Borregaard — Investor Presentation 2014

Oct 22, 2014

3 rd quarter 2014 Oslo, 22 October 2014

Agenda

Per A Sørlie, President & CEO

• Highlights
• Business Areas
• Strategic priorities
• Outlook

Per Bjarne Lyngstad, CFO

• Financial performance

Highlights – 3 rd quarter 2014

• Another all-time high result for Performance Chemicals
• Improved product mix for Specialty Cellulose from the preceding quarter
• Weaker result for Ingredients
• Positive currency impact in all business areas

Performance Chemicals – Q3 market development

• Market conditions remain generally positive
• − Continued strong demand in all major applications
• − Favourable product mix
• − Improved currency situation and higher prices vs Q3-13
• Sales volume 5% lower vs Q3-13
• − Constraints on lignin raw material supply

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 – Q3 market development

• Improved product mix vs Q2-14
• − Lower invoiced sales prices partly off-set by improved FX situation
• − Product mix will vary between quarters
• − Price differences between qualities within all specialty application areas
• Lower sales volume vs Q3-13
• − Inventory adjustment in Q3-13

Ingredients & Fine Chemicals – Market conditions

Ingredients

• Lower sales volume compared with Q3-13
• Unchanged market conditions

Fine Chemicals

• Improved product mix compensated for lower sales volume vs Q3-13

Strategic priorities Focus on execution

• Growth and specialisation within Performance Chemicals

• Increased sales of high-value lignin products
• Establish new lignin raw material sources
• Develop BALI as a strategic lignin raw material option

• Develop the unique biorefinery assets in Sarpsborg

• Leverage high value raw material base in Performance Chemicals
• Continue specialisation of Specialty Cellulose, Bioethanol, Ingredients & Fine Chemicals
• Strong focus on innovation and productivity efforts

• Establish Exilva as a new business area

• Based on core competence within wood chemistry and fine chemistry
• Increased specialisation through high value added

Increased sales of high-value lignin products Considerable benefits from new speciality line

• Improved product performance and increased volumes for batteries
• Penetration of new segments and geographical markets
• Strengthened position in oil well cementing
• Superior product performance in certain areas
• Green profile and long-term customer relationships

Increased sales of high-value lignin products Capitalising on several long-term initiatives

• New products successfully introduced to gypsum and ceramics
• Breakthrough for hardwood lignin in agrochemicals
• Market development and technology innovation efforts
• Leveraging global business model
• Optimising volumes, short vs long-term considerations
• Geographic penetration
• Logistics

Lignin raw material sourcing

• New contracted sources established end 2013
• Stable and slightly increasing deliveries during 2014
• Successful market introduction of the new volumes
• Gradual expansion of geographic penetration
• A certain potential for volume growth going forward

• Status Spain (Sniace)

• Timeline and outcome of efforts to re-start the pulp mill still open
• The trade unions have accepted the proposed package (redundancies)
• The lignin plant is operating at reduced speed with raw material supply from other sources

The BALI project - status Full focus on realising the first plant

• On-going activities
• Demo plant production, verification of technology and product quality
• Discussions with potential partners
• Key elements in GO/NO GO decision
• Type of biomass
• Region
• Verification of technology and product quality
• Partner/co-investors
• After possible GO decision
• Final investment decision
• Construction period approximately 24 months

Exilva® Microfibrillar Cellulose (MFC) Investment in commercial scale production facility

• Exilva MFC has a unique set of characteristics
• Rheology modification, stabilisation and water retention
• Valuable and novel applications in a variety of products
• Adhesives, detergents, cosmetics, composites and other industrial formulations
• New production facility
• Capex 225 mNOK
• Initial capacity 1000 tonnes
• Production expected to start in Q3-16
• Prepared for future capacity expansion

SenseFi® Advanced Texture Systems Large-scale pilot plant in start-up phase

• SenseFi is an advanced texture system for food products
• Based on specialty cellulose
• Enables development of high quality food products with reduced level of calories
• Large-scale pilot plant in Rothschild (WI) in start-up phase
• Prepared for capacity expansion to commercial scale
• Market introduction on-going in co-operation with Socius Ingredients

Outlook

• Q2/Q3 EBITA normally higher than Q4/Q1
• Annual maintenance stop in Q4, seasonal impact from holiday pay and thermal energy
• Specialty Cellulose mainly affected

• Performance Chemicals

• Continued strong demand in all major applications
• Sales volume in Q4 is forecast to be slightly below Q3-14

• Specialty Cellulose

• Prices in sales currency in Q4 are expected to be in line with previous quarters of 2014
• Product mix in Q4 is expected to be similar to Q3-14

• Other Businesses

• Sales revenues in Fine Chemicals forecast to be lower in Q4 than in previous quarters of 2014
• No major changes are expected in market conditions for Ingredients in Q4
• Corporate and BALI project costs will largely remain at the same level as in Q3-14

FINANCIAL PERFORMANCE Q3-14

Borregaard – Q3 key figures

• Revenues similar (-1%) to Q3-13
• Another all-time high EBITA for Performance Chemicals, decline in Specialty Cellulose and Other Businesses
• Positive FX impact in all business areas
• EPS year-to-date slightly below last year

Performance Chemicals – Q3 key figures

• Top line growth 12% vs Q3-13
• Continued strong demand in all major applications
• Favourable product mix, FX impact and higher prices partly off-set by 5% lower sales volume

• Year-to-date top line growth 13%

• Another all-time high EBITA for a single quarter

• Year-to-date EBITA 329 mNOK (239 mNOK)

• Strong EBITA margin

• Year-to-date EBITA margin 23.8% (19.5%)

Specialty Cellulose – Q3 key figures

EBITA EBITA margin % 66 48 75 35 27 29 54 0 25 50 75 100 Q1 Q2 Q3 Q4 2013 2014 16,2 12,8 17,2 9,2 7,1 8,1 14,1 0 5 10 15 20 25 Q1 Q2 Q3 Q4 2013 2014 mNOK

• Top line down by 12% vs Q3-13
• Lower sales volume and sales prices

• Year-to-date top line down by 8%

• Lower sales prices and sales volume, increased Exilva project activities

• Positive FX impact, favourable raw material costs

• Year-to-date EBITA 110 mNOK (189 mNOK)

• Margin affected primarily by lower prices

• Year-to-date EBITA margin 9.8% (15.5%)

Other Businesses – Q3 key figures

• Top line down 6% vs Q3-13
• Lower sales volume for Ingredients
• Lower sales volume, but improved product mix for Fine Chemicals

• Year-to-date top line growth of 4%

• Ingredients; Weaker result vs the relatively strong Q3-13

• Fine Chemicals; Improved product mix and EBITA
• FX impact positive for both businesses
• BALI project costs somewhat higher than Q3-13
• Year-to-date EBITA -45 mNOK (-25 mNOK)

Currency impact

• Positive FX impact on EBITA
• Hedging impact positive by 4 mNOK vs Q3-13
• 5% FX rates improvement for Borregaard vs Q3-13 and 3% positive vs Q2-14
• Currency hedging strategy will delay impact of FX rate fluctuations

1) Currency basket based on Borregaard's net exposure in 2013 (=100) −USD 68% (approximately 265 mUSD) −EUR 33% (approximately 96 mEUR)

Cash Flow, Capex and NIBD

• Strong cash flow from operations due to strong result and reduction in net working capital
• Capex increasing and expected to increase further in Q4
• − Expansion capex related to SenseFi, high purity speciality cellulose and BALI/Exilva development & pilot
• NIBD decreased by 136 mNOK in Q3, mainly due strong result and low tax payments
• Long-term revolving credit facilities were refinanced in Q3

1) Cash Flow operating activities according to IFRS adjusted for financial items, taxes paid, share of JV profit/dividend

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

APPENDIX

Borregaard – Key figures

Amounts in NOK million	Q3-2014	Q3-2013	Change	YTD-2014	YTD-2013	Change
Operating revenues	1 003	1 016	-1 %	2 988	2 918	2 %
EBITDA (adjusted)	225	214	5 %	573	566	1 %
EBITA (adjusted)	165	157	5 %	394	403	-2 %
Amortisation intangibles	0	0		0	- 1
Other income and expenses	0	14		0	14
EBIT	165	171	-4 %	394	416	-5 %
Financial items, net	-12	- 7		-23	-35
Profit/loss before taxes	153	164	-7 %	371	381	-3 %
Taxes	-43	-48		-106	-110
Profit/loss for the period	110	116	-5 %	265	271	-2 %
Profit/loss attributable to non-controlling interests	0	- 4		- 1	- 2
Profit/loss attributable to owners of the parent	110	120		266	273
Cash flow from operating activities	227	180		355	394
Earnings per share (NOK)	1,10	1,20	-8 %	2,66	2,73	-3 %
Adjusted EBITDA margin	22,4 %	21,1 %		19,2 %	19,4 %
Adjusted EBITA margin	16,5 %	15,5 %		13,2 %	13,8 %

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

Operating revenues and EBITA per segment

Amounts in NOK million				Amounts in NOK million
Operating revenues	Q3-2014	Q3-2013	Change	Operating profit - EBITA	Q3-2014	Q3-2013	Change
Borregaard	1003	1016	-1 %	Borregaard	165	157	5 %
Performance Chemicals	467	416	12 %	Performance Chemicals	125	86	45 %
Specialty Cellulose	384	435	-12 %	Specialty Cellulose	54	75	-28 %
Other Businesses	169	179	-6 %	Other Businesses	-14	- 4	-
Eliminations	-17	-14

Amounts in NOK million				Amounts in NOK million
Operating revenues	Q3-2014	Q3-2013	Change	Operating profit - EBITA	Q3-2014	Q3-2013	Change
Borregaard	1003	1016	-1 %	Borregaard	165	157	5 %
Performance Chemicals	467	416	12 %	Performance Chemicals	125	86	45 %
Specialty Cellulose	384	435	-12 %	Specialty Cellulose	54	75	-28 %
Other Businesses	169	179	-6 %	Other Businesses	-14	- 4	-

Amounts in NOK million				Amounts in NOK million
Operating revenues	YTD-2014	YTD-2013	Change	Operating profit - EBITA	YTD-2014	YTD-2013	Change
Borregaard	2 988	2 918	2 %	Borregaard	394	403	-2 %
Performance Chemicals	1 381	1 225	13 %	Performance Chemicals	329	239	38 %
Specialty Cellulose	1 122	1 216	-8 %	Specialty Cellulose	110	189	-42 %
Other Businesses	537	517	4 %	Other Businesses	-45	-25	-80 %
Eliminations	-52	-40

Amounts in NOK million	Amounts in NOK million

Cash flow

Amounts in NOK million

	Q3-2014	Q3-2013	YTD-2014	YTD-2013	FY-2013
Amounts in NOK million
Profit before taxes	153	164	371	381	460
Amortisation, depreciation and impairment charges	60	66	179	172	231
Change in net working capital, etc	7	-32	-77	-124	-17
Dividend (share of profit) from JV	21	-6	8	-16	-19
Taxes paid	-14	-12	-126	-19	-129
Cash flow from operating activities	227	180	355	394	526
Investments property, plant and equipment and intangible assets	-79	-33	-162	-182	-288
Other capital transactions	0	3	2	7	2
Cash flow from Investing activities	-79	-30	-160	-175	-286
Dividends	0	0	-109	-100	-100
Proceeds from exercise of share options	4	0	44	0	-33
Buy-back of treasury shares	-7	-22	-62	-22	0
Change in equity hedge	-11	0	-4	0	0
Net paid to/from shareholders	-14	-22	-131	-122	-133
Change in interest-bearing liabilities	-13	-82	-27	-107	-218
Change in interest-bearing receivables	0	1	-4	-2	-1
Change in net interest-bearing liablities	-13	-81	-31	-109	-219
Cash flow from financing activities	-27	-103	-162	-231	-352
Change in cash and cash equivalents	121	47	33	-12	-112
Cash and cash equivalents as of beginning of period	-44	89	39	134	134
Change in cash and cash equivalents	121	47	33	-12	-112
Currency effects cash and cash equivalents	2	0	7	14	17
Cash and cash equivalents at the close of the period	79	136	79	136	39

Balance sheet

Amounts in NOK million

	30.09.2014	30.06.2014	31.12.2013
Assets:
Intangible assets	69	58	57
Property, plant and equipment	1 911	1 904	1 941
Other assets	78	57	51
Investments in joint venture	91	114	101
Non-current assets	2 149	2 133	2 150
Inventories	548	556	545
Receivables	713	759	693
Cash and cash deposits	79	48	39
Current assets	1 340	1 363	1 277
Total assets	3 489	3 496	3 427
Equity and debt:
Group Equity	2 028	1 908	1 847
Non-controlling interests	7	8	9
Equity	2 035	1 916	1 856
Provisions and other non-current liabilities	143	144	141
Interest-bearing liabilities	746	763	774
Non-current liabilities	889	907	915
Interest-bearing liabilities	7	95	6
Other liabilities	558	578	650
Current liabilities	565	673	656
Equity and liabilities	3 489	3 496	3 427
Equity ratio (%):	58,3 %	54,8 %	54,2 %

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

Amounts in NOK million
Net financial items	Q3-2014	Q3-2013	YTD-2014	YTD-2013
Net interest expenses	- 8	- 8	-23	-26
Currency gain/loss	- 3	1	1	- 8
Other financial items, net	- 1	0	- 1	- 1
Net financial items	-12	- 7	-23	-35

Amounts in NOK million
------------------------	--	--	--	--

Net interest-bearing debt	30.09.2014	30.06.2014	31.12.2013
Non-current interest-bearing liabilities	746	763	774
Current interest-bearing liabilities	7	95	6
Non-current interest-bearing recievables	-17	-17	-13
Cash and cash deposits	-79	-48	-39
Net interest-bearing debt	657	793	728

Debt, credit facilities and solidity

• Debt and overdraft facilities – Long-term credit facilities • 1,500 mNOK 5-year revolving credit facilities, maturity 2019 • 400 mNOK 5-year bond issue, maturity 2019 • 40 mEUR 10-year loan, maturity 2024 – 195 mNOK in overdraft facilities • Solidity (covenants) – Equity ratio 58,3% (> 25%) – Leverage ratio LTM 0.92 (< 3.25)

Debt and undrawn facilities 30.09.2014

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 third quarter of 2014, held on 22 october 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.