Borregaard ASA (BRG) Earnings Call Transcript & Summary

Good morning. On behalf of Borregaard and the Norwegian Society for Financial Analysts, I'd like to welcome you all to Borregaard's Capital Markets Day 2020 outside of the headquarter here in Sarpsborg, Norway. Today's presentation will be split into 3 sessions. First, a company run-through by the C-level executives, then followed by the business area breakdowns from vice presidents. Lastly, we will do a Q&A session, and you are free to send in your questions all day during the webcast facilitation software. And you could also -- for those questions that will not be answered during today, they will be replied to in full written afterwards. So with that, I'd like to leave the stage to Mr. Per Sørlie, the CEO. The floor is yours.

Thank you, and good morning, everyone. I will take you through 2 topics this morning, strategy and sustainability. And first, we start out with strategy. And for -- in many ways, you can say that Borregaard has been following the same timeless strategy for the last 30 years, what we often refer to as our specialization strategy. And I'll just spend a few minutes now recapping that to start my presentation. We often refer to ourselves as a global niche player. We want to be present in market niches with high barriers to entry. By high barriers to entry, we mean that we have value -- high value-added products that are protected by know-how, by intellectual property, by technology or even by access to raw material. So building high barriers to entry is a key activity for Borregaard in the specialization strategy. At the same time, we try to build leading market positions by application knowledge, by knowing what the product does when it's applied by our customers. And also proximity to markets. Although we are a fairly small company, we have a global market reach with our own sales force and technical service people. Finally, we also add that we have a diversified market strategy. Borregaard has more than 700 products in its portfolio, which is a significant high number for a small company like us. That means that we are extremely diversified. At the same time, we have global market positions, which we think is much safer than having regional market positions. So combined, the specialization strategy is there to give us robustness and flexibility and safety for the future of our company. The way we execute our strategy is in 2 ways. First of all, we have a business-driven innovation model, and this involves the entire organization. And innovation, of course, is there to drive the top line, but also to preserve the bottom line, the margins in the company over time. But we cannot only do innovation. We also had to do continuous productivity improvement. And usually, we try to do this in a combination where we use technology in a smart way. This can be not necessarily new technology, but new to Borregaard. We raised the competence level in the organization to utilize the technology in the right way. And finally, we adjust the organization to be -- to use the technology in a very efficient way. Finally, competence is the key driver if you have a specialization strategy. And we try to use competence as a differentiator from our competitors. And we usually refer to this as the golden triangle of competence. And we say there are 3 areas: sales and marketing, R&D and production, that we try to utilize to drive the strategy. And as a management team, it's our job to create working processes where we involve all these competencies at the same time to get maximum leverage from our competence base. So this summarizes sort of the timeless strategy. Over time, obviously, we move -- we are on a long journey towards specialization, and we do different actions over time. And we usually refer to these as strategic priorities. What is important right now in order to move the company towards an even more specialized position. I'll now take you through what we said exactly 2 years ago when we had our previous -- last Capital Markets Day in September 2018. And these were the strategic priorities back then, and I'll give you an update on them. First of all, we said that we were focusing again on increased specialization, but also volume growth. And the first sort of activity there was that we were -- we're looking to have a successful market introduction of our new lignin volumes coming out of our new plant in Florida. The sales volume ramp-up from that facility is fairly much on track. We have a linear curve, saying that in the first 3 years we should go from 0 to 100,000 tonnes in sales, and we are more or less on track for that. However, the margins so far are lower than we had expected. So the profitability in this plant is not as expected. So we still have a way to go in terms of developing a better sales -- better-quality sales, better product mix so that we can deliver a better result from this investment. The next thing we mentioned was the Ice Bear product range in Speciality Cellulose. And this investment has proven its value over and over again in these 2 years, and especially right now where we are in a situation where the alternative is to sell into textile cellulose, and this business is now the extended product range that we have from the Ice Bear technology, has made it possible to minimize sales into to textile and increase the share of highly specialized volume in our overall portfolio. So I would say that this has been a very successful investment so far. The third one was Cellulose Fibrils, where we have a strong pipeline development, and we are also seeing very strong growth at the moment, albeit from a low level. So we still have a way to go on this initiative, but it's quite promising as we speak now. And we will revert to both the Ice Bear and the Cellulose Fibrils when the Executive Vice Presidents come back later in the presentation. And generally, we also said that we wanted to grow the Specialities volume in Performance Chemicals and Speciality Cellulose. And we are pleased with both the developments in the Specialities in Performance Chemicals, but even more in Speciality Cellulose, where we have taken the high speciality share from below 60 to well into the 70s in percentage points in this period. Then the second major topic that we raised was sustainability, where we said that we wanted to increase the market awareness of Borregaard's bio-based products. And we have seen a positive development in this area, particularly inside biovanillin, the plant-based biovanillin, and the biopolymers going into agchem have been particularly positive in this period. Then we said that we would have some ongoing and potential expansion initiatives. And the major investment in these last 2 years has been the lignin operation upgrade and preparation for increased specialization here in Sarpsborg. This was originally NOK 500 million investment. It came in roughly 10% below the budget and it came in on time. And it will generate NOK 60 million in cost savings over the next -- this year and next year. So we are quite pleased with the performance and execution of this project so far. Then we have the Florida lignin expansion second phase. Given what I said about where we are right now in this project, this is still pending. It's an attractive second step because we have invested in the infrastructure in the first step. So once the timing is right, this will be executed upon. Then we have Exilva, where we also have laid the foundation for a second phase, another doubling of capacity. And this is also pending since the volumes are still not reached a level where it's right to make the next step. So both of those will be hopefully coming on later. Then we said that we would explore other specialization and capacity expansion opportunities, and we have executed on several things. We are in the process of increasing our capacity for plant-based biovanillin. We have upgraded our Bioethanol business, and we have raised -- increased the capacity in pharma intermediates by roughly 30% in this period. So all these investments add to the value-added creation in the -- at the Sarpsborg biorefinery. Altogether, just to complete history here, in the period 2015 to 2019, we have spent NOK 1.7 billion on expansion initiatives. And all these projects were completed on time and within budget. But this also means that we have sort of reached the end of this heavy investment phase at this point. What is important going forward? And I'll take you through a few key considerations here. In the business area BioSolutions, where we make biopolymers and biovanillin, we have seen a lower raw material supply base than we had expected a couple of years ago. And this is particularly related to the mothballing of the South African operations and the Spanish raw material supplier, who is in a liquidation process right now. So this means that we have lower raw material coming in than we had planned for. And also, it should be noted that this raw material is primarily hardwood lignin, which means that it goes into certain markets, primarily construction and low end of the industrial applications. So the consequence of that, of course, is that we will see less focus on volume growth than in the previous strategic priorities and more focus returning back to the history where we had specialization and diversification as our main focus. So this will have to be taken into consideration when we define our strategic priorities going forward. Then the expansion opportunities. I mentioned that we had done several initiatives. We are doing several initiatives at the Sarpsborg biorefinery. We still think that there are other opportunities that could be interesting to do that will add to the value added coming out of that biorefinery. And as we identify and as we make a decision on those, we will publicize -- make them public when and if we do that. But we think that there are still more to be done at the Sarpsborg biorefinery. The second step in Florida and Exilva, obviously, are also key considerations. The groundwork has been done. These are very tempting and should be very profitable add-ons when the timing is right. Then we are seeing opportunities for bio-based products. There is a strong emphasis on ESG, and we are increasingly focusing on ESG aspects across our entire value chain. So all these considerations have to go into our thinking when we define our key strategic products going forward. And I'll come back to them later in the presentation, but I'll take this time to take one step back and talk a bit about sustainability. Sustainability is a -- both a positive and a negative risk. For some companies, it's obviously a threat. Climate change is a threat. For other companies, it could be an opportunity. And if you take a look at the challenges that we are facing with climate change and what we need to do as everyone involved in these problems, and that's all of us, need to do. From Borregaard's perspective, we think that is going to contribute to market growth, and it can give us new opportunities in the marketplace. And we have looked at UN's 17 sustainable development goals, and Borregaard can contribute across a number of those. And we have green solutions that are both helping out in terms of making industry more sustainable, but also making our customers' industries more sustainable. And we are using a sustainable raw material as well. So there are a number of areas where we feel that we can contribute, and we have sort of defined or prioritized 6 of the long-term global goals, and this is more clearly laid out and reported on in our sustainability report, which is an integral part of the Director's Report in our annual report. But I'll take a step further and talk about how we approach this issue of ESG and sustainability. Borregaard started actually well over 10 years ago. I think it's 13 years ago we started, on a regular basis, to conduct life cycle analysis of -- across our whole product portfolio. So in other words, we have an independent third-party come into our company and assess all our -- our total value chain from cradle to grave, from we cut a tree in the forest until the finished product leaves our inventory warehouse. We have a full documentation of the environmental footprint from that production process. At the same time, the same company also made assessments of the alternative products for our customers that are usually fossil-based so that we can document towards the marketplace what is the environmental footprint from our delivery to you. And this shows, in many ways, a very favorable footprint compared to the alternative. And what we have spent the last 10, 15 years working on is to improve this climate footprint even further, primarily by working on our production processes to reduce the emissions into water and air. And I'll take you through each and every one of these 3 elements here. The wood raw materials. All the raw materials that comes into our facilities, whether it's the biorefinery here in Norway or any of the lignin operations that we have internationally, it's -- the origin of all the raw material is from certified forests, either through the PEFC or FSC standards. And if you take a look at United Nations Special Report on Climate Change and Land, there is a special also there description of forests and how forests can contribute to climate action. And forests can contribute in 3 ways. It can do carbon storage. You can -- you have to preserve biodiversity. And you can use the wood-based products as an alternative for fossil products. And of course, the biodiversity and the carbon storage will have to be taken care of through the certification standards so that you can -- you have to use -- if you want to use all these 3 different objectives, if you want to deliver on them at the same time, you have to balance how much of wood you use for wood-based products and how much you need for biodiversity and carbon storage. So we have a sustainable raw material. Then if we look at the improved environmental footprint from our processes, on the left-hand side here, we have, like I said, worked dedicated -- in a dedicated way to reduce CO2 reductions, but we have also reduced other emissions to water and air, and we are focused on greener logistical solutions, more by sea, less by transport on roads and so forth. We are certified. We are certified by CDP, which is a global nonprofit organization owned by the UN and WWF, among others. More than 8,000 companies are rated by CDP, only 2.1% received the highest A rating, and Borregaard is included in that 2.1%. So we are quite proud to have an A rating as a chemicals company. And we are also working with CDP in one other area, and this is targeted reductions -- CO2 reductions over time, so-called science-based targets, where we sort of present to CDP what our plans are for CO2 reductions and what our planned actions are to deliver on those targets and these are then approved by CDP. And we have this approval. We received this approval last year. And our base here is 2009, and the target is to reduce our CO2 emissions by 53% by 2030 and 100% by 2050. The CO2 reductions so far, after 10 years, is down in the range 35% to 40%, as you can see in the figure on the right-hand side here. And we are going to deliver on the 2030 target by increasing the use of bio energy, increasing the use of electricity -- green electricity for steam production and by further energy conservation work to reduce the overall energy consumption at the biorefinery here in Norway. Finally, the products that we offer to our customers usually have components from the raw material itself. We add very few other chemicals or other components to the finished products. So it's usually components from the biomass. And now I talked a lot about the environmental footprint, and obviously, with the life cycle analysis, it's an important selling point for several of our products that we can document the environmental footprint from the product itself. However, we think that there are multiple sustainability features that we can offer to the market. And one other thing is a lot of customer segments are also interested in the fact that it's a natural renewable starting material. And our plant-based biovanillin is the most stellar example of that because there you have a lot of oil-based alternatives, and customers have an increasing preference for a natural starting material, however, produced with an industrial production process. Finally, we think the health and safety aspect is also an important aspect in -- when it comes to sustainability, and our large product range towards agriculture has a very mild health and safety features, which means that the customer -- the end customer can improve his health and safety exposure by using our products as opposed to petrochemical alternatives. So this is -- summarizes how we look at ESG and sustainability issues at Borregaard. It's difficult in this situation not to talk about the coronavirus and the pandemic as we are in the middle of it, and it's affecting our business. So I think -- I thought I would just take 1 minute to take you through and summarize what we have said around the coronavirus effects for Borregaard. First of all, health and safety issues. Obviously, this has meant that we have had to introduce a number of measures and new procedures in our business in order to limit the risk of infection. So we are -- this is actually affecting the way we run our business in terms of home offices, in terms of how we do maintenance, how we introduce external help into our factories and so forth. Operational effects. We have reported at the beginning of the second quarter this year that we had to stop our business in South Africa because we did not receive any more raw material from Sappi's Saiccor pulp mill when that stopped in early April. And as a consequence of that, the Board of Directors of the South African 50% held joint venture has made a decision to mothball the plant in South Africa and retrench all the employees and terminate all third-party agreements there. So we are in a state where we have mothballed this operation. And it's a significant volume for us, obviously. At the same time, a new piece of information. We usually have a scheduled annual maintenance stop for 1 week in October every year in the fourth quarter. Because of the coronavirus situation, we have decided to split this annual maintenance stop into 3, 4 shorter stops in order to minimize the risk connected to the coronavirus situation. So this will be spread over the third and fourth quarters. This is more a practical issue, but obviously, when you do it in 3, 4 steps instead of 1 step, it will take slightly longer time and cost slightly more in terms of lost production. But it's a prudent thing to do given the situation we are in. We have also mentioned that we see reduced demand in some polymer sectors -- biopolymer sectors and for certain specialty cellulose grades. The biopolymer sales volume is forecast to be between 10% and 15% down from last year and this is particularly impacting concrete admix and low-value industrial applications. But we are also seeing reduced demand from some high-value applications like oilfield chemicals and automotive. So the pandemic is leading to reduced activity in a number of areas. Construction is a key are where you see a reduction in activity, and this is also with reference to the Speciality Cellulose area where we deliver wood pulp into cellulose eaters which are used mainly in the construction application. And of course, this a high-growth area for us when it comes to Speciality Cellulose, but I think the pandemic will -- we will see some temporary setbacks in the growth rate during the pandemic, if it prolongs. Also, as a general disclaimer, we have said that there is a possibility for lower growth in the world economy and indirect consequences from suppliers, business partners and infrastructure. That is hard to see beforehand. But so far, the things I mentioned are sort of what has a negative impact on our business. Finally, the bioethanol has partly shifted from fuel to disinfectants, and of course, this gave us a strong contribution to the result in the second quarter. And we also said that we expect for -- in the second half, it will be more normalized, where they will be more sales again back into biofuel and less into disinfectants. But still some impact from disinfectants, but not like we saw in the second quarter. So that summarizes how we see the coronavirus pandemic right now. Then I will finalize -- conclude my presentation by going through the current strategic priorities. First of all, Specialization and diversification within BioSolutions, driving specialization through innovation and market development, balancing the market risk by having a diversified product portfolio, and we have the opportunity to expand this business further, particularly out of Florida, but this will be driven by the profitability that we see in that business. When and if we see the profitability is right, we can execute on the second step. Then we have the Sarpsborg biorefinery where we think we can increase the value added even further. We have a very high-value lignin raw material base that we can utilize in Biopolymers and biovanillin. We still think that we can enhance the product mix in Speciality Cellulose and bioethanol. And this has to be done through innovation and productivity efforts but also, like I mentioned earlier, targeted add-on investments that can increase the value added, could also be an alternative in this area. Then we have development of the Cellulose Fibrils business, continued market development across multiple applications and geographies. We have a very broad opportunity area for this product. It can be used in many applications and there is strong interest across both applications and geographies. The timing of the second step will be guided by demand development. When we see that the demand reaches a sufficient level, we will push the button for the second step. And finally, sustainability. We think that this will become increasingly important for Borregaard. And we will continue to work on ESG aspects across the entire value chain. So that completes my presentation this morning. And I will hand over to the next speaker, which is our Chief Financial Officer, Per Bjarne Lyngstad.

Thank you, Per, and good morning, everyone. I will take you the development of some key financials, and then go through the larger expansion projects and talk about the targets we have for delivering improved EBITDA from those projects. Borregaard has now been listed for close to 8 years. We had -- we've seen some fluctuations in the share price in certain periods. But in total, we had a strong value creation since the IPO and a very strong development over the last months. The share price, including reinvestment of dividend, has, on average, increased by approximately 30% per year and close to 8x since the IPO. The enterprise value, which is the market value plus the net debt, has increased by more than 20% annually or close to 5x since the IPO. External factors like currency, raw material prices and the world economy have, in total, worked in our favor, but are far from explaining the total value creation. Borregaard has been through a period from 2015 with significant expansion investment, which initially have negatively impacted key ratios. However, our financial ratios are still well within what are required of an investment-grade company, and we continue to consider the company to be well capitalized. The equity ratio has been strong throughout the whole investment period. However, a weaker Norwegian kroner and hence, an increase in unrealized losses from currency hedging, has negatively impacted the equity ratio during the coronavirus turmoil in the first half of 2020. Longer term, a weak Norwegian kroner is positive for Borregaard as sales are mainly in U.S. dollars and euros. The leverage ratio, net interest-bearing debt over EBITDA, has increased from a very low level, both from investments and from increasing dividends. The implementation of IFRS 16 leases in 2019 increased the ratio by about 0.25. In a situation with a weak Norwegian kroner, like we have today, our target is to bring the ratio below 1.75, which means to bring the ration down by approximately 0.25 from today's level. During the first half of 2020, Borregaard has refinanced its revolving credit facilities at attractive terms and with margins linked to sustainability targets. We see this as a sign that also the banks view Borregaard's financial position as solid. Since 2012, Borregaard has paid regular and increasing dividends, in line with the dividend policy, which is to pay between 30% and 50% of net profit for the preceding year. For 2016, Borregaard paid an extraordinary dividend due to increased earnings and a strong cash flow that year. Top line growth has, in average, been 5.1% per year since 2015, helped by a weaker Norwegian kroner, but also from further specialization and volume growth. EBITDA and the EBITDA margin have fluctuated a bit more than the revenues. The 2016 EBITDA improvement was mainly due to the weakening of the Norwegian kroner late in 2014, but where the result impact was delayed to 2016 due to currency hedging. In 2018, higher wood and caustic soda prices, the continued negative development for lignin products to concrete admixtures and ramp-up costs for the Florida lignin plant put pressure on EBITDA and the EBITDA margin. From 2019, EBITDA has improved due to further weakening of the Norwegian kroner, continued specialization and diversification and positive effects from the investments. Since 2015, all business segments in Borregaard have achieved significant improvements in EBITDA. BioSolutions has improved through specialization and diversification and positive currency effects. The increased demand for plant-based ingredients and the repricing of Borregaard's wood-based vanillin has been a strong contributor to the improved result. On the other hand, strong competition and price pressure for lignin-based biopolymers in concrete admixtures, together with full fixed cost while we were ramping up the volume at the Florida plant, had put pressure on the result and margin. Biomaterials result peaked in 2017 with a strong product mix and favorable prices for Speciality Cellulose. Raw material prices increased significantly in 2018 and the 2019 result was affected by further price increase for raw materials and by operational incidents at the Sarpsborg site. Cellulose Fibrils have been hurting the EBITDA in BioMaterials through the whole period, softened by EU's Horizon 2020 Grant. Sales volume is gradually increasing from a low level and have compensated for the reduced EU grant, which ended in April this year. Fine Chemicals has improved significantly since 2015, mainly as a result of increased specialization and higher prices for Borregaard's second-generation bioethanol. The result peaked in the second quarter this year due to increased demand and higher price level for bioethanol to disinfectants. Investments in increased capacity for water-free bioethanol and for pharma intermediates have contributed to the result improvement. Borregaard has a strong cash flow from operating activities over time. From year-to-year, there are significant fluctuations in the cash flow, mainly from period-end changes in the net working capital level. When comparing the cash flow with profit for the year, excluding depreciation, amortization and write-downs, the cash conversion rate has been 95%, which we consider to be quite healthy. The main factor affected -- affecting the conversion rate is the change in net working capital. Net working capital will normally increase in absolute terms with top line growth. However, from 2018, we have had an increasing trend in net working capital, both absolutely and relatively. There are several factors which have had a negative effect on net working capital. The value of inventories has increased gradually in the whole period from 2015. There are several reasons for this increase. Higher volume in inventory increased manufacturing costs from higher raw material prices and from increased depreciation, increased specialization and currency effects on input factors. From 2018, accounts payable has been decreasing relative to operating revenues due to a lower investment level. In addition, the impact from changes in larger accruals, like utilizing the prepaid EU grant, reduction in environmental accruals and outstanding CO2 compensation have negatively affected net working capital. Accounts receivable has been quite stable over time relative to operating revenues, which also means that days of sales outstanding are more or less unchanged. Accounts receivables is closely monitored and followed up in Borregaard. The absolute numbers are, in addition, affected by currency and top line growth. Borregaard's target to keep net working capital at 20% of operating revenues over time is unchanged. The key to bring net working capital in line with the target is a reduction in inventories. Biopolymers inventories will be reduced over time over the next quarters since demand is higher than supply for the time being. For the other businesses, the inventory levels will depend on sales and cost development. Borregaard has now been led -- oh, sorry. As mentioned earlier, Borregaard has been through a period with larger-than-normal investments. In total, more than NOK 1.7 billion has been invested in expansion projects over the last 5 years, and a similar amount has been spent on replacement investments. Borregaard's main profitability target is to have return on capital employed above 15% pretax over a business cycle. We expected an initial drop in the return on capital employed from the expansion investments as they would increase Borregaard's capital employed significantly. In addition, the results were expected to be hurt since we, for some projects, had to add manning, fixed costs and full depreciation during the volume ramp-up period. 5 out of 7 larger investments have so far delivered results on or above our expectations. However, the profitability for 2 of the larger expansion projects are so far below our expectations and have put pressure on the return on capital employed. After a period with substantial expansion investments, our main focus going forward is to realize the targeted results from these investments. Borregaard's investment forecast for the period from 2020 to 2023 reflects a lower overall investment level and a low level of planned expansion projects. Replacement investments are targeted at the ordinary depreciation level, excluding depreciation from IFRS 16 leases. The upgrade of the caustic soda production facility in Norway is a major replacement investment in 2020 and 2021. We expect replacement investment to be below depreciation for 2022 and 2023. Capacity expansion for wood-based vanillin is the main ongoing expansion investment in 2020 and 2021. Borregaard has a pipeline of early-stage idea -- ideas that might materialize in investments. And Per mentioned a few ideas we have at the Sarpsborg site. In addition, the second phase of the Florida lignin plant and the second phase of the Exilva plant are potential expansion investments. We cannot rule out possible acquisitions either. Such projects are not included in the forecast and may lead to additional expansion investments, of course, assuming that such projects are profitable and meet our profitability hurdle of at least 15% internal rate of return pretax. In BioSolutions, we have finalized 2 major expansion projects and are in the construction phase for the third project. The largest project is the lignin plant in Florida, where we, together with the Rayonier Advanced Materials, have invested a total of close to NOK 900 million. The plant started up mid-2018. The volume ramp-up, as Per said, are in line with our 3-year plan, but the profitability is so far behind our expectations due to an unfavorable product mix and higher distribution and fixed costs than expected. The second-largest investment, totaling NOK 450 million, is the update and specialization of the lignin plant in Norway. The upgraded facility started up mid-2019. So far, cost savings in Norway are according to plan, mainly from improved logistical solutions. In addition, the restructuring of our German operation has given additional cost savings. The capacity for expansion for wood-based vanillin, estimated at NOK 130 million, is ongoing and will be completed mid-2021. A smaller part of the capacity increase has already been installed and has given some extra volumes. In total, we have targeted an EBITDA improvement of NOK 150 million to NOK 250 million from these 3 investments over the next 3 years. The improvement will be from increased volume, optimization of product mix, further specialization and cost savings. In Biomaterials and Fine Chemicals, we have finalized several larger and medium-sized expansion investments. The Ice Bear project, where we, in total, have invested NOK 215 million in increased capacity and quality improvement for high-purity cellulose has been important for further specialization and for stabilizing results over time. Reduced exposure to textile cellulose has also been an important consequence of the important -- of the Ice Bear project, especially during a period now where textile cellulose prices have been depressed. Sales volume and results from the investment in a commercial scale plan for cellulose fibrils, totaling NOK 225 million, is still not profitable and behind our initial expectations. However, we see a growing number of commercial customers, and the interest from potential customers is still strong. We think that this project is among the most promising in Borregaard's innovation portfolio and continue to be optimistic for the future. Two smaller projects totaling more than NOK 100 million in investment are the increased capacity for water-free bioethanol and for pharma intermediates. Both these projects have delivered results above expectations and most of the potential for this project has already been realized. In total, we have targeted an EBITDA improvement of NOK 75 million to NOK 125 million from these 4 investments over the next 3 years. The improvement will be from increased volume and further specialization. If the EBITDA targets from the 7 expansion projects are met and the currency rate stays at today's level, we would realize an EBITDA improvement between NOK 425 million and NOK 625 million over the next 3 years, which then would bring the EBITDA level to between NOK 1.5 billion and NOK 1.7 billion. The currency impact alone is NOK 200 million, assuming today's currency rates in the whole period, and is mainly a result of reduced losses on hedging positions. Using the same targets and assumptions, return on capital employed should increase from 10.6% the last 12 months to between 16.6% and 18%. Earnings per share should increase from NOK 3.72 the last 12 months to between NOK 7.30 and NOK 9.10. The targets are assuming investments at forecast midpoints. Net working capital increasing with revenues and dividend increasing in line with the company's dividend policy. Potential larger expansion investments beyond the investment forecast may negatively affect key financials in the period. All other parameters are assumed to remain constant, which, of course, is unrealistic, but mostly beyond our control. Major uncertainties are market demand, the world economy, the COVID-19 situation, general cost inflation and input factor prices. And that completes my presentation today. We will then take a short break until 10:00 when we continue with BioSolutions presentation and the Executive Vice President in BioSolutions, Tom Erik Foss-Jacobsen. [Break]

Good morning, everyone. My name is Tom Erik Foss-Jacobsen, and I'm the Executive Vice President for BioSolutions, which includes the business of our polymers -- biopolymers and biovanillin business. Today, I will be presenting a quick review of the BioSolutions business, and it's remarkable, I would say, diversity. I will talk about the changes in the global lignin supply, also about the implications of the reduced lignin supply we have seen over the past year and how Borregaard intends to adapt to this. I will also talk about sustainability and how this is becoming increasingly important in the market and how we capitalize and intend also to capitalize going forward on what we see as our competitive edge here. And I will also talk about our innovation strategy and give you some examples of the new -- of some of the new products that we have commercialized lately. Finally, I'll summarize with our strategic priorities. With 650 products sold to 3,000 customers, in a wide range of applications and a wide range of geographies, the BioSolutions business is a highly diversified one. This provides a very solid platform with good spread of risk, and this also makes our business more stable over time. If we look at the end markets, agriculture constitutes a significant part of our sales with close to 40% of our total revenues. And this end market is clearly one of the important drivers for our business. Looking at the concentration on the customer side. We have a few relatively large customers, but the concentration has been declining over the years. And looking today at the top 3 customers, they're accounting for less than 10%. So we can say that the majority of our customers are typically small and mid-sized companies that really value our competence and our products and solutions. Let's take then a look at the current global lignin supply. Earlier, we have estimated that the global lignin capacity has been around 1.1 million tonnes. This has now been reduced to 1 million tonnes through the last year. And this is, of course, primarily due to the Borregaard plant curtailments. Our operations in South Africa have been mothballed for an indefinite period, and our operation in Spain are being liquidated. Borregaard's market share by sales volume is estimated in the range 35% to 40%. But I will also say that, in revenue and value, it's significantly higher. Our main competitor is Domsjø in Sweden. We have indicated the sales volume for 2020 to be around 400,000, 425,000 tonnes, which is down 10% to 15% versus last year. Following the reduced raw material supply, we assume sales volume over the next 2 to 3 years to be in the range of 375,000 to 400,000 tonnes. As Per mentioned, the lost volume is hardwood-based eucalyptus and also then with limited potential for specialization. As a consequence, of this reduced supply, the construction markets will be affected and also the -- some of the industrial log end markets will be affected. Looking at the construction market. This is a cyclical market. And we have seen over the past years now also that they have been increasing their use of the oil-based alternatives to lignin. And this trend has also been even further reinforced by a low oil price. Going forward, we will make volumes available in those markets where we see that the value of our biopolymers are being recognized. In the industrial markets, our main priority will be diversification based on value. And the speciality markets will not be affected. If we look at the new supply situation, we see this as an opportunity, an opportunity to sharpen our strategy. We will optimize the value of our biopolymers portfolio. We will do this by further reducing our exposure to the low end and the cyclical markets. In the recent years, we have had the strategy to reduce our exposure to the construction markets as one big single segment in our portfolio due to its cyclicality, due to the commodity bias and to the increased competition. With a reduction in supply, we now see that our exposure to the construction market is on a level where we don't see this as a big risk any longer. The significant drop in exposure also forms a very good basis for our specialization and diversification strategy. We will continue diversifying our portfolio based on value added with focus on advanced applications where we add significant value and also where we see stable growth and where customers have a clear preference for our sustainable solutions. If we look at the graph and our sales development in the industrial segment, we have had a significant volume growth since 2015. The growth is across a wide range of applications and geographies, and it just demonstrates our strong capabilities to innovate and develop markets and to sell our products and solutions. So I think here we have a very robust and growing customer and application base that we will further optimize. If we look at the Specialities, here, even though volumes have been fairly flat within Specialities over the last years, we have seen a significant increase in value. We have prioritized specializing our business with full force through innovation and market development. We will drive value going forward and drive the growth of value based on our expertise, our sustainable solutions and products with unique performance. I will also say that we have strong ambitions for growth in Specialities going forward. And I will revert to this in one of the next slides. But first, I will also talk a little bit about sustainability. Borregaard have an important competitive edge in sustainability. And going forward, our target is clearly to capitalize on our biorefinery model and our bio-based solutions. As we heard Per talk about, the Borregaard biopolymers and our products have a very favorable environmental footprint and can replace synthetic and fossil-based products in many applications. Lignin is a biopolymer derived from wood and it's the earth's second-most abundant biopolymer next after cellulose that we'll hear more about. Our raw material is harvested from sustainable forestry resources. And lignin is also derived from second-generation feedstock, something that we normally talk about when you talk about ethanol. But this is also highly relevant for our biopolymers, especially when we compete with starch and sugar-based products in certain applications, but also versus existing and future green chemicals that will be based on food-grade sugar. The sustainability of our products is documented in LCAs. And also, we have EPDs, or so-called environmental product declarations, available. The LCA assesses environmental impacts associated with all the stages of a product's life, from raw material through the materials processing and the manufacturing, including distribution. Borregaard's LCAs and EPDs are verified and all based on third-party verification. So why is this documentation and the fact-based approach important? We also heard about our alignment with United Nation's Sustainability Development Goals. I will provide 3 examples from our biopolymers business to explain how we think and how we work on this. The first example is within Plant Nutrition. Our biopolymers can be used to formulate micronutrients for plant nutrition for increased crop yields. In this area, we typically compete with synthetics like EDTA. And our biopolymers offers high efficiency and can be used at a lower dosage. As you see in the graph to the right, by replacing the synthetic alternative with the Borregaard biopolymer, you can actually get a CO2 saving on 90%. Then the second example here, within resins, where our products also can be used to -- as a sustainable alternative to petrochemicals. Urea, formaldehyde and phenol formaldehyde-based resins are used as a glue in a number of industries like wood-based panels, coatings, moldings and insulation materials. These resins are coming under increasing environmental scrutiny. Consequently, blends and substitution of oil-based resins with our biopolymers are becoming more and more attractive to the resin producers and end users. Borregaard's biopolymers can be used in, for example, phenolic resins to partially replace phenol. As shown in the graph to the right, for resins, by replacing phenol with our biopolymer in phenolic resins, the CO2 emissions can be reduced with over 65% per feedstock unit. Then the last example here is linked to our business in the animal feed markets. As a response to desire for less-medicated feed in the food chain, Borregaard have developed a feed additive technology called SoftAcid. One way to reduce the disease is to reduce the microbials that cause the disease. This can be achieved by additional antibiotics or, alternatively, organic assets. But organic acids, they have certain aspects that make them challenging to use. When combining an organic acid with a modified biopolymer, the resulting product retains antimicrobial properties and is far less corrosive and much safer to handle than organic acids in its pure form. Our patented technology works with formic acids, with acetic acids and propionic acids, to name a few. The technology also works in fish preservation and fish silage preservation, where proteins and oils are protected. So in conclusion for that, we can say that we contribute to a responsible consumption and production. We contribute towards hunger -- zero hunger and to more efficient food production, and we generally contribute to a safer and cleaner food chain. Let's also take a look at our biovanillin business. Our biovanillin business, we think, is very well positioned for growth. And it's in a small but highly attractive niche market for plant-based and sustainable vanillin. Preferences for green products are driving the demand here. Customers, both in the B2B market and B2C, are willing to pay premium prices for plant-based products. According to Nielsen marketing research, sales of products in the U.S. with sustainable attributes now make up 22% of total store sales. And this market share moved up close to 3 percentage points from 2014 to 2017. And it could hit 25% by 2021, which is next year. We estimate the market for plant-based vanillin to be more than 2,000 tonnes versus the oil-based bio market of more than 20,000 tonnes. Borregaard has a strong competitive edge in the plant-based vanillin market as we are the single-largest producer and also the global market leader in plant-based vanillin. We believe that this segment will continue to see healthy growth in the years to come. Our flavor profile is considered unique by our customers and attractive. The vanillin from Borregaard gives smoother and a more balanced flavor than our competitors. This is especially important in the food sector, which also is our largest customer segment. We have a unique raw material base based on natural and sustainable feedstock. The product is 100% plant-based with wood from certified sustainable forestry. And the Borregaard vanillin also has a highly favorable environmental footprint, with more than 90% reduction in the carbon footprint compared to oil-based vanillin. When considering that we have the lowest costs in this segment and can grow with the market, we think that we have a pretty attractive package to offer here. Innovation is very important in Borregaard. Our overall target for innovation is to strengthen the biopolymers portfolio and increase the value through specialization and diversification. We are targeting high-value applications and niches within the niches where our products are valued for their superior product performance. We focus on applications with value growth potential and less cyclicality. And as mentioned earlier, examples are plant protection, plant nutrition and animal feed additives. And here, I think one of our strengths is that we are able to make tailor-made solutions through modification of the biopolymers. That's key to our success here. With the investments that we have made in the recent years and with the flexibility to broaden our Specialities portfolio even further, we think we are very well set also with the new products that we have in the pipeline. We have had several new products being launched in the last years. I'll give you a few examples shortly. And we have an innovation pipeline progressing towards commercialization. Going forward, we will focus on bringing our innovation portfolio out to our customers and prospects. We have split the innovation opportunities into a few different categories that I will share with you. Those given the highest priority have an underlying strong value growth potential. In other areas, we have a more defensive strategy, where we want to protect our market position. We also see opportunities within novel applications, several of these with sustainability pull from the customers and end users. Finally, in some applications, with significant fluctuations over time, we will take an opportunistic approach and take advantage of the opportunities as they come. Going forward, I would also like to mention that it will be key here to increase the value of the Florida product portfolio, and we will do this through product and application innovation. We want to capitalize further on this competitive edge we have and the customer pool we see in the market. We have a unique competence base with our sales and marketing team being out there every day, close to the customers and our manufacturing team that we also work very closely with and our R&D organizations. This competence base is built over more than 90 years. And this is one of the main strengths we have. We have a very diverse raw material base, including softwood and hardwood. We have advanced technologies designed to do what I talked about this tailor-making of the products, the modifications that are important to exactly that customer, and with that desirable performance in various high-value applications. As you see in the previous examples I've been showing, there are requests for sustainable alternatives from customers and prospects in several industries. So here, I'll give you some examples of novel commercialized products that we are proud of. These products are often the result of long-term development programs driven by customer needs, often requiring 3 to 5 years of innovation work by R&D, production and our market teams. And as I mentioned earlier, agriculture is a very important sector for us. In Plant Nutrition, there are a wide range of formulations used by the industry today. Our current products are mainly used in dry formulations like in powders or granules. There is a trend in the industry now to move towards water-based systems like suspension concentrates and soluble liquids. We have introduced new products with unique performance and unique characteristics as real sustainable alternatives to synthetics in this, which is called the fastest-growing segment within this area. Another area with demand for unique products is the battery sector. Borregaard have developed a sustainable organic additive to meet customers' performance requirements for improved charging of the so-called EFB batteries. The EFB batteries are a new and cost-efficient technology, which is approaching the existing state-of-the-art technology also referred to last AGM, and it is for automotive start-stop function. The key benefits of our new products here are improved, charge acceptance, cold crank and battery life. Then to my last example of our new products here, which is from oilfield chemicals. Borregaard are selling high-performance products for petroleum drilling applications. We have recently commercialized our BioDrill product range to meet the industry's increasing demand for efficiency, productivity, but also sustainability, which is also becoming more and more important within this sector. The product line includes cement retarders and drilling fluid additives. As part of these efforts, Borregaard have launched a new high-performing and sustainable product for water-based drilling muds. This is to reduce the loss of moisture or fluidity in the drilling process. The product contributes towards maintaining the right geological properties under extreme drilling conditions, a highly tailor-made product. So in conclusion, I would like to summarize our strategic priorities within the BioSolutions business area. We will optimize the value of our biopolymers portfolio. We will have sharp focus on diversification based on the value added and specialization through innovation and market development. We heard about Per saying the expansion in Florida is pending and also depends on profitability. Our focus now is to fill the capacity, ramp up volumes and also increase the value of Florida. It's also very important for us to execute on the specialization and growth projects that Per Bjarne outlined in his presentation at the Sarpsborg site, both for biopolymers and biovanillin. And the successful completion of that capacity expansion to be in by end of first half next year. So that concludes my presentation. Thank you very much, and I would like to introduce my good colleague, next speaker, Gisle Løhre Johansen, Executive Vice President for the Speciality Cellulose and Fine Chemicals.

Thank you, Tom Erik. The Speciality Cellulose industry is fairly easy to describe because there is not that many players. It's about -- it's 5 -- it's 4 big players with RYAM being the largest -- by far the largest. And it's Borregaard, Georgia-Pacific and Bracell and then there are some others. In total, this industry manufactures about 1.6 million tonnes of pulp. And Borregaard's capacity is about 10% of that total volume, about 160,000 tonnes. In addition to producing from wood as a raw material, there is also some producer based on by-products from the cotton industry, what we call cotton linter pulp, which you will hear more about later. And most of these producers are located in China, but there are also a few -- there are also some players in the U.S. It's industry with high barriers to entry. So of course, like Borregaard, it originally was a viscose pulp manufacturer. It's possible to grow into these segments by acquiring know-how and technical capability, but we see limited competition from these players and mainly then in the lower specialized segments like nitrocellulose and casings. We focus on 4 major end-user groups. It's the ethers, acetates, the nitrocellulose and the casings. I will come back to ethers and acetate. Nitrocellulose is, for example, raw material for materials that -- for printing ink. And casings, that's, for instance, sausages. There is growth in the ether segment, strong growth, I would say, if you look back in the last few years, while on the other hand, there is decline in the acetate segment. Nitrocellulose is pretty stable, and casing also growing. So in total, this means that there is, I would say, some slight growth in the segment as such. The Cellulose Ether is a quite diversified segment. There are not that many big producers, but there are many products. And also both cellulose ether products and users of those products. So you find them. So we supply our cellulose to the cellulose ether producer. We make a range of derivatives like methyl cellulose, carboxymethyl cellulose or hydroxyethyl cellulose. And those, again, goes into a wide range of applications. The larger one are construction and coating. But there is also a big and growing segment, which we call regulated, and that's pharma, food, personal care, and we are present in both of them. As I said, the growth have been strong over the last few years. And although we now see a flattening due to the effects of the COVID-19 virus and especially in the Construction segment, while the other segments remain pretty strong, I would say. Six producers account for about 50% of the global capacity, and the major players are Dow, SE Tylose, DuPont, Ashland, LOTTE and Nouryon. Most of these players are located in Asia and in Europe, but there are a few also in the United States. This is, of course, something we see as an advantage for Borregaard because then we are pretty close to our customers in Europe based in Sarpsborg, Norway. There is competition from China, mainly using again this cotton linter pulp, but it's not applicable in all segments. For instance, in some applications, the customer wants no GMO material for their regulated products, and then it becomes pretty difficult to do that with the cotton by-products. We have seen new cellulose capacity coming on stream, and there are still projects being executed. So in total, over the last few -- in the last 1 to 2 years and the upcoming 1 to 2 years, we talk about adding about 40,000 tonnes of new fresh need for cellulose ether pulp, which is a quite strong signal from that segment that this is a growth segment. So being -- having a strong presence with the industry as it is, we see ourselves very well positioned for strong growth and further specializations in the year to come. There is also some consolidation of the industry. So we have seen lately the IFF and DuPont merger and Nouryon acquiring CP Kelco. When it comes to cellulose acetate, the main product is filter tow, and most of that goes into cigarette filters. But there are also other applications like in yarn, LCD screens and bioplastics. Total market for acetate cellulose acetate pulp is about 560,000 tonnes. It's a quite consolidated industry. And the acetate flake producer, which is our customer, its 5 players account for about 90% of the global capacity. Two of them are located in the U.S., that's Celanese and Eastman, mainly in the U.S.; while Cerdia both have presence in the U.S. and Europe. And Daicel and NCFC are located in Asia. So we supply the acetate flake producer, and then this flake is then -- could either be cellulose triacetate or cellulose diacetate, which, again, is further processed to the final products, like the films, the plastic products or the filters. As I said, due to the -- especially then filter tow for cigarette filters being the main product, there has been some decline in this sector over the last few years. And global cigarette consumption is declining. There are other technologies for smoking, like the heat-not-burn cigarettes, and there is also upcoming a growing concern for waste issues related to cigarette filters. So all of these, I think, are -- together means that there is no reason to see a dramatic change in this trend moving on. So then it's very important, both for our customers and their customers and us, to focus on other opportunities for cellulose acetate and cellulose acetate pulp or cellulose acetate. And then it's important to notice that Ice Bear, that is really an enabler for entering those non-filter tow applications. We do not have a strong presence in this segment today, but with the Ice Bear technology, we really have bought ourselves or invested in an opportunity to grow into these segments. As have been mentioned before, Ice Bear has been a fairly successful history so far. We are ramping up our production according to the growth in our -- in the market for our Ice Bear. And this year, we estimate sales to between 13,000 and 17,000 tonnes, with further growth in the years to come. So it's not only a way of defending and growing our existing markets and working with our existing customers, but there's also an opportunity to enter business with new customers and to enter these more advanced non-filter segments. And we have several initiatives going on with key customers, developing Ice Bear rates that may fit into these segments. When it comes to cellulose acetate, it ticks off some of the important things when you talk about a new green sustainable economy. It's a plant-based plastic with a high content of carbon coming from plant-based sources. Some of the acetate products, cellulose acetate products can be tailored for biodegradability. That means that the important way forward here is for us using the Ice Bear technology to work with our customers to tailor-make our Ice Bear just for their application. And in addition, we see already further opportunities, both in the ether segment and also in the tire cord segment, where Ice Bear can be an enabler. We have also there several projects and tests going on with potential new or existing customers. So we think that Speciality Cellulose, as I said, both in the ether and in the acetate segment, it ticks off important points when it comes to sustainability. We see that one of the more popular examples is like the methyl cellulose goes into nonmeat hamburgers, and we see several of our customers having strong growth in that segment. Of course, that is limited segment in size. It's not unlimited, but it's a good example that the ethers fit in very well. The cellulose ethers also fit in very well in the general trend turning from oil- or solvent-based system to water-based system. They are most often used as rheology or flow modifiers and then used in water-based systems because, increasingly, the world don't want to use solvent-based system. It's oil-based, it's nonrenewable, but it has also issues with emissions from volatile compounds in those formulations. The alternative, when you come to producing ether grades and also some acetate pulp grades, that's by-products from the cotton industry. And as the textile industry has become very [ available ], the cotton is becoming more and more controversial. And we see that major end users of textiles, they turn from cotton to other alternatives. When you harvest the cotton, you end up with the cotton itself, and you have the seeds, which is covered by a layer of fiber, and that is the cotton linter. The cotton linter pulp can be used as it is. It's a good starting point for some of the most advanced ether products, which require extremely high viscosity. But it can also be used to dilute fluff pulp, which is in periods fairly competitively priced compared to Speciality Cellulose, and then blend the fluff pulp with CLP to achieve the desired raw material properties. But in some areas, CLP is a no-go. You have no guarantee when it comes to GMO. So there, we have customers that just don't use it due to that aspect. Cotton is a land-intensive, water-intensitive crop. There is pesticides connected with farming. And as I said, it's becoming increasingly controversial. So due to this, CLP has significantly higher environmental footprint compared to the wood pulp. And I think we will see growing environmental concern among customers that may favor our wood pulp for ether applications in the upcoming years to come. So coming to our strategy. It's not big changes here compared to the strategy we communicated 2 years ago. We want to continue to be a leading supplier and further growth in cellulose ether and really piggyback on the growth, the general growth industry, not only expanding the volumes on existing products, but also adding on new niches within niches products in this segment. We see strong opportunities there. We want to continue to be a key supplier to the cellulose acetate industry, especially then playing on the opportunities that we have gotten now with Ice Bear. And we also want to continue a strong presence in other speciality segments, like the nitro and casings, and, in general, then avoid the textile segment if possible. So I think that we will see the growth in the ethers, both in the coatings, construction and the regulated segments. It's a general growth all over the different product and product groups. We want to see that we enter non-filter segments with our Ice Bear qualities to our key acetate customers. And we also want to target niches in other product groups like tire cord. And we want to back our value proposition to a much stronger degree, documenting the sustainability of our products, but -- our products as such, but also their strength compared to the alternative products. So that finished my presentation, and I will now go give the word to my good colleague, Mr. Pal Romberg, who is EVP of Cellulose Fibrils.

Thank you. Thank you, Gisle. I will talk about Cellulose Fibrils, which is a very exciting innovation project in Borregaard. I will first take you through a little bit about the status of where we are. We are the global leader in this area, and it's called micro-/nanofibrils, which is 1 out of 3 categories under the Nanocellulose umbrella. Of course, we have some competitors in this area, which is good, and they can be categorized into typically 2 different types. The ones that have captive use as the main purpose, they have the plants that are feeding their own products. This is typically the case in packaging companies. And then we have other competitors, more like us, which are developing the markets. And most of those are today in a pilot phase -- stage. And yes, I guess we have something like 10 of those out there. We have a large-scale plant, 1,000 tonnes of dry capacity. Maybe that doesn't sound that much, but we supply the product in a 2% and a 10% solution, so it's somewhere between 10,000 and 50,000 product tonnes coming out. And as previously mentioned, we have the setup to double that capacity when the market is ready. We use cellulose as a raw material. And we have the setup, so we can actually use different cellulose grades, which enables us to have the flexibility to develop new product ranges when the market is looking for that. And the plant is zero emission, which, of course, is very nice. The market is still somewhat embryonic, meaning that a lot of the companies out there are still in the development phase. They are spending time on trying to develop new innovations based on this material. But we also see that the number of customers that are starting to use this commercially is also growing fast. The product, it's not so easy to explain what it is. It's sort of a network of micro and nano fibrils. You can imagine like a spaghetti network, and it's very big. So 1 gram covers a tennis court. So that's one way to visualize sort of what it is. It's tricky. The benefits of the products can be sort of grouped into 2 areas. It's improving and controlling flow, meaning that some of the properties here is what is referred as shear thinning, which means when you apply shear to the product, it becomes very thin and flows very easy. And as soon as you remove the shear, it becomes viscous very fast again. And this is attractive in several product formulations. The other property or benefit from these product groups is that it can create a barrier. So you can create an oxygen barrier, for instance, which is attractive in packaging. And also, you can create a film, which enhances strength and flexibility in products. And what we see so far is that it's attractive in a lot of different application areas. So we have more than 30 application areas today, varying from very sophisticated pharma things to more robust, large volume, like, for example, concrete. So where are we? We have today more than 50 regular commercial customers, and we see that sales is doubling year-on-year, which is nice, of course. And we see good growth as well with our key customers, meaning that when they learn more about how to use the product and the benefits, they broaden their product range, and they also develop new products in their portfolios. You can see on the graph to the right that the curves are pointing in the right direction. We would, of course, like them to go steeper, and that's what we're aiming at going forward. We have a pipeline -- active pipeline of more than 2,000 prospects today. And the way we measure it is that when a company gets a sample, they are classified as a prospect. And we see that our pipeline typically grow with something like 50 new prospects per month. Then we also measure when these prospects give us a feedback from their lab work. Not all of them do, but some of them do. And we measure how many of those we have. And today, we have 400 of those, plus/minus. That's growing. And we have -- in addition, we have more than 100 companies that are now in what we call the plant or pilot plant phase. So they have developed a technology into a stage where they really want to take it into their plant and test it out in large scale. And as you can see, that curve is also constantly growing. One of the challenges here is that it takes a long time. We see development time from sample received until they start buying regularly. It varies from 1 year to 5 years. And here, we also actually see quite big differences between the application areas. Some of the applications is much more conservative and uses longer time, while some others are -- actually, we have customers that have developed new innovations here in less than a year. But on average, we are typically seeing 3 years as a development time here. We're also starting to look more on why some of these prospects or companies have stopped using our product. And typically, it is, of course, because they couldn't get the results they were looking for. It didn't work as they were hoping. There is, however, no clear trends on this. So there is not like this technology or this application is -- the product doesn't work. It's evenly spread out. And also, we see that less than 10% of the prospect stopping stops because of price or other cost issues, which is promising. I will now take you through some areas where we have had success and try to explain a little bit more in detail what those areas are and why they are successful. And as the headline says here, it is quite clearly a trend that sustainability is important, and our products gives companies the opportunity to become more sustainable in their product offerings to their markets. But of course, performance isn't necessary here. They will not develop new, more sustainable products if the performance of their products, again, is weak. I will give you 4 areas where we have had success and talk a little bit more in detail about those as I move forward, but I will just say a few words about them here. Moving from solvent-based to water-based systems is, of course, in coatings and in adhesives, not new. It's been going on for many years, but this is enormous market and huge product groups. Like VSF, for instance, have 18 subgroups into the coating area. So it's a lot of opportunities out there that still struggle to become water-based or more sustainable in this area. Another area we see getting more and more attention is what is referred as carbomer, which is acrylic copolymers used in a lot of areas, and we see a lot of attention in the personal and home care markets for this. These are products that are thickeners and gelling agent and also stabilizers and suspension agents. And they are very robust and not so easy to get rid of. Also, we have a couple of examples of that later. Then we have boron compounds or borates, which also is a large area of chemicals that are getting under more and more scrutiny from regulatory and have -- in Europe, they are classified as a substance of very high concern, which is something that European chemical agents want to get rid of. And I will show you some examples of where we're able to replace this. And then the last area I will talk a little bit about, which is exciting as well, is bioplastics, which is, of course, very hot on the agenda. You're now getting bioplastics is plastics that are from bio-based raw materials or it's biodegradable plastics. And one of the challenges that they are facing is to be able to replace conventional plastics. They need to have the same performance. And currently, they struggle with that, particularly on the strength side. In the coatings area, I have picked 2 examples where we see good development. It's wood coating, which is an area which is quite challenging because wood is not a good material, so it expands and contracts and so on. And when you want to put on a thin coating there, you have problems with cracking and you have problems with the coating sagging or not getting a level -- good application when you put it on. We have many customers in these areas, and we have also some very large trials coming along this year. And we think that, again, here, the film-forming properties that Exilva brings makes the coating stronger and more flexible. Then we have another area here which is thick protective coatings, which is used in the industry. It could be by protecting antirust coatings where you want to put on a very thick layer to avoid putting many layers on. And we have several customers in this area. And these are typically coatings that are heavily loaded with particles, and then they become very difficult to apply and you get sagging and so on. And Exilva helps with that, both when it comes to spray and when it comes to uniform distribution of the particles because of the 3D network of the product. In home care and personal care, we also see good development. And I think the cosmetics and personal care companies, they are constantly hunting for becoming greener, more bio-based and so on, and they are looking into all kind of new materials to see if they can use that. And this is, of course, consumer-driven, that the consumers are also looking at the labels to see what's in this product. In cosmetics area, we have 2 of the biggest guys out there that are launching new products mid next year. Of course, cosmetics is not big volumes, but I think it's going to be good for us to be able to reference this because they have very high demand on operations, consistent quality and so on, which is going to be a good feather in the hat, so to speak, for us to use in other areas as well. In personal care, they use a lot of these carbomers or acrylic copolymers in their products, and they're very hard to replace. So I would say that we have had a sort of mini breakthrough with the customer here that has successfully replaced these synthetic products with Exilva in their haircare range. So that's very, very nice for us. In the home care area, which is detergents and cleaning products used in the home and also in the industry, we are proud to say that we got a raw material sustainability award from one of the top 3 companies in this area, Henkel, last year. And we can also say that we are present in a lot of Procter & Gamble patents in this area. And this area uses a lot of microcapsules in their products, and Exilva -- the network of Exilva makes it possible to keep these microcapsules nicely suspended, and you can then have a very even and good distribution of them in the products. Replacing borates, I mentioned it earlier. This is also, I think, a very exciting area. These products are not very nice, some of them, and they are classified in EU as substances of very high concern. And there is actually labeling requirements in Europe for this. So you have to put on your label that this product is suspected of damaging fertility and the unborn child, which, of course, is not very nice, either for the manufacturer or for the user of this. What we have discovered is that they are actually present in all corrugated board adhesives out there. And the reason for that is that nobody has been able to come up with an alternative that is as good as these products. The solutions on the market today are typically not working for all the difficult grades, and then the companies don't like to use them because they don't want to have to do too much adjustments in between their grades. We have worked now over the last 2 to 3 years on a solution for this, and we are proud to say that we have a solution which works on all box grades out there. So we can replace these compounds. It's tricky. It requires a lot of support from us. So we have hired an industry expert to help us drive this through. Another obstacle is that the adhesive cost goes up. But when you realize that the adhesive cost as a percent of the total cardboard cost is less than 1%, so it's not going to be significant for the cost of the final cardboard box, this one. And here, we have patent applications to protect us in this area. Last example is bioplastic polymers. This is, of course, high on the agenda all over. People would like to replace conventional plastic with bioplastic. And as you can see on the chart there, the market to market, this market survey company, they think that this area is going to triple over the next 5 years. We have been involved in several projects on this for many years, with very limited success, haven't been able to really do much improvements. But now this year, a German equipment manufacturer called Gneuss, they have developed a brand new technology, which is some sort of vacuum technology, which enables incorporations of nanoparticles into the polymer matrix in a very uniform and good way. And they have built a pilot plant, and they have tested a lot of nano materials in this and the best results they have achieved with our products. And they see between 10% and 35% strength increase in the tensile strength of bioplastics. And this has, of course, then gotten the attention of the big guys that are producing these materials today. And they have -- most of them signed up for pilot trials in fourth quarter this year. So this is, of course, early days, but I think if it works, it's going to be very exciting. What are we going to focus on then going forward? As our pipeline grows quite rapidly, we need to be better at ensuring that we focus our resources on the most promising prospects, the ones where we think the potential is the biggest. So we are focusing on only part of the pipeline and prioritizing those leads and following those up very closely. And then we will have our distributors take care of the rest of the pipeline. And we will also continue to have new leads generated mainly by distributors and inbound marketing and not run around and knock on doors or run to trade shows and so on. And as the pipeline grows, we see that we will need more resources in sales as well. So we will start to also leverage and get help from the broader sales force that we have in Borregaard, especially in biopolymers, where we also see synergies in applications. Several of the new and exciting applications we are in are already served by other people in Borregaard. And then we have some projects where we have very, very good results and where we really believe that we need to put all what we can when it comes to resources. So we are dedicating R&D and safety resources to those projects. Corrugated board is one of those examples. And we are working also here to find partners which are better than us in understanding the technologies and can help us open doors and move faster in this area. And if we see that we need more technical experts as we develop further, we will hire those, and we've already done that in the corrugated board area. So that concludes my presentation, and I will then leave the floor for questions and answers.

Thank you. Then we start the Q&A session. We have questions received now. But I repeat again, then every question will be answered, but probably, we don't reach everyone as in the next 15 minutes. But I will start with one question for the CEO, and that is your peers typically struggle from oversupply within textile. And we heard also today that, generally, it is difficult to enter many of your segments due to high barriers entry. But do you see an increasing risk of tougher competition than before in some segments if some competitors are expanding or changed strategy that is kind of more of a threat for you? Or is it so that also, the competitors spend quite a lot on R&D and find alternative ways of growing?

Well, again, I think that it's good for us that we are into so many different areas because there is no single answer to what you are asking. And I think that the reference you started out by making is basically back to the Speciality Cellulose business, where we have only seen 1 new entrant over the last 20, 25 years, actually. And there are significant barriers to entry there in terms of technology and managing emissions to air and water and so forth. So it's not something you can do in a short period of time. Also in the biopolymers business, we have -- there is a limitation to raw material for those kind of lignosulfonates that are attractive, and Borregaard both have control or access to the best quality raw materials, and we also have lots of intellectual property or knowhow that we can capitalize on. So in those areas, I think that we feel quite comfortable. But of course, there are other areas where, like, for instance, the developments we have seen in plant-based biovanillin, of course, makes that area extremely attractive for a number of companies. So you can never rule out that new technologies will appear on the scene and that things will change over time. So that's an inherent risk we have. And that's why innovation is so important. We always -- in general, you always see that yesterday's specialties are tomorrow's commodities. So you have to develop new specialties all the time. So we have seen that multiple times. But as we have talked about today, innovation takes time. So that doesn't only apply for Borregaard, that also applies for Borregaard's competition. So I don't think that things will happen tomorrow, but in the long run, some things can always change.

There's another question incoming here on the supply and demand balance for the different business areas. You've been commenting on BioSolutions, but is it possible to give some further breakdown, especially versus how the situation was back in 2018 when you last held the Capital Markets Day?

You're thinking BioSolutions now?

For all business areas.

Yes. Well, I think that for the -- again, I mean, in BioSolutions, we have pointed to the fact that we, in particular, this time around, has lost access to some raw materials. The history of lignin over time has been much like that. I think that what we talked about a lot 2 years ago was that we wanted to diversify our exposure, reduce our exposure to construction. The reason for that was that the construction area also has an alternative product based on oil. So you have to go in and look at each segment really. The robustness of Borregaard is that we don't compete with the same alternatives in the different segments. And inside BioSolutions, we actually have 600 products. But what we talked about 2 years ago was that one of these areas, the construction area, had significant competition, and it was oil-based. And that's why we wanted to, over time, reduce the exposure and work our way to -- we didn't want to leave the segment altogether, but we wanted to reduce the exposure. Now by default, because we have reduced our raw material supply, we have sort of fulfilled that ambition by default. Now we can adjust the portfolio. And that's what we have talked about today that, going forward, we will diversify easier because of that. In other areas where we have really seen a big change in demand, of course, is in the biovanillin, plant-based biovanillin. If you go back 2 years, I think the market to a large -- a much larger degree than now viewed oil-based and plant-based as the same thing. So that's been a dramatic change in the demand curve for plant-based vanillin. And we are now scrambling to try to cope with that by doing an expansion. And like I said, I'm sure that other people are looking at that opportunity as well, but we feel that we are well positioned with a good cost position and also the ability to expand as we are doing as we speak. In the other areas where we are active, in the Speciality Cellulose, we haven't seen large movements in that area. The major concern over time there has been the cigarette filter application for acetate, and we have made our moves. We have invested in the Ice Bear technology, we are focusing on the ether grades. So I think that if you're going to see a breakthrough there, you need to see some big developments to replace, let's say, the cigarette filter application. And there are potential for that on the acetate side. I think our customers are working hard at that. Bioplastics is also an opportunity there. But of course, it's expensive compared to oil-based plastics. But I'm sure that we will see changes there going forward, but we don't foresee that in the next strategy period that we have talked about today. The other areas we are in, I would say, are fairly stable. The Fine Chemicals is growing, healthy growth, with x-ray contrast media. The Bioethanol is a commodity product, but we have this special feature that it's Bioethanol. And as a paradox, COVID-19 has been positive for the demand development in that area. I think I'll close there.

Yes. That was a question from Kenneth Sivertsen. He had a -- more question, but I think we'll come back to that because that's probably for the CFO. But we have one from Carlos Bredengen from Berenberg. He says, could you please elaborate about 2 out of the 7 recent investments that have delivered below return on capital employed expectations and whether these can eventually catch up with that of the rest of the group? And if so, what would be needed from you and the market for this to happen?

Yes. No, I think we have elaborated on it quite a lot through the presentations -- subsequent presentations. I mean the 2 projects that we're referring to is, first of all, is the Florida project where we have talked about. The volume is okay, but the profitability is not okay. So there is a job to be done to improve the product mix and to also develop applications that are -- will improve the cost position in terms of distribution costs and so forth. So I think we are hard at work doing that. And the ambitions that we expressed are all included in Per Bjarne's targeted improvements for the EBITDA. The second one is the Cellulose Fibrils and the Exilva presentation, the last presentation we had, where we continue to have very strong expectations for that area. But we also have to conclude that things take time, there is a strong interest, but development take time. But I don't see that -- we haven't really changed our expectations around that business area. And like I said, it's really demand development that will trigger the next step. The pricing, the interest in the market is quite okay.

It was said in the presentation during the CapEx projections that you cannot rule out potential acquisitions. Could you elaborate a bit more on what that could entail?

No. It's a general disclaimer, I would say, because basically, most of Borregaard's -- if you look at Borregaard's history, most of our success has come from organic growth and innovation. And I think that that's -- there were sort of 2 things we talked about. One, you have to expect some add-on investments. It will not be of the magnitude that we have seen in recent years, but we still think there are some opportunities. And I'll say that it's more likely with add-on investments than acquisitions, but I don't think we shouldn't rule it out. I mean we are being approached by different people, and we are looking at things, and it has to be something that is close to what we are already doing, where we can benefit from our competence or our market positions. But we don't have any specific things in mind at this stage.

We have one question here from Suzanne Senellart from Mirova. Could you please elaborate on batteries applications, how Borregaard can replace oil-based solutions? Could you assess the market size could be for Borregaard? Could you give more information on the references from battery producers?

Well, it's very technical question. Do you want to comment on that? Okay. Very good.

I'll try and make it -- I'll try on it. Well, we usually don't specify the size breakdown of our specialties. But what we normally say is that in biopolymers, roughly 20% of our volume goes into specialties, and they are priced at 4 and even up to 10x the average. And there are 3 really large segments inside the specialties: one is the batteries application that you just asked about, the other one is oilfield chemicals, and the third one is everything that's related to agrochemicals. And so this is 1 of 3 sort of unique positions. The general thing I have to say about lignin is that -- or biopolymers is that there are different fields of competition or arenas for competition. And in this particular area, batteries, the batteries application, the lignin has superior performance versus the alternatives. So it's not a cost/benefit thing, it's like we have the highest performance. And as we presented today, we have improved our product range even lately because there are new demands for batteries because of the technology developments that are taking place. So in general, if you go into -- we have more technical information available, obviously, in brochures and things like that. But generally speaking, the battery products extend the lifetime of the product by 7 to 10x. So it's a small addition to the asset in the battery, but it has a huge impact on the performance of the battery and the long lifetime of the battery. And as we talked about today, we have now added more performance criteria. This -- the new way you use batteries with the start-stop function, for instance, tears down the performance of the battery. So this cold crank and recharge applications that we talked about today means that our product can offer even more performance elements than it did in the past. So we think that we have a unique position here because of our technologies and our raw material. So we don't really see much competition from other lignin producers here because of the raw material technology. And we compete with oil-based alternatives that don't have a similar performance. Now this has been the case for a long time. But in recent years, as we presented today, we have tried to add new performance elements because we see that there is a lot of things going on in the battery area, and we have to -- you have to follow up with new products so that you can defend your position in that area.