Interim / Quarterly Report • Jul 17, 2018
Interim / Quarterly Report
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| 1,113 171 |
350 | 334 1.4 - 30.6 |
171 | 1.1 - 30.6 | 1.1 - 31.12 350 |
|
|---|---|---|---|---|---|---|
| 175 1,069 1,054 Amounts in NOK million 1,034 1,007 |
21 160 NOTE |
2018 300 |
2017 | 175 2018 |
160 2017 |
2017 300 |
| 150 131 Operating revenues 15.0% |
18 15.4% 2 |
250 1,199 15.0% |
199 1,256 |
150 2,416 |
131 2,392 |
250 4,618 |
| 125 EBITDA adj.1 105 |
15 101 |
188 12.4% 200 239 |
318 | 125 491 105 |
592 101 |
200 1,055 |
| 100 9.8% EBITA adj.1 |
10.4% 12 2 |
150 164 |
9.8% 243 |
100 341 |
443 | 150 749 |
| 75 Profit/loss before taxes |
9 | 100 159 |
241 | 75 328 |
436 | 100 715 |
| 50 Earnings per share (NOK) |
6 | 50 1.32 |
1.81 | 50 2.69 |
3.29 | 50 5.66 |
| 25 Net interest-bearing debt1 |
3 10 |
0 1,194 |
795 | 25 1,194 -7 |
795 | 0 845 |
| Equity ratio1 (%) 0 |
0 | -50 56.5 |
56.3 | 56.5 0 |
56.3 | -50 56.2 |
| Q1 Q3 Q4 Q2 Q3 Q1 Q2 Q4 Leverage ratio1 |
Q3 Q4 Q1 |
Q2 Q3 Q2'15 1.25 |
Q4 Q3'15 Q4'15 0.72 |
Q1'16 Q2'16 Q1 1.25 |
Q2 Q3 Q4 0.72 |
0.8 |
| 2015 2016 2015 Return on capital employed1 (%) |
2016 | 15.2 | Cash flow operations 22.5 EBITDA |
2015 15.2 |
2016 22.5 |
19.1 |
OPERATING REVENUES EBITA EBITA ADJ. MARGIN1 CASH FLOW OPERATIONS
Borregaard's operating revenues were NOK 1,199 million (NOK 1,256 million)2 in the 2nd quarter of 2018. EBITA adj.1 was NOK 164 million (NOK 243 million). Costs increased by approximately NOK 40 million due to higher wood and caustic soda prices and ramp-up costs for the new Florida plant. The net currency impact was slightly positive.
% NOK mill CASH FLOW OPERATIONS 188 199 In Performance Chemicals, higher sales of Miscellaneous and Specialities products led to a 3% overall increase in volume. EBITA adj.1 declined, mainly due to strong price competition in regional construction markets and increased costs. For Speciality Cellulose, higher wood and caustic soda prices and lower sales of acetate cellulose were the main reasons for the lower EBITA adj.1 . Other Businesses had a slightly weaker result where the effect of higher sales prices in Ingredients was off-set by low deliveries in Fine Chemicals.
Cash flow operations -7 EBITDA Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Net financial items were NOK -4 million (NOK -1 million). The increase was due to less favourable foreign exchange effects and increased interest expenses as a result of higher net interest-bearing debt. Profit before tax was NOK 159 million (NOK 241 million). Tax expense was NOK -36 million (NOK -60 million), giving a tax rate of 23% (25%).
Earnings per share were NOK 1.32 (NOK 1.81).
197 200 NOK mill 75 100 150 175 200 275 250 Cash flow from operations1 was NOK 246 million (NOK 201 million). The cash effect of a lower EBITDA adj.1 was more than off-set by a favourable development in net working capital compared with the 2nd quarter of 2017. The net working capital was positively impacted by a close to NOK 100 million grant payment from EU's Horizon 2020 programme3 related to the commercialisation of Exilva.
Q1 Q2 Q3 Q4 2017 2018 In the 1st half of 2018, Borregaard's operating revenues increased to NOK 2,416 million (NOK 2,392 million).
EBITA adj.1 was NOK 341 million (NOK 443 million). Other Businesses' result improved, whereas Performance Chemicals and Speciality Cellulose had a decline. Higher wood and caustic soda prices, increased lignin distribution costs and ramp-up costs for the new Florida plant have in total had a negative impact on EBITA adj.1 of about NOK 80 million compared with the 1st half of 2017. Lower sales of acetate cellulose also contributed to the weaker result. High sales in Ingredients and a positive market trend for wood-based vanillin have contributed to an improved result in Other Businesses. The net currency impact was in total slightly positive.
Net financial items amounted to NOK -11 million (NOK -5 million). Profit before tax was NOK 328 million (NOK 436 million). Tax expense was NOK -73 million (NOK -108 million), giving a tax rate of 22% (25%).
Earnings per share were NOK 2.69 (NOK 3.29).
Cash flow from operations1 was NOK 356 million (NOK 319 million). The cash effect of a lower EBITDA adj.1 was more than off-set by a favourable development in net working capital, including the grant payment from EU's Horizon 2020 programme3 , compared with the 1st half of 2017.
2020 research and innovation programme under grant agreement No 709746.
1 Non-GAAP measure, see page 22 for definition.
| 1.4 - 30.6 | 1.1 - 30.6 | ||||
|---|---|---|---|---|---|
| Amounts in NOK million | 2018 | 2017 | 2018 | 2017 | 2017 |
| Operating revenues | 571 | 582 | 1,126 | 1,132 | 2,176 |
| EBITA adj.1 | 102 | 141 | 217 | 273 | 449 |
| EBITA adj. margin1 (%) |
17.9 | 24.2 | 19.3 | 24.1 | 20.6 |
Performance Chemicals' operating revenues were NOK 571 million (NOK 582 million) in the 2nd quarter. EBITA adj.1 was NOK 102 million (NOK 141 million). Total sales volume was 3% higher than last year as a result of increased sales of Miscellaneous and Specialities products. Inventories of finished goods were reduced. The average price in sales currency was 1.5% lower than in the corresponding quarter last year. The strong price competition continued in regional construction markets and affected the average price negatively. Operating costs increased due to the ramp-up of the new plant in Florida and higher maintenance and other costs at the lignin plant in Norway. The net currency impact was slightly negative.
The Florida project was completed on time and cost, and the new plant was inaugurated on 26 June 2018.
In the 1st half of 2018, Performance Chemicals had operating revenues of NOK 1,126 million (NOK 1,132 million). EBITA adj.1 was NOK 217 million (NOK 273 million). Increased sales of specialities and improved product mix compensated partly for the negative impact from strong price competition in regional construction markets. Total sales volume increased by 2%. Increased costs related to the Florida plant, higher distribution costs and unfavourable net currency effects had a negative impact compared with the 1st half of 2017.
GROSS AVERAGE SALES PRICE4
GROSS AVERAGE SALES PRICE4
4 Average sales price and sales volume reflect 100% of sales and volume from the J/V in South Africa. Average sales price is calculated using actual FX rates, excluding hedging impact.
1 Non-GAAP measure, see page 22 for definition.
5 Metric tonne dry solid.
| 1.4 - 30.6 | 1.1 - 30.6 | 1.1 - 31.12 | |||
|---|---|---|---|---|---|
| Amounts in NOK million | 2018 | 2017 | 2018 | 2017 | 2017 |
| Operating revenues | 427 | 468 | 861 | 880 | 1,698 |
| EBITA adj.1 | 67 | 103 | 131 | 192 | 350 |
| EBITA adj. margin1 (%) |
15.7 | 22.0 | 15.2 | 21.8 | 20.6 |
Operating revenues in Speciality Cellulose were NOK 427 million (NOK 468 million) in the 2nd quarter of 2018. EBITA adj.1 was NOK 67 million (NOK 103 million). Increased prices for wood and caustic soda and weaker product mix as a result of lower sales of acetate cellulose were the main reasons for the EBITA adj.1 decline. Average price in sales currency was lower than in the 2nd quarter of 2017, mainly due to reduced textile cellulose prices. The cellulose ether market continues to develop positively, while the cellulose acetate market remains challenging. The net currency impact was positive.
The result for Bioethanol improved due to increased sale of fuel grade bioethanol and cost savings from the investment in the new dehydration plant.
Operating revenues in the 1st half of 2018 were NOK 861 million (NOK 880 million). EBITA adj.1 was NOK 131 million (NOK 192 million). Increased wood and caustic soda prices and weaker product mix as a result of lower sales of acetate cellulose were the main reasons for the EBITA adj.1 decline. Net currency effects were positive.
The Bioethanol result improved due to increased sale of fuel grade bioethanol and cost savings from the investment in the new dehydration plant, which started up in the 1st quarter of 2018.
1 Non-GAAP measure, see page 22 for definition.
6 Average sales price is calculated using actual FX rates, excluding hedging impact.
7 Metric tonne.
| 1.4 - 30.6 | 1.1 - 30.6 | ||||
|---|---|---|---|---|---|
| Amounts in NOK million | 2018 | 2017 | 2018 | 2017 | 2017 |
| Operating revenues | 212 | 213 | 451 | 396 | 783 |
| EBITA adj.1 | -5 | -1 | -7 | -22 | -50 |
| EBITA adj. margin1 (%) |
-2.4 | -0.5 | -1.6 | -5.6 | -6.4 |
Other Businesses had operating revenues of NOK 212 million (NOK 213 million) and EBITA adj.1 of NOK -5 million (NOK -1 million). A stronger result in Ingredients was more than off-set by low deliveries and a weaker result in Fine Chemicals.
Ingredients had a stronger result due to higher sales prices and increased sales volume, partly off-set by the impact of higher caustic soda prices. The positive market trend for wood-based vanillin continued. Fine Chemicals had a weaker result due to lower deliveries of a key product compared with the high deliveries in the same quarter last year. Cellulose Fibrils' net costs and result were in line with the 2nd quarter of 2017. Net corporate costs were also in line with the corresponding quarter of 2017. The net currency impact in Other Businesses was slightly negative.
Operating revenues in Other Businesses reached NOK 451 million (NOK 396 million) in the 1st half of 2018. EBITA adj.1 was NOK -7 million (NOK -22 million). A positive market trend for wood-based vanillin and higher sales volume were the main reasons for the increase both in operating revenues and EBITA adj.1 . Fine Chemicals had lower deliveries of a key product and Cellulose Fibrils had higher production and marketing costs, resulting in a weaker performance for both businesses. Net currency effects in Other Businesses were marginally negative.
INGREDIENTS – SALES REVENUES
INGREDIENTS – SALES REVENUES
Borregaard has a significant currency exposure which is hedged according to the company's hedging strategy. The impact of currency rate fluctuations will be delayed as a result of the currency hedging policy. Compared with the 2nd quarter of 2017, the net impact of foreign exchange on EBITA adj.1 , including hedging effects, was NOK 5 million positive. Hedging effects were NOK -6 million (NOK -35 million) in the 2nd quarter.
Assuming currency rates as of 16 July 2018 (USD 8.09 and EUR 9.48) and based on currency exposure forecasts, Borregaard expects a net impact of foreign exchange on EBITA adj.1 of approximately NOK 20 million in the 3rd quarter and NOK 40 million for the full year compared with the same period last year.
Cash flow from operating activities in the 2nd quarter was NOK 179 million (NOK 158 million). A favourable development in net working capital compared with the corresponding quarter last year was partly off-set by the cash effect from a lower EBITDA adj.1 and higher tax payments. The net working capital was positively impacted by a close to NOK 100 million grant payment from EU's Horizon 2020 programme3 related to the commercialisation of Exilva. Investments amounted to NOK 187 million (NOK 215 million). Expansion investments1 were mainly related to the Florida project and the upgrade and specialisation of the lignin operation in Norway. Dividend of NOK 199 million (NOK 349 million) was paid out in the 2nd quarter.
In the 1st half of 2018, cash flow from operating activities was NOK 210 million (NOK 240 million). The decline was mainly due to the cash effect of a lower EBITDA adj.1 and higher tax payments compared with the 1st half of 2017. This was largely off-set by a favourable development in net working capital compared with the 1st half of 2017,
including the grant payment from EU's Horizon 2020 programme3 . Investments in the 1st half of 2018 amounted to NOK 364 million (NOK 374 million). Replacement investments were lower than the 1st half of 2017, while expansion investments1 increased mainly as a result of the Florida project and the upgrade and specialisation of the lignin operation in Norway. Dividend of NOK 199 million (NOK 349 million) was paid out in the 2nd quarter. Realised effect of hedging of net investments in subsidiaries was NOK 13 million (NOK -2 million) in the 1st half of 2018. The Group has sold and repurchased treasury shares in the 1st half of 2018 with a net payment of NOK 9 million (NOK 18 million).
On 30 June 2018, the Group had net interest-bearing debt1 totalling NOK 1,194 million (NOK 795 million), an increase of NOK 349 million from year-end 2017. In June 2018, Borregaard issued a NOK 400 million open bond with a tenor of five years.
At the end of June, the Group was well capitalised with an equity ratio1 of 56.5% and a leverage ratio1 of 1.25.
1 Non-GAAP measure, see page 19 for definition.
3 This project has received funding from the Bio-Based Industries Joint Undertaking (BBI) under the European Union's Horizon 2020 research and innovation programme under grant agreement No 709746.
During the 2nd quarter of 2018, 95,000 share options were exercised at a strike price of NOK 41.00 per share. At the same time Borregaard repurchased 92,867 treasury shares at an average price of NOK 87.53.
Total number of shares outstanding on 30 June 2018 was 100 million, including 472,631 treasury shares.
Total number of shareholders was 8,367. Borregaard ASA's share price was NOK 88.00 at the end of the 2nd quarter, compared with NOK 74.00 at the end of the 1st quarter of 2018 and NOK 81.50 at the end of 2017. The share was traded ex dividend on 13 April 2018. Dividend was paid out on 20 April 2018.
On June 26 2018, LignoTech Florida's new lignin plant in Fernandina Beach was officially opened. The USD 110 million investment represents a production capacity of 100,000 metric tonnes lignin measured as dry substance. In a planned second phase, the capacity can later be expanded by 50,000 tonnes.
LignoTech Florida is owned by Borregaard (55%) and Rayonier Advanced Materials (45%), and employs 51 persons in Fernandina Beach.
See notification to the Oslo Stock Exchange on 27 June 2018.
The owners of the lignin joint venture in South Africa, Borregaard and Sappi, have agreed on an extension of the agreement governing the lignin co-operation and on a reduction in the annual production capacity for lignin.
The parties have agreed to extend the term of the agreement to the end of 2032 (previously 2027).
With effect from 2021 the lignin production capacity will be scaled down from the current 180,000 tonnes to 130,000 metric tonnes dry substance per year. The reason is that Sappi's Saiccor dissolving pulp mill, which supplies the lignin raw material to the joint venture company, will be expanded in order to increase total cellulose capacity on the site. The expansion will be
based on magnesium sulphite technology, whereas the current calcium sulphite capacity will be reduced. The remaining calcium sulphite line will continue to supply lignin raw material to the joint venture.
LignoTech South Africa is a joint venture company owned by Borregaard (50%) and Sappi (50%), established in 1997.
See notification to the Oslo Stock Exchange on 4 July 2018 and 7 July 2015.
Wood prices continue to increase from the new level established at the beginning of the year. Borregaard's mid-year negotiations with suppliers of spruce pulpwood and woodchips to the biorefinery in Sarpsborg are practically finished. Borregaard's wood cost in the second half of 2018 will increase by about NOK 60 million on an annualised basis compared with the first half of the year.
See notification to the Oslo Stock Exchange on 4 July 2018.
Sales of lignin products to the construction sector is expected to be affected by continued strong competition and price pressure. Volume growth in Miscellaneous products will continue in order to diversify and optimise the product portfolio. A positive development for Specialities is expected in the 2nd half of 2018. Total sales volume in 2018 is forecast to increase by 5-10% compared with 2017, including the gradual ramp-up in Florida. Depreciation of the Florida plant will commence from 1 July 2018.
Average cellulose price in sales currency is expected to be in line with the 2017 level. Price uncertainty is mainly related to textile cellulose. Product mix will continue to be weaker than last year due to lower sales volume of acetate cellulose. In the 3rd quarter, both total sales volume and sales of highly specialised grades are expected to be in line with the 2nd quarter of 2018.
In Ingredients, the positive market trend for wood-based vanillin is expected to continue. No major changes are expected in the market conditions for Fine Chemicals. Sales will gradually increase for Cellulose Fibrils, but long lead-times for conversion of sales prospects are expected. Fixed costs and depreciation in Cellulose Fibrils are expected to be largely in line with 2017.
Wood and caustic soda costs will be significantly higher than in 2017, affecting mainly Speciality Cellulose and Ingredients (caustic soda only). Based on mid-year negotiations with suppliers, wood cost in the 2nd half of 2018 will increase by about NOK 60 million on an annualised basis compared with the 1st half of the year.
We confirm that, to the best of our knowledge, the unaudited interim condensed financial statements for the period 1 January to 30 June 2018, have been prepared in accordance with IAS 34 Interim Financial Reporting, and that the information in the financial statements gives a true and fair view of the business of the Group and the Group's assets, liabilities, financial position and overall results, and that the half year report provides a fair overview of the information set out in the Norwegian Securities Trading Act section 5-6, fourth paragraph.
Sarpsborg, 16 July 2018 The Board of Directors of Borregaard ASA
JAN ANDERS OKSUM Chair
MARGRETHE HAUGE
TERJE ANDERSEN
HELGE AASEN
TOVE ANDERSEN
ÅSMUND DYBEDAHL
RAGNHILD ANKER EIDE
PER A. SØRLIE President and CEO
| 1.4 - 30.6 | 1.1 - 30.6 | 1.1 - 31.12 | ||||
|---|---|---|---|---|---|---|
| Amounts in NOK million | NOTE | 2018 | 2017 | 2018 | 2017 | 2017 |
| OPERATING REVENUES | 2 | 1,199 | 1,256 | 2,416 | 2,392 | 4,618 |
| Operating expenses | -960 | -938 | -1,925 | -1,800 | -3,563 | |
| Depreciation property, plant and equipment | -75 | -75 | -150 | -149 | -306 | |
| Amortisation intangible assets | -1 | -1 | -2 | -2 | -4 | |
| Other income and expenses1 | 3 | - | - | - | - | -9 |
| OPERATING PROFIT | 163 | 242 | 339 | 441 | 736 | |
| Financial items, net | -4 | -1 | -11 | -5 | -21 | |
| PROFIT BEFORE TAXES | 159 | 241 | 328 | 436 | 715 | |
| Income tax expense | 4 | -36 | -60 | -73 | -108 | -157 |
| PROFIT FOR THE PERIOD | 123 | 181 | 255 | 328 | 558 | |
| Profit attributable to non-controlling interests | -9 | - | -14 | -1 | -8 | |
| Profit attributable to owners of the parent | 132 | 181 | 269 | 329 | 566 | |
| EBITDA adj.1 | 239 | 318 | 491 | 592 | 1,055 | |
| EBITA adj. 1 |
2 | 164 | 243 | 341 | 443 | 749 |
| 1.4- 30.6 | 1.1- 30.6 | 1.1 - 31.12 | ||||
|---|---|---|---|---|---|---|
| Amounts in NOK million | NOTE | 2018 | 2017 | 2018 | 2017 | 2017 |
| Earnings per share (100 mill. shares) | 5 | 1.32 | 1.81 | 2.69 | 3.29 | 5.66 |
| Diluted earnings per share | 5 | 1.32 | 1.81 | 2.70 | 3.29 | 5.66 |
| 1.4 - 30.6 | 1.1 - 30.6 | 1.1 - 31.12 | ||||
|---|---|---|---|---|---|---|
| Amounts in NOK million | NOTE | 2018 | 2017 | 2018 | 2017 | 2017 |
| PROFIT FOR THE PERIOD | 123 | 181 | 255 | 328 | 558 | |
| ITEMS NOT TO BE RECLASSIFIED TO P&L | ||||||
| Actuarial gains and losses (after tax) | - | - | - | - | -6 | |
| TOTAL | - | - | - | - | -6 | |
| ITEMS TO BE RECLASSIFIED TO P&L | ||||||
| Change in hedging-reserve after tax (cash flow) | 7 | -20 | 26 | 85 | 40 | 82 |
| Change in hedging-reserve after tax (net investment in subsidiaries) |
7 | -14 | 4 | 3 | 4 | 13 |
| Translation effects | 5 | -8 | -31 | -2 | -7 | |
| TOTAL | -29 | 22 | 57 | 42 | 88 | |
| THE GROUP'S COMPREHENSIVE INCOME | 94 | 203 | 312 | 370 | 640 | |
| Comprehensive income non-controlling interests | -2 | - | -13 | - | -11 | |
| Comprehensive income owners of the parent | 96 | 203 | 325 | 370 | 651 |
| Amounts in NOK million | NOTE | 30.6.2018 | 31.12.2017 |
|---|---|---|---|
| Intangible assets | 12 | 103 | 111 |
| Property, plant and equipment | 12 | 3,345 | 3,126 |
| Other assets | 8 | 89 | 93 |
| Investment in joint venture | 102 | 118 | |
| NON-CURRENT ASSETS | 3,639 | 3,448 | |
| Inventories | 784 | 734 | |
| Receivables | 8 | 1,004 | 971 |
| Cash and cash deposits | 10 | 90 | 180 |
| CURRENT ASSETS | 1,878 | 1,885 | |
| TOTAL ASSETS | 5,517 | 5,333 | |
| Group equity | 9 | 2,978 | 2,889 |
| Non-controlling interests | 137 | 107 | |
| EQUITY | 3,115 | 2,996 | |
| Provisions and other liabilities | 250 | 277 | |
| Interest-bearing liabilities | 8, 10 | 1,011 | 743 |
| NON-CURRENT LIABILITIES | 1,261 | 1,020 | |
| Interest-bearing liabilities | 8, 10 | 273 | 283 |
| Other current liabilities | 8 | 868 | 1,034 |
| CURRENT LIABILITIES | 1,141 | 1,317 | |
| EQUITY AND LIABILITES | 5,517 | 5,333 | |
| Equity ratio1 | 56.5 % | 56.2 % |
| 1.1 - 30.6.2018 | 1.1 - 31.12.2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| Amounts in NOK million | NOTE | Controlling interests |
Non controlling interests |
Total equity |
Controlling interests |
Non controlling interests |
Total equity |
|
| Equity 1 January | 2,889 | 107 | 2,996 | 2,679 | 34 | 2,713 | ||
| PROFIT/LOSS FOR THE PERIOD | 269 | -14 | 255 | 566 | -8 | 558 | ||
| Items in Comprehensive Income | 6 | 56 | 1 | 57 | 85 | -3 | 82 | |
| THE GROUP'S COMPREHENSIVE INCOME | 6 | 325 | -13 | 312 | 651 | -11 | 640 | |
| Paid dividend | -199 | - | -199 | -349 | - | -349 | ||
| Buy-back of treasury shares | -30 | - | -30 | -29 | - | -29 | ||
| Exercise of share options | 4 | - | 4 | - | - | - | ||
| Shares to employees | 23 | - | 23 | 15 | - | 15 | ||
| Option costs (share based payment) | 3 | - | 3 | 6 | - | 6 | ||
| Transaction with non-controlling interest | -37 | 43 | 6 | -84 | 84 | - | ||
| EQUITY AT THE END OF THE PERIOD | 2,978 | 137 | 3,115 | 2,889 | 107 | 2,996 |
| 1.4 - 30.6 | 1.1 - 30.6 | 1.1 - 31.12 | ||||
|---|---|---|---|---|---|---|
| Amounts in NOK million | NOTE | 2018 | 2017 | 2018 | 2017 | 2017 |
| Profit before taxes | 159 | 241 | 328 | 436 | 715 | |
| Amortisation, depreciation and impairment charges | 76 | 76 | 152 | 151 | 316 | |
| Changes in net working capital, etc. | 7 | -117 | -135 | -273 | -92 | |
| Dividend (share of profit) from JV | 3 | -1 | 3 | -3 | 11 | |
| Taxes paid | -66 | -41 | -138 | -71 | -170 | |
| CASH FLOW FROM OPERATING ACTIVITIES | 179 | 158 | 210 | 240 | 780 | |
| Investments property, plant and equipment and intangible assets* |
-187 | -215 | -364 | -374 | -968 | |
| Other capital transactions | 5 | 5 | 9 | 7 | 10 | |
| CASH FLOW FROM INVESTING ACTIVITIES | -182 | -210 | -355 | -367 | -958 | |
| Dividends | -199 | -349 | -199 | -349 | -349 | |
| Proceeds from exercise of options/shares to employees | 9 | 4 | - | 21 | 11 | 11 |
| Buy-back of shares | 6 | -8 | - | -30 | -29 | -29 |
| Gain/(loss) on hedges for net investments in subsidiaries | -27 | -11 | 13 | -2 | 8 | |
| NET PAID TO/FROM SHAREHOLDERS | -230 | -360 | -195 | -369 | -359 | |
| Proceeds from interest-bearing liabilities | 10 | 969 | 258 | 1,202 | 263 | 668 |
| Repayment of interest-bearing liabilities | 10 | -731 | -2 | -933 | -29 | -258 |
| Change in interest-bearing receivables/other liabilities | 10 | -4 | 15 | -11 | 38 | 46 |
| CHANGE IN NET INTEREST-BEARING LIABILITIES | 234 | 271 | 258 | 272 | 456 | |
| CASH FLOW FROM FINANCING ACTIVITIES | 4 | -89 | 63 | -97 | 97 | |
| CHANGE IN CASH AND CASH EQUIVALENTS | 1 | -141 | -82 | -224 | -81 | |
| Cash and cash equivalents at beginning of period | 92 | 182 | 180 | 265 | 265 | |
| Change in cash and cash equivalents | 1 | -141 | -82 | -224 | -81 | |
| Currency effects cash and cash equivalents | -3 | 2 | -8 | 2 | -4 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD |
10 | 90 | 43 | 90 | 43 | 180 |
| * Investment by category | ||||||
| Replacement investments | 51 | 46 | 83 | 124 | 344 | |
| Expansion investments1 | 136 | 169 | 281 | 250 | 624 |
Borregaard ASA is incorporated and domiciled in Norway. The address of its registered office is Hjalmar Wessels vei 6, Sarpsborg.
Borregaard ASA was listed on the Oslo Stock Exchange on 18 October 2012 and was incorporated as a public limited liability company on 22 August 2012.
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.
The same accounting principles and methods of calculation have been applied as in the Consolidated Financial Statements for 2017 for the Borregaard Group.
IFRS 15, Revenue from contracts with customers, and IFRS 9, Financial Instruments, were implemented from 1 January 2018. As described in the Consolidated Financial Statements for 2017, implementation had no significant impact on the income statement, the statement of financial position or on equity.
The same use of estimates has been applied as in the Consolidated Financial Statements for 2017.
| 1.4 - 30.6 | 1.1 - 30.6 | 1.1 - 31.12 | |||
|---|---|---|---|---|---|
| Amounts in NOK million | 2018 | 2017 | 2018 | 2017 | 2017 |
| BORREGAARD | 1,199 | 1,256 | 2,416 | 2,392 | 4,618 |
| Performance Chemicals | 571 | 582 | 1,126 | 1,132 | 2,176 |
| Speciality Cellulose | 427 | 468 | 861 | 880 | 1,698 |
| Other Businesses | 212 | 213 | 451 | 396 | 783 |
| Eliminations | -11 | -7 | -22 | -16 | -39 |
There is limited intercompany sales between the different segments and eliminations consist essentially of allocations from the corporate headquarter.
cont. next page
| 1.4 - 30.6 | 1.1 - 30.6 | 1.1 - 31.12 | |||
|---|---|---|---|---|---|
| Amounts in NOK million | 2018 | 2017 | 2018 | 2017 | 2017 |
| BORREGAARD | 164 | 243 | 341 | 443 | 749 |
| Performance Chemicals | 102 | 141 | 217 | 273 | 449 |
| Speciality Cellulose | 67 | 103 | 131 | 192 | 350 |
| Other Businesses | -5 | -1 | -7 | -22 | -50 |
| RECONCILIATION AGAINST OPERATING PROFIT & PROFIT BEFORE TAX |
|||||
| EBITA ADJ.1 | 164 | 243 | 341 | 443 | 749 |
| Amortisation intangible assets | -1 | -1 | -2 | -2 | -4 |
| Other income and expenses1 | - | - | - | - | -9 |
| OPERATING PROFIT | 163 | 242 | 339 | 441 | 736 |
| Financial items, net | -4 | -1 | -11 | -5 | -21 |
| PROFIT BEFORE TAXES | 159 | 241 | 328 | 436 | 715 |
| 1.4 - 30.6 | 1.1 - 30.6 | 1.1 - 31.12 | |||
|---|---|---|---|---|---|
| Amounts in NOK million | 2018 | 2017 | 2018 | 2017 | 2017 |
| BORREGAARD | 1,179 | 1,225 | 2,374 | 2,335 | 4,522 |
| Performance Chemicals | 557 | 566 | 1,099 | 1,101 | 2,117 |
| Cellulose | 396 | 432 | 802 | 811 | 1,566 |
| Bioethanol | 31 | 28 | 59 | 58 | 121 |
| Fine Chemicals | 54 | 85 | 127 | 134 | 242 |
| Ingredients | 104 | 83 | 220 | 169 | 358 |
| Other | 37 | 31 | 67 | 62 | 118 |
Operating revenues consist of sales revenues and other revenues such as commissions and compensation for waste received for incineration.
There are no Other income and expenses1 in the 2nd quarter of 2018.
The tax rate of 22.3% (24.8%) for the first six months of 2018 is a compilation of the tax rates in the various countries in which Borregaard operates and has taxable income. The tax rate in Norway was reduced from 24% to 23% from 1 January 2018 and in USA the federal tax rate was reduced from 35% to 21%. Borregaard's tax rate is expected to be in the 20-23% range.
As the profit after tax from the joint venture is accounted for as part of operating profit (due to IFRS 11), this does not impact the Group's tax expense and thus reduces the Group's tax rate.
The share capital consists of 100 million shares. The company holds 472,631 treasury shares. As of 30 June 2018, there are 99,732,994 diluted shares (99,957,469 as of 31 December 2017). Earnings per diluted share were NOK 1.32 (NOK 1.81) in the 2nd quarter of 2018.
During the 2nd quarter of 2018, 95,000 share options were exercised at a strike price of NOK 41.00.
The Group Executive Management and other key employees hold a total of 1,649,000 stock options in four different share option programmes in Borregaard.
The first option programme, comprising 385,000 stock options granted in October 2014, has a strike price of NOK 41.00 adjusted for dividends in 2015-2018 (NOK 8.25). The second option programme, comprising 500,000 stock options granted in October 2015, has a
strike price of NOK 44.49 adjusted for dividends in n 2016-2018 (NOK 7.00). The third option programme, comprising 364,000 stock options granted in February 2017, has a strike price of NOK 98.61 adjusted for dividends in 2017 and 2018 (NOK 5.50). The fourth option programme, comprising 400,000 stock options granted in February 2018, has a strike price of NOK 78.00 adjusted for dividend in 2018 (NOK 2.00). The share options in the four different programmes will expire after five years, the vesting period is three years and the options can be exercised during the last two years.
The statement of comprehensive income shows changes in the value of hedging instruments, both cash flow
hedges and hedges of net investments in subsidiaries (hedging reserve). These figures are presented after tax.
| 30.6.2018 | 30.6.2017 | ||||
|---|---|---|---|---|---|
| Amounts in NOK million | Cash flow hedges |
Hedges of net investments in subsidiares |
Cash flow hedges |
Hedges of net investments in subsidiares |
|
| Tax effect year-to-date | 15 | -32 | -24 | -36 | |
| Hedging reserve after tax | 50 | -82 | -77 | -94 |
For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred 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:
FINANCIAL ASSETS
• 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 2017 to the 2nd quarter of 2018. Borregaard has no items defined as level 1. The bond is determined as measurement level 3. The fair value of the bond is deemed to equal its book value.
Set out below is a comparison of the carrying amount and the fair value of financial instruments as of 30 June 2018:
| 30.6.2018 | 31.12.2017 | ||||
|---|---|---|---|---|---|
| Amounts in NOK million | LEVEL | Carrying amount |
Fair value | Carrying amount |
Fair value |
| Non-current financial receivables | 2 | 34 | 34 | 36 | 36 |
| Non-current derivatives | 2 | 47 | 47 | 48 | 48 |
| Current derivatives | 2 | 65 | 65 | 58 | 58 |
| TOTAL FINANCIAL ASSETS | 146 | 146 | 142 | 142 | |
| FINANCIAL LIABILITIES | |||||
| Non-current financial liabilities | 2, 3 | 1,021 | 1,021 | 753 | 753 |
| Non-current derivatives | 2 | 19 | 19 | 61 | 61 |
| Current financial liabilities | 2 | 273 | 273 | 283 | 283 |
| Current derivatives | 2 | 27 | 27 | 75 | 75 |
| TOTAL FINANCIAL LIABILITIES | 1,340 | 1,340 | 1,172 | 1,172 | |
| Amounts in NOK million | LEVEL 1 | LEVEL 2 | LEVEL 3 | |
|---|---|---|---|---|
| FINANCIAL INSTRUMENTS 30.6.2018 | -1 194 | - | -594 | -600 |
| FINANCIAL INSTRUMENTS 31.12.2017 | -1 030 | - | -830 | -200 |
The financial instruments 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.
| Amounts in NOK million | 30.6.2018 | 31.12.2017 |
|---|---|---|
| Share capital | 100 | 100 |
| Treasury shares | - | - |
| Share premium | 1,346 | 1,346 |
| Other paid-in capital | 448 | 418 |
| Translation effects | 50 | 82 |
| Hedging reserve (after tax) | -32 | -120 |
| Actuarial gains/losses | -22 | -22 |
| Retained earnings | 1,088 | 1,085 |
| GROUP EQUITY (CONTROLLING INTERESTS) | 2,978 | 2,889 |
As of 30 June 2018, the company held 472,631 treasury shares at an average cost of NOK 80.57.
| Amounts in NOK million | 30.6.2018 | 31.12.2017 |
|---|---|---|
| Non-current interest-bearing liabilities | 1,011 | 743 |
| Current interest-bearing liabilities including overdraft of cashpool | 273 | 283 |
| Non-current interest-bearing receivables (included in "Other Assets") | - | -1 |
| Cash and cash deposits | -90 | -180 |
| NET INTEREST-BEARING DEBT1 | 1,194 | 845 |
In June 2018, Borregaard issued a NOK 400 million open bond with a tenor of five years.
The members of the Group Executive Management of Borregaard held a total of 890,000 stock options in the Company as of 30 June 2018.
No impairment indicators have been identified in the Borregaard Group's property, plant and equipment or intangible assets in the 2nd quarter of 2018.
On June 26 2018, LignoTech Florida's new lignin plant in Fernandina Beach was officially opened. The USD 110 million investment represents a production capacity of 100,000 metric tonnes lignin measured as dry substance. In a planned second phase, the capacity can later be expanded by 50,000 tonnes.
LignoTech Florida is owned by Borregaard (55%) and Rayonier Advanced Materials (45%), and employs 51 persons in Fernandina Beach.
See notification to the Oslo Stock Exchange on 27 June 2018.
The owners of the lignin joint venture in South Africa, Borregaard and Sappi, have agreed on an extension of the agreement governing the lignin co-operation and on a reduction in the annual production capacity for lignin.
The parties have agreed to extend the term of the agreement to the end of 2032 (previously 2027).
With effect from 2021 the lignin production capacity will be scaled down from the current 180,000 tonnes to 130,000 metric tonnes dry substance per year. The reason is that Sappi's Saiccor dissolving pulp mill, which supplies the lignin raw material to the joint venture company, will be expanded in order to increase total cellulose capacity on the site. The expansion will be
based on magnesium sulphite technology, whereas the current calcium sulphite capacity will be reduced. The remaining calcium sulphite line will continue to supply lignin raw material to the joint venture.
LignoTech South Africa is a joint venture company owned by Borregaard (50%) and Sappi (50%), established in 1997.
See notification to the Oslo Stock Exchange on 4 July 2018 and 7 July 2015.
Wood prices continue to increase from the new level established at the beginning of the year. Borregaard's mid-year negotiations with suppliers of spruce pulpwood and woodchips to the biorefinery in Sarpsborg are practically finished. Borregaard's wood cost in the second half of 2018 will increase by about NOK 60 million on an annualised basis compared with the first half of the year.
See notification to the Oslo Stock Exchange on 4 July 2018.
There have been no events after the balance sheet date that would have had a material impact on the financial statements or the assessments carried out.
In the discussion of the reported operating results, financial position and cash flows, Borregaard refers to certain measures which are not defined by generally accepted accounting principles (GAAP) such as IFRS. Borregaard management makes regular use of these non-GAAP measures and is of the opinion that this information, along with comparable GAAP measures, is useful to investors who wish to evaluate the company's operating performance, ability to repay debt and capability to pursue new business opportunities. Such non-GAAP measures should not be viewed in isolation or as an alternative to the equivalent GAAP measure.
Cash flow from operations is defined by Borregaard as:
EBITA adj. is defined by Borregaard as operating profit before amortisation and other income and expenses.
EBITA adj. margin is defined by Borregaard as EBITA adj. divided by operating revenues
EBITDA adj. is defined by Borregaard as operating profit before depreciation, amortisation and other income and expenses.
Equity ratio is defined by Borregaard as equity (including non-controlling interests) divided by equity and liabilities.
Expansion investments is defined by Borregaard as investments made in order to expand production capacity, produce new products or to improve the performance of existing products. Such investments include business acquisitions, pilot plants, capitalised research and development costs and new distribution set-ups.
Other income and expenses is defined by Borregaard as non-recurring items or items related to other periods or to a discontinued business or activity. These items are not viewed as reliable indicators of future earnings based on the business areas' normal operations. These items will be included in the Group's operating profit.
Leverage ratio is defined by Borregaard as net interest bearing debt (see note 10) divided by last twelve months' (LTM) EBITDA adj.
Net interest-bearing debt is defined by Borregaard as interest-bearing liabilities minus interest-bearing assets (see Note 10).
Capital employed is defined by Borregaard as the total of net working capital, intangible assets, property, plant and equipment and investment in joint venture minus net pension liabilities and deferred tax excess value.
Return on capital employed (ROCE) is defined by Borregaard as last twelve months' (LTM) EBITA adj. divided by average capital employed based on the ending balance of the last five quarters.
| 1.1 - 30.06 | 1.1 - 31.12 | ||
|---|---|---|---|
| Capital employed end of | 2018 | 2017 | 2017 |
| Q2, 2016 | 3,481 | ||
| Q3, 2016 | 3,413 | ||
| Q4, 2016 | 3,508 | 3,508 | |
| Q1, 2017 | 3,754 | 3,754 | |
| Q2, 2017 | 4,003 | 4,003 | 4,003 |
| Q3, 2017 | 4,044 | 4,044 | |
| Q4, 2017 | 4,256 | 4,256 | |
| Q1, 2018 | 4,454 | ||
| Q2, 2018 | 4,578 | ||
| AVERAGE | 4,267 | 3,632 | 3,913 |
| EBITA ADJ. (LTM) | 647 | 819 | 749 |
| ROCE (%) | 15.2 | 22.5 | 19.1 |
Borregaard ASA P.O. Box 162, NO-1701 Sarpsborg, Norway Telephone: (+47) 69 11 80 00 Fax: (+47) 69 11 87 70 E-mail: [email protected] www.borregaard.com
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