Borregaard ASA (BRG) Earnings Call Transcript & Summary

Good afternoon, and welcome to Borregaard's pre-close call. My name is Pal Espen Ramberg, Director of Investor Relations at Borregaard. I'm joined today by CFO, Per Bjarne Lyngstad, and we are broadcasting live from the biorefinery in Norway. Here is the agenda for today's call. First, outlook from the latest quarterly report; secondly, currency and commodity input based on public data, and last, a Q&A session. Participants are welcome to submit questions via the chat during the call. I will now hand over to Per Bjarne, who will present the key points from the outlook communicated in the Q1 report.

Thank you, Pal Espen, and good afternoon, everyone. I will start with reiterating the key points from the outlook for both the full year and the second quarter of 2026. And when relevant, we refer to your questions and comments on the outlook given in the Q&A session at the webcast we held on the -- for the first quarter on the 29th of April. I will start with BioSolutions, where we reiterated our expected full year sales volume of about 340,000 tonnes. The second quarter sales volume is expected to be around 90,000 tonnes, in line with what we had in the second quarter in 2025, but with a less favorable product mix this year. We got several questions regarding BioSolutions at the webcast. The first 1 was about how confident we are that the weaknesses in agri and batteries are temporary. We read the current picture as a reaction to the geopolitical situation intensified by the war in Iran, which has also created a broader uncertainty. We also see that this drives a destocking in the value chain. We have no indication from the market and customers that there is a structural change in demand. Customers are keeping up their forecast for the year. As such, we see this as a situation where customers are taking a cautious wait-and-see approach. That means that they currently are buying less using what they have in inventory. The second question was about the mix in BioSolutions in the second quarter. Should we expect similar trends for mix and ASP in BioSolutions as in the first quarter? The second quarter last year was a very strong quarter for the specialties. In the first quarter, we just saw the first consequences of the outbreak of the Iranian war. The consequence from the war is definitely going to impact the second quarter. And in particular, we see that the Asian market is impacted more than others. We also see the agri market in general and India in particular being impacted. We expect the product mix in the second quarter to be similar to what we saw in the first quarter. The next question was related to agri sales. Is there a risk that higher fertilizer prices affect Borregaard's agri sales negatively. We think it's still difficult to see exactly what's going to be the outcome of the current situation. We know fertilizer prices have increased and farmers are being hit by this. Our customers that are selling plant protection and plant nutrition products are looking at the impact on their own input cost factors. On the other hand, we have products that actually makes the farmers able to use less fertilizer. Therefore, we think we will see a mixed impact. The net impact is difficult to estimate, but we think there will also be opportunities coming out of this, especially in the longer term. For the time being, we see a temporary situation, where there's a wait-and-see attitude and where customers are deciding how to approach the situation. The next question was also related to agri, petrochem based products have surged in price, so have fertilizers. This should favor both price and volumes of Borregaard's agri-based portfolio. When can we expect to see effect of this? Again, timing is difficult. Short term, we think sales is somewhat reduced due to the uncertainty, and customers are using the situation as an opportunity to reduce inventories. Longer term, this may offer opportunities both for additional business and also to do price adjustments upwards and definitely where we are replacing synthetic products. Then, turning to the outlook for BioMaterials, where we reiterated our expected full year sales volume to be in the range of 155,000 to 160,000 tonnes, significantly above the 146,000 tonnes in 2025. We also reiterated that the sales volume of highly specialized grades is expected to be slightly above the 2025 level. The average sales price in sales currency is expected to be 3% to 4% lower in the first half of 2026 compared with the second half of 2025, partly due to mix. Second quarter sales volume in BioMaterials is expected to be in the range of 40,000 to 42,000 tonnes. There are 2 questions regarding biomaterials outlook for volume and prices at the webcast. The first was related to RYAM and BioMaterials. RYAM guides for 18% higher ASP for Specialty Cellulose for 85% of its volume in 2026 and even more price increases for the remaining 15%. How should we think about the ASP in the second half when you have flushed out the lower grades from the production hiccups last year? As communicated earlier, we have locked in the major part of our cellulose business for 2026. We have some flexibility on a limited part of the volume. We think the main impact here will be when we go into 2027. RYAM's price increases may also create some opportunities in the market, where we will take those as we see them coming. The second question was related to construction volume in BioMaterials. Borregaard highlighted more sales to the construction segment in the first quarter. Is this structural or reallocation of the lower grades sold in the quarter? Quarter report for 2025, we talked about a more intense competition in the construction business in -- adjustments. The increased sales into construction are reflecting also that our -- the final outcome of the U.S. antidumping case may also affect several Specialty Cellulose markets. In May, similar dumping rates for Borregaard and the Brazilian company -- the final determination of the dumping rates is expected on or around the 7th of October 2026. If the final dumping rates and -- our take is that U.S. customers to the cellulose from Borregaard to secure competition in the U.S. market. This level of dumping rates might even open up new opportunities for Borregaard. Then, moving on to the outlook for Fine Chemicals, where sales prices for bioethanol continue to be expected largely in line with the levels we saw in 2025. The sales volume for Fine Chemical Intermediates is expected to increase compared with 2025. For Fine Chemical Intermediates, we just want to remind you that delivery -- and the development in costs. Good costs in the first half of 2026 -- lower than in the first half of 2025. The Middle East conflict is expected to impact our energy, logistics and chemical costs negatively. The net cost impact from raw materials, energy and -- by about NOK 40 million to NOK 60 million [Technical Difficulty]. In addition, general cost increases or inflation will affect our cost level. As to energy cost, remember that energy consumption in [Technical Difficulty]. About 80% of Borregaard's energy consume or hedge to spot prices, but we have flexibility to switch between natural gas and electricity. For natural gas, we have a 1-month delay compared with the market price. Electricity prices in Norway so far in the second quarter have on average been significantly above last year's prices, about 75% above. Let's now [Technical Difficulty] are the main reasons for the high spot prices for electricity. Delivered price for natural -- significantly higher, higher more than 90% higher than last year, taking the 1-month delay into consideration. Natural gas or LNG prices in Europe are, of course, impacted by the war in the Middle East. In total, spot prices on energy will have a negative impact in the second quarter, more or less in line with our estimate from the first quarter presentation. There are several questions regarding costs. The first question was about pulp prices, which are now down 26% from the peak. How are negotiations going for the second quarter? As of now, the negotiations for the second half of 2026 have started, but will not be finalized before the end of June. Expectation is still that prices should come down somewhat. The second question was related to the Middle East and raw material costs. Our current spot prices for gas and sulfur are fair or the Borregaard still benefit from lags or early sourcing in the cost guidance figure? Borregaard has a 1-month lag on natural gas. But for the rest, we are more or less at the present level unless we have a contracted volume for several months. Sulfur prices are on the rise and on a steep rise. Caustic soda is relatively stable, but we have seen some increase in the second quarter. We were also asked to split the NOK 40 billion to NOK 60 million higher cost year-on-year in the second quarter on the different items. Since its net amount, you have to take into consideration the 15% reduction in wood price in the first half, which is about NOK 30 million positive per quarter. That means that the other elements are NOK 70 million to NOK 90 million negative, of which energy is the largest element. A part of the cost increase is also related to increased cost for sulfur, and to a lesser degree, caustic. In addition, we see increased logistical costs. The next question was also related to costs. We were asked to elaborate on the targeted cost measures to address cost development. When might these measures start to take effect? Borregaard has initiated a cost reduction project. We will come back with more details, but will, for sure, implement cost discipline measures, be more restrictive on recruitments and the use of external consultants among other things. We will also look more at the structure and initiatives we are driving, and in general, take a more restrictive approach to get costs down. The next question was related to price hikes and surcharges. Our price increases and surcharges, also something you will consider, and our answer was that yes, surcharges and price increases are something we consider. Borregaard implemented surcharges in 2022, but the situation is a bit different now compared with them since the overall market environment has changed. At the end of the outlook presentation, we reminded you about the uncertainty in the global economy, particularly related to wars, conflicts and tariffs, which may impact Borregaard's markets cost base and currencies. Borregaard implemented targeted measures to address the cost development. While the conflict in the Middle East is affecting certain parts of our markets and customers, we believe the situation will represent our longer-term opportunity for Borregaard's bio-based products. Borregaard diversified portfolio and broad customer base has a proven track record, all providing resilience in times like this. We believe that this will prove it's franked also in a period like we are seeing now. Having completed the outlook and questions from the first quarter presentation, we will point to 1 more element, which will have an impact on 2026 results. Borregaard has a hedging strategy that delays the impact of changes in currency rates. Using currency rates as of the 28th of April, the net currency impact for the full year of 2026 was estimated to be about 0 compared to 2025. The corresponding impact for the second quarter of 2026 was estimated to be positive by about NOK 10 million compared with the second quarter of 2025. So far in the second quarter, the Norwegian kroner has strengthened by about 4% compared with the first quarter of 2026, using Borregaard's currency [Technical Difficulty] quarter last year, the Norwegian kroner has strengthened 7% to 8%. If the present currency rates continue the rest of the month, the net currency impact in the second quarter compared with the second quarter last year, will more or less be in line with the plus NOK 10 million we estimated at the first quarter webcast on 29th of April. With today's rates, where the Norwegian kroner has weakened quite a lot over the last week, the net currency impact for the full year of 2026 is expected to be NOK 10 million to NOK 15 million higher than the zero impact we estimated in late April. I will now hand over to Pal Espen, who will lead the Q&A session with questions asked in the chat function of this webcast.

Thank you, Per Bjarne. We will now open the Q&A session. Please submit your questions via the chat function. We will wait some seconds to make sure we have received all questions as there is a delay on the web. The first 1 is from Magnus Rasmussen at SEB. How much is the extra NOK 100 million convertible Ellinor comes from Borregaard roughly up?

Yes, roughly hard or to be precise about NOK 56 million out of the NOK 100 million, which relates to our share compared to the share of the 3 shareholders.

That seems to conclude today's Q&A session. Thank you for joining the pre-close call, and thank you for your interest in Borregaard. As a reminder, this call marks the start of the silence period. There we have another one, if I hear from Magnus again. How much of the extra -- how much has to date total being invested in elginor?

We have invested around NOK 600 million so far, partly in equity and partly in convertible loans.

Try 1 more time. That seems to conclude today's Q&A session. Thank you for joining the pre-close call, and thank you for your interest in Borregaard. As a reminder, this call marks the start of our silent period. We look forward to the next update. Thank you, and goodbye.

Thank you.