Borregaard : Sustainability Report

ANNUAL REPORT

2023

CONTENTS BOD REPORT SUSTAINABILITY FINANCIALS

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CONTENTS
The Borregaard Group	3
Message from CEO	5
The Board of Directors	6
Report of the Board of Directors
including Sustainability statements	7
Corporate Governance	77
The Group Executive Management	86
Consolidated financial statements	87
Notes to the consolidated financial statements	92
Borregaard ASA financial statements	130
Notes to the financial statements	133
Statement of the Board of Directors	137
Auditor's report	138
Historical key figures	140
Independent assurance of Sustainability Reporting	141
Alternative performance measures	142
Group Directory	147

3 THE BORREGAARD GROUP

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BORREGAARD IN A NUTSHELL

• A biorefinery with high value added
• Specialisation in global niches
• Strong innovation ability and continuous improvement
• Competence as the main competitive advantage

The Group's business model is closely linked to the integrated nature of its biorefinery concept which utilises the three key components of wood - fibres, lignins and sugars - to produce a diversified portfolio of products.

The biorefinery converts 94 percent of the feedstock to biochemicals, biomaterials and energy that can replace oil-based alternatives.

In addition to its biorefinery in Sarpsborg, Borregaard has five production sites outside

Norway dedicated to producing lignin- based products. In total, the company has manufacturing operations and sales offices in 13 countries in Europe, Asia and the Americas serving its global customer base. At the end of 2023, the Group had 1,127 full-time equivalent (FTE) employees.

SUSTAINABILITY INTEGRATED IN STRATEGY Borregaard provides sustainable solutions with a documented favourable environmental and climate impact which can improve the customers' climate footprint or substitute chemicals

of concern. The Group has also committed to science-based targets to further reduce greenhouse gas emissions and strengthen its sustainability platform.

Borregaard's business model and products are

THE BORREGAARD GROUP

Borregaard operates one of the world's most advanced biorefineries. The Group provides sustainable solutions based on renewable raw materials and unique competence.

Business segments

BioSolutions	BioMaterials	Fine Chemicals
• Market and technology	•	Leading speciality	• Leading producer of fine
leader in lignin-based	•	cellulose supplier.	chemical intermediates for
biopolymers.	Pioneer in cellulose	contrast agents.
• Only producer of wood-		fibrils.	• Significant producer of
based vanillin.			advanced bioethanol.

4 THE BORREGAARD GROUP

well positioned to support the UN's Sustainability Development Goals (SDGs). The company

has prioritised six SDGs based on its ability to contribute to solving these global challenges (see page 20).

BORREGAARD'S THREE BUSINESS SEGMENTS

BioSolutions develops, produces and sells biopolymers and biovanillin from lignin. Biopolymers are used in a wide range of end- market applications, such as agrochemicals, batteries, industrial binders and construction.

Biovanillin is supplied to flavour and fragrance companies, as well as to the food and beverage industry.

BioMaterials develops, produces and sells speciality cellulose mainly for use as a raw material in the production of cellulose ethers, cellulose acetate and other speciality products. BioMaterials also includes cellulose fibrils for industrial applications.

Fine Chemicals consists of fine chemical intermediates for contrast agents and advanced bioethanol.

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OPERATING REVENUES

EBITDA1

ROCE1

NOK mill 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000

0

					NOK mill
			6,881	7,132	2,000
				1,750
		5,805
5,063	5,328			1,500
				1,250
					1,000
					750
					500
					250
					0
2019	2020	2021	2022	2023

						23.9%	25.0%	%
					23.6%		24%
	19.9%	21.2%	1,643	1,781
						20%
					1,372
								16%
	1,007	1,132
							12%
									8%
									4%
									0%
	2019	2020	2021	2022	2023
		EBITDA1			EBITDA margin1 (%)

%
25%
20%		16.1%	18.1%	18.3%
15%
10.5%
10%	11.4%
5%
0%
2019	2020	2021	2022	2023

ROCE1

Minimum target over a business cycle

/ 1 Alternative performance measures, see page 142 for definition.

5 THE BORREGAARD GROUP

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MESSAGE FROM THE CEO

RESILIENT SPECIALISATION STRATEGY

An important feature of our specialisation strategy has been to reduce exposure to cyclical markets over time. In addition, our diversified market strategy with 800 products to numerous applications in combination with a global presence provides many alternatives in the marketplace and takes risk out of the integrated operations. In 2023, the specialisation strategy again demonstrated its resilience as Borregaard delivered another record year under challenging business conditions.

SUSTAINABILITY

Borregaard has developed a transition plan to reduce scope 1 and 2 GHG emissions to net zero by 2050. The transition plan is in line with the 1.5°C goal in the Paris Agreement and the targets have been approved by the Science Based Targets initiative. In 2023, we started on the road to delivery of our 2030 targets. We are investing NOK 230 million to improve the environmental footprint at the Sarpsborg biorefinery in Norway. This investment will not only reduce our CO2 emissions but also remove our absolute dependence on LNG and increase the flexibility between alternative energy sources.

In the coming years, we will announce new projects with the aim to reduce emissions to both air and water. Further electrification is a key enabler for delivery of our environmental

targets. Therefore, both availability of new green energy and transmission capacity for delivery to our facilities are prerequisites for a successful completion of these projects. It is crucial that the authorities work in concert with the industry to secure delivery of targeted reductions.

SIGNIFICANT POTENTIAL FOR FURTHER SPECIALISATION AND VALUE GROWTH

Borregaard has been on a specialisation journey for more than 30 years. We continue to believe that further specialisation and product mix improvements are the best ways forward for all our business areas. Our innovation portfolio consists primarily of projects that will increase the level of specialisation when commercialised. Sustainability is also a key decision criterion in relation to innovation.

The Sarpsborg biorefinery is the primary driver for specialisation. There is still capacity available from previously completed expansion investments. In addition, we are in the process of debottlenecking our facilities for production of highly specialised lignin-based biopolymers. Targeted application areas will be batteries, oilfield chemicals, pigments, and dyes. We have also announced the construction of a 1,000 mtds/year demonstration plant for the next generation lignin- based biopolymers in homecare applications like detergents, laundry, and cosmetics. This facility

will also make it possible to deliver existing and new products as granules.

Borregaard is also actively seeking to invest in bio-basedstart-ups to complement our existing business portfolio. Selection criteria for new investments are conversion of bio-based raw materials into specialised chemicals or materials, a strong ESG profile, synergies with Borregaard's existing business and competence, a significant revenue potential and time to market of less than five years.

Based on these criteria, we increased our ownership share in the marine biotech company Alginor to 35% on a fully diluted basis in 2023. This "blue" biorefinery will produce high-value ingredients for pharmaceutical and nutraceutical applications from kelp. We have also invested in a 12% ownership share in the bioscience company Kaffe Bueno that derives functional ingredients for a wide range of consumer and industrial products from coffee by-products. In addition, we have smaller holdings in two start-up companies; Lignovations, creating sustainable materials from lignin and Oceanium, a company based on conversion of seaweed-based raw materials into functional ingredients for food and personal care products.

Kind regards,

Per A. Sørlie,

President and CEO

6 THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS

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HELGE AASEN - Chair

Chair of the Board and the Board's Compensation committee.

Read more

TERJE ANDERSEN

Member of the Board and Chair of the Board's Audit and Sustainability committee.Read more

TOVE ANDERSEN	MARGRETHE HAUGE	JOHN ARNE ULVAN
Member of the Board and the Board's	Member of the Board and the Board's	Member of the Board and the Board's
Audit and Sustainability committee.	Compensation committee.	Audit and Sustainability committee.
Read more	Read more	Read more

ARUNDEL KRISTIANSEN

Employee elected member of the Board and the Board's Audit and Sustainability committee. Read more

RAGNHILD ANKER EIDE

Employee elected member of the Board and the Board's Compensation committee. Read more

BENTE SELJEBAKKEN KLAUSEN	ROY KÅRE APPELGREN
Employee elected observer of the	Employee elected observer of the
Board.Read more	Board.Read more

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REPORT OF THE BOARD OF DIRECTORS

INCLUDING SUSTAINABILITY STATEMENTS

CONTENTS
Highlights and market trends	8
Financial performance	10
Sustainability statements - general information	14
E - Environmental information	29
S - Social information	59
G - Governance information	70
Other matters and subsequent events	74
Allocation of profit	75
Outlook	76

8 REPORT OF THE BOARD OF DIRECTORS

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HIGHLIGHTS AND MARKET TRENDS

Borregaard's financial performance improved in 2023 with an all-time high EBITDA1. The resilient business model with a diversified market strategy proved its value during the year.

Borregaard's business model and diversified market strategy demonstrated its resilience during 2023. The strong market positions and global market exposure provide flexibility and an inherent hedge against market fluctuations, and were

the main reasons why Borregaard was able to largely offset a slowdown in certain end-markets. Sales volumes to the construction market and certain industrial and speciality applications were particularly affected by lower demand. Sales prices were largely in line with the previous year and currency effects contributed positively.

The demand for most of BioSolutions' lignin- based biopolymers was good. Sales volume was lower than in 2022, but increased prices and changes in product mix compensated for the volume shortfall. An increased global supply of synthetic vanillin and ethyl vanillin affected the company's trading of synthetic vanillin products. However, towards the end of the year the global oversupply also started to affect demand for and sales volume of biovanillin.

In BioMaterials, higher sales prices for speciality cellulose and positive net currency effects more than compensated for lower sales to the construction market for cellulose ethers. Lower sales to construction were largely compensated by sales to other applications.

For Fine Chemicals, the demand for bioethanol to biofuel in regulated markets was strong with increased prices.

Energy prices decreased during the year, both for natural gas and electricity. Reduced energy prices also had a positive impact on the price for several raw materials and chemicals. The exception was wood prices which increased during the year. Other operating expenses were affected by a high general cost inflation and increased labour costs.

Sustainability is a key element in Borregaard's business model and one of the Group's three core values. Borregaard contributes

to a sustainable development, both through minimising the negative environmental impact from our own production, as well as improving the environmental impact in the customers' value chains. Greenhouse gas emissions (scope 1 and

1. decreased by 8% due to energy conservation and lower use of fossil fuel for heat energy.
   Process improvements contributed to a 15% reduction in emissions of organic material (COD) compared with 2022.

In the beginning of 2023, Borregaard announced a NOK 230 million investment to reduce CO2 emissions and increase energy flexibility at

the biorefinery in Norway. This investment will allow for a 30,000 tonnes annual reduction in

/ 1 Alternative performance measures, see page 142 for definition.

9 REPORT OF THE BOARD OF DIRECTORS

CO2 emissions, improve energy efficiency and increase the flexibility between alternative energy sources. In October, Borregaard entered into a new long-term power purchase agreement for the period 2024 to 2033 representing 10-15% of the Sarpsborg site's annual consumption. The new contract volume will replace the use of natural gas and thereby contribute to a further reduction in CO2 emissions.

Further electrification of the Sarpsborg site based on availability of new green energy and transmission capacity in the grids serving our facilities, are prerequisites for delivery of Borregaard's environmental targets. It is vital that the authorities work in concert with the industry to secure delivery of targeted reductions.

Borregaard's strategic priorities are increased specialisation and value growth with sustainability as a driver. Two investments are on-going at the Sarpsborg site to support specialisation and value growth. Increased production capacity for highly specialised lignin-based biopolymers will be completed in the 1st half of 2024 with a total cost of NOK 70 million. The new capacity will gradually be phased into attractive niche markets, mainly targeting battery applications. NOK 100 million will be invested in a new green technology platform and an associated commercial scale demonstration plant. The platform will enable deliveries of next generation lignin-based

biopolymers and granulation of existing and new products. Targeted application areas are homecare, industrial cleaners, water treatment and agriculture.

Borregaard has invested a total of NOK 171 million in bio-basedstart-ups in 2023. The ownership in the Norwegian marine biotech company Alginor ASA was increased to 35% on a fully diluted basis. Borregaard holds 12% of the shares in the Danish bioscience company Kaffe Bueno ApS after participating in a direct offering of new shares. From coffee by-products, Kaffe Bueno derives active and functional ingredients which can be applied in a wide range of consumer and industrial products. See Note 6.

Borregaard has also made smaller investments in Lignovations GmbH, an Austrian start-up company creating sustainable materials from lignin and the Scottish company Oceanium Ltd that develops functional ingredients to food and personal care products from farmed seaweed.

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10 REPORT OF THE BOARD OF DIRECTORS

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FINANCIAL PERFORMANCE

SALES REVENUES BY

GEOGRAPHICAL AREA 2023

RoW 1%

Americas 27%

SALES REVENUES BY BUSINESS AREA 2023

Fine Chemicals 11%

Borregaard's operating revenues increased to NOK 7,132 million (NOK 6,881 million)2 in 2023. EBITDA1 reached an all-time high of NOK 1,781 million (NOK 1,643 million). The result increased in BioMaterials and Fine Chemicals while BioSolutions' result decreased compared with 2022.

In BioSolutions, higher sales prices, reduced energy costs and positive net currency effects were more than offset by reduced contribution from traded vanillin products, lower sales volume, changes in product mix and general cost inflation. Higher sales prices for speciality cellulose and positive net currency effects were the main reasons for the EBITDA1 improvement in BioMaterials. Fine Chemicals' EBITDA1 improved mainly due to higher sales prices for bioethanol and net positive currency effects.

Operating profit was NOK 1,291 million (NOK 1,186 million). Net financial items amounted to NOK -167 million (NOK -68 million). Higher interest rates led to increased interest expenses. Profit before tax was NOK 1,124 million (NOK 1,118 million). Tax expense was NOK -268 million (NOK -267 million), giving a tax rate of 24% (24%).

Earnings per share were NOK 8.73 (NOK 8.95) Return on capital employed1 was 18.3% (18.1%), well above the targeted level of minimum 15% pre-tax. Borregaard ASA's share price was NOK 171.40 (NOK 152.00) at the end of 2023.

Europe 48%

Asia 24%

EARNINGS PER SHARE

AND TOTAL DIVIDEND

NOK
10			8.95	8.73
8		6.95
6	4.38	5.00
4.19
	2.25		3.75
4		3.25
2.50
2.30
2.75
2
0
2019	2020	2021	2022	2023

Ordinary dividend

BioSolutions 55%

BioMaterials 34%

CASH FLOW FROM

OPERATING ACTIVITIES

NOK mill
1,800					1,563
1,500			1,431
1,200
900		886		735
697
600
300
0	2019	2020	2021	2022	2023

Cash flow from		EBITDA1

/ 1 Alternative performance measures, see page 142 for definition.

Extraordinary dividend Earnings per share

operating activities

/ 2 Figures in parentheses are for the corresponding period in the previous year.