Morning, everyone, and welcome to Aukla Investor Day 2017. For you who don't know me, my name is Matthias Orenjos, and I'm the Head of Investor Relations. It's fantastic to see so many familiar faces have come to Oslo today. And I also like to wish a warm welcome to everyone joining on the webcast. We're a bit extra excited this year because for the first time ever, we will open up our growth fair for you later during the day.
There, we'll get some insights into how we work with product development, meeting the new consumer trends, our digital transformation and much, much more. And you will get the first look and taste to some of our upcoming innovation and also meet the people behind them. And you will also hear short introductions from our business area heads during that session as well. I'm confident that you will appreciate it. But before that, you will hear from our President and CEO, Peter Ruske our Head of Supply Chain, Johan Clari and our CFO, Jens Staff.
They will give you an update on the journey we are, transforming Orkla from an industrial conglomerate into a leading branded consumer goods company with an optimized and efficient one Orkla model. And I guess a lot of you will have some questions after that, and we will not have Q and A after each presentation, but rather a longer one after all three are finished. So have a little patience. You will be able to ask your questions, and we will also welcome questions from the web. Management will also be available during the lunch break we will have and after the Growth Fair.
I will be back the Q and A and give some more details on the fair. But now I'm very happy to introduce our first speaker. It's our President and CEO, Peter Rosica. Welcome on stage, Peter.
Thank you, Matthias. Good morning, everybody, and welcome. Very happy to see you all here. And as Matthias said, this year, we also have a special event for you. It's the Orkla Growth Fair.
And actually, I have participated in the Growth Fair now for some years. And every year, it strikes me how extremely inspiring and fascinating it is to see all the products, see our innovations and not at least meet the people behind our brands and behind the innovations. So I got that idea. Last year, I said, well, we're doing all this, so let's invite some more people to share this event with. So I'm very I think you can look really look forward to the growth fair.
We are in the middle of a strategic period, and we are going to give you an update on where we are, but also where we are heading. This is the agenda for today. 1st, I would like to give you a current status on our where we are on the journey and our current position and most importantly, maybe how we're going to grow also into the future. Then our COO, Johan Thalien, will give you some more insight into how we strengthen our supply chain, what we have done and what we are doing going forward when it comes to factory optimization, continuous improvement, purchasing or cost savings and so on. And then our CFO, Jens Staff, will share some of the stories behind the numbers as well as also going through some of the other cost initiatives we have as well as capital allocation.
And as Mattias said, that we will have a common Q and A session afterwards. And you will have plenty of time to talk with us during lunch and during the fair and during the hour after the fair. Together with me here today, I also have the CEOs of our business areas. We have Paul Eichlann of Glaust Food Ingredients. We have Annette Trojan, CEO of Confectionery and Snacks Stig Ebert Nilsson, CEO of Orkla Care Atlee Widar Johansson, CEO, Orkla Foods and Terje Andersson, CEO, Orkla Financial Investments.
So you will have time to talk with them during the launch, during the fair or whatever. And you will meet the CEO heads of each business area during the fair, so they will have a short introduction there. So let's look at Orca's performance since we met last time in London in September 2015 and our current position. In 2011, we announced a new strategy, and we started the journey going from a conglomerate to a branded consumer goods company. Since then, we have done a lot of sales, a lot of exits, REC, Borigore, Grenes, and we also formed a joint venture together with Norsk Hydro, forming the Sapa joint venture.
We have actually now also completely exited our share portfolio, so that is completely out. And we have, as we said, reallocated capital from noncore to our core business to brand consumer goods companies. And we have done a lot of acquisitions in the meantime, a lot of small acquisitions and some big acquisitions. But we still have some non core assets left in our portfolio. And the largest one is Sapa, the JV we have together with Nordstrom.
And since we established the JV, Sapa has delivered very strong performance. The bottom line improvement trend continued into Q1 2017 after 13 consecutive quarters of improvement. And underlying EBITDA has increased in this period from NOK1.1 billion to approximately NOK3.7 million on a rolling 12 month basis. And this has been achieved through, 1st of all, the establishment of the JV, where we realized a lot of synergies. We have taken out a lot of cost, and that was done ahead of plan.
We realized more synergies than we anticipated, and we did it earlier than we anticipated. But in addition to that, we have also had a successful transformation of the strategy in Sapa, going from more commodity, low margin profiles into more value add high margin profiles. And that journey is will continue. We also have to say that we have been helped by quite favorable markets in North America. However, in Europe, the markets has not really recovered since the financial crisis.
It's just a couple of last quarters that we have seen an improvement in the European demand for aluminum extrusion, and we expect that to continue. So in the period, EBITDA has more than tripled. So I think we can be very happy. We can also be glad that we have been patient with our holding in Sapa. And actually, now the payback of the investment is now also getting visible in our cash flow because for the first time, we received a dividend of NOK 1,500,000,000 this or for the fiscal year 2016.
And then I know the question will come, what about exits? And we have talked about that many times, and I will just repeat what I have said. We are not in a hurry. We have a solid balance sheet. And for us, it's more important to realize what we believe is fair value of our shares in Sapa than speed.
That being said, we have also been very clear that Sapa is not part of our core business. We are not a long term holder of Sapa, but we really want to get our fair share of the synergies from the joint venture. And we also see that there is still a lot more to go or to improve in Sapa going forward. So we will exit some time, but I cannot tell anything about timing yet. Our second largest holding under Orkla investment is Jotun.
We own 42.5% in Jotun, and we have been shareholder for many, many years. And Jotun is a great story of organic growth globally. Despite some market headwind recently, Jotun has delivered close to 10% compounded average growth rate, both in sales and EBIT over 10 years. That's quite impressive. After extraordinary strong profit growth in 2015, weak markets in marine, newbuilding and offshore in combination with higher raw material prices and some negative currency effects hampered profit second half of twenty sixteen and also first half of twenty seventeen.
Markets are quite difficult right now. But Jotun continued to pursue its organic growth strategy and has attractive exposure to growth markets in Asia and Middle East. We expect to that Jolto will return to profitable growth again towards the end of 20 17. And we have been through these waves before. They will come in the especially in the marine segments going up and down.
And we regard Jotun as an attractive long term investments for Orkla. And actually, quite a big part of Jotun, the Decorative division, is brand and consumer goods business that we know quite well. So even though we still have some noncore assets left on our balance sheet, we believe that we have we can say that we have delivered on the strategy, exit noncore assets and allocating capital into brand consumer goods companies. We are in the middle of a strategic period, in that restructuring period. These were the targets that we presented to you during Capital Markets Day, Investor Day in 2015.
And I can assure you that the targets remain firm. We have the first target was to keep the strategy on track. We have reallocated capital from noncore to core. And actually, just last year, we freed up NOK 1,800,000,000 from noncore, and we invested NOK 2,700,000,000 in brand consumer goods acquisitions. So I think we can take this off as green.
I hope you agree with that. We also our second target was organic growth. And we said that we will grow at least in line with the markets where we operate. And on this target, it's a little bit difficult really to know what the market is because we have exact figures in the Nielsen universe from approximately 50% of the market, and the rest is more a guesstimate. But anyway, we saw that during 2016, the market growth weakened towards the end of the year.
But we also believe, according to our, I would say, guesstimate, that we did not grow exactly in line with the market. We grew somewhat lower than the market in total. So we are, of course, not happy about that. In Q1 of 2017, we reported organic growth of 1.6%, and that was a growth higher than the market. So that was actually we delivered above.
But anyway, I think this is yellow. It's not red. It's not green, something in between. We are on the right track. But I tell her that this is a tough battle every day to win the consumer and not least to win shelf space among or with the customers.
Our third target was to deliver an EBIT growth of 6% to 9%, and that was EBIT growth on the business we had at the time when we announced those targets. Any bigger acquisitions would come on top of this target. And if you look at the recent history, we have increased our reported EBIT by €1,300,000,000 to €1,400,000,000 since Q1 2014. And the reported EBIT increased by 12% annually since that time. So that is quite good.
But according to the capital markets definition of EBIT growth, the 6% to 9%, we delivered last year 6.8%, which is within the targets, and we are quite happy about that. We have achieved that through organic growth, even though not completely in line with the market, but we have delivered organic growth through a lot of cost initiatives in our supply chain and also cost initiatives in other parts of our value chain and especially in SG and A. We will come back to this a little bit later. But I know that you are also focused on margin development. Even though we have said that the target for us is to increase EBIT, But of course, we are also, of course, focused on margin development.
And I can assure you that improving our underlying margin is very, very high on our agenda as well. Through the restructuring of supply chain, through taking out or realizing synergies in SG and A, we have increased our underlying margin by 110 basis points in brand consumer goods area the last 2 years. And in Q1 2017, we improved the margin with another 30 basis points. But at the same time, recent acquisitions and distribution agreements have diluted the reported margin correspondingly, as you can see from the graph behind me. But as I've said before, we don't steer the business on reported margin growth, but on growing EBIT at a good return, of course.
And as I have shown you, we have actually done that. So I think that we can also tick this off as green. We also said that we will pay out a dividend of at least €250,000,000 in the period. And for the fiscal year 2016, we paid out €260,000,000 So I think that's also that one is green. Before I start talking more about how we are going to grow and the future, I would like to just take you back to our Orkla's business model, what we call the optimized model, because I think that is very important for you in order to understand Orkla, understand our business model and understand the difference between us and other multinational companies in our industry.
Orkla is a result of a lot of acquisitions over time. And the old model we had, it was called a multilocal model. It was a model that said that each company was operating as an independent unit, completely autonomous unit from the other business units in Orkla. It was nothing or at least very little cooperation between business units, business areas and geographies, and that worked fantastic for a long time for Orkla. However, we also see that the real strength of Orkla is our local brands.
It's our insight into the local consumer, And it is our ability to adjust our products, our offerings, our service, whatever, our concept to the local preferences in each single market. And put that together with the local brands, actually we have 300 strong local brands. That is and has been and will be really the fundamental strength of our business model. And we also see actually that local brands are all over the world are winning on behalf of the big global brands. However, we have faced much, much tougher competition the last years, both from multinationals, from private label, but also from really local players in each single market.
And we are facing tougher demands from our customers. So we need to even strengthen our ability and proximity to the local market, but at the same time, we need to realize synergies throughout Orkla. And this is what we mean about the optimized model, the best of the 2 worlds, be local, be close to consumer, be close to the local customer, but we need to take out synergies wherever we can. And we have to balance those two things together. And we have a lot to do still by realizing synergies, taking out cost.
And Johan and also Jens will take you through some of what we have done and what we will do later to date. But this is about working as 1 Orkla, utilizing our scale across all business units and geographies. And as I said, because this is a fight every day for the wallet or the stomach of the consumer. I would like to show you some examples of how we work with the optimized model. And as I said, it includes initiatives throughout the whole value chain.
Cross country launches is one thing. And you can ask why haven't we done that before. I don't know, but we haven't. We are doing a lot more of that now. I will show you some examples later.
Taking a success from one market, introducing it in other markets, sometimes under a local brand, sometimes under the same brand and sometimes with some local adjustments to the product to fit with the local consumer preferences. It's also about innovations. Instead of doing innovations more or less the same innovation based on the same consumer insight in several markets. We can do that in one place, and we can launch innovations across markets, not always at the same time, but we can do it based on the same consumer insight. Factory optimization is also one area.
We have to look at total factory capacity and competence we have within Orkla across geographies and business units and business areas. And when we started our factory optimization program 2.5 years ago, we since then, we have closed 24 factories. And Johan will talk more about this later. We have also integrated some of our businesses in especially in markets where we don't have really critical mass. And one area or the latest example is Finland, where we have merged together Orkla Foods Finland and Confectionery Snacks Finland.
And of course, that gives us a stronger organization, more powerful versus retailers, more powerful go to market organization that will hopefully boost also top line. And at the same time, we save cost on having 1 company instead of 2 with the administration and so on. Another good example, I think, is confectionery snacks and Foods Norway. Foods Norway have a very strong position in the food service business, everything you eat outside the home, restaurants, hotels, so on. Confectionery and Snacks, they also have a presence in this channel, but they didn't really have the critical mass to really put resources behind it.
So now the foodservice part of Orkla Foods Norway have taken over sales responsibility for confectionery snacks products in Norway, resulting in volume growth, sales increase and reduced cost and also more happy customers actually. Also through acquisitions, we are also working more as one Orkla and realizing synergies. And I think the acquisition of Hame is one good example. We have the presence in Czech Republic and Slovakia with Vitama, but we were not we really didn't have the scale and the size to be really a powerful partner for the retail creator. Through the acquisition of Hame, which is also in categories that we know very, very well from the other markets where we are.
We get really this critical size, and we've become the most important supplier to the retail sector in Czech Republic and Slovakia. And we see also a lot of synergy potentials going forward. Also in support functions, we have realized synergies. For instance, in customer service in the Nordic, HR and also financial shared service office. We have a shared service office in Estonia that now do approximately 60% of the accounting job for our Nordic companies.
And last but not least, as I said, Orkla is a result of a lot of acquisitions. We have the multilocal model, independent companies. That has also led to a situation where we have at least 27 different ERP systems with more than 400 different applications. And as you can imagine, that is not really supporting this 1 Orkla strategy approach. It doesn't really support realizing synergies.
So we have just finished a pre study to see or to look at the pros and cons of having one common system. And we have actually taken the decision that we will go for 1 common system. And we also see that several of our big companies, they are facing end of support of their current ERP systems, so we need to do something in this area anyway. And I can assure you that we will not go with 1 big bang. The risk for that is too big.
We will do this company by company. And of course, we'll take the companies that need to change first. And we will make sure that we are able to deliver to the customers the service level and the products and innovations we need to do every day also during the transformation period. So these are just some of the ways how we have been increasing growth and reducing cost. I would also like to revert to one KPI that I also, I think, showed you before, and that's the famous black over red.
This is lesson number 1 in the business school, that over time, your cost should be somewhat below your revenues. I think that's a good principle. And this is now here illustrated by the black line, it's the organic growth, and the red line is development of fixed cost. And as you can see, since 2009 until 2014, our fixed cost increased more than organic growth. And sooner or later, that will not end very good, obviously.
So we have done a lot of initiatives to create a gap between black and red, and we have achieved that gap. And this is a KPI that we follow very, very closely. And of course, the most easiest way to create this gap is to increase top line. But there is almost like commands to our companies that if you are not able to create that top line growth, you have to immediately attack your fixed cost and manage them and reduce them. So all these initiatives, all these actions are also being visible in our share price.
So how much so how has it developed? Last 3 years, Orkla share price has increased 83%. Peer group have increased 45%, and Oslo Stock Exchange has increased approximately 16%. So I think we can be quite happy with what we have achieved so far and also know that expectations are increasing based on such a performance. But this was about the status of where we are and what we have done.
And I will now talk more about the future, which is more important, where are we taking the business, how are we going to win, the battle we are in every day. And we see a lot of challenges, but we see even more opportunities in the market. And we have actually 4 growth pillars, 4 ways of growing going forward. The first one is to meet the consumer needs, meet consumer trends with our local brands. The second one is growth in other channels.
And in this context, other channels is everything except for traditional grocery. Sharing innovations and best practices, doing more of that. We have done quite a bit, but there is a lot more potential. And the 4th is acquisitions. And I'll go through each of these growth pillars in more detail and also show you some examples.
So let's start with meeting the consumer trends with local brands. And actually, we see we have analyzed them to see what are the trends for the next, let's say, 10 years in our industry. And there are many, many trends, but we have chosen 6 trends that we think will be the most important for our business, our industry. And the first trend is an increased demand for organic food, organic products. As you also saw from the ad of Pierre Dubair just before we started, they also launched this organic cotton.
This is a trend that we see is especially strong in Denmark and in Sweden, not that strong in the other markets where we operate, but we know that this trend will come also in the other markets, and we need to be prepared. We have launched quite a lot of products, organic, but we need also to be prepared when this trend is strengthening in the other markets, in the Baltics, Central Europe and so on. The second trend is natural, free from products without personal products without parabens, food without artificial additives, things that are good for you or at least perceived as good for you, also as quite strong trend. And obviously, health and well-being also a strong trend. And according to United Nation, there are more people in the world that die from lifestyle diseases than die from
hunger.
And that is related to what they eat, mainly salt,
sugar
and separated fat and how little they exercise. It's a combination of these two things. And about the exercise, well, Orkla Health can do quite a bit in that with Maxim and so on. But when it comes to salt, sugar and saturated fat, we can do a lot, and we have done a lot. We have, over time, worked to reduce salt constantly, but we have to do it over time because if the food or the product doesn't taste good, the consumer will choose something else or they will add salt themselves.
We have to do this over time. We have reduced sugar constantly over time, and we have reduced saturated fat in all our products, mainly by replacing either animal fat with unsaturated fat or by replacing palm oil with more healthy oils. But then people want to eat natural, healthy and so on, but they also want to indulge. And mean, it's a paradox that the strongest growth categories we are in are confectionery and snacks, growing every year, not only in Norway, Sweden, but we see that actually all over. And how come, how can it be?
And I think that you have 2 kinds of health. You have physical health and you have mental health. And confectionery snacks really helps your mental health. Then we also see increased trend or demand for ethical and environmental friendly product companies. And I think this is a trend we see especially which is especially strong among young people.
They are not only concerned about what the product contains, but they are real people start to be concerned about what kind of company is behind this product. How are the how is the product produced? What is the environmental footprint? How are the raw materials sourced? Are they involved in child labor?
These kind of things. What are they doing in logistics to reduce CO2 emission and so on and so on and so on. And I think that this is this will not be a success factor being the best on ethics in the future. I think this will you just have to have these things in order even to be into the consideration of the choices that the consumer will take in the future. So we work also quite hard on ethics and environmental trend.
I think also this is also an example where I think being local with local brands really gives meaning. I mentioned palm oil. Deforestation is a big issue when it comes to palm oil over the world. In Norway, in addition to deforestation, I think most of which are not concerned about deforestation actually because we have quite a lot of trees there. In addition to deforestation, Norwegians are very concerned about unhealthy aspects of palm oil because it's saturated fat.
So because of that, we have replaced in all our food products and most of our confectionery snacks products, we have replaced palm oil with unsaturated fat, with sun seed oil and so on in order to meet that local trend and with our local brands. And the last trend we see is convenience. People have are more and more time constraints. They are more and more on the run. So what they actually want is an organic product that is natural, good for you, that is really healthy and improves your well-being.
It should taste fantastic. It should be produced in an ethical, environmental friendly way. It should be very easy to grab and eat, and it should preferably not cost anything. I mean, that's the trends we are facing. I think one example that delivers on all these trends is our Danish brand, Natulle.
Natulle is an organic vegan brand in Denmark launched some years ago, and they have experienced fantastic annual growth since the launch. It meets all the 6 trends I said, maybe with the exception of the 7th trend, the price, because it, of course, costs money. And we have seen very strong growth with this brand, and we are also about to take this brand into other markets. Another example is the personal care brand Doctor. Gereva.
Doctor. GRAVA is a very old Norwegian brand dating back to 18/90. And as you see from the name, it was invented by a medical doctor, Greve, in the largest hospital in Norway at that time. He was very concerned about infants and children health, both when it came to skin care, but also food and so on. So he developed at that time a lotion for children and soap for children that were very gentle to the skin for also for infants.
And when we lost distribution agreement with Unilever, we decided to relaunch this brand because it's a well known brand, but it was aimed at children or mothers with children. And we extended the portfolio, and we launched this in Norwegian market. And actually, during less than 1 year, we have become the market leader in body lotion and shower gel, and that is quite impressive. I mean, we are up to one of the strongest multinational players in these categories with vessel in intensive care, Dove, and we managed to take market leader position in 1 year with this brand.
And I
think this really shows that being local, making products that are fitted to the local consumer with a local brand really pays off. Another example is a new brand that we are about to launch, which is called Klar, directly translated, it's clear to English. This is a home and personal care brand that will be launched in Norway. The formulations are largely plant based. They are really free from products without unnecessary chemicals or colorings.
We are also they also fulfill the very, very strict criteria for the Nordic Swan labeling. So we can use the Swan label on this product. They are nonallergenic, of course, very concentrated formulations that gives smaller recommended dosages and also smaller packaging, which reduces logistics or CO2 emission with transport. And the bottles or the packaging is, of course, made of 100% recycled plastic. And of course, most importantly, it also have very good cleaning power because it has to have good cleaning power.
That's number one factor when people are choosing home care products. It will be launched 6th September in a limited range in the beginning, and then we will increase the portfolio in the coming years, and we will probably also take the portfolio or the brand into other markets. I think this is a good example how we can react, respond to consumer insights. This is an insight we have received from consumers. They are asking for a more environmental friendly way of cleaning their house, cleaning their home.
But actually, it's also a feedback from our customers in Norway that they get this feedback from their consumers that they really want a more environmental friendly home care products. So this is also made in cooperation in a way with our customers. You will be able to see the products on the growth fair yesterday later today, and we will also meet the people behind this launch. But trends are important, but the core is more important. We need also to take care of the core, because the most profitable thing we can do is more of the same, producing more pizzas or not producing, but selling more pizzas, more ketchup, more patties, more chips and so on, because we have done the investments, we have the capacity, we have done the innovations, and obviously, that is the most important thing we do.
So we have to at the same time, we have to focus on the core, but at the same time, we're looking for the really new big thing, the new Pizza Grandiosa or whatever. The second growth pillar is what we call other channels. And as I said, that's the sales channels in all areas except grocery. And actually, we see that shopping patterns are changing. And if you go back, let's say, 70, 50, 70, 100 years in time, we had a lot of specialty stores where you bought at the butcher, you bought your meat.
You went to the fish store to buy your fish. You went to buy you bought your cutlery or your chicken or your kitchen tools in a specialty store and so on. Then we have seen during the last, let's say, 50 years, 70 years, that a lot of these categories have moved into grocery and the specialty stores have died. What we see now is that grocery traditional grocery development is flat, hardly any growth. But we see that specialty stores are coming back, and we see especially strong growth in other channels like, obviously, in e commerce.
But we also see strong growth in all channels of, call it, out of home, restaurants, takeaway, fast food, kiosks, gas stations and so on. Also quite strong growth in all the markets where we are. Also in specialty stores, DIY and so on. And of course, we want and we have to be present where the consumers are, and we have to be present where the consumer expect to find our products. And that will be different tomorrow than it is today and then it was yesterday.
And a lot of the M and As we have done the last couple of years have been exactly to improve our position in these channels. To the left, you see our growth in what we call other channels in 2016. Export has grown by 9%. That's partly because of acquisitions, but it's also because we have decided to centralize our resources in a common international sales organization. Pharmacy has increased a lot.
That is partly because of the acquisition of Seadroat, but also because we with the Seadroat sales force in the pharmacy channel, we also could add a lot of Orkla Health products into that channel. We see strong growth in specialized trade, and that can be like sports shops, health and beauty stores, tax free, outlet stores and niche stores and also, call it, general discount stores. So we have managed to increase focus on other channels, and we have reduced, call it, our dependency on the traditional grocery channel. But as you see on the right side, still 72% of our sales is still in traditional grocery. But going forward, we think that other channels is where we will get the growth.
And as I said, we have seen and we will see strong growth in e commerce. And these are two examples of our own e commerce stores. The one is Tiaro Bag, personal textiles. And the other one is Orte Health online store, Nutrilet, which is weight management products, diet products. And as you can see from the figures, very strong growth in both of them.
And the growth is one thing, but what is also interesting about having these online stores is that we get direct consumer access or contact, because today through traditional groceries, our contact with consumer goes via the grocer. And we don't we are not in really indirect contact. That gives us a better understanding of the consumer, and that also helps us in doing better, more powerful innovations. And it also helps us actually to become a better partner for other e commerce retailers. We believe we are really experts.
We have the best key account managers to traditional grocery retailers. We have the best go to market organization, in store salespeople in traditional retail, but we lack competence in online, and this is a way to build that competence. The 3rd growth pillar is sharing innovations. As I said, taking successes from 1 market, launch it in other markets, we don't need to invent the wheel everywhere. It is about working as 1 Orkla, utilizing our scale, utilizing all the knowledge, all the consumer knowledge we have across markets and business areas.
I think one very good example of this is Paloons. Paloons was launched in Sweden in 2,005 as a really, really good for you brand, good for you products. It was first launched as breakfast cereals, granolas, and we have seen very, very strong organic growth in Sweden. We have also had a high level of launches and line extensions, and we've also moved the brand into other categories. So we then quite obviously, we decided to launch also in other markets.
So it was launched in Finland, Denmark in 2015, in Latvia in 2016 and in Norway in 2017, but under a local brand. I think this is really, I would say, best practice of how we should work as 1 Orkla, how we should share insights and innovations. It's one product, different local brands, but it's the same product. Is based on the same consumer insight, produced in the same factories. And that, of course, also makes this a relatively cheap way of launching a new product in several markets because we do the investments only once.
Really good one more example. Then the 4th pillar for growth is growing through acquisitions. And M and A has been a very important value driver for Orkla in the history, and it will be also in the future. But of course, we have some acquisitions criteria when we do M and A. And of course, obviously, it has to have strategic fit.
We are looking into companies that can help us improve top line, quite obviously. It can either be in categories with higher growth or it can be in geographies with higher growth or it can be can give us revenue synergies, like the example I said with Seaderoat and Orkla Health in the pharmacy channel. You get access to a new channel where we can add on our products. We also want to do acquisitions in that gives us growth in channels with higher growth than traditional grocery. That means pharmacy, specialty stores, so on.
And obviously, we want to buy companies where we can realize synergies, either on procurement, on production or SG and A or on sales. And of course, companies that gives us attractive financial returns. I think in the history, it has shown that we have been quite successful in our acquisitions. And in general, we realize approximately 5% cost synergies, 5% of top line in the acquisitions we do when we buy a company in a present geography. But as we are buying companies, we also continuously have to look at our portfolio.
Are we the right owner of these portfolios or the companies? Or shall we exit some areas? And this is a constant job we are doing. And in Q1 2017, we decided and we announced that we will pull out, close down our Mayonnaise based salads. We think someone else can be a better owner of these categories or we think that we can use our resources in better areas.
So this is a constant job we are doing, also pruning our portfolio. Jens will go through some of the acquisition examples later today. So to sum up my presentation, I revert to the targets that we presented 1.5 year ago. We have delivered on our targets, and we will continue to deliver on our targets. We will meet consumer trends with new innovations and grow that way.
We will grow through increasing our presence in other channels outside grocery. We will continue to work much more as Von Orkla, utilizing our scale, utilizing our resources and realizing synergies, both top line and bottom line. And we will continue to create value through M and A. We are almost coming to an end of the transformation period going from a conglomerate to a pure branded consumer goods company. I say almost.
We're not completely there yet. But we are in the middle of or maybe even in the start of the restructuring period of the brand consumer goods area. We have a lot more to do. But the targets that we communicated that you see here, they remain firm, and we will continue to grow our business also in the future. So by these words, I would like to give the word now to Johan Klarind, our COO, who will take you through supply chain initiatives.
Thank you.
Thank you very much, Peter. Orkla's supply chain is a great combination of solid performance and improvement potentials. And over the next 30 minutes, you will all be invited to join our transformational journey. And just for you to get a better feeling on where we are on this journey, I'd like to put it in a context of 100 meter race. So we are roughly 20 meters into that race.
And that's at least when Usain Bolt picks up his pace. But then again, he peaks actually at 70 meters, and we do not intend to do that. But we are in the early days of this transformation. So what are we then trying to achieve? Well, drawing your attention to the right hand side of this picture.
We want to become the preferred supply chain partner to our customers. But in addition, we want to make sure that we have a competitive cost base and utilizing our capital efficiently. And furthermore, and also to some of the examples Peter mentioned, we want to increase our innovation, speed and ability. And in last Investor Day, we outlined 4 main working areas, and they remain the same. We are focusing on rationalizing our manufacturing footprint.
We are working with our warehouse structure. We are working with continuous improvements wall to wall within a factory. We're also accelerating our savings from purchasing, and we're strengthening our capabilities. Another way to look at this would be to say with number 1, with structure, we're actually constructing the roads. We're constructing roads.
And with number 2, we're sort of optimizing the engine of the Orkla truck. So we're optimizing that. With number 3, talking about procurement, we are securing that we get the right load in the right time to the right quality and, of course, to the right cost. And with number 4, we are training the driver. We're installing a system of GPSs, and we have also built a network of service stations.
So when the Orkla truck running, of course, on fossil free fuel, it's able to run for a long time. All right. So before giving you some more details and some more flavor to this journey, I just want to stop on some key figures. This talks on the left hand side on our cost base. So of course, cost of materials, biggest one.
We have conversion cost. We have logistic cost. We are, of course, also driving a part of the SG and A cost. And the D and depreciation is, to a large extent related to supply chain. We add this up.
We end up at roughly NOK 26,000,000,000. So it's a big portion of Orkla. And then talking about solid performance. We are able to deliver on average to our customers on a very high service level of 98%. It's really good in the fast moving consumer goods industry.
But then again, you can look at inventory turns, which is obviously too slow. So that's a huge potential area for improvements. And then some of you might have been a bit surprised to see 105 factories on this chart. We communicated 103 last time, and we also launched an ambitious program to reduce number of factories, and we end up at 105. But rest assured, I will come back to this.
So let me start now with explaining a bit more on what we do on our manufacturing structure. We operate with a rather simple strategy, and that is that we go for the 111 or 111, which means that we want to have 1 factory per technology or category in 1 geography. Then I can look at your faces and you start wondering what do you mean by one geography. Well, we define geography after certain criteria. First of all, we have customs and duty regimes that prevents basically consolidation.
We also have cases where logistics costs are eating up the business cases. And thirdly, we have a special situation where we deem localness as being of particular importance. So that's sort of how we work with the geography dimension. And then we firmly believe that we should make specialized factories. We build center of excellence.
Exactly as Usain Bolt do on running or mostly running, we do with our factories. We need to focus to become really, really good. And when we do these shifts of production, as you will soon see, We, of course, seek the opportunity to do harmonization and reduce complexity. It's no point in sort of moving complexity from one area or factory to another. We, of course, are trimming and pruning portfolio and SKUs when we do that.
And last but not least, it's so important also for our supply chain to support innovation and growth opportunities. And that's something we naturally put more emphasis on as well. So how are we then doing? Well, this talks around amount of factories that we closed since we started this journey. And Petter, we actually closed one more since you when you were speaking.
So we're actually up to 25 now. But we worked with, of course, restructuring our footprint before 2015 2014, sorry. We were operating at a level of roughly 1 factory per year. And then Peter took the helm as CEO of the company and outlined a new strategic direction. And this is then showing the amount of factors that we have closed in each and every year.
In 2015, we communicated 12, and now we're up to 25. And looking at the 25, actually 18 of those are already closed. So it's a continuous journey that we're doing. And in this process, we have had 460 roughly net employees leaving us. And we believe that this is the pace need to work at on a continuous basis also going forward.
So I've still not answered the question on how did you end up with 105 factories. But let me start with this one. We started with 90 7 factories in January 2014. And then we have added a net of 26 factors. We have acquired some, we have divested some and then we have some joint venture adjustments.
That gives a net of 26. So if we would not have done anything, we would have been up to 123 factories. And then through the communicated closing of 25 factories, we will be back to 98 factories, so basically back to the starting point. Good thing of this is that we actually added €100,000,000 in revenues per factory, €100,000,000 in revenue per factory, corresponding to 35%. So quite big increase.
But looking at this, we sometimes get the question, why don't you just stop buying or acquiring new factories or companies and focus only on restructuring? And for sure, that would make my world a bit easier. But at the same time, we see great opportunities from actually acquiring companies, both in terms of closing down our existing companies, but also closing down factories in the acquired companies. So it's actually giving us a lot of great potentials. I will show this to you later.
All right. So this is not only good in terms of increasing our revenues per factory. It actually has another benefit as well, and that's called CapEx. So introducing this and our starting point of this journey, we were spending majority of our CapEx on replacement and maintenance. That was the starting point, close to 90% on maintenance and replacement.
So we were caught in what you could call the egalitarian trap. Everyone should have their fair share. But through introducing more rigorous control system, governance, of course, working with our footprint, we have over time shifted CapEx towards more forward looking investments. So as you can see on this journey, we are investing in innovation and efficiency, which is, of course, creating a much more resilient and stronger company.
So now I'm sure we would
like to get some even further details into the cases we're doing. So let me introduce 2 cases on how we work with manufacturing footprint. So this is a case where we looked at our dilutables categories producing fanlight. We had 2 factories, 1 in Gimsoo, Norway, 1 in Kumla in Sweden. And we looked at this and we came to the conclusion that for the majority of the volumes, we should consolidate this in Kumla.
We had some minor categories produced at Gimso that we outsourced. And we see actually strong financial results coming out of these cases. We have an EBIT effect here of €11,000,000 And as you can see, also CapEx reducing, thanks to that we are not sort of maintaining 2 factors, but rather 1. And another great aspect of this case is, of course, with the asset sell off, it's basically paying for the project in terms of investments and one offs. And that's really, really strong.
And of course, the situation in the fact of Kumbla improves as well. We can run our production lines on higher utilization and reducing our conversion cost. So it's really good. But to give you some even further more flavor to this, I mean, I'm talking about the short term improvements, but there are also, of course, long term effects on this. First of all, we can work jointly with our product development resources.
We can benefit from working with a shared technology platform. And we are building our competence, our center of excellence in one place and also deploying our CapEx in that direction. And then over time, as we harmonize bottles and caps, we see even further improvements coming out of this. So it's really an excellent case where we both have short term improvements but also long term. That's very good.
Another case, actually talking around what we can benefit from acquiring companies. The Fannon site here actually came in with the purchase of Seadro. So this talks about our home and personal care footprint in the Nordics. So of course, buying Seadroat, looking at our combined footprint, what should we do? We came to the conclusion that we should build 1 home care center in Norway and one personal care center in Falun.
And then closing down the factory in Elo and also shifting out production for the Home Care segment from Farland to Chi. So it's really around thinking center of excellence, focus factories into the different areas. And this is a brilliant case again then where actually M and A is enabling footprint optimization. We see good annual EBIT effect coming out of this and also reducing CapEx. In addition, we saw a great opportunity to standardize both on format and recipes.
So we took the best of what we had and the best of what Seadrill had, and we optimized that. So really combining the best of 2 worlds. And not only having greater products, but we're also able to reduce the COGS or cost of goods sold with quite staggering 25% in this new setup. And through doing all of these cases, we actually learned how to do this type of transformation or factory movement in an efficient way. So in only 7 weeks, we were able to close down production, move it, bring it up and performing really well.
And furthermore, we also looked at opportunities when we now look into the new setup where we can optimize our new launches, new packaging and also calibrating the new launches with our footprint work. So it's really a synchronized efforts around this. It's very good. Now we are not only working with factories. We're working with our logistics footprint.
At
Investor Day 2015, we talked about what we did in Denmark. Now I will draw your attention to what we do in Norway, Sweden. We have predominantly worked with an outsourced footprint, and we are actually still doing that, but in this case, but we're consolidating into one partner. And also in Sweden, we are reducing the logistics costs with the same logic or using external partners. So we want to leverage both in house and external logistics capabilities.
And we want to make sure that we have streamlined, standardized but also flexible solutions. We want to have the same governance, the same KPIs, both for internal and external. And also, we want to prepare for future customer requirements, market requirements, structural changes to simplify this. We have a good EBIT effect and 0 effect on investments due to the fact that we are using external partners. So it's really warming my supply chain heart when we can do this type of changes, consolidation, simplification and not actually spending any money on it.
It's really good. So now we talked about what we do on the structural side, the first item, the first bulk, constructing the ropes. Now I'd like to go into what we do in terms of wall to wall and inside our factories. So what we have done is that we have established a team consisting of specialists, manufacturing specialists. There are up to 24, actually also featuring a Japanese manufacturing expert.
We brought these people in from other industries. We brought them from school, and we have formed a really, really strong team. And what you can show on the left hand side is the amount of projects they are involved with. But it's not only of having a team that are a bunch of great people. It's, of course, how we work in terms of interacting with the local management team out in the factories.
So this team goes out and support the local management teams, working together with the local organization and driving improvements. And of course, the focus, they are basically the usual suspects around productivity, And I've been a factory manager myself. I know the importance of having strong Kaizen mentality, a culture of continuous improvement, But I also know how tough it can be to drive and make sure that you have these improvements materializing. But through the extra boost of having our central operational excellence team, we can get this going in a much, much better way. So it's really creating excellent results.
And to show one of the cases that we have been working with. It's one of our bigger factories where this factory, they were good. I mean, this is a good factory for a starting point. They have good management, a good structure, everything. But they wanted to challenge themselves.
So we teamed up together, local factory team and this central team, to see what opportunities are there. And together, they find up to NOK 37,000,000 in savings. And only during a year now, they have taken out 10%. And this is really a great showcase of strong local management, very good Kaizen continuous improvement culture boosted by this central effort. Fantastic.
This case is another case of where we work together, central team and the local management teams. And I actually showed this at the last Investor Day, and then we indicated a saving of 16%, for those who remember that 16%. Now we're down to 21%. But the point is not really that we are down to 21%. The point is that we can sustain this level over a period of time.
And I know from own experience, you can do this focused effort. You do a lot of savings, and you have your hallelujah moment, and everyone is so happy. And then suddenly, costs start to creep up again. But here, we have a strong team that managed to keep the cost at the level that we decided or even improving it somewhat. So it's really, really well done.
So we've been through now both road construction and trimming of the engine. But the load, our purchasing, that's actually the biggest portion of the NOK 26,000,000,000. We have centralized procurement in Orkla to Orkla Group Procurement. This was has been a journey over several years. We did this centralization in 2015.
They handle all of the spend, and the biggest portion here is the raw material. They are handling then 80,000 articles. We're buying 80,000 articles and dealing with 28,000 suppliers. Anyone find that a bit too much? Well, we also believe it's a bit too much.
And of course, it has been a consequence to what Peter explained earlier. We've worked very autonomously in the past. We have acquired a lot and not really having the capabilities or the consolidated focus around how we can work with this. So I will come back to that. But we're also a strong team deployed in many countries, and that's something that's extremely important to me.
I don't want to have people sitting centered at HQ. They need to work close to the business, and they should understand the business. We're up to 145 people. But here, we are not only focusing on cost. Of course, that's what Jens tells me.
I need to focus on cost and Jens, we are doing that. But it's also on how we can support innovation. It's how we can secure deliveries into our factories, how we can make sure that the quality is right. So it's not only cost. But of course, cost is an important element since the base is so high.
And we are targeting quite substantial reductions in our amount of supplies, 25% until the end of next year And also by joining forces, as we did in 2015, we can actually reduce number of headcounts, so really doing more with less. You can also see that the pace of improvements, this is talking about gross cost improvements, that is increasing over time. And we firmly see that the sort of consolidation is paying off, and we are working much more in a stronger way than in the past. So talking a bit about raw material. It's our biggest spend.
These figures, as you can see, they are actually the amount of spend in the different areas. And raw materials are, of course, a bit challenging since we are exposed to very volatile commodity markets. Those markets are impacted by weather, weather patterns and also political intervenes. So for example, we have sugar. We all know that the EU sugar reform will kick in, in 1st October.
We don't really know all the effects. Anticipation is that the prices will go down. We have seen that the EU prices, for those of you who follow that, they have maintained on a high level. World market prices have gone down. And what's important here when you work with this is that you stay super close to the development of the markets, but also through the consolidated efforts and outlining really, really good commodity strategies, we can be slightly ahead of the curve to see what's happening and, of course, see what benefits we can take.
We have had a situation with Cocoa, for example, where we have seen in due to drought situation in Ivory Coast and Ghana, where prices have gone up and still increasing this first half. But also we know that the supply is good. The supply is coming. The stock levels are high at the region, and we expect price levels on cocoa to go down. And here also CSR, corporate social responsibility, is of key and, of course, high intention for us.
There is an area where we have experienced a lot of issues, I would say, in EU. In Norway, actually, prices have been quite stable. But EU prices have gone up dramatically. Butter prices up 38%. We have seen milk powder go up by 25% and cheese up with 30%.
So it's actually quite dramatic changes that has happening in that industry. Another example is marine, where the corporate social responsibility or responsible sourcing part is really critical. So we are working, of course, with MSC, Marine Stewardship Council, to make sure that we get up to 100% over time certification. It's extremely important. And even today, our seafood actually have the possibility or offers the possibility to trace the tuna down to the captain of the boat who went out that day to fish that fish.
It's quite powerful. It's something that's important for us. It's important for our employees, our customers and our consumers that we are very, very tight on the responsible sourcing agenda. But that is just to give you some flavor. It's all about staying close to the different commodities and understanding the development.
Another area is, of course, indirect materials and services. I wouldn't say it's easier, but it's at least not as exposed to commodity volatile markets. But we have a rather big spend here on corporate services and indirect materials, Thanks to working as a consolidated 1 Orkla, we see benefits coming out of this. The total spend is SEK6 1,000,000,000. We see effects coming in already in 2016 and 2017.
And of course, this we will step up going forward, working as one, securing pan European agreements and making sure that we set up preferred supplier lists. That's really, really critical. One area, as indicated, as a challenge, that has really been our working capital. So from supply chain perspective, we are then focused on 2 areas. Those are our, of course, payment terms and our inventory.
So talking first about payment terms. Again, thanks to consolidating procurement in Orkla and then being able to establish common contracts, we have been able to free up capital in terms of increasing the length of our standard contracts up to 75 days. And this then leading to from 2014, an increase of over NOK 300,000,000. And we see the pace here, thanks to implementing our standard contracts being a bit above or north of €100,000,000 million. And we do this on a gradual basis.
So as soon as we have a chance, we push in our new framework agreement. And since the starting point, the payables days of payables has actually increased 20%. So it's really working with the new contract. Then we also have, as you can see from a previous figure, a challenge with our inventory. We are tying up too much capital in our inventories.
And we believe over time that we will be able to reduce this. But it will be a long term journey as the fact that we're doing focus areas. And we're deploying and improving our processes, our tools and securing best practices. So this will, for sure, improve over time. And Jens will come back to working capital and to see how this plays out on totality for Orkla in his presentation.
An important area for us, as you already understand, is sustainability. And we outlined in 2014 tough targets in terms of energy, greenhouse gases, water and solid waste, where we set ambition to reduce and improve, I would say, our environmental footprint. And we are actually performing well towards these targets, for example, on greenhouse gases already exceeding our target. So what we will do now is that we will as we prepare for 2020 25, go back, review the target setting, of course, give ourselves even more challenging targets. And in doing so, also using the science based targets, which is according to the Paris Climate Agreement.
Not everyone maybe these days are as committed as we are to the Paris Climate Agreement, but we are that. And we are also doing this according to the CDP requirements. So we're really committed to that. And then we are also securing renewable energy, and we will be able to document that to 100% through guarantees of region. So we're really stepping up this.
So good for environment, but also good for business. So to sum up a bit what you have been listening to for the last minutes. We are working with our footprint. We are continuing to doing that. We see good results coming out of this, increasing the revenues per factory with 35%.
We're pacing this at 7 to 8 factories per year. We're working wall to wall inside our factories, and we see savings of 15%. We're scaling this up, and it's working really well, combining central expertise with local management in 1 Orkla. Thanks to the centralization of procurement, we're actually being able to act as 1, and we're able to do simplification to our supplier base. And we're also leap forwarding in responsible sourcing.
And in terms of capabilities, we have seen positive effects as indicated on the numbers, but we're doing much more than what I've been able to share today. We're working with digitalization. We're implementing standardized KPIs and metrics. And we are securing that we can orchestrate our supply chain in a much better way, not at least thanks to the common ERP system. So looking ahead, what we want to achieve as our primary goal, and that is to make Orkla supply chain a competitive advantage for the company.
Well, we understand that we don't have the same economies of scale as some of our bigger peers. But when we combine cost, flexibility and our strong local presence within supply chain that we have in our home markets, we know we can make this into a competitive advantage. And we will continue to work with rationalizing our structure, cost improvements, purchasing savings and strengthening our capabilities to make sure that we are the preferred customers, that we have a competitive cost base, that we're using our capital efficiently and that we're strengthening our innovation agenda. And last but not least, we have a fantastic team behind all of this. And they are, to be honest, not so preoccupied of being satisfied of what we have achieved today, but they are more energized about what we will achieve tomorrow.
So it's really great energy and a lot of great efforts. Thank you very much. Now I would like to introduce the next speaker, our CFO, who will take us into the wonderful world of finance and figure sales. So Jens, welcome.
Thank you for that good introduction, Johan. Petter has been going through the Orkla strategy and the main drivers behind top line growth. And then Johan has been going through a lot of examples on how we are going to further optimize our supply chain. In my presentation, I'm going to talk about how to grow cash flow in the future, and I will also share some words around capital allocation and the capital structure. Our main focus is to grow the cash flow over time at a good return, and delivering organic EBIT growth is the main driver for cash flow growth.
And in addition, as mentioned here, we see a big long term potential in improving our working capital position. Another way of growing cash flow and future dividend capacity is to continue to make profitable acquisitions. And our balance sheet is strong. And as Peter mentioned, M and A is our main priority for capital allocation. We will also need to allocate some capital to fund the 1 Orkla journey.
In addition to M and A and organic investments, we will continue to allocate capital to our shareholders. So our dividend and gearing policy stands firm from the last Investor Day. During my presentation, I will go a little bit deeper into all of these areas. And delivering 6% to 9% EBIT growth will come from both top line growth but also improving our cost position. And as Johan mentioned, a main part of our cost base is related to the supply chain.
However, as you can see on the slide behind me, 17% of our costs are SG and A costs. This is a cost base of roughly NOK 5,000,000,000 where we also aim to realize synergies from utilizing scale advantages working as one Orkla. We have done a lot, and we see this in the P and L. Over the last 2 years, we have improved our SG and A costs in percentage of sales by approximately 80 bps. And this has been achieved by optimizing our model through several initiatives.
And we have recently announced several further actions in this area. And let's look closer at some examples to reduce SG and A costs. We are constantly looking to simplify our structure and create bigger and stronger organizations. And when we acquire new companies, it often opens up for restructuring and cost synergies. But we also do a lot of changes within our existing cost base.
And just in 2017, we have announced that we will merge companies and sales teams in several areas where we lack scale. Like with House Care in U. K. And in Seadroat, Poland. Those are two examples of newly acquired entities.
This allows us to take out cost but also be a more attractive employer and build critical mass to drive top line growth further. Let's talk about back office functions. We are continuing, Peter also mentioned this, to centralize back office functions where it is relevant. And in my own area, our accounting shared services center in Estonia, Tallinn, have been significantly ramped up the last years and now handles roughly 60% of the Branded Consumer Goods business and with the ambition to grow even further. In addition, we are continuously looking for opportunities to improve the cost base through simplification and adjust the cost base when we see somewhat lower sales growth.
So it's kind of a, call it, kaizen approach to this SG and A cost, as Johan mentioned. And just to mention a few examples. We are currently executing 1 in Orkla Care and several within the business area of Food Ingredients. These are examples of projects that we constantly review. We are also looking for 1 Orkla opportunities in addition to emerging units.
And one example is distribution of food ingredients products to the retail channel in Norway. Historically, we have done this by a third party. This is not the way we work anymore. And in 2017, Orkla Foods will take over the distribution so we can leverage our existing distribution setup. And just through this project listed behind me, we aim to realize NOK 100,000,000 over NOK 100,000,000 in gross savings.
That's resources that can be allocated to future growth. But of course, we expect a large part of this to drop down to the bottom line and be a part of the 6% to 9% EBIT growth. So to sum up the SG and A efforts that we're doing, we see results from all our actions. We will continue to simplify the structure. We will expand the scope for shared service center, and we will look for further cost saving potential within this cost lever.
Let's now talk a little bit about working capital. Improving cash flow is, of course, not only about increasing EBIT. We need to improve our working capital position. We know we are far from best in class in this area. There are some explanations behind this.
With our Nordic focus, we have a very consolidated retail. We see, therefore, limited room for improvement in receivables, but of course, this is always a trade off. We also have a very broad set of categories. And Orkla will always be broad as part of our strategy to focus on fewer markets. Having said that, there's still significant room for improvements in the longer term.
And as Johan mentioned, with our centralized procurement, we can easier coordinate our contracts by cutting the number of suppliers and imposing a new standard framework. We aim to increase our payables. Having a more streamlined supply chain with better processes and systems will also help reduce inventory. However, this is a long term improvement journey. And as Johan mentioned, during the process of closing down factories, actually tie up additional inventory.
1 ERP system is also a prerequisite, as we see it, to improving in some areas. As an example, this will enable improved order patterns and common processes like, for instance, forecasting and so on. And implementing this ERP and finalizing the supply chain restructuring will obviously take some time. We see ERP as an important enabler in the VonOrCloud journey. And to take the next steps in simplification, standardization and cooperation across the company, we need a better IT landscape.
And you've heard a lot of times that we already have 27 different ERP installments and at least 400 applications surrounding them. We have just recently finalized this pre study, as Peter said, and concluded to move gradually towards one solution. And for me, of course, as a project owner, it's a mix of excitement on one side. And on the other side, a big respect for this big change journey that we are embarking on. And that said it, but I will repeat it, to not steal too much focus and jeopardize operations, we will have what we call an agile rollout model and do this gradually.
There will not be a big bang. And this is, from our side, the best way to do it and gives us a lot of, let's call it, real options in adapting the pace and adjust as we go along. When finalized, and this is a process that will take several years, this will act as an enabler for executing the OneOrchid strategy. It will, amongst others, reduce complexity, enable for more group collaboration, make it easier to restructure within the group, enhance visibility and insights. It will make it easier to integrate M and A, and it will prepare us for a more digital future.
And rolling out one ERP will acquire some additional CapEx. But the way we see it and the way we have calculated it, overall, it's more or less in line with the alternative investment in maintaining and replacing existing systems. And then let's move on to the CapEx. The restructuring in line with optimized model and IT will require and result in CapEx levels somewhat above the historical level and more in line with the 2 previous years. The CapEx spend will, however, have a more positive profile.
And Johan pointed out that we have historically mainly invested in maintenance. Going forward, CapEx will be more skewed towards increasing innovation capabilities and efficiency. And over time, we expect CapEx levels to come down to historical levels. Let's now move on to talk about M and A and capital allocation. Petters showed this slide presenting our M and A strategy.
And as Petters said, M and A has been and will always be an important contributor for value creation in Orkla. Let me now give you some examples of recent larger acquisitions. These larger acquisitions that you see on this slide have all been made at accretive multiples. After acquiring, we have been able to increase value even further through improving the businesses and realizing synergies. It's, of course, a little bit earlier to talk about post merger effects in Harris, and we still believe there's significant further potential both in Cerdrol and Jamere.
But I'd like to go through 2 of the cases, namely Cerdrol and Jamere, and give some more insights in how we increase value in acquired businesses and what we believe in going forward. So let's start with a look at Cedrods. We have already seen great value creation from this acquisition. On the cost side, synergies have exceeded our expectations. And through administrative changes to factory restructuring, we are in the process of realizing more than €100,000,000 in synergies.
That corresponds to approximately 7% of sales. We have also seen revenue synergies. After acquiring Seadroat, Orklaav wound care was established as a separate business unit within Orkla Care in order to ensure attention to this exciting category. And since 2015, our market share in Wound Care has increased significantly and now holds a leading position in Norwegian grocery. We have also strengthened our position in existing markets.
An example of this is a successful relaunch of Grumme, where we have also extended the product range, utilizing our existing product portfolio in Orkla. And Grumme, for those of you who don't know, that brand, it's a well known old Swedish home care brand that is now completely refurbished. And Sverdrup brands in Norway are also revitalized. And an example of this is the Bleeer Handsoap. The Bleeer Handsoap has gone from number 15 position in 2015 to a leading market position in 2017.
So in sum, this has resulted in a 2% revenue growth in a demanding restructuring phase. And we still see strong potential for cross category, cross country innovations. So overall, we are pleased with this Seadrill acquisition. Some words on Hammeh. Hammeh is a perfect example on how we roll out the Orkla model in Central Europe.
We have a somewhat weak position in the Czech Republic with Vitama after the Reebir acquisition. We evaluated whether or not to exit this region, but saw some interesting opportunities. Most countries are smaller with populations in line with the Nordic countries. This enabled us to get sufficient scale. It's also stable markets, but with higher growth rates than the Nordics.
Local brands are very important. And the retail sector is less consolidated than what we see in the Nordics. So when Hammeh came up for sale, we saw a perfect opportunity to roll out the Orkla model in this region. With the acquisition of Hammeh, Orkla has become one of the leading FMCG players in attractive markets in Central Europe. And we have gained critical mass for building further profitable growth in these markets.
And Hammeh wasn't unfamiliar to Orkla. In fact, we have looked at this company several times over the last 20 years because product wise, it fits perfect with Orkla. So let's look at the category match. This slide shows the country and category match between Hammeh and Orkla. And as you can see, it fits very well.
They have strong local brands with a long history, holding strong number one positions. And in fact, 85% of the sales in Hammeh is in categories Orkla operates in the Nordics. These are categories that we know very well and that we know that we can develop very well in the future. And we see strong results the 1st 12 months. We've been able to keep top line stable and also increase it during integration.
Through cost synergies and operational improvements, we have been able to lift EBIT by 30%. We have also made a decision recently to close down 1 factory. Going forward, we see further potential by applying the 1 Orkla model for group collaboration, like taking existing products from the Nordics into Central Europe. Another example here is that we have already launched the Norwegian cod liver oil, Muhlers, in the Czech Republic, and this has reached a number one position in just 4 months. Building on our Nordic know how, we can utilize and improve products through local insights and evaluate further the possibility for cost arbitrage.
In addition, the scale that we now have makes it a very good platform for adding bolt on acquisitions. And these bolt ons or add ons are usually the most profitable acquisitions that we do and are often easier to integrate when we can leverage our distribution network. And then we often see fantastic results, very low marginal cost. I will now show you some examples of add ons from the Nordics, where we have taken positions in growing categories and been able to leverage on our distribution network and expertise within brand building and product development. These are 3 add on examples acquired during 2015, where we already have achieved 50% sales growth.
In the case like Riscuta, when stretching it into the chocolate stretching the brand into the chocolate category, we have already, in the 1st 3 months of 2017, sold more than the entire year of 2015. With the acquisition of Anamma, we have also strengthened our position within vegan and vegetarian and see a lot of further potential for growing this category. Another case I will talk about is our expansion in the ice cream ingredients and accessories within food ingredients. And Orkla entered into this category in 2,005 through the acquisition of a Swedish company. Since then, Oikla Food Ingredients have become Europe's leading one stop shop for ice cream ingredients, win number 1 position in several larger markets.
When we are talking about ice cream ingredients and accessories, Orichlaas Food Ingredients supplies everything you need to run an ice cream shop from the cones on the waffles to toppings, sprinklers, decorations, napkins and so on. This product offering is a combination of on produced goods and third party supply. And we have a unique business model in this niche. By combining production on the European scale in certain categories and scale in local sales and distribution by being a full assortment supplier, it's easy and effective for our customers to shop with us. This is a model that has paid off financially.
Through strong organic growth and with several acquisitions, our ice cream ingredients business have seen a 21% annual sales growth over the last 8 years. In addition, margins has increased from 4% to 11% and return on capital employed from just under 8% to almost 17% pretax. And I'm, as a CFO, don't usually use strong adjectives when describing performance. But in this case, I'm willing to go from satisfactory or acceptable to very good. So this is naturally an area that we will focus more on and allocate more capital to.
And then talking about capital allocation. We've said it many times before, M and A is our number one priority for excess capital. We have a strong balance sheet as it is today with a net interest bearing debt to EBITDA below 2x. In this process of the Orkla journey, we believe it's smart to keep some leverage headroom to execute our strategy and to be able to act on the potentials that we see in the marketplace. We also remain committed to keep our attractive dividend policy of paying out at least NOK 250 per share in ordinary dividend.
As I mentioned, we want to keep some financial flexibility. However, having said that, over time, we don't want to sit with an ineffective balance sheet. Oikla has a history of distributing a lot back to shareholders, both by paying an attractive ordinary dividend but also a history of special dividends after larger divestments. Just since 2011, when we started this journey towards a brand and consumer goods company, we have returned around €24,000,000,000 to shareholders through ordinary extraordinary dividends as well as some minor share buybacks. And as a reference, that's over 40% of Orga's market cap in the start of 2011 when we started this journey.
So to sum up, we want to improve our cash flow through, 1st of all, delivering on our targeted EBIT growth and by improving our working capital position. Part of this cash flow will be allocated to fund the One More Cloud journey. In addition, we will continue the future dividend capacity of this company and strengthen our position as the leading brand and consumer goods company. Thank you. And now Katri and Johan will join me on the stage for Q and A.
Thank you, Jens, Johan and Peter, for your presentations. Now you've been listening presentations for quite some time, and I guess some of you are eager to ask some questions. As this session is webcasted, please remember to wait until you get your microphone before stating your questions and preferably also state your name and institution before asking a question. We will also welcome questions from the web as well. So let's open up if there are any questions to either of those.
John?
John Ennis from Goldman. I've got a couple of questions, mainly picking on you actually, Johan. So when you talk about targeting 1 factory per category per geography, I appreciate this changes with future bolt ons. But given your current category and country footprint, can you roughly indicate what sort of number you're thinking about there? Because you gave some examples actually in the presentation where you're consolidating Cross Country.
So that would be useful. And then again for you, Johan. On M and A, how involved are you with regards to future well, potential M and A? And does it make it more or less difficult for you to execute this reduction process? And in relation to that, can you tell us, of the 25 closures, what proportion are related to acquisitions roughly?
Thanks, John. So let me start taking these in order. The first one then was around indicative number of factors that would be after this transformational journey. We are not so obsessed actually with a number. We are more obsessed of having a competitive footprint.
So during all instances in time, that's what we go for, to make sure that our cost base is competitive. And we're not really striving or targeting an exact number of that. Then in terms of M and A, we're actually involved very early on. So already in the due diligence phases, we have team members joining in and taking part and looking into the different capabilities of the acquiring companies down to factory level. We do audits, we do assessments and we do, of course, calculations.
I would say that we are heavily involved in that processes. Then in terms of number of factories related to that we have closed down on the 25 related to acquisition, it's a lower number. It's, I would say, around 2, 3 that we can count as acquired companies.
I've actually got a few more, but I'm obviously happy to hand over the mic when other people have some more questions. But, Jurgen, again, picking on you. On Slide 51, can I just make sure I've understood this chart on the right hand side correctly? This 33% reduction you're looking for, for gross cost improvements, is that essentially saying
of the
€19,000,000,000 you're hoping from by 2018 to reduce that by essentially €6,000,000,000 of which, of course, the proportion will be reinvested. Have I understood that chart correctly?
No, not actually. I'm sorry for not being clear on that. No, no. So what we're talking about on that slide is the gross cost improvements that we're driving. And as I mentioned, a big portion of our spend is related to raw materials and those are exposed to commodity markets.
So it's more a slide showing our increasing pace in our improvements than giving you an exact number of what that is. It's a step up in effort and more than an exact saving.
Perenbergenas Gorgersen, Carnegie. I was quite impressed by the numbers you gave on Seadrill. And in doing some very quick back of the envelope calculations, it seems like you raised the margin from around 10% to almost 15%, which is also quite impressive. And taking that example and turning our attention to the Eastern European markets, we know that the margins you had historically in Orkla and also from the Ribeber acquisition was poor, to be honest. Is it possible to expect the margins on your Eastern European Food business to come up in the range of what we see in the Nordics today?
And also, how quickly could that happen, if it's possible?
Yes. I think I will try to answer that. First of all, we don't give any margin targets. We give an EBIT growth target, as you have said. But obviously, we have ambitions to increase margins in actually all parts of our business, also in Central European Food Business.
And I think also as Jens showed, with the Hammeh acquisition, we have managed to increase EBIT just during the 1st year of ownership of that company. And we have actually still a lot of synergies to realize when it comes to that acquisition or the acquisition we have done in Central Europe. So the margins will come up, but I cannot I will not give you a target where it will be in the future.
I've got some more actually, more strategic questions, really. Ice cream has obviously been quite a successful niche for you guys. But are there other categories you're trying to replicate what you've done there? And then also coming back to some comments you made right at the start of this presentation on Confectionery. I think you talked about it being pretty much your fastest growth category.
Is that mainly because of price mix? Or is it or were you actually talking about volumes as well?
Yes. I think the ice cream ingredients and accessories business is a good example of how we can go to a niche and consolidate an industry on a broad European basis. As we showed, we are number 1 market leader in several big markets, U. K, Germany, Nordics, Netherlands. So we have a big potential also going forward in that industry.
As you know, the biggest ice cream consumption is in Southern Europe, not in the Nordics. And yes, we see possibilities or opportunities also in other similar niche categories where we can do something similar. This our categories, I think the ice cream ingredients is a little bit below. It's a complicated business because you have a lot of small customers, many small customers. You have a lot of SKUs with small volume on each.
You have a lot of delivery points. And you have to be able to deliver with a very high service level when the sun is shining. And it's very hard to predict when the sun is shining. So you have to be there when the consumers are coming to buy ice cream, when the temperature increase above 20 degrees or whatever it is, the trigger is. So but we see possibilities in those kind of niche categories.
And I think wound care could be such a category. It's also quite small in each market. It's quite fragmented. And it's also an area where we can consolidate on the European level. To your second question, if I remember that correctly, the growth in Confectionery Snacks, this is only price driven or also volume driven?
That was the question. And I think we have had we have seen actually now the and that goes for all our business areas. The last, I would say, 2 to 3 years, we have seen a very healthy combination of both price and volume mix in our growth figures. So it's both volume and price. And I cannot give you the exact split of those 2, but it's growth in both areas, yes.
Any further questions?
Ulla Martin.
Ulla Martin, DNB Markets. A question on the brand portfolio. You state that you have 300 brands. And in Q1, you decided to discontinue the Denia brand. And I guess as you are sort of optimizing the factory footprint, I guess there's also a discussion on the about the brand portfolio coming up.
And there's probably several brands that have similar economics as the Dania brand. Where do you see the potential for further disconnection of brands? And is there a big potential there?
Yes. We have a lot of brands, partly because we have done a lot of acquisitions and partly because that's part of our business model to have strong local brands. Mainly, we have number 1 positions or strong number 2 positions. But we continuously look into our both brand portfolio and category portfolio to see opportunities for simplifying. It's not a goal in itself to reduce number of brands to a minimum, rather the opposite, I would say.
As I said, local brands are winning on behalf of the global brands. But of course, we have to look constantly into this. And we have a model where we have all companies and business area, they have a model where they have put their brands into 3 different categories. One category is the invest brand or the brands that we really want to invest behind, our big brands. Then you have brands that we want to just maintain, that are important for us, but we want to maintain the brands.
And then we have brands in the category that we just harvest and brands that over time might die when the consumers die. But brands also that are still profitable, of course. We don't close on a brand that is profitable. But if it's not profitable or we see that we are not the right owner long term, then we will consider either to just close it down or to sell.
And a question on your guidance. You sort of reiterated your EBIT growth guidance. If you look back 2 years, obviously, there still looks like a big potential for further factor optimization. But on organic growth rate, has that become much more challenging now that compared to 2015?
I think it's become more challenging because the market growth in general has eased off. I think we said, if I remember correctly, in 2015 Investor Day, I think we said that we expected market to grow 2% to 3%, maybe closer to 3% now to 2%. What we saw in 'sixteen was that growth was coming down towards 2 percent and Q1 'seventeen below our 1.6 percent that we had reported as organic growth. Of course, it's hard to say how this will continue, but market growth has come down. There's no doubt about that.
And with lower growth, it's the battle gets more or the competition gets more fierce, of course. But I will not say it's substantially more difficult now than it was. It's been difficult for many years. And as you also have seen from our figures, we have had several years with negative organic growth behind us. We managed to turn this around during 2014.
And also, as I said, with a healthy combination of both volume and price growth. So I think we have been we have difficulties in this area before, and we still have it. And it will be a tough challenge also going forward. But we just have to be work better, better innovations, better sales promotions, work closer with our customers And also very importantly, as I have mentioned also earlier today, is to grow in other sales channels that have higher growth than grocery.
I've got a question on M and A, which I appreciate is not always the easiest thing to talk about. But is it fair to assume the future M and A will be concentrated in the countries that are listed on Slide 74, maybe with the exception of something like ice cream, which is a bit of a special case going forward?
M and A will be focused primarily in the geographies that we have a presence in today. And for Care, Foods and Confectionery and Snacks, that's mainly Nordics and Central Europe. Whilst for Food Ingredients, have a broader, call it, footprint and are in 22 countries. So in Food Ingredients part, it's mainly a bigger geographical space. Yes, understood.
I'd just like to add also that. But there might be some niche categories also in the business areas, the other outside the UHFE, where we might do acquisitions in other geographies as well. Okay. Fine.
Petter Nussbaum from ABG. Two questions from me. Is it possible to say something about the difference in a competitive environment between the Nordic countries within brands? The second question is, you talked a lot about cost improvement. Is it also possible that you say something about how much will be reinvested in growth and how much will flow down to the EBIT line?
Well, for the first one, you're talking about competition among the brands or the retailers? No, I'm
talking about the competitive environment, both on the In general? Yes.
Yes. Well, if you look at on the grocery channel, the competition is quite fierce between the players. And it's a consolidated industry in all of the Nordics, with 3 players in Norway, 4 in Sweden, 4, 5 Denmark, 2.5, I would say, in Finland. So it is very consolidated with tough competition. When it comes to competition on brands, I also said that we are facing, I would say, stronger competition from multinationals.
That's also why we changed our operating model from being this multilocal model to optimized model to realize synergies, take out costs and so on. We are facing competition from private label, and we are also facing competition from really local players. But I mean, we have been competing with big multinationals in our home markets for many, many years. I think our market share shows that we really can handle that battle, and we have done it for years. And I think we will do it also in the future.
So I would say what is maybe changing on the competition, if you look at the brand, is that we see that some really local players are coming into really, really local, not Norwegian or Swedish, but it's from Stockholm or from Toten in Norway. And you see that especially in breweries, the local craft beer breweries popping up, which is, of course, a competition to the branded beers. And to the second question?
Yes. The second question, obviously, we will reinvest some of the cost savings, not new competence and so on. But we expect a lot to drop down to the bottom line, and it's part of the 69% EBIT growth. It's part of delivering this growth. So that's my answer.
We have a court case in September against Unilever in Norway.
We are fighting for the rights to
have the brands, SIGNAL, Rexona and Via in Norway, which are Unilever's brands abroad. Are you afraid that Unilever will come into the Norwegian market with those 3 brands if they win that court case?
I think the short answer is no because we have been competing with the big multinational brands in also in these categories, Home and Personal Care, many, many years. And we have done that very well with our local brands. So no, we are not afraid of that.
Why do you want to keep these 3 brands when you don't use them?
Because we own them in Norway.
Any further questions?
Yes.
Martin Stansoul, Danske Bank. One question relating to Sapa. It's great to see such a success with this joint venture with Norsk Hydro. We have seen the underlying EBITDA grow tremendously since the end of 'thirteen, and we understand that the focus might now be a bit more towards offering and selling value added products rather than commodity products. Could you please put some color on to what extent you have come to this journey to change that revenue mix towards more value added products?
And maybe tie that up to the underlying margin we see in Sapa right now? Because naturally, the big question is what kind of normalized margin we could see in Sapa going forward.
Well, as I said, one of the value drivers in Saba has been to go from commodity profiles more into value add profiles, and that is especially in the automotive industry, where we also see quite strong growth due to electrification of the auto industry. That requires lightweight materials, battery boxes of aluminum and so on. But I cannot give you a target on where how big Park will be value add and how what that will influence or impact on the margins. I cannot do that. Partly because we don't release those kind of figures and partly because I actually really don't know how far they can go in that direction.
But there's no doubt that Sapa have focused. If you look at the volume produced over years, it has gone slightly down. That has been according to the plan, exiting commodity profiles with very low margin where the competition is fierce and moving into more high technology value add areas, and that will continue. I'd also like just to add a comment to your question about the Unilever brands. You said that brands that we don't use, I said and you asked why do you want to keep them.
I said because we own them, but we also use them, just to make that clear. Yes.
On Slide 28 in your presentation, you show that revenues outside of the grocery channel now makes up a quite big portion of the total revenues. Can you comment upon what the underlying organic growth rate is for this sort of channel? And how much that
You mean for the other channels? Other channels, yes. No, I cannot. I don't have that figures. I have for some of the channels.
E commerce, 20%. Now I'm talking about the total market, e commerce, food, retail, approximately 20%. Out of home, I mean everything you eat except what you make in your kitchen, fast food, restaurants, takeaway and so on, 8% approximately in the Nordics. For the rest of the channels, I am not able to give you a number actually.
If you look on the reported organic growth for Orkla, is this how volume percentage and you were to guess sort of how big is the contribution from the other channel to the overall reported organic growth for Orkla?
We don't comment the contribution. But in percentage of sales, for instance, export is around 5% of sales and e commerce is around 1% to 2%. So it's a fairly small portion of the total sales today but have a very high growth rate.
And just a housekeeping question. On the CapEx guidance that you stipulated on one of the slides, you said that CapEx will remain at sort of 2015, 2016 level for some time. Is it possible to be more specific as this is investments related to the ERP system, it looks like?
Well, the ERP systems itself won't increase the CapEx as we see it, but it will be, call it, somewhat front loaded in investment need. So that's part of, call it, a driver for the increased need. And then as Johan pointed out, we're doing a lot of restructuring activities within supply chain. So at least for a few years, we will be at this level. That's approximately 4% of the NSE.
And then we will return closer to 3%. That's the ambition. And we, of course, follow this very strictly. It's very important for us to have a tight governance, call it, regime on this CapEx spending. And Johan talked about it.
Now we have, call it, different structures in place to follow-up this very tightly.
My name is Griton Hoppers from MN in the Netherlands. One question. What do you think is the main difference between the competitive advantage of the Food Ingredients business compared to the other three business areas?
The main difference on the competitive advantage? Yes. Correct. I think these businesses are quite different. I mean, Food Ingredients is mainly a B2B business, while our other business areas are B2C.
Food Ingredients also have a lot of in general, a lot of small customers, not only within the ice cream segment, but also in bakeries, in Arkesen Bakeries, which is an important and large customer group for Orkla Food Ingredients. And I think one of the competitive advantages of Food Ingredients is their closeness to the markets, to the bakers. It's their ability to develop solutions together with several or many small artisan bakers, both solutions, products and of course also be able to deliver to all those small units on short notice, with a high service level, which is important because a lot of those customers are not maybe not professors in planning. And very often, they're even not able to plan because the volume are changing so dramatically from day to day. So being having being close nearby with distribution is very important.
While in the other business areas, we are mainly selling to big retailers or to their wholesale operation, where the planning horizon is much more visible.
Do we have any further questions? Okay. And I don't have any questions from the web either. So before we round off this presentation session and move on to the Growth Fair, I would like to hand over to Peter for some final remarks, and then I will be back giving some practical details about the Growth Fair.
Okay. I will do this very short just to sum up actually what we've been through. So far, we have delivered on the 4 targets that we communicated, maybe with a small exception of the growth according to or at least in line with the market. I'll put that as yellow, as you remember. And we will continue to very closely monitor consumer trends to make innovations with local brands to meet the new or the consumer trends that we see.
We will increase our presence in other channels through acquisitions, but also through our existing sales force that we have in those channels today. And other channels can be DIY, sport, pharmacy, e commerce, tax free shops, food service and so on because we see much stronger growth in those channels than we do in traditional grocery. We will continue to realize synergy throughout the whole value chain, as we have showed examples of today, both in supply chain but also in SG and A, and of course, also realizing synergies on top line initiatives that we have also shown some examples of, work more as one Orkla. And also in the future, M and A will be an important driver for value creation. The M and A will be mainly in the markets where we already have a presence, so to improve or increase our strength in the markets where we have a presence.
It might also be in new markets in some niches. And it will be aimed at acquisitions in other channels outside grocery. That does not exclude acquisitions in grocery channels at all, but our main focus will be on other high growth channels. We are about to end the transformation period going from really conglomerate to a pure branded consumer goods company. We have some assets left.
I mentioned that the share portfolio is completely out. The Sapa, our Sapa shares, we have been clear that for us, it's been more important to realize and focus on realizing the fair value than time. I've said that now for 3 years. And then you're maybe not you don't want to wait anymore. But we will definitely sell our Sapa shares.
And but I'm not able to give you a date today, but that time will come sooner or later. We are in the middle of or maybe even in the start, as Johan said, on the 100 meter run, we have maybe come 20 meters. But we are in the middle of a restructuring period in our brand consumer goods area. As you have seen, we still have a lot to do when it comes to factory footprint, factory optimization. And we believe we have a lot of potential, a lot of challenges, absolutely, but we have a lot of potentials in growing top line, going into new categories, exiting categories, And we have a lot of potential of sharing best practices, working more as one Orkla.
And we have a lot of potential in our structure, cost structure, realizing more cost programs. So the targets that we communicated last time and that you can see here on the screen, they remain firm also as we continue. So by that, I hand the word back to you, Matthias, to give some more details.
Thank you for that, Peter. So now we will have a lunch break, and we will move out to the mezzanine where we had some coffee before, where you will have a light lunch based on Orkla product.