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Borregaard

Investor Presentation • Oct 23, 2018

3562_rns_2018-10-23_9dbe10a1-f6ba-49b2-a9f4-95f2b91feb5a.pdf

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3R D Q U A R T E R 2 0 1 8

O s l o , 2 3 O c t o b e r 2 0 1 8

Agenda

  • Per A Sørlie, President & CEO
  • •Highlights
  • •Business areas
  • Outlook

•

  • Per Bjarne Lyngstad, CFO
  • Financial performance

Highlights – 3rd quarter 2018

  • •EBITA adj.1 145 mNOK (197 mNOK)
  • • Negative impact from Florida start-up and higher lignin distribution costs
  • • Positive sales development for Industrial2 and Specialities in Performance Chemicals
  • • Lower acetate sales and cost increases for input factors in Speciality Cellulose
  • •Improved result in Ingredients
  • •Positive net currency impact

Performance Chemicals markets – Q3

  • • Sales volume increased by 9% vs Q3-17
  • •Volume growth above 10% for both Industrial and Specialities
  • •Slight reduction in finished goods inventories
  • • Average price in sales currency -3% vs Q3-17
  • •Continued strong price pressure in the construction sector
  • •Increased sales in Specialities and diversification towards Industrial

1 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.

Speciality Cellulose markets – Q3

  • • Weaker product mix due to lower sales of acetate cellulose
  • •Acetate market remains challenging, ether market continues to grow
  • •Stable cellulose prices in sales currency
  • •Higher sales prices and improved product mix in Bioethanol

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

Ingredients and Fine Chemicals markets – Q3

  • • Ingredients

  • Higher sales prices and continued positive market trend for wood-based vanillin

  • • Fine Chemicals

  • •Sales in line with Q3-17, but unfavourable mix

Outlook

•Performance Chemicals

  • •Continued strong competition and price pressure for lignin to the construction sector
  • •Diversification strategy will drive growth for industrial products
  • •Positive development for Specialities expected to continue
  • •Q4 sales volume forecast to be slightly below Q3-18
  • •Distribution costs will gradually decline over the next quarters
  • • In Q4, fixed costs and depreciation for the Florida plant expected to be ~20 mNOK higher than Q4-17
  • • Speciality Cellulose
  • • Cellulose prices in sales currency expected to be in line with 2017 both in Q4 and for the full year
  • •Total sales volume in Q4 expected to be similar to Q4-17, but with a weaker product mix
  • • Other Businesses
  • •Positive market trend for wood-based vanillin expected to continue in Q4
  • •Deliveries from Fine Chemicals forecast to be higher than Q3-18
  • •Cellulose Fibrils result and net corporate costs expected to be in line with Q3-18
  • • In Q4, wood and caustic soda costs will continue at the level seen in Q3-18, while energy prices will be higher

F I N A N C I A L P E R F O R M A N C E Q 3 - 1 8

Borregaard key figures – Q3

  • •Revenues 6% above Q3-17
  • • EBITA adj. 1 145 mNOK for the Group
  • •Other Businesses improved, while Performance Chemicals and Speciality Cellulose had a decline
  • •Higher costs and depreciation (Florida start-up, lignin distribution costs, wood, caustic)
  • •Net FX impact positive
  • • EPS at NOK 1.27 (NOK 1.47)
  • •20 mNOK gain on sale of a minority stake in a fine chemical company in USA (financial item)

Performance Chemicals key figures – Q3

  • •Revenues 7% above Q3-17
  • 9% higher sales volume
  • Higher sales volume, especially for industrial and specialities products
  • ~30 mNOK increased fixed costs and depreciation in Florida, of which 5 mNOK in various start-up costs
  • •~15 mNOK higher distribution costs
  • Lower average price from continued price pressure in Construction
  • •Insignificant net FX impact

• EBITA adj. margin1declined significantly vs Q3-17

Speciality Cellulose key figures – Q3

  • Revenues -1% vs Q3-17
  • •Weaker product mix for cellulose products

  • Increased bioethanol revenues

  • • Lower acetate cellulose sales

  • •Increased wood and caustic soda prices
  • •Lower energy costs
  • •Improved result for Bioethanol
  • •Positive net FX impact

• EBITA adj. margin1declined vs Q3-17

Other Businesses key figures – Q3

  • •Revenues 13% above Q3-17

  • •Higher sales in Ingredients

  • • Ingredients: Stronger result due to higher sales Ingredients: prices and positive market trend for wood-based vanillin

  • • Fine Chemicals: Lower result from unfavourable Fine sales mix and higher raw material costs
  • • Cellulose Fibrils and Corporate costs Corporate costs costs in line with Q3-17
  • •Net FX effect insignificant for Other Businesses

Currency impact

  • • Net FX EBITA adj.1 impact 15 mNOK vs Q3-17
  • •Includes change in hedging effects and based on estimated FX exposure
  • •Net FX EBITA adj.1 impact YTD 20 mNOK
  • • Net FX EBITA adj.1 impact for the full year estimated to be 35 mNOK vs 2017
  • •Assuming rates as of 22 October (USD 8.24 and EUR 9.47) on expected FX exposure
  • •Net FX EBITA adj.1 impact in Q4 estimated to be 15 mNOK vs Q4-17
  • •Significant FX exposure, but delayed impact of FX rate fluctuations due to hedging policy

3Currency basket based on Borregaard's net exposure in 2017 (=100): USD 69% (approx. 206 mUSD), EUR 31% (approx. 84 mEUR), Other 0% (GBP, BRL, JPY, SEK, ZAR).

1 Non-GAAP measure, see Appendix for definition.

2See appendix for currency hedging strategy, future hedges and hedging effects by segment.

Cash flow, investments and NIBD

  • • Cash flow from operations1 declined vs Q3-17
  • • Lower EBITDA adj. 1impact and unfavourable net working capital development vs Q3-17
  • • Expansion investments1mainly related to lignin operation upgrade in Norway and Ice Bear project

  • •NIBD1 declined by 98 mNOK in Q3

  • •Per A Sørlie, President & CEO

  • •Per Bjarne Lyngstad, CFO

A P P E N D I X

Borregaard – key figures

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Operating revenues and EBITA adj.1per segment

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1
Ex
ion
inv
tm
ts
p
an
s
es
en		 1
1
1		 1
7
9		 3
9
2		 4
2
9		 6
2
4

1 Non-GAAP measure, see Appendix for definition.

Balance sheet

l
l
Am
Am
in
in
N
N
O
O
K
K
i
io
ts
ts
ou
ou
n
n
m
n		 3
0.
0
9.
2
0
1
8		 3
0.
0
6.
2
0
1
8
3
0.
0
6.
2
0
1
8		 3
1.
1
2.
2
0
1
7
3
1.
1
2.
2
0
1
7
As
ts
se
:
b
le
In
i
ta
ts
ng
as
se		 9
9		 1
0
3		 1
1
1
lan
d
Pr
ip
ty
t a
t
op
er
p
n
eq
u
m
en
,		 3
4
5
0		 3
3
4
5		 3
1
2
6
he
O
t
ts
r a
ss
e		 1
0
1		 8
9		 9
3
In
in
j
in
tm
t
t v
tu
ve
s
en
o
en
re		 9
6		 1
0
2		 1
1
8
N
N
t
t
ts
ts
on
on
-c
-c
ur
ur
re
re
n
n
as
as
se
se		 3
7
4
6
7
4
6		 3
6
3
9
3		 3
4
4
8
3
4
4
8
In
ies
to
ve
n
r		 8
4
6		 7
8
4		 7
3
4
b
les
Re
iva
ce		 9
5
2		 1
0
0
4		 9
7
1
h
d
h
de
Ca
i
ts
s
an
ca
s
p
os		 2
3
1		 9
0		 1
8
0
Cu
t
ts
rr
en
as
se		 2
0
2
9		 8
8
1
7		 8
8
1
1
8
8
5
5
l a
To
ta
ts
ss
e		 5
7
7
5		 5
5
1
7
5		 5
3
3
3
5
3
3
3
d
l
b
l
Eq
i
ia
i
i
ie
ty
t
u
a
n
s:
Gr
i
ty
ou
p
eq
u		 3
0
9
1		 2
9
8
7		 2
8
8
9
l
l
No
in
in
tr
te
ts
n-
co
n
o
g
re
s		 1
1
6		 1
3
7		 1
0
7
i
Eq
ty
u		 3
2
2
5		 3
3
1
1
5		 2
9
9
6
2
9
9
6
he
l
b
l
d
Pr
is
io
ia
i
i
ies
t
t
ov
ns
a
n
o
r		 2
4
6		 2
5
0		 2
7
7
be
l
b
l
in
ia
i
i
ies
In
te
t-
t
re
s
ar
g		 0
6
1
1		 0
1
1
1		 3
7
4
l
l
b
b
l
l
N
N
ia
ia
i
i
i
i
ie
ie
t
t
t
t
on
on
-c
-c
ur
ur
re
re
n
n
s
s		 1
3
3
0
0
7
7		 1
2
6
1		 1
1
0
0
2
2
0
0
be
l
b
l
in
ia
i
i
ies
In
te
t-
t
re
s
ar
g		 2
0
7		 2
3
7		 2
8
3
he
l
b
l
O
ia
i
i
ies
t
t
t
r c
ur
re
n		 9
7
3		 8
6
8		 1
0
3
4
l
l
b
b
l
l
Cu
ia
ia
i
i
i
i
ie
ie
t
t
t
rr
en
s
s		 1
2
2
4
4
3
3		 1
1
4
1		 1
1
3
3
1
1
7
7
l
l
b
b
l
l
d
d
Eq
Eq
i
i
ia
ia
i
i
i
i
ie
ie
ty
ty
t
t
u
u
a
a
n
n
s
s		 5
7
7
7
7
5
5		 5
5
5
1
7		 5
5
3
3
3
3
3
3
1
(
)
%
Eq
i
io
ty
t
u
ra
:		 8
%
5
5,		 6,
%
5
5		 6,
2
%
5

1 Non-GAAP measure, see Appendix for definition.

Net financial items & net interest-bearing debt1

l
l
Am
in
O
K
i
io
N
ts
ou
n
m
n
f
l
N
in
ia
i
t
te
e
an
c
m
s		 Q
3-
2
0
1
8		 Q
3-
2
0
1
7
Q
3-
2
0
1
7		 Y
T
D-
2
0
1
8
Y
T
D-
2
0
1
8		 Y
T
D-
2
0
1
7
Y
T
D-
2
0
1
7
Ne
in
t
te
t e
re
s
xp
en
se
s		 -1
1		 -7 -2
0		 -1
4
/
lo
Cu
in
rre
nc
y
g
a
ss		 -2 2 -3 4
he
f
l
O
in
ia
i
t
te
t
r
an
c
m
s,
ne		 1
9		 -1 1
8		 -1
f
l
N
in
ia
i
t
te
e
an
c
m
s		 6 -6 -5 -1
1
l
l
Am
in
N
O
K
i
io
ts
ou
n
m
n
1
be
de
b
(
)
in
in
I
N
N
B
D
t
te
t-
t
e
re
s
ar
g		 3
0.
0
9.
2
0
1
8		 3
0.
0
6.
2
0
1
8		 3
1.
1
2.
2
0
1
7
be
l
b
l
No
in
in
ia
i
i
ies
t
te
t-
t
n-
cu
rre
n
re
s
ar
g		 1
0
6
1		 1
0
1
1		 7
4
3
be
l
b
l
lu
d
dr
f
f c
hp
l
Cu
in
in
ia
i
i
ies
in
in
t
te
t-
t
t o
rre
n
re
s
ar
g
c
g
ov
er
a
as
oo		 2
7
0		 2
7
3		 2
8
3
be
b
les
(
lu
de
d
"O
he
")
No
in
in
iva
in
in
As
t
te
t-
t
ts
n-
cu
rre
n
re
s
ar
g
re
ce
c
r
se		 -4 0 -1
h
d
h
de
Ca
i
ts
s
an
ca
s
p
os		 -2
3
1		 -9
0		 -1
8
0
1
(
)
be
de
b
N
in
in
N
I
B
D
t
te
t-
t
e
re
s
ar
g		 0
9
6
1		 9
1
1
1
9
4
4		 8
4
5

Currency hedging strategy

Purpose is to delay effects of currency fluctuations and secure competitiveness

  • • Hedging based on expected EBITA adj. impact 1
  • •Base hedge: 75%/50% on a rolling basis for 6/9 months Base hedge: for major currencies
  • • Extended hedge: 75%/50% of the next 24/36 months if US Extended hedge: D and EUR are above defined levels EUR; effective rate above 8.50
    • USD; gradually at effective rates between 7.50 and 8.50
  • • Contracts2: 100% hedged
  • •Balance sheet exposure hedged 100%
  • •Net investments in subsidiaries hedged up to 90% of book value in major currencies
U
S
D
l
l
i
io
m
n		 U
S
D
te
ra		 E
U
R
l
l
i
io
m
n		 E
U
R
te
ra
Q
2
0
8
4-
1		 3
8		 8.
6
4		 2
1		 9.
5
4
2
0
1
9		 1
1
8		 8.
3
3		 8
7		 9.
6
1
2
0
2
0		 8
4		 8.
1
4		 7
6		 9.
7
9
2
0
2
1		 4
3		 7.
8
9		 3
9		 1
0.
0
8

Contracted FX hedges with EBITA adj. impact (as of 22.10.18 22.10.1822.10.18) Hedging effects by segment effects by

l
l
N
O
K
i
io
m
n		 Q
3-
1
8		 Q
3-
1
7		 Y
T
D-
1
8		 Y
T
D-
1
7
fo
Pe
r
rm
an
ce
he
ls
C
ica
m		 0 0 2 -1
8
l
Sp
ia
i
ty
ec
l
lu
lo
Ce
se		 -2 -3 -2 -3
0
he
O
t
r
Bu
in
s
es
se
s		 -5 -2 -1
0		 -1
4
d
d
Bo
Bo
rre
rre
g
g
aa
aa
r
r		 -7
-		 -5 -1
0		 -6
2

1Hedging done mainly in the Norwegian company

2Strict definition of contracts applied for 100% hedging (mutually binding agreement in which price, currency, volume and time are defined)

Credit facilities, solidity and debt

Long-term credit facilitiesterm credit

  • • 1,500 mNOK revolving credit facilities, maturity 2021
  • •200 mNOK 5-year bond issue, maturity 2019
  • •400 mNOK 5-year bond issue, maturity 2023
  • •40 mEUR 10-year loan, maturity 2024
  • • 60 mUSD term loan for LT Florida, tenor 8.5 years from completion

Short-term credit facilities term credit facilities

•225 mNOK overdraft facilities

Solidity (covenants)

  • • Equity ratio155.8% (> 25%)
  • • Leverage ratio1LTM 1.2 (< 3.25)

Non-GAAP measures

In the discussion of the reported operating results, financial position and cash flows, Borregaard refers to certain measureswhich 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:
  • •Cash flow from operating activities (IFRS) + tax paid +/- net financial items +/- dividend (share of profit) from JV.
  • • EBITA adjusted (EBITA adj.)
  • •Operating profit before amortisation and other income and expenses.
  • • EBITA adj. margin
  • •EBITA adj. divided by operating revenues
  • • EBITDA adjusted (EBITDA adj.)
  • •Operating profit before depreciation, amortisation and other income and expenses.
  • • Equity ratio
  • •Equity (including non-controlling interests) divided by equity and liabilities.
  • • Expansion investments
  • • 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 R&D costs and new distribution set-ups.
  • • Other income and expenses
  • • 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
  • •Net interest-bearing debt divided by last twelve months' (LTM) EBITDA adj.
  • • Net interest-bearing debt (NIBD)
  • •Interest-bearing liabilities minus interest-bearing assets (see slide 26)
  • • Return on capital employed (ROCE)
  • • Last twelve months' (LTM) EBITA adj. divided by average capital employed based on the ending balance of the last five quarters. 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.

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 2018, held on 23 October 2018. 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.

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