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Borregaard

Investor Presentation • Jul 16, 2019

3562_rns_2019-07-16_5fbd6115-1517-475a-8573-a82896a914f5.pdf

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2N D Q U A R T E R 2 0 1 9

O s l o , 1 6 J u l y 2 0 1 9

Agenda

  • •Per A Sørlie, President & CEO

    • •Highlights

  • •Business areas

  • •Projects update
  • •Outlook
  • •Per Bjarne Lyngstad, CFO
    • •Financial performance

Highlights – 2nd quarter 2019

  • •EBITA adj.1 179 mNOK (164 mNOK)
  • •Favourable product mix for Performance Chemicals
  • •Higher wood costs affecting Speciality Cellulose
  • •Continued strong improvement in Ingredients
  • •Positive net currency impact

Performance Chemicals markets – Q2

  • •Favourable product mix
  • •Lower prices in sales currency to concrete admixtures
  • •Positive FX effects

•Sales volume 2% higher vs Q2-18

  • •Sales development in certain markets slower than expected
  • • Volume growth for Industrial products and Specialities, Construction volumes slightly lower vs Q2-18
  • •Florida plant sales volume in accordance with the ramp-up plan

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

Speciality Cellulose markets – Q2

  • •Slightly lower prices for certain grades vs Q2-18, partly compensated by improved product mix
  • •High sales volume of speciality cellulose
  • •High deliveries of bioethanol
  • •Positive FX impact

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

Ingredients & Fine Chemicals markets – Q2

•Ingredients

  • •High sales prices for wood based vanillin
  • •Favourable product mix vs Q2-18

•Fine Chemicals

  • •Low deliveries
  • •Lower average prices in sales currency vs Q2-18

Capacity increase for wood based vanillin

  • •Capacity increase at least 250 tonnes
    • •Part of the increase will be realised before end 2019
  • •Construction to start H2-19, completion H1-21
  • •Debottlenecking of existing facility
  • •Capex 130 mNOK

Increased utilisation of residuals as bioenergy

  • • Residuals from production processes at the Sarpsborg site are used as bioenergy
  • • Removal of water and salts before burning will increase efficiency and capacity
  • • Investment cost 131 mNOK, support from Enova mNOK 46,2 (net capex mNOK 85)

  • •Completion 2021

  • • Energy savings 20 GWh per year, longer term potential 34 GWh

  • • Reducing CO₂ emissions by 1,200 tonnes, longer term 1,400 tonnes

Norway lignin upgrade/logistics projects

Sarpsborg upgrade/specialisation

  • •Additional dryer with packaging capacity
  • •Improved solution for logistics of liquid materials
  • •Capex ≈10% below 500 mNOK budget
  • •Annual cost savings > 40 mNOK, gradual realisation from 2020
  • •Several further benefits
  • •In operation from July 2019

New lignin warehouse at the Port of Borg

  • •New modern warehouse for dried lignin
  • •Built, owned and operated by the Port of Borg (IFRS 16 Leases effects)
  • •In operation from June 2019

Increased depreciation (total both projects)

•15 mNOK in H2-19

Restructuring of German lignin operation

  • • Drying capacity utilised for balancing liquid volumes from Norway and other European sources
  • • Increased drying capacity in Norway reduces the need for drying in Germany

  • •Operation will be aligned with future needs

    • •Reduced logistics costs and manning

  • •Annual cost savings ≈20 mNOK from 20201

  • •Restructuring costs 16 mNOK recognised in Q2-19

1 In addition to the expected cost savings for the lignin operation upgrade and specialisation in Norway

Outlook

  • •Performance Chemicals
    • •2019 sales volume forecast to increase by ≈5%
    • • Continued strong competition and price pressure for lignin products to concrete admixtures expected to be compensated by diversification and specialisation
    • •Fixed costs and depreciation for the Florida plant expected to be ≈45 mNOK above 2018
    • • In H2-19, depreciation will increase by ≈15 mNOK related to the upgrade of the lignin operation and the new warehouse in Norway
  • •Speciality Cellulose
    • •Average cellulose price in sales currency expected to be in line with 2018 level
    • • Improved product mix will compensate for weaker prices for acetate and textile cellulose, however a more specialised product mix implies a higher manufacturing cost
    • •Wood prices for H2-19 agreed with most suppliers; wood costs reduced vs H1-19 and slightly above H2-18
    • • Q3 sales volume forecast expected to be lower vs Q2-19, volume of highly specialised products expected to be in line with Q2-19
  • •Other Businesses
    • •Ingredients expected to continue to deliver strong results in H2-19, driven by the positive market trend for wood based vanillin
    • •No major changes expected in market conditions for Fine Chemicals
    • •Sales will gradually increase for Cellulose Fibrils, but long lead-times for conversion of sales prospects. Remaining grant from EU Horizon 20201 will cover a smaller share of costs than in previous years

1The Exilva 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.

F I N A N C I A L P E R F O R M A N C E Q 2 - 1 9

Borregaard key figures – Q2

•Revenues 12% above Q2-18

  • •EBITA adj.1 increased to 179 mNOK for the Group
    • •Performance Chemicals and Other Businesses results improved vs Q2-18, whereas Speciality Cellulose had a decline
    • •Positive FX effects in all segments
  • •EPS at NOK 1.22 (NOK 1.32)
    • •16 mNOK accrued as Other expenses 1 for restructuring of German operation

Performance Chemicals key figures – Q2

Speciality Cellulose key figures – Q2

Other Businesses key figures – Q2

  • •Revenues 21% above Q2-18

  • •Higher sales in Ingredients

  • • Ingredients: Strong result from higher sales prices Ingredients for wood based vanillin and a favourable product mix vs Q2-18

  • •Fine Chemicals: Weaker result from lower deliveries Fine Chemicals and lower average price in sales currency

  • •Cellulose Fibrils: Slightly improved result; higher Fibrils: sales and improved productivity more than compensated for reduced cost coverage2

  • •Corporate costs were in line with Q2-18
  • •Positive net FX effects for Other Businesses

1 Alternative performance measure, see Appendix for definition

2 The Exilva 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.

Currency impact

  • •Net FX EBITA adj.1 impact +30 mNOK vs Q2-18
    • •Includes change in hedging effects and based on estimated FX exposure
    • •Net FX EBITA adj.1 impact YTD +60 mNOK
  • •Net FX EBITA adj.1 impact in 2019 estimated to be +75 mNOKvs 2018
    • •Assuming rates as of 15 July (USD 8.54 and EUR 9.62) on expected FX exposure
    • •Net FX EBITA adj.1 impact in Q3 estimated to be +15 mNOK vs Q3-18
  • •Significant FX exposure, but delayed impact of FX rate fluctuations due to hedging policy

1Alternative performance measure, see Appendix for definition.

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

3Currency basket based on Borregaard's net exposure in 2018 (=100): USD 65% (approx. 190 mUSD), EUR 34% (approx. 84 mEUR), Other 1% (GBP, BRL, JPY, SEK, ZAR).

Cash flow, investments and NIBD

  • •Cash flow from operations1 declined vs Q2-18
    • •Unfavourable development in net working capital vs Q2-18, partly offset by cash effect of increased EBITDA adj. 1

  • •Investments lower than Q2-18

  • • Expansion investments mainly related to the upgrade and specialisation of the lignin operation in Norway and completion of the lignin plant in Florida

  • •NIBD1 increased by 248 mNOK in Q2
    • •Dividend payment of 224 mNOK

1 Alternative performance measure, see Appendix for definition

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

A P P E N D I X

Borregaard – key figures

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Effects of IFRS 16 Leases – 1st half of 2019

(
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1 Alternative performance measure, see Appendix for definition

1 5 . 0 7 . 2 0 1 9

Operating revenues and EBITA adj.1 per segment

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Cash flow

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are
rs		 -2
29		 -2
30		 -2
33		 -1
95		 -2
30
fro
Pro
ds
int
bea
rin
liab
iliti
st-
cee
m
ere
g
es		 1 0
00		 96
9		 1 3
47		 1 2
02		 1 2
92
fro
bea
liab
iliti
Re
int
rin
nt
st-
pay
me
m
ere
g
es		 -83
7		 -73
1		 -1
05
3		 -93
3		 -96
0
Ch
bea
ble
/o
the
r lia
bili
e in
int
rin
iva
tie
st-
ang
ere
g r
ece
s
s		 1 -4 -7 -11 -2
Ch
Ch
in
in
t i
t-b
rin
lia
bli
tie
nte
an
an
ge
ge
ne
res
ea
g
s		 16
4		 23
4		 28
7		 25
8		 33
0
sh
flo
w f
fin
Ca
cin
cti
vit
ies
ro
m
an
g a		 -6
5		 4 54 63 10
0
Ch
Ch
in
in
sh
sh
d c
d
h e
iva
len
ts
an
an
ge
ge
ca
ca
an
an
as
qu		 -7
6		 1 -2
7		 -8
2		 -9
1
sh
d c
ash
ale
beg
of
d
Ca
uiv
inn
ing
rio
nts
at
an
eq
pe		 13
4		 92 86 18
0		 18
0
Ch
e in
sh
and
sh
uiv
ale
nts
ang
ca
ca
eq		 -76 1 -27 -82 -91
eff
ash
d c
ash
ale
Cu
uiv
ect
nts
rre
ncy
s c
an
eq		 1 -3 0 -8 -3
sh
sh
d c
d c
h e
h e
len
len
th
nd
d o
of
f t
th
he
od
Ca
Ca
iva
iva
eri
ts
ts
at
at
an
an
as
as
qu
qu
e e
en
e p		 5
59		 90 59 90 86
* In
t b
stm
ate
ve
en
y c
go
ry
lac
Re
In
ent
tm
ent
p
em
ves
s		 54 51 13
0		 83 34
6
1
Exp
sio
n in
tm
ent
an
ves
s		 92 13
6		 13
9		 28
1		 41
6

1Alternative performance measure, see Appendix for definition

Balance sheet

l
l
Am
in
N
N
O
O
K
K
i
io
nt
ou
s
m
n		 3
3
0.
0.
6.
6.
2
2
0
0
1
1
9
9		 3
3
3
1.
1.
1.
3.
3.
3.
2
2
2
0
0
0
1
1
1
9
9
9		 3
3
1.
1.
1
1
2.
2.
2
2
0
0
1
1
8
8
As
ts
se
:
b
le
Int
i
ts
an
g
as
se		 9
2		 9
5		 1
0
0
lan
d e
Pro
ip
ert
t a
nt
p
y,
p
n
q
u
me		 4
1
0
2		 3
8
7
5		 3
6
2
3
he
Ot
ts
r a
sse		 2
2
5		 2
3
0		 2
3
0
Inv
in
j
int
tm
t
nt
es
en
o
ve
ur
e		 1
0
0		 9
8		 1
0
0
No
nt
et
ts
n-
cu
rre
a
as
ss
se
s		 4
5
1
9
5
1
9		 4
2
9
8
4		 4
0
5
3
ies
Inv
to
en
r		 9
0
7		 9
0
8		 8
5
6
iva
b
les
Re
ce		 0
9
2
1		 0
8
1
1		 9
6
5
h a
d c
h
de
Ca
its
s
n
as
p
os		 7
7		 1
3
4		 8
6
Cu
nt
et
rre
a
ss
s		 2
0
7
6		 2
1
1
2
2
3
3		 1
8
8
9
9
8
8
l a
To
ta
et
ss
s		 6
5
9
5		 6
4
2
1		 5
9
5
1
5
d
l
b
l
Eq
ity
ia
i
it
ies
u
a
n
:
Gr
ity
ou
p
eq
u		 3
1
8
9		 3
2
9
6		 3
1
2
3
l
l
ing
int
No
nt
sts
n-
co
ro
ere		 2
1
7		 8
8
1		 9
8
1
Eq
ity
u		 3
3
6
1		 3
3
4
4
8
8
4
4		 3
3
3
3
2
2
1
1
d o
he
l
b
l
Pro
is
ion
ia
i
it
ies
t
v
s a
n
r		 2
4
0		 2
4
1		 2
7
1
be
l
b
l
Int
ing
ia
i
it
ies
st-
ere
ar		 1
5
2
6		 1
3
2
3		 1
1
1
5
l
l
b
b
l
l
No
ia
ia
i
i
it
it
ies
ies
nt
n-
cu
rre		 1
7
6
6
7
6
6		 1
5
6
4
5
6
4		 1
3
8
6
3
8
6
be
l
b
l
Int
ing
ia
i
it
ies
st-
ere
ar		 5
8
0		 4
1
5		 2
7
2
he
l
b
l
Ot
ia
i
it
ies
t
r c
ur
ren		 8
8
8		 9
5
8		 9
7
2
l
l
b
b
l
l
Cu
ia
ia
i
i
it
it
ies
ies
nt
rre		 1
4
6
8
1
4
6
8		 1
3
7
3
1
3
7
3		 1
2
4
4
1
2
4
4
ity
d
d
l
l
ia
ia
b
b
i
i
l
l
it
it
ies
ies
Eq
u
a
an
n		 6
9
6
5
5
9
5
5		 6
4
2
1		 9
1
5
5
5
1
(
)
%
Eq
ity
io
t
u
ra
:		 5
1,
0
%		 5
4,
3
%		 5
5,
8
%

Net financial items & net interest-bearing debt1

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

Currency hedging strategy

Purpose is to delay effects of currency fluctuations and secure competitiveness

  • •Hedging based on expected EBITA adj. impact1

    • •Base hedge: 75%/50% on a rolling basis for 6/9 monthhedge:s for major currencies
    • •Extended hedge: 75%/50% of the next 24/36 months if Extended USD 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
ion
m		 U
S
D
rat
e		 E
U
R
l
l
i
ion
m		 E
U
R
rat
e
Q
3-
2
0
1
9		 3
5		 8.
2
9		 2
3		 9.
6
2
Q
4-
2
0
1
9		 3
7		 8.
4
0		 2
4		 9.
6
3
Ro
Y
2
0
1
9		 7
2		 8.
3
5		 4
7		 9.
6
3
2
0
2
0		 1
3
4		 8.
2
6		 9
1		 9.
8
2
2
0
2
1		 1
1
0		 8.
1
9		 7
6		 1
0.
1
0
2
0
2
2		 4
7		 8.
4
4		 3
3		 1
0.
2
6

Contracted FX hedges with EBITA adj. impact (as of 15.07.19)

Hedging effects by segment Hedging effects by segment

l
l
N
O
K m
i
ion		 Q
2-
1
9		 Q
2-
1
8		 Y
T
D-
1
9		 Y
T
D-
1
8
fo
he
ls
Pe
C
ica
r
rm
an
ce
m		 -3 0 -5 2
Sp
ia
l
ity
Ce
l
lu
los
ec
e		 -7 -2 -1
1		 0
he
Ot
Bu
ine
r
s
sse
s		 -3 -4 -5 -5
d
Bo
rre
g
aa
r		 -1
3
-		 -6 -2
1		 -3

1 Hedging done mainly in the Norwegian company

2 Strict 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

  • •1,500 mNOK revolving credit facilities, maturity 2021
  • •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 facilities

  • •225 mNOK overdraft facilities
  • •400 mNOK commercial paper

•Solidity (covenants)

  • •Equity ratio1 51.0% (> 25%)
  • •Leverage ratio1 LTM 1.77 (< 3.25)

Debt and undrawn facilities

Alternative performance measures

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: Cash flow from operatingCash flow operations: 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 radj. evenues

  • •EBITDA adjusted (EBITDA adj.): Operating profit befEBITDA (EBITDA adj.): ore depreciation, amortisation and other income and expenses.
  • •Equity ratio: Equity (including non-controlling intratio: erests) divided by equity and liabilities.
  • • Expansion investments: Investments made in order to Expansion investments: 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 i and tems 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 bratio: y last twelve months' (LTM) EBITDA adj., excluding the impact on EBITDA of IFRS 16 Leases.
  • •Net interestinterest-bearing debt (NIBD): bearing debt (NIBD): bearing (NIBD): Interest-bearing liabilities, excluding the impact of IFRS 16 Leases, minus interest-bearing assets (see slide 26).
  • • Return on capital employed (ROCE): Last twelve mont capital employed hs' (LTM) EBITA adj., excluding the impact of IFRS 16 Leases, 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 (excluding the impact of IFRS 16 Leases) 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 second quarter of 2019, held on 16 July 2019. 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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