Morning, welcome to the presentation of the first quarter results for Orkla. I will first do some highlights and talk a little bit about strategy. Our CFO, Mr. Andersen, will present the results. Mr. Atle Vidar Johansen, head of Orkla Foods, will comment on the Branded Consumer Goods activities. The first quarter results show satisfactory results in some of the companies. Overall, we feel that we need to improve our competitive position and improve performance. 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 2013. The starting point, as you will remember, was that the Branded Consumer Goods activities constituted approximately 50% of net asset value, and we had 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 have also made two acquisitions, which we have now both closed, as I will come back to. 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 Orkla in 2013. We now have five 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 first quarter, we report stable top-line development and an 8% profit growth in the Branded Consumer Goods company. Approximately 50% of that stemmed from the Jordan acquisition last year.
There is further restructuring going on in the Branded Consumer Goods activities. The acquisition of Rieber was completed last year, the integration work now starts there. The merger of Procordia and Abba in Sweden is pretty much completed, and we are in the middle of restructuring of the Orkla Confectionery & Snacks business as well. We continue to drive divestments. On Friday, we sold the last part of our REC involvements. That generates about NOK 520 million of cash, and will generate a profit of about NOK 150 million in the second quarter. With respect to the Sapa Heat Transfer, we have entered into exclusive negotiations with a strategic buyer. Due to confidentiality, that is basically what we can say about that. That process continues, and we hope to conclude a transaction later this year.
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 Rieber was completed last week, and we will now enter into an integration phase. We expect synergies, order of magnitude NOK 250 million-NOK 300 million. That is predominantly purchasing, advertising, and the fact that Rieber'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. Of course, those will take more time to generate. I will also say that the cost synergies today are higher than what we assumed when we made the decision to acquire Rieber.
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 and years to come. We have also merged the two Swedish food companies. We now have a Swedish food company selling for about SEK 4.6 billion. That integration work has gone well, and Procordia now operate as an integrated company. Cost synergies there are estimated to be order magnitude SEK 30 million. 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. As a consequence, in the Confectionery & Snacks business, we feel that all the small entities constitute subscale.
Consequently, we merge the separate companies in each geography and create one Confectionery & Snacks company in each geography. That is expected to have a potential cost synergy effect of between NOK 50 million-NOK 70 million. Of course, the point is not only to extract cost synergies. The point is to invest and to improve competitive position and to create a much forceful, powerful, and competitive Confectionery & Snacks business going forward. I think that it is important to repeat and to underline that we are in the middle of a transitory period. There are three things that we do in parallel. The first is to divest non-core assets. I think with the recent sales, with the exception of the Sapa JV, I think that we can safely assume that that process will be completed by mid-2014.
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 consumer goods business by allocating surplus financial capacity to operating companies within the consumer goods business. 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. The most important thing is to create skill synergies, revenue synergies, and create a better competitive platform going forward.
The divestments, as I said, is progressing according to plan. We will, of course, be with the job, the Sapa joint venture for the next three 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 15th 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. Andersen, I would then inform you that we plan to have an investor day in London on September 26th. We'll obviously be back to you with more detail about that arrangement. Terje, please.
Thank you. I will take you through the financial statement and also give some comments to some of the business areas. Starting with the group income statement, operating revenues totaled NOK 7.2 billion in the quarter. Acquisition of Jordan contribute positively, while the underlying top-line development for Branded Consumer Goods was stable. EBITDA was NOK 596 million in the quarter. If you look at the EBITDA bridge from last year, we see that Branded Consumer Goods achieved a growth of 8%. Approximately half of this comes from Jordan. There was some negative effects related to timing of Easter in Norway. This was offset by number of sales days for Procordia in Sweden. 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 million 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 NOK 118 million in Q1 last year, compared to about NOK 8 million this year. Back to the group statement. Other income and expenses, NOK 36 million in the quarter, is mostly ascribable to immediate recognition of M&A costs. Profit and loss from associates is now mainly related to Jotun. Last year, we had a gain of NOK 77 million from sale of a real estate company that was posted on this slide. As Åge mentioned, Orkla continued to sell shares and financial assets during the quarter. Cash flow from this operation was NOK 677 million, and the market value of financial holdings at the end of the quarter was NOK 3.2 billion.
In April, Orkla has sold private equity funds for NOK 441 million, entered into an agreement to sell the shares in Pharmaq, and on Tuesday, the remaining shares in REC were sold. Proceeds from these transactions amounts to approximately NOK 1.5 billion. Discontinued 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 Borregaard was also included on this line. Working capital has a normal seasonal increase in Q1, and partly due to the timing of Easter, this increase was slightly higher than last year. Cash flow from operation ended at NOK 40 million. Net interest-bearing debt increased somewhat in Q1 and will increase further in Q2 following the payment of dividend and the closing of the Rieber 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. Some comments to some of the business areas, starting with Sapa Profiles. EBITDA NOK 46 million in the quarter compared to NOK 122 million last year. The negative trend in the European profile market continued. Volume here decreased with 6% compared to last year. Further restructuring projects are initiated in Europe, and an additional cost of NOK 88 million was booked as other income and expenses in the quarter. North America trend continues. Volume increased slightly. 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. The underlying market remains soft.
One of the improvement programs in Sapa has been addressing working capital, working capital was NOK 677 million 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 2011. These programs, which involve cost reduction, operational improvements, and price adjustments, continued in the quarter, Sapa Heat 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 a negative FX effect did, however, impact the EBITDA development negatively. Hydropower. Very cold, dry weather, together with a planned maintenance stop in Sauda, affected the production volume significantly.
Produced volume in the quarter was 326 gigawatt-hour compared to 505 gigawatt-hours 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. Last year, Jotun. Jotun releases official figures only every four 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. In total, sales are in line with last year. Better cost development improves operating margin and contribute to an increase in EBITDA. Comprehensive investment programs continues in 2013, largest one being new factories in Brazil, U.S., and Russia. Jotun also continues its expansion into new markets. I leave to Atle Vidar to go into Branded Consumer Goods.
Good morning. I will now present the development within the Branded Consumer Goods in the first quarter a little bit deeper by business area. This graph shows the development in EBITDA for the Branded Consumer Goods area in Orkla since 2005. As you can see, there has been an increase of NOK 800 million and up to around NOK 2.9 billion rolling 12 months in the first quarter. After a downturn in 2011, in the recent quarters, the EBITDA is turning upward again. In first quarter 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. I go into some more details in each business area. This pie shows the revenue split in Orkla Foods. The overall turnover is NOK 8 billion, and there are some 3,100 full-time employees in Orkla Foods.
That's before the integration of Rieber & Søn. 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 first quarter of somewhat more than NOK 1.9 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 Middagstallerken 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. Stabburet continued to increase market shares in Norway.
Orkla Foods showed an underlying growth of an EBITDA of 12% in the quarter. The margin increased by 1.1 percentage point. 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. These two companies are now running as one operational entity and with one interface to customers and to suppliers. The cost synergies, as Korsvold mentioned, from this are expected to amount to about 30 million NOK when fully completed. The effects will come gradually from second half of this year. Rieber & Søn will be consolidated into the accounts of Orkla of May 1st, and the integration has started actually this week.
The activities of Rieber & Søn in Norway will be integrated with Stabburet, and the merged company will be one of the leading suppliers to the Norwegian retail trade. In Denmark, the Rieber & Søn activities will be merged with Orkla's, and will also operate as one single company when the integration is completed. In Sweden, Frödinge will be integrated in the newly merged Abba Procordia. As you all know, Frödinge Ostkaka is an iconic product and brand in Sweden. This company will be one of Sweden's leading supplier to the retail trade. The consolidation of Rieber & Søn's activities in the Nordics into Orkla Foods will contribute with about 3 billion NOK on a full 12 months basis to the turnover. Over to Orkla Confectionery & Snacks, organized as a new business area in Orkla as of this New Year.
Has an annual turnover of 4.8 billion NOK 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 & Snacks had sales of 1.1 billion NOK 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 two points in the quarter. Chips Group has seen higher activity levels due to the increased 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, Nidar, had a positive development in the quarter, driven especially by the sales increase from Pick & Mix to Eco.
Overall, the market shares declined in the quarter. Biscuits continued to lose shares in both Sweden and Norway. However, there was positive development for chips in Denmark and in Finland. The EBITDA for the first quarter was down 25 million NOK 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 create one single operating unit in each country. Which is expected to give both income and cost synergies. The cost synergies are, as Korsvold mentioned, estimated to amount to about 50-70 million NOK when fully implemented and realized. Orkla Home & Personal was also created as a separate business area by New Year, had in 2012 annual sales about 4 billion NOK and about 1,800 employees.
As you can see, about 70% of the sales derives from Norway. Orkla Home & Personal had a stable underlying performance in the quarter. The profit growth reported is primarily due to the consolidation of Jordan. The top line development in Orkla Home & Personal was stable. It might be mentioned that Axellus Group, the food supplement business, showed healthy volume growth in the quarter. Several new innovations launched in the quarter have 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 Axellus. The underlying EBITA improvement in Home & Personal was 8%, related to profit growth in Lilleborg, Pierre Robert Group, and Axellus. The integration of Jordan Personal 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 EBITA margin, which is down 0.8 percentage points. Underlying, the EBITA margin increased in the quarter. Orkla International had in 2012 sales of NOK 2.1 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%. Rieber & Søn companies in the Czech Republic, Poland, and in Russia will be consolidating into this business area as of May 1st. On a 12-month basis, these businesses have a combined turnover of around NOK 1 billion. The operating revenues for Orkla International was down to NOK 406 million in the quarter. The decline from last year is explained by a continued weak development in Russia.
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. EBITA in India is affected by high investments in advertising and in organization. Some more details on Russia. As mentioned, the Russian operation is undergoing a significant restructuring. The main elements are listed here. Two operating companies are merged into one. 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 three, 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, nine production lines will be transferred to other sites. We expect this to be completed by the first half of 2014. An annual savings things upon completion is about NOK 60 million, of which half will have effect in 2013. To Orkla Food Ingredients. The business area had sales about NOK 5 billion 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 in 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 Kolding Salatfabrik in Denmark. Sorry.
The profit improvement here of NOK 7 million is mainly related to the sale of Kolding Salatfabrik in Denmark. Idun Industri made two small acquisitions in the quarter, and the OFI organization will from now on consist of the areas improves pastry, OFI sales and distribution, as well as margarine and yeast as part of the restructuring program going on. Here you see some of the many innovations going on for the time being. As you may notice, there's a couple from the new family member in Bergen here. Then I guess it's time for commercials, Kristine. [Foreign language]
[Foreign language]
Kult!
Jo da, det er kult det. Men Marcus, må du gå sånn?
Hva da? Det er helt vanlige klær jo.
[Foreign language] Alle tiders saus fra Toro.
[Foreign language] Hei, hei.
[Foreign language] Hei, kjære.
[Foreign language] Hva skal vi ha til middag?
[Foreign language] Vi skal ha denne.
[Foreign language] Jøss. Hva er det?
[Foreign language] Det er en ny familiemiddag fra Stabburet.
Åh.
[Foreign language] Det er laks, pasta og grønnsaker.
Ja.
[Foreign language] Den er ferdig laget og frosset ned, det er bare å sette den inn i ovnen.
Ja.
[Foreign language] Lager den seg selv.
[Foreign language] Ordentlig middag ja. Det er sikkert noe barna liker.
[Foreign language] Prøv nyhetene fra Stabburet. Laks og pasta eller kylling og bacon. Voksenmiddag som barna elsker. Vil du ha en deodorant som virker mer jo mer du beveger deg, du kan gjøre mer uten bekymring? Kun Cederroth har MotionSense som aktiveres av dine bevegelser. Jo mer du beveger deg, jo mer virker den. Prøv de nye stickene fra Cederroth. Høy beskyttelse med MotionSense. Tørker raskt og er myk og behagelig fra første stund.
[Foreign language] Ja. Okay. Q and A. Here.
Martin Stenshall, 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. I also assume that you see a growth potential by strengthening competitive positions going forward. Could you please explain how you are planning to extract higher organic growth on the back of competitive positions and other factors, please?
Okay. You want to do that?
You are talking about these mergers, right? The restructuring. In between there are certain borders between the categories that will be easier to exploit in a new structure. Of course, with more effective operations, there will be more funds for fueling growth.
Okay, thanks. Just another follow-up. It was mentioned here today that the synergy potential on back of the Rieber acquisition is higher than initially thought. Should we then expect that the targeted EBITDA growth of 7% should be higher?
I think we'll stick to the overall ambition and deliver that before we increase. I think that the general point is that as we move forward, I think that there's always more synergies to extract. I think it's an illustration of what we expect to actually happen, which is that as we work, as we integrate, as we 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 Rieber and Stabburet.
I think just the last question. I can see that there will be more restructuring in Orkla Brands Russia. Could you please comment on the expected restructuring costs in Russia?
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. Of course, I think what you see here is a classic illustration of a program where all the negative effects come up front. We are in the middle of a difficult turnaround. As we say, we expect to have that restructuring completed by the second quarter next year. I think we are obviously hoping to see some of the positive effects happening later this year.
Preben Almskog, Carnegie. Two questions. First, to the Rieber transaction. Have you seen any feedback or anything that the retailers are doing since Stabburet? Rieber will be such a bigger company. Are they looking for alternatives to be better positioned for the new big company? On cash flow, 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 are there any big changes?
Atle will do Rieber, Terje can do the working capital.
Ja. We haven't seen any material effect so far from this, our customers are always demanding, as they should be, but nothing material coming directly from this.
Regarding working capital, as I said, you have a seasonal buildup after year-end in working capital. Slightly higher this year than last year, 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 Consumer Goods should we expect to see the highest improvement? How dependent are you on an improved market also to reach those targets? Thank you.
I would say generally that what drives growth will be our ability to have a strong backlog of innovations. 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. That goes across the portfolio.
We have a couple of questions from the net. Mohsin Khan. Could you please comment on Unilever contract renewal coming up in a few quarters from now? How much Unilever business contributes to Orkla's revenues, do you see any revision of royalty fees?
The agreement with Unilever is scheduled to be renewed by the middle of 2014. Obviously, we are in touch with Unilever, and we have an ongoing discussion how that contract will be renewed. It's much too early to comment on whether there will be any significant changes to the format or the contract as such.
A question from Markus Iversen 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. I think at this point, the only thing we can do is to execute on the turnaround. I think when we see the results of that restructuring, then I think the time has come to make an assessment of what we do next. At this point, we simply have to execute on the plans that we have, and that process will give a positive effect. I think the overall competitive position of what we do with the Russian operation, that needs to be assessed.
Yes. A 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&A? I know that you have communicated that we could expect actions in all these items, but could you please comment a bit further? Thank you.
First, on dividend, the board has said that 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. To that extent, we feel that the current dividend level represents an element of extraordinary dividend. I think that what you should expect is a stable dividend to be maintained in the transitory period, and consequently, no special dividends. I think as the transition comes to an end, the board will be better able to assess the size of the business, the earnings capability of the business, and at some point in the future, we will need to address the dividend policy going forward after the transitory period has ended.
I think with respect to M&A, clearly, the focus, as you can see from the presentation, is on all the integration and restructuring work that is going on. I think 2013 is very much focused on integration work and on executing the programs that we are presenting to you. I think M&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. Some of this is under our control, some of these things are not under our control. We will be specific when we have something to be specific about. I think that 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. All right. Okay.
That seems to be it. Thank you.