3 R D QUARTER 2019 O s l o , 1 8 O c t o b e r 2 0 1 9
Agenda • Per A Sørlie, President & CEO • Highlights • Business areas • Project update • Outlook • Per Bjarne Lyngstad, CFO • Financial performance 2
Highlights – 3 rd quarter 2019 • EBITA adj. 1 180 mNOK (145 mNOK) • Improved result in all business areas • Favourable product mix but lower volume for Performance Chemicals • Improved product mix and higher production in Speciality Cellulose • Continued strong improvement in Ingredients • Positive net currency impact 1 Alternative performance measure, see Appendix for definition 3
Performance Chemicals markets – Q3 2018 Average gross sales price 1 Sales volume 1 NO NOK K per mt mtds ds ‘000 mtds 2019 6 500 150 125 122 122 119 125 116 114 6 000 107 5 608 100 5 444 5 500 5 227 5 168 5 125 75 5 022 4 943 5 000 50 4 500 25 4 000 0 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q1 Q2 Q3 Q4 • Average price 1% lower in sales currency • Sales volume declined by 2% vs Q3-18 • Favourable product mix • Sales volume lower than expected due to strong competition in Construction and certain low value applications in Industrial • Positive FX effects • Construction and Industrial lower, growth for Specialities • Florida sales volume in accordance with the ramp-up plan • Reduced raw material supply from Flambeau 1 Average sales price and sales volume reflect 100% of sales and volume from the J/V in South Africa. 4 1 Average sales price is calculated using actual FX rates, excluding hedging impact.
Speciality Cellulose markets – Q3 2018 Average gross sales price 1 Sales volume NOK NO K per mt mt ‘000 mt 2019 11 500 50 42,4 40,0 10 908 39,1 37,6 37,7 11 000 40 34,5 10 645 33,2 10 485 10 473 10 439 10 500 30 10 179 10 105 10 000 20 9 500 10 9 000 0 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q1 Q2 Q3 Q4 • Marginally lower average price in sales currency due to weaker prices for acetate and textile cellulose • Increased share of highly specialised products vs Q3-18 • Higher sales volume • Positive FX impact 1 Average sales price is calculated using actual FX rates, excluding hedging impact. 5
Ingredients & Fine Chemicals markets – Q3 2018 2018 Ingredients - sales revenues Fine Chemicals - sales revenues mNOK mN mN mNOK 2019 2019 146 150 139 139 138 100 80 116 125 113 73 104 69 75 65 100 55 54 50 75 50 50 25 25 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 • Ingredients • Fine Chemicals • Higher sales prices for wood based vanillin vs 2018 • Higher deliveries and favourable product mix vs Q3-18 6
Upgrade of caustic soda production facility in Sarpsborg • Replacement of process equipment and new tanks for intermediate storage • Increased production due to improved operational stability • Reduced energy consumption • Improved logistics for external sales of co-products • Construction period 2020 – 2021 • Total cost 207 mNOK, included in current replacement investment forecast¹⁾ • Caustic soda is a strategic process chemical (speciality cellulose, wood based vanillin) • Own production represents 2/3 of total need at Sarpsborg site • The plant was converted to membrane technology in 1997 1 See Appendix to presentation, slide 25 7
Outlook • Performance Chemicals • Sales volume in Q4 expected to be in line with Q4-18, implying 2% full-year volume increase • Strong competition and price pressure for lignin products to concrete admixtures and certain low value applications in Industrial expected to be largely compensated by a more favourable product mix • Speciality Cellulose • Average price in sales currency expected to be in line with Q4-18 • Improved product mix will compensate for weaker prices for acetate and textile cellulose • A more specialised product mix implies a higher manufacturing cost • Sales volume and share of highly specialised products expected to be at the same level as Q3-19 • Other Businesses • The current price level for wood based vanillin is expected to continue • Deliveries from Fine Chemicals are forecast to be in line with Q3-19, but with a weaker product mix • No major changes are expected for Cellulose Fibrils and net corporate costs 8
FIN AN CIAL PERFORMAN CE Q3 -1 9
Borregaard key figures – Q3 2018 EBITA adj. 1 % EBITA adj. margin 1 Operating revenues 2018 2018 mN mNOK mN mNOK 2019 20 2019 2019 14,5 14,5 1 500 200 13,7 15 10 13,4 1 250 180 1 340 179 177 12,6 12,6 1 250 1 239 164 150 1 217 1 219 1 199 157 5 1 150 7,7 1 000 145 0 Earnings per share NO NOK Q1 Q2 Q3 Q4 750 100 Cumulative 6 4,76 94 3,96 500 4 2,69 50 3,79 250 1,37 2 2,48 1,26 0 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 • Revenues 8% above Q3-18 • EBITA adj. 1 increased to 180 mNOK for the Group • Results improved in all segments vs Q3-18 • Positive FX effects in all segments • EPS at NOK 1.31 (NOK 1.27) • Net financial items impacted by IFRS 16 interest effect and gain on sale of minority stake in a chemical company in Q3-18 1 Alternative performance measure, see Appendix for definition 1 0
Performance Chemicals key figures – Q3 2018 mN mNOK Operating revenues 2019 600 • Revenues 1% above Q3-18 618 600 500 571 564 555 559 552 • Sales volume 2% lower 400 300 • Average price 1% lower in sales currency 200 100 • Positive net FX impact 0 Q1 Q2 Q3 Q4 2018 mNOK mN 2019 125 • Lower distribution costs 100 115 EBITA adj. 1 107 102 • Favourable product mix 75 87 67 50 • Higher depreciation 55 42 25 • Positive net FX impact 0 Q1 Q2 Q3 Q4 2018 % EBITA adj. margin 1 2019 25 20,7 17,9 20 11,9 15 • EBITA adj. margin 1 increased vs Q3-18 17,3 7,6 14,5 10 9,8 5 0 Q1 Q2 Q3 Q4 1 Alternative performance measure, see Appendix for definition 1 1
Speciality Cellulose key figures – Q3 2018 mNOK mN Operating revenues 2019 500 482 • Revenues 12% above Q3-18 400 434 427 427 425 392 381 300 • Higher sales volume 200 • Positive FX effects 100 0 Q1 Q2 Q3 Q4 2018 mNOK mN • Improved, but more costly product mix 2019 80 82 • High production volume 76 EBITA adj. 1 60 67 64 • Increased wood costs 40 50 48 35 • Lower production costs for bioethanol 20 0 • Positive net FX impact Q1 Q2 Q3 Q4 2018 % EBITA adj. margin 1 2019 25 19,9 20 15,7 14,7 19,3 15 11,7 • EBITA adj. margin 1 slightly below Q3-18 10 10,0 5 8,9 0 Q1 Q2 Q3 Q4 1 Alternative performance measure, see Appendix for definition 1 2
Other Businesses key figures – Q3 2018 mN mNOK 300 2019 Operating revenues 250 274 266 256 253 239 200 223 212 • Revenues 19% above Q3-18 150 • Higher sales both in Ingredients and Fine Chemicals 100 50 0 Q1 Q2 Q3 Q4 2018 mN mNOK • Ing ngredients: Strong result from higher sales prices for wood based 2019 40 vanillin vs Q3-18 30 • Fine Che Chemicals: Improved result due to higher deliveries and a EBITA adj. 1 20 favourable product mix vs Q3-18 35 31 24 • : A slightly weaker result; reduced cost coverage 2 were Ce Cellulose Fibrils: 10 14 2 not fully compensated by higher sales and improved productivity 0 • Cor Corporate cos osts ts were in line with Q3-18 -2 -5 -10 • Positive net FX effects for Other Businesses Q1 Q2 Q3 Q4 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 Horizo n 2020 research and innovation programme 1 3 under grant agreement No 709746.
Currency impact Hedging effects 2 on EBITA adj. 1 2018 Borregaard’s currency basket 3 mNOK mN 2019 108 10 106,9 3 5 106 104,7 104,3 0 104 102,7 -1 -5 102 -6 100,7 -7 -10 -8 100 98,9 -15 -13 97,8 98 -20 -25 96 -23 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q1 Q2 Q3 Q4 • Net FX EBITA adj. 1 impact +20 mNOK vs Q3-18 • Includes change in hedging effects and based on estimated FX exposure Net FX EBITA adj. 1 impact YTD +80 mNOK • • Net FX EBITA adj. 1 impact in 2019 estimated to be +95 mNOK vs 2018 • Assuming rates as of 17 October (USD 9.17 and EUR 10.19) on expected FX exposure Net FX EBITA adj. 1 impact in Q4 estimated to be +15 mNOK vs Q4-18 • • Significant FX exposure, but delayed impact of FX rate fluctuations due to hedging policy 1 Alternative performance measure, see Appendix for definition. 2 See appendix for currency hedging strategy, future hedges and hedging effects by segment. 1 4 3 Currency basket based on Borregaard’s net exposure in 2018 (=100): USD 65% (approx. 190 mUSD), EUR 34% (approx. 84 mEUR), Oth er 1% (GBP, BRL, JPY, SEK, ZAR).
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