INNOVATION IN THE WORLD’S MOST ADVANCED BIOREFINARY KRISTIN MISUND Ph.D. R&D DIRECTOR BORREGAARD

Agenda DEFINITION OF A BIOREFINERY BORREGAARD’S BIOREFINERY CONSEPT FUNDAMENTAL SUSTAINABILITY CHALLENGES BORREGAARD’S BUSINESS UNITS THE INNOVATION SYSTEM THE R&D ORGANISATION EXAMPLES OF RECENT/ONGOING INNOVATION OUTCOME OF BORREGAARD’S INNOVATION EFFORT R&D POLICY 11.12.2015

IEA’s definition biorefinary “Biorefinery is the sustainable processing of biomass into a spectrum of marketable products” Biorefinery: concepts; facilities; plants; processes; cluster(s) of industries. Sustainable: maximising economics, and minimizing environmental aspects; fossil fuel and feedstock replacement. Processing: upstream processing; transformation; fractionation; thermo- chemical and/or biochemical conversion; extraction; separation; downstream processing. Biomass: crops; organic/forest residues; aquatic biomass. Spectrum: more than one marketable product. Marketable products: both intermediates and final products (i.e. fuels; power; heat; food; feed; chemicals; materials). 11.12.2015

Agenda DEFINITION OF A BIOREFINERY BORREGAARD’S BIOREFINERY CONSEPT FUNDAMENTAL SUSTAINABILITY CHALLENGES BORREGAARD’S BUSINESS UNITS THE INNOVATION SYSTEM THE R&D ORGANISATION EXAMPLES OF RECENT/ONGOING INNOVATION OUTCOME OF BORREGAARD’S INNOVATION EFFORT R&D POLITICS 11.12.2015

Borregaard’s biochemicals are sustainable and environmentally friendly substitutes to petrochemicals 11.12.2015

Oil or biomass – from black to green carbon Sustainable chemicals, materials, ingredients, fuel 11.12.2015

Business areas PERFORMANCE CHEMICALS 46% SPECIALITY CELLULOSE 38% OTHER BUSINESSES 16% Technology leader and largest supplier of lignin-based products with global market access Leading global specialty cellulose supplier. Significant producer of 2nd generation bioethanol Only producer of wood-based vanillin. Largest producer of C3 aminodiols for X-ray contrast media 11.12.2015

International business – global costumers Production facilities and sales offices in 16 countries provide a global platform Intimacy with a global customer base through a fully controlled sales and marketing network Earnings stability due to diversification Strategically located manufacturing to supply customers efficiently Well balanced between mature and emerging markets Production and supply efficiencies Head office, R&D and Sarpsborg Biorefinery Sales office Technical services Plant 11.12.2015

Dual strategic focus drives performance Niche markets targeted Strategy Robust financial performance Selected specialised market segments with diversified applications World leader in innovation and productivity 11.12.2015 9

Agenda DEFINITION OF A BIOREFINERY BORREGAARD’S BIOREFINERY CONSEPT FUNDAMENTAL SUSTAINABILITY CHALLENGES BORREGAARD’S BUSINESS UNITS THE INNOVATION SYSTEM THE R&D ORGANISATION EXAMPLES OF RECENT/ONGOING INNOVATION OUTCOME OF BORREGAARD’S INNOVATION EFFORT R&D POLITICS 11.12.2015

Green value chain Sustainable raw materials processes and products Natural Renewable Non toxic Reduced emissions Energy conservation/ renewable energy High raw material utilisation Risk management High performance Substitutes oil based products 11.12.2015

The fundamental sustainability challenges Energy balance – net CO2 effect Mass balance – zero waste Value added vs production costs – long term profitability 11.12.2015

100 % replacement of fossil fuel Reduced energy cost and improved green profile Reduced emissions to air and water New technology New operations Cleaning measures Heavy fuel oil phased out Replaced by biofuel, LNG and waste Independent of heavy oil for all purposes by 2013 11.12.2015

Wood to food Vanilla – global market ca. 15.000 t/a Lignin Drying Extraction Guaiacol Guethol Vanilla- bean Extract Vanillin Vanillin Ethyl- vanillin Next up - vanillin: Vanillin is a well-known and widely used flavor and fragrance. The global marked is growing fast. The main applications areas are confectionary, fragrance and pharma. The world market is approximately 15 thousand tons and only a very limited amount is extracted from the vanilla bean 60 mt which equals 0.4 %. Borregaard is the world’s third largest producer of vanillin with an estimated 20-25% market share. Borregaard is the only producer of vanillin from wood. A part of the lignin steam is oxidized and a complex and tedious purification process affords a very pure biovanillin. Our vanillin is sold at a higher price than oil based vanillin – due to its natural origin and its unique odor and taste profile. It is unique in terms of creaminess and it offers the roundest taste in vanillin. 60 mt/y 0.4 % of the market 10 % CO2 impact versus oil based product 11.12.2015

The fundamental sustainability challenges Energy balance – net CO2 effect Mass balance – zero waste Value added products vs production costs – long term profitability 11.12.2015

85% of the wood utilised to products 11.12.2015

The fundamental sustainability challenges Energy balance – net CO2 effect Mass balance – zero waste Value added products profitability 11.12.2015

Agenda DEFINITION OF A BIOREFINERY BORREGAARD’S BIOREFINERY CONSEPT FUNDAMENTAL SUSTAINABILITY CHALLENGES BORREGAARD’S BUSINESS UNITS THE INNOVATION SYSTEM THE R&D ORGANISATION EXAMPLES OF RECENT/ONGOING INNOVATION OUTCOME OF BORREGAARD’S INNOVATION EFFORT R&D POLITICS 11.12.2015

Specialty Cellulose Market position Strong positions in Europe and Asia Competitive advantages Niche products in the “high end”-market Long-term customer relationships Hard to copy, tailored products 11.12.2015

Performance Chemicals Market position Largest supplier with a global footprint Unique technical and application expertise Key attractions A sustainable and versatile product portfolio High barriers to entry Large, diverse and stable customer base 11.12.2015

Borregaard Ingredients Market position Supplier of vanillin products The only supplier of wood based vanillin 11.12.2015

Agenda DEFINITION OF A BIOREFINERY BORREGAARD’S BIOREFINERY CONSEPT FUNDAMENTAL SUSTAINABILITY CHALLENGES BORREGAARD’S BUSINESS UNITS THE INNOVATION SYSTEM THE R&D ORGANISATION EXAMPLES OF RECENT/ONGOING INNOVATION OUTCOME OF BORREGAARD’S INNOVATION EFFORT R&D POLITICS 11.12.2015

Borregaard then and now Edward Partington Karl August Kellner Competitive edge in 1889 cheap timber cheap energy cheap labor Austrian technology British capital High cost raw materials energy labor Competitive edge in 2015 technology market innovation pipeline 11.12.2015

Borregaard’s Biorefinery history 11.12.2015

World class productivity - Control Centre Increased competence + Use of technology and increased automation + Organisational development = Lower costs, improved production, increased EHS scores, 30% staff reduction 11.12.2015

What is innovation? Innovation is the process of generating and implementing new ideas and solutions increasing the value added to our customers 11.12.2015

Business driven innovation model Ideas from sales, technical application, R&D, production, external partners Idea database IMT Chaired by head of business unit Cross functional team of line managers Gatekeepers at important milestones Innovation Management Teams (IMT) Co-work with: Universities Research institutes Consultants when required Customers when possible Inter disciplinary development work Scale-up and commercialisation 11.12.2015

Scope and priorities Development of new Processes Products Plan, accomplish and document projects defined and prioritised by the Innovation Management Teams (IMT) R&D Production Sales & marketing Development of new Processes Products Applications Optimisation of existing Annual R&D and innovation spending approx. 4% of turnover Short-term vs long-term projects - ratio 1/3 ~15% of Borregaard’s revenues come from new products 11.12.2015

Agenda DEFINITION OF A BIOREFINERY BORREGAARD’S BIOREFINERY CONSEPT FUNDAMENTAL SUSTAINABILITY CHALLENGES BORREGAARD’S BUSINESS UNITS THE INNOVATION SYSTEM THE R&D ORGANISATION EXAMPLES OF RECENT/ONGOING INNOVATION OUTCOME OF BORREGAARD’S INNOVATION EFFORT R&D POLITICS 11.12.2015

R&D center – key figures & core competence Number of employees 84 Number of MSc 11 Number of PhD 28 Pilot/demo plant personnel 28 Average experience (years) 11 Female employees (%) 43 Average age 43 Non- Norwegians 17 Nationalities 6 Organic chemistry 12 Wood chemistry 7 Biopolymer chemistry 6 Physical chemistry 6 Analytical chemistry 2 Microbiology 3 Process technology 3 11.12.2015

R&D center Flexible, experienced and competent Unique and strong competence platform Attractive working environment Specialists and generalists Benefitting from each others’ core competences 11.12.2015

Market oriented R&D organisation Ingredients & Fine Chemicals Market oriented Dedicated groups serving the business units and strategic innovation projects Combined lab & pilot groups Merging production and research culture and knowledge Exilva BALI Specialty Cellulose Performance Chemicals 11.12.2015

Key to success as a researcher in Borregaard Specification Solid platform as a chemist Drive to succeed Relational skills Flexibility – generalist and specialist Fast learner Operative work Motivated by seeing “your field of expertise at work” 11.12.2015

T-shaped skills – T-shaped people Business awareness Team skills Time management Communication skills 11.12.2015

Agenda DEFINITION OF A BIOREFINERY BORREGAARD’S BIOREFINERY CONSEPT FUNDAMENTAL SUSTAINABILITY CHALLENGES BORREGAARD’S BUSINESS UNITS THE INNOVATION SYSTEM THE R&D ORGANISATION EXAMPLES OF RECENT/ONGOING INNOVATION OUTCOME OF BORREGAARD’S INNOVATION EFFORT R&D POLITICS 11.12.2015

11.12.2015

Unique combination: a fibre and a polymer Exilva in binders for ceramic fibre applications Improves rheology Improves dispersion and anti-settling of particles High water holding capacity Efficient emulsion stabilization Increases formulation efficiency Without Exilva With Exilva 11.12.2015

Radical innovation vs. Incremental Innovation Market innovation Product innovation Technology and process innovation High Degree of risk Medium Low Low Medium High Degree of reward 11.12.2015

The first step towards commercialisation Exilva has the potential to become a new business area First plant to verify market and technology Location: Sarpsborg, Norway Capacity: 1000 mt Investment estimate: 225 mNOK Decision on investment taken in October 2014 Construction time: approx. 18 months 11.12.2015

Agenda DEFINITION OF A BIOREFINERY BORREGAARD’S BIOREFINERY CONSEPT FUNDAMENTAL SUSTAINABILITY CHALLENGES BORREGAARD’S BUSINESS UNITS THE INNOVATION SYSTEM THE R&D ORGANISATION EXAMPLES OF RECENT/ONGOING INNOVATION OUTCOME OF BORREGAARD’S INNOVATION EFFORT R&D POLITICS 11.12.2015

Value creation – specialisation and innovation ~15 % of Borregaard’s revenues come from new products EXILVA: Microfibrillar cellulose and Cellulosic Texture Enhancer Utilisation of other biomasses for lignin products developing new process for 2G bioethanol Continuous specialisation and improved products «BALI» 11.12.2015

Agenda DEFINITION OF A BIOREFINERY BORREGAARD’S BIOREFINERY CONSEPT FUNDAMENTAL SUSTAINABILITY CHALLENGES BORREGAARD’S BUSINESS UNITS THE INNOVATION SYSTEM THE R&D ORGANISATION EXAMPLES OF RECENT/ONGOING INNOVATION OUTCOME OF BORREGAARD’S INNOVATION EFFORT R&D POLITICS 11.12.2015

Støtte til investering og drift i pilot og demofase Innovasjon er en lang verdikjede Alle ledd må styrkes/støttes – også fra myndighetene Ide FoU Lab Pilotanlegg FoU/Drift Demoanlegg Drift Fullskala Skole Utdanning FoU-støtte Univ./institutter Støtte/finansiering Risikoavlastning Stimuler marked Kompetanse Bedrift Marked Støtte til investering og drift i pilot og demofase Omsetningspåbud Innkjøpsordninger Kvalitets/miljøkrav Brukerstyrt Store bedrifter Realfagssatsing Utdanning ift behov Inspiria vitensenter Kunnskapsfabrikk Forsknings-støtte - SFI, BIA, stip.progr Miljøteknologiordningen - Investeringsstøtte til demo-anlegg Enovas klimafond 2G Biodrivstoff - marked - Produksjonsstøtte 11.12.2015

Borregaard har hatt nytte av myndighetenes støtteordninger for innovasjon Borregaard bruker 200 mill. kr på innovasjon pr år De siste årene har vi mottatt 20-30 mill kr i offentlig støtte til våre prosjekter 85-90 % av investeringene står altså bedriften selv for Viktigste støtteordninger IN – Miljøteknologiordningen NFR - BIA – spesielt «treforedlingspakka» EUs 7. rammeprogram Skattefunn Risikoavlastning fra det offentlige betyr at vi kan forske mer (flere prosjekter) og dristigere (redusert risiko) 1 offentlig støttekrone til FoU kan utløse 3-4 private FoU-kroner! 11.12.2015

Borregaards vurdering av virkemiddelapparatet Innspill til politikken Dagens virkemiddelapparat er vesentlig bedre enn «gårsdagens» Myndighetenes satsning på forskningsdrevet innovasjon er blitt kvalitativt bedre og større Ordninger mer tilpasset større bedrifter Ordninger også for pilotfasen Noen av virkemiddelapparatet viktigste begrensninger Noen ordninger er for små (samlet pott) Støtteandelen er noen ganger for lav (også ift EU/EØS- rammer) Mandater - og vurderingskriterier er ofte for trange/snevre 11.12.2015

Innspill til politikken Borregaards anbefalinger for styrking av virkemiddelapparatet for FoU/innovasjon Innspill til politikken Generelt mer midler til næringsrettet forskning FoU er nøkkelen for omstilling og økt konkurransekraft i industrien Større bedrifter har gode forutsetninger for å lykkes Innovasjon Norges mandat for IFU/OFU må utvides til også store/ETABLERTE bedrifter. Rammene må derfor økes signifikant Alle faser av innovasjonsarbeidet må støttes Kostnader (investeringer/drift) øker enormt når prosjektet nærmer seg kommersialisering Innovasjon Norges Miljøteknologiordning bør økes (også driftsmidler i pilotfasen) NFRs strategi: «Forskning for innovasjon og bærekraft» må operasjonaliseres Bruke mer penger sent i en innovasjonsprosess Målrette institutter/universiteters bidrag mer mot industriens behov/muligheter Bærekraft og innovasjonspotensiale som viktige kriterier ENOVAs mandat må utvides Også omfatte produksjon av kjemikalier/materialer fra fornybar råvare Også omfatte produkter/prosesser som bidrar til reduksjon hos kundene Øk timesatsen og støttegraden i Skattefunn 11.12.2015