Good morning, ladies and gentlemen, welcome to this presentation of the second quarter results from Orkla. First, I will give some introductory remarks, Mr. Terje Andersen, the CFO, will present the figures to you. Atle Vidar Hansen, the CEO of Orkla Foods, will take you through the consumer goods activities. There are three main messages in this quarter. Firstly, the financial results are unsatisfactory. We are reporting EBITDA of NOK 632 million versus NOK 698 million last year. Secondly, all the restructuring programs, integration work going on inside our organization are on plan. Thirdly, the divestment of non-core assets continue on plan, with one exception, where we are now clearly behind plan. If we start with the financial performance, there are obviously a multitude of factors explaining this deviation from plan.
First and foremost, there are some indications that macroeconomic factors may have affected this quarter, but it may be early to say whether this is a change in consumer behavior or it is, in fact, macroeconomic factors. Competition is also still intense. I think for the most part, we need to look inside Orkla to see the explanation for the deteriorated performance in the second quarter. There is a weak top-line development in June in particular. I would also say that the extended approval process for the Rieber acquisition has clearly taken its toll on that organization this year. As a consequence, both top-line and profit performance for Rieber is clearly behind and below expectations. The challenging markets for snacks and confectionery, which has been in place for several quarters, continues.
As you know, this is also the reason why we are restructuring those activities, as I will come back to. Finally, we are in the middle of a big turnaround in Russia, and that operation continues to perform below expectations. We see weak results affecting our results in the second quarter as well. There are improvements, however, for home and personal and Orkla Food Ingredients. The divestment of assets continues with the sale of the REC and Borregaard shares. In general, in this quarter, a lot of activity and a lot of focus on the restructuring activities inside the consumer goods business. I have commented for the most part on the ongoing transition inside the brand of consumer goods. The integration of Rieber progresses according to plan. The new organization is in place.
In general terms, we could say that the very demanding phase of that integration process where an organization is probably focused mostly on themselves, where we set up a new structure, where we appoint new leaders, that activity is behind us. I think we can now go forward with the new highly motivated management team and organization and effectuate the plans that we have in place for that activity. There are also, as you know, integration processes going on in Denmark, where we merged Orkla and Rieber organizations, and in Sweden, where we merge Frödinge into the Procordia organization. There is a new management team in place in home and personal, and also the new management teams are in place in that organization. With respect to the divestment processes, as you know, in the second quarter, we sold the remaining REC shares and the Borregaard shares.
The exclusive negotiations we have had with a possible buyer of Sapa Heat Transfer has been terminated. That does not change Orkla's strategic view on Sapa Heat Transfer, but we feel confident that in the short term it is, at this point, more value accretive to Orkla to remain a shareholder of Sapa Heat Transfer. As I said, inside the food organization, we have had several integration processes. Abba and Procordia have been merged into one organization in Sweden. We feel that process has progressed well. There is also an ongoing integration of Rieber, and as I said, that process has now come to the point where new management teams are in place. We are ready to go with that new organization. That new organization will be operational from the third quarter.
As a consequence of these integrations, the management teams in Norway, Sweden, and Denmark have been reduced from seven to three. Similarly, as you know, we have restructured and set up a new management team for Confectionery & Snacks. We've had several quarters with unsatisfactory results for that operation. That development has continued in the second quarter. The new management team is in place, and also there, we have, as a consequence of the restructuring, reduced the number of management teams from seven to three. In general terms, we feel that we have a more streamlined organization, and we expect, obviously, to see some results of that going forward. The operation in Russia is undergoing a very major restructuring, as we have reported in previous quarters. That activity continues to perform below expectations as we restructure.
There is a simplification in terms of reducing the number of plants and in also reducing the product portfolio. That is having an impact on the top-line figures. As a consequence of the financial performance, we have also decided to write down the intangibles in the balance sheet for that operation. The remaining book value of the Russian operation is now about 0.8 billion NOK. The restructuring process will continue, and we expect the process and the transfer to the new plants outside St. Petersburg to be completed by the end of this quarter. With respect to the agreement for a joint venture with Hydro for Sapa, we have now received approval from U.S. and European competition authorities. The one remaining approval that is required is from Chinese competition authorities.
I think in general terms, we see that these processes take time, and clearly, the approval from China will take more time than we had hoped for. However, we feel confident that we will get this in due course. We are in the middle of the so-called phase two process. While it is difficult to say exactly when that approval will come, we feel confident that we will have this approval in due course. It is taking its toll on the organization, and generally speaking, we see that these approval processes take more time than we had maybe planned for. We have also, in the second quarter, established a financing scheme for the new company. Everything is set to go for the joint venture as soon as we get the Chinese approval.
We have reviewed the accounts, and we have decided to write down the remaining goodwill in the accounts, approximately NOK 1.2 billion. I think in general terms, to sum up, I would say that the second quarter is a disappointment. However, I think that most of the factors influencing these results lies within our own organization. We believe that we understand what we need to do. We have plans and programs in place to rectify the situation. On the other hand, some of the challenges that Orkla is facing are complex. They will take time to fix. For some of these issues, there are no easy answer to the solution, but we do believe that we will be able to rectify the situation as time progresses. As I said, we have experienced management teams in place to execute our plans.
In closing, I would also remind you that we have an investor day in London on September 26th, where we look forward to share with you our thoughts on our plans and strategies going forward as a consumer goods company. Thank you. With that, I leave it to Terje Andersen.
Thank you. I will take you through financial statements, and also comment on some of the business areas. Starting with the P&L. Consolidation of Rieber as of May and Jordan contributed to an increase in operating revenues by some NOK 700 million in the second quarter. However, the underlying top-line development for both Rieber and existing business was negative in this quarter. EBITDA ended at NOK 632 million in the quarter. If you look at the EBITDA bridge, we see a decline for Orkla Branded Consumer Goods by NOK 13 million. Contribution from acquired companies in the quarter was in the area of NOK 40 million to NOK 50 million. Atle Vidar will cover Orkla Branded Consumer Goods in more details later on in the presentation. Sapa Heat Transfer, still recognized as a subsidiary. Business reported a profit decline in the quarter, but operating margins were in line with previous quarters.
Higher prices and gain from sale of land contributed to an increase for Hydro Power compared to last year. For financial investments, last year's EBITDA was impacted by the finalizing and sale of the Idun real estate project in Norway, and the contribution from this project was NOK 47 million in the second quarter. Headquarter cost was somewhat higher than last year, mainly due to provision for long-term incentive programs and also increased provisions for employee taxes related to stock options. In addition, there were also some extra project costs related to the corporate center. Back to the P&L. Other income expenses total NOK 553 million in the quarter. As Mr. Korsvold mentioned, there was a write-down of intangibles in Orkla Brands Russia, and we have also increased previous provisions somewhat in Russia. Immediate recognition of M&A costs and restructuring amounted to about NOK 110 million in the quarter.
Profit and loss from associates is now mainly related to Jotun. Jotun continues to perform well, and high margin led to a profit increase compared to last year. Orkla continued to sell shares and financial assets during the quarter, and sales total NOK 2.1 billion, with a net gain of NOK 352 million in the quarter. At the end of second quarter, the market value of the portfolio is about NOK 1 billion. Discontinued operation is related to the part of Sapa in scope for the JV. As Mr. Korsvold was mentioning, remaining intangible assets is written down by NOK 1.2 billion in the quarter. Just to be clear, this write-down have of course no consequences for the JV agreement with Hydro. Looking at cash flow and net debt. Net debt at the end of the quarter was NOK 11.8 billion.
Main changes from year-end was the acquisition of Rieber and the paid dividend in the second quarter. Net sales from shares and financial assets contributed with NOK 2.8 billion in the first half. Cash flow from operation was NOK 700 million, and as normal, this cash flow was affected by a seasonal buildup of working capital towards the second half. Cash flow from operation is expected to be higher in the second half of the year. After closing of the JV agreement, we will, as you are aware of, receive a cash contribution of NOK 1.8 billion from the JV. The Sapa business in scope for the JV had an EBITDA of NOK 160 million in the quarter. This was on par with last year. Volumes in the European profile markets continued to decline in the quarter, and volume was down about 4%.
However, improvement programs and cost reduction compensated for the volume decline and a very weak solar market in Europe. For Profile Europe, EBITDA was in line with last year. Margin, however, is down compared to last year, but this is fully explained by the significant drop in deliveries to the solar industry. Although the North American market showed signs of softening in the second quarter, Sapa operation continued to increase profit, and EBITDA margin was up 1.1 percentage point to 6.6% in the quarter. Asian business is still in a buildup phase. EBITDA in the second quarter is still negative, but somewhat improved compared to last year. Reaching EBITDA break-even levels is expected towards the end of 2014.
The slow pace in the European building and construction market continued to affect Sapa Building System negatively also in the second quarter, and there's few sign of significant higher activity in this market during 2013. Somewhat mixed performance for Heat Transfer in the second quarter. EBITDA was lower compared to last year, but margin was maintained and in line with recent quarters. Swedish operation in Finspång is working hard to improve the productivity in the factory. Plant organization is strengthened and improvement plans are in place, but performance in second quarter was still behind targets. In addition, increased metal premium and a strong SEK impacted profit negatively for the Swedish operation. Chinese operation in Shanghai performing well, and the demand in Asia is still strong.
Hydro Power had profit increase in the quarter due to higher prices, but mainly due to a gain from property sale linked to the Borregaard plant. Production was 12% lower than the quarter, and reservoirs at the end of the quarter were somewhat lower than normal. All in all, production for the year will be significantly lower than last year. Jotun. As I said, Jotun continued to perform well despite lower demand for the marine segment due to reduction in new shipbuilding in Asia. All other segments, however, show healthy growth even though cold weather has a negative impact on the Scandinavian markets. Gross margins are improved and contribute to a 20% increase in EBIT in the four first months of the year. The comprehensive investment programs continue in 2013. Largest investments in the quarter were related to construction on new factories in Brazil, U.S., and Russia.
Good morning. I leave it to Atle Vidar to go through the Branded Consumer Goods businesses.
Good morning. This graph shows the long-term EBITDA development for Orkla Branded Consumer Goods area since 2004, 2005. The EBITDA has grown at about NOK 800 million in that period in a mix of organic and acquired growth. With the acquisitions of Rieber & Søn and Jordan and the restructuring going on in Orkla Branded Consumer Goods area, that gives Orkla an even larger foundation to continue the long-term profit growth. Nevertheless, the performance for second quarter was not satisfactory. I will present some more detail in each business area. First, some words on the integration of Rieber & Søn, which had a main focus in the second quarter. The transaction was closed on 26th of April after more than eight months since we announced the deal with the Rieber family. In quarter two, the integration of Rieber & Søn into Orkla could finally commence.
In order to realize maximum synergies, we have chosen to integrate Rieber's business units in Norway, Sweden and Denmark into Orkla's existing companies there. These entities will be part of the Orkla Foods business area. Since May, the focus has been on shaping the organizations, selecting leaders and reducing manning in these two months. That was executed with huge efforts in May and June in order to limit the period of uncertainty on both sides. As of July, Orkla has already entered agreements and contracts, securing about 50% of the synergy potential coming from the Rieber deal. The P&L effects of that will gradually come through second half of this year with full effect into 2014. Purchasing synergies take some longer time to realize, but we will have a full focus on that in the second half of this year.
Naturally, the long pre-merger period and the strong focus on the organizational shaping in second quarter has taken its toll on the organizations and led to increased internal focus, which of course, to some extent explains the weak sales and profit performance, especially for Norwegian entities. Going forward now, there will be sharp focus on harmonizing business processes and business plans throughout the value chain to improve profit and growth. Of course, continue to realize the cost synergies coming from the Rieber transaction. Rieber's corporate headquarter will be integrated into Orkla's headquarter, and the Rieber companies in Czech, Poland and Russia will continue as standalone entities within Orkla International business area. The Rieber accounts for this first half year, highlights from that is presented here. Sales declined with 10% in the first half.
This downturn relates to most markets in the Rieber & Søn group and is broad-based across product categories. The pro forma EBITDA is down NOK 8 million to NOK 43 million. Lower costs in the headquarter from a lower activity level compensates a weak performance in the Norwegian business entity. In the Orkla accounts, Rieber is consolidated as of May, as you already know, and the profit contribution from Rieber in May and June was 7 million NOK. As you probably know, there is a seasonally low profit in second quarter. For Orkla Foods, the quarter must be described as unsatisfactory. Orkla Foods reported an EBITDA of NOK 263 million, which is in line with second quarter last year. For the first half year, the EBITDA is NOK 489 million, up from NOK 464 million last year. The consolidation of Rieber & Søn units contributes with 9 million NOK in this second quarter.
The sales development in the quarter was not satisfactory. Organic growth, including Rieber entities, was 4.2% down. Excluded Rieber & Søn, the growth was close to 2% and down 1% first half year. The main reason behind this is that the product launches conducted, especially in Norway, is less successful this year than it was last year. In Sweden, the integration of Abba and Procordia must be described as successful. The manning reduction is fully completed, and the combined company is recording a volume growth in the retail trade of 2% in the first half year. Overall, the market share for Orkla Foods decreased somewhat in the quarter. The reported EBITDA margin was 11.0%, and consolidating Rieber dilutes that margin with 1.8 percentage points. For Orkla Confectionery & Snacks, there is also a major restructuring going on as the business area establishes now one operating company per country.
That means that during the second quarter, seven management teams and organization structures are merged into three. The total cost synergy effect from this is estimated at NOK 50 million-NOK 70 million. Orkla Confectionery & Snacks reported an EBITDA in the quarter of 119 million NOK, versus NOK 151 million last year. The drop in performance is mainly related to the weaker sales development, as the top line was down 4.8% in the quarter. The business area faces tougher competition in snacks, both from other suppliers of brands and from retailers' private labels. Orkla's own innovations and campaigns has not been strong enough in the quarter to counter that competition. In total, market shares are reduced, and the overall market momentum was weaker in the quarter.
For Orkla Home & Personal, reported a profit in EBITDA in the quarter of NOK 165 million, which is up NOK 34 million from the corresponding quarter last year. After six months in 2013, the EBITDA is up NOK 77 million from last year. Especially Lilleborg and Axellus is driving the EBITDA increase. Lilleborg partly due to the integration and synergy realization from the Jordan acquisition last year, but also a strong performance on Lilleborg's core portfolio. However, the business area sales was down 4.8% in the quarter, which is partly explained by weak development for Jordan House Care, as the cold weather in the important spring and early summer season has led to a softer market development. In addition, Pierre Robert Group had lower sales in the quarter due to somewhat weaker market program. Orkla International is partly covered by Orkla. There's continued challenges in the Russian operation, despite major restructuring efforts.
Sales are down 18% in the first six months of 2013. The competition is fierce, and Orkla Brands Russia are facing lower sales both in modern trade and in traditional trade. MTR in India delivered growth of 13% in the first six months due to launches of successful innovations. The investment in market and organization development continues in the first half year. In Austria, market shares in ketchup and pasta sauces were strengthened, and the company recorded an increase both in retail and in the out-of-home sector. The Rieber & Søn units, Delecta in Poland, Vitana in the Czech Republic, and Chaka in Russia are from May consolidated into this business area. These units contributed with NOK 1 million to EBITDA, and the development for these units in EBITDA was fairly stable compared to last year.
For Orkla Food Ingredients, the quarter was satisfactory with a good underlying improvement in the bakery segment in Norway and Denmark, leading to an organic growth of close to 1%. The EBITDA was also up, and that is mainly related to acquired companies. That concludes my presentation. As you understand, the financial performance in this quarter was not satisfactory, with the exception of Home & Personal and Orkla Food Ingredients. However, we are very satisfied with the progress made on the restructuring of Orkla's Branded Consumer Goods area and the actions taken to realize synergies throughout the business areas. I think it's time for questions.
Atle Røed, SEB. Question regarding the Heat Transfer process. You've been dealing with that for quite some time. Could you give us some more flavor on the process as such and your thinking going forward with regard to other potential buyers?
I think the only thing we can say is that we did not agree on terms, as a consequence, as I said, it is more value accretive to keep Heat Transfer. As you see, the performance is fine. We will, of course, actively manage that asset. There is no change in strategy. It is a non-core asset, but we will keep it for the time being.
Okay, we have one question from the web, Sandy Mehta. Can you comment on the decrease in cash balance? Two, what are the prospects for the regular dividend and possible special dividends upon further divestment activities?
I think we went through the cash flow during the second quarter. The main changes was related to the acquisition of Rieber by close to NOK 6 billion. The acquisition of real estate for the new head office, and also pay out dividend in the quarter. I think the slide showing the net debt development explain the cash flow in the quarter.
Maybe I should add, of course, there is no change to our dividend policy as a consequence of these deviations. I might even add, as we said at the outset, we believe that maintaining dividend throughout a transition period where you may have quarters like this is actually part of the rationale why we maintain the dividend the way we do. No more questions? Thank you.