Good morning, everyone, and welcome to Orkla's third quarter result presentation. I am very happy to also this quarter report progress both in Branded Consumer Goods and in Orkla Investments. This is actually the 10th consecutive quarter where we report organic growth in Branded Consumer Goods. In Branded Consumer Goods, we have seen sales growth, cost reduction, but also M&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 Harris Paint Tool business in U.K., as well as food ingredients business, Broer, in the Netherlands.
During the quarter, we continue to work more as one Orkla, utilizing the strengths, the capabilities, and resources that lies within Orkla, both on innovations, supply chain, and of course, also taking on synergies from the M&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. 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 volume mix increase and a very small portion is price. We 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.
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 have managed to keep the fixed cost at a stable level. This is mainly achieved through supply chain initiatives, where we are reducing costs through everyday improvement, but also through closing down factories, footprint projects. Of course, we also have contribution from synergies from the M&As we have conducted. Cederroth is a very good example of how we manage to realize synergies.
When we acquired or the announced requirement of Cederroth, we announced saving synergies of NOK 60 million-NOK 80 million, and we are now slightly above NOK 80 million, so we are somewhat ahead of plan. That is mainly through a new organization in five countries. We have consolidated warehouses in three countries. We have established wound care as a separate business unit, and altogether we have reduced workforce by approximately 100 employees after we acquired Cederroth. We also see positive synergies on sales, especially in wound care. We have also identified additional synergies going forward. One is in factory footprint. We have decided to close down our HPC factory on the northwest coast of Norway and moving that production partly to our factory at Ski outside Oslo and partly to our factory in Falun in Sweden. We also see some more top-line synergies going forward.
As mentioned, Sapa continue to deliver strong results, and I think we can say we are now 3 years into the JV with Norsk Hydro. I think we can say that this JV has been successful. EBITDA has increased from NOK 1.1 billion to NOK 3.3 billion, and that is mainly due to the synergy plan that we outlined 3 years ago. We have delivered ahead of plan, both regarding time and regarding cost. We still see potential going forward, but that is more on the organic part of the business. 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 of November in Oslo. I will leave the floor to Jens, who will go through the financials in detail.
Thank you, Petter. As Petter mentioned, we saw solid progress both from the Branded Consumer Goods part and the investment area this quarter. We achieved the revenue growth on the back of good innovations, campaigns, and distribution agreements. Sales increase and cost improvements lifted results. Despite dilutive effects from M&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&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 million. This is primarily related to our frozen cakes business in Denmark. This line also carry costs regarding restructuring and M&A activities.
Strong growth in Sapa lifted profits from JVs and associates totaling NOK 313 million. Revert to the development in specifics later on in the presentation. Overall, profit before tax increased by 24%, ending at almost NOK 1.3 billion. This equals earnings per share of NOK 0.0105, and that's an increase of 31% year-on-year. 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 Cederroth, Hamé, and Harris. Increased sales in our existing operations also added to this result progress. As Petter mentioned, Cederroth 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 one month of structural growth in Q3.
For the first time in a while, we have minimal currency consolidation effects due to a stronger Norwegian krone. If this exchange rate that we see today remains unchanged, we will start to see negative translation effects going into the fourth quarter. 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 compared to last year, despite the dilutive effects from acquired companies and distribution agreements. Looking at the underlying margin, the improvement is about 50 basis points, both Q3 and 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 2015 was helped by the acquisition of Hamé, which increases our presence in Central Eastern Europe. Successful innovations, sales activities, and the expanded PepsiCo agreement resulted in volume-driven organic growth in the quarter. As we said at Q2, the temporary delivery challenges continued 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 Hamé and distribution agreements with PepsiCo. Let's now look at Confectionery and Snacks. This business reported volume-driven sales growth in the quarter, with Norway and Sweden being especially strong.
The agreement for pick and mix candy with Coop 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. 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. There's still challenging competitive climate. It's also worth mentioning that the comparables for Q3 with Q3 2015 is somewhat weak.
In Orkla Health, the loss of the distribution agreement in Denmark had a 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 the food ingredients. Several add-on acquisitions resulted in top line and profit growth in the quarter. A significant drop in raw material prices has led to lower prices for marzipan and butter blend products, that is then resulting in organic sales decline. The market situation on butter blends 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 a bit, 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 then starting with our two fully consolidated areas, namely hydropower and financial investments. In hydropower, a doubling of the power prices more than compensated for a lower production, and this resulted in almost trebling the EBIT from NOK 22 million to NOK 63 million. Reservoir levels are lower than in 2015, so we expect production in Q4 to be lower than last year. 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 third quarter, this amounted to approximately NOK 74 million. At the end of September, our remaining share portfolio had a market value of NOK 0.2 billion, while the real estate portfolio had a book value of approximately NOK 1.6 billion. Let's look at the two biggest assets within the investment area, namely Sapa and Jotun. As Petter 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 extruded 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 fourt-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. On the first eight months, Jotun reported revenue and volume growth and continued improved profits. The decorative paint 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 effects 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 1.8 times, and that is well below the target that we've said, which is in the range of 2.5 times-3 times. The average maturity on net interest-bearing debt was 3.4 years with an average interest cost of 1.6% in the quarter. Petter will finish with his concluding remarks
Thank you, Jens. Before we open up for Q&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. I will start with a famous brand in Norway, Toro. This is the number one brand in Norway on dry soups, sauces, and casseroles. However, we have also in the last years had huge success with baking mixes, and now we are adding also into dessert mixes. 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 demands. To Denmark. As most of you know, we have historically not been present in Confectionery and Snacks or chocolate in Denmark.
We have a very strong snack brand, KiMs, and last year we launched chocolate under the KiMs brand in the Danish market. Now we have expanded the range with Choco Bites and bars, that meets the consumer demand or trend we see that people want to share. Also another insight we have from Nidar in Norway is that consumers really like the mix of sweet and salt. We have taken this insight from Norway and introduced it to Denmark. The peanuts bar you see up there scores extremely good in consumer taste in Denmark, and we have fortunately received very good listings of all our products in Denmark. Of course, if you eat too much chocolate, you need to think about weight control. As we have mentioned several quarters, and also as Jens mentioned, we have struggled somewhat in the weight management segment.
We have 2 new launches, snack bars that are more natural, low sugar, also meet the consumer need for healthy snacking between meals. The caramel bar, as you see here, is 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, this is very new, so it's far too early to conclude whether this will be a success or not. So far it looks great. In Orkla Food Ingredients in Denmark, we expand the range of organic and vegan food in the Danish market under the brand Naturli'. This has also been a great success, and 8% of all goods sold in Danish food retail stores are organic, and that is the highest proportion in the world.
We see a very strong growth in organic and vegan consumption both in Denmark and Sweden. We want to meet this demand. With the One Orkla approach, we will also see if we can launch these products or similar products in the other markets where we operate. 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. China is a quite big market. It's the world's largest e-commerce market, and we have now entered into a cooperation with Alibaba or their web shop, Tmall.
We are now with our own Orkla store at Tmall with our Nordic brand, Nordic approach, natural, healthy, and safe food. We have 25 SKUs, and we will expand in the beginning of next year with more SKUs. In short term, we don't expect huge sales, we think this is an important way to learn the Chinese consumer and to learn the Chinese market and the e-commerce market. We think this will give great opportunities going forward. If you like to look at the page, you can go into orkla.tmall.hk. Before we go to Q&A, just to sum up the quarter, we continue to deliver on the strategy. We are allocating capital from Orkla Investments or the non-core 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, quite solid. During the quarter, we have completed important acquisition of Harris, the paint tool company in U.K., and the food ingredients business, Broer, in the Netherlands. We will continue to focus on the one Orkla approach, really to share best practices, share innovations across business units, business areas, geographies, and so on. Orkla 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 Orkla, 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. 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 an example of our export initiatives. 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. Of course, we will improve profitability by keeping strict cost focus also going forward. With that, I like to open up for Q&A.
Thank you. This is Martin Stenshall, Danske Bank. I got two 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 Branded Consumer Goods?
Yeah. 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.
Secondly, very interesting to see your initiative with Alibaba and Tmall. How should we think about your strategy and goals with this initiative? 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 Tmall? Basically, how do you see this work in terms of sales and logistics?
The first is that, as I said, we see this first launch more as a way for us to learn about, first time, the Chinese market, later maybe the Asian market, more in a broader perspective, to learn about Chinese consumers and so on. We don't expect to see very high sales figures in the short term from this. This is a beginning, and it takes some effort, actually, to launch. One thing is to launch the webpage 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 setup so that we deliver goods to Tmall, and they do the distribution directly to the Chinese consumer. 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 five years?
It's a good question.
Yes, I had two questions from the web from Ole Martin Westgaard at DNB. First question, what was the dilutive impact on BCG margins from acquisitions in Q3? The other question, how much did the loss of the industrial contract in Food Ingredients impact the negative organic growth in this segment?
Margin.
Well, the reported margin progress was 0.1%. Then I said that the underlying margin improvement, which then contains these structural changes, is 0.5%. I hope that answered your question, Ole Martin.
The second question was, how much did the loss of the industrial contract in Food Ingredients impact the negative organic growth in the segment?
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. Of course, we will adjust the capacity accordingly. Having said that, we always strive to win contracts and new tenders every day in the Food Ingredients.
Sigur Sanna. Very interesting that you go on it by Alibaba, but this is AliExpress. This is a global company, so why don't you sell by this company all global? Also a question about Facebook. Your site on Facebook today, it's written that is the 10th quarter with growth. You said 12th quarter today, didn't you?
I said 10.
You said 10? Okay.
Yeah.
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, and 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?
Isn't that a global company you cooperate with when you go to China?
Well, actually Alibaba is a marketplace. They don't offer logistics support for distributing items from a company to a consumer. 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, they have this set up to sell products from company via Tmall to consumer. That set up is for the time being only in China. Of course, we expect that this will be expanded. Regarding Facebook, of course, we want to be present in all channels where the consumer expect to find our products. That is, as we know, that is changing every day, every week. 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?
As I said, we are now finished with the integration process, the synergies that we expected ahead of the time plan, also somewhat more synergies than we anticipated. What we see now is more the continuous improvement. I would say there are several areas, one area is moving from more commodity profiles into more value add profiles. That we have done that over time, 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 2008, now it slowly starts to pick up again. On the other side, we see that, as Jens mentioned, that we see that North American market is cooling down somewhat.
We believe that there is a potential upside also going forward, especially in Europe and 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 a more mature market when it comes to aluminum, especially in the automotive industry. 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 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.