Borregaard — Interim / Quarterly Report 2014

Jul 16, 2014

2 nd quarter 2014 Oslo, 16 July 2014

Agenda

Per A Sørlie, President & CEO

• Highlights
• Business Areas
• Outlook

Per Bjarne Lyngstad, CFO

• Financial performance

Highlights – 2 nd quarter 2014

• All-time high result for Performance Chemicals
• Specialty Cellulose market development in line with expectations
• Weaker product mix within Fine Chemicals
• Positive currency impact

Performance Chemicals – Q2 market development

• Market conditions remain positive
• − Strong demand in all major applications
• − Higher prices and favourable product mix vs Q2-13
• − Seasonally higher sales to construction in Q2 reduced average sales price vs Q1
• Sales volume decreased by 7% vs Q2-13
• − Higher sales from inventories in 2013
• − Lower lignin raw material supply in Spain and Norway

1) Average sales price and sales volume include 100% of sales and volume from the J/V in South Africa. Average sales price is calculated using actual FX rates, excluding hedging impact.

Specialty Cellulose – Q2 market development

• Sales price and product mix development in line with expectations
• − Lower sales prices vs Q2-13 softened by weaker NOK
• − Negative FX impact vs Q1-14
• Product mix will vary between quarters
• Price differences between qualities within all specialty application areas

1) Average sales price is calculated using actual FX rates, excluding hedging impact.

Ingredients & Fine Chemicals – Market conditions

Ingredients

• Higher sales volume compared with Q2-13
• Unchanged market conditions

Fine Chemicals

• Product mix and sales were particularly favourable in Q2-13

mNOK Fine Chemicals – sales revenues ²⁰¹³

Q1 Q2 Q3 Q4

Outlook

• Performance Chemicals

• Continued strong demand in all major applications
• Sales volume in 2014 is expected to be slightly below 2013
• Increased lignin raw material supply from new and existing sources is expected largely to compensate for sales from inventories in 2013 and the lack of supply in Spain

• Specialty Cellulose

• Cellulose prices in sales currency for 2014 are still expected to be on average 7-8% lower than 2013
• Product mix in 2014 is projected to be marginally weaker than in 2013
• In Q3-14, the product mix is expected to be similar to Q2-14, but weaker than Q3-13

• Other Businesses

• No major changes are expected in market conditions for Ingredients and Fine Chemicals in the second half of 2014
• Corporate and BALI project costs will largely remain at the same level as in the first half of 2014

FINANCIAL PERFORMANCE Q2-14

Borregaard – Q2 key figures

• Revenues increased 4% vs Q2-13
• All-time high EBITA for Performance Chemicals, decline in Specialty Cellulose and Other Businesses
• Positive FX impact, but lower production output in Norway
• EPS in the 1 st half of 2014 slightly above last year

Performance Chemicals – Q2 key figures

Q1 Q2 Q3 Q4

• Top line growth 13% vs Q2-13
• Strong demand in all major applications
• Higher prices and favourable product mix partly off-set by 7% lower sales volume
• Year-to-date top line growth 13%
• All-time high EBITA for a single quarter
• Higher prices, improved product mix and positive FX impact, but volume reduction

• Year-to-date EBITA 204 mNOK (153 mNOK)

• EBITA margin well above 20%

• Year-to-date EBITA margin 22.3% (18.9%)

Specialty Cellulose – Q2 key figures

EBITA EBITA margin % 66 48 75 35 27 29 0 25 50 75 100 Q1 Q2 Q3 Q4 2013 2014 16,2 12,8 17,2 9,2 7,1 8,1 0 5 10 15 20 25 Q1 Q2 Q3 Q4 2013 2014 mNOK

• Top line down by 4% vs Q2-13
• Lower sales prices, but slightly higher sales volume

• Year-to-date top line down by 6%

• Lower sales prices, reduced production output and increased Exilva project activities

• Positive FX impact, declining wood and energy costs

• Year-to-date EBITA 56 mNOK (114 mNOK)

• Margin affected primarily by lower prices

• Year-to-date EBITA margin 7.6% (14.6%)

Other Businesses – Q2 key figures

• Top line growth 5% vs Q1-13
• Higher sales volumes for Ingredients, but reduced sales for Fine Chemicals

• Year-to-date top line growth of 9%

• Unchanged market conditions for Ingredients

• Fine Chemicals had a particularly favourable product mix in Q2-13
• Corporate costs and BALI project activities in line with Q2-13
• Year-to-date EBITA -31 mNOK (-21 mNOK)

Currency impact

• Overall a positive FX impact on EBITA
• Hedging impact negative by 11 mNOK vs Q2-13
• 5% exchange rates improvement for Borregaard vs Q2-13, but 1% down vs Q1-14
• Recent interest prognosis from the Norwegian Central Bank has weakened the NOK
• Currency hedging strategy will delay impact from exchange rate fluctuations

1) Currency basket based on Borregaard's net exposure in 2013 (=100)

−USD 68% (approximately 265 mUSD)

−EUR 33% (approximately 96 mEUR)

−Other -1% (GBP, BRL, JPY, SEK, ZAR)

Cash Flow, Capex and NIBD

• Lower cash flow from operations due to a higher increase in net working capital than in Q2-13
• Timing of tax payments from 2014 different from 2013
• Capex at a low level in Q2, but expected to increase in second half of 2014
• NIBD increased by 85 mNOK in Q2, mainly due to dividend and tax payment

1) Cash Flow operating activities according to IFRS adjusted for financial items and taxes paid

• Per A Sørlie, President & CEO
• Per Bjarne Lyngstad, CFO

APPENDIX

Borregaard – Key figures

Amounts in NOK million	Q2-2014	Q2-2013	Change	YTD-2014	YTD-2013	Change
Operating revenues	993	952	4 %	1 985	1 902	4 %
EBITDA (adjusted)	190	190	0 %	348	352	-1 %
EBITA (adjusted)	130	137	-5 %	229	246	-7 %
Amortisation intangibles	0	- 1		0	- 1
Other income and expenses	0	0		0	0
EBIT	130	136	-4 %	229	245	-7 %
Financial items, net	- 4	-14		-11	-28
Profit/loss before taxes	126	122	3 %	218	217	0 %
Taxes	-36	-33		-63	-62
Profit/loss for the period	90	89	1 %	155	155	0 %
Profit/loss attributable to non-controlling interests	- 1	1		- 1	2
Profit/loss attributable to owners of the parent	91	88		156	153
Cash flow from operating activities	69	122		128	214
Earnings per share (NOK)	0,91	0,88	3 %	1,56	1,53	2 %
Adjusted EBITDA margin	19,1 %	20,0 %		17,5 %	18,5 %
Adjusted EBITA margin	13,1 %	14,4 %		11,5 %	12,9 %

Operating revenues and EBITA per segment

Amounts in NOK million				Amounts in NOK million
Operating revenues	Q2-2014	Q2-2013	Change	Operating profit - EBITA	Q2-2014	Q2-2013	Change
Borregaard	993	952	4 %	Borregaard	130	137	-5 %
Performance Chemicals	472	418	13 %	Performance Chemicals	111	89	25 %
Specialty Cellulose	359	374	-4 %	Specialty Cellulose	29	48	-40 %
Other Businesses	183	174	5 %	Other Businesses	-10	0	-
Eliminations	-21	-14

Amounts in NOK million		Amounts in NOK million

Amounts in NOK million				Amounts in NOK million
Operating revenues	YTD-2014	YTD-2013	Change	Operating profit - EBITA	YTD-2014	YTD-2013	Change
Borregaard	1 985	1 902	4 %	Borregaard	229	246	-7 %
Performance Chemicals	914	809	13 %	Performance Chemicals	204	153	33 %
Specialty Cellulose	738	781	-6 %	Specialty Cellulose	56	114	-51 %
Other Businesses	368	338	9 %	Other Businesses	-31	-21	-48 %
Eliminations	-35	-26

Amounts in NOK million		Amounts in NOK million

Cash flow

Amounts in NOK million

	Q2-2014	Q2-2013	YTD-2014	YTD-2013	FY-2013
Amounts in NOK million
Profit before taxes	126	122	218	217	460
Amortisation, depreciation and impairment charges	60	53	119	106	231
Change in net working capital, etc	-55	-40	-84	-92	-17
Share of profit (dividend) from JV	-11	-9	-13	-10	-19
Taxes paid	-51	-4	-112	-7	-129
Cash flow from operating activities	69	122	128	214	526
Investments property, plant and equipment and intangible assets	-32	-90	-83	-149	-288
Other capital transactions	1	2	2	4	2
Cash flow from Investing activities	-31	-88	-81	-145	-286
Dividends	-109	-100	-109	-100	-100
Proceeds from exercise of share options	20	0	40	0	-33
Buy-back of treasury shares	-39	0	-55	0	0
Change in equity hedge	-2	0	7	0	0
Net paid to/from shareholders	-130	-100	-117	-100	-133
Change in interest-bearing liabilities	6	35	-14	-25	-218
Change in interest-bearing receivables	0	2	-4	-3	-1
Change in net interest-bearing liablities	6	37	-18	-28	-219
Cash flow from financing activities	-124	-63	-135	-128	-352
Change in cash and cash equivalents	-86	-29	-88	-59	-112
Cash and cash equivalents as of beginning of period	35	108	39	134	134
Change in cash and cash equivalents	-86	-29	-88	-59	-112
Currency effects cash and cash equivalents	7	10	5	14	17
Cash and cash equivalents at the close of the period	-44	89	-44	89	39

Balance sheet

Amounts in NOK million

	30.06.2014	31.03.2014	31.12.2013
Assets:
Intangible assets	58	54	57
Property, plant and equipment	1 904	1 934	1 941
Other assets	57	64	51
Investments in joint venture	114	101	101
Non-current assets	2 133	2 153	2 150
Inventories	556	533	545
Receivables	759	773	693
Cash and cash deposits	48	35	39
Current assets	1 363	1 341	1 277
Total assets	3 496	3 494	3 427
Equity and debt:
Group Equity	1 908	1 963	1 847
Non-controlling interests	8	8	9
Equity	1 916	1 971	1 856
Provisions and other non-current liabilities	144	146	141
Interest-bearing liabilities	763	755	774
Non-current liabilities	907	901	915
Interest-bearing liabilities	95	5	6
Other liabilities	578	617	650
Current liabilities	673	622	656
Equity and liabilities	3 496	3 494	3 427
Equity ratio (%):	54,8 %	56,4 %	54,2 %

2013 figures are restated due to implementation of IFRS 11 Joint Arrangements

Net financial items & net interest-bearing debt

Amounts in NOK million
Net financial items	Q2-2014	Q2-2013	YTD-2014	YTD-2013
Net interest expenses	- 8	- 9	-15	-18
Currency gain/loss	4	- 5	5	- 9
Other financial items, net	0	0	- 1	- 1
Net financial items	- 4	-14	-11	-28

Amounts in NOK million

Net interest-bearing debt	30.06.2014	31.03.2014	31.12.2013
Non-current interest-bearing liabilities	763	755	774
Current interest-bearing liabilities	95	5	6
Non-current interest-bearing recievables	-17	-17	-13
Cash and cash deposits	-48	-35	-39
Net interest-bearing debt	793	708	728

Debt, credit facilities and solidity

• Debt and overdraft facilities

• Long-term debt
• 1,200 mNOK 5-year revolving credit facilities, maturity 2017
• 600 mNOK 3-year revolving credit facilities, maturity 2015
• 400 mNOK 5-year bond issue, maturity 2019
• 40 mEUR 10-year loan, maturity 2024
• Refinancing process on-going
• 195 mNOK in overdraft facilities

• Solidity (covenants)

• Equity ratio 54.8% (> 25%)
• Leverage ratio LTM 1.12 (< 3.25 / 3.00)

Debt and undrawn facilities 30.06.2014

Important notice

• This presentation is being made only to, and is only directed at, persons to whom such presentation may lawfully be communicated ('relevant persons'). Any person who is not a relevant person should not act or rely on this presentation or any of its contents.
• This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in any company within the Borregaard Group. The release, publication or distribution of this presentation in certain jurisdictions may be restricted by law, and therefore persons in such jurisdictions into which this presentation is released, published or distributed should inform themselves about, and observe, such restrictions.
• This presentation includes and is based, inter alia, on forward-looking information and contains statements regarding the future in connection with the Borregaard Group's growth initiatives, profit figures, outlook, strategies and objectives. All forward-looking information and statements in this presentation are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for the Borregaard Group and its lines of business. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions.
• Important factors may lead to actual profits, results and developments deviating substantially from what has been expressed or implied in such statements. Although Borregaard believes that its expectations and the presentation are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the presentation.
• Borregaard is making no representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the presentation, and neither Borregaard nor any of its directors, officers or employees will have any liability to you or any other persons resulting from your use.
• This presentation was prepared for the interim results presentation for the second quarter of 2014, held on 16 July 2014. Information contained herein will not be updated. The slides should also be read and considered in connection with the information given orally during the presentation.