	27%	28%

Deferred tax liabilities

Deferred tax liability consists of the tax liabilities that are payable in the future. The table below lists deferred tax assets and liabilities relating to the timing differences between tax accounting and financial accounting.

Amounts in NOK thousand	2014	2013
Deferred tax on tax increasing/-reducing differences
Provisions	-44	-43
Deferred tax liabilities/assets	-44	-43
This years change in deferred tax	1	37
Change in deferred tax income statement	1	37

Deferred tax assets are only capitalised to the extent that it is probable that there will be sufficient future taxable profit for the tax asset to be used, either because the unit recently reported a profit or because assets with excess value have been identified. If future profits are not likely to be sufficient to absorb the tax reducing timing differences, deferred tax assets are not recognised.

Reconciliation of the tax rate

Amounts in NOK thousand	2014	2013
27% (28%) of profit before taxes	-18 162	-5 904
Other non-deductible expenses	-24	-22
The Group's total tax expense	-18 186	-5 926

The tax rate in Norway was reduced from 28% to 27% from 1 January 2014. This was considered in the calculation of deferred taxes as of 31 December 2013.

Note 9 Related parties

Intercompany relations with Borregaard AS

Amounts in NOK thousand	2014	2013
Group contribution	50 000	–
Interest income from Group companies	32 231	26 794
Loans to Group companies	1 211 745	891 147
Current receivable Group contribution	50 000	–
Accounts payable	–	663

Borregaard ASA provided a loan of NOK 1 000 million to Borregaard AS in 2012 for the repayment of external loans. In addition Borregaard ASA provided a loan of NOK 400 million in 2014 related to the bond issued by Borregaard ASA. The loan is interestbearing and the interest is calculated in accordance with market conditions.

Note 10 Interest-bearing liabilities

Unsecured bond loan

On 14 February 2014 Borregaard ASA issued NOK 400 million as a 1st tranche of an open bond issue with a borrowing limit of NOK 600 million. The bond issue has a 5-year tenor, and is priced at 3 months NIBOR plus 95 basis points. Settlement of the transaction took place on 26 February 2014. Maturity is 26 February 2019.

Note 11 Other matters and subsequent events

Share Capital and shareholders

Information about the share capital and a list of the largest shareholders in Borregaard ASA is presented in Note 30 to the Consolidated Financial Statements for the Borregaard Group.

Statement from the Board of Directors

We confirm that the financial statement for the period 1 January up to and including 31 December 2014, to the best of our knowledge, have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial positions and profit or loss of the Company and the Group as a whole. The Board of Directors' report includes a fair review of the development and performance of the business and the position of the Company and the Group as a whole, together with a description of the principal risks and uncertainties that they face.

Sarpsborg, 17 March 2015 The Board of Directors of Borregaard ASA

Jan A. Oksum

(chair)

Terje Andersen

Jan Erik Korssjøen

Kristine Ryssdal Ragnhild Wiborg

Åsmund Dybedahl

Ragnhild Anker Eide

Per A. Sørlie (President and CEO)

Auditor´s report

[UTKAST]

Historical Key Figures

	Definitions		2014	2013	2012	2011	2010
Profit & loss
Operating revenues		(mill.NOK)	3 939	3 886	3 838	3 763	3 380
EBITA		(mill.NOK)	486	489	539	528	298
Amortisation intangible assets		(mill.NOK)	–	-2	-3	-6	-6
Other income and expences		(mill.NOK)	-30	14	-71	–	22
Operating profit		(mill.NOK)	456	501	465	522	314
EBITA-margin	1	(%)	12.3	12.6	14.0	14.0	8.8
Ordinary profit / loss before taxes		(mill.NOK)	430	460	420	455	260
Profit / loss for the year		(mill.NOK)	332	331	278	320	184
Cash flow
Cash flow from operations	2	(mill.NOK)	600	526	531	542	432
Return
Return on capital employed	3	(%)	16.5 %	16.9 %	19.5 %	20.5 %	11.7 %
Capital as of 31 December
Booked value of total assets		(mill.NOK)	3 748	3 427	3 466	3 614	3 504
Market capitalisation	4	(mill.NOK)	5 429	2 984	2 079	–	–
Equity ratio	5	(%)	52.0	54.2	49.1	31.1	28.9
Net interest-bearing liablities	6	(mill.NOK)	608	728	852	1 302	1 447
Leverage ratio	7		0.83	1.03	1.14	–	–
Interest coverage ratio	8		14.1	12.3	7.8	–	–
Share of floating interest-bearing liabilities	9	(%)	100	100	100	–	–
Shares
Average number of shares outstanding diluted		(x 1.000)	99 578	99 592	100 059	–	–
Average number of shares outstanding		(x 1.000)	100 000	100 000	100 000	–	–
Share-related key figures
Share price at 31 December		(NOK)	55.50	30.20	20.80	–	–
Earnings per share diluted	10	(NOK)	3.35	3.36	2.76	3.17	1.80
Ordinary dividend per share (proposed for 2014)		(NOK)	1.25	1.10	1.00	–	–
Payout ratio	11	(%)	37.31	32.74	36.23	–	–
Price/earnings ratio	12		16.21	8.88	7.53	–	–
Personell
Number of man-years as of 31 December		–	1 028	1 002	978	1 015	1 017

Definition:

1 EBITA/Operating revenues

2 Cash flow from operationg activities + taxes paid + net financial items +/- share of profit/dividend from joint venture

3 EBITA/(Average net working capital + Average tangible assets + Average intangible assets at cost – Average net pension liabilities – Average deferred tax excess value)

4 Market capitalisation is calculated on the basis of number of shares outstanding x Average share price at year end

5 Book equity/Total assets

6 Total interest-bearing liabilities - Interest-bearing receivables and liquid assets (cash, bank deposits etc.)

7 Net interest-bearing liabilities / EBITDA at year end

8 (Profit before tax + Net interest expenses)/(Net interest expenses)

9 Liabilities with remaining period of fixed interest of less than one year

10 Profit for the year after minority interests/Average number of dilutee shares outstanding at year end

11 Ordinary dividend per share/Earnings per share diluted

12 Share price/Earnings per share diluted

Notes

89

1 Borregaard ASA

PO Box 162 1701 Sarpsborg Norway Telephone +47 69 11 80 00 E-mail: borregaard@borregaard.com www.borregaard.com

2 Jørn Syvertsen Director Investor Relations Telephone +47 958 36 335 E-mail: jorn.syvertsen@borregaard.com

Lotte Kvinlaug Investor Relations Officer Telephone +47 922 86 909 E-mail: lotte.kvinlaug@borregaard.com

Head Office IR Contacts Press Contact

3 Tone Horvei Bredal Communication Manager Telephone +47 924 67 711 E-mail: tone.horvei.bredal@borregaard.com

Production units & sales offices

4 SP Borregaard AS

Hjalmar Wessels vei 10 1701 Sarpsborg, Norway Telephone +47 69 11 80 00 E-mail: borregaard@borregaard.com

7 SP Borregaard Deutschland GmbH LignoTech Werk Karlsruhe DEA-Scholven Strasse 9 DE-76187 Karlsruhe, Germany Telephone +49 721 55 99 10

10 P LignoTech Ibérica SA Ganzo s/n, Apartado 21 ES-39300 Torrelavega, Spain Telephone +34 942 89 27 00

13 S LignoTech USA, Inc 721 Route 202/206 Bridgewater, New Jersey 08807, USA Telephone +1 908 429 6660

16 S Borregaard South Asia Pvt.Ltd. Plot No. A-80, T.T.C Industrial Area Thane-Belapur Road, MIDC Khairane Navi Mumbai - 400 705, Dist. Thane. (MS), India Telephone + 91-22-41841750/59/65

19 S Biotech Lignosulfonate Handels-GmbH Zahradní 762 CZ-739 21 Paskov, Czech Republic Tel: +420 558 671 741

22 S Borregaard S.E.A. Pte. Ltd. 111 C (4th floor) Telok Ayer Street, Singapore 068580 Telephone +65 6778 0008

5 SP LignoTech USA, Inc 100 Grand Avenue Rothschild Wisconsin 54474, USA Telephone +1 715 359 6544

8 SP Umkomaas Lignin (Pty) Ltd t/a LignoTech South Africa P.O. Box 743 Umkomaas 4170, South Africa Telephone +27 39 97 36000 E-mail: lignotech@ltsa.co.za

11 S Borregaard Poland sp. z o.o. ul. Ziebicka 2 PL-60-164 Poznan, Poland Telephone +48 61 8615379

14 S Borregaard Deutschland GmbH Hellersbergstr. 14 DE-41460 Neuss, Germany Telephone +49 2131 718 55 46

17 S Borregaard Ibérica, S.L. Parc de Negocis Mas Blau C/ Garrotxa, 6-8 2º C 08820.- El Prat de Llobregat, Barcelona, Spain Telephone +34 93 479 11 01

20 S Borregaard Middle East FZE P.O. Box 17601, Jebel Ali Dubai, UAE Telephone +971 4 881 39 58

23 S Borregaard Japan 3rd Fl.Dai-Ichi-Iwata Bld. 2-2-5 Higashi-Shinbashi Minato-ku, Tokyo 105-0021, Japan Telephone +81 3 57 77 03 65

6 SP Sensefi Inc. 100 Grand Avenue Rothschild Wisconsin 54474, USA

9 SP Borregaard (UK) Ltd. Clayton Road, Birchwood Warrington Cheshire WA3 6QQ, England Telephone +44 1925 82 45 11

12 S LignoTech USA, Inc 1155 Dairy Ashford, Suite 804 Houston, TX 77079, USA Telephone +1 281 4977824

15 S Borregaard Shanghai Company Limited (BSCL) Room E, 12/F New Century Plaza 188 Wujiang Road Shanghai 200041, China Telephone +86-21-62183260

18 S Borregaard France SarL 4 rue Balzac FR-75 008 Paris, France Telephone +33 1 53 06 60 40

21 S LignoTech Brasil Produtos de Lignina Ltda Rua Espártaco 685, conj 02-Lapa São Paulo – CEP 05045-000, Brazil Telephone +55 11 3874 0915

24 P Biotech Lignosulfonate Handels-GmbH Hauptplatz 1, Top 6 4300 St. Valentin, Austria Telephone +43 7435 54242

S SALES / P PRODUCTION

Borregaard ASA Postboks 162 1701 Sarpsborg, Norway

Telephone (+47) 69 11 80 00 Fax (+47) 69 11 87 70 email: borregaard@borregaard.com www.borregaard.com