Good morning, everyone, and welcome to Orkla's 3rd quarter result presentation. I'm very happy to also this quarter report progress both in Branded Consumer Goods and in Orkla Investments. And actually, this is the 10th consecutive quarter where we report organic growth in Branded Consumer Goods. In brand consumer goods, we have seen sales growth, cost reduction, but also M and A activities, and they have all contributed to both top line and bottom line improvement. We also continue to see very strong development in Sapa as well as good profitability in Jotun.
Our earnings per share increased by 31% in Q3 2016 versus 2015. During the quarter, we have completed the acquisition of Harries Paint Tool Business in U. K. As well as Food Ingredients Business Boor in the Netherlands. And of course, during the quarter, we continue to work more as 1 Orkla, utilizing the strengths, the capabilities and resources that lies within Orkla, both on innovations, supply chain and of course also taking out synergies from the M and As we have conducted the last years.
We see we have a positive organic growth also this quarter, 2%, which is somewhat lower than we have had the previous quarter this year. And the main reason for that is substantially lower raw material prices in Orkla Food Ingredients and especially butter and dairy products and almonds. However, out of the 2% organic growth, most of it is volumemix increase and a very small portion is price. So regard that as a healthy growth. We grow approximately in line with the markets where we operate as we also have communicated as a target in our 2016, 2018 plan.
But we have also managed to keep cost under control, And our very advanced KPI, black over red, where black represents the organic growth and red represents development in fixed cost, we see that we have a solid gap between the black and the red. And this is actually despite inflation and volume increase, and we managed to keep the fixed costs at a stable level. And this is mainly achieved through supply chain initiatives that we are reducing costs through everyday improvement, but also through closing down factories, footprint projects. And of course, we also have contribution from synergies from the M and As we have conducted. And Siedrut is a very good example of how we managed to realize synergies.
When we acquired or the announced acquirement of Seadroat, we announced saving synergies of NOK 60,000,000 to NOK 80,000,000 and we are now slightly above NOK 80 1,000,000. So we are somewhat ahead of plan. And that is mainly through new organization in 5 countries. We have consolidated warehouses in 3 countries. We have established Wound Care as a separate business unit.
And altogether, we have reduced workforce by approximately 100 employees after we acquired Severod. But we also see positive synergies on sales, especially in wound care. And we have also identified additional synergies going forward. 1 is in factory footprint. We have decided to close down our HPC factory in on the northwest coast of Norway and moving that production partly to our factory at Schi outside Oslo and partly to our factory in Falden in Sweden.
And we also see some more top line synergies going forward. As mentioned, SAPA continued to deliver strong results. And I think we can say we are now 3 years into the JV with Norwegian Hydro. I think we can say that this JV has been successful. EBITDA has increased from SEK 1,100,000,000 to SEK 3,300,000,000, and that is mainly due to the synergy plan that outlined 3 years ago, and we have delivered ahead of plan and both regarding time and regarding cost.
However, we still see potential going forward, but that is more on the organic part of the business. And for those of you who are very interested in Sapa, I hope you take the time to join the Capital Markets Day on the 3rd November in Oslo. Then I will leave the floor to Jens, who will go through the financials in detail.
Thank you, Peter. And as Peter mentioned, we saw solid progress both from the brand and consumer goods part and the investment area this quarter. We achieved revenue growth on the back of good innovations, campaigns and distribution agreements. Sales increase and cost improvements lifted results. And despite dilutive effects from M and A and distribution agreements, we saw a small increase in margins this quarter.
Let's now review and look at the most important items on the P and L this quarter. First, I'm pleased to report that the EBIT improvement by 19% is due to good progress both in the branded consumer goods part and the investment area. The line other income and expenses includes a write down of assets and restructuring costs within Orkla Food Ingredients, totaling NOK 79,000,000. And this is primarily related to our frozen cakes business in Denmark. This line also carry costs regarding restructuring and M and A activities.
Strong growth in Sapa lifted profits from JVs and associates totaling SEK313,000,000 Now revert to the development in specifics later on in the presentation. Overall, profit before tax increased by 24%, ending at almost SEK1.3 billion. This equals earnings per share of SEK1.05, and that's an increase of 31% year on year. And the next slide shows the main drivers behind the sales growth. Overall, revenues from branded consumer goods grew by 14%, of which organic growth was 2%.
This rise was mainly driven by acquisitions such as Seadroat, Hamme and Harris. However, increased sales in our existing operations also added to this result progress. As Peter mentioned, Seadroat has now been in the company for a year and will be in the like for like figures from Q4. Harris, on the other hand, was consolidated in September and contributes with only 1 month of structural growth in Q3. For the first time in a while, we have minimal currency consolidation effects due to a stronger Norwegian kroner.
And if this exchange rate that we see today remains unchanged, we will start to see negative translation effects going into the Q4. Looking now at more details regarding our aggregated branded consumer goods results. Higher sales, cost improvements and acquisitions resulted in an EBIT growth of 15%. All business areas had positive EBIT growth. As I mentioned, our reported EBIT margin improved slightly in Q3 last year compared to last year, despite the dilutive effects from acquired companies and distribution agreements.
Looking at underlying margin, the improvement is about 50 basis points, both Q3 year to date. Cost improvements, organic sales and synergies from acquisitions are the main drivers behind this underlying margin development. Let's look at Orkla Foods. Orkla Foods had significant top line growth and profit growth in Q3. The improvement versus Q3 '15 was helped by the acquisition of Hammeh, which increases our presence in Central and Eastern Europe.
Successful innovations, sales activities and the expanded PepsiCo agreements resulted in volume driven organic growth in the quarter. However, as we said at Q2, the temporary delivery challenges continue to impact performance in Q3. These issues relate to the recent changes in the factory structure. We have now resumed stable production, but we have a delivery backlog, which has impacted some sales activities. And this will also have some impact going forward.
As expected, the EBIT margin was diluted by the inclusion of Hamme and distribution agreements with PepsiCo. Let's now look at confectionery and snacks. This business reported volume driven sales growth the quarter with Norway and Sweden being especially strong. The agreement for pick and mix candy with Koop stores in Norway and the distribution agreement with PepsiCo also contributed to this sales increase. Sales growth was the main driver behind the EBIT improvement, but cost reductions also made positive contribution.
And after several quarters with decline in Latvia, we now see that the implemented actions have resulted in EBIT growth in Q3. Moving on to Orkla Care. We are pleased to report positive growth after a recent period of lower sales growth. This top line and EBIT growth was driven by acquisitions and organic sales. Organic growth are positive in HPC, wound care, painting tools and professional cleaning.
I'm especially pleased to see the growth in HPC unit again. However, there's still challenging competitive climate. And it's also worth mentioning that the comparables for Q3 with Q3 'fifteen is somewhat weak. In Orkla Health, the loss of the distribution agreement in Denmark had negative effect, and the weight management category is still declining. Our textile business had a negative organic growth in Q3, partly due to the timing of advertising and the marketing campaigns.
Overall, acquisitions, synergies and cost reductions contributed to the EBIT growth, although the EBIT margin decreased due to dilutive effect from acquisitions and the loss of the Unilever agreement. Let's look at Food Ingredients. Several add on acquisitions resulted in top line and profit growth in the quarter. A significant drop in raw material prices had led has led to lower prices for Marzipan and butter butter blend products and that is then resulting in organic sales decline. The market situation on Butterblends also challenged profitability as competition has increased in this segment.
In addition, the sale of bakery ingredients in Norway decreased due to a loss of an industrial consumer customer contract. Despite these effects, the food ingredients lifted EBIT margin overall in the quarter, partly due to a greater share of sales from high margin categories such as ice cream, ingredients and accessories. With that, I'll move on to the Orkla investment side and then starting with our 2 fully consolidated areas, namely hydropower and financial investments. And in hydropower, a doubling of the power prices more than compensated for a lower production, and this resulted in almost tripling the EBIT from NOK 22,000,000 to NOK 63,000,000. Reservoir levels are lower than in NOK 15,000,000.
So we expect production in Q4 to be lower than last year. And in line with our strategy, we continue to free up capital through the sales of share from our portfolio and the real estate assets. In the Q3, this amounted to approximately SEK74 1,000,000. At the end of September, our remaining share portfolio had a market value of SEK 0.2 billion, while the real estate portfolio had a book value of approximately SEK 1,600,000,000. Let's look at the 2 biggest assets within the investment area, namely Sapa and Jotun.
And as Peter mentioned, Sapa has improved steadily over many consecutive quarters. In Q3, underlying EBIT continued to increase with the European business as the main driver. Effects from improvement programs and increased share of value added products also made a positive contribution. Demand for excluded products increased in both Europe and North America. In Europe, the level of growth has increased, and we expect moderate growth rates to continue.
However, growth in North America is expecting to flatten out in certain market segments. Looking at Jotun. Jotun reports financial results on a 4th monthly basis, and therefore, we cannot present official figures for Jotun for this quarter. However, you can see the performance from January to August here on this slide. And the 1st 8 months, Jotun reported revenue and volume growth and continued improved profits.
The Decorative Paints segment had continued strong growth in the Middle East and Southeast Asia. This was partly offset by lower activity within marine coatings and protectives due to a slowdown in the marine segment towards the end of the period and generally weak offshore sector. To finish off the financial section, let's look at the changes in the net debt. Cash flow from operations and FX more than offset the net expansion this quarter. This resulted in a reduction of the net debt.
At the end of September, net interest bearing debt to EBITDA is around 1 point 8, and that is well below the target that we've said, which is in the range of 2.5 to 3 times. And the average maturity on net interest bearing debt was 3.4 years with an average interest cost of 1.6 percent in the quarter. Now Peter will finish with his concluding remarks.
Thank you, Jens. Before we open up for Q and A, I would like to share with you some examples of the new launches we have done, launches that meet or are based on our in-depth consumer insight, but also the consumer trends we see in the market. And I will start with famous brand in Norway, Turo. This is the number one brand in Norway on dry soups, sauces and casseroles. However, we have also, in the last years, have huge success with baking mixes, and now we are adding also into dessert mixes.
And this is answering the trend we see from consumers. They want more convenience, but not compromise on taste. This is a great example how we meet consumer demand. And then to Denmark. As most of you know, we have historically not been present in confectionery and snacks or chocolate in Denmark.
However, we have a very strong snack brand, Kims. And last year, we launched chocolate under the Kim's brand in the Danish market. And now we have expanded the range with choco bites and bars, and that meets the consumer demand or trend see that people want to share. But also another insight we have from Norway is that from Nidar in Norway is that consumers really like the mix of sweet and salt. So we have taken this insight from Norway and introduced it to Denmark.
And actually, the Peanuts bar you see up there scores extremely good in consumer taste in Denmark. And we have fortunately, we have received very good listings of all our products in Denmark. And of course, if you eat too much chocolate, you need to think about weight control. And as we have mentioned several quarters and also as Jens mentioned, we have struggled somewhat in the wage management segment. And now we have 2 new launches, snack bars that are more natural, low sugar, but also meet the need the consumer need for healthy snacking between meals.
And actually, the caramel bar, as you see here, is actually the test winner among all bars when it comes to taste. At the same time, it is very healthy. We have also received on these 2 products very good listing, but this is very new, so it's far too early to conclude whether this is will be a success or not. Anyway, so far it looks great. Also in Food Ingredients, in Denmark, we expand the range of organic and vegan food in the Danish market under the brand Natuli.
This also has been a great success and actually 8% of all goods sold in Danish food retail stores are organic, and that is the highest proportion in the world. And we see a very strong growth in organic and vegan consumption, both in Denmark and Sweden. And of course, we want to meet this demand. And with the 1 Orkla approach, we will, of course, also see if we can launch these products or similar products in the other markets where we operate. We have in our long term plan, we have also stated that export or international sales is an important driver for growth in the future.
We have a lot of unique Nordic products. They are regarded to be healthy, safe from a food safety perspective, produced in clean environment with clean air, clean water and so on. And as we know, China is a quite big market. Actually, it's the world's largest e commerce market, And we have now entered into cooperation with Alibaba or their web shop, Tmall. So we are now on with our own Orkla store at Tmall with our Nordic brand, Nordic approach, natural, healthy and safe food.
And so far, we have 25 SKUs, and we will expand in the beginning of next year with more SKUs. And of course, in short term, we don't expect a huge sales, but we think this is an important way to learn the Chinese consumer and to learn the Chinese market and the e commerce market. And we think this will give great opportunities going forward. So if you like to look at the page, you can go into orkla. Tmall.
Hk. So before we go to Q and A, just to sum up the quarter, we are we continue to deliver on the strategy. We are allocating capital from Orkla Investments or the noncore into branded consumer goods area. As we have shown, we see progress in branded consumer goods, both top line and bottom line, but we also see more challenging comparable quarters ahead. We see continued growth in Sapa.
However, we see a somewhat weaker marine segment for Jotun. 31% increase in earnings per share is in our opinion, it's quite solid. And we have during the quarter, we have completed acquisition important acquisition of Harris, the paint tool company in U. K. And the food ingredients business brewer in the Netherlands.
And we will continue to focus on the 1 Orkla approach, really to share best practices, share innovations across business units, business areas, geographies and so on. Orkla is has a quite good history in acquisitions over time. A lot of companies have been bought and have been successfully integrated where we have realized substantial synergies. That has been an important value creation path for Orta, and we will continue. At the same time, we also will continue to work on our supply chain efficiency, reduce factory footprint and optimize our production into fewer bigger units that also allow us to invest more in new technology.
And of course, we will focus on all kind of activities that drive organic growth. I showed you now some examples of the launches. I showed you an example of our export initiatives. And we will focus more on fewer bigger innovations, share innovations across markets, taking successes from one market into another market and so on, which we have done quite successfully actually. And of course, we will improve profitability by keeping strict cost focus also going forward.
So with that, I'd like to open up for Q and A.
Thank you. This is Martin Stanschl, Danske Bank. I've got 2 questions. First, great to see 10 quarters with organic growth in positive territory for branded consumer goods. It seems like the organic growth has been approximately 3% year to date.
Could you please provide some more comments or color on the market share developments per segment or per, let's say, important category in Banned Consumer Goods?
Yes. As I said in the beginning, we believe we are developing approximately in line with the market. We have some difficulties to follow this very exact because we have Nielsen figures for approximately 45% of our sales. So 55% is outside the Nielsen universe. That means that we need to do some assumptions when it comes to market share development.
But we believe we are approximately in line with market development.
And then secondly, very interesting to see your initiative with Alibaba and Tmall. How should we think about your strategy goals with this initiative? And how will this actually work in terms of sales, logistics and so on?
Can you repeat the first question, please?
The first question is basically what is your strategy and your goals with Alibaba and Assimo? And then basically how do you see this work in terms of sales and logistics?
The first is that, as I said, we see these first laws more as a way for us to learn about first hand the Chinese market, later maybe the Asian market more in a broader perspective, to learn about Chinese consumers and so on. So we don't expect to see very high sales figures in the short term from this. But this is the beginning. And it is quite it takes some effort actually to launch. One thing is to launch the web page and the setup.
Another thing is to have all the products aligned with Chinese regulations, with the texts and so on. When it comes to logistics, Tmall, they have their own setups that we deliver goods to Tmall, and they do the distribution directly to the Chinese consumer. And by the way, you are not able to shop on this website without having a Chinese passport.
Just one follow-up there. Where is Orkla with Chinese consumers in 5 years? It's
a
good
question.
Yes. I have two questions from the web from Ole Martin Westport at DNB. First question, what was the dilutive impact on BCG margins from acquisitions in Q3? And the other question, how much did the loss of the industrial contract in Food Ingredients impact the negative organic growth in this segment?
Yes. Well, the reported margin progress was 0.1%. And then I said that underlying margin improvement, which then contains these structural changes, is 0.5%. So that's my I hope that answered your question, Ole Martin.
And the second question was how much did the loss of the industrial contract in Food Ingredients impact the negative organic growth in the segment?
I can this the loss of the industrial contract had not that big impact in this quarter, but will have a greater impact going forward and throughout the next year. And of course, we will adjust the capacity accordingly. And then having said that, we always strive to win contracts, the new tenders every day in the food ingredients.
Very interesting that you go on net by Alibaba, but this is AliExpress, not this is a global company. So why don't you sell by this company all global? And I also a question about Facebook, Your site on Facebook today, it's written that it's the 10th quarter with growth. You said 12th quarter today, didn't you?
I said 10.
You said 10. Okay. But what do you think about Facebook as a platform for going on the web for selling products? You are already there and this is a global company China has blocked Facebook, but the rest of the world is open by Facebook.
Well, your first question was about Alibaba and why don't we sell worldwide. Is that right?
Yes. It's not a global company you cooperate with when you go to China?
Yes. Well, Alibaba is actually, Alibaba is a marketplace. They don't offer logistics support for distributing items from a company to a consumer, but they have system for joining businesses to businesses in different countries. While they have this Tmall, which is a subsidiary, Tmall Global, which is a subsidiary of Alibaba, and they have this set up to sell products from company via Tmall to consumer. And that set up is for the time being only in China.
But of course, we expect that this will be expanded. Regarding Facebook, we of course, we want to be present in all channels where the consumer expect to find our products. And that is as we know, that is changing every day or every week. So we will consider all relevant channels for selling our products going forward and maybe also Facebook.
A question regarding Sapa. You mentioned that there are improvement opportunities still. Could you please talk about what kind of improvement opportunities you see?
Yes. As I said, we are now finished with the integration process and the synergies that we expected ahead of the time plan and also somewhat more synergies than we anticipated. What we see now is more the continuous improvement. And I would say there are several areas, but one area is moving from more commodity profiles into more value add profiles. And that we have done that over time, but we still see that we can do more to improve margins.
Secondly, we see that the European market is actually for the first time since the financial crisis 2008, the European markets shows very strong signs of picking up. It has been quite slow since 2,008, but now it slowly starts to pick up again. On the other side, we see that, as Jens mentioned, we see that North American market is cooling down somewhat. But we believe that there is a potential upside also going forward in especially in Europe and in by continuous improvement and more value add products.
Is there a very different demand for value added products within different verticals and then between Europe and North America?
I think the European market is more mature market when it comes to aluminum, especially in the automotive industry. But we and even though we see that the general demand for aluminum in U. S. Is cooling down, it's still growing, but not at the same rate. The growth in automotive industry is still very high and is expected to be very high.
And that will also they will also require more high value or added value products.
Thank you.
Okay. No further questions. Okay. Thank you, everyone, for coming and joining us during this presentation.