Borregaard's Record Quarter Comes With an Expiry Date

Borregaard's Record Quarter Comes With an Expiry Date

Borregaard printed the best quarter in its history on 28 October: EBITDA of NOK 557 million, a record 29.4% margin, and improved results in all three business areas. The CEO's framing was unambiguous — “The key message is strong execution.” — Tom Foss-Jacobsen, CEO · 2026-10-28 Revenues rose 5%, earnings per share jumped to NOK 2.96 from NOK 1.96, and cash flow from operations hit NOK 449 million. On the surface this is a specialty-chemicals compounder firing on every cylinder.

But the most important sentence in the whole call came deep in the Q&A, from a private investor asking what happens if today's krone strength persists. The CFO's answer was the tell:

We are talking quite large number with NOK 300 million, NOK 400 million in the years to come as a reduction of EBITDA. And that's the main reason why we also started the cost improvement program that we see that coming, and our ambition is to keep our margins when those currency gains go away.

That reframes the entire quarter. Borregaard does not hedge its earnings for show — hedging gains were NOK 57 million in Q3 versus a NOK 21 million loss a year earlier, a swing worth more than a fifth of the quarter's EBITDA increase. Because the krone was roughly 7% stronger year-on-year on the company's basket, the net currency effect that actually landed in EBITDA was only about NOK 15 million positive. The rest of the hedge benefit is parked, and the CFO is telling you it unparks backwards for the next three years. The cost improvement program — NOK 150 million of full-year effect targeted from 2028, and the single most-prominent theme in the company's own language this quarter — is not a growth initiative. It is insurance against a known, dated headwind.

The energy arbitrage nobody else has

Strip out currency and the quarter stands up better, on two genuinely proprietary levers. The first is the flexible energy system at Sarpsborg. Asked to explain a large cost beat versus consensus, the CFO described something closer to a trading desk than a mill:

With more than 80% of heat demand covered by long-term energy contracts, rising spot prices for electricity and LNG became a source of advantage rather than a tax. In a quarter where global energy-cost pain is visible across industrials — inflationary pressures and high fuel costs run through airlines, truckers and building-materials names in the wider reporting set — Borregaard's energy system optimization is a company-unique differentiator, not a sectoral tailwind. It also explains why the EBITDA margin increased so violently: roughly five percentage points group-wide, with BioMaterials up more than ten on a record of around 29.4% and Fine Chemicals at 37%, up six.

The second lever is price. Selective price increases at the start of the quarter lifted the average BioSolutions price in sales currency 5% year-on-year. That is a big number for a business whose customers buy on multi-year contracts, and the CEO tied it explicitly to the competitive set: synthetics have been moving up, which gives a bio-based substitute pricing room. The CFO immediately dampened the enthusiasm, noting mix was part of the 5%. Fair — but note the contrast with July, when the same CEO predicted “we can expect a moderate impact from these adjustments into third quarter and into second half.” — Tom Erik Foss-Jacobsen, CEO · 2026-07-16 Q3 delivered something well north of moderate. That is a rare thing on these calls: guidance quietly beaten on the company's own initiative rather than on volume luck.

What management stopped talking about

Two things vanished from Borregaard's narrative this quarter, and both are informative. First, Alginor. Prior-quarter language was full of it — ownership interest, a capital injection, an impairment — and it is simply gone. The portfolio experiment that required explaining has been absorbed or written down; either way it is no longer an active part of the equity story.

Second, and more subtly, the raw-material story has flipped polarity. In July the CFO hedged that higher sulfur and caustic might or might not be offset by lower wood costs, calling “the major uncertainty is really on energy prices, LNG” — Per Bjarne Lyngstad, CFO · 2026-07-16. This quarter the uncertainty resolved into a hard number: sulfur cost will roughly double, worth about NOK 55 million on the company's own CMD sensitivity. Energy is no longer the risk — the flexible system neutralized it — but sulfur is, and it is a cost Borregaard buys rather than one it can arbitrage. Wood costs, helpfully, should hold broadly flat.

The debottlenecking project remains the quiet third lever. It starts up in Q2 2027, capex is heavily back-loaded into Q4 and Q1, and — as management stressed in July — “the effect of the debottlenecking project is yet to come.” — Per Bjarne Lyngstad, CFO · 2026-07-16 So the record production that drove this quarter was operational excellence, not new capacity. The capacity arrives next year, exactly when the hedge tailwind starts to fade. That sequencing is deliberate.

What the fourth quarter actually says

Guidance is honestly grim, and management did not dress it up. BioSolutions volume of 75,000–80,000 tonnes with a flat mix; BioMaterials at 35,000–37,000 tonnes; and in Fine Chemicals, bioethanol notably lower with significantly weaker intermediate product mix. Layer on the maintenance stop at Sarpsborg, seasonally higher energy consumption and rising spot power and LNG, and the fourth quarter will not repeat this one. Note also that the CFO flagged the net currency effect for Q4 as only about NOK 5 million positive versus the prior year — the swing factor is nearly gone already.

So where does that leave the equity? Asked point-blank whether Q3 proved a structurally higher BioMaterials margin, the CEO refused the bait: “I would say it was an exceptionally strong quarter” — Tom Foss-Jacobsen, CEO · 2026-10-28, before reaffirming the 25% group EBITDA target as ambitious but achievable. That is the correct and slightly uncomfortable answer — a 29.4% margin against a 25% target, delivered in a quarter helped by hedging, energy arbitrage and opportunistic pricing, with a NOK 300–400 million EBITDA drag queued up and a NOK 55 million sulfur bill already in the post.

The operational execution here is real and better than the company's own recent history suggests. But the more interesting signal is that Borregaard's management is unusually willing to price its own good news. Most CEOs spend a record quarter selling it. This one spent the Q&A explaining why it expires — and started cutting costs three years early to prove they saw it coming. The balance sheet is fine for the wait: equity ratio 61%, net debt to EBITDA down to 0.97 after a NOK 286 million reduction in the quarter.