Everyone, and welcome to Orkla's presentation of 2nd quarter results and first half year twenty sixteen. I am pleased to see that the 2nd quarter showed continued growth for our branded consumer goods business, both through organic growth and cost improvements, but also significant contribution from acquired companies as we continue to reallocate capital to strengthen our core business. Further, I'm also very glad to see a significant contribution from associated companies, where especially Sapa continues to improve the underlying business, but also Jotun delivers very strong figures. In my presentation today, I will focus on the half year results. But first, let's have a quick look at the performance in the second quarter.
As mentioned, there is a continued growth in brand consumer goods. Organic growth ended at 3.8%, where we believe the timing of Easter versus the Q1 had a positive effect of roughly 1.5 percentage points. Adjusted EBIT in brand goods increased with 20% in the 2nd quarter. This is due to a mix of organic growth, cost reduction programs, M and A and positive currency translation effects. Our associated companies continue to report solid growth in the quarter.
Sapa continued the progress and delivered a strong performance. Positive market developments, cost improvements and increased share of a higher margin business contributed positively. Jotun also reported another quarter with sales and profit growth. Jotun will, however, face tougher comparisons ahead at a more challenging market, especially in marine coatings. This resulted in an increase in earnings per share of 21% so far this year.
In Q2, we are comparing with a substantial gain from the sales of Gringes last year. Adjusted for this, we see continued strong EPS growth. In line with our strategy, we continue to reallocate capital into the brand and consumer goods business. With the Harris acquisition, we are strengthening our painting tool business significantly. This acquisition is still under review by competition authorities, and we expect closing during Q3 2016.
We are also working on integrating several acquisitions carried out in the last years. These are large and complex processes, and it will take time before we see the full positive effects from the integration programs, but they are all going according or better than planned. As mentioned, the timing of Easter impacted sales negatively in Q1 and positively in Q2 with an estimated effect of 1.5 percentage points. Looking at the first half year, brand consumer goods delivered 2 0.8% organic growth, somewhat helped by expanded distribution agreement with PepsiCo. The distribution agreement is mainly visible in foods, which had an organic growth of 3.6% in the first half of twenty sixteen.
Adjusted for this, we still see improvement, although the Q2 was somewhat negatively affected by delivery problems in some of the larger categories. These problems will be solved quite soon, but we will but we estimate some negative effects also in Q3 for Orkla Foods. Confectioner and Snacks had a very good first half year. Pick and mix sales and the distribution of Lay's and Doritos boosted sales growth. It is, however, not only new business that drives growth in confectionery snacks.
We are gaining market share with strong growth in most categories and markets. Growth in care has been weaker so far this year. A weaker growth rate was expected as we are in the middle of a larger integration process, but I'm not satisfied with the negative organic growth. Especially home care in Norway and weight management have struggled so far this year. However, I am confident that care will get back to growth, which we already saw signs of in the Q2.
Food Ingredients continue to grow and experience a strong competitive position in its core markets. Overall, we estimate that we are growing in line with our markets as we is one of our important targets that we communicated last year, but naturally with varying development between the different categories. I would like to show you some examples where we have seen good growth in 2016. With the acquisition of Seadrott last year, wound care was added as a new category in Orkla. In 2015, this category represented NOK370,000,000 of sales.
So far this year, Orkla Wound Care has had revenue growth of 8% compared to the same period in 2015 in constant currency. Growth in the quarter has mainly been driven by new listings, campaigns and growth in the pharmacy channel. Also contributing to the growth is the next generation of Marbyrd First Aid Kits relaunched in 2016, which you can see here on the screen. With improved content and packaging communication, it is so easy to use that everyone can give first aid anywhere. Let's hope we don't need it.
In addition, the new ZEV Quick design for the plaster range is currently being rolled out in stores across Europe. The new design has clear unpack symbols to support consumers to quickly and easily find what they need. Families with kids are an important target group for plasters and sales quick. We work regularly with updates to find the most popular characters suitable for the brand. Disney's Frozen is the latest launch with strong demand both from our consumers and customers.
Wound Care has become an increasingly important category for Orkla, and it has also strengthened our presence in the pharmacy channel. One of our key drivers of growth is to have more cross country innovations, taking successes from 1 market and launching it in other markets as you can see an example of here. This recent example is from confectionery snacks and that's the launch of the new waffle cut crisps. Launched more or less the same product, but under the different local brands in the different countries. This innovation has been in 5 different countries, and total sales have already exceeded our internal targets.
In our business, we are influenced by global health and sustainability trends, and we meet increasing demand from our customers and consumers for safe, traceable and healthy food. Many consumers want organic alternatives as part of their everyday diet. In Orkla Food Sweden, sales of organic products have increased by 52% so far 2016, and that is above the market growth for organic food. Today, Orkla has a turnover from organic products of more than SEK300 1,000,000 and with a strong growth. So far, the majority comes from the Swedish and Danish markets.
But within Orkla, we are sharing competence and experience in order to introduce more organic products in other markets where we see the same consumer and customer demand. Another consumer trend is the increased demand for healthier food with more natural ingredients. In our Czech company, Vitana, we have launched farmer's soup, which is a new range natural soups. It is rich in fiber and protein and has no added MSG or preservatives, very well received in the market. I hope this figure is getting familiar to you, black over red.
And I'm also very glad that we continue to see black over red, meaning a higher growth rate in sales than in fixed cost. Despite a continuous push from inflation and volume increase, we have been able to keep underlying costs roughly on par due to several cost actions throughout the value chain. Although the integration process of Cedros is resulting in somewhat lower sales growth in care, the cost synergies have so far exceeded what we had in our business case. With acquisitions, new opportunities also arise for optimizing our production structure. This quarter, we have decided to consolidate production of personal care products in our Swedish factory and production of detergents in our Norwegian factory in Schi.
As a result, we will close 1 HPC factory in Norway. In Denmark, production of Husk fiber products will be moved, which means that one production site will be closed. As I've said before, these processes take time on average 18 months. We won't see full effects in our P and L from these actions until well into 2018. And as I mentioned in the Q1 presentation, we are also consolidating our production of drinkables in Norway and Sweden and restructuring parts of our Baltic food production.
In the Q2, rolling 12 months adjusted EBIT in brand consumer goods has for the first time exceeded NOK4 1,000,000,000. The growth over the last years is a combination of organic growth and acquisitions as we continue to reallocate capital to brand consumer goods. We have also seen significant positive currency translation effects as a result of a weaker Norwegian currency. For the first half year of twenty sixteen, EBIT growth was 16% or 11% adjusted for currency translation effects. In addition to FX, the growth is a balanced mix of sales growth, acquisitions and cost improvements in our supply chain.
But I would also like to take the opportunity to review the continued progress in Sapa. Looking at Sapa's performance in a longer perspective, it is fair to say that the strategic foundation for establishing Sapa has turned out to be successful. I am pleased to see that the rolling 12 months underlying EBITDA has improved steadily since JV was established. In fact, it has tripled from SEK1.1 billion when the JV was established to SEK3.3 billion in this period. With the restructuring program delivered ahead of plan, there were no restructuring charges in the first half of twenty sixteen.
But fortunately, we still see a lot of improvement potential also going forward in Sapa. Before I hand the floor over to Jens, who will go through the details in the quarter and first half year results, I would like to mention a project I'm really happy it's becoming a reality, and that's Orkla House, our new office building. This autumn, we will start the construction of our new headquarters at in Oslo. In line with our 1 Orkla approach, this office building will house not only the corporate center, but also the management of the 5 business areas and most of Orkla's Norwegian companies. Co locating our operations is important to make it easy for us to exchange experience and expertise and to extract synergies to become a leading brand consumer goods company in the Nordic.
In addition, premises will be built for product development with test kitchens and labs. The Oslo City Council has approved the zoning plan, which implies that construction can start in October 2016 and be completed over the course of 2018. With that, I would like to take you through Jens would like to take you through the details of the financial performance for the Q2.
Thank you, Petri. Let's look at the financial performance in the Q2 of 2016. Starting with the group P and L. Organic growth contribution from M and A and positive currency translation effects resulted in strong growth in revenues and adjusted EBIT both in the quarter and year to date. Other income and expenses were primarily related to high M and A activity and related integration costs.
Continued M and A and restructuring activity will carry further cost on this line item going forward, but the level will vary from quarter to quarter. Continued progress in Sapa and growth in sales and profits in Jotun resulted in strong profit from associates and JVs in Q2. Still, the profit dropped compared with Q2 'fifteen, and that's due to last year's sale of Gringis shares, which gave a positive gain of SEK 425 1,000,000. In addition, our shareholding in Rygi Airport was impaired by approximately SEK70 1,000,000 this quarter, also affecting the comparables. We also made an impairment of SEK100 1,000,000 related to a shareholder loan to Rigge Airport.
This resulted in increased net financial costs in the quarter despite lower interest costs. In sum, this gave a profit before tax of SEK1.3 billion in the quarter, slightly down compared with the same period in 2015. This equals earnings per share of SEK1 kroner in the 2nd quarter. Adjusted for the gain related to the sale of Glengiz shares in Q2 'fifteen, we have strong underlying performance both in the quarter and year to date on EPS. Let's look closer at the branded consumer goods.
In Q2 2016, branded consumer goods enjoyed an increase of SEK1.7 billion in revenues, which equals 2 point which equals 24% year on year. This rise was driven by a significant contribution from several acquisitions, the largest of which are Seadrott and Hamme. In addition, positive translation effects from a weaker Norwegian kroner and an organic growth of 3.8% in the quarter added to the progress. As mentioned, organic growth in the 2nd quarter was positively influenced roughly with 1.5 percentage points due to the timing of Easter. Branded Consumer Goods saw an EBIT growth of 20% in Q2 and 16% for the first half year.
The growth was supported by all business areas and also a combination of organic growth, contribution from acquisitions and currency translation effects. As Peter mentioned earlier, FX adjusted growth was 11% for the 1st 6 months of 2016. Reported EBIT margin was 10.7% in the quarter, and that's down from 11.1% in the same period last year. And as we've said before, acquisitions and distribution agreements have a dilutive effect on margins. These actions are profitable and in line with our strategy and targeted EBIT growth.
Let's review the performance of each business area and then starting with Orkla Foods. Orkla Foods had a significant growth in reported figures in the quarter, and this improvement is to a large extent caused by contribution from the newly acquired Hamme and positive currency translation effects. Organic sales growth was 3.9% in the quarter, partially driven by the distribution of Tropicana and Quaker and positive Easter effects. The figures in the quarter were somewhat influenced by temporary delivery challenges. This is, of course, unfortunate, but not unexpected in a period of major restructuring within manufacturing.
We are working on solving this, but expect some further negative effects in the Q3, both on sales and EBIT. Despite positive contribution from sales and cost reductions, margin decreased in Q2. This was expected as we continue to see dilutive effects from acquisitions and increased sales from distribution agreements. In addition, input costs continued to increase, which puts pressure on margins. Then moving on to Confectionery and Snacks.
Confectionery and Snacks had strong volume driven organic growth in the quarter. All companies delivered organic growth with Norway and Sweden as the main contributors. The sales growth was positively impacted by more sales days because of the timing of Easter. In addition, distribution of Leys and Doritos innovations, pick and mix and campaign activity contributed positively. The growth in EBIT was broad based, driven by strong sales.
Denmark was the main contributor to the profit growth. In addition, cost saving initiatives led to improved performance in the Latvian company. The new pick and mix agreement, distribution of Lays products and the weakening of the Norwegian krone had a dilutive effect on margins. Let's turn to Oikla Care. Oikla Care had a significant growth driven by the Seadrott acquisition and the positive translation effects.
Organic sales growth was positive in the quarter, mainly related to Easter effects. For the first half year, organic sales growth was slightly negative. The integration of Zadrog requires some internal focus and a weaker growth rate was expected for 2016. Still, as Peter mentioned, the integration of Seadroat has so far been successful on both revenues and synergies, which are running ahead of plan. We still see challenging markets with price competition in HPC in Norway as well as challenging market conditions in the weight management category in Norway and Sweden, as Peter mentioned.
We have responded to this by increasing campaign activity in the second half year and by relaunching Nutrilet, Sun and Define. In addition, we are happy to see that we with the recent Doctor. Greve launch, have taken back the number one position in skincare after the loss of the Unilever distribution. As mentioned earlier, both the inclusion of Cerdrols and the loss of Unilever distribution dilutes margins. Kery is also the business area of Norkla with the highest relative exposure to the weakening in Norwegian kroner, resulting in higher input costs.
Let's look at the final area within Branded Consumer Goods, namely food ingredients. Strong competitiveness in the local markets resulted in broad based, volume driven sales growth within Orkla Food Ingredients. Increased profitability was driven by top line growth, but also by positive translation effects and add on acquisitions. The ice cream ingredients business unit is performing well with both underlying profit growth and acquired profit growth. Profitability from margarine and butter blends has fallen sharply due to surplus of milk in the European markets.
This was partly compensated for by successful performance in the Icelandic market and vegetarian products through the Natuly brand in Denmark. Let's now look at the results from Orkla Investments. Orkla has, in line with our strategy, freed up approximately SEK1.3 1,000,000,000 in the first half of twenty sixteen through sales of share portfolio and real estate assets. As mentioned, Orikla has made a total impairment of approximately SEK171 1,000,000 related to Rygge Airport. This means that the value of Riga Airport has been written down to 0 as a consequence of the decision to discontinue the civil aviation at the airport.
In sum, sales and impairment gave a positive P and L effect of SEK 63 1,000,000 in the first half of twenty sixteen. Our remaining share portfolio at the end of June represents a market value approximately SEK288 1,000,000, while real estate portfolio had a book value of approximately SEK1.5 billion. The real estate portfolio will increase in value as we start the building of our new headquarters this autumn, as Peter mentioned. Let's look closer at the largest assets within Orkla Investments, Sapa and Jotun. As Peter mentioned, Sapa has achieved great improvement over many quarters.
In the Q2, underlying EBIT increased significantly from last year with improved profits in all business areas. Especially the European business experienced strong growth. Effects from improvement programs and increased share of value added products contributed positively to the positive progress. Worth noting is that the Q2 of last year included negative effects from sharply falling metal premiums. Demand for extruded products increased in both Europe and North America.
In Europe, the demand for growth has increased and continued moderate growth is expected. The growth rate in North America is expected to flatten out in certain market segments. Jotun reports financial results on a 4 monthly basis. As a result, we cannot present official figures for Jotun for the Q2, but the slide illustrates the performance in the period January to April 2016. Jotun has delivered all time high sales and operating profit year to date, supported by volume growth across all segments, Avikir, kronor and lower raw material prices.
The sales growth is mainly driven by Decorative Paint segments in the Middle East and Southeast Asia, but sales in Scandinavia also developed positively during the Q2. Demand related to offshore activity continues to be depressed, while deliveries to the Marine segment is still at a high level. Significantly lower newbuilding activity will, however, have a negative impact on sales from second half of twenty sixteen and onwards. Raw material prices have been falling for a long period, but there's a sign in the market that they are now starting to rise. Let's look at the performance in hydropower.
Hydro Power had high production volumes in 2015, and compared with last year, production volumes were slightly down in Q2 this year. Power prices, on the other hand, were up compared to the historically low price level that we saw last year. So in sum, this led to an increase in EBIT from SEK27 1,000,000 to SEK53 1,000,000 in the quarter. Before I hand the floor back to Petter, I will briefly take you through the changes in the net debt. Net debt at the end of June was SEK10 1,000,000,000.
The main driver behind the increase in net debt from Q1 is the payment of dividend to shareholders of SEK2.6 billion, partly offset by cash flow from operations. The cash flow in branded consumer goods is seasonally low in the first half of the year. In addition, we have higher investments due to factory restructuring. Trufoilma adjusted net interest bearing debt to EBITDA is close to 2,000,000 and that's well within our communicated range. Oiklaas net interest bearing debt had an average maturity of 3.4 years at the end of June with an average interest cost of 1.8% for the quarter.
So with that, I give the floor back to Petter for his concluding remarks.
Thank you. Okay. To recap, I must say, I'm very pleased to see strong growth for our branded consumer goods business in the first
half of twenty sixteen, and
we have now delivered the 9th consecutive quarter with organic growth. We see continued organic growth and effects from cost improvements, but also a significant contribution from the acquired companies. I'm also very happy to see very strong contribution from associated companies and especially Sapa. We continue to reallocate capital to strengthen our core business. Through acquisitions in the recent year, we have entered new markets and channels within well known core categories such as HPC in Sweden and confectionery in Latvia.
We have also strengthened our position in existing markets through the acquisitions of Hama in Czech Republic and Harris in U. K. In addition, we are taking bold moves to organically entering new categories in existing markets like the introduction of chocolate in Denmark this year. Going forward, we will explore and utilize opportunities that arise from integrating the newly acquired companies. Although there are a lot of synergies from acquisitions, I believe the greatest potential lies in improving our existing operations by working closer together as 1 Orkla and utilizing the synergies and the know how within the whole of Orkla.
We have already done a lot, but there is still a large potential for further improvements and especially by increasing the supply chain efficiency. But as I have mentioned many times, those projects take long time. So with that, we are open for questions. No questions from the audience.
Sigu Sanna, Auctioneer. I ask about Brexit. Is England still a market for Orkla after Brexit? And you said that Riga Airport was down right to 0. I think the possibilities, Onurige, if you can use this area to other things, is very big.
So I'm curious what you will do with that ownership on Rigel. And do you do any action to be currency neutral? It is a lot of you earn a lot on the currency situation, but this will change. But what do you think about the future to do the company more neutral for currently, yes, changings?
Well, to your second question regarding Riga, if you have any good ideas what we can use the airport for, we're very happy to get your ideas. Of course, we when it comes to Riga, we hope that there will be an alternative use for the airport. Our shares are for sale if anybody likes to buy. But as we see the situation right now, we see it's impossible to continue the civil aviation without Ryanair as a big airliner there. When it comes to Brexit, we have operation in U.
K. Through both House Care, Painting Tools and Orkla Food Ingredients. And as mentioned, we have announced acquisition of Harris that will be hopefully concluded in Q3. We don't think that Brexit will have any major impact on our business in U. K, rather, if any, probably positive impact.
When it comes to currency, I think that we are exposed to currency changes. However, we are also we are present in a lot of markets. And compared to or opposing to the big multinational companies, we have mainly we have local value chains with local production. And a lot of our sourcing is locally in each different country and in local currency. So we are less exposed to currency changes than most of our international competitors.
But that being said, of course, currency at least or short term is challenging, but that's part of our business.
Martin Stanshall Danske. I got a question regarding Sapa. Naturally, it's very encouraging to see such a solid performance for Sapa. Would you be able to put any comments on your views on Sapa and any potential change in your ownership?
We have as we have stated several times, we our intention is to sell our shares in Sapa. However, we have also stated very clearly that for us, it's more important to realize what we believe is a fair value than speed. We said that 2 years ago. We said that 1 year ago, and we said that 6 months ago. And I think if you look at results, I think we have so far proven to be right in being patient regarding exit of Sapa.
So I cannot comment anything else than that we our long term ambition is to sell our shares in Sapa when the timing is right.
Kenneth Zivosyan from SAP. The restructuring process is proceeding as planned, but have you gotten a new target? I think you last time you stated it will last until at least 2017 with closure or streamlining of your factory structure. Have you any new thoughts on that? And secondly, if you look at organic growth, if you
When it comes to restructuring and factory footprint, we have not stated any specific targets for a number of factories or a specific number for cost reduction. There is just to make it very clear, there is no targets to have as low number of factories as possible. The main objective is to have factories that have high utilization rates. And in general, we say that we want to have 1 factory per category or 1 factory per technology in a certain geographic area. So the final number of factories is difficult to say.
It's a moving target also because we do acquisitions, we do innovations and we sell off businesses. But today, we have far too low utilization in our current in the majority of our factories and we will continue the work and that is a long term work going forward. I think Jens will answer the organic growth question. I can
do that. And as you know, we don't disclose the PepsiCo sales, but adjusted for this quarter, adjusted for Easter effects and PepsiCo, I think confectionery and snacks have a growth that is in line with market or somewhat stronger. And then this pick and mix, of course, represents a part of that growth, but in line or stronger than the market. And then foods, if you adjust for this, I would call, temporary delivery problems that they've had, If you adjust for that, I think you can say that foods are also growing in line with market. And this delivery problem has a temporary character.
Korgen, Nordea Markets. Two questions. 1 on branded consumer goods related. We have seen over the past quarters that you have been very successful in combining business areas and divisions and also cross country projects. In terms of building sort of a Nordic brand, Nordic business model, Would you say that you are you have tapped the potential?
Or are there still a lot of potential to go for in terms of doing cross country Nordic projects in the various divisions? And your impressions, that's one question. The next one is the headquarter. You're saying that you will have a cash outlays of €800,000,000 Is that Oortglas cash share? Or is that the total cost or CapEx for the headquarters?
And how do you see that structure? You might have mentioned it, but I didn't catch it. And also when do you see it completed?
1 of our important changes in Orkla is the 1 Orkla approach that we call it internally. We have made the start of the program to utilize the strength and the competence and the knowledge that lies within the different parts of Orkla. We have seen some very good examples of cross border initiatives regarding innovations, for instance. But we have just started this process, and I expect a lot more to come out of working as 1 Orkla and utilizing the potential that lies within working as 1 Orkla and both top line and on cost side.
I think what we communicated now is what the cash outlay is now for the coming 2 years and for building this new headquarter. And as you know, we acquired real estate a few years back, And this is but this is a total, call it, calculation that we will have to revert to because there's several things that we can do with the property that we've acquired Zetta. So this is something that we'll have to revert with this.
Preben Asbjornsen, Carnegie. A few questions from myself. You are talking about some delivery problems. Could you specify in what category and hopefully what kind of impact it has on sales and EBIT? And secondly, you also mentioned some price pressure, I believe, in the Home and Personal segment.
Some more details on what's going on there? Is it Unilever that's very aggressive? Or is it new players that are entering the market?
When it comes to delivery problems, we said that is in food, and it is in foods outside Norway. It's related to 2 factories in Sweden where we have moved production from Finland, Denmark to Sweden consolidated. And during the start up, we have encountered some delivery problems in some of the, I said, bigger categories. One of them is ketchup, which is a big category, especially this time of the year with the barbecue season. But as Jens also mentioned, that the causes are identified and we are working on the problem and those problems are temporarily.
I will not give you any figures on the impact on top line or bottom line, but it is it has been, I would say, a major setback temporarily. And the second question was? Yes, sorry. Yes, we have seen actually over many years quite tough price pressure on Home and Personal Care. If you look at, for instance, dishwashing tablets, Norway has the lowest price in Europe.
That tells something about the competitive scene out there. We don't see new players coming in, but we see some competition from private label and intensified competition from existing players.
It's a lot of growth in the company, but I have a question about the traditional brands. Is it any growth in traditional brands like Makir Lutomat, Troika Chocolate, And just a curiosity, I which bank facility you will have for the new headquarter in Skagen? Is it the NPE or Danske Bank or?
I'll answer the first your first question and Jens will answer the second regarding financing. Yes, we have growth in our existing brands and existing categories. And as I said, we believe we are growing approximately in line with the market, meaning that we maintain market share. And that was also one of the target we stated during Capital Markets Day in London last year to grow in line with market. When I say we are estimating, because we have accurate sales figures from Nielsen for approximately 45% of our turnover.
That means that 55% is without outside the Nielsen universe. So we don't have accurate figures. That means it can be in other channels, but also in countries where Nielsen don't have any sales figures. So this is an estimate. But yes, we are growing also in our existing brands, of course, varying from category to category.
Well, we have a good relationship with many banks. So I think we'll have to revert with that decision. I think we will communicate around this topic. I mean, made a decision.
Okay. There don't seem to be any further questions. So then I would like to thank you so much for joining the Q2 presentation today. And I wish you all nice summer holiday, summer vacation. Thank you very much for coming.