Good morning and welcome to this first quarter 2023 presentation for Borregaard. My name is Per Sørlie. I'm the President and CEO of the company. I'll be joined this morning by Per Bjarne Lyngstad, our CFO. We will take you through this following agenda. I'll talk about the highlights in the quarter, the business segments and the market situation there, a couple of expansion investments that have been decided, and the outlook for the next quarter and the remainder of the year. Then Per Bjarne will take over and talk about the financial performance. Before we start, I would like to remind you that you can submit questions online during the entire presentation and webcast this morning. We will come back to your questions at the end of the webcast. First, the highlights for the first quarter.
EBITDA came in at NOK 435 million, compared to NOK 400 million in the same quarter last year. We saw positive development both in agriculture and batteries inside BioSolutions for the biopolymers. We also had increased sales prices across BioMaterials, and we saw both increased sales prices and a high production output in the Fine Chemicals business area. As we pointed out after the fourth quarter last year, also in the first quarter this year, we saw effects of the reduced margin and volume for traded vanillin products. Cost inflation continued to affect all business areas, and we also saw positive net currency effects from the weakening of the Norwegian krone. Turning to BioSolutions markets, the average price in sales currency came up 13% compared to the same quarter last year. We had.
We can also note that, ten percentage points out of the 13% came from the fourth quarter into the first quarter this year. Higher sales prices and continued optimization of the portfolio contributed from biopolymer applications. As noted in the highlights, there were positive development, particularly in agriculture and batteries. The sales volume, on the other hand, came down 9% compared to the same quarter last year. This was mainly due to reduced demand, lower demand within the construction application for biopolymers. As we explained in detail after the fourth quarter last year, and as we will see now in the first half this year, there will be lower contribution from the traded volumes of vanillin products.
This is the synthetic vanillin and ethylvanillin that we trade in addition to our regular wood-based vanillin. Deliveries of wood-based vanillin, on the other hand, they were in line with the same quarter that last year. Also in this area, we saw positive effects from the currency. On to BioMaterials. The average price in sales currency is 18% higher than in the same quarter last year. As we guided for in the outlook after the fourth quarter last year, the price in sales currency is in line with the fourth quarter last year. The sales volume is also in line with the same quarter a year ago. In total, we experienced strong demand in the quarter for our specialty cellulose.
As we have pointed out in the, in the outlook, three months ago, there is a slowdown in sales to the construction market for cellulose ethers, but this is fully compensated by sales of other highly specialized grades into other markets. We had a slight improvement in both volume and sales prices for the cellulose fibrils area, and of course, also here, a positive effect from the currency. On to Fine Chemicals, had a very strong quarter, with both increased sales prices and a high production output in the business area. The favorable market conditions for advanced bioethanol continued, this is strong demand across several European countries.
We also saw in the quarter a strong product mix for fine chemical intermediates, and also in this business area, positive impact from the currency. I'm pleased to say that we continue to execute on our strategic agenda, even in times when there is different demand development in the markets. It's important to invest for the future. I have two investments I want to point out to you today. First, we have decided to invest NOK 100 million inside BioSolutions, and this is a commercial scale demonstration plant at the Sarpsborg refinery with a capacity of 1,000 tons. We expect to complete this fully by mid-2025, but there will be a gradual startup from the middle of 2024.
This is a new green technology platform where we can produce new grades of for the high-end applications. In other words, the next generation lignin-based biopolymers. In addition, this demonstration plant will be able to make granulated products, and we think that granules will be welcomed by our high-end customers as a new delivery form of our specialty products in biopolymers. The targeted applications area here are home care applications like detergents, laundry, and cosmetics, also industrial cleaners and water treatment, and in addition, already established specialties like we have within the agriculture segment. Also, just after the completion of the first quarter in mid-April, we announced that we have executed on our last tranche in Alginor. We invested another NOK 124 million in April.
This brings our total investment to NOK 268 million. The reason why we executed this tranche now is that we want to support the company when it will invest in their demonstration scale plant, which is also a commercial size unit, and this will shorten the time to market for the key product alginate from Alginor. Borregaard now will have a 35% ownership on a fully diluted basis. There are some warrants outstanding in the company, and if they are executed, Borregaard will be at 35% ownership. Then I will complete my presentation with the outlook for the rest of the year. In BioSolutions, the portfolio optimization that we also saw now effects of in the first quarter will continue.
Within Biopolymers, the total sales volume is slightly lower than we guided for earlier. We think that we will be largely in line with 2022. The main uncertainties are still the global economic development and in particular, the demand from the construction segment. The sales volume in the second quarter is expected to be in the range of 80,000-85,000 tons. Margins for traded vanillin and ethylvanillin is expected to normalize in the second half. This means that also in the second quarter in 2023, we will have to expect some negative effects from the traded vanillin products. BioMaterials, the total sales volume for 2023 is still forecast to be higher than the production output, and also the sales volume of the highly specialized grades will increase compared to 2022.
In the second quarter, in 2023, we expect the average price in sales currency to be in line with what we experienced in the first quarter this year, which again also was the same price level as we saw towards the end of 2022. The construction market for cellulose ethers remains the main uncertainty here, but as we have pointed out before, we expect that to be compensated by sales into other applications. The sales growth is also expected to continue for cellulose fibrils. The Fine Chemicals area, the sales volume and the product mix for fine chemical intermediates is expected to improve versus 2022. The favorable market conditions that we see in advanced biofuels across Europe is continuing, and the sales prices will be higher than what we experienced and realized in 2022.
Raw material and the costs, we have guided after the fourth quarter last year that in the first half this year, the price of wood will be 10%-15% higher. So that also accounts of course for the second quarter this year. It still remains to be seen how the wood cost will develop in the second half of 2023. However, in the second quarter this year, we expect energy and other raw material costs to be lower than what we realized in the first quarter this year. The main uncertainties with cost inflation, the Russian Invasion in Ukraine and the impact from that and financial market disturbances, particularly related to international banks, that of course could still impact our, the global economy and hence our markets as well.
We will just have to follow that situation as we move forward. That completes my presentation. I will then hand over to Per Bjarne Lyngstad for the financial presentation.
Thank you, Per. Good morning, everyone. Borregaard's operating revenues increased by 15% compared with the first quarter of 2022, mainly as a result of higher prices and positive currency effects. EBITDA reached NOK 435 million, NOK 35 million above the first quarter last year. Fine Chemicals and BioMaterials had result improvements, while BioSolutions had a decrease. Increased sales prices and positive net currency effects more than offset the cost inflation and reduced margin and volume for traded vanillin products. Net currency effects were positive by approximately NOK 75 million. Cost inflation related to wood and other raw materials, maintenance, and labor affected all business areas. The EBITDA margin was 23.5% in the first quarter, slightly below the corresponding quarter last year.
Earnings per share increased to NOK 2.32, compared with NOK 2.18 last year. In BioSolutions, operating revenues increased by 5% compared with the first quarter last year. Price increases and currency effects were partly offset by lower sales volume. EBITDA was NOK 224 million, compared with NOK 261 million in the first quarter last year. Reduced margin and volume for traded vanillin products were the main reason for the EBITDA decrease in the quarter. For lignin-based biopolymers, higher sales prices and positive net currency effects more than compensated for increased costs and lower sales volume.
The EBITDA margin was 22.5%, five percentage points decrease from the same quarter last year. The operating revenues in BioMaterials increased by close to 30% compared with the first quarter last year, mainly as a result of higher prices and currency effects. EBITDA reached NOK 127 million compared with NOK 97 million in the first quarter last year. Increased sales prices and positive net currency effects also in this area were the main reason for the EBITDA improvement. Increased prices and the positive currency effects were partly offset by higher wood costs and an increase in other operating expenses. The EBITDA margin was 18.2%, a slight improvement from last year. Increased sales prices and positive currency effects resulted in a 26% increase in operating revenues for Fine Chemicals.
EBITDA increased to NOK 84 million, NOK 42 million above the first quarter in 2022. The significant result improvement was due to increased sales prices and a high production output. In addition, a strong product mix for fine chemical intermediates and a positive net currency impact contributed to the strong result. These positive effects were partly offset by lower deliveries and higher costs. The EBITDA margin was close to 50% in the quarter, significantly above last year. The net currency impact on EBITDA was, as I said, positive by approximately NOK 75 million in the first quarter. The positive impact came from a weaker Norwegian kroner, which weakened by about 12% compared with the first quarter last year using Borregaard's currency basket. The impact from a weaker NOK was partly offset by increased hedging losses.
Hedging losses were NOK 48 million compared with a gain of NOK 10 million in the first quarter last year. Using currency rates as of yesterday, the net currency impact for the full year of 2023 is estimated to be positive by approximately NOK 210 million compared with 2022. The corresponding impact for the second quarter is estimated to be approximately NOK 70 million compared with the second quarter of 2022. Borregaard had a cash flow from operating activities of NOK 111 million in the first quarter. The cash flow in the first quarter was affected by an increase in net working capital. High deliveries towards the end of the quarter resulted in a significant increase in accounts receivable.
The cash effect from an improved EBITDA was partly offset by higher tax payments compared with the first quarter in 2022. Investments were NOK 107 million, slightly higher than in the corresponding quarter last year, and NOK 20 million was spent on expansion projects. Net interest-bearing debt increased by NOK 92 million in the quarter. At the end of the first quarter, Borregaard was well capitalized with an equity ratio of 51% and a leverage ratio, which is net interest-bearing debt over EBITDA, of 1.15. In the first quarter, Borregaard was assigned a first-time issuer rating of A-/Stable by Scope Ratings. The rating reflects Borregaard's efficient and unique production capabilities, strong position in key speciality chemical markets, strong profitability, and low financial leverage. That concludes today's presentation.
Per Sørlie and I will now be ready to answer any questions, both from the audience, present here in Oslo and from those who follow the webcast. Our Director Investor Relations, Knut- Harald Bakke, will moderate the webcast questions.
Yes. We are happy to see that there are several questions asked through the webcast, so we will start with those. First question relates to the expansion investment in BioSolutions. Was the new NOK 100 million biopolymer CapEx project new or part of the CapEx plan as given in the Capital Markets Day, or is it a new investment on top of that?
Well, it's included in the guidance given at the Capital Markets Day. We have announced three investments that are all included in the range that we gave at the Capital Markets Day. We have announced an expansion of the specialties in biopolymers that go particularly to the battery segment, but also to other segments. That was a NOK 70 million announcement after the third quarter last year. Now these two investments that I went through this morning in Alginor and also in this demonstration facility, they are all included in the guided number.
Second question is regarding Fine Chemicals. Fine Chemicals was strong again. Your outlook seems to imply it will continue to have very strong 2023. Can you please explain what has changed year-on-year in product mix, costs, prices? What product families are doing particularly well?
Well, most of the business area did well in the first quarter, but I think you're inside this business area, you have both the bioethanol and the fine chemical intermediates to X-ray contrast media. The bioethanol business, Borregaard has optimized and developed over time, so we have increased the output level in that business, and part of that is also seen now. As we have pointed out now for several quarters, the market for advanced biofuel grade bioethanol in Europe is very strong, and we expect that to continue throughout this year. In fine chemical intermediates, you have variations in supply patterns between quarters, and as we pointed out in this quarter, we had particularly good product mix.
Even though this business is improving over time as well, it was pointed out that it was a, let's say, an above-average delivery pattern in the first quarter this year.
Third question relates to cost development. How much do energy and raw material costs drop in Q2 quarter and on quarter in NOK million?
Actually, the variable cost or the raw material cost and energy did not drop in the, in the first quarter compared with the first quarter last year. Energy costs were down slightly in the quarter. Wood cost keeps the cost up. The question was about the second quarter, was it? Yes.
Yeah.
In the second quarter, we expect, of course, energy costs with the present prices to do a further drop. We also see some, especially chemicals like sodium hydroxide or caustic soda, the prices there are coming down. Wood prices will stay at the same level for the second quarter. We are uncertain about what will happen for the second half of the year. It's too early with the uncertainty on energy costs to really quantify the drop. We will see a drop especially on the chemicals and on energy.
Fourth question is on the same topic, and it's twofold. Which segment will be the first one to benefit from lower energy and raw materials costs? Which segment will be the most sensitive to any improvements in costs?
Already in the first quarter, we saw a slight improvement from cost reductions in BioSolutions and especially in biopolymers because the LNG prices dropped, and we use LNG for our new spray dryers. That's one important thing. Going forward, I think that the cost reductions, if we will see any, or what we will see will be spread among the areas, depending on which elements drops the most. You also have to remember that there is an underlying cost inflation here, and we see that on labor cost. We will see an increase in labor cost in Norway, especially from the third quarter. There are an underlying cost inflation on other elements than really these key chemicals and energy.
Fifth question regarding profitability. Can you give an approximate IRR range or estimated payback time for the NOK 100 million investment that you have announced?
Well, our internal rate of return requirement on expansion investment is above 15%. However, as you know, this is a demonstration scale unit, but we emphasize that this is a commercial scale demonstration plant, which means that it has economics of itself. It's not just an R&D business development facility. Since it's a 1,000-ton facility, I would say that, and we say that it's profitable in itself, it's very close to the 15% range. You know, it could be anywhere above 15% if you do an expansion investment. Since we are primarily here investing in business development, but with independent economics, it's in the range of the minimum requirement range.
Another question on Fine Chemicals. What is causing the high production output in Fine Chemicals in Q1?
It was, as I pointed out, it was primarily driven by the bioethanol business where we have optimized the production rate over a long period of time. That was primarily the behind the production output.
Next question on net working capital changes. When energy and raw material prices come down, do you expect positive cash flow from net working capital changes?
I would say so, both from the cost reductions and also from this extraordinary high accounts receivable that we saw at towards the end of the quarter. I think that will normalize. With the outlook that we see for this year, I don't expect the net working capital to continue grow as it did last year. Of course, the currency rates have an impact, because the weak Norwegian kroner means that working capital denominated in foreign currencies will lead to an increase. Overall, we think the net working capital will more normalize this year.
Question on BioSolutions. Could you elaborate a bit on how much other applications within BioSolutions are making up for the current demand shortfall within construction? Just to get an idea of how much construction is declining and how much other applications is increasing?
The shortfall in sales volume that we saw in the first quarter is primarily down to the construction market. Like we are emphasizing or we are putting focus on optimizing the business. We are. Remember, in this business area, we have 600 products altogether, so we have a lot of options and places to go. In this particular quarter, we did add some to our inventories, but you also have to the trade-off here is whether you want to go after certain segments with low profitability or whether you want to put certain products in inventory for future deliveries.
We feel that the market is still under well control, and we have to monitor whether the construction market recovers in the next few quarters before we make any serious changes.
That concludes the online questions, and we open up for questions from the physical audience here in Oslo.
Hi. Yes, hello, Alexander Lager from Arctic Asset Management. The development in EBIT year-over-year, how do you expect that going forward for the coming quarters? Secondly, on FX impact on EBIT year-over-year, what was that in Q1? Thank you.
Well, we actually don't give forecast on EBIT numbers. Of course the outlook for this year is quite positive. We've started the year quite well with an improvement compared with last year. We see that cost is coming down. Prices are staying quite stable for the time being. We haven't seen an uncertainty there for the second year. What we at least will try to do is to keep our margins if cost comes down and prices are under pressure. That's too early to tell. On the currency effects, as I said during my presentation, what we expect for the full year with yesterday's currency rates. They were close to historically high. The impact year-on-year of currency rates is about NOK 200 million.
Of course for the time being, the weak Norwegian currency is a large benefit for us.
This one.
All right. Just a quick follow-up. Those 200, that's on EBIT, and then you have to subtract the hedging effects, or is it?
No, that's includes the negative hedging effects.
Okay.
net.
It's a net amount.
Yes. Thank you.
On behalf of Borregaard, we thank you for all the questions that you have brought to the table. That concludes the Q&A session.
Thank you.
Thank you.
Thank you for your attention.