Afternoon, everyone, and welcome to Orklaas Investor Day here in London. My name is Rune Heelan, and I'm the Head of Investor Relations. And I will also be your moderator for this afternoon. It's good to be back here in London 2 years after we announced our new strategic direction. Today, we will be focusing on the progress in transforming into a leading branded consumer goods company in the Nordic area.
We will also go deeper into some of our key business areas: Orkla Foods, Orkla Confectionery and Orkla Home and Personal. Orkla's CEO will, however, start by presenting the transformation, the key targets and the strategy going forward. There will be a Q and A session after each presentation. And if you still have questions and answered questions, there will be a Q and A at the very end. Let me now then hand over to Oikla's CEO, Ogi Koshwall, to enjoy the afternoon.
Thank you, Rune. Ladies and gentlemen, welcome to this Capital Markets Day. What we would like to do today is to tell you where we are in our transformation. We would like to tell you about our plans and our goals. And we would like to tell you why we think that Orkla Transformed will be a better company and a better investment.
I have divided my presentation into 4. After some introductory remarks, I will go through the market environment and then spend some time on how we intend to drive value going forward, finding the priorities and financial targets. After we announced the focusing on consumer goods in 2011, we split our assets into 2 parts. The branded consumer goods consist of 5 business units: Foods, Confectionery and Snacks, Home and Personal, Food Ingredients and International. The non core assets are today predominantly aluminum, hydropower assets and financial assets.
And then of course, in addition, our 4% to 2% ownership to be rate as an associate company. I would like to start by going back to 2011 and tell you a little bit about the reasoning why did we decide to focus on consumer goods. The conclusion then, looking at the financial performance of the brand and consumer goods was that this was, in fact, an underperforming operation. Consumer Goods business had not grown top line since 2006, and the EBIT was leveling off. So analysis told us clearly that we were underperforming in spite of the fact that we had great brands and great positions.
And of course, if you manage for a to maintain a position, flat will convert or will transform into decline. You have to manage for growth and have that ambition. And that is something that we decided that should we achieve that, we needed to focus and we needed to be extremely good at what we can do best and so consequently the decision to focus. However, while the financial performance was we felt unsatisfactory, there were far more positive elements in this business than there were negative elements. Orkla has a portfolio of strong local brands.
We have superior local insights and skills and capabilities. We have local scale, which we will spend some time explaining to you. And we think in our area, we have the ability to attract the best people to drive this business forward. Finally, and maybe also importantly, we believe that Orkla is a very attractive consolidator in an industry that has consolidated and will continue in the years to come. So at this point, I would say that the transformation is well underway.
We have established a new vision and a new strategy. We have unified branding, as you can see. We have a new structure, and we have a new management team. Finally, we have made some acquisitions. And in particular, in the food area, we have made an acquisition of Reber, which transformed the food business in Norway and in the Nordics and which is well founded on a solid strategy and which will deliver results we believe.
The strategic priorities going forward and what we would like to the impressions we would like to leave with you today is 4 things. We need to reduce complexity. We want to extract cost synergies and improve cash flows. We need to drive organic growth and we need to improve our skill base. And the rest of the presentation will be spent on those strategic priorities and how we intend to achieve those goals.
But before we go there, a few words on the other activities because there are really 2 transformational processes that goes in parallel. There is a transformation of the branded consumer goods business, but there is really also a transformation in divesting the non core and extracting the values that we have in those activities. And let me say, it is a complex transition, and we have made the decision that, that transition will take some time. It is more important for us to extract the economic value that we have rather than doing fast transaction and exiting early. The difference between managing that excess in a concerted way and exiting fast is probably a very significant amount for shareholders.
So that transition will take some time. And the way we have defined it, given that the joint venture with Sapa, we have committed to stay there for 3 years. We have felt that a 3 year transition period is sort of a suitable time frame also for the transition period of the brand and consumer space. At the top level, there are 4 goals. We need to integrate what we acquire in a good manner.
We need to achieve best in class margins and cash flows. We must generate organic growth, gain market share and drive category growth, and we need to attract the best leaders to margins. So let's talk a little bit about the market environment. The Consumer Goods business in Orkla has been built up over 27 years, some very large and transformational acquisitions, taking us to the point where we are in fact the largest branded consumer goods company in the Nordics. As you can see, if you look at the competition and the companies that compete with us in our categories, we are significantly larger than any multinational competitor in our markets.
And I think one of the changes that this transformation that we are talking about means is that Orkla in the past did not use its size. The size itself creates an opportunity for synergies and for building skill sets. And I think one of the big changes that we need to use our size for something. We have an unprecedented portfolio of strong market positions. We are very strong in Norway.
We have a strong position in Sweden. We have good positions in Denmark and Finland. But clearly, there is scope for improving those positions. And part of what we would like to do is expand geographically into those markets. If you look at the market shares, you see dominant positions in all the 3 business units in the Branding Consumer Goods area.
Very large positions, which generate scale as I will come back to. We are in an attractive part of the world. It's politically stable. The economy is relatively strong. The consumer is affluent.
So in general terms, this is a very attractive geographical area in which to do business. It is not an area where you will have phenomenal growth. So there will at the macro level, be relatively modest growth rates. However, as we will show you, we believe that through innovation and through our own efforts, we can in categories grow significantly more than the economy at large. But generally speaking, we feel that being in the Nordics is a place to be and it's a platform which we find is very attractive.
It is a market that is consolidated. I would say about this market that there are between 24 retailers in each market that dominate the market. They are competent, but they are also local as we are. So to that extent, this market would have been very different if you had had the global retailers in our marketplace. We have local trade.
They know us and we know them. And we are a very important supplier of category growth to our local retailers. So I think that in general terms, the fact that you have a competent trade is something that is demanding and challenging, but it's also something that will drive our own performance and to that extent in a while. Private label is here to stay, but private label is has lower penetration in the Nordics than in Europe generally. Also inside categories, of course, there are major differences.
But I think the most important message is that, first of all, you see that the growth rate so far is relatively modest. Secondly, I would argue that private label is more of a threat to the number 4, number 3 and the number 2 brands. That is why it is so critically important for Orkla to control the number 1 brands. And I think it's also one of the reasons why you see in the multinational companies and you will see in our portfolio that more and more resources will go behind the strongest brands. So there will be more investments in the number one brands and the more peripheral brands will suffer and will receive less attention.
Clearly also when we talk about health, we talk about nutrition, we talk about the content of our products, There are quality aspects and there are pricing aspects related to the competition between the branded goods and the private label. And we feel that there is ample opportunity to differentiate our products from private label also in the years to come. So private label is a competitor, and you are better if you have some competition. I think that has to be the attitude. Local scale, we will never compete with the multinationals on their own terms.
We will never have the same unit cost in production as some of the large multinational players. But we have local scale. We have larger sales forces, so there is more resource in the store. We have a better deal on media spend. And we have a supply chain that lends itself to local taste and local traditions.
So we in fact our business model is to adapt to local change to local taste and to local tradition. And every all the experience we have tells us that, that position is a strong position and that, that position is a position from which we compete very effectively with the multinationals, which I think the chart that I've shown you before proves. We can compete effectively with the multinationals given that we have the local scale that we have. So then we will I would like to then take you into what precisely is it that we will do and what precisely is it that we will do differently in order to change the financial performance and the operational performance that they've had in recent years. It starts with a vision: improving everyday life with healthier and more enjoyable local brands.
It is a vision that any branded consumer goods company in the world could have, with one exception. There's one word in there that makes the difference, and that is local. We our business model, our way of acting is to stick to the Nordics, understand those markets better than everybody else and then be the local champion. There will be private label. There will be multinational competition.
And in between those two main competitors, there is, in our view, ample space for the well founded competitive local provider of products. We drive our we drive value through 4 strategic pillars. Local Brands and Innovations. This is really about our contract with the consumer. Brand management is at the core of everything we do.
Innovation is at the core of everything we do. Some of the stories we will tell you later today tells you how in spite of the fact that the economy is not growing very fast. Innovation in fact creates categories and create products that can have double digit growth. And we have examples of that. So maybe the trick is not that we haven't done it.
I think the challenge is to create a more consistent performance across categories and across business units. And we will show you some examples later. So the first thing we will do differently is innovation, and we'll spend some more time on that. Customers and marketplace. The trade is, of course, a gatekeeper.
And we need to drive category growth together with the trade. It is in our interest, but it is also in their interest. So to that extent, we need to focus on all processes, all value creation in the interaction between us as suppliers and the trade. The 4th the 3rd strategic pillar is operations and efficiencies, trying to extract as much cost as we can, operate as efficiently as we can, because although we will never be as effective as the multinational, there is obviously a maximum difference between their performance and our performance. And finally, nothing happens without people.
So we need to have people that understand the strategy, agree with the strategy and have the ability to execute on strategy. As I said, Orkla has a proud history of innovation. The picture behind me is tells a story about fish spreads. Fish spreads, at least in Norway, is an iconic product. But as you can see, it is also a very mature product.
So the challenge 13 years ago was how do we generate growth here? And I think there were several things. It's about taste. It is about packaging. It's about activities in the store, it is about nutrition and health and consumers realizing that here we have a product that has to have some very beneficial effects.
So if we deliver and package in the right way, we will people will in fact buy this and consume this and in a different way than they did previously. And you can see the traditional product has had a basically flat performance during the last 10 years. Sales in this category has quadrupled. I think it's an example of how innovation drives growth significantly above the macro growth that you have in an economy. But while we I think, have a strong history, we still believe that we can significantly improve the way we run our innovation programs.
We can we own some of the best and most loved brands in our markets. But you have to innovate, you have to expand, you have to work actively with the brands at all times in order to maintain that position in the marketplace. First of all, the fact that we have restructured our business units means that the innovation teams inside Orkla today are twice as big as they were before we did the restructuring. So there is more resources available. More resources means better skills and scale.
We have also established a centralized team in order to ensure that not only do we work better in the business units, but we can share the insights and the experience across the business units. We can improve the way we think about and work with taste and nutrition. We can improve the way we work with packaging and design. And I think also very importantly in within the food area, if you buy a product from Orkla, you know that it is safe. And the resource that goes into food safety are in fact considerable.
It's one of the reasons I think that in the food industry a consolidation game is going on. You need significant resources to ensure that every step of the value chain is secure. And we don't have the we cannot risk having accidents in the value chain. So we are already putting a lot of resources into food safety. As a large company, I'm sure that we will continue to put a lot of resources into that aspect.
And it is one of the reasons also why Orkla as a large company needs to be clear to the consumer. Orkla stands for quality. You can trust Orkla if you buy a product from Orkla. The 2 initiatives that we work on in within customers and marketplace is, 1st of all, to improve even more the work of the key account managers. Orkla Companies in the North consistently rates very high on ratings from the trade.
We are a preferred supplier, but we I think we know that we can always be better. And one of the ambitions is to have an even closer relationship, drive value even more consistently together with our partners in trade. We have the largest sales forces in the Nordics. Clearly, both efficiency and skill sets can be improved, and also we can work more effectively in the years to come. So while I think while customers in the marketplace and brand fit innovation is predominantly about generating growth, In this area, there are also cost effects to be had in the years to come.
When we announced that we would be a focused consumer goods company, we started also by restructuring Orkla. We divided the business into 5 categories. We did this in order to reduce complexity, creating an environment we can have faster decisions, more logical entities. And And as we also then merge all the smaller companies into 1 legal entity per geography, we needed to establish new management teams. In Foods and Confectionery and Snacks, in each of those business years reduced number of management teams from 7 to 3.
So we have created new management teams, I would say, with some external recruiting, by and large, by selecting the people we felt were the best and the most able people to put the positions that we created in a new organization. And I think by and large, you will see also through the day that the teams that run Orkla today have vast operational experience from consumer goods companies. So we've integrated and merged the companies. We have put new management teams in place. We've also looked at the business model.
We have done an overhaul. It's not we're not changing the business model radically. The business units still have P and L responsibility, But there is one difference and that is, of course, that we are in the process of establishing a corporate center to drive synergies across the business units and to follow-up performance management. In the old Orkla, the business center was busy managing the portfolio. In the new Orkla, the business center will be busy trying to support the business units that drive the business.
It is a big difference both in terms of operational mode and in skill sets. I would also say that when you look at the cost of our headquarter, there are really 3 elements in that cost picture. It's the people cost and the associated cost with the Corporate Center as such. There are very large costs related to the transactions. Orkla has done a lot of very complicated resource intensive transactions in recent years that takes lawyers, consultants, bankers and all of that flows into the headquarter costs.
And there are also, obviously, this year some initial costs related to reducing the headcount, which also flows into that number. So I think for some time but I think if you benchmark, which we have done, the business support structure inside Orkla as such is not significant with the people we benchmark with. The synergies that we have announced amount to about NOK400,000,000 to NOK500,000,000. The most important initiative, of course, is the Weber integration, where we expect to extract between NOK 250,000,000 NOK 300,000,000. Where we are today is that we are absorbing the initial costs of the integration.
Out of the €250,000,000 to €300,000,000 as we stand, we have contracted approximately cost synergies to the tune of NOK 150,000,000. The first positive effects of that will flow to the P and L in the Q4. So as we said in the 2nd quarter report, there will be no positive effects from the programs that we are executing in 2013. We are continuing to absorb upfront costs, and the first positive effects will only flow through the P and L in the Q4. And I think in reality, it's only really 2014 before we see the effects flowing through to an extent that it is noticeable.
So one of the most frequently asked question is, was Weber a good acquisition? Or and what is your view 1 year after we made that decision? My view is that Weber is still performing as an acquisition as we expected. We are ahead in terms of synergies relative to the acquisition case. Weber gave us a much broader technology platform.
And Reber in many ways fills out the positions that Stabure already had. So we have we are in the process of creating a much stronger food company across the Nordics. In Denmark, we are twice as big. In Sweden, we get another category. And of course, in Norway, we get a much stronger company.
I will say though that the speed at which Weber sort of operates is lower than we expected. So it will take more time to generate that speed that we need in the years to come. But I think in financial terms, the Reebra acquisition will turn out to be probably ahead of the assumptions we had when we made the acquisitions. So €400,000,000 to €500,000,000 of synergies in that has been announced. As we roll out the strategic initiatives that I told you about previously, there will be further cost improvements.
We can optimize business support. We can reduce headquarter. We can do everyday improvements in the supply chain. We estimate that the effect of continuous improvements will be at least NOK 150,000,000 per year. We are centralizing procurement.
We are purchasing to the tune of SEK 18,000,000,000 per year. In 2014, 54% of the purchasing will be done centrally. That will have an effect in that year estimated to be about SEK 400,000,000 and we expect that the GEA savings will increase from about 1.9 percent to about 2.5 percent of the purchasing platform as we go forward. As you can imagine, being focused on local taste and local insights over the year and being the results of numerous acquisitions, we have ended up with a fairly complex manufacturing imprint. Aukla has 70 plants in the Nordics approximately inside the consumer goods area.
That creates an opportunity for cost improvements. It is a complex process. And I think it's important to understand that part of our business model is to have a more complex more complexity in the manufacturing imprint than what you would find in the multinationals. But there is still considerable scope for improvements and simplifying that structure. That work is underway.
We are working on some main assumptions how we should do this. And over the next quarters, I think we will be able to tell you more about how we roll up rollout a change program for the manufacturing imprint. And of course, as part of that reduction in plants and simplification of the manufacturing imprint, we also need to reduce the number of products and the number of SKUs that we will, which is also consistent with what I said previously about putting more resources behind the strongest brands and the strongest products. So this is all part of reducing complexity as we go forward. We have not today a number, so a total number for all the business units.
However, in Confectionery and Snacks, which is probably the business unit that has worked mostly on these issues, Keester Ober will later tell you that inside his business unit, the total cost savings will be about NOK 300,000,000. Synagis is NOK 50,000,000 to NOK 70,000,000 of that. So this sort of element of the synergies and the cost improvements with for Confectioners tax amount to about NOK 240,000,000 by 2016. Where we are with people and leadership, we invest in people. We recruit people.
We train people. I think the most important thing and the first priority this year is to put in place an incentive program that reflects the new goals. So in 2014, there will be an incentive program aligned to the goals that we tell you about today. So strategic priorities going forward. As I said at the beginning, we need to reduce complexity.
We need to extract cost synergies and improve cash flow. We need to drive organic growth. We need to improve our skill base. Aokla has always had a strong balance sheet and financial flexibility. That is something that we intend to maintain.
There are attractive add on investments out there, and we have every intention to continue to add businesses to our current platform in the Nordic area. However, transformational transactions during this transition period is highly unlikely. There will be divestments. The non core, we will continue to work on excess there. And of course, we will also as part of reducing complexity within the consumer goods area, there might also be divestments of product lines or category in that area.
The financial targets. It's important to understand that, as I said, there will be no effect in 2013. We will start to see some positive effects in 2014, but we do think that we need a 3 year period to rev up performance. Our goal is to have an EBIT by 2016 of 15% in Food, 16.5% in Confectionery and Snacks and 17.5 percent in Home and Personal. The organic revenue growth should turn to between 2% 3% for Foods, 2% to 4% for Confectionery and Snacks, 5% for Home and Personal.
We've now spent a lot of time on 3 out of the 5 business units. So let me just spend a little bit of time on Food Ingredients. It's primarily a business focused on the bakery industry. It's a B2B business, 20% is retail sale. And there are really simplified two things that we do.
It's a very strong sales and distribution company in Scandinavia, and it is ingredients to artisan and industrial bakers. Return on capital employed in 2014, we have a goal of achieving 12.5%. It is a company that is closely and a business that is closely related to the food business. There are interesting synergies between the two businesses. And we think that also here that we can rev up performance as we go.
With respect to the activity side of the Nordics, we define the Baltics as core. In Eastern Europe, our businesses are below critical mass, so we need to review our options in Eastern Europe, predominantly Czechia and Poland. In Russia, there is a comprehensive restructuring going on. We have said before and I repeat, we will review our strategic options by mid-twenty 14 when the restructuring is completed. India is value accretive.
It represents growth. It represents optionality. It is something on which we will keep and then we will come when have been dealt with. We all know that one of the foremost tasks of the CEO is to allocate capital. So the allocation of capital in Orkla is that we will allocate capital to the Nordics.
We will allocate capital to the consumer goods companies. We will maintain investment grade. We will maintain a strong balance sheet and we will maintain financial flexibility. Dividends, the board has said, is maintained at NOK2.50 per share throughout the transition. It is an aggressive payout ratio if we look at the consumer goods business on its own.
But on for the first of all, I think we have an ambition of improving that performance. And of course, that dividend is also supported by the non core activities. To sum up, The transformation of the Consumer Goods business is really a transformation and it's about execution. We have a strategy. We know what we would like to do.
So it really is about executing and doing what we say we would like to do. How do we grow? We grow primarily through driving innovation and being more innovative than our competitors. We drive growth through better execution in store, better sales forces, better key account management, driving category growth together with the trade. We have the opportunity to fill in, in the current portfolio.
So there will be new categories in the Nordics, and there will be category growth in new channels. If you go through the presentation, you will see there is a long list of cost initiatives. We will realize costs from restructuring. We will integrate companies and extract costs from that. There is great improvement for continuous improvements both in the supply chain, in the sales force and in the business support systems.
We are centralizing procurement to extract the scale that we can see there. We are rationalizing the product portfolio, and we are optimizing our manufacturing imprint. Lastly, but not the least, there is scope for working capital improvements. We have selected not to have a working capital program this year. In all likelihood, we will run a working capital program next year.
And of course, while it is not in the charge, cash conversion is important. And in our business, I believe we should have as a goal have 100% cash conversion as we go forward. And then lastly, but not the least, if you add all of these effects and if you thought that all of those effects would flow to the bottom line, you'd have a phenomenal P and L. That, of course, is not going to happen. There will be some effects on the bottom line, and we have the margin goals that I've told you about.
But I think more importantly, the effect of the result of all these activities will mean improved competitive positions. And that improved competitive position, of course, will transform into more growth. So a lot of this will go towards a competitive position. It will flow to the consumer and it's part of Orkla's competitive position as we go forward. Thank you.
Okay. Before we open up for questions for Oge, I'll just take this opportunity to welcome all of you watching it on the web and also watching or also welcome your questions. I'll just remind you also that you have to use the microphone when you state your name. So please, any questions for Oge.
Shall I
go ahead? Yes. Ofer from TCI. Just a quick question on the reinvestment of the cost savings into the business. Can you actually quantify to what extent you're looking to reinvest some of the savings back into the business?
Well,
I think it's we haven't really quantified the savings. And I think it's a balancing act. I think it's I think for instance but I think if I should use the rule of thumb, you would maybe sort of it's a fifty-fifty. The aim is to have a fifty-fifty split. 50% flows to the bottom line, 50% flows into an improving competitive position as a generalization.
I have one question from Lebogen. What do you mean when you say that the dividend is supported by noncore activities?
I mean exactly that. That's exactly what it is. I think if you look at first of all, there are dividends from some of the investments. And secondly, I think over the 3 years, there will be sales, more sales. So I think if you look at the numbers, it's quite clear that the cash generation inside Orkla, given also that the non core at some point will be sold, amply supports a dividend at €250,000,000
Robin Alsquith, JPMorgan Asset Management. A question about the noncore activities. I accept your comment that you don't want to exit too early. You want to obviously increase the value. But is there a process to accelerate the disposal program and therefore we can get to Orkla being a clean consumer products company quicker, which might have a bigger impact in value generation in terms of the share price, etcetera?
The largest part of the noncore, as you know, is the Sapa JV. And I think that, first of all, we have committed to a 3 year holding period. So if we were to accelerate, we will have to do that in agreement with our partner, Hydro. An important part of the upside potential in Non Core is of course the turnaround process that is currently going on in Sapa in Europe. We're talking about synergies of about SEK 1,000,000,000.
And that is a complex process. It will take time. So I think that as I said, I think that in the trade off between moving fast and protecting some of the values, I think that realistically to do this faster than we are currently presenting to you would not be to give you a realistic picture of what we can achieve. And so it's maybe not one would have wanted to execute faster, but I think this is the reality. And I think that's it Then that's what we communicate.
Then you can always hope and there are I mean there may be opportunities. You never know. But as it stands, this is the plan.
Jeff Taylor, Invesco Perpetual. Could you give us a rule of thumb for how far SKU rationalization can go? How far can you go in reducing the complexity of the large array of products that you sell?
I think then I will I would leave that to maybe Apervizel or someone that's a continuous process. And I don't and I think the answer is also really that you will adapt as you go. I think it's a gradual process because to the extent that you take out SKUs, you need to fill up that sort of sales volume from your stronger brands. So I think it's a so I think to some extent, it's a a I don't think really anyone can give you a very good answer how that process goes. If you look at the multinationals, multinationals, you see I mean, you see the process has been going on for years and it just continues.
Where will it end? I don't know. If we just put it in
a different way, I mean, you gave a good chart showing local scale as a reality. What proportion of sales wouldn't fit into that chart? How large is the tail of products where you're even in a local way you don't have the right scale?
I haven't studied it very carefully. I bet that you have a in this area like in most sort of economic cases you have an eighty-twenty rule would be my sort of guess. I haven't looked at it thoroughly.
Well, I guess Ojeu Roy from Morgan Stanley. I guess back to the previous question, judging by your track record, organic growth, where do you think you've got room to maneuver in terms of generating these 2% to 3% or even 3% to 5% in HPC? What has been going wrong so far, which explain why you haven't been there? And in terms of innovation, if you could give us a sense of what you're doing in order to accelerate the innovation rate there?
Well, I think that well, first of all, I would say that I think the key message is that inside Aukla, inside a decentralized structure, you have pockets of excellence, but you don't use the strength of the large system. You don't use the resources that is available to a large organization. So I think that and as you will see later today, you will see exactly that. You will see some very some example, some very strong innovation, very strong growth in categories. Clearly, Axcelius are in categories that has great potential.
I think that we already see synergies on the product side in the food area between Ribeuren and Stabure. So I think it's initially it's about using your resources and creating more consistency across the business units. And to some extent, this is also about being ambitious, setting some ambitious goals and create a culture where you perform. And I hope that by the time you leave this afternoon, you will have seen some examples of that. That's very much what we would like to show you.
It's Peter Zuvroff here from OD. Can I ask a quick question just to clarify? On the slide where you show your targets, you don't I mean you give targets from 2016, but you don't really say much about 2014 and 2015. So what roughly do you expect to see that? Do you think it will show like for like EBIT growth?
I think we will you will start to see improvements in 2014 and then it's a gradual improvement up to that level. But I think that in it's a this is a relatively large and complex transition. So I think to be very specific, when exactly do all these effects sort of hit the P and L is maybe to imply some clarity that isn't there. So but I think we feel that the goals for 2016 are realistic and they are achievable.
So should we expect that if you look in the Q2 results or the first half of this year, you said that the light cycle EBIT is kind of falling at the moment. Is the idea then that gradually between now and 2015 say that that performance kind of goes towards 0 and then slightly grows. Is that the profile? So at a high level that slight drop at the moment should drop out and should become slight growth. Is that the kind of profile?
I think that if I understand it correctly, I think 2013, as we've said in the Q2 and I said now, I think there is very little relief in 2014. There's virtually no relief in 2013. So you there will be 2014 before you see some meaningful effects in the P and L.
I got one more question from the Leborg. What are the return on capital employed targets for Food, Snacks and Home and Personal Care in 20 fifteen-sixteen?
Speak, do you want to do that?
We have given the EBIT target and we also give the capital employed in the other report.
So that gives us help. Thank you.
All right. We have one more question before From the group level, we are now moving over to the business areas. The next speaker has 20 years of experience from the brand and consumer goods business in Orkla. Please welcome the CEO of Orkla Foods, Aplir Gjanssen.
Thank you, Rune. Good afternoon, everybody. This session is called improving performance from increased local scale. The acquisition of Rebrand Sun has provided a significantly increased scale base in each of the Scandinavian countries for the Okla Foods. This increased scale offers significant potential for improved performance in the coming years.
This presentation is structured in 3. First, I will talk about our unmatched market positions in the Nordic countries. Then I will talk about the 2016 targets and the actions to reach. And then last, we will talk about achieving top line growth. Faith preferences differ significantly between markets.
And the Okra Foods business model is built on that fact. We want to be world class at serving the local consumer needs. In addition to that, a large part of the scale advantages are national or local in nature. That goes with advertising. That goes with sales forces.
That goes with customer management. And that goes with recruiting and retaining the best people in the national market. Our business model is built to exploit these facts. Some numbers. Let me briefly introduce you to the revenue structure of Orkla Foods after the Rebrand Sun acquisition.
The pro form a twenty 12 turnover would be NOK 10,700,000,000 On the left hand side, you can see that the 2 biggest market for us is Norway and Sweden together, constituting about 80% of revenue. In the middle, you can see this channel sales split. So we are predominantly distributed our brands and selling the brands through the retail channel, which is 80% of the sales. And on the right hand side, you can see the category sales split. And as you can see, we are operating many, many categories with strong number one positions, the biggest being meals of various forms and formats.
Pizza is another important category for us. And sauces, condiments, ketchup is the 3rd largest here. These are most of our brands. And as you can see, they are heritage brands going a long way back in time. I can just mention about seafood, Dengannfabeek coming from the 1830s '40s.
Ekstroms from the 1840s and Bovair from 18 50. Stabure, Felix, Turo are all brands coming from the 1930s 1940s. Why do I tell you this? These are the brands that all our consumers have grown up with, that I love to like. And it's been so for generations.
So needless to say, the consumer loyalty to these brands is enormous. Let me then take you through our superior market position in each of the Nordic markets where we operate. These are the market positions for the categories we have in Norway. I will not go through every each of them, but 9 categories, we have 50% market share or more. And on the left hand side right hand side for you, you can see the relative position vis a vis the multinationals or the global multinationals, if you like, in the categories where we compete with them.
If we go on to Sweden, it's another picture of predominantly very strong numbers. Sweden constitutes 30% of the sales in Orkla Foods. And as you can see in 10 of the categories that is shown here, the market shares are 50% or more. Relative to the global multinationals, also in Sweden, we have superior positions. If we move on to Denmark, that constitutes a smaller part of the revenue.
You can see we are operating in fewer categories, still solid market positions and also the nationals. And going to Finland and the curiosity is that in Finland, Nielsen Company is not allowed to report and measure market shares. So these are company estimates. But as you can see, pretty solid positions in the categories we operate in Finland too. The Nielsen not measuring is the reason not giving the relative market position.
So to sum up this part. As you have seen, Orkla Foods possess a large portfolio of number 1 brands in the Nordic markets, brands with a long heritage and that has been the consumers' favorite for generations. At the same time, Autolafus is one of the largest and leading suppliers to the retail trade in each market. I may mention that we recently was awarded the Supplier of the Year in Sweden in the retail trade. And also in Norway, we have been ranked the number one supplier through some years now.
And furthermore, local scale advantages offer some cost advantages in advertising, in marketing, in sales force. We are attracting the best talents and leaders. And we have a flexible supply chain making us able to tailor innovations to the local consumer needs and to the customer requirements. Let me then move on to the 2016 targets. AUGA has already been through.
We aim at growing at 2% to 3% and exceed 15% EBITA margin. The organic growth will be reached by a combination of growing and focusing on the core, that means our biggest brands and categories, as well as launching new products into new categories. And I will illustrate that with a couple of examples later. The main driver of the margin improvement will come from realizing the synergies and the full potential of the synergies coming from the Reber and Sun integration and some of the structural actions we recently did. And in addition to that, we will, of course, constantly improve our cost base and see in the operations.
This is the historic performance of Odfla Foods. As you can see, we have, over some years, moved from the NOK 1 point 0,000,000,000 in EBIT up to almost NOK 1,200,000,000. And in the same period, the EBIT margin has gone from 12.9% up to 14.4%. As you can see, in the first half year this year, there is a drop in EBITA margin. It's to a large extent driven by the consolidation of Reebel and Son into the Oplafus Group.
And when we talk about the 15% target, I think it's important to say that the consolidation of the Ravenels and Nordic entity into Orkla Foods will lower the EBIT margin by 1.5% to 2 percentage points. So the starting point is not repeating the strategic rationale on the acquisition. It starts with the rebrand Sun and Orkla being a perfect match. And what do we mean by that? Both companies build the business model on the strong local positions, the local consumer taste preferences and what we call a multilocal approach.
Wieber and Son actually call themselves the local taste champion when we acquired them, which
tells you
that it's the similar kind of thinking. Then we are complementary in many areas. We are complementary in competence, in products and categories and in technologies. Reber coming from dry products, chilled products, or class foods coming more from frozen products, ambient products. In addition, there was significant overlapping geographies, especially in the Nordic area.
And that means we had parallel organization in all markets, which we are now on and offering huge synergy potentials. 2013 is the year of great restructuring in Autlafoods, and we are restructuring to be able to reach the 2016 targets. This is what we are carrying out now and have carried out. The most important is, of course, integrating the Nordic Rebrand Sun Business, which Oge has stated, offers synergy potential of €250,000,000 to €300,000,000 on the cost side when we run at full potential. This is the full Orkla effect.
Some will come at headquarters, some will come in the other business areas, but a clear majority will come into Orkla Foods. Then in the first half year this year, we successfully merged our Basseafood and Prokodia, which was a big merger in Sweden. That will give up that will give SEK 40,000,000 in synergies. We have changed production structure in Denmark, moving production from one site to other Aukla sites outside Denmark offers €10,000,000 to €15,000,000 and is already executed. And the last point is that we have merged 2 companies we had in Estonia, and we built efficient management structure in our Fenerbahcek division, another SEK 10,000,000.
As Gverde being the clearest clearly biggest potential are not yet delivered, I will spend a few minutes on that. Realizing the cost synergies in VIBEL is well on track. The graph on the left hand side shows the run rate effect realized per end of each year. So when we exit 2013, we are at a run rate of 50%, as Jorge has previously stated. Exiting 2014, we will be at 80%, and we will be at full speed with the rebased synergies when we come to 2015.
If we take a closer look at where will the synergies originate from, that's on the right hand side. You see that almost half of it will come from lower number of employees, 40% approximately from lower purchasing prices when we combined our purchasing power. And that are the most important. Then I will move to talk about top line growth. This graph shows Orkla 3's organic growth since 2010 to the first half twenty thirteen.
The red one shows the growth in retail channel only, constituting 80% of sales and where the brands are most important. The blue or green one is showing the overall growth for our classes. And as you can see, both in 2011 and 20 12, we have delivered in the retail channel growth in accordance with the long term targets we have. 2013, I of course need to comment, it's not satisfactory. Two reasons behind it.
Even on Sun is coming into our accounts and with a negative growth. And also in Norway this year, we had less successful innovations that explains this drop. When we look, we regard innovation as the clear driver for organic growth. We will continue that philosophy, developing new products on our core portfolio and outside our categories into new categories. The main trends that we face has not changed much over the last years.
It's health, nutrition, one strong trend. It's indulgence. It's a prevailing trend, proving slightly in the other direction. And we also have the trend of convenience that will always be there. I think we need to realize that time is on our side in our business.
But for us, and a more important growth driver than trends is very much doing product development, product improvement on the products we have. Better taste, better nutritional values, more convenient packaging, relaunching and relaunching, continuous developing the products we have. And we always, always keep taste at advantage when we innovate. I will now go briefly into 2 cases from the 3 digit markets, both of them, that tells you try to convey some of our thinking when we do innovations. The first is the launch of Abbaz Medaslard, translated into dinner ready or something, a meal solution, helping the Swedish families eat more fish.
The second is the brand called Paloons launched in Sweden a few years ago and as a plant. First, to about middle class. Well, it all starts with the consumer insight. In this case, it was pretty simple, which the good insights normally are. 7 out of 10 Swedes want to increase their fish consumption.
But at the same time, I didn't believe in that because I'm Norwegian. The Swedish find it difficult to cook fish properly. We utilized that and the ABBA team developed a dinner product. Actually, it's a sauce presented as a dinner solution that made it easy to cook great tasting fish meals in just 20, 25 minutes. You just take a few salmon fillets, frozen or fresh, put it into some dish and pour the sauce over and it's a great taste with your family appeal in 25 minutes.
And one important thing when we work with taste is to make the taste great, but not only that, to have a broad taste appeal. Most of our brand is about the children loving it and the whole family loving it. That is important. So what did we do? This was put in the marketplace in 2011.
We launched 3 taste varieties where we said just add salmon. All taste varieties tailored to the Swedish taste and tailored to salmon, which is one of the biggest fish species consumed in Sweden. Launch Phase 2, just half year later, became with a bigger pack size and a new taste variety. The bigger pack size because sizes of family differs and sizes of your kitchenware differs. Launch rate 3, just add cod, which is the 2nd most widely consumed fish species in Sweden.
3 more taste rinds tailored at Tasting Good together with cod, exactly the same concepts. In Launch Wave 4, which are coming out these days, we will in Sweden launch a sauce tailored for pasta and shrimps, which is pretty common combination in Sweden. And we will take the original concepts into Finland and to Denmark, giving it local name and to the local taste. Did it work? Yes, it did.
This is the sales growth to consumers from our Basmirall Charter. It's only 2 years of history as we recently launched it. But as you can see, this has already generated almost SEK 100,000,000 in extra revenue measured at the point of consumer purchase. And this launch might seem simple, but it actually created a new category in retail and it's created a new consumption habit when it comes to dinner. If you don't have that broad taste appeal and that's a very convenient feature, it's hard to get into everyday Swedes dinner repertoire.
And we actually succeeded with that on this one. The beauty from a financial point of view was there is no cannibalization on our current portfolio on this one. All sales, all contribution comes in addition to what we already have. Then I see I'm doing well on time. So I will go further into Paluns, which was a new brand in Sweden, again starting with local insights.
The underlying consumer insight here was that we observed a trend when it comes to nutrition that was a little bit different from the traditional diet, I mean, counting calorie diet, that has to do with positive nutrition, well-being, naturalness and things like that. We wanted to launch something cross category into that, That might give us some extra revenue. We then didn't have a brand to sort of be a credible messenger on that promise. We call the promise Borabramat in Swedish. That translates to English like good food only, but it's not it's more to it than that.
It's good ingredients. It's proper ingredients. It's naturalness when you say it in Swedish. When we didn't have a brand, we teamed up with the spokesman, the dominant spokesman in Sweden called Friedrich Paulus, who was a very credible messenger for this product range. And we use his name as our brand.
And we have then since 2009 launched a wide variety of products going into rather big categories. These are mainly connected to the breakfast habit in Sweden. It's about cereals. It's about granola and other kind of cereal, misle. It's super juicy.
It's super smooth. And it's porridge coming out now, which is a common product in Sweden. This has resulted in an impressive growth and high brand awareness. So from 0 starting point in 'nine, we are now selling this for more than SEK 120,000,000 to the consumers. And the recent launch, the super healthy granola, proves very promising.
The brand awareness is now 80% after just 4 years, which is quite impressive coming from CERO a few years ago. And one more time from a financial point of view, every Kroner sold here is an addition to what we already do. There is no cannibalization from this. And the same goes for the contribution. I picked these two examples to show you how we really have to think because we are in categories that have limited growth.
And then we need to establish something on the side of what we do that is attached to what we do and where we have the competence and where we have the value chain to be able to create growth. Then one slide of returning Reber to organic growth. As most of you saw from the quarter two numbers, we reported a sales drop in Verebit in the first half year of 10%. There is no doubt that the long period of waiting and uncertainty for the final approval from the competition authorities has hurt performance in short term. So returning the Ribbon and Sun category to positive growth will be one of the absolute most important challenging going forward for Okla Foods.
We are in the process of making the plans for 2014 and 2015 as we speak. We have only sort of been in control here for 4 months. We believe that a renewed and tireless focus on the core of the Pura brand, we were thinking it a little bit, has been lacking. These are the dry categories in soups, sauces and casserole dishes will definitely have a positive impact on growth. We also believe that the taste and product development competence in Ribe and Stavbure combined and now Orkla Foods Norway will lead to many new exciting innovation possibilities.
And even more important, we have chosen to build Orkla Furs Norway on a management team with a proven track record of creating growth in so called mature categories, and namely almost entirely with people coming from Stabere. And that is my bridge to introducing Benter Breivik, the CEO of Okra Fusmerge and my colleague since way back in the 90s, Bente. Bente's leadership and under her leadership, there is a long track record of profitable growth. Tabbre from 2,008 to 2012 under Wenter's leadership has had a 4% growth annually in retail and increased EBITDA with about 40%. Before that, Wint had a long period of 10 years as CEO of Neder, creating consistently a 3% growth and increased more than double or maybe triple the EBITDA of NIIBEL.
So I'm happy to leave the stage to you, Wouter. Thank you.
I was reading in Lonely Planet the other day on Norway. And of course, I checked the chapter on Norwegian Cuisine. And this is the introduction in Lonely Planet. Norwegian food can be excellent. It is often claimed backed by authoritative research surveys that Pizza Grandiosa, a brand of frozen pizza, is in fact Norway's national dish.
We own Grandiose. Although the Norwegian population thinks that they own Grandiose, it is actually an Orkla brand. Grandiose is stronger than Coca Cola in Norway. Grandiose is stronger than McDonald's in Norway. And when we do something with Grandiose, it tends to engage the whole nation.
So the last two songs that were launched along commercials for Grandiose had 31 weeks consecutively on the equivalent of the Norwegian billboards, 10 weeks as number 1. And Bjorn D'Orsa has 50% of the Norwegian pizza market in the freezer. The Norwegian pizza market in the freezer is about NOK 2,000,000,000. So it is sizable. And when you have 50% of that with 1 brand, what do you do?
You don't touch it maybe. Well, for us, there is only one thing to do when you have 50% and you're growing, and that is to change it. So we changed and we changed the whole Grandiosa portfolio, and we launched a new Grandiosa, grandiose homemade pizza. And this year, we grew grandiose by 14% in volume and 17% in value. Not bad for a €1,000,000,000 brand, is it?
So this is how we work with our core brands. We grow them organically. We change the core of them. We improve them. We add on to them and we enter new areas.
And I will share with you some examples of that. This is our financial performance over some years. We do it by innovation, by brand building, by working with the sales force, but through all the things that Orgi mentioned earlier. And what did we do really? We tried to create enthusiasm for what we do.
We tried to create enthusiasm with consumers. We tried to create joy amongst our customers, which means profitable joy, of course. And we try to all the time improve our own performance. In our best of moments, we are able to create growth in all of our categories. And some years ago, we recognized that all of our growth has been based on value.
We innovate on value so that we generate more willingness to pay, which is fine, but it doesn't help the volumes, does it? So we decided in 2,009 to change our strategy and see if it was possible also to grow the volumes. This is the total market at the time, sort of flat, 0 growth. This is private label. Thank God, it's going down at least in their value in their volume growth shares.
This is competition. This is the international players, all of our competitors for the total portfolio of Foods Norway. This is Stavure, which was Foods Norway at the time, also around 0%. And we thought we should try to change that by making a focused effort. And this is what happened to the total market.
At least we managed to sort of push it above 0 in volume. This is private label. These are the internationals. And this is Foods Norway. And in this period, we managed to shift our innovation program so that in addition to creating value growth, we also created volume growth.
And now the challenge is, of course, to do the same for a slightly bigger portfolio. At the core of everything we do is trying to and trying to excite our customers. Each year, 500 1,000,000 choices come out in our favor. 500,000,000 choices, it's a conservative estimate. So 500 times a year, Norwegian consumers choose a product from our company, which is about 100 choices per person, including babies and old people.
Yes. When we manage to infuse our consumers like this, we also create growth. And the last 5 years, we have been rated the number one supplier to the trade in total across categories. We are number 1 in total performance. We're number 1 on innovation.
We're number 1 in sales force. We're number 1 in category management. We're number 1 in product development and we're number 1 in logistics and production. So this is a pretty solid foundation for us to now try to expand this way of working into a larger scale. And this is our challenge now to do with the merger of Riebe and Spakula.
We have found the perfect partner. The rebar categories are also loved by consumers, just like the old Stubbre categories were. And their market shares are impressive. The categories that we have acquired from Ribe, and these are the core categories from Stavura. Yes, We have talked about that.
And I'm often asked where is competition. Are you there in this country all by yourself? But they're all there. You have the Unilever brands. You have Doctor.
Esker. You have Findus, you have Heinz, you have Kraft, you have Leerin, you have Nestle, Foto, although they did pull out of pizza 2 years ago. But they tried for many years to establish a position in pizza with a Wagner brand. Kraft withdraw from dressings last year. They withdrew, and they just now have a little bit of distribution left.
And we see that the local scale that Olga was talking about, all of these. Yes, I would now like to share with you liver Pacquay. These yellow tins were launched in the south of Norway in 1949. The factory manager of this liver petit factory had a son called Per, Per Kristensen. And Per was a lovely little boy with yellow curls and a very happy smile.
So Per's face was put in front of the tin because this was the most beautiful motive or image the factory manager could imagine. So he put his son in front of the tin. And ever since then, we have had a little boy and now in modern times also a little girl, would you believe, in front of the tins. And every 10 or 15 years, we have changed the face in front of the tin. And so we did last year as well, engaging the Norwegian consumer to make a statement as to what face should be on the tin.
We got 80,000 photographs. People sent in pictures of their loved ones, their children, their parents, their dogs. We got pictures of everything under the sun. Everybody wants to have their face on this tin. So we saw no other option but to arrange a national election.
830,000 people voted. 830,000 people voted. We had a national election on the 9th September this year. Do you know how many votes the prime minister got? 760,000 votes.
The winners it's Theo and Josephine, and they are now proudly presenting the liver patty on all of the cans in Norway. This is a lovely story, of course, about children on the cans, but it does invigorate a very old brand. And this is part of what we do with brand building. We engage the consumers and we improve. At the same time, of course, we have improved the fat contents and the taste and everything else in the product.
And the results are like this. You can see at the bottom here the canned liver pate. At the same time, we decided to enter into the chilled section of the store because that was where the category growth was. So we launched a chilled version of the good old liver Patte. And this grew the total category in chills by 7%.
It's the biggest launch in the chills section in 10 years. And as you can see, the growth is incremental. And we're now market leader in total liver pate in Norway. Lately, we've also launched an adult liver patty. And you can see there is a funny old guy in the middle of the adult patty.
And that is the son of the factory manager from 1947. That is Per Kristjanssen, who has now come out again to front the liver pet A. So he is there with a young lady, yes. And we have now 42% of the liver per day market, and we are by far the market leader. I apologize for the busy slide, but innovation is at the core of everything we do.
And we measure our innovation rates defined by us as the portion of our total turnover that comes from products launched last 3 years. And when I started with this company in 2,008, we were below 30%. And one of my objectives was to try and see if we could push it above 40%, which we then did. Equally important to having a strong innovation rate is the mixture of the innovation rate. And in our thinking, relaunches, improvements of the actual core brands that we have is just as important as bringing completely new stuff to the market.
So we believe that the relaunch curve should be the highest of the three dimensions that we measure. We measure line extensions, relaunches and new launches completely. Line extensions tend to be tend to drive complexity and tend not to be so profitable. Re launches, however, are super profitable. And new launches, we need because we need to expand and create new things altogether.
But the first year at least, they tend not to be that profitable. But it's an investment for the future. So all in all, a good level is around 40% in my view. Last year, we passed 50% and then I got really nervous, so I hit the brakes a little bit. So we're bringing it down now because if your innovation rate is too high, it all becomes a little bit unstable in consumer terms.
So we are now below 50 and we should remain somewhere between 40 50, I think. This way of working is what we will now implement in this new food company in Norway. This way of working is already now adapted by the Ribe part of our organization, and it's already giving results. I have one example that I would like to share with you. On income synergies, you have all well, Oge and Atle have both been talking about the synergies coming from cost savings.
And we are on track for the Norwegian part of it, but the real money will eventually come from the synergies we can create on the income side, I think. So this is the first little example of income synergies. This is from soup, where the market leader in the freezer is Stabra and the market leader in the dry section is Turo or from the Rebrand Farm. We have taken the competency and the technology from the freezer and sat together with colleagues from the dry side, trying to see if these technologies and competencies can develop into something completely new. And we have.
So 1st February next year, we will launch a completely new taste experience in soups based on the competencies of the 2 companies and the technologies of the 2 companies.
But
this is a small innovation. We have talked about building brands, engaging the consumers, relaunching the course, developing new SKUs, etcetera. But sometimes, this is not enough. Sometimes, we need to go beyond what we have and expand further. And in pizza, we have just done this in launching a pizza competing outside of the retail arena.
And we have called it takeaway. In Norway, which is a very long country, when you order takeaway pizza, it takes about an hour to arrive. And by the time it is there, it is sort of foggy and sad and half cold most of the time. I'm sure a lot of you have this experience. And we thought we can do this better.
It shouldn't be like that. Without technology and competency, we should be able to deliver a real takeaway pizza from the freezer. And so we created a taste that beats the takeaway pizzas in blind test. And we have developed a box that sort of associates with takeaway pizza. The actual pizza looks like this.
We put the cream sauce inside, and we made it so big that it will actually not fit into a freezer that you have at home. It just doesn't. It just about fits into the oven, but you have to eat it the same day, really. So when you buy it in the store, it sort of defrosts on the way home, and then it will be perfect. It takes 10 minutes, and you have superb quality.
This year, we managed to take turnover from the takeaway parlors and move it into the retail. So this was real additional category growth for the retailers and for us, although it did damage the takeaway parlors a little bit. Yes. We launched this with a simple story of a takeaway salesperson delivering takeaway pizza to a young man who was obviously a regular customer. And he found himself superfluous.
Yes, we run a whole series of these little films I would not dream of coming here without serving you pizza. So we have flown in takeaway pizzas from Norway, especially for you. They are cooking as we speak. Before we have a break and indulge, we are happy to take any questions that you might have. And I would like to ask Atla to join me for a little session before we go out and experience what it's really all about.
Thank you.
So just a quick one on Reburn. So when you bought it, it looks like they had negative like for like for a couple of years. So now looking at it, do you
think what do you think is the part of the portfolio which is underperforming?
And how long is it going to take to bring it back to all client level in terms of both like for like and margins?
I'd be happy to answer that. I think the biggest potential in the Reeburg portfolio for the Norwegian market at least are the old jewels, which are the dry soups, the dry casseroles and the sauces. And we see already with simple means that we were able to create growth in those amongst those old jewels. We have, for example, just rejuvenated cauliflower soup, and we have double digit growth already on that. And I think that's very inspiring in terms of what we can do.
As far as timing is concerned, you are I think we need 2014 in order to get this back on track. Yes.
It's Ahmad Mishra from LVNV. Could I just ask how do you manage the sort of balance of innovation in terms of driving volume growth? And then also do you target pricing growth or margins on the other hand?
Yes.
Yes, yes and yes. We try to do all of those at the same time. And sometimes it's a balance. But I think it is possible to do both or all three things at the same time. It's not easy, but that's what we do.
Yes. I guess I might add that we have a value chain not only going innovation on volume growth, but the margin comes also from quite impressive work on continuous improvements throughout the value chain, everything purchasing, efficiency in production and so on.
Donnie Johansson from Vontz Finance. Thanks for an interesting deep dive in your innovation efforts. But I'd just like to know a little bit more about the new sort of food trends. You talked a little bit about what you were doing in Sweden at the time. Sort of given your reliance on Norway, where are you in terms of innovation?
I mean, sort of starting creating new brands really and new products, which you can think could take the top line growth perhaps above this 2% to 3% level? And then secondly also, if you could comment a little bit on the price negotiations. I mean, when sort of if you could tell us a little bit about that, the retail price negotiations and its frequency?
Very different questions. I will try to remember all of it. Yes, first of all, health. We believe that some of our brands have a health potential whereas others are more close to indulgence. We are launching in February the first Grandiose, which is gluten free in February, which is giving an alternative for those people who have that kind of issues.
And we think all people, young at heart, should have a grandiose just for them. So that is an example of what we work what we do within the work of a brand. And then we have other brands who are very health oriented, like the Mackerel that August showed earlier on, where we can just keep on launching new products and new formats and making it relevant to consumers in more and more situations. So that is a brand with a strong health core. So we work with indulgence.
We work with health. And in some instances, we can do both. We also have a grandiose with a keyhole, which has less fat and more fibers and things like that. So but it varies within the brands. We have a very big portfolio.
But with the acquisition of Ribe, we get competency on some of these areas that we didn't have before. They have a very strong line of the gluten free product, for example, and are recognized as such. So that is something to build on, yes. When it comes to your question about the trade terms, we negotiate trade terms once a year, typically in the autumn in Norway. And the annual negotiations haven't started yet.
But this year, we will negotiate the new company as one as we formally merged 1st October, yes.
And I might add on that. That differs too from market to market. You probably got a local message now, but even that differs from market to market. And Sweden is a different way of doing it. You know, the category by category, more on a rolling basis.
In Denmark, it's a regime that's similar to the Norwegian. So yes.
Thank you.
Andrew Guttman from Meyer and Melenhof. You may be aware in Central Europe, there's possible regulation coming through shortly regarding mineral oil migration into foods? No? This is from the central government, large ones in the middle of Europe, making draft regulations to make sure in the future, all packaging will have barriers to prevent mineral oil migration, which is possibly cancerous causing into the foods. What steps are you taking to create barriers to this?
Are you developing for your innovation barriers to protect your customers?
There are
similar things going on here. And of course, we have actions relating to all those kind of regulations, I would say, that we expect to come or might expect to come. I cannot sort of comment more specifically on that specific issue. But these regulations vary from market to market, from government to government.
I'd like to come back on your slide with the innovation rate. Basically, I'm looking at your like for like in the first half of the year and it was negative in food. But then your innovation rate was fairly high. So do you think this was one of the contributing factors to the lack of stability and the underperformance? Or does it show a significant underperformance from the rest of the portfolio?
The figures I showed was for all of 2012. 2013 has been a year of significant transformation for us, and we have taken the innovation rates down considerably, which I believe is one of the key causes for our drop in results. It has simply been a very large effort for the organization to integrate Riber and Stabura. And in this process, innovation has suffered, yes.
But as innovation comes down and you're like for like turns negative signing compared to the market?
Yes. In our need innovation to invigorate, so innovation is important of the categories. So we need innovation in order to be interesting. And in a year when innovation is slack, then results will suffer. That is our experience.
So we are now working hard to have full speed ahead as of January 1, which we will.
One more question for operator and Benper? All right. If not, we will thank you very much, and we will take a break. We will continue with the presentation at 3:30 sharp. And please remember to sample the famous pizza outside.
Thank you. I'm very happy to introduce the next speaker and also a new member of the executive team in Orkla. He has 24 years of experience from the industry and 16 years from Unilever. He joined Orkla from his previous position as a CEO of Aula Sweden and Finland. Fektjern is now with this, Rob Reich.
Thank you, Rune. I'm representing Confectionery and Snacks. So we those who remember the vision that August spoke about earlier, we don't just represent the mental health part, which is the healthier part of the vision. But also the more enjoyable part of local brands. But when you look at our results, you might think that where is the enjoyment looking at the confectioners and snacks results, and that's very clear.
And that's also why we're calling this section turning around the difficult for improvement. So that's what I'm going to take you through for the next 30 minutes. This will be divided in 3 sections. I'll spend some time going through the background, taking you through the history, the positions, the markets, but not least also the historic performance. I will then take you through and repeat the targets, but also most importantly take you through the initiatives why are we actually going to turn this business around and why do we firmly believe that this will be done no later than 2016 and the sooner the better.
The weak results has been there for a while, but they're much more dominant in Q2, and you will all have seen that in the recent results. But these are all fundamentally stable positions. There's nothing wrong with the brands, and that's something else for you soon. And we see that this clearly has potential to move on. When we talk about confectionery and snacks, confectionery being the largest the 2nd largest part of this business, which is 37%.
Close to 80% of our business comes from And the smallest part, which is a bit less than 20%, comes from biscuits. One of the things that you might have seen, and especially if you follow some of the international players in these categories, you might also have seen it outside on the tables, is not least the confectionery and the biscuit categories are coming much, much closer together. And there's some really good opportunities there, which we also talk about. Confectionery for us
is Schottager Confectionery, but it's also in Gas Stills.
Our business currently is one of the largest confectionery and snacks businesses in the Nordic countries, including Baltic. We get 80% of our business from Norway and Sweden. So that's clearly where we have our most dominant position And making sure that those two countries perform as the absolute most important core markets is vital. But also to make sure that we cover white spaces in the other markets where we're not as strong as currently. In Norway, we have a presence in all three of these categories that I just showed to you.
It also means that these little logos here all historically have represented 3 strong companies with different cultures, with different identities. And that's also the integration work that is now ongoing in Norway. And that's a very important part of the current performance, not least the way we're going to strengthen the business going forward. Sweden, we're in biscuits and snacks, a clear number 1 in both of those. And again, these are 2 separate companies with separate cultures now emerging into 1.
Denmark, we're only in snacks so far, so we have some white spaces in biscuits and confectionery. While in Finland, we have a very strong and healthy snacks business. We have a sizable confectionery business, but it's yet not as healthy. And we also have a smaller biscuits operation. And Baltic is about 7% of our overall turnover, which represents a much more significant part of our opportunities going forward.
So fundamentally, despite the performance that we have currently, we have strong and healthy brands. We have a lot of number 1 brands in each of these categories. We have a lot of strong and healthy number 2s, Stratus, as an example, which is an 80 year young brand, I would say. You had it on the desks outside. It's number 2 in the chocolate market in Norway, but a very much clear leader in its segments where it operates.
In Snacks, we have across the board very strong and very healthy number 1 positions. We have 1 number 2 position, which is in the Norwegian market. But except from that, we are a clear leader across the board. Biscuits, we have a very long heritage, several sub brands and a clear market leader in the most important markets, Sweden and Finland sorry, Sweden and Norway and a number 2 in Finland. A lot of brands similar to the food situation, we have a lot of heritage.
These are still vital brands that can do far more for us going forward. These are our shares for the most important categories for the most important markets. I think the new news on this slide is really where do we stand vis a vis competition. So on confectionery, it's clear that we are facing tough competition. We are number 2 in Norway after Mondelez.
And on the competitor horizon, we have all 3 typical types of competitors. We have strong international players, which is trying to adapt a bit more local flavor to what they're doing than they've done historically. We also have strong local players with no international ambitions beyond where they are today. And we have also seen private label growth. And I think confectionery and snacks probably represents the exception from what August said this morning or early this afternoon.
It's here we've seen some quite rapid growth from private label. In Snacks, they've been taking share significantly in Denmark, but also a bit in Sweden, which has harmed us because we haven't really stepped up a gear in meeting this type of competition and differentiated enough. In biscuits, we can also see that we have firmer private label competition than we had in the past. And private labels have been good at adopting new innovation and new ideas there. And we have local competitors that also stepped up a gear.
So overall, the competitive landscapes for confectionery and snacks has gone a bit tougher in the recent years. And let's face it, we haven't been good enough respond to that. And that's one of the reasons why I'm not forming as far. One could also say that is this driven that we're actually going down now? Is it because everyone in this audience is out running 3 times a week, not eating unhealthy products?
No, we strongly believe actually that the balance of indulgence is really there to stay. After me, you will see Stig talking about some of the health trends that we're capitalizing on other brands. But clearly, indulgence is something that consumers will spend money on despite whatever health trends that comes and goes. And there's an underlying growth in these categories of about 2%. And clearly, that also suggests why we should have a target which is plus of 2%, beating the market overall and making sure that we get more consumer spend in our category.
The other opportunity we have is that consumptions in the markets where we operate are either at an already healthy level in terms of high per capita consumption. We have a couple of markets in the confectionery industry where we unfortunately are a bit underrepresented overall. There, we have high per capita consumption compared to European average, while in the Estonia markets, they are actually underrepresented. And as economies go stronger, you tend to move up the per capita consumption ladder. On snacks, we are very high on not just pizza in Norway, we're actually very high on snacks as well in terms of per capita consumption.
Sweden is somewhere in the middle, but also we have several countries where we have strong brand positions, but we still have good opportunities as market leaders to drive per capita consumption even further than we have done up to now. And on biscuits, across the board actually, we can see that the markets where we are represented are lagging behind the bigger European markets in terms of consumption per capita. And what you typically see is that biscuits are used in these markets much more as indulgence, the way you use chocolate or sugar confectionery or sometimes even snacks in our markets. So here it's about making sure that biscuit is something that is actually vital, not old fashioned for the slightly older section of the population has coffee in the afternoon. This is something you have on the go when you need a bit of reward or indulgence in the middle of the day.
And that's where you see countries moving up the consumption ladder. So per capita consumption, there is still opportunities even though we start from a reasonably good level. And also the overall market represents some opportunities of stable growth. We also represent some local brands. Obviously, we sell salted potato chips in every single market.
And one might think that this is exactly the same wherever you go. But I can tell you that the salt levels and the salt preferences across these different markets is quite different. We have the lowest levels in Finland. We have somewhat higher in Norway and Sweden. Even though for health reasons we'll try to tune that down, it also signals that there are different taste preferences in such a simple thing as potato chips.
For those who have tasted ketchup chips in Latvia, you would know that that's not necessarily the biggest selling SKUs in London, neither in Stockholm or in Oslo for that matter. So there are some very big differences in terms of snacks preferences as well. Or if you tasted sweet cheese doodles, again in Latvia, that's not probably the SKU that we're going to transfer across countries the fastest. There are some very good examples where we can meet local needs, but actually also make sure that we have some good ideas that travels across countries. So even in these categories, you see big differences between markets.
The smallest differences is actually in biscuits, where we see more similarity across markets than differences. We have brands. I've said this a couple of times now, but I would be much more worried if we had brands that were not healthy and that was not in the number 1 or number 2 positions. We have brands that are healthy, and I'm absolutely convinced that they also have legs to move into new categories and make sure that they actually do much more for us going forward. And we are in impulse categories.
Very few of our consumers put our items on the shopping list when they go into the store. About 80% of the items they buy in our categories are all on impulse. We have about 400 people in the field as merchandisers and salespeople across the countries where we operate, visiting the retailers on a regular basis, making sure that we are on the casual lines with chewing gums or on the aisles with the snack products. So making sure that we get absolutely most out of sales execution is very, very important for us. It also builds on what August said earlier today.
So local preferences are there. There are also a lot of similarities that we need to capitalize on further going forward. And this is all about impulse. But despite that situation, where we have a lot of fundamentals in place, both in terms of the macroeconomics, but also in terms of the brand positions, we have a very disappointing performance right now. In my view, this started a couple of years back.
We are not growing in line with the category growth, which is then below 2%. Already in 20112012, we were below that growth. But clearly, we have had a steep decline, and you saw the disappointing Q2 results. And we are firmly believing that we're going to turn this around. It will come in steps, and I'll come back to that.
The rolling 12 month EBIT is also going south to levels where we're not satisfied. And we're now just above 15% EBIT for the 1st 6 months of this year. So clearly, these are levels. And as you could see, we can always discuss how challenging our targets. Within these 5 years, there's only 1 year where we exceeded the targets we have spoke about in terms of both top line and bottom line.
And that's what we now intend to do on a much more regular basis. So this is the historic performance. It's a bit of explanation on where we're coming from, but why has this then happened? And managing business in hindsight is always extremely easy. But the key things is, if we were to sort of sketch out a few clear items that really we need to change going forward is that I love that picture that Benter showed, and especially the line that talks about investing in your core innovation, investing in your core, which was the first line Ben to spoke about when it comes to innovation.
We haven't been successful enough in really driving our core of our business, and that's a fundamental part. If that part is not healthy, we can never compensate with innovations in other areas, which were the 2 other lines that Benjie showed. And a similar picture and clearly here, we can see across the board that we haven't been successful in that in the last couple of years, and we're now paying a price for that. This will not take ages to turn around, but that's one of the key reasons. When we talk about innovations, we have also spent far too much energy on small scale innovations that neither have given benefits across countries and particularly not across categories.
We have very, very few examples of brand initiatives behind innovations that have been valid for more than one category. And clearly, here, competitors have been more successful recently. In our market, private labels has also had an impact, most significantly in Denmark, where they've taken 5 share points in 2 years, But also they've taken a couple of share points in the last 12 months in Sweden, and that's also impacting our performance. This is less of an issue in Norway. But on the other hand, in Norway, we have had the most significant integration process.
And there is no doubt taking 3 businesses with very strong culture, merging them into 1, has led us to lose a bit of momentum, and I think that's also now what we're gearing up to improve going forward. And margin pressure is the other item. So we lost the top line. We also lost a bit of margin, driven by higher trade demands, and we haven't really been able to take cost out in a significant way. So this is how we build then our actions going to address the issues.
We therefore believe that reaching the 2% to 4% consistently in terms of top line growth, we're not going to hold back, I can promise you that if you can go beyond that, but reaching that on a consistent basis clearly is a stretching target, but it's also something we can achieve. Getting an EBIT margin of at least 16.5 percent. In a historic perspective, we've done that once in the last 5 periods, doing that on a consistent basis going forward. We believe that these are stretching targets, which require a very clear top line plan as well as a bottom line plan and a margin plan. And these steps will come gradually, and we will not hold back as we improve.
So Tongue, and I'll give you a few examples of what will we do to drive the revenue and driving the top line. So getting focused back on core, the core SKUs, the core positions, the core brands we have in snacks, in biscuits and in confectionery. I think that's where we need to find the most important and certainly the most healthy and profitable part of our growth. That's where we now also in the integration of these businesses. As August said earlier on, we have invested in innovation resources, and all of the key markets we now have ongoing projects for next year investing in core initiatives behind a much stronger innovation team than we had previously.
But innovation is absolutely vital. It has to come behind core, but also has to make sure that we are much faster than we've done historically to take cross country initiatives and run with them, steal them with pride into new markets. We have very few examples unfortunately where we launched something in one country which has been successful and taking now to another country with a great speed. So we need to do that much more firmly than we've done recently. Probably the most important opportunity here is to look at some of the brands we have, and they can really stretch across categories.
We have competitors that have done this very successfully in the last couple of years, and that's hurt us a bit. I will share with you one example quite soon about Stratus, which some of you might have tasted outside. But we have few of those examples which have been stretching either from snacks into confectionery or from confectionery into biscuits. And trust me, we have several of those opportunities where brands are loved by consumers, and we can easily see them being loved by consumers in a new category. Execution is vital for us.
We think we can run the execution in the store level with more professional and investing in skills development and key account management, but even more importantly, with the 400 people that actually meet our retailers and the point of purchase every day because that's where a lot of our purchase decisions are being made, as I said. And it's also where we can be more professional, more decisive, more rigorous, but also we have a scale compared to our competitors that is significantly superior to this. And a winning organization, I think we cannot do any of these, and neither can my colleagues, if we don't have the right structure in each of these countries. That's why we now created much stronger operations in each of the markets. We merged 3 businesses into 1.
We simplified our overall leadership in Confectionery and Snacks as a whole, 3 businesses into 1, as I said, in Norway, 2 businesses into 1 in Sweden 2 businesses into 1 in Finland. And that's quite a big exercise that's been ongoing since Q2. It has had some short term impacts, but it will clearly give us some long term benefits, and it will not take ages before we start delivering on them. Sure, we have the right people in all the positions, of course. When I come back in a couple of years, I will hope that I will have a few more examples to share with you.
We've seen some very excellent examples from the food side. But when I look around right now, we have too few examples of where we manage to take brands from one category to another and really take a brand and extend it into meeting consumers with new user occasions, offering them new pack sizes, new variants, new inspiration that actually make them meet the brand and eat the brand, most importantly, more often. Stratus is an example which we actually only this year took into biscuits. I think we have passed more internal barriers to make that happen than external barriers. Consumers love it.
The Stratos brand grew by 15% so far this year. We have some issues overall in the confectionery business, but this is an example of what we really want to do much more of going forward. It's an 80 year old young brand. It's still very, very vital. We're investing in the core, as I said before.
We're now offering a double digit of variance. It might give us a bit of complexity, but this is complexity worth having. We have other bits of complexity that we need to take out, but this is one of the complexities that really pays off when we invest it in the right way. And next time I come back, I promise to show you much more of these examples where you take a brand with AT year of history and strength and turn it into much more vital categories, vital variants and really good taste experience. Another way of growing the top line is looking at Baltics.
As I said, Baltics is only 7% of our market right now or 7% of our business right now, but it's far more than 7% of the opportunities going forward. And while we tend to talk about Baltics as one country, as you know, it's 3 countries with very distinct differences, They certainly themselves don't club themselves together, neither do the Swedes and Norwegians, by the way, Atle. So but this is also where the local strength comes into play. And as I said, I'm not the biggest user of ketchup chips in Latvia, but it's clearly something that consumers love now to make sure we actually serve them with that, but also serve them with much more opportunities going forward. These markets has gone through rough times, but they actually also show strength to turn around and come much stronger through rough times than a lot of other markets.
So their GDP growth now is superior to most other markets in Europe. What is even more exciting is actually that our categories grow faster than GDP. And the reason for that is what I showed you earlier on, it's the consumption per capita in the categories where we operate is clearly lifting. As the economy grows stronger, you reward yourself with indulgence, and that's where we come into play. So clearly here, categories grow faster.
But the third thing here, which is even more beautiful, is actually that we grow much faster than the categories. So we grow faster than the categories, and categories grow faster than the countries as such. And therefore, we think that Baltics represent a good strategic opportunity despite being small markets because this is markets where we come in and can have a very significant share. They might not be top of the priority list for our international competitors, and we can clearly commit these healthy and growing markets to make sure actually that Baltics really matters overall for Confection and Snacks and R Class as a whole when we go forward. Right now, we have 2 businesses in Baltics, Karlov that we have had for some years, which is a fantastic track record of several years now double digit growth, and their earnings are also coming in very nicely.
It means that we're now the market leader in chocolate and in Estonia. We're number 1 in biscuits in Estonia. And overall in Baltics, we're number close number 1 and 2 with Lays on snacks. We have sent then Lat food with the adazu brand, which is the market leader in Latvia. And that brand across the Baltic region and the way we adopt that in the different markets mean that we're now neck to neck with Lay's in the Baltic markets.
We clearly see that we have white space in terms of categories to grow. We have strong starting points in these two businesses. And with the development we see going forward in Baltics, we will see much more growth from these markets in the next couple of years. But to do that, but also to address the weaknesses we have in the current performance, we announced a program of SEK 300,000,000 in the next 3 years. Organens mentioned this early in the afternoon.
Not an insignificant part of this program are the synergies we're getting from the integration, but much more than SEK 200,000,000 is going to come from what we do from an end to end point when it comes to supply chain, looking at all the elements of our products, all the way from procurement until it reaches consumers. The way we work with our efficiencies, we have initiated a program for our biggest site, biscuit site in Kungel, which is on the West Coast of Sweden, where we now have a task force working since a few weeks back, making sure we address the weaknesses we have on that site. So we have that as a clear initiative. We're looking at our chocolate and snacks supply chain, where we can see that we can have some streamlining to do to simplify the way we go forward. And also in this area, we clearly have some complexity that is worth having and that serves consumers very well, but we also have a lot of complexity that we need to get rid of to make sure we reduce the number of SKUs.
And it might impact 1 or 2 very small brands to make sure that we harmonize a bit further across some of the markets than we've done in the past without losing our local edge that we have vis a vis our international competitors So that's as we go forward. So that was about top line, it was about bottom line. This is a convincing turnaround case. We have a tough performance right now. As I said early on, if the brands were unhealthy, I would be really concerned.
But we have brands to build from. We have people to build on, and we have made a lot of very good appointments recently and changes in our organization that we're going to benefit from. We will see gradual improvements of 2% to 4% top line growth coming from, I know, a very negative trend right now, but that will improve. We can see that EBIT margin of 16.5% plus is clearly something that should be achievable in these categories. Driving the top line is vital, but to do that, I would say that getting about SEK 300,000,000 of cost out is also absolutely vital.
And I agree very much with the rule of thumb we talked about earlier. To fuel growth from cost savings is absolutely vital, and some of those cost savings will obviously fall down to bottom line as well. But focusing on the core, focusing on the really strong brand positions that we have, meeting the retailers not as 3 as we did just a year ago in Norway, meeting them as one is a benefit for us, and it means that we are creating a much stronger organization. It gave us some short term disturbance, but we're going to come stronger out of that. And having the right leaders, which I strongly believe we have, with the right attitude is going to turn this around.
And let's face it, it is a turnaround case, but we're very much looking forward to do it. Thank you very much.
Thank you, Kristi. And now Kristi is
happy to take your questions.
Hi, Dan O'Keefe with Artisan Partners. One of the things that surprised me is the private label penetration. In a lot of other geographies, confectionery and indulgence related categories tend to have the lowest participation of private label. So why is that so different in many of your in your 2 main markets?
Yes. It's you can see Norway, it's not that different because it's quite low in Norway. But it's clearly much higher in Sweden in these categories than you see in some of the others. I think internationally biscuits tend to have high private label share, so there we are
not that different. I think
the difference is primarily in snacks. And I would say that the main reason for that is also behind some of the background slides that August showed earlier that we have quite a concentrated trade. The trade structure in our part of the world is one of the most concentrated in Europe, which means that the buying power is clearly something the retailer benefits from. But they clearly don't offer as wide range as we do. And we also need to look ourselves in the mirror and say, have we been strong enough if this is the share that private label takes in snacks, which is the most significant issue we have?
I think we need to drive this and make sure that we can deliver growth into the categories, then the retailers would be happy as well.
All right. No more questions? All right. Thank you, Christi. Our next speaker has 25 years of experience from the Branded Consumer Goods business in the Nordic area.
He was the CEO of Oxelius since 2003 and is now the CEO of Orkla Home and Personal. Please welcome Stig Ebert Knibson.
Thank you, Rune. For the next 20 minutes, I will talk about Orkla Home and Personal Units. I will share the strong number one position we have in the Nordic region. And I will try to explain to you why we have been successful by highlighting some of the local winning concepts. And then finally, I will focus on the future growth opportunities.
After that, Tina Hamnes Leopold will present you an exciting case, new to death of a fast growing sleeping brand. I'll start with a short introduction to this unit. We have a number one position in the 4 main categories that we're operating in. It's personal care, home care, health, Textiles. Over markets are stable with high margin, and we experienced strong brand loyalty.
And also as mentioned before, the Nordic we have 4 different companies in home and person. It's Lilleborg, Jurdan, Axcelis and Piero Val. In the Personal Care business, we are operating in grocery pharmacy, but only in Norway. In Home Care, we are in Norway, Denmark and Sweden and there we are both in grocery, business to business, home and home improvement retailers. The health business is where we have home markets in the Nordics, in Baltics and in Poland.
And there you can see that we are operating in quite many channels. The textile business is aero and are in Norway and Sweden. We are operating in large categories with the main sales in Nordic markets. The revenue pro form a inclusive of Jurdan2012 was NOK 4,700,000,000. 66% of the revenue was in Norway.
Sweden, Denmark and Finland sums up to 20%, giving a Nordic share of 86%. You can see the category split on your left side, where Home Care is 41%, Person Care 20% and Health trends. In all these categories, we have a great number of strong local brands with a long history. Starting back in 18/37 with Jourdan and up until today where still new brands are being launched, This gives us a really strong platform for future growth. The care in Norway is truly unique.
71% market share in home care and a number one position in all subcategories. In person care, 43% and also there, number 1 in all subcategories. You can see on your left side the international competition. These categories are competitive and still we are able to compete against these big players. You can see that P and G, for example, have 3% in home care, 5% in personal care.
We have also a number one market share position in House Care. We estimate the total share there for 55%, and we are number 1 in every market. There we are competing against global player as well as local players and the private label share in. In the Nordics, the main channel for Axcelius is the grocery channel. There we have a number one position with the strongest market share in Norway.
The main competitors are Seadrook and Midsuna and off you can see that the private label is low. We have a strong grocery position in textiles with a clear number 1 position in Norway with 78%. And in Sweden, we are growing number 2 with
29%.
To sum up this section, our experience is that despite global competition, local brands based on local insights are competitive. We are able to find or create local preferences based on special needs of Nordic consumer. It can be like sensitive skin, Nordic hair, fragrances, local nutritional needs, but also on packaging and design. Our aspiration is to continuously improve our consumer and trade understanding. As mentioned before today, we can also see that local scale is important is an important capability to succeed.
With a flexible value chain, we can be dynamic and reduce time to market. And we can tailor made campaign and assortments. Local scale gives us also a competitive edge regarding local media buying and also we have a very strong sales force impact. Let's add some of the local rig concepts. As a market leader, we need to create category growth.
UMO PowerDose, a technology driven local innovation, was launched in 2012. The laundry category had experienced a negative development the last 4 years, driven by a price war in the trade. With the poor dose, we established a new premium price format and have this far, as you can see, received more than 10% market share in the total detergent markets. Another great example is the Norwegian Hairke brand Define. The brand was established in 2,001 and has a 10 year track record of a strong innovation pipeline based on local consumer and trade insights.
Today, the consumer sales of DeFi is approximately €250,000,000 with a market share around 30%. The latest success, as you can see there on your right side, is based on the new ingredient trend in the hairdressing markets. With the launch of Defy Moroccan Argan Oil Shampoo and Balsam, the brand experienced all time high in net sales and strengthen their position as number 1 in the total healthcare, but also managed to be number 1 in all sub segments. Think this is also an example that we managed to outpace the global players when it comes to markets. In the textile category, Kjerberg is driving the grocery penetration by launching the brand into new subcategories like for instance children's wool or sports underwear.
Based on consumer and shopper insights, we developed together with our trade partners concepts and products tailor made for Scandinavian consumers. You can see that the textile category has shown an impressive growth since 2007 in the grocery channel and that the category share has grown from 7.9% up to 16% from 2006 to 2012. And this is really cases that the overtrade partners like to see. The revenue management competence is an important capability for all units in Orkla. A key success factor in the Urdal and Hauske business has been the ability to grow the category with different price and quality offers.
You see there on the right side on the slide the different concepts with basic, perfect and ultimate. And you can see on the graph that the consumers are trading up to the high end in the paintbrush market and that we managed to grow the market with 16% from 2,009, 2013. It's a great, great example. As mentioned before, we have many old and strong brands in home and personal. And you can't have a presentation like this without talk about merleskodlibrol.
The brand management competence to work with continuous improvement is vital for Orkla's success as many have mentioned before today. We have continuously grown the brand by systematic improvements to make sure that the product offer and quality is at all time relevant for the consumers. On your right side, you can see the latest relaunch where we are this relaunch we are sending to the market in these days.
A bottle with
a new shape, new formulation and also a label which better communicate its health benefits. The target with this launch is to strengthen the natural and fresh image. And I believe that this launch will be an important growth factor for Axcelis. As mentioned also before today, our strong local presence enable us to create tailor made and impactful in store campaigns. This is showing a great Merle Schein, together with the famous Norwegian film, Kon Tiki.
And we really managed to it's up to 50% in the campaign period. Let us know on the future growth opportunities. Based on our market insights, we see significant growth opportunities both in structural and organic developments. For the last 5 years, the organic sales growth has been on an average level of 2.5%. But we can also see year to date, we of the Q1 also Home and Personal have had a weak start.
The step change you see on the reported revenue, the last 18 months is mainly driven by the acquisition of Joltan, but also some smaller acquisition in the healthcare category. The target going forward is 3% to 5%. In addition, we will continue structural opportunities. I think it's fair to say that we have a sustainable profitability in Home and Personal. You can see the rolling 12 months EBIT level has grown from just below EUR 600,000,000 in 2,008 up to almost EUR 800,000,000 as of first half this year.
If you look at the EBIT margin and adjusted for contract production to the process chemistry industry, the EBIT margin has been on a quite stable level from 2,008 on roughly 17.5%. We will have an ambitious level going forward. I think we are well positioned for future growth. We are playing in attractive categories in markets with high purchasing power. We believe that the increased focus on health, well-being and beauty is a sustainable market of trend.
And the aging population, they want to stay young. Nordic citizens in general have high incomes. And compared to other markets, they spend a lot a big part of that income in their homes and on home improvements. And also I think I'll show today that Nordic premium products in these segments. Going forward, path number 1 is to create organic growth.
Secondly, we need to utilize possibilities to expand into new markets and sales channels. And further, we also need to improve efficiency and operational excellence. Innovation is the key to accelerate growth. We will grow the core business with better innovation and we will continue to develop unique local brand management skills. So we need to do more of the best.
Also mentioned before today, I think we can improve the sharing of best practices within Orkla as well as utilize economic scale opportunity to support the top line ambitions. We can also see here that we have some expansion possibilities. We have a strong position in Norway, but we have some white spots in the other markets. We can use existing organization for this expansion, but there are all social opportunities in the market. Grocery is our main channel.
We see, however, growth opportunities with a more multichannel approach. By utilizing existing setups or competencies, we can establish new growth platforms. An example can, for example, be to use Axcelis present and develop a platform in the pharmacy sector in the Nordic region with both health and beauty. We also see opportunities in the e commerce and for many categories and we are also upside in home improvements and in the convenience sector. Also we plan to work harder the next years with operational excellence.
Complete synergy realization from the acquisition we did in 2012, Jodhan and the smaller add on in the help. We will continue to product portfolio streamlining, increase the cross category counter cooperation and synergies and also further leverage on existing cost base, both organic and structural. We have also identified a wide portfolio of operational value chain initiatives, both regarding factory structure as well as in and outsourcing projects. And then in the next strategy period, we will also evaluate existing. Yes, next.
We would like to draw your attention to the Nootlet case. This is the case where we demonstrate how to utilize central synergies and at the same time take advantage of local insights. So please welcome Tina Hammersvebo. She has been working with the Nutri Debt brand since 2,005, and I think it's fair to say that she is a big part of this success. Welcome, Tina.
Thank you. Yes. Nuchelet, our fast growing slimming brand. This is a fantastic growth story really. NutriLect was part of a company that Orca took over in 2,005.
And it has grown on average 21% every year organically since the start. And this is fantastic for any brand that may be more so for a slimming brand because the nature of consumers when they are slimming is that they it's hard. It's really difficult to lose weight. So you keep trying new methods all the time. But this is the proven success story.
The brand has grown more than 500% since we took over. And it's based on three things that are core competencies. It's a superior product range. It's a constant focus on consumer insight and understanding how Fleming works for people and innovation, obviously. And it's also the utilizing of our strength and the way we're organized with and scale.
So, how do we get the superior product? Well, NutiLest was launched 20 years ago or developed 20 years ago by Doctor. Lars Heya. It's based on this very special soy protein with the mixture of vitamins and minerals, everything you need in order to get all the nutrients the body needs in a day. But it is low calorie and it gives satiety.
And you lose weight without losing muscle mass. This works really effectively and it's been proven in 20 clinical studies that have been published in renowned medical journals. And this works so well, we have a money back guarantee on the product. So this obviously is really right. It needs to work.
Another important thing that we work on, which is much the same as any other category and with products you put in your mouth is taste. In slimming, this is particularly important because like I said, slimming is difficult. So any deterrent like bad taste will get people moving off of your category. Our benchmark is to have products that are better tasting than the competition. And this is something we work hard at every day.
And the measurement is obviously what consumers think. And consumers prefer our bars over the competition across the Nordic region. And this is something we take pride in. Also, we work continually on innovation, because this is something that really drives value and volume. Now this part of our product range is intended for heavily overweight people, people who need to maybe lose 30 kilos, 15 kilos.
And they this is hard work. You stay on a diet, eat the same thing every day, 5 times a day. But in order to maintain loyalty and maintain volume, we've innovated on taste variants, like vanilla, which is our biggest seller this year. And on new meal options like the vegetable soup, which is the lunch variant. Now not everybody luckily needs to lose 30 kilos.
This is a smaller group, yet there are some. The much wider group is everyone who wants to maintain their weight or maybe lose 3 or 4 kilos. This is a much wider consumer group. So in order to get to them, we have products that are tasty, but on the go solutions of ready to drink shakes or bars. Really, really good products, which is maybe a rarity in the dieting sector.
But which are products that consumers love and come back to when they want to lose their weight. We also use innovation to get frequency into this category. Here's an example of a frequency case. When you're on a diet, one of the most hard things is to withstand the craving or the hunger that you get in the afternoon. So here's an example of a low calorie bar that can be a part of your everyday snacking routine.
It's a smarter snacking. And this obviously is how we want it to be. We want Nutri Lec to be a part of consumers' everyday life and get into their habits. So these are important volume and value drivers. Go forward.
There we go. Now this picture shows how we continue to improve our product range over time. It's an example of how communication on pack gets sharper and better as time goes by. And it's also an example of how little steps of improvement will gain value and volume over time. And also in the competition, this is an example of improvement that will make consumers choose our products over the competition because it's simpler and easier to understand what it is that you get from our brand as opposed to the competition.
The way we're organized is also an example of how or one of the reasons why we are so successful with the Nutrien We have probable combination of local scale and of scale and local presence. Let's take the brand building processes. This is at the core of our business. The people that work with Nousilettes really love the brand and they know the consumers really well. And we have one sharp brand position with a centralized marketing team that understand how to get the most out of consumers in this category.
And they are able to we are able to roll this out across all our markets. So we have the same marketing campaigns in advertising and packaging across the markets. We also have economy of scale and product development in the regulatory issues, which are quite severe in this category and in sourcing. This leaving us one of Europe's largest buyers in the field of dieting powders and bars. At the same time, we have a very strong local presence.
We have local sales teams and marketing teams, where the local sales teams have a close knit connection to these very strong trade customers in the Nordic region, getting us access to the shelf and getting us the ability to have very large volume campaigns on the floor, where the brand Nutri Lettin will be available across the stores. And the local marketing teams, they are able to identify really local needs like in Sweden or in Norway or in Finland and capitalize on these local trends and diets. So, we are able to take out value very fast on trends that are in just one market. We launched in Denmark in 2012. And when we did so, we adapted the dieting shake to the Danish consumer preference and taste and also to be a better benchmark towards the competition in Denmark, because we came in after everyone was already there.
When we went into Poland, we adapted the pack size. As you might imagine, Polish consumers have a lower purchasing power. So we adapted the pack size to have a lower entry price for the Polish consumers. And any of you in here and maybe all across Europe, there's a big low carb, low sugar trend that has been rolling over us for a little while. And this was particularly strong in Sweden last year.
And then we adapted our product mix to be able to meet this particular Swedish demand with less sugar products and being first on the market with Sveria when that was legalized in the Swedish market. So these are examples of how we are able to quickly adapt to local trends. I also want to draw your attention here to our sales capabilities. We have very effective local sales forces. They're able to generate large volumes in retail stores.
These are examples of trade campaigns that was done. And needless to say, they drew a lot of attention and a lot of lots of volume on the floor. And here's an example
of how.
Amazing things can happen. You haven't seen anything yet. A lot of attention. So we have strong market leader positions across the Nordic region. We're number 1 in Norway.
We're number 1 in Sweden. We're number 1 in Finland. We launched in Denmark, like I said, in 2012 using our knowledge of those other markets. And in only 1 year, we were able to get a 20% market share and substantially growing the market at the same time. So, while our sales are biggest still in Norway and Sweden and Finland, Denmark.
To sum up, the growth has been substantial for Nutri left for a long time and we're sitting on a platform with a strong brand, with a local insight and an ability to operate rapid change from taking this insight and local scale with good trade relations and large volumes. And their future potential is also good in the slimming category. 10% of the Nordic consumers are obese, 75% that's 18,000,000 people in the Nordic region want to lose weight and 65% have been on a diet or try dieting products. So consumers are constantly looking for slimming methods and the 3 left will be there to capitalize on that growth. Thank you.
Thank you, Tina. Just to sum up the total whole month of Carson Park. I think it's to say that we have double loan position in asset markets. We have a track record, which demonstrates the ability to grow. And we will also utilize synergies to improve profitability.
And finally, we believe that we have several attractive growth opportunities for the longer term, both with new markets and new channel, both organic and structural. So thank you.
Marika, thank you. And now Tina and Stig will welcome your
questions.
You mentioned that you see opportunities to expand into new markets and sales channel.
Could you
put a time line on that and some targets maybe?
I think we are working with that right now, and it's always difficult to say when it will happen. But we plan to do that in the next years.
And what kind of opportunity do you think that is in terms of acceleration of your top line in terms of your growth profile and margin profile?
I think it will be dependent if we do that organic or structural. If it will be organic growth through existing Axcelis organization, it will take a little longer time. Does that answer on the question?
I guess in that case, what would be the preferred method to do that?
In that case?
What would be the preferred method to get into new channels? Are we talking about organic growth? Are we talking about acquisitions there? What would be the preference?
No, I think we'll do
both or do for both opportunities.
Hakon Oskar, DNB Markets. A question on NutriNet. I know that in general, Orkut has focused on the Nordic markets, but do you see opportunities outside the Nordic markets for NutriLets given its strong position in the Nordics and it seems like a solid product.
I think key focus is in the Nordic region. But we have a strong organization in Poland, for example, in the pharmacy sector. And there, we have been launching through Axcelis. But key focus will be in the Nordic region.
All right. If there is no more questions, thank you very much. Very well, I have one more question for you from the web actually. It's the your agreement with Unilever is expiring in 2014. Could you give the key elements in the agreement and the consequences if it's not renewed?
Yes. We have a long history with Unilever, more than 80 years. And it's right the agreement will expire in June this year, but it's a conservative discussion ongoing right now. I think the agreement today have 3 key elements. We have we are distributing some Unilever brands in Norway like AXE, Dove, Vaseline Care, but that is less than NOK 115,000,000.
And then it's some production. We are doing some production at Unilever factories. And then also it's a novel agreement where we are getting access to some part, some development, some marketing and so on. I think it's fair to say that Unilever has been a very important part of the development of Home and Person Care in Orkla in the past. But today, we are not that dependent on Unilever anymore.
Assuming that this agreement wasn't renewed, can you talk about your competitive advantage versus the international guys? Because you've mentioned several times local scales. So what would happen in your view if you were to lose all these brands?
All these brands? It's not all these brands. It's not that important brands of the SEK 150,000,000 And the two cases I showed today in Home Care and Personal Care is innovation made by Lilleborg. It's not part of the agreement with Unilever, showing that we are able to compete against the global player without the competences and the support from Unilever. So of course, it's always a challenge, but I think we have that challenge today.
We are competing with all the players today as well. Comments, yes?
I think you need to understand that we own the Unilever brands in Norway. So that will continue, irrespective of the agreement. And that, of course, is the bulk of the volume. So that is really the key. So and that is, of course, why in the Norwegian market, this will be a relatively stable situation with or without the agreement.
Okay. Thank you so much. Thank you.
After the final Q and A and August closing remarks, there will be served some light snack and meals and drinks outside in the foyer. And here the Orkla management will be available for you for the next hour or so. So I hope you will all stay right now. Orkla, please.
Do you want to hit some Q and A or
Yes, we'll start. Are there any final questions for Olga?
Yes, we have one here.
Yes. Liz Desmond from Mondrian. How important are acquisitions to the total transformation strategy that you're talking about?
Well, I think overall and I think over longer periods, I think that acquired growth is important. And so as I said in my introductory remarks, add on acquisitions is an important part of our strategy. And we have every intention to continue to make selective acquisitions. But as I said, transformational acquisitions is not contemplated. But again, I think the 3 particularly the 3 business units that we have spent the most time on are maybe on the different stages in the transformation.
So there are I think there are companies inside Orkla that are better prepared for absorbing acquisitions and others. I think as an example in food, we need to integrate Weber and get that organization going first. While I think as Stig indicated for and for the home and personal area, there is maybe more capacity to expand through acquisitions at this point. So there are differences inside the portfolio. And we always, I think, need to look at organizational capacities and where the organization is in its transition.
Overall, I would say that if Orkla grows
4% total growth.
You're not going to add 4% a year? No. It's if you have it's an average figure. So in other words, I think that acquired growth should be at least as big contributor or maybe a bit more of a contributor than organic growth overall over years and on average. But this will come in spurts.
This will not be a as you know, this will not be a smooth process.
Does do the difficulties you've had this year and the poor financial performance you've had in conjunction with the acquisitions you've just done, do they give you pause about doing more acquisitions?
No. Why? But I think that acquisitions are I think that what we knew and what we know is that you have to think through carefully your acquisitions and they have to fit into the plans for the businesses as we go ahead. But the acquired growth is an important driver. We are in an industry that is consolidated and consolidating and Orkla is a very natural consolidator in our categories and in our geographies.
There are situations available. But again, I think that we know like every other company knows that you have to have managerial capabilities and in order to execute on acquisitions. I will say that the say the flurry of activities in 2012 was extraordinary. It was a very major break from in terms of these 2 transitory processes that I spoke about. So I think that already I would say that we have a much more stabilized business system.
We have new management teams in place. And so to that extent, I don't see a situation like 2012 happen again. It was a very eventful year.
Hi, this is Eduardo from Dynamo. Just I would like to understand since you're focusing much more now on the branded consumer goods for the last couple of years, What is the rationale behind keeping Jotun as a core business for Orca? Keeping? Jotun, the paint business, a minority stake of 42.5%.
Again, I would say that I think I indicate in my presentation that the paint business is not a core business in the sense that it is a brand and consumer business, although the Decorative Paints certainly branding is an important part. We own a 42% share. It has been a very successful partnership with what is effectively a family controlled business for 40 years. I think that the difference between an orderly transition to new ownership for that company and a very aggressive exit strategy is a big number. So again, I've said that it is for Orca shareholders, it is more important that we manage these values rather than rushing out and trying to sell everything.
In some ways, it may be frustrating to shareholders, but I think that we also have an obligation to manage what we the values that we command. And of course, you have a 42% ownership, you are not in control. So we have to work with the company. We have to work with the families, and we need to find good solutions and that may take some time.
Could you give us a bit more indication on your acquisition criteria? Because it seems like it's going to be a big part of the agenda?
Of course, we have an average cost of capital requirement of around 10%. Clearly, across categories that cost of capital requirement will vary depending on the risk situation. But I think that so we have financial criterias. But I think more importantly, we when we evaluate acquisition opportunities, I think actually the most important criteria is that we want to acquire companies with strong brands because that is really at the core of our belief. It is the strong brands that we can build on.
It's the strong brands that are defendable. Then clearly, categories where we think that with our skill base or that are adjacent to things we already do, we can probably create more organic growth if you acquire adjacent categories rather than completely new categories. So I would say that the in a way the financial requirements are obviously has to be met, but then we look at brand strengths, we look at category fit, we look at geographical fit. And as I said, our capital allocation criteria are that we want to expand in the Nordics.
Thank you. In that case, what's going to happen to the Riber and Son portfolio, which is out of the Nordic and the Baltics?
As I said, we do not have critical size, so we are reviewing our options.
It's James Woodrow from IL. Just a question on working capital. If you benchmark sort of the BCG business against sort of international competitors, it's got a lot more working capital invested. And you said you weren't going to do it this year, but what potential do you see over time to release invested capital there and reinvest that to get the sort of 4% growth from acquisitions? Because I think there's quite a big number that you could get there.
And why isn't that a strategic priority? And it's an easier win than quite a lot of restructuring. And how does the sort of concentrated nature of your customers give the ability or restrict the ability to do that?
Well, I think one of the reasons we haven't done it is we really haven't done the preparations.
We we
are more capital working capital employed than the bench. And as a consequence, we are convinced that we can improve also that part of the business. But again, we also need to prioritize. Everything is important. So in other words, I think there are other elements of the transformation and the change process that we have given priority over working capital.
It will come, but other things needs to happen first. Okay. I think it's been a long afternoon. So if I can just spend a very short period trying to sum up. We have told you about 4 strategic priorities: reduce complexity, extract cost synergies and improve cash flows, drive organic growth and increase the skill base.
I think or I'm convinced that when we realize our strategies and our plans, Some of the benefits will of course slow down to the bottom line and we have indicated to you what that means in terms of financial performance. I think that the other part of those effects will be used to reinvest in the business and reinvest in a competitive position that again will generate growth. So growth will come from innovation, and we've spent a lot of time today talking about our skill set and why innovation is important and then the effect from all the cost initiatives and the effectiveness that we expect to derive from other programs will be to a large extent reinvested in a stronger competitive position and that could also drive growth in the years to come. So to sum up in one word, this is all about excuse.