Morning, everyone, and welcome to Orkla's third quarter results presentation this morning. I am very happy to see that we continue to see improved progress in our Branded Consumer Goods area, but also other quite big things have happened during the third quarter. Let us just have a look at some of the highlights in the quarter. This quarter, and also year to date, we report an organic growth of 1.2%, which is more or less in line with the market growth in the categories and in the markets where we operate. I am happy to see that we are matching the market growth, but I am not happy to see that the market growth, in general, is so low, and it has slowed down. We saw that at the end of 2016 and now also into so far in 2017.
I am also very happy to see that we deliver on our cost targets and our cost programs, reducing SG&A costs, but also total cost in our supply chain throughout the whole Branded Consumer Goods area. We deliver on the cost plans according to our targets. However, we have seen also, as we saw in Q2, we have seen a continued improvement or increase in raw material prices that has a negative impact on our EBIT and EBIT margin. As you know, we have in our two biggest markets, Norway and Sweden, we have some windows where we can adjust prices or increase prices. Of course, we have taken actions to increase prices to compensate for increased raw material input costs, but there is a natural time lag.
Historically, we have shown and we have proven that we are able to compensate for increased raw material prices, but we will come back to this a little bit later. Also, during the third quarter, first of all, we announced 10th of July that we had agreed to sell our 50% share in Sapa to Norsk Hydro, and the transaction was completed 2nd of October this year. This is included in our Q3 figures, and Jens will come back to more details about it. Later today, we will host an EGM where we propose to pay out a special dividend of NOK 5.00 per share, and I would guess that that will be approved today in the EGM.
Even after paying out a special dividend of NOK 5.00, we have a very solid balance sheet in Orkla, and our main priority is to find attractive assets to buy that strengthen our Branded Consumer Goods area, mainly in the markets where we already have a presence. Acquisition candidates where we can strengthen our position and also realize cost and top-line synergies. Earnings per share in the quarter increased by 11% from NOK 0.88 last year to NOK 0.98 this year. What is also somewhat special in Q3 is that we also had this Shares for Employees program that we successfully completed in the third quarter. This time, more than 2,000 employees signed up for the program, employees from 17 countries. Actually, the program was 67% higher than we have seen earlier years.
I'm very happy to see that our employees see our share as an attractive asset to hold. However, there is a negative side of this. Since the shares are sold with a discount, that also implies a cost in our figures, Jens will also revert to this later in his presentation. If you go to organic growth. As I said, we have 1.2% organic growth in the quarter, also year to date. Quite big differences from business area to business area. I'm very happy to see that our largest business area, Orkla Foods, is now really back on track with very solid growth performance. This 2.9% is based on volume growth in all markets where Orkla Foods is present. Some very strong figures.
Orkla Confectionery & Snacks delivers organic growth, as you can see, so much slower than what we have seen in the past or the beginning of this year. We have very strong growth in Estonia, Sweden, and Finland. As expected, also as we announced in Q2, so much slower growth in Norway due to late launches and promotion programs. Orkla Care experienced organic growth in all business units except House Care or painting tools. That they have a slight decline that is mainly due to two factors. One is that we lost a contract in U.K., a private label contract.
The second reason is because of quite bad outdoor painting weather towards the end of Q3, which also leads me to the last business area, Orkla Food Ingredients, with somewhat flat development, despite that we have exited some both private label contracts and industrial contracts with low profitability. Sales in Orkla Food Ingredients was also hampered by quite bad ice cream weather towards the end of Q3, which we also have seen by other ice cream producers in Europe. Overall, I'm happy to see that we are growing at least in line with the market, and we are actually gaining market shares in some important categories. If you compare our top line organic growth with our peers in Europe, I think we have a quite strong performance. I'm also very happy to see, as I mentioned, that we deliver on our cost programs.
I think this figure should be quite familiar to all of you now. It's my black over red, I just repeat again, the black is organic growth and red is development in fixed cost. We have an absolute requirement that we should have a healthy gap between organic growth and fixed cost over time. I'm happy to see that we managed to continue with a healthy gap also in Q3 and year to date. However, our margin and our EBIT is impacted by substantially higher raw material prices, which is visible in our EBIT and EBIT margin. In the quarter, we have a currency neutral growth in EBIT of 4.6 points.
As I said, we have experienced substantially higher raw material prices, also they continued to increase more than we anticipated when we made our price adjustment price increases in the price windows that we have, especially in our main markets, Norway and Sweden. I am sure that with our cost programs that we deliver on, as well as the price increases that we have initiated the last couple of months, we will see an improvement in EBIT and margin going forward, both towards the end of this year but also into 2018. Jens will come back to more details, especially about the margin development, which is important to understand in this quarter. I will just give the word to Jens for more details on the financial performance.
Thank you, Peter. As Peter mentioned, we continue to see progress both within the Branded Consumer Goods part as well as the investment side this quarter. Let's look more at the details of the performance. Let's start by looking at some details on important items on the P&L. Improved adjusted EBIT and less restructuring cost is the main drivers behind the EPS growth that we see of 11% from continued operations. EBIT growth was related to both B&G and Orkla Investments, as I said. The third quarter EBIT was negatively impacted by costs related to the Shares for Employees program. We normally run this program every year, but last year we were prevented from arranging it. This year's program was therefore larger in order to compensate for the canceled program last year.
As Petter mentioned, the number of shares bought increased by 67%, that was significantly more than we expected. This is, of course, a good thing. Costs associated with the program increased and amounted to roughly NOK 40 million in Q3. Of that NOK 40 million, NOK 25 million is booked within the Branded Consumer Goods area. We still experience cost related to restructuring in the supply chain, but as we mentioned in Q2, we also expect to see some gains on this line item, other income and expenses, going forward. In Q3, we sold a factory in Norway and we exited industrial marzipan business in Italy, which more than offset restructuring charges this quarter. Associated companies contributed negatively due to weaker results in Jotun, I will come back to more details on Jotun later on.
We also see the effect from the sale of Sapa in discontinued business, we report a gain in the quarter of NOK 4.34 per share, resulting in an EPS of NOK 5.34. Let's turn to the performance in the Branded Consumer Goods area, starting by looking at the top-line development. Revenues in Branded Consumer Goods grew by 4.4% in the quarter, as you can see, M&A was the main contributor to this increase. This was mainly related to two months of the Harris acquisition, the Riemann acquisition in Care, and some acquisitions done within the Food Ingredients area. Organic growth was 1.2%, largely related to price, also volume growth in three out of four business areas. Before we look at the business areas more in detail, I would like to give you some more detail on the margin development.
As you saw from Peter's presentation, we had a flat margin development in the Branded Consumer Goods area in the quarter, but a 20 basis points increase, adjusted for dilution effects and M&A. 20 basis points underlying improvement. Here you can see the split of these 20 basis points between variable costs and what we call other costs. Other costs include both SG&A, fixed production costs, and advertising. As you can see from this graph behind me, we deliver on our cost programs with an 80 basis points margin improvement in Q3 and 50 basis points year-to-date. I think this is especially strong given the NOK 25 million from the Shares for Employees program in the Branded Consumer Goods area that we didn't have last year. Advertising investments is roughly in line with last year's quarter and year-to-date as a percentage of sales.
Looking at this graph, however, we lag behind in offsetting input costs to our customers, as also Petter mentioned, and this is here illustrated by a drop in the variable cost. The variable cost in this calculation is a combination of price management, mix effect, and efficiency on the production line. The main negative driver on this variable cost in 2017 has been increased prices in some raw materials. We have increased prices in some markets, but have to take further pricing actions going forward to neutralize this picture. As I mentioned, we see effects from our cost programs both in supply chain, but also by cost programs within rationalizing SG&A. Since we started this supply chain efficiency program, we have decided to close down 27 factories, of which 21 are closed down, and focus on fewer and larger factories.
This has resulted in fortunately 36% increase in average revenue per factory. Within SG&A, we have also done a lot in 2017. We have merged several smaller companies and have continued to centralize back office functions. In addition, Orkla Care has announced several initiatives within SG&A, mainly in Norway. As I showed on both this slide and the previous one, we are doing a lot within costs, and these cost actions are showing good progress. Let's now turn to the four business areas and look at them more in detail. We will start with the largest one, Orkla Foods. As Petter said, we are now glad to see a more positive quarter from Orkla Foods after a challenging start of the year. Organic sales growth of 2.9% was driven by good volume increase in almost all markets.
High campaign activity, for instance, from Grandiosa in Norway, contributed to the growth. In addition, we saw a rebound in India after a very strong market uncertainty in conjunction with the GST tax that was implemented in Q2. As communicated in Q2, we see a significant increase in several key raw materials, especially EU prices on dairy and meat. This trend has increased into Q3, which put continued pressure on profitability. Price increases was implemented during the quarter, but further pricing actions are required to offset input costs. Despite this, Orkla Foods delivered 40 basis points of margin growth related to cost actions. Let's look at Orkla Confectionery & Snacks. As expected, Orkla Confectionery & Snacks delivered lower growth than the first half year as the campaign program was front-loaded in the largest market, Norway. All other markets delivered continued good growth and overall growth ended at 1.3%.
Margins was roughly flat compared to last year. We are now facing tougher comparisons on margins as we are more than one year into the restructuring program of Latvia. We continue to see positive effects from cost savings in supply chain within Orkla Confectionery & Snacks, but this was, however, offset by product mix effects related to innovations and campaigns. Even though we see a somewhat soft Q3, the year-to-date performance in Orkla Confectionery & Snacks have been very strong with a 2.8% organic growth and 110 basis points margin improvement. Let's look at Orkla Care. Orkla Care delivered a broad-based organic growth in the quarter and totaled 1.3%. Revenue growth ended at almost 9%, while EBIT growth came in at 6.5%. The EBIT growth was a combination of organic improvements and contribution from M&A.
As Peter also mentioned, regarding M&A, the integration of Harris with our existing U.K. House Care business has been challenging. The synergy realization is going according to plan. However, the company has lost a private label contract with a larger customer and have also experienced some sales decline as a result of the internal focus during this merger. This is not unusual when integrating companies. Looking at another acquisition, Riemann. Riemann is producing sunscreen and deodorants. Riemann is performing very well, but have a seasonally low third quarter, which dilutes the EBIT margin. We don't sell a lot of sunscreen when it's not sunny outside. Adjusted for M&A, EBIT margin in Orkla Care improved as a result of implemented cost actions in the second half. Let's turn to Orkla Food Ingredients. Orkla Food Ingredients delivered 7% reported sales growth and 5% EBIT growth, driven by several add-on acquisitions.
Organic sales growth and margins were flat in the quarter. We had a strong sales growth within several of the main categories in Orkla Food Ingredients in Q3, like bakery ingredients. This was offset by the earlier communicated losses of industrial contracts and the exit of some low-margin private label contracts. In addition, we experienced weak quarter for ice cream ingredients, due to poor weather in Europe, and that is compared to a very warm and sunny Q3 last year. This weaker sales in ice cream ingredients also, of course, then hampered margins. On the positive side, we see effects from cost actions that we have initiated within a couple of companies in Orkla Food Ingredients, as we have previously speak about. Let's now move on to the Orkla Investments portfolio. The main message from Orkla Investments is, of course, the sale of Sapa.
The transaction that was announced in July was approved by the competition authorities in the end of September, and Sapa has been booked at the line item discontinued operations as from Q2. Year to date, we have a profit of NOK 5 billion on that line item in the P&L. This is, of course, as you know, a combination of profit and gain from the transaction. Positive cash flow effect from this transaction will be visible in Q4. Let's turn to the fully consolidated business. Hydro Power delivered a very strong quarter due to higher power prices with somewhat flat volumes. We have done a smaller transaction within the real estate portfolio, where we have sold a Norwegian industrial asset. Regarding Jotun, profits were weaker than last year. Jotun continues to deliver volume growth, driven by good performance within decorative paints.
Revenues were also up in the quarter, but less than volume due to changes in sales mix and negative currency translation effects. Shipping and offshore markets remain challenging. Weaker markets in a combination with increasing raw material costs also hampered profitability in Jotun. Raw material costs have had a significant impact on the year-to-date profitability and are expected to increase further in 2017. To counter this negative raw material effect, price increases have been implemented, and there is a continued strong focus on cost efficiency in Jotun. Let's finish off by looking at the cash flow. Here you can see the main drivers behind operating cash flow from cash flow development excluding financial investments. As you can see, all levers contribute to a strong year-to-date cash flow compared to last year. I've already been through the main drivers of the profits improvements.
As you know, the restructuring program within supply chain requires a somewhat higher CapEx level than historically, and we expect this trend to continue for some years. This has, of course, resulted in gradually higher depreciation. CapEx level will, however, vary from year to year, and so far in 2017, we have a slightly lower CapEx than in 2016. Regarding working capital, we seasonally tie up working capital during the three first quarters and then release during Q4. All in all, this is a strong cash flow so far this year. Regarding the financial position, this is strong and is strong at the end of Q3, but of course, as you know, significantly stronger today as we have received the proceeds from the Sapa transaction at the beginning of Q4.
Adjusted for Sapa proceeds, we have a net cash position of almost NOK 4 billion. As you know, and as Petter mentioned, we host an extraordinary general meeting later today, where the board will propose to pay out a special dividend of roughly NOK 5 billion to be paid out on November 3rd. With that, I leave the floor back to Petter for his final remarks.
Thank you, Jens. Let me now just sum up some highlights from the quarter. As we have shown, we continue to grow organically, at least in line with the markets where we operate, as is our long-term target, and we have a quite strong performance organically versus many of our European peers and the multinationals' sales in Europe. We also continue to realize cost improvements according to our plans, both when it comes to SG&A and also in supply chain, in production, factory footprint, and so on. However, our EBIT is hampered and EBIT growth is hampered by substantially higher raw material prices. As mentioned several times today, we counteract this by price increases, but there is a natural time lag when raw material prices continue to increase.
The raw material price development has also led to us having our EBIT, both in total figures, but also EBIT margin, lower than what we anticipated and what we have as a target so far this year. Going forward, we will continue to see quite soft market growth. We don't expect a huge jump in the market, but somewhat continue on somewhat the same level as we see today. We also are facing more uncertainty when it comes to raw material prices going forward. We will continue to realize effects from our cost programs, and the price increases we have done will materialize in Q4 and into 2018. Also, of course, during the quarter, we have sold and finally sold our 50% share in Sapa.
Before I go to the Q&A session, I would just like to show you some examples of how we work as one Orkla, how we can realize synergies, not only on cost, but also on innovations and cross-country launches. The first example is Smash! I think all Norwegians know this product quite well. It's a very famous and loved product in Norway. This was launched in Sweden some weeks ago. It's the same product, the same packaging, but actually under a local brand, the OLW brand, which is our snack brand in Sweden. This is actually our first entry into the chocolate confectionery area in Sweden from Orkla. We've launched two products. It's this bag, and it's also a bar. I think this is a good example of how we take a success from one market and introduce it in a new market.
In this case, more or less the same packaging, but under the strong local OLW brand in Sweden. We have had so far a fantastic start. During the first five weeks after launch, we have sold almost 70% of the anticipated total yearly volume. Our main challenge now is to produce enough. That's really, really nice. Also great interest, both from retailers but also from consumers, and we have received very good listings in Swedish retail. Another product I'm also very proud to show you is a product from Orkla Food Ingredients. It is Naturli', which is our product range of organic, vegan products, mainly in Denmark, but also launched gradually in other markets. This is Naturli' Smørbar. It is a plant-based spread. It's organic, and it is, as I said, plant-based, and it's gluten-free, and it's dairy-free.
Actually, this product received three international awards for its great taste and for naturalness. One was in IFE Award in London early this year. Also received an award in Paris in the SIAL Innovation Award, or in the SIAL Fair. Last, in Germany, in the Anuga Fair, also received first prize for this innovation. I think this is a product that also delivers on the consumer trends that we see, that we have been talking about earlier. It's about organic, it's vegetarian, it's free from, it's natural. It meets a lot of the consumer trends that we see are important for our business going forward. Finally, we also show you the product Klar, which is a home and personal care product range launched first in Norway. You see the range there. It will be launched in Sweden in 2018.
Formulation of these products are mainly plant-based. Products are free from unnecessary chemicals and colorings. Non-allergenic, of course. The products are produced with electricity from renewable energy sources, in this case, wind power. The plastic bottles are, of course, 100% made of recycled plastic. The formulas are very concentrated, that means that bottles can be smaller and leads to less waste. Of course, very good cleaning power, which is really essential when it comes to home and personal care categories. This product is developed based on our consumer insights that we have seen in our main markets, especially now in Norway and Sweden. Very strong desire from consumers to have a environmental-friendly product to do your house and home cleaning.
Also a requirement or a wish from our big retailers asking us for developing and introducing such a product, because there are no such products on the market. I'm very happy about this product. It was launched now in September in Norway and will be launched next year in Sweden. As you see, we have a whole range here on the stage and in the goodie bags, takeaway bags, you will also receive a sample of the products. With that, we will go to the Q&A session. Okay. No questions? Yeah. There's a question up here.
Just about one year ago, you announced that you start selling in China from Alibaba platform. You remember that? It's one year ago. Can you say something about how that Is it on track in China?
Yes. We opened an web store on the Alibaba platform or Tmall platform, which is part of Alibaba, with a limited range of Orkla products. This was, I would say, in a way, a kind of a test for us, to see what kind of products are working and what are not working. Some products are working very well. For instance, Möller's Tran cod liver oil. We are continuing, of course, this development, and we see a good growth, but of course, from a low level. We will continue that sale on the Alibaba platform and other marketplace platforms. Any other questions?
Yeah, here on the left.
Yeah.
We have two questions from John Ennis from Goldman Sachs. The first one is that you showed a slide with 140 basis points reduction in fixed costs since 2014. Over the same period, reported margins have not improved by the same magnitude. Can you explain what has held margin back over this period, and when you would expect to see the fixed cost reduction flow through to EBIT margins?
Okay. Well, as you know, the reported margins from that period have been affected by, for instance, distribution agreements and M&A effects. Depending on the level of M&A or whether or not they are dilutive or not, this will evolve accordingly. With that, I mean, if we don't have any M&A going forward, it will gradually eliminate that effect, and then underlying effect will be more visible. It's dependent on the level of distribution activities and the level of margin that the M&A companies that we do have. Then, as I showed, the underlying improvement in margins is quite clear. What have been the case now this year and also to a certain extent last year, because of then last year's currency effects, this year is affected by raw material cost increases, which we haven't yet been fully able to offset. We have taken price increases.
As you know, there are certain windows of opportunity in Scandinavia, at least our biggest markets, Norway and Sweden. When you see sharp increases, high volatility that we've seen in certain important raw materials, and given the fact that there are just a few opportunities to do something with it, with the prices, then you, by nature, will have some time lag. This time lag, of course, goes both ways. Over time, looking at this over more years, it will even out. I hope it was a long explanation, but there's a lot of moving factors. You know us very well, John, I hope that this was a satisfactory answer for me.
John had a second question as well. You said overall Orkla sales performed in line with the market. By division, how are you performing versus the market?
Can you please repeat the last part of the question?
By division, by business area, how are you performing versus the market?
I don't have exact figures for that right now. I just like to make some comments around market growth, because we have exact figures from Nielsen on approximately 50% of our sales and our market's approximately 50%. The rest is a little bit guesstimates, but also input from our companies, but also from competitors and so on. It is a little bit guesstimate about market growth. I have to be precise about that. There are big variations from geography to geography and from category to category, and I'm not able now to give an answer how we are developing versus the market in each division. Okay, any further questions? Okay, thank you for joining us this morning, and let's hope that the EGM will vote for the special dividend later today.