Borregaard — Interim / Quarterly Report 2014

Apr 29, 2014

QUARTERLY RESULTS Q1 2014

QUARTERLY RESULTS Q1 2014

1st QUARTER IN BRIEF

• • Significant progress for Performance Chemicals
• • Lower prices and weaker product mix for Specialty Cellulose
• • Other Businesses in line with corresponding quarter 2013
• • Positive currency impact

The Group	3
The Business Areas	4
Performance Chemicals	4
Specialty Cellulose	5
Other Businesses	6
Cash flow and financial situation	7
Share information	7
Other matters and subsequent events	8
Outlook	8
The Group's condensed income statement	9
Earnings per share	9
The Group's condensed comprehensive income statement	9
The Group's condensed balance sheet	10
Changes in equity	11
The Group's condensed cash flow statement	11
Notes	12 – 18

Cash flow operations 92 109 140 199 246 127 50 100 150 200 250 300 NOK million Q1´13 Q2´13 Q3´13 Q4´13 Q1´14 123 180 132 59

Cash flow from operating activities (IFRS) Interest & tax paid EBITDA

THE GROUP1

		1.1 – 31.03		1.1 - 31.12
Amounts in NOK million	Note	2014	20131	20131
Operating revenues	2	992	950	3 886
EBITDA2		158	162	710
EBITA3	2	99	109	489
Profit/loss before taxes		92	95	460
Earnings per share (NOK)	5	0.65	0.65	3.35
Cash flow from operating activities (IFRS)		59	92	526
Net interest-bearing debt	11	708	813	728
Equity ratio (%)		56.4	49.7	54.2
Leverage ratio4		1.00	1.11	1.03
Return on capital employed5 (%)		16.4	18.6	16.9

First quarter

Borregaard's operating revenues totalled NOK 992 million (NOK 950 million6 ) in the 1st quarter of 2014. EBITA amounted to NOK 99 million, compared with NOK 109 million in the corresponding quarter of 2013. Significant progress for Performance Chemicals was more than off-set by an EBITA decline in Specialty Cellulose. Reduced wood cost and a weaker NOK contributed positively.

EBITA in Performance Chemicals increased due to improved product mix, higher prices and favourable currency impact. The decline in Specialty Cellulose is primarily a result of lower prices and a weaker product mix. In Other Businesses, higher corporate costs were off-set by an improved result in the Fine Chemicals business.

Net financial items amounted to NOK -7 million (NOK -14 million). The improvement mainly relates to favourable FX difference compared with 2013. Group profit before tax amounted to NOK 92 million (NOK 95 million) in the 1st quarter of 2014. The 1st quarter tax charge was NOK 27 million.

Earnings per share was NOK 0.65 (NOK 0.65) in the 1st quarter.

Borregaard had a satisfactory cash flow from operations before interest and tax payments in the 1st quarter of 2014, primarily attributable to a more favourable development in working capital than in the corresponding quarter of 2013.

• 3. Operating profit before amortisation and other income and expenses
• 4. Net interest bearing debt/EBITDA (LTM)
• 5. EBITA/(Average net working capital+Average tangible assets+Average intangible assets at cost-
• Average net pension liabilities-Average deferred tax excess value) (LTM)
• 6. Figures in parentheses are for the corresponding period in the previous year

^1. 2013 figures are restated due to implementation of IFRS 11 Joint Arrangements. See note 1 and 13.

^2. Operating profit before depreciation, amortisation and other income and expenses

THE BUSINESS AREAS

Performance Chemicals

	1.1 – 31.3		1.1 - 31.12
Amounts in NOK million	2014	20131	20131
Operating revenues	442	391	1 645
EBITA3	93	64	314
EBITA margin (%)	21.0	16.4	19.1

Performance Chemicals posted 1st quarter operating revenues of NOK 442 million (NOK 391 million). EBITA reached NOK 93 million, an all-time high for a single quarter and an increase from NOK 64 million in the same period last year. The market situation remained generally positive, especially with strong demand in Asia. Total sales volume was slightly above the corresponding quarter of 2013 as increased raw material supply from new and existing sources compensated for the shortfall in Spain. Total operating revenues and EBITA increased due to improved product mix, higher invoiced prices and favourable currency impact.

7. 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, but excluding hedging impact.

8. Metric tonne dry solid

Specialty Cellulose

	1.1 – 31.3		1.1 - 31.12
Amounts in NOK million	2014	20131	2013
Operating revenues	379	407	1 597
EBITA3	27	66	224
EBITA margin (%)	7.1	16.2	14.0

Specialty Cellulose had 1st quarter operating revenues of NOK 379 million (NOK 407 million). EBITA, at NOK 27 million, declined by NOK 39 million from the 1st quarter of 2013, mainly due to lower invoiced prices and a weaker product mix. Product mix improved from the preceding quarter, but weakened when compared with the 1st quarter of 2013. Positive contributions from currency impact, lower wood costs and a slightly higher sales volume was partly off-set by lower production output.

9. Average sales price is calculated using actual FX rates, but excluding hedging impact

Other Businesses

		1.1 – 31.3
Amounts in NOK million	2014	2013	2013
Operating revenues	185	164	703
EBITA3	-21	-21	-49
EBITA margin (%)	-11.4	-12.8	-7.0

Other Businesses had total operating revenues of NOK 185 million (NOK 164 million) and an EBITA of NOK -21 million (NOK -21 million). The Ingredients business had a slightly higher sales volume, but continued to suffer from a challenging market situation. The Fine Chemicals business recorded higher sales and an improved EBITA compared with last year. Corporate costs were higher than in the 1st quarter of 2013, partly due to the BALI project.

CASH FLOW AND FINANCIAL SITUATION

Cash flow from operating activities in the 1st quarter of 2014 amounted to NOK 59 million (NOK 92 million). The decrease from the 1st quarter 2013 was due to a large scheduled tax payment in the 1st quarter of 2014 partly offset by lower increase in net working capital than the corresponding quarter in 2013. Investments in the 1st quarter decreased modestly compared with the previous year. During the 1st quarter of 2014, the Group has sold and repurchased treasury shares with a net proceed of NOK 11 million.

As of 31 March, the Group had net interest-bearing debt totalling NOK 708 million (NOK 813 million). At the end of the quarter, all drawings on the Group's long-term revolving credit facilities had been replaced by a 5-year bond issue of NOK 400 million launched in February 2014 and a 10-year loan of EUR 40 million signed in March 2014 with the Nordic Investment Bank.

The Group is well capitalised with an equity ratio of 56.4% at the end of March 2014.

SHARE INFORMATION

During the 1st quarter of 2014, 535,500 share options were exercised at strike prices of NOK 19.03 and NOK 21.50. At the same time Borregaard repurchased 445,002 treasury shares at an average price of NOK 35.94 per share. As part of its employee share programme Borregaard has sold a total of 227,968 shares to employees during February 2014. The share price was set at NOK 25.11 per share, including a 30% discount. Following these transactions, Borregaard held 951,534 treasury shares at the end of the 1st quarter.

Total number of shares outstanding at 31 March 2014 was 100 million including treasury shares. Total number of shareholders was 6,276 at the end of the 1st quarter of 2014.

Borregaard ASA's share price ended at NOK 40.10 at the end of the 1st quarter of 2014 compared with NOK 30.20 at the end of 2013.

OTHER MATTERS AND SUBSEQUENT EVENTS

Acquisition of food ingredients technology

In March 2014 Borregaard entered into an agreement with Watson Foods Co., Inc., West Haven (CT), USA, for the acquisition of Watson's Ultracel Technology. Borregaard has also entered into a distribution agreement for SenseFi® with Chicago (IL) based Socius Ingredients LLC to develop the North American market. In Europe, Borregaard will distribute SenseFi® in selected markets through the company's existing sales organisation. For further information see Note 14 and notice to the Oslo Stock Exchange on 19 March 2014.

General Meeting

Borregaard ASA held its General Meeting on 23 April 2014. The financial statements of Borregaard ASA and the Group including dividend of NOK 1.10 per share were approved.

The Chair of the Board of Directors, Jan Oksum, the other members of the Board of Directors and the members of the Nomination Committee were all reelected at the General Meeting.

OUTLOOK

Performance Chemicals continues to enjoy strong demand in major applications, especially in the Asian markets. Total sales volume in 2014 is expected to be similar to or slightly below its 2013 level. Increased lignin raw material supply from new and existing sources is expected largely to compensate for sales from inventories in 2013 and the assumed lack of supply in Spain. Sales volume in the 2nd quarter will be positively affected by normal seasonality within the construction markets.

Cellulose prices in sales currency are still expected to be on average 7-8% lower in 2014 than in 2013. Furthermore, product mix in 2014 is projected to be marginally weaker than in 2013. However, actual mix will be determined by demand development, especially within the construction end-market. In the 2nd quarter, Specialty Cellulose expects a product mix similar to the preceding quarter and in line with the 2nd quarter of 2013.

The challenging market situation for vanillin products is expected to continue. The Fine Chemicals business is likely to remain relatively stable.

Borregaard has significant FX exposure, especially in USD and EUR. The impact from exchange rate fluctuations will be delayed due to the company's currency hedging policy.

Sarpsborg, 28 April 2014 The Board of Directors of Borregaard ASA

THE GROUP'S CONDENSED INCOME STATEMENT

Interim condensed income statement

		1.1 – 31.3		1.1 - 31.12
Amounts in NOK million	Note	2014	20131	20131
Operating revenues	2	992	950	3 886
Operating expenses		-834	-788	-3 176
Depreciation property, plant and equipment		-59	-53	-221
Amortisation intangible assets		0	0	-2
Other income and expenses	3	0	0	14
Operating profit		99	109	501
Financial items, net		-7	-14	-41
Profit before taxes		92	95	460
Taxes	4	-27	-29	-129
Profit for the period		65	66	331
Profit attributable to non-controlling interests		0	1	-4
Profit attributable to owners of the parent		65	65	335
EBITDA adjusted2		158	162	710
EBITA adjusted3	2	99	109	489

EARNINGS PER SHARE

Interim earnings per share

		1.1 – 31.3		1.1 - 31.12
Amounts in NOK million	Note	2014	2013	2013
Earnings per share (100 million shares)	5	0.65	0.65	3.35
Diluted earnings per share	5	0.65	0.65	3.36

THE GROUP'S CONDENSED COMPREHENSIVE INCOME STATEMENT

Interim condensed comprehensive income statement

		1.1 – 31.3		1.1 - 31.12
Amounts in NOK million	Note	2014	2013	2013
Profit for the period		65	66	331
Items not to be reclassified to P&L
Actuarial gains and losses (after tax)		0	0	4
Total		0	0	4
Items to be reclassified to P&L
Change in hedging reserve after tax	7	56	-39	-84
Translation effects		-6	11	30
Total		50	-28	-54
The Group´s comprehensive income		115	38	281
Comprehensive income non-controlling interests		-1	1	-2
Comprehensive income owners of the parent		116	37	283

^1. The 2013 figures are restated due to implementation of IFRS 11 Joint Arrangements. See Note 1 and 13.

^2. Operating profit before depreciation, amortisation and other income and expenses

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

THE GROUP´S CONDENSED BALANCE SHEET

Interim condensed statement of financial position

Amounts in NOK million	Note	2014 31.3	20131 31.12
Intangible assets Property, plant and equipment Other assets Investment in Joint Venture	1, 13	54 1 934 64 101	57 1 941 51 101
Non-current assets		2 153	2 150
Inventories Receivables Cash and cash equivalents	10	533 773 35	545 693 39
Current assets		1 341	1 277
Total assets		3 494	3 427
Group equity Non-controlling interests	9	1 963 8	1 847 9
Total Equity		1 971	1 856
Provisions and other liabilities Interest-bearing liabilities	10	146 755	141 774
Non-current liabilities		901	915
Interest-bearing liabilities Other current liabilities	10	5 617	6 650
Current liabilities		622	656
Equity and liabilities		3 494	3 427
Equity ratio		56.4%	54.2%

CHANGES IN EQUITY

Interim condensed change in equity

		1.1 – 31.3.2014			1.1 – 31.12.2013
Amounts in NOK million	Note	Controling interests	Non-controlling interests	Total Equity	Controlling interests	Non-controlling interests	Total Equity
Equity 1.1		1 847	9	1 856	1 691	11	1 702
Profit/loss for the period The Group´s comprehensive income	7	65 51	0 -1	65 50	335 -52	-4 2	331 -50
Total comprehensive income Option costs (share based payment) Dividend Treasury shares	7 9 9	116 0 0 0	-1 0 0 0	115 0 0 0	283 6 -100 -33	-2 0 0 0	281 6 -100 -33
Equity at the close of the period	9	1 963	8	1 971	1 847	9	1 856

THE GROUP'S CONDENSED CASH FLOW STATEMENT

Interim condensed cash flow statement

		1.10– 31.3		1.1 - 31.12
Amounts in NOK million	Note	2014	20131	20131
Profit before taxes Amortisation, depreciation and impairment charges Changes in net working capital, etc.		92 59 -29	95 53 -52	460 231 -17
Share of profit (dividend) from JV Taxes paid		-2 -61	-1 -3	-19 -129
Cash flow from operating activities		59	92	526
Investments property, plant and equipment and intangible assets* Other capital transactions		-51 3	-59 2	-288 2
Cash flow from investing activities		-48	-57	-286
Dividends Sale (repurchase) of treasury shares		0 11	0 0	-100 -33
Net paid to/from shareholders		11	0	-133
Proceeds from interest-bearing liabilities Repayment of interest-bearing liabilities Change in interest-bearing receivables	10 10 10	734 -754 -4	0 -60 -5	0 -218 -1
Change in net interest-bearing liabilities		-24	-65	-219
Cash flow from financing activities		-13	-65	-352
Change in cash and cash equivalents		-2	-30	-112
Cash and cash equivalents at beginning of period Change in cash and cash equivalents Currency effects cash and cash equivalents		39 -2 -2	134 -30 4	134 -112 17
Cash and cash equivalents at the close of the period	10	35	108	39
*Investments by category
Replacement investments Expansion investments		31 20	50 9	226 62

NOTE 1 NOTES

Organisation and basis for preparation

General information

Borregaard ASA is incorporated and domiciled in Norway. The address of its registered office is Hjalmar Wessels vei 10, Sarpsborg.

Borregaard ASA ("The Company") was listed on the Oslo Stock Exchange on 18 October 2012 and was incorporated as a public limited liability company on 22 August 2012.

Basis for preparation

These unaudited Interim Condensed Consolidated Financial Statements are prepared in accordance with IAS 34 Interim Financial Reporting. Borregaard ASA is the parent company of the Borregaard Group presented in these Interim Condensed Consolidated Financial Statements.

With the exception of implementation of new accounting principles as described below, the same accounting principles and methods of calculation have been applied as in the Consolidated Financial Statements for 2013 for the Borregaard Group.

New accounting principles

Future effects of new accounting standards were described in the Consolidated Financial Statements for 2013. IFRS 11 Joint Arrangement is implemented from 1 January 2014. The impact IFRS 11 had on the 2013 figures after implementation is described in Note 13. Changes in IFRS 10 Consolidated Financial Statements did not have any impact on the consolidated figures.

Use of estimates

The same use of estimates has been applied as in the Consolidated Financial Statements for 2013.

Segments

Operating revenues

		1.1 – 31.3
Amounts in NOK million	2014	20131	20131
Borregaard	992	950	3 886
Performance Chemicals	442	391	1 645
Specialty Cellulose	379	407	1 597
Other Businesses	185	164	703
Eliminations	-14	-12	-59

EBITA3

	1.1 – 31.3	1.1 - 31.12
Amounts in NOK million	2014	20131	20131
Borregaaard	99	109	489
Performance Chemicals	93	64	314
Specialty Cellulose	27	66	224
Other Businesses	-21	-21	-49
Reconciliation against operating profit and profit before taxes
EBITA adjusted3	99	109	489
Amortisation intangible assets	0	0	-2
Other income and expenses	0	0	14
Operating profit	99	109	501
Financial items, net	-7	-14	-41
Profit before taxes	92	95	460

There are limited intercompany sales between the different segments and eliminations consist essentially of allocations from the corporate headquarter.

NOTE 3

Other income and expenses

There are no Other income and expenses in the 1st quarter of 2014.

NOTE 4

Income tax expense

The tax rate of 29.3% for the first three months of 2014 is a compilation of the tax rates in the various countries in which Borregaard operates and has taxable income. The normal tax rate is expected to be in the range 28 - 31%. The tax rate in Norway is reduced from 28% to 27% from 1 January 2014.

Earnings per share (EPS)

The share capital consists of 100 million shares as of 31 March 2014. The company holds 951,534 treasury shares. As of 31 March 2014, there are 100,048,731 diluted shares. Earnings per diluted share ended at 0.65 at 31 March 2014. As of 31 December 2013, there were 99,591,765 diluted shares.

NOTE 6

Stock options

During the 1st quarter of 2014, 535,500 share options have been exercised.

The Group Executive Management and other key employees hold a total of 2,004,500 stock options in two different share option programmes in Borregaard. The first programme has a total of 1,144,500 outstanding stock options at a strike price of NOK 17.93. The second programme has a total of 860,000 outstanding stock options at a strike price of NOK 20.40. The strike prices have been adjusted for dividends in 2013 and 2014, a total of NOK 2.10. The share options were vested on 18 October 2013 and can be exercised until the end of October 2016.

NOTE 7

Statement of comprehensive income

The statement of comprehensive income shows changes in the value of hedging instruments (hedging reserve). These figures are presented after tax. The tax effect for the three months of 2014 relating to the hedging reserve amounts to NOK 6 million (NOK 4 million as of 31 March 2013). Total hedging reserve included in equity at 31 March 2014 (after tax) amounts to NOK 22 million (NOK 11 million as of 31 March 2013).

Fair value hierarchy

For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occured between levels in the hierarchy by re-assessing categorisation at the end of each reporting period.

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

There were no transfers from one level to another in the measurement hierarchy from 2013 to the 1st quarter of 2014. Borregaard has no items defined as level 1 and level 3, respectively.

Set out below is a comparison of the carrying amount and the fair value of financial instruments as at 31 March 2014:

Financial assets

Amounts in NOK million	Carrying amount	Fair value
Non-current derivatives	6	6
Current derivatives	17	17
Financial liabilities
Non-current financial liabilites	0	0

Financial assets measured at fair value Amounts in NOK million	2014 31.3	Level 1	Level 2	Level 3
Foreign currency forward contracts	20	0	20	0

The foreign currency forward contracts are measured based on observable spot exchange rates, the yield curves of the respective currencies as well as the currency basis spreads between the respective currencies

Compilation of Equity

	2014	2013
Amounts in NOK million	31.3	31.12
Share Capital	100	100
Treasury shares	-1	-1
Share premium	1 346	1 346
Other paid-in equity	308	308
Translation effects	-92	-86
Hedging reserve	22	-34
Actuarial gains/losses	1	1
Retained earnings	279	213
Group equity (controlling interests)	1 963	1 847

As at 31 March 2014, the company held 951,534 treasury shares at an average cost of NOK 30.94.

NOTE 10

Net interest-bearing debt

The various elements of net interest-bearing debt are shown in the following table:

	2014	20131
Amounts in NOK million	31.3	31.12
Non-current interest-bearing liabilities	755	774
Current interest-bearing liabilities	5	6
Non-current interest-bearing receivables (included in "Other Assets")	-17	-13
Cash and cash equivalents	-35	-39
Net interest-bearing debt	708	728

NOTE 11

Related parties

The members of the Group Executive Management of Borregaard hold a total of 1,514,500 stock options in the Company.

NOTE 12

Assessments relating to impairment

No impairment indicators have been identified in the Borregaard Group's property, plant and equipment or intangible assets in the 1st quarter of 2014.

Effects of implementing IFRS 11 Joint Arrangements from 1 January 2014

IFRS 11 Joint Arrangements replaces IAS 31 Interests in Joint Ventures. IFRS 11 removes the option to account jointly controlled entities using proportionate consolidation. Instead joint ventures must be accounted for using the equity method. The result of the joint venture is accounted for as part of operating profit as it is part of Performance Chemicals. The impact of the application is the following for the 2013 figures:

	2013	Effect of IFRS 11	Restated 2013
Operating revenues	3 997	-111	3 886
Operating profit	513	-12	501
Profit for the period	331	0	331
Earnings per share	3.35	0	3.35
Non-current assets	2 101	-52	2 049
Share in Joint Venture	-	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	0	1 856
Non-current liabilities	923	-8	915
Current liabilities	665	-9	656
Equity and liabilities	3 444	-17	3 427

The opening balance 1.1.2013 of the Share in Joint Venture is measured as the aggregate of the carrying amounts of the assets and liabilities that the entity had previously as proportionately consolidated. This is regarded as deemed cost for the Joint Venture at initial recognition.

Other matters and subsequent events

Acquisition of food ingredients technology

In March 2014 Borregaard entered into an agreement with Watson Foods Co., Inc., West Haven (CT), USA, for the acquisition of Watson's Ultracel Technology. Borregaard will take over technology and know how, intellectual property rights and equipment located at Watson's site in Taylorville (IL). The acquired assets will form the basis for the commercalisation of Borregaard's SenseFi® concept, which has been developed as part of the company's Exilva project.

Borregaard is planning to establish a new production facility, including the acquisition of the technology and equipment. The cost will be close to NOK 30 million. At full capacity the pilot line is expected to generate annual sales in the range of NOK 10 - 15 million.

Borregaard has also entered into a distribution agreement with Chicago (IL) based Socius Ingredients LLC to develop the North American market. In Europe, Borregaard will distribute SenseFi® in selected markets through the company's existing sales organisation. For further information see notice to the Oslo Stock Exchange on 19 March 2014.

General Meeting

Borregaard's General Meeting was held on 23 April 2014. The proposed dividend of NOK 1.10 per share was approved. The dividend will be paid on 6 May 2014. The shares were traded excluding dividend on 24 April 2014.

There have been no other events after the balance sheet date that would have had an impact in the financial statements or the assessments carried out.

NOTES

Borregaard ASA

P.O. Box 162 NO-1701 Sarpsborg, Norway Telephone (+47) 69 11 80 00 Fax (+47) 69 11 87 70 email: borregaard@borregaard.com www.borregaard.com