And welcome to the presentation of the Q1 results for Rokla. I will first do some highlights and talk a little bit about strategy. Our CFO, Mr. Almertsen will present the results and Mr. Atlivide Johansen, Head of Orkla Foods, will comment on the brand and consumer goods activities.
The Q1 results shows satisfactory results in some of the companies. However, overall, we feel that we need to improve our competitive position and improve performance. So as a consequence, we feel that we need to remind you that Orkla is in a transition. We announced in 2011 that we will be a branded consumer goods company and that transition continues in 20 13. The starting point, as you will remember, was that the branded consumer goods activities constituted approximately 50% of net asset value and with considerable assets that needed to be disposed.
That is what to a large extent we have done in 2012 and that process continues in 2013. We've also made 2 acquisitions, which we have now both closed as I will come back to. And if we base our analysis on analysts' valuations, the branded consumer goods now constitute about 70% of the net asset value of the firm. We have restructured Orklaas in 2013. We now have 5 operating entities with food being the largest.
We are also adapting and changing the corporate center and support functions in order to better be able to support corporate initiatives across the operating entities to extract both skill and cost synergies across the Orkla operation. In the Q1, we report stable top line development and an 8% profit growth in the brand and consumer goods company. Approximately 50% of that stems from the EuroDome acquisition last year. There is further restructuring going on in the brand and consumer goods activities. The acquisition of Reber was completed last year.
And so the integration work now starts there. The merger of Prokodidija and Abba in Sweden is pretty much completed. And we are in the middle of restructuring of the Confectionery and Snacks business as well. We continue to drive divestments. And on Friday, we sold the last part of our ROC involvements that generates about DKK520,000,000 of cash and will generate a profit of about DKK 150,000,000 in the second quarter.
The with respect to the Sapa heat transfer, we have entered into exclusive negotiations with a strategic buyer. And due to confidentiality that is basically what we can say about that. But so that process continues and we hope to conclude a transaction later this year. And with respect to the JV, we are also continuing to work with the competitive authorities to get the necessary approvals. As I said, the acquisition of Reber was completed last week and we will now enter into an integration phase.
We expect synergies order of magnitude DKK 250,000,000 to DKK 300,000,000 that is predominantly purchasing, advertising and the fact that Reeburg's corporate functions will be integrated into Orkla's corporate functions that generate those synergies. Obviously, there are also considerable revenue synergies that we hope to extract. We have not quantified those. And of course, those will take more time to generate. But and I will also say that the cost synergies today are higher than what we assumed when we made the decision to acquire Redege.
So all in all, we're very happy to see that acquisition being consumed and we're looking forward to generating a much stronger food company in the months years to come. We have also merged the 2 Swedish food companies. We now have a Swedish food company selling for about SEK 4,600,000,000 That integration work has gone well and Perkoynte now operates as an integrated company. Cost synergies there are estimated to be order of magnitude DKK 30,000,000. As I said, we need to improve the competitive position of the firm.
One of the actions that we think will create better competitive positions is the fact that we merge and create national companies. So as a consequence in the confectionery and snacks business, we feel that all the small entities constitute subscale. Consequently, we merge the separate companies in each geography and create 1 confectionery and snacks company in each geography. That is expected to have a potential cost synergy effect of between NOK 50,000,000 NOK 70,000,000. But of course, the point is not only to extract cost synergies.
The point is to invest and to improve competitive position and to be and to create a much forceful, powerful and competitive competitive snacks business going forward. So I think that it is important to repeat and to underline that we are in the middle of divest non divest non core assets. And I think with the recent sales, we are with the exception of the Sapa JV, I think that we can safely assume that that process will be completed by mid 2014. And we the second program is of course to improve the performance within branded consumer goods. We will focus on integration.
We will focus on extracting cost synergies. We will focus on skill synergies. We will create or adapt a corporate center to support the branded consumer goods business and generally improve the competitive position of Orkla. Finally, we of course always are looking for opportunities to grow the Kosumabegas business by allocating surplus financial capacity to operating companies within the consumer goods business. So the priority obviously is to execute.
There is a lot of integration work going on. The initial integration work that we see is progressing well and I feel confident that the cost synergies that we see will be extracted. But the most important thing is to create skill synergies, revenue synergies and create a better competitive platform going forward. But the divestments, as I said, is progressing according to plan. And but we will, of course, be with the job the Sapa joint venture for the next 3 years.
I should also say with respect to that process that we have approval from the U. S. Competitive authorities. We have offered remedies to the EU. So we expect a decision before May 15 in Europe.
If we get that approval, it will only be the Chinese approval that remains before we can close and start the integration work in the Sapa JV as well. Before I leave the word to Mr. Andersson, I would then inform you that we plan to have an Investor Day in London on September 26. We'll obviously be back to you with more detail about that arrangement. And then, Thierry, please.
Thank you.
I'll take you through the 2019 statement and also give some comments to some of the business areas. Starting with the group income statement, operating revenues totaled $7,200,000,000 in the quarter. Acquisition of Jordaan contributed positively, while the underlying top line development for branded consumer goods was stable. EBITDA was 5.90 $6,000,000 in the quarter. And if you look at EBITDA bridge from last year, we see that branded consumer goods achieved a growth of 8%.
Approximately half of this comes from There were some negative effects related to timing of Easter in Norway, but this was offset by number of sales days for Kordea in Sweden. So in total net effects on profit is considered to be immaterial. Sapa Heat Transfer still recognized as a subsidiary and delivered a profit growth of NOK 14,000,000 in the quarter. Regarding hydropower, cold dry weather resulted in significant lower production than last year. Main deviation from last year is, however, explained by a gain on sale of real estate in 2012.
This totaled $118,000,000 in Q1 last year compared to about $8,000,000 this year. Back to the group statement, other income and expenses, dollars 36,000,000 in the quarter is mostly ascribable to immediate recognition of M and A costs. Profit and loss from associates is now mainly related to YOKEN. Last year, we had a gain of $77,000,000 from sale of a real estate company that was posted on this line. As Augie mentioned, Orkla continued to sell shares and financial assets during the quarter.
Cash flow from this operation was $677,000,000 and the market value of financial holdings at the end of the quarter was $3,200,000,000 In April, Orkla has sold private equity funds for $441,000,000 entered into an agreement to sell the shares in Farmak. And on Tuesday, the remaining shares in REC were sold. Proceeds from these transactions received was sold. Proceeds from these transactions amounts to approximately $1,500,000,000 This continued operation is related to the part of Sapa in scope for the JV with hydro. Weak European markets and further restructuring costs affects profit negatively.
If we compare with last year, last year the profit from BoroGuard was also included on this slide. Working capital has a normal seasonal increase in the Q1 and partly due to the timing of Easter this increase was slightly higher than last year and cash flow from operation ended at 40,000,000 Net interest bearing debt increased somewhat in the Q1 and will increase further in Q2 following the payment of dividend and the closing of the Reber transaction. This will however be partly offset by sale of non core assets and cash flow from operations. Orkla has still strong balance sheet and financial flexibility to support the strategy going forward. Then some comments to some of the business areas starting with Sapa profiles.
EBITDA $46,000,000 in the quarter compared to $122,000,000 last year. The negative trend in the European profile market continued and volume here decreased with 6% compared to last year. Further restructuring projects are initiated in Europe and an additional cost of $88,000,000 was booked as other income and expenses in the quarter. North America trend continues. Volume increased slightly and in addition operational improvement contributed to an increase in EBITDA margin to 5%.
Low activity in the European building construction market affected Sapa building system negatively. Q2 is seasonal a better quarter, but the underlying market remains soft. Of the improvement programs in Sapa has been addressing working capital and working capital was $677,000,000 lower at the end of Q1 this year than last year. Heat Transfer has over the last year conducted several improvement programs to regain profitability after a weak second half in twenty eleven. These programs which involve cost reduction, operational improvements and price adjustments continued in the quarter and Sapa He Transfer delivered profit and margin growth in Q1.
Operation in Shanghai benefited from strengthened domestic markets and had growth in both volume and EBITDA. The Swedish operation was affected by the weak automotive market in Europe, but managed to keep volume in line with last year. Temporary production setbacks and the negative FX effects did however impact EBITDA development negatively. Hydro power, very cold dry weather together with stock in Sauda affected the production volume significantly. Produce volume in the quarter was 326 gigawatt hour compared to 505 last year.
Production volume for the rest of the year will of course depend on the precipitation, but as of now the volume estimates for the rest of the year are lower than last year. And last year, Jotun. Jotun releases official figures only every 4 months. However, the trend from 2012 continues into 2013. Low activity in Asian shipbuilding affects sales in the Marine segment negatively, but this is offset by growth in other segments.
So in total, sales are in line with last year. Better cost development improves operating margin and contribute to an increase in EBIT A. Comprehensive investment programs continues in 2013, largest one being new factories in Brazil, U. S. And Russia.
And Jotun also continues this expansion into new markets. And then I leave to Aftabilever to go into brand and consumer goods.
Good morning. I will now present the development within Branded Consumer Goods in the Q1 a little bit deeper by business area. This graph shows the development in EBITDA for the branded consumer goods area in Orkla since 2,005. And as you can see there has been an increase of NOK 800,000,000 and up to around NOK 2,900,000,000 rolling 12 months in the Q1. After a downturn in 2011, in the recent quarters, the EBITDA is turning upward again.
In Q1 this year, the EBITDA increased by 8% to NOK 579 million. The consolidation of Jordan into the accounts contributed to about half of this increase. Then I go into some more details in each business area. This pie shows the revenue split in Orkla Foods. The overall turnover is NOK8 1,000,000,000 and there are some 3,100 full time employees in Orkla Foods.
That's before the integration of Ibel and Son. 40% of the turnover is derived from Norway and another 40% from Sweden and the rest is primarily coming from Finland and Denmark. Orkla Foods had sales in the Q1 of somewhat more than NOK1.9 billion, which on an underlying basis was on par with the previous year. In the grocery retail channel, however, the growth was 2% when adjusted for the phasing of Easter and the main driver behind this growth was primarily innovations launched in the last 12 months. However, the year showed a slower start in the out of home channels.
Of the innovations, I might mention the Midox Klart launched by Abba Seafood late 2011 and also the newly launched series from Felix in Sweden with chilled soups, pasta sauces and casserole dishes. The overall development in market shares was stable. Stavure continued to increase market shares in Norway. Orkla Foods showed an underlying growth of EBITDA of 12% the quarter, the margin increased by 1.1 percentage points. The profit growth was fairly broad based, although the Swedish entities Abba Seafood and Procordia contributed the most.
The merger between ABBA Seafood and Procordia was completed and executed on April 2nd And these two companies are now running as one operational entity and with one interface to customers and to suppliers. The cost synergies as Krosjol mentioned from this are expected to amount to about NOK 30,000,000 when fully completed. The effects will come gradually from second half of this year. Riebrandsen will be consolidated into the accounts of Orkla on May 1 and the integration has started actually this week. The activities of Ribbonsan in Norway will be integrated with Stabur and the merged company will be one of the leading suppliers to the Norwegian retail trade.
In Denmark, the rebrand fund activities will be merged with Orklaas and will also operate as 1 single company when the integration is completed. In Sweden, Froedinger will be integrated in the newly merged Abaplukordia. As you all know Froedinger is an iconic product and brand in Sweden. And this company will be one of Sweden's leading supplier to the retail trade. The consolidation of Rebrand Sun's activities in the Nordic in Torcla Foods will contribute with about NOK 3,000,000,000 on a full 12 months basis to the turnover.
Over to Orkla Confectionery and Snacks, organized as a new business area in Orkla as of this New Year, has an annual turnover of NOK 4,800,000,000 on a 12 month basis and about 2,200 employees. Of total sales about 40% comes from Norway, while the Swedish market represents 22%. Orkla Confectionery and Snacks had sales of NOK1.1 billion in the quarter somewhat down from previous year. Increased competition from both other branded consumer goods companies and from private label has led to margin pressure for the snacks business in particular. For the business area, the operating margin is down almost 2 points in the quarter.
Chips Group has seen higher activity levels due to competition along with higher raw material prices. This puts the margins under pressure. The biscuit operations faced another challenging quarter with somewhat weaker performance. Confectionery in Norway, neither had a positive development in the quarter, driven especially by the sales increase from Pick and Mix to Eco. Overall, the market shares declined in the quarter.
Biscuits continue to lose shares in both Sweden and Norway. However, there was positive development for chips in Denmark and in Finland. The EBITDA for the Q1 was down $25,000,000 compared to last year. The confectionery business in Norway had a somewhat higher EBITDA in the quarter. To meet the intensified competition and strengthen the competitiveness of the companies, it has been decided to operating unit in each country, which is expected to give both income and cost synergies.
The cost synergies are as Corfo mentioned estimated to amount about NOK 50,000,000 to NOK 70,000,000 when fully implemented and realized. Orkla Home and Personal was also created as a separate business area by New Year, had in 20 12 annual sales about NOK 4,000,000,000 and about 1800 employees. As you can see, about 70 percent of the sales derived from Norway. Orkla Home and Personal had a stable underlying performance in the quarter. The profit growth reported is primarily due to the consolidation of Uldan.
The top line development in Oklahoma personnel was stable. It might be mentioned that Axcelis Group, the food supplement business showed healthy volume growth in quarter. Several new innovations launched in the quarter had also showed a promising development, particularly in Lilleborg. Market shares are in general increased in this area, especially related to the positive developments in Lilleborg and Axcelus. The underlying EBITDA improvement in home and personal was 8% related to profit growth in Lilleborg, PI, Robard Group and Axcelus.
The integration of Jordaan Personal and Home Care in Lilleborg is completed and so far higher cost synergies than planned is taken out. The consolidation of Jordan has a diluting effect on the EBITDA margin, which is down 0.8 percentage points. Underlying the EBITDA margin increased in the quarter. Orkla International has had in 2012 sales of NOK2.1 billion and about 4,400 full time employees. Sales in Russia accounts for 62% of the total in this business area.
India represents slightly over 20%. Rebrand Sense Companies in the Czech Republic, Poland and in Russia will be consolidating into this business area as of May 1. On a 12 month basis, these businesses have a combined turnover of around NOK 1,000,000,000. The operating revenues for Orkla International was down to NOK 406,000,000 in the quarter. The decline from last year is explained by a continued weak development in Russia.
And the main factors behind this development is as previously mentioned a reduction of number of stock keeping units connected to the production structure project going on and the termination of the distribution agreement. In India, the growth continued although at a somewhat slower pace in line with the general development in the economic climate in India. EBITDA in India is Some more details on Russia. As mentioned, the Russian operation is undergoing a significant restructuring. The main elements are listed here.
2 operating companies are merged into 1. A substantial reduction of SKU is necessary both to facilitate the change in production structure and to adapt to the modern trade increasing market shares. Four production units will be consolidated to 3 and the factory in St. Petersburg will be closed and the centrally located property will be sold when completed. The project will reduce both fixed and direct costs and in total 9 production lines will be transferred to other sites.
We expect this to be completed by the first half of twenty fourteen and annual savings upon completion is about NOK 60,000,000 of which half will have effect in 2013. Then talking about food ingredients. The business area had sales of about NOK5 1,000,000,000 in 2012 and about 2,200 employees. 60% of the sales is derived from Scandinavia with Denmark and Sweden being the largest sources of revenues. By the way, it may be mentioned that the illustration is the launch of the year in Sweden 2012, a yeast for sourdough aimed at meeting the trend of baking at home with a slow rising sourdough.
Profit improvement related to gain from the Coldings for Lauterbrick in Denmark. The profit improvement here of €7,000,000 is mainly related to the sale of Kalding for Lautfabrik in Denmark. Eden Industry made 2 small acquisitions in the quarter. And OOFI organization will now from now on consist of the areas in Provers Pastry, UFFI sales and distribution as well as margarine and yeast as part of the restructuring program going on. And here you see some of the many innovations going on for the time being.
And you may notice there is couple from the new family member in Wagen here. And then I guess it's time for commercials, Kristine.
Martin Stansal, Danske Bank. A question regarding growth in the Branded Consumer Goods division. As I understand the organic growth in this quarter was flat year over year. And I also assume that you see a growth potential by strengthening competitive positions going forward. Could you please explain how you're planning to extract higher organic growth on the back of competitive positions and other factors please?
You're talking about these mergers, right, the restructuring? I mean in between there are certain borders between the categories that will be easier to exploit in a new structure. And of course, with the more effective operations, there will be more funds for fueling growth.
Okay. Thanks. And just another follow-up. It was mentioned here today that the synergy potential on back of the Ibra acquisition is higher than initially thought. And should we then expect that the targeted EBITA growth of 7% should be higher?
I think we'll stick to the overall ambition and deliver that before we increase. I think it's but it's but I think that the the general point is that as we move forward, I think that there's always more synergies to extract. And I think it's an illustration of what we expect to actually happen, which is that as we work, as we integrate, as we sort of hone our skills, there is always more synergies and better performance to be extracted from a large integration program like the one we have with Draper and Stavridra.
I think this yes, just a last question. I can see that will be more restructuring in Oracle Brands Russia. Could you please comment on the expected restructuring costs in Russia?
Well, I think that generally I would say that it's a difficult restructuring because it's complex in the sense that you both restructure the organization. There is considerable change happening in the industry. And so and of course, I think what you see here is a classic illustration of a program where all the negative effects come upfront. And then so we are in the middle of a difficult turnaround. And as we say, we expect to have that restructuring completed by the Q2 next year.
So I think we are obviously hoping to see some of the positive effects happening later this year.
Pravin Oskarsen, Carnegie. Two questions. First to the Ribeiro transaction. Have you seen any feedback or anything that the retailers are doing since Stopbeere Ribeiro will be such a bigger company? Are they looking for alternatives to sort of be better positioned for the new big company?
And also on cash flow, it was very weak in the quarter and it seems to relate to working capital. Is that something that will reverse in the coming quarters? Or there any big changes?
I believe we will do it Iber and then Helge can do the working capital.
We haven't seen any material effect so far from this. And but our customers are always demanding if there should be, but nothing material coming directly from this.
Regarding working capital, as I said, you have a seasonal build up after year end in working capital, slightly higher this year than last year. So we're not satisfied with it and we expect it to be reversed.
To be able to get the growth organic in branded consumer goods up to your target range, which part of branded goods should we expect to see the highest improvement? And how dependent are you on improved market also to reach those targets? Thank you.
Generally that what drives growth will be our ability to have a strong backlog of innovations. I think it's the so in that sense, I think it's our own ability to innovate and create and keep innovation going and have innovation as a relatively significant part of revenues at all times is really what we need to do in order to drive growth. And that goes across the portfolio.
We have a couple of questions from the net. Mohit Khanna. Could you please comment on Unilever contract renewals coming up in a few quarters from now? How much Unilever business the Unilever business contribute to Orkla's revenues? And do you see any revision of royalty fees?
The agreement with Unilever will is scheduled to be renewed by the middle of 2014. And obviously, we are in touch with Unilever and we have an ongoing discussion how that contract will be renewed. But it's much too early to comment on whether there will be some any significant changes to the format or the contract as such.
A question from Markus Ivar from Goldman Sachs. The Russian operation had been undergoing restructuring for many years now, but is still loss making. Are the next steps enough to reach sufficient profitability level by end of 2014?
I will readily admit that we're not happy with the way the Russian operation is developing. But I think at this point, the only thing we can do is to execute on the turnaround. And then I think when we see the results of that restructuring then I think time has come to make an assessment to what we do next. But at this point, we simply have to execute on the plans that we have and that process will give a positive effect. But whether but I think the overall competitive position and what we do at the Russian
operation that needs to be assessed.
Yes. The question regarding capital allocation. Could you please remind us how you're thinking about repaying debt dividends, any special dividends coming up? And also your thoughts on M and A. I know that you have communicated that we could expect actions in all of these items, but could you please comment a bit further?
Thank you.
First on dividend, the Board has said that they their ambition is to maintain a stable dividend throughout the transition period. We have also said that the current dividend level is higher than what the current business can support. So to that extent, we feel that the current dividend level represents an element of extraordinary dividend. So I think that what you should expect is a stable dividend to be maintained in the transitory period. And consequently no special dividends.
Then I think as the decision comes to an end, the Board will be better able to assess the size of the business, the earnings capability of the business. And so at some point in the future, we will need to address the dividend policy going forward after transitory period has ended. And then I think with respect to M and A, clearly the focus as you can see from the presentation is on all the integration and restructuring work that is going on. So that is I think 2013 is very much focused on integration work and on executing the programs that we are presenting to you. I think M and A is something that you always consider.
To some extent, it is driven by our ambition to expand. To some extent, it's also driven by what comes available. So some of this is under our control. Some of these things are not under our control. So and we will be specific when we have something to be specific about.
But I think I will say that the focus is very much on improving the competitive position on what we have. I think that is obviously the number one priority. Okay. That seems to be it. Thank you.