Good morning, and welcome to Borregaard's Capital Markets Day. I will just quickly take you through the agenda for the day. I will start out with the summary of the corporate strategy and give you some background for the new priorities that we have come up with. We will move on and take a deep dive into the market side of the largest business areas. The Executive Vice President, Tom Erik Foss-Jacobsen from BioSolutions, and Gisle Løhre Johansen from Speciality Cellulose will give you some color on the innovation work that we do and the growth initiatives that we have, and also how sustainability will affect our potential growth going forward.
Finally, our Chief Financial Officer, Per Bjarne Lyngstad, will take you through the financial performance and targets, but he will also give you some background on the measures that we implement to mitigate the cost inflation, and also some reflections on a potential recession going forward. On that happy note, I will turn over to my presentation on the corporate strategy. Just to give you a short summary to start with, the Borregaard investor message, let me remind you of that. The biorefinery model where we primarily offer biochemicals that can replace petrochemicals. We generate very high value added through the integrated biorefinery that we have, where we utilize more or less 94% of the raw material, either to produce finished goods or energy.
We have a diversified market strategy with close to 800 products that takes risk out of our integrated operations. The specialization strategy is twofold. On the one hand, we are a global niche player, and we work with high barriers to entry, and that I will come back to later on. We have leading market positions, and we have a high application knowledge through our sales and support force on towards the marketing side. We work with both innovation and the continuous improvement, and competence is the main driver. The specialization strategy has been there for a long time, actually for 30 years, and it's quite timeless, and it's quite generic. That's why we develop strategic priorities.
The strategic priorities are the actions in the next three to five years to execute on the specialization strategy and drive the company in a specialized direction. As we tick off these actions, we put on new so that we are on this specialization journey over time. I'll come back now later in the presentation around the specialization strategy to give you some more background on our competitive position and also some considerations around what the next strategic priorities will be. Let's take one step back and look at what we said last time, the strategic priorities that we announced at the Capital Markets Day two years ago, where we said that in BioSolutions, we would focus on specialization and diversification.
We have been very pleased with the progress on the specialization side and the market development side. We have optimized this business considerably in the last two years. We also said that we would like to balance the market risk through diversification, and we have done a significant reduction in our exposure to the construction market. This is partly, of course, helped by the loss of two raw material sources in Spain and South Africa. We have a much better diversification we feel today in a balance in the portfolio. We also said that we would time further expansion, volume expansion, depending on what happened to demand and profitability. We have not opted to do anything on the expansion side in this two-year period.
Rather, on the contrary, we have seen that optimization, further specialization and diversification has been more important, and I think that is clearly visible in the results delivered in this business area over the last two years. The second priority was that we should increase the value added from the unique Sarpsborg Biorefinery, and in plain terms, that means that we should do targeted investments to upgrade the value of the production rather than increase the volume altogether. This is particularly then relevant for the raw material base in biopolymers and biovanillin. In biopolymers, we had invested a NOK 500 million between 2015, 2019 at the Sarpsborg facility in order to make more specialties, and we have benefited from that in this two-year period.
In addition, we have completed an expansion of the capacity in biovanillin. That went online 15 months ago and is performing well. We also said that we would enhance the product mix in specialty cellulose and bioethanol. We have increased the high specialty share of specialty cellulose considerably in this two-year period, and more or less all our bioethanol is now going into a premium priced biofuel market. This is driven by innovation and productivity efforts, and I would say that in this period we have seen. We had a concept where we say that we should produce more value added with the same cost base. It's been more focused on innovation than productivity efforts in the last couple of years.
The cellulose fibrils business was a priority, and we have seen a growing pipeline and sales volume from a modest level. I come back to give you some more background on that later on in the presentation, but it's not at a point yet where we want to expand the capacity, so that's a pending decision. Finally, we said that sustainability will be important, and we will work along the entire value chain with ESG issues. I'll take a minute now to explain how we think around that. Sustainability, if you take the simplified value chain, on the raw material side, we use primarily biomass, Norway spruce, as our starting material. The United Nations came out with their forest report a few years ago, and they said that the forest serves three purposes.
First is carbon storage, and the second one is biodiversity, and the third one is to produce wood-based materials and chemicals that can replace petrochemicals. Of course, these three purposes are somewhat conflicted, so that's why it's important to have rules and regulations around sustainable forest management. This goes back to certifications. Between the forest owners, the industry and the NGOs, you develop different standards, the PEFC and FSC standards. Last year, Borregaard sourced 99% of our wood from certified forests, and we expect to be at 100% this year. That's how we manage the sourcing of the key raw material.
At the same time, it's really important that the raw material is non-GMO because we target the food and pharma markets, and the forests that we source from here in the Nordic region are quite safe in the sense that there are no GMO raw material. We feel quite good about the raw material situation. On the manufacturing side, we have started 14 years ago to implement life cycle assessments. This was very early on, and we have every second year, we sort of on average, we upgrade our life cycle assessments. We have target-based CO2 reductions. We have taken down the fossil consumption quite considerably over this 14-year period. We have also reduced our emissions to water and air. We are now focusing more on what you call Scope 3 emissions and working with our suppliers.
The target-based CO2 reductions and the life cycle assessments are also a great input into the environmental product declarations that we have developed for our products. For each product, we can document the CO2 footprint of that production process. If we go on to the products that we have, we sort of have a broad-based perception of sustainability. First of all, of course, the climate is important, so the life cycle assessments and the environmental product declarations give us good documentation on the greenhouse gas footprint, and we can offer that to our customers.
Secondly, there are lots of trends out there among consumers where biobased is important, that you actually start with a natural starting material, and you go through an industrial process, but the customer is comfortable that the end product has only components from the biobased starting material. The biovanillin is a good example of that, but also the bioethanol. Environmental health and safety issues are also important, particularly the safety issues. We have non-toxic, harmless products in the sense that our, as an example, in agriculture is becoming our largest single market segment over time. We can do wonderful things for the industry that produce pesticides, for instance, where we can enable water-based pesticides as a replacement for solvent-based pesticides. All these items are really important drivers in sustainability.
If you take a look at sustainability from the Borregaard perspective, sustainability has more upside than downside. On what I talked about now on the market side, we have significant opportunities that will open up because companies need to get greener. One way to get greener is to source greener input factors like our products. At the same time, it doesn't come for free. I mean, we have to do things to our own emissions, and we have to make investments, but those investments will also open up for other, profit-generating activities, and they will also increase the barriers to entry, for our competitors. To give you some flavor also on, you know, external ratings are important in the sense that they verify that what we do and what we say is actually correct. I've just three examples here.
I said that we have science-based targets, and we have them approved by the Science Based Targets initiative. What happened last year was that since 2019, we have been approved by the two-degree target, well below two degrees, but we tightened our targets last year. In December, we approved for a 1.5 degree goal according to the Paris Agreement. I'm happy to announce that a couple of weeks ago, SBTi confirmed that they had approved our revised targets. The targets that I show here for 2030 and 2050 are now verified and approved by Science Based Targets initiative. The investors have certain ratings that they look at, and the customers have other ratings that they look at.
In terms of of investor ratings, I've highlighted CDP here, where we are CDP. Now last year in December announced their ratings for 2021 , and they have rated 13,000 companies last year. Those 13,000 companies represent 2/3 of the global stock values, and Borregaard is among the top 20 companies out of these 13,000 companies. We are not only rated on climate change by CDP, we are also rated on forest and water security. We have two top scores in A for climate change and forest, and an A- for water security, which combined puts us in the top 20 company range. However, when you look at the value chain and our suppliers, we look at our suppliers from an EcoVadis point of view, and the customers look at us from an EcoVadis point of view.
When the customers ask us, "How do you do on sustainability?" We usually discuss our EcoVadis rating with them. This came out for 2022 now in the Q2. Borregaard, they rated 90,000 companies last year, and we are among the top 1%, so we have a platinum rating with EcoVadis, which of course facilitates the communication with our customers. I will just step back on one other thing that we have announced in the last two-year period, that we are now actively seeking to invest in bio-based startups. There are lots of companies and lots of money out there looking to invest in startup companies. We have defined selection criteria because we want to offer a little bit more than just money.
If we go in and invest in a startup company, we also want to do that because we have relevant competence that can help this company succeed. It has to be based on bio-based raw materials. It has to be a strong ESG profile because it cannot interfere with Borregaard's overall ESG profile. There has to be specialization potential. We are a specialty chemicals company. We are rigged to manage specialties, not to manage commodities. It has to be ideal synergies with the rest of our business or our competence, and there has to be a certain timeframe and potential. Sorry. The investment that we did one year ago in Alginor is a good example of what we are looking for.
Alginor is a blue biorefinery concept, very comparable to Borregaard's business model. Their core technology is sustainable harvesting and biorefining of kelp, the largest kind of seaweed, huge biomass in the water. The ingredients that they will produce will go into pharmaceutical and nutraceutical applications, which are markets that are very familiar to Borregaard through our Fine Chemicals business. We have taken part ownership in Alginor. We have an agreement that will take us up to 35% ownership. Currently, we are at 25% ownership after having completed three out of four defined transactions. This is an example of what we will be looking for. The Cellulose Fibrils business, on the other hand, is a 100% initiative on our side.
This slide here is updated as of the end of August. At the end of August, we had 110 regular customers and 190 potential customers doing large-scale plant trials. You can see that there has been an accelerating trend, and that's what we have announced during the COVID-19 pandemic. We felt that slowed down the speed at which the plant trials could be conducted in a proper way. You can see now that the rate is picking up, both in terms of number of customers and number of trials. A very steady and stable growth in the number of active prospects.
It's at 2,750 active prospects at the moment, including the regular customers and the plant trial customers. I will come back to the specialization strategy. The specialization strategy is sort of described in three different statements. I mean, one is markets with high barriers to entry. It's really important for Borregaard to differentiate our products and have the customer and protect those differentiated products over time through a number of different measures, patenting, access to unique raw material, special unique technology, and so forth. We also ideally would like to be a solutions provider. We would like to have application knowledge and proximity to our market so that we can actually help the customer use the product in the correct way.
That is possible in many cases, but also a part of the portfolio that is not relevant. At the same time, we have a diversified market strategy and global market positions to take risk out of our integrated business model. Because we make all these products as co-products, so we need to move all products at any point in time. Many applications and many markets is important to equalize that risk. Being specialized, we have a lot of focus on innovation, and that is a key driver in terms of growth and increased specialization. At the same time, we have to focus on productivity improvement as well. Competence is the key driver that differentiates us from the competition.
Why is this dual strategic focus on innovation and continuous improvement important? Well, this is the value creation per full-time employee in Borregaard. Going from 2012 until 2022, that happens to be the period we have been listed. We can see that we have not doubled, but we have increased considerably the value creation by each employee. The value creation is as defined by the Norwegian Ministry of Finance. It's the revenues less the cost, raw materials, and services, and the depreciation. This is what's left to pay salaries and left for the owners of the company. The previous ten years, from 2002 until 2012, we doubled the value added. We have taken it up more than three times in the period of the last 20 years.
I think this is the key, sort of reason behind the specialization strategy that we will increase the value added continuously. Like I said, in the last two, three year period, the drive has been mostly focused on increasing the value added with a fixed cost base. 'Cause you can increase the value added by taking down the number of employees, or you can create more value with the same employees. That's what we have been focusing on over the last few years. Also, to dig a little bit into how do we think around our competitive position, what's the positioning of the company? The global niche player is a lot about segmentation. Market segmentation is crucial in Borregaard, and a lot of people ask us, "You know, you should be much bigger.
You should grow much faster." The answer to that is that the relevant indicator is the critical mass in the market segments that you are active. Market segmentation, and the market is defined by the barriers to entry into that particular segment. Inside those segments, we typically have number one, and sometimes number two positions. That's the key thing. That's what gives competitive position. This is particularly true in biopolymers, where we have high value raw materials. We have unique raw materials that the other people, other players in the industry don't have access to the same unique raw material that Borregaard has. We have also superior know-how inside lignin-based biopolymers. We are the leader in plant-based vanillin, and we are the only player with the wood-based vanillin technology.
In specialty cellulose, we focus more or less solely on products that can only be made from softwood. We don't want to compete head on with eucalyptus-based producers, so we have a market positioning, market segmentation, where we are into the markets where softwood is absolutely necessary. We have a very strong technology toolbox for those type of products. In cellulose fibrils, we have developed innovative technology, but we also have something quite unusual. We have a product patent. Not an application or process patent, but a product patent, so nobody else can actually copy exactly that product. In contrast agents in fine chemicals, we are the clear market leader in intermediates for contrast agents. This is how we work around the market positioning of the company. The economies of scale is, of course, also important, continuous improvement.
The biorefinery business model, since it's so integrated, and since there are 20 facilities at the large biorefinery in Sarpsborg that are all integrated, that gives us a real high value added. That also gives us economies of scale in manufacturing. Even though each unit is quite small, the fact that it's integrated and can be seen as one large facility enables distribution of indirect cost across a large number of products, areas and gives us a very competitive cost position. In biopolymers, of course, we have production units in other countries as well, but they are usually focused on designated production. It's either a liquid, certain range of products, so that you have economies of scale. You don't produce everything everywhere. It's quite designated so that you can get economies of scale.
We have the most cost competitive technology for production of plant-based vanillin. We are the only ones with wood-based vanillin, and that is by far the most cost competitive technology. Also, if you look, we do a lot of innovation, but if you compare us to the typical specialty chemicals peer group, they usually spend 3%-5% on innovation. We have been in that range continuously over the period that we have been listed. What is important going forward? Well, we think that there is considerable potential for further specialization and value growth.
The Borregaard specialization journey has now gone on for 30 years, and people, investors ask me every now and then whether we have sort of squeezed out everything we can from the specialization strategy and whether we should do something else, and I can tell you that we have just started squeezing the orange here for specialization opportunities. We think there are more to come. The fascinating thing since I've been with Borregaard is that the more specialized we become, the more opportunities we find. It's like it's a process that just strengthens over time. You also have to keep in mind that we have close to 800 products with multiple applications in many markets. I mean, there is a lot of optimization to be done over time as demand develops.
We have this unique combination of high-value raw material base, the biorefinery assets, and expert knowledge. The asset we have in Norway is one of a kind. It's the only biorefinery in the world that uses 100% softwood and has a sulfite pulping process based on calcium acid. It's a unique combination, and that's a really good starting point for some of our specialties. This means that specialization and value growth will take priority also in the period to come. As I said, we're especially in BioSolutions and Speciality Cellulose, and my two colleagues will come back later on today and give you some more flavor on what we can do. We will give you a lot of examples.
It will not be exhaustive, but I think you will understand well what we are trying to achieve. Cellulose fibrils represent a good captive opportunity to use specialty cellulose. The value upgrade is more than 30 times. If you take 1 kilo of specialty cellulose and process it into cellulose fibrils, it extends the value added by 30 times, more than 30 times actually. We also think that we, in addition to targeted investments to debottleneck and produce more valuable products, we will also explore some expansion opportunities at the facility in Norway, the Sarpsborg Biorefinery. Our position is that further development of Sarpsborg Biorefinery is the safest, fastest, and lowest risk investment we can do, and it raises barriers to entry significantly as we develop this biorefinery into a more value-added machinery.
At the same time, we also see this increasing momentum for bio-based products. Of course, there is increasing consumer and investor attention that drives demand for green solutions, and a lot of companies have done like Borregaard. They have set targets for 2030 and 2050. The clock is ticking on 2030, and you have to now start to take action in order to deliver those targets by 2030. At the same time, 40-50 years ago, authorities put in place environmental permits for industries, and that was your license to operate. If you didn't invest to reduce your emissions to air and your effluent to water, you were not allowed to operate. Now, this will have another twist. The authorities will lead you in a direction where you have to become more green.
It's like an even stricter type of environmental permit going forward, and that will open up opportunities for us as a company. We think that these environmental investments will deliver on our targets, but they will also open up other opportunities for us. It will increase the barriers to entry, and it will also enable more specialization as we invest to become greener. I think we will come back later on in presentation to give you some more coloring on what I just summarized now as our new key strategic considerations. The priorities then will be twofold. It will be increased specialization and value growth, and it will be sustainability to support that increased specialization and value growth.
Innovation and market development will continue to be key, and especially this high-value raw material that we have in biopolymers and biovanillin, there is still a lot more to achieve. We will enhance the product mix in specialty cellulose further, and we still believe that cellulose fibrils will become an interesting business for Borregaard. We will add on and support these initiatives with capacity expansions and new initiatives that can add more interesting products and increase the value added. The sustainability will be a value driver because we think that we have to be close to the market. We have to take advantage of all the business opportunities that have opened up, and I'm confident that the examples you will see later today show you that we are really focusing on this.
We have actually in the last couple of years trained all our salespeople. We have briefed them on all the ESG information that Borregaard has, so that we can utilize that to the maximum benefit in the marketplace. We will exploit the full market potentials for our biochemicals, and we will deliver our environmental targets, but this will at the same time open up for more specialization and a more competitive, stronger competitive position. We have implemented sustainability as a key decision criterion in relation to innovation and new initiatives. Together with the profitability of different initiatives, sustainability is an absolute key because we cannot do things that will have a detrimental effect on Borregaard's overall ESG profile. That is important when we invest in Alginor, when we do choices in innovation. That's always a key decision criterion.
That completes the summary of the strategic update. I will hand over to my colleague, Tom Erik Foss-Jacobsen, that will give you a more insight into BioSolutions. Thank you.
Well, good morning, everyone. My name is Tom Erik Foss-Jacobsen. I'm the Executive Vice President of the BioSolutions area, which includes our biopolymers and our biovanillin business. I'm delighted to take you on a deeper dive into this business this morning, and I'll also show you a few things that you haven't seen before, that I look forward to present. I'll talk about the following topics. I'll start with an update on the global lignin supply and how we have successfully adjusted to the reduction in lignin supply over the last two years. Next, I'll share with you an interesting overview, where we're showing the significant specialization and value growth that has been taking place over the last 10 years in BioSolutions. Competitive edge in sustainability.
Followed by some interesting examples showing how sustainability is actually today already offering some new opportunities for specialization and value growth in our business. I'll summarize my presentation with our strategic priorities within BioSolutions. Let's first take a look at the current global lignin supply. Since we presented this slide last time in 2020, Borregaard's lignin operations in South Africa and Spain, as well as the Park Falls mill in U.S., where we had a lignin supply agreement, have all been permanently closed. On the positive side, we have been ramping up our sales at our Florida plant in the same period. Looking forward, we are not aware of any new lignin capacity being introduced.
If we take all this into consideration, our best assessment is that the current global lignin supply is in the range of 900,000 tons-950,000 tons. Borregaard, as the market leader in this market, have an estimated market share between 35%-40% in volume. In value, we estimate that our market share is between 60%-70%. The number two player here, and our main competitor, is Domsjö in Sweden. With the reduced lignin raw material supply over the last couple years, our main focus has been to further specialize and grow the value of our business. Looking forward, the sales volume for 2022 is estimated to be slightly below 75,000 tons. We have ongoing investments to both debottleneck and to increase specialization at our operations in Norway.
As Per mentioned earlier here, the specialization journey in Borregaard has been going on for many years, and it's a continuous process. Earlier, we have only shared the volume split between the three market segments: specialties, industrial, and construction. Today I will also share, as you see here, the sales revenue split, which I hope you find interesting. We think this is clearly a much better indicator to show the value growth that we have seen over time in this business. As you see in the graph to the right here, a significant specialization and value growth have taken place in BioSolutions if you look back to 2012 up till today. We've had a strong development within specialties, and gross sales have constantly been growing here and far more than doubled in this period.
Value growth, and that's important to bear in mind, does not only happen within specialties. It happens every time you lift 1 ton into a more long-term profitable business and with focus on sustainability. This is something our entire team has been and is highly focused on. I think it's also interesting to see that within the industrial segment, the gross sales have doubled for the same volume during this period. For construction, we have seen a sharp decline in volume from the top with 280,000 tons in 2013 down to 130,000 tons in 2021. Sales to the industrial segment have also been reduced the last couple of years. An important part of the specialization strategy has been to reduce our exposure to low value and cyclical markets.
Over this period, that exposure has been reduced significantly. The new supply situation has clearly contributed to further sharpen focus on value. Our team, I must say, have done a very solid job in optimizing and increasing the value of our business. Going forward from here, we will give priority to customers that recognize the value and the sustainability of our products. The BioSolutions business is highly diversified with 600 products, with multifunctional properties sold to 3,000 customers in a wide range of applications and countries around the world. This provides a very solid platform with good spread of risk, which also makes our business more stable over time. As mentioned on the previous slide, you can see that sales to construction have been significantly reduced, and it was down to 18% of our total revenues in 2021 versus 25% in 2019.
Talking about construction, I would just also like to emphasize that our construction business is also a diversified one, and it does include high-value business. The sales reduction we have seen here has mainly impacted sales to the concrete admixtures markets. If we move to the agriculture business, this is now the single largest end market within BioSolutions, and has been growing to 36% of total revenues in 2021 versus 31% back in 2019. We see significant growth here, and also several opportunities going forward, and not least with sustainability being a main driver for that growth. For the geographical split here, there are no big changes since 2019. Looking at the customer side, we have a few relatively large customers, but the concentration also here has been declining over time.
With now the top three customers today accounting for 10% of our total revenues. The majority of our customers are small and mid-size companies that value our competence and solutions. I would like to spend some more time on our business within agriculture. As I mentioned, this is now the most important end market, and is also the fastest growing area within BioSolutions. Borregaard here is a world-leading supplier of sustainable, high performance ingredients, additives, and co-formulants for crop protection, plant nutrition, seed coating, and also for the animal feed industry. As you can see here, our agri product portfolio goes into a broad range of applications where we see solid growth across the board. The indicated growth numbers here are assuming a normal inflation level. Behind that application, we have a very highly dedicated agri team with a significant number of people.
It's including industry experts working closely with customers worldwide, and in many cases, we see that our business is actually growing faster than the end markets due to the sustainability of our products. I think a good example here is within pesticides, where our products are an enabler to produce water-based versus solvent-based systems. I move on to our innovation strategy and our top priorities here. We will continue focusing on specialization and value growth. The specialization, as Per mentioned, has definitely not come to an end, and we have several promising projects going on, as well as many interesting new leads coming in. Our innovation activities have clearly been boosted by the sustainability trend the last years. We are prioritizing the high value and advanced applications where we can offer unique and tailor-made solutions.
Again, also here, the agri market is high on our priority list. We have over the last couple of years ramped up the business out of Florida significantly, and it's a main priority to continue increasing the value of the Florida product portfolio. We believe we have a very solid platform, which gives us a competitive edge, also when it comes to our innovation work. Our biopolymers competence has roots going hundred years back. This competence is what is our main competitive advantage. It's the people, the expertise. The expertise that we have on raw material, manufacturing technologies, and the processes combined with the application and market expertise, that's what really forms a strong competence base. We have a high value softwood raw material base, and we have the most advanced technologies in the market designed to produce unique and high-performing products.
I think also when you look at the biorefinery in Sarpsborg in Norway, we have a big advantage in controlling the entire biorefinery model because this allows us to drive all our optimization and development projects in the best interest of all our business areas. Our innovation is strongly supported by the fact that our sustainability profile is well documented. We see a much more active approach from the customer side today than we did just a few years back. We invest more time, more money, and more resources on innovation than any competitor in this industry. We are confident that our innovation portfolio is and will continue to be a competitive edge for us. Sustainability has become an important driver both for our existing business but also for our innovation activity.
Increased focus on sustainability in most markets means increasing demand for green alternatives to fossil-based products. As the world leading producer of sustainable lignin-based biopolymers and biovanillin, this offers some great opportunities for us. We have a strong and well-documented competitive edge in sustainability. An important part of our strategy is to focus on facts and to document it. The climate footprint, our product is documented in a life cycle assessment. This LCA analyzes the environmental impact to our products from raw materials to finished products, and monitors how environmental improvement in the value chain can reduce this impact. Based on the LCA data, the Environmental Product Declarations are made, we verify them by a third party, and compared with competing fossil-based alternatives, our products provide better environmental performance than the alternatives in almost all environmental categories.
This clearly demonstrates environmental benefits from replacing the fossil-based alternatives with our green products. We are also carrying out greenhouse gas footprint benchmark analysis. Borregaard's biopolymers have significantly lower CO2 footprint through the overall life cycle when compared to fossil-based alternatives. All our lignin-based biopolymers are derived from certified and sustainably managed forests. We will continue our focused efforts to capitalize further on our biorefinery model and our bio-based solutions. Sustainability is definitely offering new and interesting opportunities, and I will show you a few examples on that. Here's an interesting example on how the sustainability trend and drive took one of our high-value products into a new application within Agri, the so-called suspension concentrates. This is the largest and fastest growing segment of crop protection products in liquid form. Lignin-based biopolymers have traditionally been used in granulated crop production products.
However, customers' perception of the dark color of this biopolymer has prevented use in aqueous formulations. Even though our in-house tests performed by our experts showed performance similar to the high range fossil-based dispersion being used. Eventually, the favorable climate footprint of the Borregaard's biopolymer dispersions, which is a 70% lower CO2 footprint compared with the fossil-based alternative. That changed customers' perceptions, and today we have a steadily growing high-value business in suspension concentrates. Here's another example from Agri. This is a high-performance product range we launched quite recently. Initially here, we're focusing on the crop protection area, but these products could also, over time, go into plant nutrition applications. It is a novel product range with high-performance binders and dispersions for liquid and granulated formulations. It's based on proprietary technology.
The products have superior performance in formulations with high salt content and give improved compatibility with fertilizers in liquid solutions. Today, we are proud to see that these products have been very well received in the market and have grown to an established business, and with a very strong pipeline. Here, Borregaard's products represent, again, green alternatives to fossil-based products used in suspension concentrates and water dispersible granules. This is an example from the leather tanning industry, where actually the sustainability has led to the revival of an old technology, the so-called vegetable tanning technology. Leather is one of the oldest materials used in daily life, actually up to 5,000 years before Christ. Not before Christmas. Since the 1800s, the industry has used chrome in their leather tanning process. This has a poor environmental profile due to the water emissions.
These days, the leather tanning industry has high focus on improving their environmental profile, and the industry is now gradually converting back to the vegetable tanning agents. This has clearly, of course, a greener profile. We are very happy to see that our biopolymers are part of this sustainable solution. Here's an example from the textile industry and the pigments and inks being used here. As we all know, the textile industry has a challenging sustainability profile, and this is much due to the high water consumption and also the emissions to water. Also there's a wide use of fossil-based dispersions.
In this industry, there's a trend towards new and more environmentally friendly technologies and dispersions also with focus on then water reduction and green additives. One of the fastest growing technologies, as opposed to the traditional bath dye technology, is called digital textile printing. Borregaard's high quality textile dyestuff dispersions are in here and contribute to a greener solution for the textile industry. An example here where we have a very interesting growth opportunity for our lignin-based expanders in lead batteries. The traditional lead battery applications are growing steadily at around 2.5%-3% per year, and they're also estimated to continue with that growth towards 2030. However, there are some interesting areas of development, and again, these are driven by sustainability. Batteries play a crucial role in decarbonization.
They are key to enable transition to a sustainable and secure energy system based on renewable sources with reduced greenhouse gas emissions and enhanced energy independence. The two main areas are, in one, electrification of the transportation sector, and two, in the energy storage systems for renewable energy, also called ESS. The ESS volume is estimated to grow with around 200% from 2020 to 2030, and we believe this represents a growth opportunity clearly for lead batteries. The lithium ion technology will for sure take a major share here, but the industry needs alternative technologies to be able to meet the sharp growth in demand. Unlike for electric vehicles, where weight is a critical limitation, lead batteries are ideally suited for ESS due to their low cost, the high degree of safety, and also an unparalleled recycling rate of 99%.
Today, the industry is making significant efforts to develop new and improved lead batteries meeting the ESS requirements for energy density and life. We are working closely with both the industry and with academia to ensure that our products are utilized to their full advantage in these new innovations. It is promising that Borregaard's sustainable expanders are a key enabler for lead batteries to succeed in the ESS applications. Over to our biovanillin business. Borregaard is well positioned for growth in the small but attractive niche market for sustainable vanillin. We have a product that fits well with increasing market demand for bio-based versus fossil-based products. We have invested in increased production capacity to be able to grow with the markets, and we have a healthy growing market driven by consumers' preference for healthy and sustainable products.
Taste, nutrition, and affordability are still key decision criteria, but the sustainability trend here is clear, and it's strengthening year by year. Preferences for green products are driving the demand, and both B2B and B2C customers are now willing to pay premium prices for bio-based products. We estimate the market for bio-based vanillin to be around 2,300 tons versus the oil-based vanillin market of more than 25,000 tons. Borregaard has a strong position in the bio-based vanillin market as the single largest producer and the global market leader in bio-based vanillin. We believe this segment will continue seeing healthy growth in the years to come. Our flavor profile is considered unique and attractive as the vanillin from Borregaard gives a more smooth and a balanced flavor compared to competition. This is especially important in the food sector, which also is our largest segment.
We have a unique raw material based on a natural and sustainable feedstock here. The product is 100% bio-based with wood from certified sustainable forestry. The Borregaard vanillin has a highly favorable environmental footprint with more than 90% reduced carbon footprint compared to fossil-based vanillin. When you add to this that we have the lowest cost in this segment, and with newly added capacity that can grow with the market, we think we have a pretty attractive package to offer here. To be prepared for growth, as Per mentioned, we completed our capacity expansion, first half last year. Our target here was to add at least 20% capacity or around 250 tons, and we are pleased to see that we are well above this target today.
The market introduction of this new capacity is also running well, and we will continue to gradually phase this into the market based on market demand over the next couple of years. We have seen a tight market and peaking prices for synthetic vanillin over the last year. Now we see significant capacity is starting to come on stream, and as a consequence, prices for the synthetic vanillin have started to decline.
I would like to summarize my presentation with our strategic priorities within the BioSolutions area. There's no big change to the strategy. Our main priority is to continue specialization and value growth. We will focus on value, not on volume. We are well positioned in a wide range of high-value applications where we see attractive market growth. We are well on the way with the gradual introduction of the new bio-lignin capacity, and we will continue this process. We see a clear and increasing trend where many of our business and also innovation leads are driven by sustainability. We are making focused efforts to fully capitalize on that, and this work is strongly supported by the documented facts. Finally, it's a main priority to fully exploit the significant potential we see for further upgrade our product portfolio. As Per said, we have just started on the specialization journey.
This means investments in increased specialization and debottlenecking in Norway, but also further optimization and value growth in our plant in Frøya. We also have a strong innovation and business development portfolio supporting this work, and this portfolio will for sure bring new, unique, high-value products to the market in the coming time. That summarizes my presentation. Thank you very much.
Thank you. Can you hear me?
We can hear.
Excellent. Thank you for a good presentation. Let me start with a question here to Per. How important is it to be integrated back to the key two raw materials in your business, say, energy and wood? We know that Orkla, they sold the forest, and they kept the hydropower ahead of the IPO in 2012. You know, peers from pulp and paper, they have a higher degree of self-sufficiency on those two factors, but maybe peers within specialty cellulose, they don't.
Oh, that's true. The last issue item is true. Well, the structure is such that I think that if you look at the Borregaard cost structure, no, we are not dependent on any single input factor. I mean, there are lots of industries in Norway that have like 60%-70% is one cost item in the portfolio. We have. If you look back to 2021, of course now there are big movements in cost right now, but in 2021, our most important cost factors like wood, like energy, like logistics, were around 10%, 10% of our cost base, which is 8%, 7.5% of our revenues, because we have a 25% EBITDA margin as well.
We of course suffer if some of these costs really move strongly, but at the same time, we don't die from it like a lot of other. We are quite confident that we have the leverage in the marketplace to recover these costs. Maybe not next week, but you know, in a few weeks, we will be able to recover those kind of cost movements. But it's also the structure. I see that a lot of the pulp and paper companies, forest-based companies, they like to own or control the wood basket. Of course, we feel that we will be the last man standing in a difficult situation because we can always afford to pay.
You know, there are lots of initiatives out there that want to utilize wood biomass, but if you look at the economics of it's not gonna work. Borregaard has more value added, I think, than any other player is buying wood. Also the energy cost, if we get a situation in Norway now where the energy cost is getting more comparable to other areas of the world, I think that Borregaard is definitely a type of industry that can sustain also a higher cost level for energy. We feel that these things are of course important, but when Borregaard or Orkla sold our forests, they were actually supplying 1% of our wood consumption directly.
You can say that it's an indirect hedge, but the forest represented 10% of our annual consumption of wood, so it was not a significant issue for us at the time.
Thank you. Just a question on the Russian lignin volume. We see that it represents a pretty large share of the total global supply. Can you comment on what happened to that in 2022, and if there's a possibility that more supply will come, for example, if there's gonna be a resolution to the conflict now?
Obviously, there's been changes in the dynamics. With the sanctions, the volume that we have seen in Europe earlier disappeared. We're also seeing that the product have found new ways and that we see this going into markets in Asia, China, India. Depend on what happens going forward. I mean, the product is in the market. We are in a global market, so it's not that it's been out, but it's just finding new markets to be placed in. Yeah.
Turkey, for sure. It doesn't really go into the high-end applications anyway.
Thanks.
You mentioned that you just started to squeeze the orange. Could you be a bit more specific in terms of price and volumes? 'Cause earlier we've had like a nice product name, Exilva or BALI or Ice Bear to do some calculations on.
Yeah. No, I'll just give you. Don't take these for firm numbers. I mean, Tom Erik now showed you the biopolymers split or BioSolutions split, where 24% of the volume represents 60% of the revenues. 24% of the volume represents 60% of the revenues. That was the new sort of revelation today that, you know, it, specialization really pays. 24% has grown from 12%, 13% to 24% of the volume over time in the last 10-year period, 10, 13 years. It has more than double, nearly trebled the revenues and the value add is even higher because I mean, these are more valuable.
The typical price, especially can be priced as much as 10 times a standard biopolymer, biovanillin, which is also made from the same raw material, is priced at 40 times a standard biopolymer. This is sort of the upgrade that you see. You can only dream about, let's say, that we sold 50% of the volume into the high value instead of 24%. I think that tells you know, that's lower investment, more value upgrade. If you add volume, you have to sell it at the lowest price in the, on the margin. Increasing specialization is by far the best alternative to increase the value added in the business. This you can take similar examples in other areas. You know, there are in the specialty cellulose as well, we.
You know, there is potential to move upwards in the value chain.
Thank you. I guess we have a question from the audience.
Yeah. Thanks. So we observed that a number of the larger wood processing companies are moving into biochemicals. To what extent are you sort of leading this league? Or to what extent are the new entrants able to copy your positions? If you could sort of discuss the refineries or the capital equipment that you have, and competencies and possibly other elements that will result in you staying ahead of the pack.
First of all, I think this is again also about segmentation and positioning, you know. Borregaard's claim to fame is based on the sulfite pulping technology. All of those initiatives that you're referring to are based on other technologies. That doesn't really preclude that they will not eventually come up with products that could interfere with our markets, but at least for the last 15 years, that has not happened. Borregaard actually spent 20 years working on kraft lignins as well, made from the kraft pulping technology. We sold that in 2004, and that's partly the basis for what the other guys are trying to further now today. I think a lot of what is labeled as, you know, biochemicals is truly commodities.
You know, a lot of biofuel, large type of commodity chemicals. These businesses are not really set up to be specialized. I mean, we are the opposite. We never go after a commodity because that's too costly for our organization to manage a commodity business. So we haven't seen anything close to where we are at the moment. There are, you know, some, but the rhetorics are there. But in the beginning, we got a lot of phone calls from people like Martin and so forth, "This must be bad for Borregaard," but actually it's a different technology, it's a different market, it's a different application, so far.
No initiatives on the sulfite-based technology, as well?
Well, the sulfite technology was a losing technology from a pulp and paper perspective because the pulp and paper companies are interested in a very fresh and strong fiber, and that is better with a kraft pulping process. From our perspective, the lignin that comes out of a kraft pulping process is not water-soluble. It has certain limitations, or I would say large limitations compared to a lignosulfonate, which comes out of a sulfite pulping process, which is water-soluble. As you heard several examples, water solubility is a key driver for us. They are not comparable. You know, you shouldn't preclude that somebody built a sulfite pulp mill again, but it certainly, it's not a high likelihood.
I mean, the drive to go into lignin for the pulp and paper companies is that they are becoming more energy efficient in their pulp mills and paper mills, so they get a surplus of energy, and the energy comes from burning the kraft lignin. So then they come up and say, "What can we use this kraft lignin for?" So they start. They sort of come from a whole totally different perspective. So they have a surplus of a raw material. Can we use it for something? We don't need it for energy. Can we use it for something else? So that's sort of the starting point for them. It's very different from, say. It's not that they want to go into lignin.
They have something here that can use it for something.
Great. Thanks. If I may follow up on another topic, the wood cost. I mean, construction is going down and probably demand for wood will decrease. On the other hand, you have the Russian situation. Could you say something, please, about the outlook for your wood cost?
Yeah. I mean, like a lot of what Borregaard is dealing with, you know, wood is also a co-product. The main product coming out of the forest is wood for building material, and the side stream coming out is pulp. Also the side stream coming out of the sawmills is wood chips. 30% of the wood ends up as a residual wood chips sold to the pulp mills. We are in a value chain where we take all the side streams. That's why you have the paradox that during the COVID, when the building industry was booming, we actually had cheaper wood because we were buying the residuals, you know, and they were in surplus during that period. You have to look. You have to understand the co-product situation in that market.
Basically we are dealing with the side streams, and the side streams are usually cheaper than the main product, which is what's going to the building industry. Obviously you have a situation now, that's why, you know, now that the building industry is starting to go down, then the side streams actually go up in price, which is what happened now in the second half. We think that we have said continuously that during this period, in the COVID period, the price of our wood was below the long-term average. Now it's coming back up again. Maybe it's above the long-term average, but I mean, there are, like I pointed out earlier, lots of plans for using biomass for a number of things.
When you see prices like you see now, most of those initiatives will not be profitable.
Okay, thank you.
You mentioned that the prices of synthetic vanillin is coming down now due to increased supply. Recognizing that this is not the part of your long-term strategy or anything, but should we expect lower trading revenue in BioSolutions going forward?
As you say, it's not a key focus of our biovanillin business. We have some trading activity. For that part, we see declining prices. We don't expect big impacts of that on the biovanillin part. That has a completely different driver in demand. If we see slight impacts, remains to be seen, but we don't expect that.
Yeah. No, I can add. We have said a couple of quarters now that we have mentioned this issue. The reason why we mention it is that when there was a slowdown and even a stop in production in China due to COVID, of course, then a lot of people panic, and they will ask for material regardless of the price. We got a lot of inquiries for our wood-based vanillin from people that normally wouldn't be interested. The challenge then becomes to figure out who of these potential customers are long-term customers that are willing to pay the value of our product and who are only here because they need product tomorrow.
That was why we mentioned it, you know, as a sort of a this disturbance in the value chain, if you like. The acid test will, as we go forward, I don't think it will have an interference with the people that are wanting plant-based vanillin. Of course, there has been an added demand for a while because Chinese material hasn't been available.
Good. Could you explain a bit about the actual price formation, say, in lignin? You have a 70% global market share. Is it you dictate the price? Earlier you used to distinguish between low, medium, and high specialized segments, and you gave a price indication per segment. Could you try to compare where those prices are now compared to, say, 10 years ago on the different categories?
That's a big question. The general approach to pricing is a value-based approach. I mean, we try to make our best assessments of the value our products are creating for the customer in the different applications. That's also why I say the competence in our organization to understand the applications is extremely important. Typically in specialized applications, the price development over time is gradual. No big jumps. These are often long-term loyal customers where we continue developing the business and where we create value also by adding new products to our portfolio. The lower end of the portfolio is to some extent more impacted by the competitive situation.
I think what you have seen now over the last two years is the effect of the optimization that we've been able to reduce our exposure to those markets where prices would be more volatile, be more sensitive to competition. Which also should mean more stability, and where we are able to just by the gradual increasing of value, introducing gradually new volumes and increasing the share of the high value performance, that's what's gonna be the main drivers of the overall value. I don't have an exact comparison on price development over the last 10 years, but I think you can see the value generation of the total business and general price development, that it's all product mix and also some price increases.
The two last years have been quite strong, of course, in the price increase we've been able to implement as well. Going forward, I expect the gradual increases and the much of the value coming from our innovation and market development.
Price increases is one thing, but the product mix improvement has been as important. You know, as you lift things up into it in value-added because you sell less of one product and more of another product that is upgrading the value. As I showed on this slide, how the value creation has developed over time. Also remember that this I said that the specialties in biopolymers, 24% of the volume goes into is 60% of revenues. In those categories, our market share is between 90% and 100%. The competition is not lignin-based. The competition is different petrochemicals in different market applications. You have to really go in and look at each market.
Like we said, like Tom Erik Foss-Jacobsen said, it's a value-based approach that we look at in these kind of markets. What's the value of our offering compared to the petrochemical alternative? Can we get a price together with the customer that equals that value to the customer?
Just to say, 10 years ago, I think, it was low quality was $200, medium was, say, $500, $600, and then a few percent was selling at above $1,000. Now this average price is $900+. That's why I asked if the relative differences have changed.
Yeah, I think the tail has definitely changed.
We have shaved off a lot of the tail, you know. A lot of the low end of a category like construction, there were price differentials as well, and the low part of that has been shaved off.
Mm.
You know, that lifts the whole thing.
Yeah. That's also why I say we have come to a point where the criteria now is more, when you consider business, is it long-term profitable, and is sustainability important to the customer? That's the same criteria for all across these segments.
Thank you. Just to expand upon one of your comments there that you have 90%-100% market shares on niches and that your true competitor is actually the petrochemical substitutes. How closely linked are market prices to the oil price?
Yeah, you may add Per, but I see, and in particular, I mean, I've been now active in the business since 2019, and I think definitely, over time, the impact, especially if you're exposed, for example, to a market like the concrete admixture markets and have a high exposure there, they are using synthetics. That's been one of the main drivers we have why we have wanted to reduce our exposure because they've been more and more commoditized, more and more focused on price performance, synthetic or a green product doesn't really mean much of a difference. That's why we have had the clear strategy to reduce the exposure there.
In that market, I would say it had a certain impact because it's linked to oil to some extent. With the exposure we have today, I would say our exposure to oil price is quite limited. I don't think we see significant impacts of that.
The reason for that is that a specialized petrochemical product, the oil component is a fairly small share of price. If you process it in many steps, you know, the starting material doesn't become very much. Like in Borregaard's example, last year, the wood was 7% of revenues. The starting material that ends up in all the finished products was actually 7% of revenues. It's very similar in an oil refinery as well. As they process into more advanced chemicals, the oil component is fairly small at the end. That's why the oil component doesn't matter very much for an advanced specialty chemical. For a commodity product like in construction, it's fairly transaction-oriented. We don't call them commodity customers, we call them transaction-oriented customers.
They're very looking at what's the best right now, oil-based or wood-based, and they don't put an extra value on the wood-based. That's why we go after the people that value the product.
Yes, Sindre Sørbye from Arctic. Just when you're touching upon oil, I mean, it's been a few years since you accentuated the oilfield chemicals as a driver within BioSolutions. Can you give an update of what's the current outlook and more medium-term projections there?
Clearly, there was a significant downturn in that business for us when oil price went down. Over the last year, we see a significant step-up of activity again in that field. Consequently, that's a business also increasing significantly for us. As you've seen in our quarterly reports, that area is also now in the few last quarters contributing to our increased profits within biopolymers. It's definitely an area growing, and we expect and see that also continues.
Yeah. I mentioned that the examples Tom Erik Foss-Jacobsen was showing today was not exhaustive. I mean, there are lots of other examples. You could have a similar list of other examples. The new range of products to oilfield chemicals called Bio-Drill is actually one such example.
Mm.
It didn't take off when it was launched because the oil activity was down. Now, of course, it's picking up significantly.
Hello. Andrés Castaños from Berenberg. One question about the Florida potential to tap into the agriculture market. How advanced it is and how well-suited it is. Can you comment on this?
Florida is today supplying the agri business and have more capacity to increase. We have a portfolio to agri which is produced in several of our factories. Sarpsborg is a very important plant where we have the most advanced technologies in place and the broadest portfolio. We have two plants in U.S., where both these plants are also producing products for the agri segment. I would say Florida is definitely not our most specialized plant. It has a portfolio today and a good growth potential in what I would call, in our view, the more medium range agri products.
The raw material, however, is softwood, 100% softwood. It's a good starting material, but the plant was never set up to make the most advanced products. That would require CapEx.
Okay. I'll take a break.
Be back at 10:40.
10:40 A.M.
Thank you.
Good morning, everybody. My name is Gisle Løhre Johansen. I am the EVP of Specialty Cellulose, and I'm also actually the EVP of the Fine Chemicals business area, which we are not covering in detail today. Now I'm gonna talk about the next biggest business segment in Borregaard, and that is the specialty cellulose. There are two statements here on the initial slide, attractive growth opportunities and high barriers to entry, and I'll try to put some more meat to the bone on those two statements in my presentation. First, a bit general information about the specialty cellulose industry. The cellulose industry is huge, but the niche that Borregaard is playing in is quite small compared to that huge cellulose market. It's about 1.6 million tons.
Borregaard has capacity about 160,000 tons in our plant in Sarpsborg. That's the only place where we make cellulose, contrary to Lenzing, where we have a global presence, so that's about 10% of the total market. There are five large players, and Rayonier Advanced Materials is quite much bigger than the other ones, while the next four is more or less comparable in size, I would say. Rayonier Advanced Materials is the major player, then we have Georgia-Pacific, we have Bracell, we have Sappi, and we have Borregaard. What differentiates these companies is that we have different process platforms, and we have different raw material platforms. Rayonier Advanced Materials is the most diversified.
They are present both in softwood and hardwood as a raw material, and that means that they are using both spruce and other softwood species like hardwood species like birch or not eucalyptus, but similar. We have Georgia-Pacific, which is a softwood kraft producer, and we have Borregaard, which is softwood and sulfite. Bracell, emerging player based on hardwood in South America. The process is defining to some extent what kind of products you are best suited to make, and I'll come back to that, and also the raw material.
There is some cotton linters as well in this segment that is a by-product from the cotton production, and that's what mainly constitutes the segment that is named as Others here. When it comes to other players outside this family, they are mainly targeting segments that are not that important to Borregaard, but still a part of our portfolio. These are swing producers that mainly produce textile cellulose, and that is profitable. The barriers to entry to the segments that Borregaard is present in is fairly high. Softwood and sulfite is important to keep in mind when we move further to the next slides.
Because if you look into the different product groups that constitutes the specialty cellulose segment, there is one group that stands out, and that is the cellulose ethers segment. As you can see, it's fairly good growth, 4%-5% per year, and it's also the product with the highest sales price. For comparison, you can see also the rayon staple segment for textile here. This is not a part of the specialty cellulose industry, but it gives a kind of feeling for how big and how it's priced and what kind of growth you see in that segment. This is a slide from a consultant group called Selko, and it's not our statement. It's their statement that the star remains the ethers markets.
Growth and high prices. After this slide was made last year, it's important to point out that the prices have increased further and proportionally compared to what you see in this figure. Why ethers for Borregaard? It's not only about pricing and growth, but it's also about what kind of raw materials and processes are best suited to produce ethers. As you can see from this slide, about 80% of the ethers for cellulose for ethers that is made is made from softwood. Almost 80% is made by the sulfite process. It's 80%. 80%, 90% of both factors. That's really where Borregaard is placed. We are a softwood sulfite-based cellulose producer, so that gives us an edge.
The rest here that you can see here of the ether segment, that's actually some hardwood from blending with so-called cotton linters pulp. That's alternative really in ethers. It's cotton linters pulp from as a by-product from cotton, or it's blending with the so-called fluff pulp. The cellulose ether, which I will focus my presentation on, it's a water-soluble polymer, and it's a quite segmented industry. It's a niche product in the total market for water-soluble polymers. Here you can see the main products are actually derived from natural products like algae or one-year crops. The other big segment is made from synthetics. They are oil-based. Ethers fill a segment, a niche here, where natural or synthetic alternatives are not very suitable.
They have a kind of multifunctional properties, so they can do more than one thing at once. If you want to do this with oil-based or natural, you often have to make formulations or you may have to make mixes or you can't do it at all. It's an industry where inside also this industry, the barriers are high. Due to that, in many cases, there are no direct substitutes for cellulose ethers. We're talking about water-based systems. This is quite interesting because cellulose ethers have been around for more than 100 years. I mean, before we had oil-based chemicals, most of the products we used in our society was more, one way or another, derived from natural sources.
We had this fossil-based product boom, and now we are much going back to natural or semi-natural alternatives, not only because of sustainability in the product itself, but also because we are moving to water-based system. I mean, Tom Erik mentioned it in pesticides. You're moving from solvent-based to water-based. The same goes on in many of the applications that the cellulose ethers are very suitable for. For instance, in burgers made from vegetable raw material, cellulose ethers are an essential component. In many water-based paints, same. It's modifying the rheology of the paint and so on. So healthy growth, specialized applications, ticking off the right things when it comes to moving toward a more green future. And also industries where it takes a long time to reformulate your products.
That also goes for entrants in the cellulose supply for the cellulose ethers. As such, the producers, I mean, qualifying our cellulose ethers for a certain application may take quite a few years. That also means that once you're inside, you are fairly protected against competing raw materials. This segment, the cellulose ethers, is also characterized by a wide, not only a wide variance of function or application, but also price. Typically, the price of a finished cellulose ethers is from $2-$20 per kilo. The projected annual growth going forward is about 4%, and that's also actually been the historic growth for the last few years. Today we are at a level of 480,000 tons in total, and from this space, we expect this further growth.
We also see that the highest growth is the segments that require the highest viscosity pulp. I mean, cellulose for ethers is not one product. In some of these other segments, we are talking about more or less one product that serves the whole segment. In cellulose ethers, we are talking about different viscosities in the pulp, and that is a function of the fiber and the physical status of the fiber, and it's also a function of the purity. When we are making tailor-making products for different customers, they are concerned about purity and viscosity. That means that we have quite a large portfolio of products, but we see the highest growth in the high viscosity segment, which again, long fiber softwood is prerequisite or comparable to cotton, which I will.
Cotton linters, which I come back to. Cotton linters pulp has been around for a long time, and the nice thing about cotton is, of course, that it's more or less 100% cellulose, so it's very easily to purify. You can keep the fibers intact. You can get the viscosity. When you start with wood, you have to do a bit tougher job, because you have to remove the lignin. You have to treat the pulp a bit to get it to the right purity. More and more, the industry is looking to pulp wood as a raw material, and that is not only because cotton linters pulp is more expensive. It's getting more expensive, because there are rising problems with cotton production in the world. You have floodings in Pakistan. You have droughts in the U.S.
It becomes more and more vulnerable to climate change, while wood is more resilient. Also, of course, cotton production is challenged in some areas because of the high consumption of water. Some of it takes place in regions, which are politically challenging. We can see a clear trend with our customers moving to replace a cotton-based cellulose ethers with wood-based. As I touched upon, we are then dependent to serve each customer more or less individual. They have different requirements for purity, for viscosity, for sheet size. I mean, there is a lot of elements to the product really, and that means that we have this range of products, moving from the low to the high viscosity.
We're moving from the low to the high purity, and this in itself creates quite a nice barrier to entry for a new entrant. Because it means that it's very hard to go in and just make this one product if you don't have product. You wanna make product B, you need to have A and C to move through production cycles that are rational and gives you an optimum production. You need to be a total supplier to the entrants you want to serve. Because when we are talking about the six biggest companies here, they have a wide range of ether products, which needs different types of pulp to give the right end product. You need to be a total supplier of all the products. They need to be a preferred supplier.
The nice thing about ethers is that the cellulose ethers products producers, a lot of them are in Europe, and that's good for logistics, of course. We can see a clear trend that when the alternative is some pulp from the U.S. or from Asia, with the logistic problems and all the other stuff, issues we had during the pandemic, we see clearly that they see the advantages of have a kind of local supplier in Europe. When it comes to the cellulose for ethers industry, it's Borregaard, and it's one plant, Rhine plant in France that is really local. If you want material beyond that, you have to go to the U.S., or you have to go to Asia for cotton linters pulp.
These six large customers, they are, I would say, not continuously, but quite often, they announce plans to expand their capacity, either greenfield or to change their production towards more specialized products like Borregaard does. This fits very well with Borregaard's ambition, which is a kind of to be a preferred supplier in the high end of this market. Because also in cellulose ethers, there are commodity segments where we don't desire to have the same presence. We want to move towards the most advanced applications, and that is what you see on the graph here. That's the pharma personal care segments and the food segments, which we call regulated segments, where the requirements for quality, for reproducible processes, for documentation, et cetera, are the strictest.
We are very good positioned out here, because Borregaard has a long experience working with regulated products, especially from our pharma sector, where we have been serving the pharmaceutical industry for decades. We are very familiar with the requirements and needs of this type of products. If you take the figures seriously, the prognosis, and there's no reason not to do it, because the growth have been 4%-5% now over quite some years. If you see the growth the next years up to 2030, the market should grow from 480,000 tons to 680,000 tons. There is a huge opportunity here. There are really no greenfield sulfite cellulose softwood-based new plants announced at the moment.
We touched about on this on the lignin presentation. There is, I would say, a huge opportunity here for established players because Borregaard supply today a majority of its products in this segment. We still have room to convert more capacity to ethers if that's where we put we wanna put our volume. If this is the most attractive segment as we believe right now, if this is the segment that we have the best competitive advantages and the prices are attractive, this is where we can move. We have room to move within the 160,000-ton capacity we have in the Sarpsborg biorefinery.
We have the whole portfolio, so we can work in the low segment, low viscosity segment, the mid viscosity segment, and the high viscosity or ultra-high viscosity segment, and different grades, and different range of purities. We work very closely with the customers on developing and entering new products at their plants. As I said, it takes some time, but we have a lot of activities in the innovation area going to continue to be a total supplier of all the cellulose qualities they need. On top of that, in some segments that are regulated, GMO is a requirement. There we have this advantage, as we have said before today, that we have a GMO-free raw material, which cotton linters is not.
There we also have a factor that excludes CLP, cotton linters pulp, as an alternative raw material. It has been confirmed by our customers many times that they see us as the industry leader in sustainability and documentation and certification. This is becoming increasingly important for this industry because as you saw from a previous slide, they are represented in segments that are quite close to the consumer. Rising concern with the consumers or the middle man that's actually making the burger or making the paint for sustainability documentation is very positive. Borregaard has worked on this for many years and are still improving year on year. We are, I would say, way ahead of the other players in this segment.
Our ambition is to grow with the ether market. It's to continue to do what we're doing today, to work closely with the customers, adapting, innovating, adjusting our quality to be the choice product for the cellulose ether producer. We will also support that by doing necessary investments in our plant when it comes both to becoming even better on sustainability, on emissions of CO2 and to water and air, and to the bottleneck wherever there is an issue to increase the portfolio in Sarpsborg towards the total capacity of 160,000 tons. How we do that? We have some segments that we are present in today that we could scale down, and then prioritize the ether segment if that's the desirable way forward. Of course, it depends.
It depends on how the market develops. On the other hand, we will in a way secure the portfolio by having a certain percent also in some other segments that we see as important to hedge kind of way hedge our portfolio. We have so far seen that year-on-year. As I said, a majority of our portfolio is already cellulose for ethers, and an increasing share of that volume is going to regulated segments, to food and pharma. We are well on our way also delivering on that. Another important segment for Borregaard is acetate.
We have been present in that segment for many years, and a few years ago, we carried out the ICEPURE investment to secure our position in that segment, our market positions. It's not only a kind of protective thing for Borregaard, the ICEPURE process. It's also an enabler to do more high purity products, both in the acetate segment but also in other segments like the ether segments that I were talking about, where purity is very important for some products, and some other like tire cord. Today, our main market using that technology is filter tow, acetate for filter tow.
This major market for this product is cigarette filters, and it goes without saying that this is kind of a challenge for the filter tow producers, because the consumption at least is flattening out when it comes to smoking, and there are other issues, at least sustainability issues, ESG issues related to having a large presence in that segment. Cellulose acetate cannot only be used for that, it can be used for bioplastics, for packaging material. I mean, glasses, glass frames are an example. All the major acetate producers, they are focusing on other application than filter. We are working with them under NDA to do this type of development using our ICEPURE technology.
Because when you move out into these segments, purity becomes even more important than it is for the normal acetate qualities, and ICEPURE is an enabler to make a higher purity cellulose, whatever grade, as I said, not only acetate, but also in ethers and other segments. I think the key here is really to have a close cooperation with the customer so we can adjust and adapt our process according to the customer's needs. To sum up, we are today a leading supplier to the cellulose ethers industry. We are a key supplier to some other specialty cellulose segments, like the nitrate segment, like the acetate segment.
We wanna grow, moving on in the ethers segment, and especially in the regulated segments where we think we have some special advantages in Borregaard, both based that we have a good presence there now, but also based, as I said, on that this is a niche that requires competence, and competence is the basis for most of the things we do in Borregaard. We wanna use the ICEPURE technology as a vehicle to develop new high purity applications both within acetate, ethers, and other grades. We want to continue. I mean, this you can see in every slide we show, I think, historically. Niches within the niches. Small, but profitable. That's the high value products rather than the volume products. This, of course, is creating complexity in the way we are making cellulose, but that's really not.
I mean, that's just an opportunity because Borregaard is very good at handling complexity, not only managing the biorefinery, but also complexity in the cellulose production. I mean, there is light years from running a plant at one product throughout the year, which some of these segments are all about, like in the textile business. In our Sarpsborg refinery, we are over a cycle of six to eight weeks doing a wide range of smaller scale products in a very efficient manner. I mean, the challenge is, of course, that complexity could create costs, but since we have educated our people, we have automated our plants and so on, we are able to carry out this without experiencing kind of loss in introducing that the complexity in our plant.
Per Bjarne, I will come back to that later, that we are committed to do the necessary debottlenecking. We will continue to work even smarter in our plants by automating and using artificial intelligence, and we will improve our environmental footprint. Debottlenecking and environmental, very important for our customers. Smarter production, very important for us, so we do this as efficient as possible and don't lose out on the complexity of the products in the way we are making them. Borregaard have trained on this for the last 25 years, and we are through those hurdles that we saw initially, and which we welcome new entrants to actually work their way together throughout.
We want to be the preferred supplier and the development partners in the niches, in the niche products that I've been talking about, the acetate, the ethers, and some other grades. Finally, we have this GMO-free material that, in a way, is a no-go for the competing raw material, cotton linters pulp in some segments. On that, I end my presentation, and I leave the floor to my colleague, Per Bjarne Lyngstad, who will go more into financial figures and CapEx plans and so on.
Thank you, Gisle, and good morning, everyone. My name is Per Bjarne Lyngstad. I'm the Chief Financial Officer of the company. Borregaard has delivered strong results and top line growth during the last years. Operating revenues have on average increased by close to 8% per year since 2018. EBITDA has increased by more than 15% annually, and we have seen strong improvement in the EBITDA margin. These results are achieved despite challenging business environment, where the COVID-19 pandemic and, more recently, the war in Ukraine have impacted supply chains and the cost of energy and raw materials significantly. More specifically for Borregaard, the loss of raw material supply in South Africa and Spain reduced our capacity for lignin-based biopolymers by more than 30%.
Optimization, diversification, and continued specialization, strong markets, the impact from larger expansion investments, and a weaker Norwegian krone are the main reasons for the strong development in the results. Since 2018, the results in BioSolutions and Fine Chemicals have improved considerably, while BioMaterials has had a more stable development. Despite the huge loss in raw material supply, BioSolutions has improved significantly from 2018 through specialization, optimization, and diversification, and the impact from expansion investments. All together, these factors have contributed to more than doubling in EBITDA in this period. Significant cost increases for energy and raw materials over the last year have so far been offset by higher prices and improved product mix. Additional price increases in BioSolutions are implemented for the second half this year to compensate for further cost increases. BioMaterials has, in total, been quite stable over the last years, with some fluctuations.
The 2019 result was affected by operational incidents at the Sarpsborg site, whereas lower energy and wood costs and improved product mix led to an improvement in 2020. In 2021, lower sales prices and higher spot energy prices affected the result negatively. Higher sales prices for specialty cellulose and an improved product mix more than offset increased costs in the first half of this year. The sales of cellulose fibrils has increased year by year. However, the sales volume is still behind our targets. Fine Chemicals has improved significantly from 2018. The 2020 result was impacted by an extraordinary demand for bioethanol to disinfectants in the first phase of the pandemic. From 2021, increased prices for bioethanol, mainly to biofuels, together with higher production and sales volume, have been the main contributors to the result improvement.
In the five-year period from 2015 to 2019, Borregaard invested more than NOK 1.7 billion in expansion projects. Borregaard's main profitability target is to have a return on capital employed above 15% pretax over a business cycle. Return on capital employed dropped quite notably just after the completion of the major projects. However, from 2021, return on capital employed is back above the 15% threshold. There is no clear definition of the length of a business cycle, but our view has historically been that a business cycle is five to seven years. Using a six-year rolling average shows that we have met our long-term return on capital employed target also during and after the heavy investment period. At Borregaard's Capital Markets Day in 2020, we presented EBITDA targets from seven larger and medium-sized expansion projects.
The total targeted EBITDA improvement from these investments was between NOK 225 million and NOK 425 million in 2023. 2/3 of the improvements was expected in BioSolutions, and 1/3 in the other two segments. In the last 12 months, up to June this year, the improvement from investment projects has had a run rate of about NOK 175 million. We have had a significant improvement from the lignin upgrade in Norway. The capacity expansion for biovanillin, the ISBER project in specialty cellulose. The two projects for increased capacity within Fine Chemicals are all slightly ahead of targets. We have seen improvement both in the lignin operation in Florida and for cellulose fibrils, but both these projects are still below targets.
In addition to the improvement from the investment, we estimated a positive NOK 200 million net currency impact, assuming currency rates as they were in mid-September 2020, mainly as a result of reduced losses on our hedging positions. Currency rates have been weaker in the last 12 months than the assumption at the CMD in 2020, yeah, and the net currency impact has only been NOK 75 million so far. With the present rates, I think we will be above NOK 200 million in total next year if they continue throughout next year. The total EBITDA improvement from mid-2020 has been NOK 427 million, if you look at the run rate, of which the expansion investments and the net currency impact contribute about NOK 250 million.
In total, we are on track to end up with total improvement from these expansion investments well within the original targeted range. We believe there is a significant potential, further potential from these investments in the years to come. Since Borregaard was listed in 2012, earnings per share has increased with an average annual growth rate of 11.6%. Ordinary dividend has increased every year, and the payout has been within or above the dividend policy range of 30%-50% of net profit for the preceding year. For 2016 and 2021, we paid an extraordinary dividend based on cash flow expectations and the solidity of the company. Borregaard has a solid capital structure with financial ratios well within what are required of an investment-grade company.
The equity ratio was 52% at the end of the Q2, and the leverage ratio, which is net interest-bearing debt over EBITDA, was 1.40x, well within the targeted range of 1.0x-2.25x. We also have substantial undrawn credit facilities, with revolving credit facilities totaling NOK 1.5 billion and sufficient overdraft facilities. At the end of the Q2, undrawn facilities totaled more than NOK 1.7 billion. Most loans and credit facilities have maturity from 2025 to 2032. The only facility with maturity next year is a NOK 400 million bond. As many other companies, Borregaard has experienced significant cost inflation during the last year, mainly driven by energy prices.
If we exclude the cost reductions related to sales from inventories in the first half last year, and hence lower sales volume in the first half this year, the cost increase has been more than 20% if we compare the first half this year with the first half of last year. Energy and raw material costs have increased further so far in the second half and are expected to continue at a higher level for the rest of the year. The largest uncertainty going forward continue to be spot energy prices, which impact close to 20% of our total energy consumption.
We have taken measures to mitigate the effect of the additional cost increases by implementing further price increases in the second half for BioSolutions and a 10% surcharge in the Q3 for Speciality Cellulose. We are currently discussing additional surcharges for the Q4 with our Speciality Cellulose customers. A recently completed investment to increase utilization of residuals as bioenergy will reduce our consumption of liquefied natural gas or LNG by more than 30 GWh annually from October this year. The recently completed upgrade of the sodium hydroxide, or as many say, caustic soda plant, is delivering a higher production output than originally targeted, reducing the need for external sourcing of expensive sodium hydroxide. Last but not least, Borregaard has utilized the flexibility we have in choosing between electricity, LNG, and light oil in producing peak load heat energy.
By switching from LNG to light oil in our multi-fuel boiler, and at the same time reducing the use of electricity for heat energy production, the impact from increasing spot energy prices has been softened significantly from the beginning of August this year. We are still dependent on LNG for spray drying of lignin-based biopolymers and for making bioenergy from some of our residuals. The likelihood of a recession in the world economy, and especially in European countries, is increasing as cost inflation, mainly driven by high energy prices, is starting to affect production output and consumer consumption in general. In our opinion, Borregaard's specialized products are less exposed to cyclicality. We have reduced our exposure to cyclical markets over time, especially over the last five years. We have reduced our sales to concrete admixtures by more than 50% in recent years.
Concrete admixtures go mainly into heavy construction, which we consider to be one of the more cyclical industries. Our cellulose business is further specialized, and deliveries to the cyclical textile cellulose markets have been reduced to a minimum. A recession will, if it occurs, affect demand in general, and therefore also the demand for some of Borregaard's products. However, Borregaard's diversified market strategy with 800 products to numerous applications and with the company's global presence takes risks out of the integrated operations. During previous recessions, we have been able to partly switch sales both between applications and geographies depending on demand development in different markets. With Borregaard's green profile and our ambition to further improve our climate footprint, we have targeted significant reductions in emissions to air and effluents to water by 2030.
We have targeted a 42% reduction in CO2 emissions in 2030 compared with 2020. This target has been approved by the Science Based Targets initiative to be consistent with limiting global temperature rise to 1.5 degrees Celsius. The reduction will be achieved through electrification, replacing LNG and light oil, energy conservation, and the use of innovative heat recovery technology. Effluents to water, measured as chemical oxygen demand or COD, are expected to be reduced by 30%-50% in 2030 compared with 2020 through process improvement and wastewater incineration technology. These planned reductions in emissions and effluents will have financial consequences, but will also improve our competitive position. Preliminary investment estimate for the 2023-2025 period is a total spending on such investments of NOK 650 million-NOK 850 million.
In addition to an improved climate footprint, we expect these environmental investments to have significant financial benefits in the years to come. They will support specialization and value growth initiatives at the Sarpsborg Biorefinery to secure that emissions and effluents are reduced even with new expansion opportunities. I will revert to these opportunities on the next slide. The investments will substantially increase the flexibility between energy sources, reducing costs in periods where certain spot energy prices peak, and they will increase barriers to entry and strengthen our competitive position. As the previous three presenters today have emphasized, we are convinced there is a significant potential for further specialization and value growth at Borregaard, and that will happen through four different things.
One. We are continuously specializing our product portfolio and improving our existing product mix. Our innovation portfolio and sustainability trends are offering new opportunities as we have shown earlier today. We continue to explore the full potential of the previously completed expansion investments, which I talked about on a previous slide. We will see additional expansion opportunities at the Sarpsborg Biorefinery. Such opportunities include further specialization of lignin-based biopolymers, increased flexibility in the integrated production to further increase the value of our product portfolio, and volume expansion through debottlenecking for specialty cellulose, lignin-based biopolymers, and bioethanol. A preliminary investment estimate for these expansion investments is NOK 650 million-NOK 900 million for the 2023-2025 period. These investments are mainly medium-sized projects.
Further development of the Sarpsborg site is, as Per pointed out earlier today, in our opinion, low-risk investments, and they raise its barriers to entry. In 2023 to 2025, environmental investments to reduce CO2 emissions and CO2 effluents will lead to total replacement investments above our target, which is to be at the ordinary depreciation level for such investments. Remember that these environmental investments, in addition to improving our climate footprint, will support specialization and value growth investments and reduce costs. Further specialization, increased flexibility, and debottlenecking at the Sarpsborg site are the main planned expansion investments in the same period. In addition, Borregaard's ambition to increase its ownership share in Alginor to 35% is included in expansion investments in 2024 with NOK 126 million.
Of course, both costs and timing of the investment projects are challenging to estimate at this point of time, as the projects mainly are in pre-project phase, and the cost of materials and equipment going forward is uncertain. Furthermore, if a recession occurs and affects results and cash flow negatively, we will have the ability to adjust the investment level in order to meet our financial objectives. Borregaard has a pipeline of early-stage ideas that might materialize as investments. In addition, the second phase of the Florida lignin plant and the second phase of the cellulose fibrils plant are potential expansion investments. Such investments are not included in the forecast and may lead to additional expansion investments, provided Borregaard's results and cash flow forecasts allow for it.
We are convinced that the planned investments will strengthen Borregaard's position in the markets and the company's position as a sustainably sustainable biorefinery. At the same time, we need to take into consideration the challenging situation around us and be ready to adjust plans if demand costs and the general economy get worse. We have a clear objective to maintain our key financial targets for the next three years. The targets are to achieve a return on capital employed above 15% pre-tax over the business cycle, a leverage ratio well within the targeted level, to pay dividend in line with the dividend policy, and require at least 15% internal rate of return pre-tax on expansion investments. That concludes the presentation today.
Before we hand over to the moderators for the final Q&A session, I'd like to introduce our new director for investor relations, Knut-Harald Bakke. He has been with Borregaard since 2019 and worked as Energy Director. Knut-Harald will replace Jørn Syvertsen, who has been responsible for investor relations in Borregaard since we were listed in 2012. He will retire towards the end of the year. Thank you. I'll leave the floor to the moderators and all the presenters today for our final Q&A session.
Thank you. If we start with one question from t he web. That is from Hjalmar Ek. Could you discuss the long-term raw material supply? How your suppliers are currently doing? Say, stuff is shutting down in South Africa during COVID, et cetera. How do you view BALI long term? Thanks.
Yeah. I assume that you now refer to the raw material suppliers of the lignin raw material.
That's what he's asking about, yes.
Yeah.
Yeah, I can give a few comments. Is the microphone working? Yes, now it is. Good. Yes, we have lost some sources the two last years. As explained, these were hard-won sources. Spain went into liquidation, the pulp plant. In South Africa, it was due to a change to a magnesium process where they wanted to burn for energy. Also Park Falls in U.S. was due to a liquidation of the pulp plant where we had a supply agreement. If you look at what we're left with, today we have the plant in Norway where we own the whole biorefinery. As we've seen in the presentation today, it's a very solid and also a highly value-generating plant with the model as it is.
We have the Florida plant where we have a joint venture with RYAM. We strongly believe that the Fernandina operations of RYAM is a highly specialized plant that will definitely continue to have a long-term sustainable business. In Rothschild, we are neighbored with Domtar plant. Now with new owners that has clearly indicated a long-term interest in that plant where they've made investments over the last couple years. It is a highly specialized plant, which is important for the sustainability of that business. The last plant where we have a source is where we are getting our supply from Lenzing in the Czech Republic. Lenzing is a big player.
It's a highly invested plant from their side as well, and we believe this is also a very sustainable long-term plant. All in all, our assessment of those lignin sources we're left with is that they all are sustainable for foreseeable future as much as we can see.
Just to follow up, you mentioned Lenzing. How is the energy situation on that plant?
How is the?
Energy situation, the sourcing of energy, say.
I don't know if anyone else wants to comment on that.
No, I would say, you know, we only take a piece of the lignin there. I assume that most of their energy base is recovery of energy from burning the lignin.
Yeah. We know they have invested in furthermore in that over the last couple years.
We're taking the surplus lignin from that facility.
Yeah. It's a smaller portion of our total business.
All right. You're currently close to peak margin levels, recently driven mostly by BioSolutions and Fine Chemicals offsetting a slight erosion for BioMaterials. Can you comment a bit on the relationship between product margin and degree of specialization? If you consider the current level sustainable or even expandable, I mean, Florida plant would probably be an obvious part where you can expand your margin. Yeah. Any comments there?
Of course, today's situation where costs are increasing significantly, we are quite happy to see it if margins are kept at the same number, because that means that the absolute numbers are increasing. We have increased our margins quite significantly, as you saw. There is the potential to increase margins further from what we've talked about today. Of course, there are also uncertainties in costs, in currency. We are Norwegian. We have a cost base in Norwegian kroner. We are hedged for some years. Longer term, that also might impact our margins. We have lifted the level quite substantially over the last years, and specialization should see to that. That hopefully continues.
Thank you.
Within the larger dissolving pulp market, there's a lot of new capacity coming, as always. From Latin America, you have Brazil, LD Celulose, et cetera. I saw that you had put in Brazil more in your slides now than you had earlier. Brazil is moving up the ladder. Can they compete on ethers in the end from hardwood?
Well, we're already seeing competition from Brazil in the acetate segment as a low-cost blending opportunity. The raw material is eucalyptus, so it's short fiber, and that means that at least also now in the acetate segment, you cannot solely depend on this short fiber. When it comes to ethers, I think the possibility is quite small that we will see them as a competitor, both because they have the wrong process, they have the wrong raw material. Ethers is a completely different ballgame from acetate. As I explained, if you're doing acetate, you're doing one product continuously over a long production cycle. While doing ethers, you are doing much more tailor making. We have, in a way, need to kind of have a complete portfolio to do it efficiently.
I would be sort of that bold, at least at the moment, to say that I'm not worried about that as a competition in the other segment.
Thank you. I think we have a question from the audience now.
Should we assume that the green CapEx or the NOK 750 million that you mentioned here will dilute your return on capital employed target?
Short-term, it will probably do that like it did last time. Remember, the level is lower this time than it was in the period from 2015 to 2019. It will probably have an impact as we go along, depending on earnings and how speedy we do the investments, depending on the surroundings.
Implicitly, are the other expansionary CapEx items carrying a higher return on capital employed than the 15%?
With the lower risk we think there is at the Sarpsborg biorefinery, it should, yes.
Okay, thanks.
Your CapEx guidance is up now compared to previous statements. Can you comment on how much of this is related to cost inflation and whether cost inflation is affecting your investment decisions now?
It's, as I said, it's quite difficult to really assess what the investment cost will be going forward. We have been through a period where it's been difficult for suppliers to estimate the costs, and also to guarantee delivery times. I think that is, it's got to a level now where things are more stabilizing. We see that we get probably more firm bids from suppliers. But of course, we are in uncertain times, so I think we have quite a good feel for what the investment level will be going forward. But again, we will have to adjust if our cash flow estimates go significantly down.
Basically, I think that what I talked about in my presentation, that from Borregaard's perspective, sustainability offers a lot of opportunities in the marketplace that we will benefit from going forward. You saw a lot of examples today. At the same time, it doesn't come for free because we have set targets, and we want to deliver on our environmental reduction targets. It's not wise to squeeze that into the maintenance CapEx. Because in our opinion, in our experience, maintenance CapEx need to be at a certain level to secure high operating rates in the facilities. That's why you temporarily get a slightly higher investment. As Per Bjarne pointed out, there are benefits to those investments as well on energy reduction and on increased specialization. They support those other investments at the same time. I think that's.
You have to look at the whole equation. Other people are in the same situation. They have to switch, and if you don't want to invest, you can buy from Borregaard because that takes down your Scope 3 emissions. That's the easy, cheapest way out, is to buy more from Borregaard and skip the investments on your side.
Hi. One question on cellulose fibrils. Right now it still is not at returning your target returns. The product launched in 2016. What has not gone to plan, and what will change going forward to give it this final push to get there?
Well, I think it's the cellulose fibrils is a complicated product to use, and it's the favorite kind of product that Borregaard has. It's a small product. It's a small share of the cost base for the customer, and it's. It has a significant impact. Since it's a small share of the cost base, it usually comes way down the list on your top priorities as a customer if you want to look at, you know, what should I change in my business. I think that's what slowed down sort of the implementation of taking Exilva into use. If you look at, you know, the figures I showed, there's incredible stability in the development. It's sort of. There's no setbacks in it. It just moves slower than we had expected.
I think that's, as we said during COVID, we have seen that it's a complicated product to use. If the customer fails in his first large-scale test, it's very difficult to convince him to try again. That's why we deliberately slowed down large-scale testing, because we more or less insist that we are present when you do this large-scale testing, because it's one chance to succeed. As you can see, it has picked up significantly now, at the end of the COVID pandemic. I think it's incredibly stable development, but it moves slower. I still think it's an interesting product with multiple applications. The green trends will drive it eventually. It's more a performance product than a green product.
You know, it's a small ingredient at the customers, but it's more of a performance issue than that it will make the customer green overnight.
Thank you. A second question, please. Talking about the difference or balance between acetate products and ether products. The question I have is, can you shift capacity from acetate to ethers because it's a high growth part of the market, and at what CapEx and what is the outlook to do that?
No.
Well, it's quite simple. Yes, we have more or less full flexibility to do either this or that in that plant, and that has been the name of the game. Also the reason for some investments and some debottlenecking we have been doing over the last few years. So far all these measures have been very successful because your question is right to the point. If you go back a few years, I would have said that we have a limitation. Today I don't see that limitation really. There are some nitty-gritty, but it's covered in a way in the financial plans and investments we are to carry out. I don't see that the growth in the ether segment will run away from us in a way that we will miss opportunities.
Because with the projected growth, I think we will be able to follow that all the way up some place around 160,000 tons in the future. What to do then, that's another question, of course.
Hi. Just on the energy and environmental CapEx Per Bjarne Lyngstad mentioned. Could you give some more details on the scope for savings both in monetary terms and also in let's say gigawatt hours annually? And secondly, more long term, are there any carbon capture kind of pilot or research into those numbers as well? Because I mean you've been talking or at least media reports you have this zero target and I guess you need some revolutionary technology really to go down to that level.
As to the energy sources, more short term, I mentioned the switch we have done recently from LNG to light oil, which has quite a substantial cost advantage for the time being. One of the investments we will do and probably prioritize now is to keep that flexibility going forward so that in certain periods, our main goal in the future is to use electricity because that's what we need to do to reduce our CO2 emission. We can in shorter periods use LNG or light oil if prices peak or there is a larger need other places for electricity and LNG. We have the opportunity then to switch to oil.
That won't give us more energy, but it will at least soften the increase on energy. Some of the investment projects we are planning will give us more energy, but we also have a facility that will have to be phased out in the near future. It's quite difficult to give you a precise number. Some, in addition to the one we have just recently finalized, we think that some of these investments will give us more energy conservation. We are not ready to give any numbers on that for the time being.
I will say that directly to your carbon capture issue, that may not be necessary. You know, there is significant heat generated in the processes. Per Bjarne Lyngstad pointed to that we would use novel technology to recover energy in the system in addition to energy conservation. That could be an option, but it's not necessarily an option.
One nitty-gritty question on specialty cellulose. Rayonier has announced 20% price increase from August, and you mentioned that you would have to do additional surcharges to offset energy costs. Could you give the magnitude of those?
We cannot answer on behalf of Rayonier. The way we understand Rayonier is that they have declared a price increase of 20% on uncontracted business, which, in my experience, is between 0%-10% of their business. My understanding is that this is a signal for what's to come next year. I wouldn't expect a lot of price increases on their existing business with that phrasing. What we are talking about is 10%. You know, we are out of sync with when Rayonier is announcing. You know, we announced higher price increases at the beginning of the year. We announced another 10% surcharge from the first of July. What Per Bjarne Lyngstad was communicating was that we are discussing a surcharge on top of that now with our customers.
We will have to revert to that when we report the Q3. It will be on top of the 10%.
Thank you. You've proven yourself highly capable of pushing prices onto customers over the previous quarters. Can you comment on to what degree these price hikes are sticky, meaning that if, for example, energy costs were to come down in a year or so, would the prices come down in a one-to-one relationship there?
Well, we don't like surcharges, that's for sure, because that's contradictory to our concept. Our business concept is value-based pricing, so we don't wanna talk to your customers about your cost situation, but in this special situation, we have done that in the specialty cellulose market, and in few other markets as well. So for the surcharge price adjustments that is related to surcharges, I think in nature is such that if the costs come back down, you have to also adjust the surcharge. But most of our price increases, especially the ones leading into this year, which were substantial, were not related to cost increases or surcharges. So I would say that some part of this will have to be adjusted. This goes back to what Per Bjarne was talking about, you know, the margins.
In this unique situation, you shouldn't look at the margins, you should look more at the absolute profit levels. If prices go up 20%-30%, the margins go down, but you still make the same amount of money. We are in a very strange situation right now, but I think it will normalize eventually. I think that right now we are showing that we can recover these costs from the market, and we are confident we can do that. I mean, we are one of the, you know, atypical in Norwegian environment in the sense that we can sustain cost increases over time, and we can recover them from the market.
Maybe not from one month to the next, but for certain, we feel confident we can do that.
A similar question. How do you think Borregaard will cope in a high inflation environment? 'Cause the period from 2012 until 2021 was the opposite. Lower oil prices, a weaker NOK.
Mm.
Beneficial setting for you. Now it's the complete opposite, but the NOK is still weak. Will you be fast enough to hike prices to offset the inflation? Is there a, say, when you hit the demand elasticity, when you can't hike prices more anytime soon?
Well, I think that the sentiment is changing in the sense that right now we are talking quarterly pricing, where we normally talk annual pricing, and so forth. I mean, there's clearly there there. There are both on the procurement side and on the market side, sales side, there are changes in the sentiment. We used to buy wood on annual contracts. We now buy them on semiannual contracts. I think that that's what will happen. Although, you know, in nature we don't like it, but I mean, we have certainly demonstrated this year that we can make those kind of changes if and when necessary.
Can you comment on your capacity utilization for Exilva now, and perhaps also on the investment decisions of your customers? You previously said that, let's say the acceptance of a product takes from between one to five years, with the average of three. Has that widened now to any extent?
Well, I think it's. To comment on the last question first, I think it differs between different segments. If you have proof of concept and you know exactly how to give the customer guidance on what he should do, then obviously you shorten the conversion period. That will differ depending on the application. The corrugated board application that we have mentioned before, the conversion time is much shorter than that period. Because there we have multiple customers, we can inform the customers exactly what to do and demonstrate it. There it will move much quicker. There it could be a matter of months.
In terms of the volume, you know, we have 1,000, up to 1,000 ton capacity. We can double the capacity, because we have the infrastructure in place for that. We have a reserve space in the factory for more equipment. We wouldn't make that decision before we have reached 500+ ton sales, and we are not there now. That's what we are saying, it's pending. The decision is pending. It's moving in that direction, and then we can trigger a capacity expansion.
Can you do some debottleneck investments on the Sarpsborg site to increase the capacity there? Or is that set, so you have to build a new one?
No, that's what we are implying today, by several slides here. You know that we previously have said that the Sarpsborg factory consists of 20 independent factories that are all connected, and they are quite balanced. That's why we have said in the past that, you know, it's better to make targeted investments inside one facility in order to make more value-added products, but the same volume. That's the easiest way, because if you want to expand in one place, you have to expand in many places. This has also got to do with environmental investments. We have done a lot of investments to improve certain things, but as a side effect, we now also have openings to increase the total volume in the facility.
Now it's not as costly as it used to be to expand the absolute volume in the system. That's why we are saying that, you know, that may be the case. Also you have to remember now that the marginal value of a product produced at the Sarpsborg facility is now much higher than it was five years ago. Because, you know, the pricing is up, the marginal lignin volume, lignin-based polymer going out to that facility has a lot more value today than it had in the past. This changes the whole equation and calculation.
I think we've maxed our time. It's time to stop. Thank you.
Okay. Thank you.