1 ST QUARTER 2020 S a r p s b o r g , 2 9 A p r i l 2 0 2 0 - - PowerPoint PPT Presentation

S a r p s b o r g , 2 9 A p r i l 2 0 2 0

1 ST QUARTER 2020

Agenda

• Per A Sørlie, President & CEO
• New business segments
• Highlights
• The coronavirus situation
• Business segments
• Outlook
• Per Bjarne Lyngstad, CFO
• Financial performance

2

New business segments

• Alignment with value chains in production and internal reporting structures
• BioSolutions
• All lignin-based products (biopolymers and biovanillin) organised under one management
• Consists of the previous Performance Chemicals and the Ingredients part of Other Businesses
• BioMaterials
• Products utilising wood fibres as the main raw material
• Includes the speciality cellulose and cellulose fibrils businesses
• Fine Chemicals
• Pharma intermediates (mainly used for diagnostics) and bioethanol (mainly for biofuel)
• Corporate overhead and certain other costs allocated to the three new business segments
• Previously reported under Other Businesses

3

Highlights – 1st quarter 2020

• EBITDA1 242 mNOK (255 mNOK)
• Positive development for Specialities in BioSolutions
• Unfavourable product mix in BioMaterials and Fine

Chemicals

• Higher distribution, maintenance and IT transition

costs, gradual reduction in wood costs

• Positive net currency impact on EBITDA1,

negative impact on equity and NIBD1 from weakened NOK

• Marginal impact from the coronavirus situation

1 Alternative performance measure, see Appendix for definition

4

The coronavirus situation

• Safety and health first
• Emergency measures established and procedures implemented to limit the risk of infection

throughout the organisation

• No material impact in Q1
• Logistical and other practical challenges have been managed without significant adverse

effects on deliveries and production

• Production at LignoTech South Africa temporarily stopped
• Supply of lignin raw material interrupted
• Lignin production stopped until raw material supply is resumed

5

BioSolutions markets – Q1

6 385 5 999 5 865 6 455 6 885 5 000 5 500 6 000 6 500 7 000 7 500 8 000 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

NO NOK K per mt mtds ds

Average gross sales price1

115 125 119 111 115 25 50 75

100 125 150 Q1 Q2 Q3 Q4

‘000 mtds

Sales volume1

2019 2020

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

6

• Average price in sales currency 1% lower compared with Q1-19
• Continued strong competition and price pressure for biopolymers to concrete admixtures and certain low value

Industrial applications

• Favourable product mix within Specialities
• Sales volume in line with Q1-19, Specialities and Construction volumes increased, lower Industrial volumes
• Supply of raw material to LignoTech Ibérica discontinued in February, the supplier Sniace filed for liquidation
• Positive FX effects

Sales price and sales volume include lignin-based biopolymers and biovanillin

BioMaterials markets – Q1

10 724 10 561 10 982 10 417 11 382 8 000 9 000 10 000 11 000 12 000 13 000 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

NO NOK K per mt mt

Average gross sales price1

34,5 42,4 37,6 38,6 40,0 10 20 30 40 50 Q1 Q2 Q3 Q4

‘000 mt

Sales volume

2019 2020 7

• 3% lower average price in sales currency vs Q1’19
• Unfavourable product mix
• High sales volume for speciality cellulose
• Increased sales for cellulose fibrils, but still at a low level
• Positive FX impact

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

Sales price and sales volume include speciality cellulose and cellulose fibrils

Fine Chemicals markets – Q1

8

• Fine Chemicals
• Higher sales revenues in bioethanol
• Unfavourable product mix for pharma intermediates

109 94 95 102 127 25 50 75 100 125 150 Q1 Q2 Q3 Q4

mN mNOK

Fine Chemicals - sales revenues

2019 2020

Sales revenues include pharma intermediates and bioethanol

Outlook

• Coronavirus situation
• Interrupted raw material supply to LignoTech South Africa
• Some orders in certain biopolymers sectors, mainly Construction, cancelled or postponed
• Demand expected to be higher than supply as long as LignoTech South Africa is out of operation
• Possibility for lower growth in world economy and indirect consequences from affected suppliers, business partners or infrastructure
• Focus on closely monitoring the situation and maintaining sufficient financial capacity to mitigate any potential effects
• BioSolutions
• Total sales volume for 2020 forecast to decrease by 5-15%, depending on raw material supply to LignoTech South Africa
• Cost savings in Norway and Germany expected to continue as planned
• The ongoing capacity expansion for biovanillin will be gradually realised in 2020 with full effect from H2-21
• BioMaterials
• Average price in sales currency expected to increase 2% in 2020, mainly from improved product mix
• Sales volume in Q2 expected to be lower vs Q2-19, with similar product mix
• Wood costs in Q2 forecast to be 10-15 mNOK lower vs Q2-19
• EU Horizon 20201 grant in cellulose fibrils will end in April 2020
• Fine Chemicals
• No major changes expected in the market conditions for pharma intermediates
• For bioethanol, increased demand in disinfectants expected to more than compensate for effects of reduced deliveries to biofuel

9

1 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

FIN AN CIAL PERFORMAN CE Q1 -2 0

Borregaard key figures – Q1

1 1 1 250 1 340 1 239 1 234 1 372 250 500 750 1 000 1 250 1 500 Q1 Q2 Q3 Q4

mN mNOK

Operating revenues

2019 2020

255 283 286 183 242 50 100 150 200 250 300 Q1 Q2 Q3 Q4

mN mNOK

EBITDA1

2019 2020

• Revenues 10% above Q1-19
• EBITDA1 242 mNOK for the Group
• Positive development for Specialities in BioSolutions
• Unfavourable product mix in BioMaterials and Fine Chemicals
• Higher distribution, maintenance and IT transition costs, gradual reduction in wood costs
• Positive FX effects on EBITDA1
• EPS at NOK 1.02 (NOK 1.26)

20,4 21,1 23,1 14,8

17,6 5 10 15 20 25 30

Q1 Q2 Q3 Q4

%

EBITDA margin1

2019 2020 1,26 2,48 3,79 4,17

1,02 2 4 6

Q1 Q2 Q3 Q4

NO NOK

Earnings per share

Cumulative

1 Alternative performance measure, see Appendix for definition

BioSolutions key figures – Q1

1 2 755 781 720 726 797 200 400 600 800 Q1 Q2 Q3 Q4

mN mNOK 2019 2020

168 192 156 131 170 50 100 150 200 Q1 Q2 Q3 Q4

mN mNOK 2019 2020

• Revenues 6% above Q1-19
• Sales volume in line with Q1-19
• Average price in sales currency 1% lower
• Positive net FX impact

22,3 24,6 21,7 18,0

21,3

5 10 15 20 25 30 Q1 Q2 Q3 Q4

% 2019 2020

• Favourable product mix within Specialities
• Cost reductions in Norway and Germany
• Higher distribution and other operating costs
• Positive net FX impact
• EBITDA margin1 below Q1-19

Operating revenues EBITDA1

EBITDA margin1

1 Alternative performance measure, see Appendix for definition

BioMaterials key figures – Q1

1 3 394 472 430 416 454 100 200 300 400 500 Q1 Q2 Q3 Q4

mN mNOK 2019 2020

45 64 94 31

46 20 40 60 80 100 Q1 Q2 Q3 Q4

mN mNOK 2019 2020

• Revenues 15% above Q1-19
• High sales volume
• Positive FX effects

11,4 13,6 21,9 7,5

10,1

5 10 15 20 25 Q1 Q2 Q3 Q4

% 2019 2020

• High sales volume, but unfavourable product mix
• Higher fixed costs
• Wood costs reduced, but less than expected
• For cellulose fibrils, higher sales and cost reductions

compensated for reduced cost coverage

• Positive net FX impact
• EBITDA margin1 below Q1-19

Operating revenues EBITDA1

EBITDA margin1

1 Alternative performance measure, see Appendix for definition

Fine Chemicals key figures – Q1

1 4

• Revenues 16% above Q1-19
• Higher sales in bioethanol

38,2 28,1 37,5 20,2

20,3

10 20 30 40 Q1 Q2 Q3 Q4

% 2019 2020

• Unfavourable product mix for pharma intermediates
• Bioethanol result improved vs Q1-19
• Insignificant net FX effects
• EBITDA margin1 significantly below Q1-19

Operating revenues EBITDA1

EBITDA margin1

110 96 96 104 128 25 50 75 100 125 150 Q1 Q2 Q3 Q4

mN mNOK 2019

42 27 36 21 26 10 20 30 40 50 Q1 Q2 Q3 Q4

mN mNOK 2019

1 Alternative performance measure, see Appendix for definition

Currency impact

• 8
• 13
• 23
• 32
• 62
• 70
• 60
• 50
• 40
• 30
• 20
• 10

10 Q1 Q2 Q3 Q4

mN mNOK

Hedging effects2 on EBITDA1

2019 2020 98,0 98,4 100,4 103,2 107,1 96 98 100 102 104 106

108 110 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

Borregaard’s currency basket3

1 Alternative performance measure, see Appendix for definition. 2 See appendix for currency hedging strategy, future hedges and hedging effects by segment. 3 Currency basket based on Borregaard’s net exposure on EBITDA1 in 2019 (=100): USD 65% (approx. 203 mUSD), EUR 35% (approx. 98 mEUR), Other 0% (GBP, BRL, JPY, SEK, ZAR).

1 5

• Net FX EBITDA1 impact +10 mNOK vs Q1-19
• Includes change in hedging effects and based on estimated FX exposure
• Net FX EBITDA1 impact in 2020 estimated to be +95 mNOK vs 2019
• Assuming rates as of 28 April (USD 10.37 and EUR 11.28) on expected FX exposure
• Net FX EBITDA1 impact in Q2 estimated to be +35 mNOK vs Q2-19
• Significant FX exposure, but delayed impact of FX rate fluctuations due to hedging policy

Cash flow, investments and NIBD

1 6 127 176 249 353

• 56
• 100
• 50

50 100 150 200 250 300 350 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

mN mNOK

Cash flow from operations1

Cash flow from operations EBITDA

76 54 58 182 35 47 92 43 31 23

123 146 101 213 58 50 100 150 200 250 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20

mN mNOK

Investments

Replacement Expansion

• Depr. ex IFRS16
• Negative cash flow from operations1 in Q1
• Significant increase in net working capital, mainly from higher accounts receivable (FX and high sales late in Q1)
• Low investments
• Significant FX impact on NIBD1 and equity ratio1
• NIBD1 increased by 497 mNOK in Q1, ≈270 mNOK related to currency effects
• Leverage ratio1 2.39 vs 1.86 at year-end (including IFRS 16 Leases)
• Equity ratio1 38.3% vs 51.4% at year-end, negative impact of -10.7%-p from change in unrealised hedging losses
• Borregaard’s sales are primarily in USD and EUR, and a weakening of the NOK will over time be positive for the Group’s competitive position

1876 2373 242 298 58 68 108 160 47

1 400 1 600 1 800 2 000 2 200 2 400

mN mNOK

NIBD1 change

Increase Decrease

1 Alternative performance measure, see Appendix for definition

Questions?

• For questions, please contact Borregaard’s Investor Relations by phone or email
• See: https://www.borregaard.com/Investor-Relations

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APPEN DIX

Borregaard – key figures

1 9

Amounts in NOK million Q1-2020 Q1-2019 Change Operating revenues 1 372 1 250 10 % EBITDA1 242 242 255 255

• 5 %

Depreciations and write-downs of property, plant and equipment

• 109
• 98

Amortisation intangible assets

• 1
• 1

Other income and expenses1 Operating profit 132 132 156 156

• 15 %

Financial items, net

• 21
• 15

Profit before taxes 111 111 141 141

• 21 %

Income tax expenses

• 27
• 33

Profit for the period 84 84 108 108

• 22 %

Profit attributable to non-controlling interests

• 18
• 18

Profit attributable to owners of the parent 102 126 Cash flow from operating activities (IFRS)

• 125

44 44 Earnings per share 1,02 1,26

• 19 %

EBITDA margin 1 17,6 % 20,4 %

1 Alternative performance measure, see Appendix for definition

Operating revenues and EBITDA1 per segment

2 0

Amounts in NOK million Amounts in NOK million Operating revenues Q1-2020 Q1-2019 Change EBITDA1

1

Q1-2020 Q1-2019 Change Borregaard 1 372 1 250 10 % Borregaard 242 242 255 255

• 5 %

BioSolutions 797 755 6 % BioSolutions 170 168 1 % BioMaterials 454 394 15 % BioMaterials 46 45 2 % Fine Chemicals 128 110 16 % Fine Chemicals 26 42

• 38 %

Eliminations

• 7
• 9

1 Alternative performance measure, see Appendix for definition

Cash flow

2 1

Amounts in NOK million Q1-2020 Q1-2019 FY-2019 Amounts in NOK million Profit before taxes 111 141 467 Amortisation, depreciation and impairment charges 110 99 432 Change in net working capital, etc

• 298
• 128
• 85

Dividend (share of profit) from JV

• 1

5 Taxes paid

• 47
• 68
• 122

Cash flow from operating activities

• 125

44 44 697 697 Investments property, plant and equipment and intangible assets *

• 58
• 123
• 583

Other capital transactions 2 9 29 Cash flow from Investing activities

• 56
• 114
• 554

Dividends

• 224

Proceeds from exercise of options/shares to employees 28 19 35 Buy-back of shares

• 50
• 27
• 60

Gain/(loss) on hedges for net investments in subsidiaries

• 160

4

• 26

Net paid to/from shareholders

• 182
• 4
• 275

Proceeds from interest-bearing liabilities 650 347 2 100 Repayment from interest-bearing liabilities

• 585
• 216
• 1 971

Change in interest-bearing receivables/other liabilities 40

• 8
• 3

Change in net interest-bearing liablities 105 105 123 123 126 126 Cash flow from financing activities

• 77

119 119

• 149

Change in cash and cash equivalents

• 258

49 49

• 6

Cash and cash equivalents at beginning of period 81 86 86 Change in cash and cash equivalents

• 258

49

• 6

Currency effects cash and cash equivalents 6

• 1

1 Cash and cash equivalents at the end of the period

• 171

134 134 81 81 * Investment by category Replacement Investments 35 76 370 Expansion investments1 23 47 213

1 Alternative performance measure, see Appendix for definition

Balance sheet

2 2

1 Alternative performance measure, see Appendix for definition

Amounts in NOK million 31.3.2020 31.12.2019 Assets: Intangible assets 98 93 Property, plant and equipment 3 984 3 852 Right-of-use assets 396 380 Other assets 398 251 Investment in joint venture 94 99 Non-current assets 4 970 4 675 Inventories 942 931 Receivables 1 368 991 Cash and cash deposits 61 147 Current assets 2 371 2 069 Total assets 7 341 6 744 Equity and liabilities: Group equity 2 641 3 306 Non-controlling interests 169 158 Equity 2 810 3 464 Provisions and other liabilities 813 294 Interest-bearing liabilities 1 820 1 419 Non-current liabilities 2 633 1 713 Interest-bearing liabilities 617 608 Other current liabilities 1 281 959 Current liabilities 1 898 1 567 Equity and liabilities 7 341 6 744 Equity ratio1 (%): 38,3 % 51,4 %

Net financial items & net interest-bearing debt1

2 3

1 Alternative performance measure, see Appendix for definition

Amounts in NOK million Net financial items Q1-2020 Q1-2019 Net interest expenses

• 20
• 13

Currency gain/loss

• 2

Other financial items, net

• 1

Net financial items

• 21
• 15

Amounts in NOK million Net interest-bearing debt 1 (NIBD) 31.3.2020 31.12.2019 Non-current interest-bearing liabilities 1 820 1 419 Current interest-bearing liabilities including overdraft facilities 617 608 Non-current interest-bearing receivables (included in "Other Assets")

• 3
• 4

Cash and cash deposits

• 61
• 147

Net interest-bearing debt 1 (NIBD) 2 373 1 876

• of which impact from IFRS 16 leases

405 387

Financial objectives update

• From 2020, all key figures include the impact from IFRS 16 Leases
• ROCE1
• Impact from IFRS 16 ≈ -0.5%, Borregaard’s target unchanged
• Leverage ratio1
• Impact from IFRS 16 ≈ +0.25, Borregaard’s targeted interval adjusted to between 1.0 and 2.25

(previously between 1.0 and 2.0)

• No impact on the other financial objectives
• Financial objectives from 2020
• ROCE1 >15% pre-tax over a business cycle
• IRR >15% pre-tax for expansion capex
• Average net working capital at 20% of operating revenues
• Replacement capex at depreciation (excl. IFRS 16 impact) level
• Maintain key financial ratios corresponding to an investment grade rated company
• Le

Leverage ratio io1 tar argeted be between 1.0 and and 2.25 over ti time

2 4

1 Alternative performance measure, see Appendix for definition

Currency hedging strategy

2 5 USD million USD rate EUR million EUR rate Q2-2020 35 8.42 24 9.85 Q3-2020 36 8.26 23 9.83 Q4-2020 35 8.30 23 10.06 RoY 2020 106 8.33 70 9.91 2021 142 8.38 94 10.17 2022 110 8.87 72 10.55 2023 31 9.71 21 11.23 NOK million Q1-20 Q1-19 BioSolutions

• 26
• 4

BioMaterials

• 30
• 3

Fine Chemicals

• 6
• 1

Bor

• rregaard
• 62

62

• 8

Purpose is to delay effects of currency fluctuations and secure competitiveness

• Hedging based on expected EBITDA impact1
• Base

Base he hedge: 75%/50% on a rolling basis for 6/9 months for major currencies

• Ex

Extended he hedge: 75%/50% of the next 24/36 months if 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

Con

• ntracted FX

X he hedg dges wi with th EB EBITDA imp mpact t (as as of f 28 28.04.20) He Hedgin ing effects ts by by se segment

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

• Lon

Long-term cr credit faci cili litie ies

• 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 cr

credit it facil cilit ities

• 225 mNOK overdraft facilities
• 15 mUSD overdraft facility in LignoTech Florida
• 200 mNOK commercial paper
• Soli
• lidity (c

(covenants)

• Equity ratio1 38.3% (> 25%)
• Leverage ratio1 LTM 2.39 (< 3.252)

3 724 1 820 614 61 1 351 250 500 750 1 000 1 250 1 500 1 750 2 000 2 250 2 500 2 750 3 000 3 250 3 500 3 750 Long-term debt Other NIBD Cash & cash deposit Undrawn facilities Total available

Debt and undrawn facilities

31.3.2020

NIBD1 2,373 mNOK 2 6

1 Alternative performance measure, see Appendix for definition 2 Leverage ratio1 covenant is pre IFRS 16 Leases, and the actual leverage ratio1 Is restated to pre IFRS 16 for compliance calculations

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

• f 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.

• Cas

Cash flo low from

• m op
• perations:

: Cash flow from operating activities (IFRS) + tax paid +/- net financial items +/- dividend (share of profit) from JV.

• EBI

EBITDA: Operating profit before depreciation, amortisation and other income and expenses.

• EBI

EBITDA mar argin: EBITDA divided by operating revenues

• Equi

quity y rati tio: : Equity (including non-controlling interests) divided by equity and liabilities.

• Ex

Expansion investm tments: 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.

• Othe

ther inc ncome an and exp xpenses: 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

• perating profit.
• Leverage rati

tio: : Net interest-bearing debt divided by last twelve months’ (LTM) EBITDA.

• Ne

Net t interest-beari ring deb debt (NIB NIBD): Interest-bearing liabilities minus interest-bearing assets (see slides 23 and 26).

• Retu

turn on

• n capital em

employed (ROCE): ): Last twelve months’ (LTM) operating profit before amortisation and other income and expenses, 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, right-of-use assets and investment in joint venture minus net pension liabilities.

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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 first quarter of 2020, held on 29 April 2020. 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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