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Borregaard Asa
7/17/2024
Good morning and welcome to this second quarter 2024 presentation for BorderGuard. My name is Per Sørle. I'm the CEO of the company and I'll be joined this morning by our CFO, Bjarne Lyngstad. And we will take you through this agenda. We'll talk about the highlights for the quarter. the business segments and the market situation, a couple of other matters that were reported in the quarter and the outlook for the remainder of the year. And then Pebjarne will take over and talk about the financial performance. And before we start, I would like to remind you that you can submit questions online throughout this presentation, and we will come back at the end of the presentation and try to answer as many as possible. Then on to the highlights for the second quarter. EBITDA for the company came in at 510 million versus an all-time high of 537 a year ago. We saw an improved product mix and a strong result in bio solutions. We are pleased to report that this was an all-time high for a single quarter in this particular business area. In biomaterials, we saw lower sales prices and higher wood costs that brought the result down compared to the last year. In fine chemicals, we delivered a solid result, albeit a little bit below last year, but with a very strong EBITDA margin for the quarter. We saw negative net currency effects and also pleased to report a strong cash flow in the quarter. If we move on to the market situation in BioSolutions, the average price in sales currency increased 5% compared to the same quarter last year. And this was driven by an improved product mix. Sales prices per product were quite flat in the quarter compared to last year. This product mix was driven particularly by strong sales in agriculture and batteries. The sales volume also came up, it increased 2%. Again, the increased sales volume was driven by more sales of specialties. The biovanilin market was not a big factor in this quarter either. The market continued to be impacted by high global supply of synthetic vanilin products. In biomaterials, the average price in sales currency came down 8% compared to the same quarter last year. This was in line with what we saw in the first quarter this year, where the prices also came down to a similar level. So pricing in the first half is quite comparable. The sales volume was 5% higher than in the same quarter last year. which was a bit lower than we had guided for, but this was just coincidental things that happened, and we will come back to this under the outlook later on. Negative FX impact also in this particular business area. Fine chemicals had a strong quarter, and we saw a good product mix in fine chemical intermediates. In bioethanol, we had high deliveries, but they were slightly lower than in the comparable quarter last year, but much higher than what you see normally in a quarter. Prices were stable, and we also had a slightly negative FX impact in this particular business area. then on to the other matters and subsequent events we have published a stock release saying that we have invested further into olginor and just to summarize we we participated in a capital raise of 400 million with our pro rata share of 35%. Subsequently, the company have completed a repair offering towards existing and new shareholders. And after this repair offering, Border Guard has again been adjusted up to 35% of what was allocated in this offering. So after all these transactions, these three transactions, Beauregard now have invested a total of 419 million in Algenor. And these offerings were completed now in July. So this is not reflected in the second quarter results and the balance sheet that you see there. But in the third quarter, this will be entered into the balance sheet. 419 million total investment. Also, as a piece of information, we are reporting that anti-dumping investigations regarding Chinese Van Lin of all qualities have been implemented both in the EU and the US. However, it's early days and it's too early to tell what will be the outcome of these investigations. So there is nothing to report right now, except that these investigations have been started on both these continents. And we will just have to follow it and see what it will mean. But if there are restrictions on Chinese Wanlin, obviously this will have an impact on our opportunities and our potential to sell into these markets. Then outlook for the remainder of the year. In BioSolutions, we continue with the same outlook, which means that the sales volume for the full year is forecast to be approximately 330,000 tons. The sales volume in the third quarter is expected to be in the range of 80 to 85,000 tons. And we don't see any big changes in the biovanilin market that will continue to be impacted by the high supply of synthetic vanilin products. In biomaterials, the outlook is also unchanged in the sense that we expect the sales volume in 2024 to be higher than the production output. And we also expect to increase the sales of the highly specialized grades compared to 2023. In the third quarter, the sales volume is expected to be between 42 and 44,000 tons, which is a significant increase from what we saw in the second quarter. We have also implemented some price increases for the second half. And if we compare the average price level in current sales currency in the first half to the second half, on the overall sales volume, the average sales price is expected to increase by 1-2% compared to the first half. In fine chemicals, the outlook is also quite unchanged. The sales volume for fine chemical intermediates will increase compared to 2023, and the market conditions for advanced bioethanol continue to be favorable, and the sales prices and volume are expected to come in largely in line with 2023. Then finally, cost development and impact from recent investments. The wood cost continued to increase and we expect an increase of roughly 8% in the second half compared to the first half. However, in the third quarter, lower energy and other raw material costs are expected to partly compensate for these increased wood costs versus the same quarter last year. We will also benefit in the second half from the investment we have made in our system at the biorefinery in Salzburg to reduce CO2 emissions and improve energy efficiency and flexibility. And finally, there are still uncertainties in the global economy and we don't see a big upturn yet. So what we have to do is that we have to follow developments and we will implement different actions accordingly. So that completes the outlook and I will hand over to Per Bjarne for the financial figures.
Thank you, Per, and good morning, everyone. In the second quarter, Borregaard's operating revenues were more or less in line with the second quarter of 2023. EBITDA was 510 million NOK, 27 million below the all-time high result in the same quarter last year. The result in biosolutions improved, while biomaterials had a lower result. Fine chemicals had a strong result, but slightly below the second quarter of 2023. Net currency effects were negative by 30 million NOK compared with the second quarter last year. The EBITDA margin was solid at 26.2%, however, about two percentage points below the same quarter last year. Earnings per share were 2.45 compared with 2.84 last year. Higher depreciation, increased interest expenses and other financial costs were the main reasons for the reduced earnings per share. Operating revenues in BioSolutions increased by 3% compared with the second quarter of 2023 due to higher sales volume and an improved product mix. EBITDA increased to 318 million NOK, as Per said, an all-time high for the business area. An improved product mix and reduced energy costs were the main reasons for the strong result. These effects were partly offset by cost inflation and a negative net currency impact. The EBITDA margin in biosolutions reached 28.5%, 2.4 percentage points above the second quarter last year. In biomaterials, operating revenues were 6% lower than in the second quarter last year. Lower sales prices were partly offset by higher sales volume. EBITDA was 90 million NOC compared with 143 million in the same quarter last year. Lower sales prices, higher wood costs and an increase in other operating expenses mainly due to cost inflation had a negative impact on the result. These effects were partly offset by a higher sales volume. Net currency effects were also negative compared with last year. The EBITDA margin in biomaterials was 14.5%, about 7 percentage points below last year. In fine chemicals, slightly lower deliveries of bioethanol resulted in a 2% reduction in operating revenues. EBITDA was 102 million NOK, compared with the all-time high result of 110 million in this business area last year. A favorable product mix for fine chemical intermediates and high deliveries and stable prices for bioethanol contributed positively to the result. However, higher costs and slightly lower deliveries for bioethanol were the main reasons for a lower results compared with last year. In addition, the net currency impact was slightly negative. The EBITDA margin in fine chemicals was a solid 46% in the second quarter, close to the level we had in the same quarter last year. In the second quarter, the net currency impact on EBITDA was, as I said, negative by about 30 million NOK compared with the second quarter last year. The negative currency impact was due to increased hedging losses, which increased by 32 million NOK to 97 million NOK in the quarter. The Norwegian currency was in line with the second quarter last year using Beauregard's currency basket. Using currency rates as of yesterday, the net currency impact for the full year of 2024 is estimated to be negative by about 15 million NOK compared with 2023. The corresponding impact for the third quarter is estimated to be positive by about 15 million NOK compared with the third quarter of 2023. Border Guard had a cash flow from operating activities of 546 million in the second quarter. The strong cash flow was affected by a significant reduction in networking capital, mainly due to a reduction in accounts receivable. Investments were 172 million NOK in the second quarter. Replacement investments consist of a large number of smaller and medium-sized projects. The largest expenditure for expansion was related to specialization within biosolutions. Net interest bearing debt was in line with the first quarter. The dividend payment of 374 million NOK in the second quarter was offset by the strong cash flow from operating activities. At the end of the second quarter, Beauregard was well capitalized with an equity ratio of 54% and a leverage ratio, which is net interest bearing debt over EBITDA of 1.23. And that concludes today's presentation. We would like to take this opportunity to promote Boregard's Capital Markets Day, which will be held on the 18th of September at the Oslo Concert Hall. Per Sølje and I will now be ready to answer any questions from those who follow the webcast. Our director, Investor Relations, Knut Harald Bakke, will moderate webcast questions.
Thank you. First question from Mr. Fabian Jørgensen of Carnegie. Can you comment on the ASP development for biosolutions quarter on quarter? Why does it come down and what should we expect for Q3?
I think that must be biomaterials, right? Not biosolutions.
Biosolutions, quarter on quarter. Why does the average sales price go down from Q1 to Q2, presumably?
Okay. That is more a... just a mixed issue as well that normally in the winter quarters or construction which used to weigh heavily into our business has a lot more volume being sold in the summer quarters in the second and third quarter so that drives down the average price normally this tendency has been reduced as we have reduced our sales into construction but it's still such that the specialties weigh more in the first and fourth quarter than the second and third quarter. So this is just a mixed issue when you calculate the average price.
Next question from Mr. Marcus Gavelli of Pareto Securities. Would you mind elaborating on the price increase within biomaterials and the potential for further increases? Did you expect this increase moving out of Q1 or is it more so a reactive response to the improved market balance?
Well, you have to look at this in a historical context. Since COVID and following COVID, when we had very strong price-cost escalations, when the war in Ukraine started, we had price increases in the range of 35-40% on our specialty cellulose. And it's only to be expected that some of these price increases will be returned to the customer when costs start to normalize. However, it doesn't necessarily mean that the margins or the absolute profit level should be impacted. If you look at the development this year, It seems like the cost increases, particularly in the wood area, has been higher so that the margins and the price reduction has been more than what the actual cost development has been. And what we reported after the first quarter is that if we continue to sell more than we produce, obviously this will have to be a factor in future price negotiations. And if you look to the outlook for the remainder of the year, we still expect to sell more than we produce. And we have seen higher cost increases in wood than we maybe have expected going into the year. So these are, of course, important factors in future price discussions. And some of that is reflected in the price increases that have been reported for the second half.
Third question from Elaine Orwod of Covea Finance. Could you break down the negative currency effect on turnover and EBITDA by business? Have you expectations on this effect for the year?
Well, unfortunately, we have not disclosed the effect by business area. We do show the hedging losses by business area. So that's been more of a policy statement for us. But remember that the hedging mainly goes to the operating revenues. So it shouldn't be that different, the currency effect, but a little larger on the operating revenues than on the EBITDA level.
Fourth question from Mr. Niklas Gehin of D&B Markets. You have raised price on cellulose grades with a 1-2% effect for the second half already. Are there any more opportunities to reprice further through the remainder of this year? And what is speaking in favor of your ability to send cost increases on to clients for 2025?
It's much the same that I answered earlier on that. Well, first of all, typically prices are set for the full year or for six months at a time. So there will be limited opportunities to adjust pricing on 1st of October for the fourth quarter, unless something dramatic will happen on price or cost escalations. However, again, like I said, the market balance is becoming tight due to external incidents that have happened after the negotiations for 2024. And obviously, these will have an impact on negotiations for 2025.
That seems to conclude the Q&A session for the second quarter of 2024.