Good evening, everybody, and welcome to Orkla's second quarter result presentation. First, go through some highlights. We had a favorable profit development in the quarter, improving group EBITDA by 19% to NOK 751 million compared to Q2 last year. The improvement was driven by structural growth and realization of synergies in Branded Consumer Goods, as well as continued progress in Orkla Investments. EBITDA margin in Branded Consumer Goods improved by 0.8 percentage points. We see this improvement in all business areas except for Confectionery & Snacks. This quarter, we had a positive adjusted organic revenue growth of 0.9% in Branded Consumer Goods. First time for many quarters that we had an organic growth. That was driven by good performance in Orkla Home & Personal, Orkla Food Ingredients, and Orkla International.
Organic growth is still challenging in Orkla Foods and Orkla Confectionery & Snacks, though we see some sign of improvements in the latter. In terms of Orkla Investments, I want to mention that Gränges experienced great results both in revenue and EBITDA. The results in Sapa JV are still weak. We see a very positive improvement. Orkla's earnings per share diluted was NOK 0.7 per share, an improvement from -NOK 7.0 in Q2 2013. Overall, I am satisfied with the results. Our main challenge ahead is organic revenue growth. We must facilitate cooperation, exchange of ideas, and knowledge transfer across companies. A number of improvement projects are underway to improve operations and to increase profitability in the future. As communicated, it takes time before improvements from the transformation materialize.
We see some very positive trends this quarter, both on top line and bottom line. We still also see some challenges. Orkla Foods top line with negative -4.6% adjusted organic growth for the quarter is very disappointing. However, we see positive signs for the other business areas. We deliver according to plan on synergies and on the cost programs. Margins are improved in four business areas in the quarter. Orkla Foods realized significant cost synergies resulting from the integration of Rieber & Søn. Confectionery & Snacks is lagging behind. We will see more effects coming in the second half of the year. My focus will continue to be on activities to improve organic growth going forward. We have started a process to optimize our production structure. Here you can see three quite small examples of factories we have decided to close down.
In Q2, we finalized the moving of Baby Foods production from Finland to Kungshamn in Sweden. Decision was made to close and transfer production from Lierne and Nord-Odal. Together, they represent a cost saving of approximately NOK 45 million per year. The effects from our production structure optimization will be the sum of many small things, also including redesign within the factories and continuous efficiency programs. This will take time. We will do small steps, hopefully every quarter. I will now go through the business units. The integration of Rieber & Søn is still ongoing. It takes its toll on the foods organization. The organic growth rate is negatively affected by this. Other factors are tail cutting and focus in improving profitability. Later phasing of launches in Sweden compared to 2013 is also affecting the growth rate.
Market shares are in general somewhat weaker, despite the fact that the launches in the first half year delivered according to our targets. Satisfactory EBITDA development, mainly due to synergy effects and cost and efficiency programs. There are several activities I want to highlight from Q2. The integration process of Rieber & Søn is according to plan in all the companies, and run rate on cost synergies end 2014 amounts to NOK 290 million for Orkla in total. Ongoing field sales force projects in Norway and Sweden to increase in-store effectiveness and efficiency of operations will go live in Q3 this year. End of the quarter, Orkla Foods Sweden acquired the Krögarklass brand, a series of processed meat products in Sweden, contributing to a stronger position in the Swedish out-of-home market. Production will be transferred to Orkla Foods Sweden's plant in Sweden.
Here you see some of the products recently launched by Orkla Foods. I will highlight the relaunch of the ketchup range. Orkla Foods has invested in a new process in the ketchup plant in Fågelmara, enabling a total relaunch of the ketchup range in Sweden, Finland, and Denmark. The new bottles are more environmentally friendly and offers a more appealing design and user-friendly packaging. With our own bottle blower at the production line, we reduce transport significantly, reducing carbon emissions by 90% compared to previously. It drives consumers value and margins and is a good example how Orkla Foods work with cross-market launches. Orkla Confectionery & Snacks had an improved performance in Q2 compared to Q1, the development in adjusted organic growth is still challenging. In Q1, adjusted organic growth was -3.8%. In Q2, it was -1.2%. We see some improvement.
Market shares weakened somewhat in Sweden and Denmark, they are on par in Norway compared to Q2 2013. Increased raw material cost and a challenging market situation contributed to weaker margins and an EBITDA decline. Main activities in Q2 are still related to the integration focus in Norway and Sweden. In the quarter, we went live with a new sales organization in Norway. That has been a very demanding operation. Synergy effects from this restructuring are gradually realized as planned, and positive effects from integration of sales forces are expected going forward. In Sweden, a new CEO has been appointed with effect from 1st of July. Here you see some examples of the innovations during the quarter. Ballerina Chocolate Mousse from Orkla Confectionery & Snacks Sverige is an example of technology-driven innovation across markets that was launched this quarter. It's inspired by chocolate mousse, which is a favorite dessert in Sweden.
The product combines two chocolate biscuits with a milk chocolate mousse filling. For the first time in 11 years, it's a new chocolate launched under the New Energy brand. New Energy provides a quick shot of energy with less fat than other chocolates. New Energy Nøttebar has been well-received in the market and was the fifth most sold chocolate bar in Norway during the last four weeks. It's been a very successful launch. Orkla Home & Personal had a strong organic sales growth in the second quarter, on par with Orkla's long-term target of 3%-5%, driven by improvement in most companies. All business units improved market shares in the quarter, except Lilleborg Norway. The EBITDA growth of 7% was broad-based. The EBITDA margin was approximately on par with 2013.
Activities I want to highlight from the quarter relates to Lilleborg Profesjonell, Pierre Robert Group, and Orkla House Care. New customer in the industry sector was the main reason for broad-based growth in Lilleborg Profesjonell. For both Pierre Robert Group and Orkla House Care, the main driver for improved sales was new and relaunches. Also, during the quarter, we have made a new agreement with Unilever. It has been signed with effect from 1st of July 2014 and will run for a period of five years. The new agreement includes continued right to supply finished goods from Unilever, continued license on R&D and marketing knowhow, termination of licenses regarding five Unilever brands currently distributed by Lilleborg in Norway, representing approximately 100 million NOK in revenues. The five brands are Dove, Axe, Vaseline Intensive Care, Domestos, and Clover, and they represent approximately 2% of Orkla Home & Personal's revenues.
A subset of Vaseline Intensive Care portfolio will continue to be licensed for another five years. In conjunction with this license termination, Orkla will receive an agreed one-time unconditional contractual termination fee from Unilever. Also, in Home & Personal, we have many exciting innovations in the quarter. I will highlight Omo Active & Sport. It's a specially developed laundry detergent for training and outdoor garment. It removes unwanted scent and is effective from 30 degrees Celsius. Orkla International had a strong adjusted organic growth in Q2 of 5.8%, driven mainly by MTR Foods in India with more than 20% growth. In addition, International had a broad-based EBITDA improvement. In terms of activities in Q2, I want to highlight the following. In May, an agreement was signed to sell Delecta in Poland. The sale is expected to be completed in Q3 after competition authorities' approval.
The production restructuring in Russia was completed, and the sales process is proceeding as planned. The decision has been made to increase capacity and improve production facility of MTR in Bangalore. This will be executed over eight to 10 quarters and will be financed by operating cash flows. In Q2, Orkla Food Ingredients had a very solid volume-driven organic sales growth of 8.5%. The EBITDA growth was of 30%, and that was broad based. During the quarter, Orkla Food Ingredients has seen several positive effects from internal improvement projects, as well as from smaller add-on acquisitions and expansion investments during the last couple of years. Example of internal improvement projects contributing to improved revenues and EBITDA are increased focus on value-added propositions to customers and several cost improvements. We show in this quarter that we deliver and are on track with our synergies.
Organic growth is still the challenge, and that will be my main focus going forward. Now let me give the word to our new CFO, Jens Bjørn Staff, that will give you more information about the numbers. Mr. Staff comes from Statkraft, where he has been Executive Vice President and CFO since 2011.
Thank you, Petter. In the following section, I will present the financial performance of Orkla in Q2. The group's operating revenues increased by 7% in the quarter, mainly ascribable to the acquisition of Rieber. Rieber was consolidated as of May last year. Currency translation effects had a positive impact of NOK 215 million on revenues in the quarter. EBITA increased by 19% and ended at NOK 751 million, of which approximately 94% came from Branded Consumer Goods. I will revert to the EBITA bridge shortly. Other income and expenses amounted to a positive NOK 59 million. The main reason being the agreed termination fee from Unilever, which was partly offset by costs related to restructuring within Branded Consumer Goods. Profit from associates is mainly related to Jotun and the Sapa joint venture. Net profit from the Sapa joint venture was NOK 44 million in the second quarter.
The market value of the financial assets was approximately NOK 926 million at the end of the quarter. Profit before tax improved by NOK 416 million to NOK 930 million, while earnings per share diluted improved from -NOK 0.7 in Q2 2013 to a positive NOK 0.7 in Q2 this year. Let's look at the EBITA bridge Q-on-Q. EBITA growth of 19% in the quarter related to acquisitions and positive currency translation effects, as well as margin improvements in Branded Consumer Goods. Branded Consumer Goods had 9% underlying EBITA growth. Four out of five areas had improved EBITA in the quarter. The exception was Confectionery & Snacks. Orkla Investments had in total EBITA on par with last year, where the EBITA improvement for Gränges of NOK 34 million was offset by lower EBITA for hydropower. So in total, a positive change of NOK 119 million.
This slide shows the revenue growth for Branded Consumer Goods Q-on-Q. Branded Consumer Goods had an increase in revenue in Q2. The growth was mainly ascribable to the acquisition of Rieber & Søn, boosting the revenues by over 4%, and positive consolidation effects due to the weakened Norwegian kroner. Revenues were also boosted by 1.6% related to timing effects from Easter sales. Adjusted organic growth was 0.9%, largely driven by satisfactory top-line development in Orkla Home & Personal, Orkla International, and Orkla Food Ingredients. Let's look closer at each business area within Branded Consumer Goods. In Orkla Foods, we saw an increase in EBITA of 27% to NOK 333 million. The EBITA margin increased by 1.6 percentage points to 12.6%. The main driver for this improvement were the realized cost synergies from the integration of Rieber and from the merger of Abba and Procordia last year.
Underlying EBITA margin improved during the quarter by 1.9 percentage points. The focus on realization of cost synergies and improvements on margin has affected the underlying top line. The 11% increase in revenues was mainly due to consolidation of Rieber. The organic growth adjusted for Easter effects was negative by -4.6%. The decline in organic growth was driven by lower volume and somewhat weaker market shares. The growth challenge is fairly evenly distributed across Scandinavian markets, while the Baltic operations are delivering a healthy growth. Orkla Confectionery & Snacks reported revenues of NOK 1.1 billion in the second quarter and the revenue growth of 3.4%. Underlying revenue adjusted for Easter was negative by 1.2%, mainly due to weaker sales performance in Norway and Sweden. Organic revenue growth is still challenging. However, Q2 showed signs of improvement compared to Q1.
The market shares weakened somewhat in Sweden and Denmark, but were on par in Norway compared to Q2 2013. The internal focus on the integration processes in Norway and Sweden have had negative impact on turnover and profits. However, there were signs of improvement in the revenue development in Norway towards the end of the quarter. EBITA ended at NOK 109 million in the quarter, which was a decline by NOK 10 million quarter-on-quarter. EBITA margin was down 1.2 percentage points. Raw material price increases and weaker currency, as well as one-off costs to kick start the cost initiatives, contributed to weaker margins in Norway and Sweden. The synergy effects are gradually realized according to plan. Finland and Denmark had profit growth in the quarter. In the Baltics, both Latfood snack business in Latvia and the Kalev chocolate business in Estonia showed solid improvement in sales and profits.
In Orkla Home & Personal, broad-based improvements contributed to both growth in revenue and EBITA in the second quarter. Reported revenues was almost NOK 1.2 billion, an increase of 6.7%. Adjusted for Easter, the organic revenue growth is still strong at 4.5%. Reported EBITA was NOK 176 million, and margin was on par with last year. In Orkla International, reported revenues of NOK 686 million, an increase of 17% compared to Q2 last year. The increase was mainly due to the consolidation of Rieber & Søn. Organic revenue growth was strong at 5.8%, driven by MTR with an organic growth of 20%. MTR had strong revenue growth across all categories and markets. Orkla Brands Russia had a continued negative revenue growth in the quarter, but the rate of decline is leveling. EBITA for Orkla International amounted to negative minus NOK 14 million, an improvement of NOK 26 million compared to Q2 last year.
The EBITA improvement was broad-based. EBITA improved for Orkla Brands Russia, however, the EBITA level is still weak. In total, a broad-based improvement in international quarter-on-quarter. Orkla Food Ingredients posted revenue of NOK 1.6 billion in the quarter, along with an EBITA of NOK 100 million. This is the highest quarterly EBITA delivered by the business area. Compared to Q2 last year, EBITA improved by 30% to NOK 23 million. EBITA margin improved by 0.8 percentage points to 6.2%. Revenue growth was almost 15%. The organic revenue growth was solid at 8.5%. Revenue growth was driven by increased volume and more favorable product mix. The EBITA improvement in the quarter was broad-based, mainly driven by internal improvement projects. I would like to remind you that Orkla Food Ingredients will meet stronger comparison in the next quarters. Let's now look at the development of Orkla Investments.
Gränges continued the positive trend in the second quarter. EBITA was NOK 118 million, an improvement of 29% compared to the same quarter last year. This is the highest quarterly EBITA delivered by Gränges and corresponds to an EBITA margin just over 11%. A continued strong contribution from restructuring process in the Swedish factory was the main driver behind the EBITDA increase, both in the quarter and year to date. Volume increased with 2% in the first half year compared with the same period last year. Sapa experienced increased demand compared to the same period last year. In North America, demand for extruded products grew with 5% in the quarter, supported by growth in the automotive industry and the building and construction market. In Europe, demand grew with 2%, also supported by the automotive industry. This was the second consecutive quarter of market growth in Europe after several quarters with decline.
Underlying EBIT was NOK 350 million, a significant improvement compared to the pro forma result from the same period last year. Both volume growth and effects from the significant restructuring programs contributed to this increase. The restructuring program is progressing according to plan, and the restructuring charges will continue to have negative effect on the net profit in 2014. In the second quarter, Orkla's share of profit was, however, positive with NOK 44 million. Jotun has had a satisfactory start in 2014. In the second quarter, Jotun has had growth in both revenue and EBIT. Jotun is continuing to invest in and build new factories. Ongoing plant investments include Russia, Brazil, and Oman. Produced volume in hydropower was higher than the corresponding quarter last year, also in the second quarter.
Power prices in the second quarter were, however, significantly lower than the second quarter last year, resulting in a lower EBITDA in the period. In addition, the second quarter last year was positively affected by a gain of NOK 17 million from sale of real estate. Reservoir levels at the end of the quarter were somewhat lower than normal. Lastly, I will comment on the development of Orkla's capital structure in the first half of 2014. Net debt as of the second quarter was NOK 9.3 billion. The main deviation from the end of last year is paid dividend by NOK 2.5 billion. Net sales from shares and financial assets contributed to NOK 0.1 billion year to date.
The cash flow from operation was NOK 0.6 billion in the second quarter, NOK 1.4 billion the first half of 2014. The seasonal buildup of working capital in the Branded Consumer Goods area was somewhat lower in the first half compared to 2013. Orkla's net interest-bearing debt has an average interest cost of 3.6% in the first half of 2014, with an average maturity of 3.6 years. As mentioned, the group's interest-bearing debt, net debt was NOK 9.3 billion at the end of the quarter, with the net gearing of 0.31. This increased net gearing is ascribable to the dividends paid in the second quarter. This is expected to decrease in the second half of 2014. Orkla's financial position is robust, with cash reserves and committed credit lines that will cover known capital expenditures in 2014. Let me give the word back to Peter.
Thank you. Well, as communicated also during Q1, there is no change in our strategy. The future growth and value creation will come from a focused Nordic-based Branded Consumer Goods company. Orkla Investments is a large share of our value. We will focus on getting the fair value. That is more important than timing of the exit. As mentioned, my main operational focus is on activities that drive organic growth and improve our margins. In addition, we will deliver on started and ongoing structural processes to realize synergies and increase efficiency in the value chains. This is not finished. This will take time. We show in this quarter that we deliver on our strategy and our plans.
I see clear results from an increased focus on operations, but still we have a large operational job ahead of us, especially when it comes to creating organic growth, even though we had a positive organic growth this quarter of 0.9% in total for the Branded Consumer Goods company. Thank you for all coming, and we are now open for questions. No questions.
We can start with a couple of questions from the web. This is a question from Håkon Askja from DNB. Under the new contract with Unilever, can you compete with Unilever in Norway?
We can definitely compete with Unilever in Norway. I think we have a very strong position. As I mentioned, the termination of the five brands with Unilever only accounts for 2% of Orkla Home & Personal's total revenues. I think we'll compete very well, based on our long history and strong position in the market.
One more question from Håkon. Very strong quarter for Ingredients. What were the drivers? Stronger underlying growth or are Orkla taking market share?
I think both taking market share, the market has been quite favorable. You have to remember that Orkla Food Ingredients has a very broad-based operation in almost all of Europe. Some markets are improving, some probably retracting. I think in general, both positive development in markets and taking market shares.
A question about Orkla Foods. Can you break down the negative organic growth of Foods? What contributes to the negative development from Q1, and how did Rieber do in Q2?
I think, as I mentioned, after the acquisition of Rieber, we have been through very demanding organizational changes, merging Rieber & Søn and Stabburet in Norway, merging three companies in Sweden, and that has taken a lot of focus from organization. I think the Toro brands in Norway are developing actually quite well, and I expect that to see positive signs going out of this year for Orkla Foods in general.
Question about Gränges. Please, can you update us on the Gränges IPO process?
Well, as mentioned during the Q1 presentation, we have initiated a process to see if an IPO is favorable and that process is going on. I cannot say anything more about timing.
Let's see. This is from Martin Stenshall in Danske. Congratulations with a solid Q2. Regarding Sapa JV, could you please comment further on the outlook for Sapa JV?
I think as mentioned by Jens Staff, we have had good development in North America for a long time. We see for the second quarter now improvement in Europe, in the market in general. Sapa has been through very demanding restructuring processes in Europe. Closing of a lot of factories, moving factories, and so on. I think they are well prepared to take the market growth that we expect that will come. I think the outlook is quite bright for Sapa, and they are well prepared.
Could you say something about the size of the termination fee from Unilever?
The termination fee is in the area of NOK 300 million.
One more question about Sapa joint venture. How much restructuring charges could we expect in the second half of 2014?
You know, Jens, to be honest, I don't have details.
No, I think we will see restructuring charges as we go along in accordance with their improvement and restructuring programs. I think we'll have to revert on the specific numbers going out of this year.
Thank you.
You spoke about new products in Orkla Foods. Can you say something about the development of those new products? Because they're obviously innovative, but are they, in terms of their development, have they been successful?
Do you mean the innovations?
Well, because previous products have proven badly or done pretty bad. My question is, can you just say something about those new products being environmental friendly, but have they proven successfully financially?
Yes. Well, of course, the examples I show on my slide, they have been successful. Otherwise, I would not use them. They have been successful. I showed three products. One was the ketchup bottle, that has been very successful. The other one was a gluten-free pizza and a gluten-free lasagna, and of course, that market is quite small, so we didn't have very high expectation. We think that's important to offer also alternatives to people that needs gluten-free products. According to our expectation, they have been delivering, yes. Okay. No more questions? I think it remains just to wish you all a peaceful and relaxing summer holiday. Thank you all for coming. I hope you'll enjoy our products during the holiday. Thank you very much.