Good morning, everyone, and welcome to our class presentation of the Q1 results 2016. Before we dive into the Q1 results, I'm happy to tell you that this morning Orkla announced an agreement to purchase Harris, a leading supplier of do it yourself painting tools in the U. K. The acquisition doubles the size of Orkla House Care. And it is a good complementary fit in the U.
K. Harris is strong in DIY market. Orkla is strong in the professional market. This is an exciting opportunity for us, but now back to the Q1 results. Overall, I am pleased that we continue to see positive effects from top line initiatives and cost improvements throughout the value chain.
Despite some negative sales effects related to the timing of Easter, we managed to achieve continued organic growth overall in line with the market. Together with positive effects from internal improvement programs, This resulted in EBIT growth in line with our long term targets that we communicated last fall in Capital Markets Day. So now let's have a look at some of the details. As mentioned, this quarter had fewer sales days because of the Easter holiday that is especially visible in Norway and Sweden. This effect is difficult to quantify exactly, but we believe that it amounts to approximately 1.5%, which will have an opposite positive effect in the Q2.
Adjusted EBIT in brand consumer goods increased mainly due to sales growth in Orkla Foods and Orkla Confectionery and Snacks as well as comprehensive cost reduction programs and positive currency translation effects. Our associated companies continue to report solid progress in the quarter. Sapa continued the positive development and delivered very strong performance. Jotun reported another quarter with all time high sales and profit. This resulted in an increase in earnings per share of 75% in the Q1.
We have continued to reallocate capital from noncore into branded consumer goods. In the quarter, we sold the remaining ownership share in Gringes and invested in our branded consumer goods operations. The acquisition of Hama was completed at the end of the quarter and will make Orkla one of the leading suppliers to the grocery trade in Czech Republic and Slovakia. The integration of Seadrott and MP Foods is moving ahead as planned. These are largely large and complex processes and it will take time before we see the full positive effect from the integration programs in our figures.
As I mentioned, the organic growth trend continued in the Q1, and I'm pleased to see that we continue to report also positive volume mix growth. Looking at the sales growth in each of the business areas, Orkla Foods and Confectionery Snacks stand out positively. The distribution agreement with PepsiCo had full effects as from January 2016. With the new agreement, Orkla Foods manages the sale of Tropicana and Quaker in the Nordics, while Confectionery and Snacks covers PepsiCo's snacks brands in Norway, Sweden and Finland. In addition, the new agreement for pick and mix sweets in co op stores in Norway had a positive effect on volumes in Orkla Confectionery Snacks in the Q1.
The negative organic growth rate in Orkla Care and Orkla Food Ingredients are caused by timing of sales days due to Easter. The decline in Care is still somewhat disappointing, but should be seen against very strong comparable figures last year, timing of campaigns and also challenging markets in some of the categories. Market growth in Orklaas categories has in some been positive in the quarter and 3 out of 4 business areas had neutral to positive market share development. As communicated at our Capital Markets Day in September, our focus remains on top line growth and EBIT growth through cost improvement programs. I would like to give you some examples of initiatives to increase top line growth the last quarter.
Frozen pizza is Orkla's largest category. In fact, Norway has the highest per capita consumption of frozen pizza in the world. And the category is still growing. So far this year, the category has grown by 4% measured in volume. The majority of this growth comes from our products.
Actually, the number of Pizza Grandiosa sold in Norway has increased by 1,200,000 units in the Q1. Pizza Vakaria, which was launched by Orkla last year, generated more than 1 third of the category growth year to date. And also the Grandiosa takeaway launched early 2016 was 2nd best selling pizza in March. In other words, Orkla is strengthening its market share in its biggest category. 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 foods.
Many consumers want organic options as part of their everyday diet. Today, Orkla has a turnover from organic products of more than €300,000,000 of which the majority comes from the Swedish and Danish markets. But the organic trend is also rising in Norway. This spring, we are therefore launching a new organic ketchup under the well known Idun brand in Norway, as you can see on the picture. This is 2 kilograms of organic tomatoes used to produce 1 kilogram of ketchup with the same great taste and texture that Norwegian consumers love.
In addition to launching more and more organic alternatives, we have increased presence in the vegetarian food area. Through last year's acquisition of the Swedish company Alama, we have strengthened our exposure in vegan and vegetarian dishes. Especially Swedes are eating more and more vegetarian food and in 2015 the Amama brand had a growth rate of 50%. This investment confirms our strategic focus to offer healthier alternatives in line with growing consumer trends. And it's also supplemented by several other vegetarian launches in our existing operations.
In addition, our largest vegetarian brands is MTR in India, which is 100% vegetarian. It is not only organic and vegetarian products that are getting more popular among consumers. Confectionery and Snacks products actually have some of the strongest growth rates in the markets where we operate. And one of our most recent snacks launches is the new hand cooked Totenflak in Norway. After a 6 minute TV ad for Totenflak showing the complete frying process of potato crisps minute by minute, the hashtag Tuttelfrag was the most used Twitter tag in Norway for 24 hours.
The TV ad, which was nationwide media attention. From the launch earlier this year until the end of April, 1,300,000 units of Tuttentwag have been sold from our factory. And that actually corresponds to more than 50% of the households in Norway. And that is in less than 4 months. As you all know, Unilever took back the distribution of the skincare brand, the vessel in intensive care from the beginning of 2016.
However, I'm really pleased to see that we have been able to launch a broad assortment of alternative products based on the Doctor. Greve range to mitigate the loss. The products have achieved broad distribution so far and the initial response from consumer is very promising. Through this Orkla is now again a clear number 1 in the skincare category in grocery trade in Norway. You have now seen a few examples of top line growth initiatives.
And now I would like to show you some initiatives on the cost side. At our Capital Markets Day in London in September, I talked about our KPI black over red. This simply means that growth in sales should be higher than growth in costs, obviously. However, that has not been the case for many years, which, of course, is not sustainable. We have made several cost actions during the last years, and we are able to turn the negative trend in 2015.
In order to continue on the right track, we have made several new cost improvement actions in Q1 2016, especially in our supply chain. As an example, we are consolidating our production of drinkables in Norway and Sweden into 1 factory. In addition, we are restructuring part of our Baltic food production, which means that we are closing 2 factories in Baltics. Top line initiatives and tough cost programs result in adjusted EBIT growth of 12% in the quarter or 7% adjusted for currency translation effects. The profit growth was achieved despite higher input cost due to increased raw material prices and in several of our categories such as cocoa, almonds and fish and also the weakening of the Norwegian currency, which has also been challenging this quarter.
The reported EBIT margin continues to be diluted by M and A activities and new distribution agreements like the one with PepsiCo. Despite this negative effect, we believe these actions are value creating and underpin our changed focus from margin growth to EBIT growth, which is also visible in the figures. And that is said, we are still focusing on growing underlying margins and adjusted for structural actions, we see continued positive margin development in our businesses. I would also like to take the opportunity to mention the continued improvement in Sapa, also put in a longer perspective than just a quarter. Sapa is now reporting a rolling 12 month underlying EBIT result of almost NOK 1,600,000,000 compared with a negative figure when we established the joint venture 2.5 years ago.
I'm also glad to see that the Q1 doesn't carry any restructuring charges. Although I am pleased with improvement in Sapa, which is really impressive, I am not satisfied with the absolute profit level still. Fortunately, we still see a lot of improvement potential going
forward.
To sum up the quarter, I'm happy to report continued growth in the Q1 despite negative effect from the timing of Easter. The sales growth and positive effects from internal improvement programs resulted in EBIT growth in line with our long term targets, which we announced 6% to 9%. And as I said at our Capital Markets Day in September, we will continue to focus on improving operations in the branded consumer goods by operating more as one Orkla, sharing IDs, sharing products between business areas and markets and take it out taking out synergies throughout the value chain. However, we still have a way to go and I see still a large potential going forward. We will continue to focus on accelerating our performance in the coming period.
So with that, I would like to hand over to the floor to Jens to share with you some more details from the quarter.
Thank you, Petit. I will now take you through more of the details of the financial performance in the Q1 of 2016. Let's start with the Group P and L. Despite negative effects related to the timing of Easter, we saw positive development in income this quarter. Organic growth contribution from M and A and positive currency translation effects resulted in an increase in operating revenues of 14% in the quarter.
Adjusted EBIT for the group came to €817,000,000 and that's up 13% from last year. The growth was related to stronger results for the branded consumer goods, both from underlying improvements as well as structural growth and positive currency translation effects. Profits from associates and JVs doubled in the quarter, mainly driven by strong progress in SAPA and continued growth in sales and profit in Jotun. In the quarter, we also sold an associated company in real estate, resulting in a gain of €57,000,000 in the quarter. The group's net financial costs were reduced in the quarter, mainly due to gains from sale of shares and lower interest rates.
This gave a profit before tax of SEK1.3 billion in the quarter and that's up from SEK795 1,000,000 in the same period last year. Despite increased profit, tax expenses were somewhat lower due to a positive one off item in this quarter. This resulted in a significant growth of 74% in earnings per share this Q1. Let's look closer at the Branded Consumer Goods. In Q1 'sixteen, the branded consumer goods enjoyed an increase of 16% in revenues year on year.
This increase was driven by significant contribution from several acquisitions, positive currency translation effects from a weaker Norwegian kroner as well as organic growth of 1.8% the quarter. Reported EBIT margin was 10.3% in the quarter, and that's down from 10.7% in the same period of 2015. The margin decline is caused by dilution effects from acquisitions and distribution agreements. Adjusted for this, we continue to raise our underlying margin as a result of several cost improvements. The underlying improvement in margin is progressing at about the same level as previous quarters.
Let's now review the performance of each business area, then starting with Orkla Foods. The sales increase in Orkla Foods was mainly driven by growth in key categories, supported by was expanded to include Tropicana in Norway and Krakow in Scandinavia, which added to the growth in the quarter. On the other hand, sales growth was negatively impacted by the timing of Easter. Orkla Foods have overall stable market shares in the quarter. Sales growth and cost improvements resulted in EBIT growth and margin expansion in the quarter, although higher input costs had a negative effect on profitability.
In addition, the agreements with PepsiCo had a dilutive effect on the margin. Let's look at confectionery and snacks. Oiklal confectionery and snacks had strong sales growth in the quarter, driven by volume growth in Norway and Sweden. The timing of Easter had a somewhat negative effect, especially in Norway. The new agreement for Pick N Mix Suites in Coop stores gave strong sales growth in the quarter.
And in addition, the agreement with PepsiCo to distribute Lays in Norway, Sweden and Finland and the positive effect since the start of this year. Confectionery and Snacks grew their market shares especially driven by Sweden and Estonia. The EBIT increase was a result of strong sales growth. Dilutive effects from the pick and mix agreement, the distribution agreement with PepsiCo and the acquisition of MP Foods resulted in an EBIT margin decline. Now over to Orkla Care.
Orkla Care reported an organic sales decrease in the quarter. And as Peter mentioned, this is partly due to the timing of Easter. Lilleborg, Giprochnell and Orkla House Care experienced sales growth, but this was more than offset by decline in Orkla Home and Personal Care, Orkla Health and Piedurbel Group. Orkla Home and Personal Care met strong comparable figures from Q1 last year with several launches and campaigns. In addition, the overall market growth was weak and the competitive environment in Norway tough.
In Oita Health, growth was hampered by the loss of distribution agreement in Denmark the challenging markets and then especially in the weight management category. Piedurbair was impacted by timing of campaigns this quarter. The market share development in the quarter was weakened because of price pressure in Home and Personal Care, timing of campaigns in PI Rubber Group and the challenging markets in the weight management category, as I said. In other categories, market share was more stable. A continued weakening of the Norwegian kroner also affected profitability in the quarter.
In addition, following a new agreement made in 2014, Unilever took back the distribution of 5 of their brands from January this year. These were brands with high margin contribution. Orkla was, however, compensated for this with a payment of roughly €300,000,000 in 2014. The margin was further diluted by the inclusion of Seadroat. The integration of Cedrott is developing according to plan.
And as mentioned several times before, it will take some time before we see the full synergy effects of this integration. Easter. Adjusted for Easter, the underlying growth was in line with markets in the relevant categories. As expected, increased exposure in the ice cream segment resulted in limited EBIT contribution in the Q1. And in addition, profitability from margarine butter blends fell due to a large surplus of milk in European market of the change of production quotas and the lower export to EU to Russia from EU to Russia related to sanctions.
Higher prices of raw materials such as almonds impacted the margins in Orkla Food Ingredients. Let's now look closer at the results from Orkla Investments. I think this is not a good sign. It has nothing to do with the results in investments because they're actually very good. So Experts, now we are back on track.
As stated earlier, during the quarter, the remaining ownership in Gringas was sold at the price of NOK69 per share And this resulted in a gain of NOK26 1,000,000 that is booked in the quarter. And I must say that overall, we are very satisfied with this exit of Gregis. After the sale of Ghegis, our remaining share portfolio represents a combined market value of roughly 374,000,000 And as you know, Oikla Investments also manages a real estate portfolio with a book value of approximately NOK 1.7 1,000,000,000. The main share the main assets are, however, Sapa and Jotun. And as Peter mentioned, Sapa has achieved a great improvement.
Underlying EBIT for Sapa increased significantly from last year with improvement in profit in all business areas. Effect from improvement programs and increased share of value added products contributed positively to the progress as well as positive currency translation effects. Demand in North America increased by 3% due to increased activity in building and construction and the strong demand in automotive industry. Looking at Jotun, Jotun only reports financial results on a 4 monthly basis. And as a result of that, we cannot present official figures for Jokuten for the Q1.
But this slide illustrates development in 2015. Jokuten had strong performance in 2015 and the positive trend has continued into 2016. Jotun delivered all time high sales and operating profit in the Q1 of 2016. The strong quarterly result is driven by good performance in all four segments, better gross margins in addition to positive currency translation effects. Revenue growth is primarily driven by the Decorative Paints segment in the Middle East and Southeast Asia and Marine Coating sales in Northeast Asia remains strong.
Jotun continues to invest in increased production capacity in line with the company's growth strategy. Investments activity during this period was mainly related to the new factory in Oman. Hydro Power had high production volumes in 2015 and compared with last year production volumes were slightly down Q1 this year. Power prices were also down in the quarter. In sum, this led to a drop in EBIT from €56,000,000 to €44,000,000 I'll now take you to the changes in net debt.
Net debt at the end of 2015 was €7,800,000,000 Net expansion investments in Q1 totaled SEK1.5 billion, primarily related to the acquisition of Hammeh. Cash flow from operations amounted to SEK 200,000,000. The net sale of shares and other financial items was SEK 900,000,000. And due to the weakening in Norwegian kroner, debt denominated in other currencies increased by NOK 200,000,000 during Q1, resulting in a total net debt of SEK8.3 billion at the end of March. This is well under our communicated target of net interest bearing debt to EBITDA.
Forecast net interest bearing debt had an average maturity of 3.1 years at the end of March. The average interest cost was 2.1% in the quarter. Now let me hand the floor back to Petti.
Thank you. Well, as you have seen, in the Q1, we have continued to see positive effects from both top line initiatives and cost improvements throughout the value chain. Despite negative sales effects related to the timing of Easter, we managed to achieve organic growth roughly in line with the market and we report the 8th quarter in a row with organic growth. Positive effects from internal improvement programs resulted in EBIT growth. Our associated companies continue to report solid progress in the quarter.
And in sum, this resulted in an increase in earnings per share of 75%. We have continued to reallocate capital into brand consumer goods in the Q1. The remaining shares of Gringes were sold and we have made further investments in our Brand Consumer Goods operations. As mentioned, the acquisition of Hama was completed in the end of the quarter, making Orkla one of the leading suppliers of branded foods products in the Czech Republic and Slovakia. With Hama, we get the critical mass to run profitable operations in a region with good growth.
We have over time gained through rough knowledge about the Czech market through our company, Vitama. And I'm also glad to mention that we see now very strong growth in Vitama as a result of company improvements as well as very good market growth in the Czech Republic. Going forward, we will continue to improve profitability by increasing operational efficiency throughout the value chain And also by working more closely as 1 Orkla, the group will exploit synergies more effectively across operations while cultivating Orkla's unique local customer and consumer insights in the markets where we operate. Before we move on to Q and A, I would like to give you a preview of some of the innovations which are just about to be launched now. Daniel is launching a new range called our best salads.
This is a premium range of salads where we have removed twothree of the mayonnaise and replaced it with cottage cheese. This is resulting in a salad low in calories, high in protein and with a fantastic taste. In addition, the Denia brand is being relaunched with a new design and a twist lid, which is unique for the category, offering a clear functional benefit to the customer. I urge you to try this product. It's great.
Confectionery snacks are about to launch new bites of wafer covered in chocolate with 2 flavors Crispy Chocolate and Caramel. In Norway, the launch is building on the strong local confectionery brands Crispo and Svermok. And in Sweden and Finland, they are launched under the well known biscuits brands Ballrina. I think this shows a very good example of how we are collaborating cooperating between geographies and categories within Orkla. In Orkla Health, the complete Nutrilet range is being relaunched across all Nordic markets.
The new design highlights naturalness and taste and makes it easier to navigate among the products. I hope you will try and like our new products before and then we move over to the Q and A. Thank you. Could you please
tell us about the organic growth excluding the PepsiCo agreement, particularly for confectioners and snacks? And secondly, the much disputed factory structure has in media, in particular, could you let us know a little bit how it was in Q1 if you closed something and if your plans continue what you have stated previously?
Well, I can answer the first one on this organic growth. And I think that overall, adjusted for PepsiCo and Easter, we are very pleased with the organic growth. And then we don't elaborate specifically on each business area, But adjusted for PepsiCo and Easter effect, we see very good growth. And as Peter mentioned, a healthy growth with a mix some mix between volume and price. So, yes.
I will try to
answer the question regarding factory structure footprint. As at least the Norwegians know, there has been a lot of discussion in newspaper about closing of factories. As I mentioned several times, we have Orkla is a result of a lot of acquisitions over time for many years. That has led to a quite complicated complex factory structure. We have too many factories producing more or less the same products.
We have too many small factories underutilized. And we have too many factories also with the same technology. This leads to low utilization rates, but it also leads to that too high share of our investments is going into maintenance investments instead of innovations and growth investments. So our aim is to have fewer factories. And in general, as a general rule, we said that in one certain geographic area, we want to have 1 factory per category and one factory per technology.
And we have a long way to go. We have announced closure of 15, 16 factories the last 20, 24 months. We had been a big discussion in Norway about the ketchup factory at Rygja, which we announced yesterday that or we announced a few months ago that we had made an intention decision to move the factory to Sweden. During after that intention decision, there was a period where we listened to all stakeholders. We do very detailed investigation.
We look at all kind of alternatives and consequences. And in this case, we decided yesterday that we will not move the factory to Sweden because of capacity problems among other things. But long term, our strategy is very clear. We need to have fewer bigger factories more specialized.
Praveen Asgorsen, Carnegie. Can we touch a bit on Oerlikar Care? I was just wondering when the products from Doctor. Greve, the new products were hitting the shelves. And do you see any changes going into Q2, whether these products can more than neutralize the losses of the Unilever brands?
And lastly, you were mentioning that the synergies from Cerrott will take some time. When should we expect to see those synergies in the numbers?
I think regarding Doctor. Gereva, I think it's too early to say anything about that. Hopefully, I can tell you some positive news on the 15th July when we announced Q2. It's too early. It was launched in the end of February, so it's just it's quite new.
Integration processes always are challenging, and we also knew that the Cedrat integration would be challenging. We have made very, very detailed, very good plans of the integration process. And the process is going according to or above actually our initial plan.
Madras Gorges, Stefanok. I have a question to acquisition made this morning announced this morning. When do you think the U. K. Authorities will approve the acquisition?
And do you see any risk of that you have to divest of any of the brands on wires?
We expect the closing of that transaction in during Q3. We don't expect that we need to divest any brands, but that remains to be seen. Anyway, it will only be minor influences to the business.
Martin Stenzahl, Danske Bank. One question relating to what you said in the report regarding a continuous stronger competition for branded consumer goods. Could you please talk a bit more about that? Are you seeing a lot more competition, tougher competition? And any specific categories that are affected by this?
We are used to quite tough competition. We have been living with this competition for years. But it's not weakening the competition. It's tough. And it's in some categories, it's tougher.
And I think especially some of the care or the care categories, we see a very tough competition, both from private label and international competitors, also with price pressure in certain categories. This is not actually nothing new. We see this from time to time happening. But overall, we expect tough competition also going forward. That is also why we're doing this supply chain optimization, And that is also why that is so important for us to increase our competitiveness in the market and also to be able to, as I mentioned, to invest more in innovations, more in growth rather than just maintenance of roofs and buildings.
My question relating to the acquisition of Harris. Could you explain the let's say, the how this compares to Urdan? How complementary the acquisition is in terms of markets and products?
Yes, we think this is very complementary. Uldam or Orkla House Care is also present in U. K, but mainly in the professional market, while Harry's is mainly in the DIY market. So I think fit very well together in the U. K.
No further questions? Okay. Thank you all for coming and listening to us. And please don't forget to try our new great products. Bye bye.