Good morning, everyone, and welcome to Orkla Investor Day 2017. For you who don't know me, my name is Mattias Orrenius, and I'm the head of investor relations. It's fantastic to see so many familiar faces have come to Oslo today. I'd 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 get some insight into how we work with product development, meeting the new consumer trends, our digital transformation, and much, much more. You will get the first look and taste to some of our upcoming innovation, and also meet the people behind them. You will also hear short introductions from our business area heads during that session as well.
I'm confident that you will appreciate it. Before that, you will hear from our President and CEO, Peter Ruzicka, our head of supply chain, Johan Clarin, and our CFO, Jens Bjørn Staff. They will give you an update on the journey we are transforming Orkla from an industrial conglomerate into a leading brand and consumer goods company, with an optimized and efficient One Orkla model. I guess a lot of you will have some questions after that, and we will not have Q&A after each presentation, but rather a longer one after all three are finished. 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 moderating the Q&A and give some more details on the fair. Now I'm very happy to introduce our first speaker. It's our President and CEO, Peter Ruzicka. Welcome on stage, Peter.
Thank you, Mattias. Good morning, everybody, and welcome. Very happy to see you all here. As Mattias said, this year we also have a special event for you, it's the Orkla Growth Fair. 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. I got that idea last year. I said, "Well, we are doing all this, so let's invite some more people to share this event with." I'm very happy. I think we can really look forward to the growth fair.
We are in the middle of a strategic period. We are going to give you an update on where we are, but also where we are heading. This is the agenda for today. First, I would like to give you a current status on where we are on the journey and our current position, most importantly, maybe how we are going to grow also into the future. Our COO, Johan Clarin, 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, cost savings, and so on. Our CFO, Jens Bjørn 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.
As Mattias said, we will have a common Q&A session afterwards. 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 Pål Eikeland, Orkla Food Ingredients. We have Annbeth Frøyshov, CEO of Confectionery & Snacks. Stig-Ebert Nielsen, CEO Orkla Care. Atle Vidar Johansen, CEO Orkla Foods. Terje Andersen, CEO Orkla Financial Investments. You will have time to talk with them during the lunch, during the fair, whatever. You will meet the CEO heads of each business area during the fair, so they will have a short introduction there. Let's look at Orkla's performance since we met last time in London in September 2015 and our current position.
In 2011, we announced a new strategy. 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 Silicon, Borregaard, Gränges. We also formed a joint venture together with Norsk Hydro, forming the Sapa joint venture. We have actually now also completely exited our shared portfolio, that is completely out. We have, as we said, reallocated capital from non-core to our core business, to brand consumer goods companies. We have done a lot of acquisitions in the meantime, a lot of small acquisitions and some big acquisitions. We still have some non-core assets left in our portfolio, the largest one is Sapa, the JV we have together with Norsk Hydro. 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. The underlying EBITDA has increased in this period from NOK 1.1 billion to approximately NOK 3.7 billion on a rolling 12-month basis. This has been achieved through, first of all, the establishment of the JV, where we realized a lot of synergies. We have taken out a lot of cost, that was done ahead of plan. We realized more synergies than we anticipated, we did it earlier than we anticipated. 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. That journey will continue. We also have to say that we have been helped by quite favorable markets in North America.
However, 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. I think we can be very happy, and 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 1.5 billion for the fiscal year 2016. Then I know the question will come, what about exit? We have talked about that many times, and I will just repeat what I've 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 improve in Sapa going forward. We will exit sometime, but I cannot tell anything about timing yet. Our second largest holding under Orkla Investments is Jotun. We own 42.5% in Jotun, and we have been shareholder for many, many years. 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, new building and offshore in combination with higher raw material prices and some negative currency effects hampered profit second half of 2016 and also first half of 2017. Markets are quite difficult right now. But Jotun continue to pursue its organic growth strategy and has attractive exposure to growth markets in Asia and Middle East. And we expect too that Jotun will return to profitable growth again towards the end of 2017. And we have been through these waves before. They will come, especially in the marine segments, going up and down.
We regard Jotun as an attractive long-term investment for Orkla, and actually quite a big part of Jotun, the decorative division, is a brand consumer goods business that we know quite well. Even though we still have some non-core assets left on our balance sheet, we believe that we can say that we have delivered on the strategy, exit non-core assets and allocating capital into brand consumer goods companies. We are in the middle of a strategic period, in a restructuring period. These were the targets that we presented to you during Capital Markets Day, Investor Day in 2015. I can assure you that the targets remain firm. The first target was to keep the strategy on track. We have reallocated capital from non-core to core.
Actually just last year, we freed up NOK 1.8 billion from non-core. We invested NOK 2.7 billion in brand consumer goods acquisitions. I think we can tick this off as green. I hope you agree with that. Our second target was organic growth. We said that we will grow at least in line with the markets where we operate. On this target, it is 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. The rest is more a guesstimate. Anyway, we saw that during 2016, the market growth weakened towards the end of the year. 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.
We are, of course, not happy about that. In first quarter of 2017, we reported organic growth of 1.6%. That was a growth higher than the market. That was actually, we delivered above. Anyway, I think this is yellow. It is not red, it is not green, something in between. We are on the right track. I tell you that this is a tough battle every day to win the consumer and at least win shelf space with the customers. Our third target was to deliver an EBIT growth of 6%-9%. 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. If you look at the recent history, we have increased our reported EBIT by NOK 1.3 billion-NOK 1.4 billion since Q1 2014.
The reported EBIT increased by 12% annually since that time. That is quite good. According to the capital market's definition of EBIT growth is 6%-9%, we delivered last year 6.8%, which is within the targets. We are quite happy about that. We have achieved that through organic growth, even though not completely in line with the market. We have delivered organic growth through a lot of cost initiatives in our supply chain. Also cost initiatives in other parts of our value chain, especially in SG&A. We will come back to this a little bit later. I know that you are also focused on margin development. Even though we have said that the target for us is to increase EBIT, of course, we are also, of course, focused on margin development.
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&A, we have increased our underlying margin by 110 basis points in brand consumer goods area the last two years. In Q1 2017, we improved the margin with another 30 basis points. At the same time, recent acquisitions and distribution agreements have diluted the reported margin correspondingly, as you can see from the graph behind me. As I have said before, we do not steer the business on reported margin growth, but on growing EBIT at a good return, of course. As I have showed you, we have actually done that, I think that we can also tick this off as green.
We also said that we will pay out a dividend of at least NOK 2.50 in the period. For the fiscal year 2016, we paid out NOK 2.60, so I think that 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 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. The old model we had, it was called a Multi-Local 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. That worked fantastic for a long time for Orkla. However, we also see that the really 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. We also see actually that local brands all over the world are winning on behalf of the big global brands. However, we have faced much tougher competition the last years, both from multinationals, from private label, but also from really local players in each single market.
We are facing tougher demands from our customers. 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. This is what we mean about the Optimized Model, the best of the two worlds, be local, be close to consumer, be close to the local customer, but we need to take out synergies wherever we can. We have to balance those two things together. 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 today. This is about working as One Orkla, utilizing our scale across all business units and geographies.
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. 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 one place, we can launch innovations cross 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 the total factory capacity and competence we have within Orkla across geographies and business units and business areas. When we started our factory optimization program two and a half years ago, since then we have closed 24 factories, Johan will talk more about this later. We have also integrated some of our businesses, especially in markets where we don't have really critical mass. One area, or the latest example is Finland, where we have merged together Orkla Foods Finland and Orkla Confectionery & Snacks Finland.
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. At the same time, we save cost on having one company instead of two with the administration and so on. Another good example, I think is Orkla Confectionery & Snacks and Orkla Foods Norge. Orkla Foods Norge have a very strong position in the food service business. Everything you eat outside the home, restaurants, hotels, so on. Orkla Confectionery & Snacks, they also have a presence in this channel, but they didn't really have the critical mass to really put resources behind it. Now, the food service part of Orkla Foods Norge have taken over sales responsibility for Orkla Confectionery & Snacks products in Norway, resulting in volume growth, sales increase, reduced cost, and also more happy customers actually.
Also through acquisitions, we are also working more as One Orkla and realizing synergies. I think the acquisition of Hamé is one good example. We had a presence in Czech Republic and Slovakia with Vitana, but we really didn't have the scale and the size to be a powerful partner for the retail trade there. Through the acquisition of Hamé, which is also in categories that we know very well from the other markets where we are, we get really this critical size that we become the most important supplier to the retail sector in Czech Republic and Slovakia. 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 Nordics, 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. Last but not least, as I said, Orkla is a result of a lot of acquisitions. We have the multi-local 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. As you can imagine, that is not really supporting this One Orkla strategy approach. It doesn't really support realizing synergies. We have just finished a pre-study to see or to look at the pros and cons of having one common system. We have actually taken the decision that we will go for one common system.
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. I can assure you that we will not go with one big bang. The risk for that is too big. We will do this company by company, and of course, will take the companies that need to change first. 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. 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. This is now here illustrated by the black line is the organic growth, and the red line is development of fixed cost. As you can see, since 2009 until 2014, our fixed cost increased more than organic growth. Sooner or later, that will not end very good, obviously. We have done a lot of initiatives to create a gap between black and red, and we have achieved that gap. This is a KPI that we follow very closely. Of course, the most easiest way to create this gap is to increase top-line.
There is almost a command 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. All these initiatives, all these actions are also being visible in our share price. How has it developed? Last three years, Orkla share price has increased 83%. Peer group have increased 45%, and Oslo Stock Exchange has increased approximately 16%. 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. This was about the status of where we are and what we have done. 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?
We see a lot of challenges, but we see even more opportunities in the market. We have actually four growth pillars, four 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. The fourth is acquisitions. I'll go through each of these growth pillars in more detail and also show you some examples. Let's start with meeting the consumer trends with local brands. Actually, we have analyzed them to see what are the trends for the next, let's say, 10 years in our industry.
There are many trends, but we have chosen six trends that we think will be the most important for our business, our industry. The first trend is an increased demand for organic food, organic products. As you also saw from the ad of Pierre Robert just before we started, they have also now 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, 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 a strong trend. Obviously, health and wellbeing, also a strong trend. According to United Nations, there are more people in the world that die from lifestyle diseases than die from hunger. That is related to what they eat. Mainly salt, sugar, and saturated fat, and how little they exercise. It's a combination of these two things. About the exercise, well, Orkla Health can do quite a bit in that with Maxim and so on. 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. People want to eat natural, healthy, and so on, but they also want to indulge. It's a paradox that the strongest growth categories we are in are confectionery snacks, growing every year, not only in Norway, Sweden, but we see that actually all over. How come? How can it be? I think that you have two kind of health.
You have physical health, and you have mental health. Confectionery snacks really helps your mental health. We also see increased trend or demand for ethical and environmental friendly product companies. I think this is a trend which is especially strong among young people. They are not only concerned about what the product contains, but people start to be concerned about what kind of company is behind this product. How is the product produced? What is the environmental footprint? How are the raw material source? Are they involved in child labor? These kind of thing. What are they doing in logistics to reduce CO2 emission, and so on. I think that this will not be a success factor, being the best on ethics in the future.
I think 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. 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 brand 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 Norwegians are not that concerned about deforestation, actually, because we have quite a lot of trees here. In addition to deforestation, Norwegians are very concerned about unhealthy aspects of palm oil because it's saturated fat.
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 some seed oil and so on, in order to meet that local trend and with our local brands. The last trend we see is convenience. People are more and more time-constrained. They are more and more on the run. 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. That's the trends we are facing. I think one example that delivers on all these trends is our Danish brand, Naturli'.
Naturli' 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 six trends I said, maybe with the exception of the seventh trend, the price, because it, of course, costs money. 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, Dr. Greve. Dr. Greve is a very old Norwegian brand dating back to 1890. 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.
He developed, at that time, a lotion for children and soap for children that were very gentle to the skin, also for infants. 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. We extended the portfolio, and we launched this in Norwegian market. Actually, during less than one year, we have become the market leader in body lotion and shower gel, and that is quite impressive. We are up to one of the strongest multinational players in these categories with Vaseline Intensive Care, Dove, and we managed to take market leader position in one year with this brand. 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. They also fulfill a very, very strict criteria for the Nordic Swan labeling, so we can use the Swan label on these products. They are non-allergenic, of course. Very concentrated formulations that gives smaller recommended dosages and also smaller packaging, which reduces logistic or CO2 emission with transport. The bottles or the packaging is, of course, made of 100% recycled plastic. Of course, most importantly, that 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 of September, in a limited range in the beginning, then we will increase the portfolio in the coming years. 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. 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. This is also made in cooperation, in a way, with our customers. You will be able to see the products on the growth fair later today, and you will also meet the people behind this launch. Trends are important.
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 pâtés, 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. 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. As I said, that's the sales channels in all areas except grocery. Actually, we see that shopping patterns are changing.
If you go back, let's say 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 both 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 traditional grocery development is flat, hardly any growth. We see that specialty stores are coming back, we see especially strong growth in other channels like, obviously, in e-commerce, but we also see strong growth in all channels, call it out of home, restaurants, takeaway, fast food, kiosks, gas stations, and so on.
Quite strong growth in all the markets where we are. Also in specialty stores and DIY and so on. 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. That will be different tomorrow than it is today and than it was yesterday. A lot of the M&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 have grown by 9%. That is partly because of acquisitions, but it is also because we have decided to centralize our export resources in a common international sales organization. Pharmacy has increased a lot.
That is partly because the acquisition of Cederroth, but it is also because with the Cederroth 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. We have managed to increase focus on other channels, and we have reduced, call it our dependency on traditional grocery channel. As you see on the right side, still 72% of our sales is still in traditional grocery. Going forward, we think that other channels is where we will get the growth. As I said, we have seen and we will see strong growth in e-commerce. These are two examples of our own e-commerce stores.
The one is Pierre Robert, personal textiles, and the other one is Orkla Health online store, Nutrilett, which is weight management products, diet products. As you can see from the figures, very strong growth in both of them. 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 are not in really in direct contact. That gives us a better understanding of the consumer, and that also helps us in doing better, more powerful innovations. 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, this is a way to build that competence. The third growth pillar is sharing innovations. As I said, taking successes from one market, launch it in other markets. We don't need to invent the wheel everywhere. It is about working as One 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 Paulúns. Paulúns was launched in Sweden in 2005 as a really good for you brand, good for you products. It was first launched as breakfast cereals, granolas, we have seen very strong organic growth in Sweden. We have also had a high level of launches and line extensions, we also moved the brand into other categories.
We then, quite obviously, we decided to launch this also in other markets. 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 One Orkla, how we should share insights and innovations. It is one product, different local brands, but the same product. It 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 Orkla example. The fourth pillar for growth is growing through acquisitions. M&A has been a very important value driver for Orkla in the history, and it will be also in the future.
Of course, we have some acquisitions criteria when we do M&A. 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 give us revenue synergies, like the example I said with Cederroth 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 that gives us growth in channels with higher growth than traditional grocery. That means pharmacy, specialty stores, so on. Obviously, we want to buy companies where we can realize synergies, either on procurement, on production, or SG&A, or on sales. Of course, companies that gives us attractive financial returns.
I think in the history has shown that we have been quite successful in our acquisitions. 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. 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? This is a constant job we are doing. 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. This is a constant job we are doing, also pruning our portfolio.
Jens will go through some of the acquisition examples later today. To sum up my presentation, I revert to the targets that we presented one and a half 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 One Orkla, utilizing our scale, utilizing our resources, and realizing synergies, both top line and bottom line. We will continue to create value through M&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 are not completely there yet.
We are in the middle of, or maybe even in the start of the restructuring period of the Branded Consumer Goods area. We have a lot more to do. The targets that we communicated that you see here, they remain firm, and we will continue to grow our business also in the future. With these words, I would like to give the word now to Johan Clarin, 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. Over the next 30 minutes, you will all be invited to join our transformational journey. 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 a 100-meter race. We are roughly 20 meters into that race. That's at least when Usain Bolt picks up his pace. Again, he peaks actually at 70 meters, and we do not intend to do that. We are in the early days of this transformation. 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.
In addition, we want to make sure that we have a competitive cost base and utilizing our capital efficiently. Furthermore, and also to some of the examples Peter mentioned, we want to increase our innovation speed and ability. In last Investor Day, we outlined four main working areas. 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 are actually constructing the roads. We're constructing roads. With number 2, we're sort of optimizing the engine of the Orkla truck. 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. 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. When the Orkla truck running, of course, on fossil-free fuel, is able to run for a long time. All right. 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. Of course, cost of materials, biggest one, we have conversion costs, we have logistic costs. We are, of course, also driving a part of the SG&A costs, and the DN depreciation is to a large extent related to supply chain.
We add this up, we end up at roughly 26 billion NOK, so it's a big portion of Orkla. 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. Then again, you can look at the inventory turns, which is obviously too slow. That's a huge potential area for improvements. Then some of you might be 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. Rest assured, I will come back to this. 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 one, one or triple one, which means that we want to have one factory per technology or category in one geography. I can look at your faces and you start wondering, what do you mean by one geography? Well, we define geography after certain criterias. 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. Thirdly, we have a special situation where we deem localness as being of particular importance. That's sort of how we work with the geography dimension. 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. 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. Last but not least, it's so important also for our supply chain to support innovation and growth opportunities. That's something we naturally put more emphasis on as well. How are we then doing? Well, this talks around amount of factories that we closed since we started this journey. Petter, we actually closed one more when you were speaking, so we're actually up to 25 now. We worked with, of course, restructuring our footprint before 2014, sorry.
We were operating at a level at roughly one factory per year. Then Petter took the helm as CEO of the company and outlined a new strategic direction, this is then showing the amount of factories that we have closed in each and every year. In 2015, we communicated 12, now we're up to 25. Looking at the 25, actually 18 of those are already closed. It's a continuous journey that we're doing. In this process, we have had 460 roughly net employees leaving us, and we believe that this is the pace we need to work at on a continuous basis also going forward. I've still not answered the question on how did you end up with 105 factories. Let me start with this one. We started with 97 factories in January, 2014.
We have added a net of 26 factories. We have acquired some, we have divested some, and then we have some joint venture adjustments. That gives a net of 26. If we would not have done anything, we would have been up to 123 factories. Through the communicated closing of 25 factories, we will be back to 98 factories. Basically back to the starting point. Good thing of this is that we actually added 100 million in revenues per factory, corresponding to 35%. It's a quite big increase. 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? For sure, that would make my world a bit easier.
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. It's actually giving us a lot of great potentials. I will show this to you later. All right. 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. 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. We were caught in what you could call the egalitarian trap. Everyone should have their fair share. Through introducing more rigorous control system, governance, of course, working with our footprint, we have over time shifted CapEx towards more forward-looking investments.
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. Now I'm sure you would like to get some even further details into the cases we're doing. Let me introduce two cases on how we work with manufacturing footprint. This is a case where we looked at our dilutable categories, producing Fun Light. We had two factories, one in Gimse, Norway, one in Kumla in Sweden. 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 Gimse that we outsourced. We see actually strong financial results coming out of these cases. We have an EBIT effect here of NOK 11 million.
As you can see, also CapEx reducing thanks to that we are not sort of maintaining two factories, but rather one. 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. That's really strong. Of course, the situation in the factory of Kumla improves as well. We can run our production lines on higher utilization and reducing our conversion cost. It's really good. To give you some even further more flavor to this, I've talked about the short-term improvements, but there are also, of course, long-term effects of this. First of all, we can work jointly with our product development resources. We can benefit from working with a shared technology platform.
We are building our competence, our center of excellence in one place, also deploying our CapEx in that direction. Over time, as we harmonize bottles and caps, we see even further improvements coming out of this. 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 Falun site here actually came in with the purchase of Cederroth. This talks about our Home & Personal Care footprint in the Nordics. Of course, buying Cederroth, looking at our combined footprint, what should we do?
We came to the conclusion that we should build one home care center in Norway and one personal care center in Falun, then closing down the factory in Elo, also shifting out production for the home care segment from Falun to Ski. It's really around thinking center of excellence, focus factories into the different areas. This is a brilliant case again then where actually M&A is enabling footprint optimization. We see good annual EBIT effect coming out of this also reducing CapEx. In addition, we saw a great opportunity to standardize both on format and recipes. We took the best of what we had and the best of what Cederroth had, and we optimized that. Really combining the best of two worlds.
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. Through doing all of these cases, we actually learned how to do this type of transformation or factory movement in an efficient way. In only seven weeks, we were able to close down production, move it, bring it up, and performing really well. Furthermore, we also looked at opportunities when we now look into the new setup where we can optimize our new launches, new packaging, also calibrating the new launches with our footprint work. 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, we're actually still doing that, but in this case, we're consolidating into one partner. Also in Sweden, we are reducing the logistics cost with the same logic using external partners. 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. Also we want to prepare for future customer requirements, market requirements, structural changes to simplify this. We have a good EBIT effect and zero effect on investments due to the fact that we are using external partners.
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. Now we talked about what we do on the structure side, the first item, the first bulk, constructing the roads. Now I'd like to go into what we do in terms of wall-to-wall and inside our factories. What we have done is that we have established a team consisting of specialists, manufacturing specialists. They're up to 24, actually also featuring a Japanese manufacturing expert. We have brought these people in from other industries. We have brought them from school, and we have formed a really strong team. What you can show on the left-hand side is the amount of projects they are involved with.
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. This team goes out and support the local management teams, working together with the local organizations, and driving improvements. Of course, the focus, they are basically the usual suspects around productivity, equipment, and yield, and they work together, and it's really showing results. I've been a factory manager myself. I know the importance of having strong Kaizen mentality, a culture of continuous improvements, but I also know how tough it can be to drive and make sure that you have these improvements materializing. Through the extra boost of having our central operational excellence team, we can get this going in a much better way. It's really creating excellent results.
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. This is a good factory for a starting point. They have good management, a good structure, everything. They wanted to challenge themselves. We teamed up together, local factory team and this central team, to see what opportunities are there. Together, they found up to NOK 37 million in savings. Only during a year now, they have taken out 10%. 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.
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. The point is not really that we're down to 21. The point is that we can sustain this level over a period of time. 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. Suddenly, costs start to creep up again. Here we have a strong team that managed to keep the cost at the level that we had decided, or even improving it somewhat. It's really well done.
We've been through now both the road construction and trimming of the engine, but the load, our purchasing, that's actually the biggest portion of the NOK 26 billion. We have centralized procurement in Orkla to Orkla Group Procurement. This 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? We also believe it's a bit too much. Of course, it has been a consequence to what Petter 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. I will come back to that.
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 centrally at an HQ. They need to work close to the business, and they should understand the business. We're up to 145 people. 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. 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. It's not only cost. Of course, cost is an important element since the base is so high. We are targeting quite substantial reductions in our amount of suppliers, 25% until the end of next year.
Also by joining forces, as we did in 2015, we can actually reduce number of headcounts. 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. We firmly see that the consolidation is paying off, and we are working much more in a strong way than in the past. 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. Raw materials are of course, a bit challenging since we are exposed to very volatile commodity markets. Those markets are impacted by weather patterns, and also political intervenes. For example, we have sugar. We all know that the EU sugar reform will kick in on the 1st of 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. 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 good commodity strategies, we can be slightly ahead of the curve to see what's happening. Of course, see what benefits we can take. We have had a situation with cocoa, for example, where we have seen due to drought situation in Ivory Coast and Ghana, where prices have gone up and still increasing this first half. Also we know that the supply is good.
The supply is coming, the stocks levels are high at the region, and we expect price levels on cocoa to go down. Here also CSR, corporate social responsibility, is of key and of course, high intention for us. Dairy 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 price is up 38%. We have seen milk powder go up by 25% and cheese up with 30%. It's actually quite dramatic changes that is happening in that industry. Another example is marine, where the corporate social responsibility or responsible sourcing part is really critical. 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.
Even today, Abba 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 tight on the responsible sourcing agenda. 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 at least not as exposed to commodity volatile markets. We have a rather big spend here on corporate services and indirect materials. Thanks to working as a consolidated One Orkla, we see benefits coming out of this. The total spend is NOK 6 billion.
We see effects coming in already in 2016 and 2017, 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 critical. One area as indicated as a challenge, that has really been our working capital. From supply chain perspective, we are then focused on two areas. Those are our, of course, payment terms and our inventory. 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. This then leading to, from 2014, an increase of over 300 million NOK.
We see the pace here, thanks to implementing our standard contracts being a bit above or north of NOK 100 million. We do this on a gradual basis. As soon as we have a chance, we push in our new framework agreement. Since the starting point, the days of payables has actually increased 20%. It's really working with the new contract. We also have, as you can see from a previous figure, a challenge with our inventory. We're tying up too much capital in our inventories. 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 restructuring is actually causing to drive up the inventory as well.
This will be over time, but it's clearly a focus areas, and we're deploying and improving our processes, our tools, and securing best practices. This will, for sure, improve over time. 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. 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. We are actually performing well towards these targets, for example, on greenhouse gases already exceeding our target. What we will do now is that we will, as we prepare for 2025, go back, review the target setting, of course give ourselves even more challenging targets.
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. We are also doing this according to the CDP requirements. We're really committed to that. We are also securing renewable energy, and we will be able to document that to 100% through guarantees of origin. We're really stepping up this. Good for environment, but also good for business. 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 seven to eight 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 One Orkla. Thanks to the centralization of procurement, we're actually being able to act as one, and we're able to do simplification to our supplier base. We're also leapfrogging in responsible sourcing. 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. 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. 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. 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 customer, that we have a competitive cost base, that we're using our capital efficiently, and that we're strengthening our innovation agenda. 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.
It's a 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 savings. Jens, welcome.
Thank you for that good introduction, Johan. Petter's been going through the Orkla strategy and the main drivers behind top line growth. 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. Delivering organic EBIT growth is the main driver for cash flow growth. 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.
Our balance sheet is strong, and as Petter mentioned, M&A is our main priority for capital allocation. We will also need to allocate some capital to fund the One Orkla journey. In addition to M&A and organic investments, we will continue to allocate capital to our shareholders. 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. Delivering 69% EBIT growth will come from both top-line growth, but also improving our cost position. 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&A costs.
This is a cost base of roughly NOK 5 billion, 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&L. Over the last 2 years, we have improved our SG&A costs in percentage of sales by approximately 80 basis points. This has been achieved by optimizing our model through several initiatives, and we have recently announced several further actions in this area. Let's look closer at some examples to reduce SG&A costs. We are constantly looking to simplify our structure and create bigger and stronger organizations. When we acquire new companies, it often opens up for restructuring and cost synergies. We also do a lot of changes within our existing cost base.
Just in 2017, we have announced that we will merge companies and sales teams in several areas where we lack scale, like with Healthcare in U.K. and in Cederroth, 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, Petter also mentioned this, to centralize back-office functions where it is relevant. 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.
This kind of a, call it, Keynesian approach to this SG&A cost, as Johan mentioned. Just to mention a few examples, we are currently executing one 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 One Orkla opportunities in addition to merging units. 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. In 2017, Orkla Foods will take over the distribution so we can leverage our existing distribution setup. Just through this project, listed behind me, we aim to realize over NOK 100 million in gross savings. That's resources that can be allocated to future growth.
Of course, we expect a large part of this to drop down to the bottom line and be a part of the 69% EBIT growth. To sum up the SG&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. 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. As Johan mentioned, during the process of closing down factories, we actually tie up additional inventory. One 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.
Implementing this ERP and finalizing the supply chain restructuring will obviously take some time. We see ERP as an important enabler in the One Orkla journey. To take the next steps in simplification, standardization, and cooperation across the company, we need a better IT landscape. 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 Petter said, and concluded to move gradually towards one solution. 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.
Petter 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, 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, this is a process that will take several years, this will act as an enabler for executing the One Orkla strategy. It will, among 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&A, it will prepare us for a more digital future.
Rolling out one ERP will acquire some additional CapEx, 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. 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 two previous years. The CapEx spend will, however, have a more positive profile, Johan pointed out that we have historically mainly invested in maintenance. Going forward, CapEx will be more skewed towards increasing innovation capabilities and efficiency. Over time, we expect CapEx levels to come down to historical levels. Let's now move on to talk about M&A and capital allocation. Petter showed this slide presenting our M&A strategy.
As Petter said, M&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 early to talk about post-merger effects in Hamé, we still believe there's significant further potential both in Cederroth and Hamé. I like to go through two of the cases, namely Cederroth and Hamé, give some more insights in how we increase value in acquired businesses and what we believe in going forward. Let's start with a look at Cederroth. We have already seen great value creation from this acquisition.
On the cost side, synergies have exceeded our expectations. Through administrative changes to factory restructuring, we are in the process of realizing more than NOK 100 million in synergies. That corresponds to approximately 7% of sales. We have also seen revenue synergies. After acquiring Cederroth, Orkla Wound Care was established as a separate business unit within Orkla Care in order to ensure attention to this exciting category. 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. 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.
Cederroth brands in Norway are also revitalized, and an example of this is the Bliw hand soap. The Bliw hand soap has gone from number 15 position in 2015 to a leading market position in 2017. In sum, this has resulted in a 2% revenue growth in a demanding restructuring phase. We still see strong potential for cross-category, cross-country innovations. Overall, we are pleased with this Cederroth acquisition. Some words on Hamé. Hamé is a perfect example on how we roll out the Orkla model in Central Europe. We had a somewhat weak position in the Czech Republic with Vitana after the Rieber & Søn acquisition. We evaluated whether or not to exit this region saw some interesting opportunities. Most countries are smaller, with populations in line with the Nordic countries. This enable us to get sufficient scale.
It's also stable markets, with higher growth rates than the Nordics. Local brands are very important. The retail sector is less consolidated than what we see in the Nordics. When Hamé came up for sale, we saw a perfect opportunity to roll out the Orkla model in this region. With the acquisition of Hamé, Orkla has become one of the leading FMCG players in attractive markets in Central Europe, we have gained critical mass for building further profitable growth in these markets. Hamé 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. Let's look at the category match. This slide shows the country and category match between Hamé and Orkla, as you can see, it fits very well.
They have strong local brands with a long history, holding strong number one positions in fact, 85% of the sales in Hamé 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. We see strong results the first 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 one factory. Going forward, we see further potential by applying the One Orkla model for group collaboration, like taking existing products from the Nordics into Central Europe.
An example here is that we have already launched the Norwegian cod liver oil, Möller's, in the Czech Republic, and this has reached a number 1 position in just four 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. 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 three add-on examples acquired during 2015, where we already have achieved 50% sales growth. In the case Lakrisgutta, when stretching the brand into the chocolate category, we have already in the first three 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. Orkla entered into this category in 2005 through the acquisition of a Swedish company. Since then, Orkla Food Ingredients have become Europe's leading one-stop shop for ice cream ingredients, being number 1 position in several larger markets.
When we are talking about ice cream ingredients and accessories, Orkla Food Ingredients supplies everything you need to run an ice cream shop, from the cones and the waffles, to toppings, sprinklers, decorations, napkins, and so on. This product offering is a combination of own produced goods and third-party supply. We have a unique business model in this niche. By combining production on a 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 eight years. In addition, margins has increased from 4% to 11%, and return on capital employed from just under 8% to almost 17% pre-tax.
I, 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. This is naturally an area that we will focus more on and allocate more capital to. Then talking about capital allocation, we've said it many times before, M&A is our number 1 priority for excess capital. We have a strong balance sheet as it is today with a net interest-bearing debt-to-EBITDA below two times. 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 2.50 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. Orkla 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 branded consumer goods company, we have returned around NOK 24 billion to shareholders through ordinary, extraordinary dividends, as well as some minor share buybacks. As a reference, that's over 40% of Orkla's market cap, in the start of 2011, when we started this journey. To sum up, we want to improve our cash flow through, first 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 Orkla journey.
In addition, we will continue to allocate capital to M&A to grow future cash flow, then, of course, grow the future dividend capacity of this company and strengthen our position as the leading brand and consumer goods company. Thank you. Now, Peter and Johan will join me on the stage for Q&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. Let's open up if there are any questions for either of those. John.
Hi. John Ennis from Goldman. Thanks for all the presentations. I've got a couple of questions, mainly picking on you, actually, Johan.
When you talk about targeting one factory per category per geography, I appreciate this changes with future bolt-ons.
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, that would be useful. Then again for you, Johan, on M&A, how involved are you with regards to future, well, potential M&A? Does it make it more or less difficult for you to execute this reduction process? In relation to that, can you tell us, of the 25 closures, what proportion are related to acquisitions, roughly? Thanks.
Thanks, John. Let me start taking these in order. The first one 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. During all instances in time, that's what we go for, to make sure that our cost base is competitive. We're not really striving or targeting an exact number of them. In terms of M&A, we are actually involved very early on. 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.
In terms of number of factories that we have closed down, of the 25 related to acquisition, it's a lower number. It's, I would say around two, three that we can count as acquired companies.
I've actually got a few more, I am obviously happy to hand over the mic when other people have some more questions. Johan, again, clicking 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 NOK 19 billion, you're hoping by 2018 to reduce that by essentially NOK 6 billion, of which, of course, a proportion will be reinvested? Have I understood that chart correctly?
No, not actually.
Sorry.
I'm sorry for not being clear on that, John.
No, no.
What we're talking about on that slide is the gross cost improvements that we're driving.
Okay.
As I mentioned, a big portion of our spend is related to raw materials, and those are exposed to commodity markets. It's more a slide showing our increasing pace in our improvements than giving you an exact number of what that is.
Okay.
It's a step-up in effort more than an exact saving.
Okay, thanks.
Preben Askedal from Carnegie. I was quite impressed by the numbers you gave on Cederroth, and in doing some very quick back of the envelope calculations, it seems like you've raised the margin from around 10% to almost 15%, which is also quite impressive. 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 Rieber 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? Also how quickly could that happen, if it's possible?
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. Obviously, we have ambitions to increase margins in actually all parts of our business, also in Central European food business. I think also, as Jens showed with the Hamé acquisition, we have managed to increase EBIT just during the first year of ownership of that company. 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. The margins will come up, but I will not give you a target where it will be in the future.
I've got some more strategic questions, really. Ice cream's obviously been quite a successful niche for you guys, but are there other categories you're trying to replicate what you've done there? 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 were you actually talking about volumes as well?
I think the ice cream ingredients and accessories business is a good example of how we can go into a niche-
Yeah
Consolidate an industry on a broad European basis. As we showed, we are number one market leader in several big markets, U.K., Germany, Nordics, Netherlands.
potential also going forward in that industry. As you know, the biggest ice cream consumption is in Southern Europe, not in the Nordics. Yes, we see possibilities or opportunities also in other similar niche categories where we can do something similar. 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, you have to be able to deliver with a very high service level when the sun is shining. It's very hard to predict when the sun is shining. You have to be there when the consumers are coming to buy ice cream, when the temperature increases above 20 degrees or whatever it is, the trigger is.
We see possibilities in those kind of niche categories. I think wound care could be such a category. It's also quite small in each market. It's quite fragmented. It's also an area where we can consolidate on a 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. I think we have seen actually now, and that goes for all our business areas, the last, I would say two to three years, we have seen a very healthy combination of both price and volume mix in our growth figures. It's both volume and price. I cannot give you the exact split of those two, but it's growth in both areas. Yes. Any further questions? Ole Martin?
Ole Martin Westgaard, DNB Markets. A question on the brand portfolio. You state that you have 300 brands, and in Q1 you decided to discontinue the Dania brand. I guess as you are optimizing the factory footprint, I guess there's also a discussion about the brand portfolio coming up. There's probably several brands that have similar economics as the Dania brand. Where do you see the potential for further discontinuation of brands, is there a big potential there?
Yeah, 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. 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. Of course, we have to look constantly into this.
We have a model where we have all companies and business area, they have a model where they have put their brands into three different categories. One category is the invest brand or the brands that we really want to invest behind, our big brands. You have brands that we want to just maintain, that are important for us, but we want to maintain the brands. We have brands in a category that we just harvest and brands that over time might die when the consumers die. Brands also that are still profitable. Of course, we don't close down a brand that is profitable. 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.
A question on your guidance. You sort of reiterating your EBIT growth guidance. If you look back two years, obviously there still looks like a big potential for further factory optimization. On organic growth rate, has that become much more challenging now 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%-3%, maybe closer to 3%, now to 2%. What we saw in 2016 was that growth was coming down towards 2%, and first quarter 2017 below our 1.6% that we had reported as organic growth. It's hard to say how this will continue, market growth has come down. There's no doubt about that. With lower growth, the competition gets more fierce, of course. I will not say it's substantially more difficult now than it was. It's been difficult for many years. Actually, 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. I think we have had difficulties in this area before, and we still have it, and it will be a tough challenge also going forward. We just have to work better innovations, better sales promotions, work closer with our customers
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&A, which I appreciate is not always the easiest thing to talk about. Is it fair to assume that future M&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&A will be focused primarily in the geographies that we have a presence in today.
Yeah.
For care foods and confectionery snacks, that's mainly Nordics and Central Europe.
Yep.
For Food Ingredients, have a broader, call it footprint, and are in 22 countries. In Food Ingredients part, it's mainly a bigger-.
Okay
geographical space.
Yeah, understood.
I'd just like to add also that there might be some niche categories also in the business areas, the other outside the OFI, where we might do acquisitions in other geographies as well.
Okay. Fine.
Thank you. Petter Nystrøm from ABG. Two questions from me. Is it possible to say something about the difference in the competitive environment between the Nordic countries within brands? The second question is, you talked a lot about cost improvement. Is it also possible there to say something about how much will be reinvested in growth and how much will float down to the EBIT line? Thank you.
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?
Yeah.
Yeah. 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 three players in Norway, four in Sweden, four or five Denmark, two and a half, I would say, in Finland. It is very consolidated with tough competition. When it comes to the competition on brands, as 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 multi-local 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. We have been competing with the big multinationals in our home markets for 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. 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 local, not Norwegian or Swedish, but it's from Stockholm or from Toten in Norway. You see that especially in breweries, the local craft beer breweries popping up, which is, of course, a competition to the branded beers. To the second question?
Yeah. The second question, obviously, we will reinvest some of the cost savings into new competence and so on, but we expect a lot to drop down to the bottom line, and it's part of the 6% - 9% EBIT growth. It's part of delivering this growth. That's my answer.
Oliver Orskaug, Finansavisen. You 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 three brands if they win that court case?
I think the short answer is no. We have been competing with the big multinational brands also in these categories, home personal care, many years, and we have done that very well with our local brands. No, we are not afraid of that.
Why do you want to keep brands you don't use? Why do you want to keep these three brands when you don't use them?
We own them in Norway. Any further questions? Yes.
Thank you. Martin Stensøl, 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 2013, 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? Naturally, the big question is what kind of normalized margin we could see in Sapa going forward. Thank you.
Well, as I said, one of the value drivers in Sapa has been to go from commodity profiles more into value-add profiles. 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. I cannot give you a target on how big part will be value add, and 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. 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, and you asked why do you want to keep them? I said because we own them, but we also use them. Just 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?
You mean for the other channels?
Other channels, yeah.
No, I cannot. I don't have that figures. I have for some of the channels.
Yeah.
e-commerce, 20%. Now we're 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, what in percentage, if 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, in percentage of sales, for instance, export is around 5% of sales, and e-commerce is around 1%-2%. It's a fairly small portion of the total sales today, but have a very high growth rate.
Just a housekeeping question. On the CapEx guidance that you stipulate on one of the slides, you say that CapEx will remain at sort of 2015, 2016 level for some time.
Is it possible to be more specific, as this is investment related to the ERP system, it looks like?
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. That's part of, call it, the driver for the increased need. Then, as Johan pointed out, we are doing a lot of restructuring activities within supply chain. At least for a few years, we will be at this level. That's approximately 4% of the NSV, then we will return closer to 3%. That's the ambition. 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, Johan talked about it. Now we have, call it, different structures in place to follow up this very tightly.
My name is Geert-Jan Hoppers from MN in the Netherlands. One question. What do you think is the main difference between the competitive advantage of the food ingredient business compared to the other three business areas?
The main difference on the competitive advantage?
Yeah. Correct.
I think these businesses are quite different. Food ingredients is mainly a B2B business, while our other business areas are B2C. Food ingredients also have, in general, a lot of small customers, not only within the ice cream segment, but also in artisan bakeries, which is an important and large customer group for Orkla Food Ingredients. 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 maybe not professors in planning. Very often, they're even not able to plan because the volume are changing so dramatically from day to day.
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. I don't have any questions from the web either.
Okay.
Before we round off this presentation session and move on to the growth fair, I would like to hand over to Petter for some final remarks, 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 four targets that we communicated, maybe with a small exception of the growth according to, or at least in line with the market. I put that as yellow, as you remember. We will continue to very closely monitor consumer trends to make innovations with local brands to meet 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. 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&A, and of course, also realizing synergies on top-line initiatives that we have also shown some examples of. Work more as One Orkla. Also in the future, M&A will be an important driver for value creation. The M&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. 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. Our Sapa shares, we have been clear that for us it's been more important to focus on realizing the fair value than time. I've said that now for three years, you don't want to wait anymore. We will definitely sell our Sapa shares, but I'm not able to give you a date today. That time will come sooner or later. We are in the middle of, or maybe even the start, as Johan said, on the 100-meter run, we have maybe come 20 meters. 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. We believe we have a lot of potential. A lot of challenges, absolutely, but we have a lot of potential 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 cost structure, realizing more cost programs. The targets that we communicated last time and that you can see here on the screen, they remain firm also as we continue. With that, I hand it back to you, Mattias, to give some more details.
Thank you for that, Petter. 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 products.