Good morning, everyone, to Orkla's Q4 presentation. For those of you who are present here today, you have seen the exclusive preview of the new ad of Pizza Grandiosa, which is, of course, a very well-known brand in Norway. Actually, in 2016, we sold more than 24 million Pizza Grandiosas in Norway. For the first time in several years, we managed to increase our market share by as much as 2.5 percentage points. Also, for the first time, we sold Pizza Grandiosa for more than NOK 1 billion in 2016, and that's why I have this T-shirt today. I promised the Grandiosa team that if you have two consecutive quarters with market share growth or a full year of market share growth, I promise to wear Grandiosa T-shirt on the quarterly presentation. That's why. Let's go to the financial figures and 2016.
I remind you that we had a very strong Q4 2015 with 4.1% organic growth. Still, looking at Q4 2016, we see solid improvement in both Branded Consumer Goods and in Orkla Investments. The business area Orkla Care had a quite slow start to the year, but has improved during the year and has three consecutive quarters of organic growth. Confectionery snacks delivered another very strong quarter, and I am also happy to see that we have an underlying margin improvement despite dilution from M&A. The acquisitions we did in 2016 and actually also in 2015 are going according to plan with synergies at or above target level. In my presentation, I will focus on the full-year results, and Jens will come back to the details on the quarter as well as full year.
When we are leaving 2016, entering into 2017, we have a Branded Consumer Goods company that are much stronger. Our revenues increased 14% during the year. That's partly due to organic growth and, of course, also due to M&A activities. Our adjusted EBIT increased 19%, supported of course also by M&A, but also strong cost development and synergies throughout the value chain. Our earnings per share increased by 30%, boosted by very good profit from Sapa. The Board of Directors propose to increase the dividend from NOK 250- NOK 260 per share. In 2016, we ended the year with an organic growth of 1.8%. That is partly healthy volume mix and partly price. Of course, the organic growth is also supported by contribution from distribution agreement and especially from PepsiCo. We have seen organic growth despite headwind on raw material prices, especially in food ingredients.
I will come back to that. In sum, we see that the markets where we are operating are growing. However, the growth is somewhat lower towards the second half of 2016 than the beginning, and we believe the growth is more in line at approximately 2%. That means with our 1.8%, we are slightly behind what we believe is the market growth. Oops. I'm sorry. I'm sorry. I mixed up a little bit here. Okay. If you look at our strategy that we communicated during Capital Markets Day in September 2015, we promised to continue to reallocate capital from non-core assets into Branded Consumer Goods companies. I think we have done that quite successfully during the year. I think we can tick off that. As mentioned, our organic growth is somewhat below what we estimate as the market growth, I tick that off as a yellow.
We also promised to deliver an EBIT growth of 6%- 9% on the business we had at the time when we announced the targets in September 2015. We see a growth of 6.8%, we can also tick that off. We also promised to keep a stable dividend of at least NOK 2.50, and the board is, as I mentioned, proposing an increased dividend of NOK 0.1- NOK 2.60 for 2016. I think we can tick off that as well. These are the growths I talked about. We see Orkla Foods has a growth of 2.3%, of course, supported by the distribution agreement with PepsiCo. Confectionery Snacks delivers another very strong year, well above market growth in their categories. As mentioned, Care had a somewhat slow start, but had the three last quarters with organic growth.
Altogether, we are quite satisfied with development in Care, especially the second half of the year. Orkla Food Ingredients, as mentioned, has seen quite steep decline in some major raw material prices that hits the top line, and that is especially in marzipan and in butter blends. That's about top line, then I will talk about our cost development. Earlier, we have communicated this KPI, black over red, quite simple metrics, where the black illustrates the organic growth, and the red illustrates development in fixed cost level. Despite pushback from inflation and despite increased volumes, I'm very happy to see that the gap is increasing. This is thanks to restructuring in supply chain, closing down factories, and also through continuous efficiency in our operations. Of course, also supported by successful integration of acquired companies during the year.
We have also talked earlier a lot about utilizing the strength that lies within Orkla. We have done quite a lot of things. We have, during 2016, announced closure of eight factories, and actually, since we started this restructuring program, we have announced closure of 23 factories altogether in two and a half years. Fewer factories means that we can invest more in technology, more in automation, more in innovation, and less in maintenance of buildings and old equipment. There is a lot more to do realizing synergies throughout Orkla. For instance, we have in Orkla, due to historic reasons, we have 27 different ERP systems, we have started a project to see if it's feasible to develop and implement one common ERP system for the whole of Orkla.
We also see a lot of very good sales initiatives throughout the company. We have a lot more cross-border innovations, taking successes from one market, introduce it in other markets, often under local brands, but the same product and based on the same consumer insight. We are sharing innovations, sharing consumer insights across markets, across business areas and business units. We are also leveraging on our sales force in the markets where we operate. I think one very good example is Orkla Foods Norge. They have now taken over the sale and distribution of confectionery and snacks products in the HoReCa channel. That means that we will have a more powerful sales organization for confectionery snacks in this channel, as well as we will reduce cost.
During the year, we have also coordinated and set up a central export organization to coordinate all the export initiatives we do in the different business units and business areas into each single export market. As I think I said when we introduced or presented Q3, we also established an online store at Alibaba on Tmall in China, selling Orkla products from several different companies and categories. During the year, we have also reallocated capital from non-core to our investment to Branded Consumer Goods. We have freed up approximately NOK 1.8 billion of cash from non-core and invested approximately NOK 2.7 billion in M&A in Branded Consumer Goods. We have exited Greengates fully, and through the acquisition of Hamé in Czech Republic, we have really strengthened our position in Central and Eastern Europe together with our current business there, Vitana.
Now in Czech Republic, Slovakia, we are the largest supplier to the food retail sector. We have also doubled our business in painting tools through the acquisition of Harris in U.K., and we already had a painting tool business in U.K., and those two combined will give us a very good position as well as possibility to utilize synergies as we go along. When it comes to divestment, as I said earlier, we will continue to divest assets from Orkla Investments. But for us, it is more important to realize what we believe is fair value than time. We are not in a hurry. I think Sapa is one such good example that being patient pays off. Sapa had a very strong 2016, with EBIT improvement of 57%, from NOK 1.4 billion to close to NOK 2.2 billion. Really impressive performance.
That is thanks to partly the value-add strategy that Sapa has taken on. That means that we are going out of commodity products, standardized profile with low margins into more sophisticated products where we do more machining, more advanced surface treatment, and working closer with the customers to make more specialized products where the value-add is higher. Sapa's performance is also improved by reduced cost in Extrusion Europe, as well as successful restructuring of building and construction, as well as precision tubing. I think we can say today that the Sapa joint venture has been really successful. This shows the historical development in EBIT and return on capital employed. Sapa JV reached the targeted synergies one year ahead of plan and 30%-40% ahead of what we believed was possible.
Actually, due to a very strong performance and a very strong balance sheet, Sapa is almost debt-free by the end of 2016. The board of Sapa proposed a dividend to the two shareholders of NOK 3 billion. I also would like to remind you, and you can see that on the graphs here, that we are of course, facing more tougher comparables as we go ahead. But we still see potential improvement by doing more of the value-add activities and utilizing the synergies that lies within Sapa. They also have a project called One Sapa, actually. We see an improvement potential ahead. Jens will take you through the details of Q4 as well as the full year figures.
Thank you, Peter As Peter mentioned, we saw progress both from the Branded Consumer Goods operations as well as Orkla Investments in 2016. Let's start by looking at some of the details and items on the P&L. First, I am pleased to report that the group EBIT improved by 19% in the fourth quarter due to progress within Branded Consumer Goods and good contribution from Orkla Investments, mainly related to the sale of real estate assets. Restructuring and M&A activities within Branded Consumer Goods both resulted in continued costs on the line item, other income and expenses. Strong growth from Sapa lifted profits from JVs and associates to NOK 161 million. I'll come back to more of the details on these line items later on. Overall, profit before tax increased by 42%, ending at NOK 1.3 billion in the quarter.
This equates to an earnings per share of NOK 1.09, and that's an increase of 49%. Branded Consumer Goods revenues also rose 5%, and the next slide shows the drivers behind this growth. Revenue growth was mainly driven by acquisitions, primarily Hamé and Harrys for 2016. Cederroth has now been in the company for a year and is included in the like-for-like figures in Q4. Organic growth should be seen against a very strong Q4 in 2015, when sales were boosted as Norwegian food retailers competed to offer the cheapest Christmas products. That, as you know, includes many Orkla products. For the first time in a while, we have negative currency consolidation effects due to a stronger Norwegian krone. If the exchange rates remain unchanged, we will continue to see negative translation effects going into 2017.
Looking more on the details of our aggregated performance in the Branded Consumer Goods area. Higher sales, cost improvements, and acquisitions resulted in an EBIT growth of 5%. Our reported EBIT margin was on par with Q4 in 2015, despite, as Peter mentioned, the dilutive effects from acquired companies and distribution agreements. And we see continued improvement on the underlying margin of around 60 basis points for 2016. That's driven by cost actions and synergies from acquisitions. Looking at each business area, I'll start with Orkla Foods. Compared with a very strong Q4 in 2015, Foods had a moderate organic sales decline this quarter. The cost programs had positive effects on the profits. Higher one-off costs in 2015 also explained part of the improvement in 2016.
The acquisition of Hamé contributed to reported growth both on sales and profits, but had a dilutive effect on the margins, as did the PepsiCo distribution agreement. As you know, we focus a lot on innovations in Orkla, and I'll give you a few examples going through each of the business areas. Several companies within foods have responded to the organic, vegetarian, and healthier trend. For example, as you see pictures here, the launch of a frozen vegetarian single-serving meal was the strongest launch for Orkla Foods Sverige in 2016. Moving on to confectionery and snacks, I'm pleased to report another very strong quarter. The organic growth rate is nearly 5% over the year, and this is due to a broad-based sales growth in most of our markets, especially Norway and Sweden. Innovations and new business, such as distribution agreement with PepsiCo, contributed to the sales growth.
The rest of the portfolio also showed growth, measured against a very strong quarter in 2015. This sales growth, in combination with lower advertising costs and cost improvements, especially within our Latvian business, resulted in EBIT improvement. Next, I am really pleased that Orkla Care delivered another quarter of organic growth. After a challenging start of 2016, Care improved steadily during the year and finished the year with an impressive 2.3% organic growth. For the full year, Orkla Care achieved positive organic growth despite still challenging market conditions. I am happy to see signs of improvement in the weight management categories as well in home care segment in Q4. The EBIT decline in Q4 was due to the termination of the Unilever distribution agreement and the sale of Cederroth products or brands, Asan and Allévo, and higher marketing costs.
This higher marketing cost is ascribable to the Dr. Greve line extension. In terms of innovation, the most important launch for 2016 in Care was the extended Dr. Greve range in Norway. This required some additional investments, as I said, but it has already become a great success with number one positions in several categories. M&A had a dilutive effect on Care margin. In addition, 2015 figures included, as I said, Unilever distribution with strong high-margin sales. Lastly, let us look at Food Ingredients. The organic sales decline in Orkla Food Ingredients was related to price deflation in almonds and butter blends, as also Peter mentioned. In addition, the loss of a tender contract in Norway in Q3 impacted sales in Q4. We have implemented costs programs and savings, including manning reductions, to mitigate this negative effect.
Profits were hurt by weak profitability in butter blends, and this effect will be out of the comparable figures as from Q2 in 2017. Poor performance in two local companies also had an impact on profits in the quarter, and the corrective actions have been implemented. Let us not forget that we have increased exposure in ice cream ingredients and are therefore more influenced by seasonal variations. As you might guess, this have a negative impact on the results in the winter season. Food Ingredients launched several new products under the Naturli' brand, which is 100% organic and plant-based brand. The brand has more than doubled its revenues from approximately NOK 50 million in 2014 to approximately NOK 108 million going out of 2016. So overall, Q4 has been a good quarter with EBIT growth of 5% in the Branded Consumer Goods area. With that, let us look at Orkla Investments.
Starting with the two fully consolidated areas, namely hydropower and . In hydropower, higher prices did not fully compensate for a lower production, and this resulted in a drop in EBIT from Q4 2015. For the full year, higher prices resulted in EBIT growth despite lower production levels, so the opposite for the rest of the year. The end of the year, looking at the reservoir levels We expect lower production from hydropower going into the first quarter in 2017. In line with our strategy, we continue to free up capital through sales of shares and the real estate assets. At the end of the year, our remaining portfolio of shares is close to zero, while real estate portfolio had a book value of around NOK 1.3 billion. The real estate portfolio will increase in value as we start building the new headquarters later this autumn. Later.
Let's look at the largest assets within investments. That's Sapa and Jotun. As Peter mentioned, Sapa has improved steadily over many consecutive quarters, and in Q4, underlying EBIT continued to increase. This increase was driven by a higher share of value-added business as well as internal continuous improvements. The demand for extruded products increased both in Europe and North America. In Europe, the level of growth has increased, and we expect the moderate growth rate to continue. Also in North America, markets are expected to grow moderately. Moving on to Jotun. Jotun continues to deliver volume growth and solid underlying profitability in 2016, measured against a record year of 2015. In fact, although somewhat lower, 2016 is actually the second-best Jotun year ever. Jotun had continued good development in the decorative paint segment, notably the Middle East and Southeast Asia.
Sales growth was, however, offset by weaker marine and offshore markets, especially during the second half of 2016. Higher provisions for claims and currency losses from the devaluation of the Egyptian pound resulted in profit decline for the fourth quarter and for the full year. Jotun continues to invest in increased production capacity in line with the company's growth strategy. The investment activity in 2016 was mainly related to new production facilities in Oman, the Philippines, Myanmar and Malaysia, in addition to the R&D and new headquarter office buildings in Sandefjord, Norway. To recap, a strong progress seen from Orkla Investments, both from the fully consolidated businesses as well as joint ventures and associates. Moving on to net debt. Operating cash flow was impacted by somewhat higher CapEx and working capital levels.
Both relate to the structural changes in the supply chain in the Branded Consumer Goods operations. In 2016, we have closed down six factories and started the process of closing down another eight. We believe that CapEx levels will remain around the current level, as we see now, 4% of sales during the transformation phase. We shall revert to closer to historical levels, which is closer to 3% of sales. The future investments should, however, be more focused on increased efficiency and innovation capabilities instead of maintaining a lot of smaller factories. Regarding working capital inventory levels, this will most probably continue to be at a high level during this transformation. In the long run, we should be much more effective with our working capital with a more efficient supply chain structure.
At the end of December, net interest bearing debt to EBITDA was 1.5x . That's well below our targeted range. The average maturity on net interest-bearing debt was 3.3 years with an average interest cost of 1.7% in the quarter. Let's look at the dividend. We've paid a stable NOK 2.50 over the recent years. The board proposes to increase the nominal ordinary dividend level to NOK 2.60 for the financial year 2016. Finally, may I remind you of our calendar. I hope to see many of you at our Investor Day in Norway in June. With that, I'll leave the floor back to Peter for his final remarks.
Okay. Thank you, Jens. Before we open up for Q&A, I will just give some comments about what we're doing going forward, and also show you some of our launches. We will continue to deliver on our strategy, and we will continue to have high operational focus. That means that we will have very high focus on the black or red KPI, which as you have seen, had a very good development the last two years. Prior to that, it had a development where the cost increased too much. That's important KPI. We will continue to realize synergies throughout the whole organization, in supply chain, in the whole value chain, but also in SG&A and in sales and marketing, and operating more as one Orkla. There is a lot of synergies from acquisitions. We will continue to realize those synergies.
That is, of course, an important way for value creation. Actually, the greatest potential lies in our existing business by improving our existing business on a day-to-day basis. We believe we are well on track to deliver on the financial targets that we set out in Capital Markets Day, September 2015. We will work hard to achieve the goals and to keep organic growth at a positive level. Just regarding organic growth, we have seen that a lot of our peers in Europe, in the Western markets, experience a decline in Q4. Compared to that, we are happy with our organic growth, of course, in 2016, but even in fourth quarter, even though it was low. We would like it to be higher. Before I finish, I'd like to show you a selection of our new innovations.
I think this shows the strength of our innovation culture and how we respond to consumer trends that we see becoming more and more important. We have had a huge success with the health Finland last year with great success. We are now launching it in Norway, the same products, but under a local Norwegian brand, Bare Bra. These are healthy breakfast products, granola, porridge, and muesli, and also super rice for dinner, will be launched now in February. In Sweden, we are now also launching Paulúns Soup that you saw it on the ad movie. These are chilled, super healthy, and clean vegan soups. Actually, one portion of these soups cover 30%-40% of your daily need for vegetables. We see an increased demand for both vegetarian and vegan food.
We are also launching three new easy-to-cook vegan dishes under our Anamma brand in Sweden. We see especially this consumer trend is very strong and much stronger in Sweden and parts of Denmark than it is in Norway, but Norway is coming. I mentioned consumer trends. Another important trend is that people want to indulge, but at the same time, they're also looking for a healthier way to indulge with healthier snacking. We are launching a new range of nut bars and snacks, perfect when you are a little hungry and you want a healthier snack. Popcorn, three different tastes. Popcorn are naturally high on fiber and is probably the most healthy snack you can eat. New nuts produced dry-roasted without oil and without added salt.
Also the Kornmo brand in Norway, which is well-known, I think, for all Norwegians, they launched whole grain biscuits in Norwegian markets. Last but not least, Sætre cookies or snackers, introducing a new biscuit with less salt and fat than competing products and, of course, completely without palm oil, which is also an important consumer trend we see. When we acquired Cederroth in Sweden, we also acquired the brand Grumme, which is a Swedish brand for environmentally friendly detergents. We have now made a complete makeover of the deswedign, also introduces Grumme with new and improved, more efficient formulation. It's also more environmentally friendly. Last but not least, as Jens also mentioned, Orkla Food Ingredients have this Naturli' brand, and we are now also launching organic smoothies under the Naturli' brand. There is no dairy products included.
It's just fruits and no added sugar at all. This is the most healthy smoothie on the market. To conclude 2016, we are very pleased to report progress both in Branded Consumer Goods and in Orkla Investments. We are facing strong comparable quarters as we go ahead, and we have strong focus to continue to deliver organic top line and, of course, bottom line. We will continue to improve our cost position, I am very pleased that we achieved underlying margin improvement in this quarter as well as 2016 in total. We will continue the hard work to reduce our costs and to improve margins as we go forward. There is still a great potential. Even though we closed down 23 factories, we still have 105 left, so we still have something to do also in 2017 and maybe even in 2018.
Of course, as I've said many times, utilizing the scale, utilizing the synergies that lies within Orkla, working more as one Orkla. We will continue. With that, I will open up for Q&A.
Preben Rasch-Olsen, Carnegie. You got to help me out with the Orkla Care result. You seem rather satisfied. I don't quite understand that because about a year ago, you sold off the Asan brand, and about a year ago, you handed back the Unilever brand. For the past three quarters, you've been delivering better results, EBIT-wise, in Orkla Care. This time you're well below, and you have even had to spend more advertising money on your Dr. Greve brand, which has been in the stores for more than a year. I'm just wondering what's really happened in Q4. Why the more advertising spend, and why suddenly EBIT below last year? Thank you.
As mentioned, we had both Allévo, Asan, and the Unilever brands in Q4 2015 with very good contribution. They are also the figures for 2016, that's one part of the explanation. We have also introduced the new brand, Dr. Greve, and we have supported Dr. Greve with quite substantial marketing efforts as well as increased marketing in total in the Care division.
I can add, adjusted for the items that Peter explained now, we see an underlying growth in EBIT in Care that is quite close to the underlying growth that we see for the total BCG area.
Marius Gaard, Sydbank. Looking into 2017, we have seen that Norwegian retail has made some promises to not increase their prices. We have seen this introduction of the best friend strategy by and we also see some increasing willingness to increase the share of private label in stores. Can you try to give some comments on how this is going to impact you and your products in 2017, and how you see to deliver organic growth and margins in 2017?
First of all, I'd just remind you that only 30% of our revenue is in Norway, 70% is outside Norway. We are best friends, or at least we try to be best friend with all our customers. We saw a quite tough price competition by the end of 2015 and also towards Easter 2016 in Norwegian markets, which of course drove volumes, but also hampered profitability for the retailers. I think the competition between the retailers in Norway is somewhat intensifying, but this is nothing different than what we've seen in other markets where we operate. I'm not saying that it's going to be easy. It's a tough job to fight against our competitors and, of course, fight against private label. We have done that for many years, and we believe we will be able to do that also in 2017 and onwards.
Hello. Sigurd Sanna, stockholder. A question about factories. How many ketchup factories do Orkla have in Norway, and how many overall?
Yeah, I can talk a lot about ketchup. The case is that, just to answer your first question, we have one ketchup factory in Norway. Orkla, we are market leader in tomato ketchup in nine countries in Europe. That's all the nine countries where we are present. In these nine countries, we have seven different brands. We have local strong brands, and we have nine different recipes. We have too many ketchup factories. Even though we have seven brands and nine recipes, you don't need seven or nine factories. In the future, we will have fewer factories. I'm not able to tell the exact number, but we will, of course, have fewer factories also in the future. But in Norway, we have one.
Martin Sørensen, Danske Bank. I got two questions. The first one relates to what we saw that the board of directors in Sapa is proposing a dividend of NOK 3 billion, so half of it to Orkla. Could you please comment on your views on capital allocation going forward? You talked a bit about debt maturities. You also had a comment about Sapa not being in a hurry. Any comments relating to M&As for Branded Consumer Goods, please?
Yeah. The first priority, as communicated many times, for us when it comes to capital allocation is to grow the Branded Consumer Goods part of Orkla and grow the earnings capacity and future dividend capacity. That's the first priority. Having said that, we have a strong balance sheet. Then we are able to take advantage of opportunities that will arise according to our strategy.
To be a bit more specific when it comes to product categories or regions you're looking at right now for Branded Consumer Goods.
The first priority is to grow geographically where we have a presence today. That is mainly Scandinavia and the Nordics, Central Eastern Europe. Looking at the food ingredients and niches like, for instance, ice cream ingredients and wound care, we have a broader European perspective on the growth. That's the growth, we call it, axis for Orkla.
The second question is also regarding Sapa. We understand that there's more focus on value-added products and services. It sounds like there could be upside on the operating margin for Sapa. Could you please comment on what kind of effect that, let's say, change would have on growth opportunities? Thank you.
I'm not sure if I fully understand your question, but I will try. You have to
Maybe I can repeat. The question is basically that we understand there is a bit of a change in focus in Sapa towards more value-added products and services.
It sounds like there could be margin upside in delivering more value-added products. What kind of impact would that switch have on growth opportunities?
Well, if you look at the markets where Sapa is in and extruded aluminum, the total market growth is quite limited. We are talking about 1.5%-2.5% approximately, as we believe going forward. We see that aluminum extrusion is being used in more and more complicated products, and especially automotive and transport sector uses more aluminum. I think Tesla is a very good example of that, where Sapa is a big supplier to Tesla, both the first Model S, the Model X, and now also Model 3. We do not anticipate a very high growth on volume, but we anticipate a higher margin development as we go into more value-added products. That might also mean that we will need to do more investments in more advanced equipment like CNC machines and surface treatment, and so on.
I think the important thing is about not fighting for volumes that will only lead to decreased margins, but working closely with customers and to develop solutions together with customers. I think Sapa has a lot of good examples of that, as mentioned, for instance, with Tesla, but also with a lot of other car manufacturers.
I have one question from Ole Martin Westgaard in DNB regarding Easter effects. How will Easter affect the sales in Q1?
We don't try to predict these effects, as you know, and don't guide on that. It's a fact of the matter that in theory, there are more selling days in Q1 this year compared to last year. You have the Easter last year or in 2015 in Q1, then Q1 in 2016, and Q2 in 2017. There might be effects of that Easter as well, because Easter this year comes rather late, so we have the week before Easter that's included in the Q2, and traditionally the week before Easter is strong. To sum up, more selling days in the first quarter, in theory, 6.5% more selling days. However, Easter placed in Q2 for 2017 with traditionally some positive Easter effects in the week before Easter. I hope that answered your question. Okay. No further questions.
Okay, thank you very much for participating, and I hope you all will try our new Grandiosa that you will find in the stores in Norway. Thank you.