Good morning. Welcome to the presentation of Orkla's first quarter results. My name is Annie Bersagel, and I'm the Head of Investor Relations and Communications. We're gonna begin with a presentation from our President and CEO, Nils K. Selte, where he will give a summary of the latest developments for the quarter. After that, EVP and CFO, Arve Regland, will present some more detail on the financials as well as on the individual portfolio companies. After that, Nils will conclude with a few closing remarks before we move over to our Q&A. Just to remind you, the procedures for Q&A, we have a web Q&A forum that you can send questions through at any time. First we're gonna do a Q&A, a video Q&A, with our analyst community. After that we'll move over to questions from the web.
With that, I'd like to turn it over to you, Nils.
Thank you, Annie, good morning everyone. I would like to start this presentation on a personal note. Orkla's Chairman, Stein Erik Hagen, passed away suddenly on May 4th. Stein Erik left his mark on Orkla through over 25 years as an active owner. He brought an entrepreneurial drive into the boardroom and was instrumental in supporting Orkla in taking calculated risk with an investor mindset. He was also strong supporter of Orkla's recent transformation into a industrial investment company. He will be deeply missed. In this spirit, I now turn over to a review of the quarter, mindful of the values and vision that Stein Erik instilled in the company. Organic growth was 4.9% in the quarter, with contribution from all portfolio companies. Growth was particularly high in Orkla Food Ingredients, Orkla Snacks, and Orkla Foods.
Underlying EBIT adjusted growth was 3%, with volume mix growth partly offset by higher costs. Earnings per share adjusted increased by 4% to NOK 1.75. Alongside the quarterly result, there has also been change in the board of Orkla Foods. Gilles Morel will become the new board chair from June 1st. He brings more than 30 years of executive experience from international branded consumer goods companies, including Mars. I want to thank the former Board Chair, Xavier Belison, for his contribution to Orkla Foods over the last three years. Volume mix growth in the first quarter was 3.2%, another quarter with high volume growth. Performance improved on an underlying basis, supported by continued improvements in commercial capabilities, with a modest uplift from Easter effects.
Looking to EBIT development across the portfolio, operational performance in Jotun remains strong, with underlying EBIT growth of 16% for the quarter. For the consolidated portfolio, including Orkla ASA, underlying EBIT adjusted growth was 3%. Orkla Snacks and Orkla Food Ingredients contributed especially positively this quarter, while the negative development in Orkla Health weighted on the consolidated results. Operational performance in Orkla India was also stronger than the underlying EBIT adjusted growth indicates due to incentives received from the government of India last year. Let me give a brief comment on the war in the Middle East. The conflict did not materially affect first quarter results. Direct effects were limited, most notably in Jotun and Orkla India, while the broader portfolio was largely unaffected. Looking ahead, the indirect effects are more uncertain.
For the consolidated portfolio, we are seeing upward pressure on energy, freight, and packaging related input costs. The picture is differentiated across the portfolio and mitigating actions are tailored accordingly. Arve will address Jotun specifically. At this stage, we do not expect an inflationary impact comparable to the post-pandemic period, but we are monitoring development closely. Briefly, the EBIT adjusted margin was 10.5% on a rolling 12-month basis. I will conclude with an update on the consolidated portfolio's three years financial targets set at the 2023 Capital Markets Day. Underlying EBIT adjusted started more slowly in the first quarter, but remains on track relatively to our compounded growth target for the strategy period. The EBIT adjusted margin remained within our target range, while return on capital employed was stable at 12.4%. I will now hand over to Arve for more details on the financials.
Thank you, Nils, and good morning. Before turning to the individual portfolio company, I will briefly comment on the overall financial results for the quarter. Beginning with the income statement, reported operating revenues increased by 1.3% to NOK 17.4 billion, while EBITDA adjusted decreased by 1.3%. The difference between the reported and underlying numbers that is mentioned is primarily due to negative currency effects, as well as lower contribution from Orkla Real Estate. Other income and expenses were minus NOK 45 million and was mostly related to M&A expenses and ongoing restructuring projects in Orkla Foods and Orkla Health. Profit from Jotun decreased by 5.8% in the quarter, and I will come back to Jotun in more detail shortly.
We also see that net interest costs decreased as a result of lower interest rates and lower debt levels, contributing to the 4% increase in adjusted earnings per share. Cash flow from operations amounted to NOK 1.1 billion and declined year-over-year due to higher working capital from strong late-quarter sales and increased net replacements investments. We received the first installment of the 2025 Jotun dividend, which last year was received in the second quarter. Cash flow before capital allocation ended at NOK 1 billion in line with last year. Turning to the capital allocation bridge, we repurchased shares for NOK 1 billion during the quarter in accordance with the buyback program announced in November. Expansion investments of approximately NOK 100 million relate to increased production capacity across the portfolio. Purchase of companies consists of a bolt-on acquisition in Orkla Food Ingredients.
Orkla ended the quarter with a net debt of NOK 13.6 billion equal to 1x EBITDA and 0.8x excluding Orkla Food Ingredients. Jotun had another strong quarter while reported numbers once again is influenced by currency effects. The underlying revenue growth was 9.4%, with growth across all segments and regions. Higher volumes and positive mix effects, including increased premium sales, contributed positively. Reported operating profit was 5.3% and 16% when adjusted for negative currency effects. This was driven both by increased sales and improved gross margin. Profit from Jotun to Orkla declined by 5.8% to NOK 617 million. The decline relates to financial items due to lower currency hedging gains and currency losses on intercompany loans.
Jotun faces a high degree of uncertainty related to the Middle East conflict. Most importantly, all employees in the region are safe. Jotun experienced reduced revenues from business units within the region in March. At the same time, affected units amounted to only 8% of Jotun group revenues for the quarter. The indirect effects impact the paints and coating industry globally. The ultimate scope depends on how the conflict develops, but there will be a negative impact regardless. Jotun's sourcing base is partly linked to global oil price developments, and the highest exposure is within marine and protective segments. Jotun forecast substantial input cost increases from the second quarter, which are expected to compress gross margins. They are taking mitigating steps to mitigate the impact through price increases, alternative sourcing initiatives, continued cost control, and delayed Middle East investments.
Nevertheless, mitigating actions will take time to materialize and demand-related effects remain uncertain. Jotun has significant experience in handling geopolitical instability and benefits from a globally diversified portfolio and a clear and consistent long-term strategy. Moving on to Orkla Foods, which had organic growth of 3.5% in the quarter, with 2.3% from volume mix. Organic growth was higher in the prioritized growth platforms than the rest of the portfolio. Volumes were somewhat supported by positive Easter-phasing effects in Sweden and Norway, as well as the comparison to a quarter with weaker volumes, in particular in Norway last year. Orkla Foods continued to roll out the commercial tools outlined at the capital markets update last year.
The underlying EBIT growth of 5.1% was mainly driven by volume growth. In Orkla Snacks, all three categories contributed to volume mix growth, led by cocoa-related recovery in the confectionery category, but also high BUBS demand and positive Easter phasing effects. EBIT improvement was driven by increased volumes as well as contribution improvement from cocoa. The BUBS U.S. rollout continued in the first quarter. It is now available in more than 40,000 stores across the U.S., and BUBS also recently launched a global limited-edition collaboration with H&M Beauty. Orkla Snacks continues to invest in building brand within the U.S. market, and BUBS U.S. was therefore not a significant contributor to EBIT in the quarter. Organic growth in Orkla Home & Personal Care was 3.3%, while underlying EBIT grew by 9.1%.
Volume growth in Norway and Sweden reflected both a continued positive underlying development as well as Easter timing. Underlying EBIT growth was driven by volume growth and cost control, and the company had positive market share development in both Norway and Finland, while the development in Sweden was stable. Organic growth in Orkla Food Ingredients was 5.4%, driven by volume growth across all clusters. The bakery cluster was also aided by the timing of Easter. Underlying EBIT growth was 10%, led by sweet ingredients where volume, mix, price, and efficiency improvements all contributed positively. Bakery also supported EBIT growth, while plant-based declined slightly due to product mix effects. The organic growth of 1.3% in Orkla Health was driven by price in most markets.
Excluding the isolated phasing effects previously communicated from Q4 to Q1, volume development was weak in food supplements and functional personal care categories. Cod liver oil prices remained a drag on both volume and margins. Underlying EBIT declined due to lower volumes, negative mix effects, and higher costs. Orkla Health is taking measures to reduce the cost base and announced the planned closure of three factories, two which are related to the food supplements business. While these measures will improve profitability over the long term, we anticipate negative impacts related to the wind down of the factories going forward. With this backdrop, we expect this to be a challenging year for Orkla Health. Management is currently defining the long-term strategy within the new operating model and will present at the Capital Markets Day in December.
Orkla India's organic growth was 2.8% in the quarter, mainly driven by price increases to offset higher cost for key raw materials. Adjusting for grants received from the Government of India in the first quarter last year of NOK 26 million, organic growth was 6.5%. Underlying EBIT declined by 7.8%, partly impacted by higher freight costs arising from the Middle East conflict. Adjusted for government grants, underlying growth was 16%. In The European Pizza Company, all businesses delivered same store sales growth with overall organic growth of 4.9% and consumer sales growth of 8.9%. The growth in consumer sales was led by Kotipizza in Finland, with 14% growth from a renewed brand strategy and targeted growth initiatives. Underlying EBIT improved by 13%, supported by Kotipizza and New York Pizza.
We are happy to see that the two smallest portfolio companies showed continued positive momentum. Orkla Health reported growth of 4.4% in the quarter, with an underlying EBIT growth of 10%. Health and Sports Nutrition Group delivered organic growth of 3.4% and underlying EBIT growth of 26%. With that, I'll hand it back to you, Nils, for the closing remarks.
Thank you, Arve. Returning to our three strategic priorities, we continue to drive organic value within the existing portfolio, with progress in line with consolidated targets. We are also reducing complexity across the portfolio including targeted divestment at the portfolio company level. Recent examples include the divestments by Orkla Food Ingredients and Orkla Snacks of non-core operation in Iceland. Lastly, in times like this, we benefit from our strong balance sheet and a diversified portfolio. This provides the flexibility to act on value accretive opportunities should they arise. With that, Arve and I are happy to take your questions. Thank you.
Welcome back. We're now ready to start the Q&A. We're gonna begin with the video Q&A with the analysts, and you're welcome to submit questions via the web as well, and we'll take those afterwards. It looks like our first question comes from Ole Martin Westgaard in DNB Carnegie. Please remember to unmute yourself as well. Just one moment. We're having a little trouble with the sound.
Now?
Yes, now we hear you.
Yeah. Perfect. Okay. You highlight in the quarter that there has been some Easter impact. Can you be a bit more specific on how we should think about this and the potential impacts on the second quarter of these timing effects?
Yes. We haven't quantified it, but let's say that it's not an important driver to the growth, but it's a support effect for the Q1. Typically, if it's a support effect on Q1, it has the opposite effect in Q2.
Okay.
What we also have been saying that that Q1 actually still reflects underlying trend fairly, is what we also want to highlight.
Okay. On Health, you highlight that this will be a challenging year for Health. You're closing down three factories. Can you give some more color on what will potential cost of this? How big are these factories and when will that cost hit the P&L? Also, that comment with this being a challenging year, is that more affected to demand side, or is that reflecting the cost side of the closing of these factories?
To start with the last one, when I said that it will be a challenging year, it's, I would say it reflects that if you look back on the Orkla Health ambitions presented on the Capital Markets Day in 2023, they are obviously lagging the plans. We see that they are still struggling on both volume growth in several categories, as at too high cost base, and also an increased raw materials in certain of the categories. That in combination will it's guiding that its overall profitability in Orkla Health, we don't expect that to be, you know, satisfactory for this year in total.
When it's, you know, when we are, like, 30% back on Q1, I wouldn't say that that's representative for the full year, but still it's guiding that it's still challenging times both on top line and on the cost base for the coming quarters as well. Then we have these factory closures, which will add on that. We say that these 3 factories will be closed up until the end of next year, so it will be a gradual impact over the coming quarters.
We don't know yet, internally either how that will affect the cost base, but it obviously be some double cost in the wind down period in the coming quarters that will have a negative impact on the quarters in the short term, but with clear ambitions to increase profitability in the longer term.
Okay. Then a final question. On BUBS and the U.S. launch, it looks quite significant. Can you give some indication of how much this contributed to the overall organic growth in snacks? I understand that probably the impact on EBIT was not that significant, but how was the impact on the organic growth?
It's a part of the very positive development in snacks. The let's say that the cocoa recovery in the chocolate segment is the bigger contributor, but the very high demand on BUBS is also a contributor to the volume growth in the confectionery category in snacks in this quarter as well.
Okay. Thank you.
Question is from Andrei Condrea in UBS.
Hi. Good morning, and thank you very much for taking my questions. Two for me, please. Now, on the outlook for the remainder of 2026, a lot has changed since you last reported your full year earnings. How has your thinking changed as a result, given obviously what we're seeing on the ground and the impact on costs and potentially demand over the longer term? Perhaps tied to it, a few of your peers have come out with various, you know, oil price scenarios and potential USD, in your case, NOK impact. Anything you can share on that and whatever mitigation options you have at your disposal? Secondly Sorry, just on Jotun.
Obviously, it drives a big part of your profits thanks to its outstanding growth. How are they thinking, or are you thinking about the outlook for 2026, particularly in terms of top line and profits and contribution to your business? Thank you.
What we normally don't guide, or we don't guide to say so. I think Jotun have been, and we have stated that in the report as well, that it will be a significant increase of input cost through this year. We are not specific on that increase. When it comes to our consolidated portfolio companies, we have been guiding that this will affect energy prices, freight prices and packaging in specifically. Also we will also see some inflation impact other part of the portfolio as well. As we have said in the report that this is something that is handled through our portfolio companies and is discussed in the different boardrooms.
This time we don't expect the same huge effect as we saw from the post-pandemic inflation. Now we will see much more specifically kind of initiatives to mitigate this through the portfolio companies.
Understood. Thank you.
Looks like our next question is from Petter Nystrøm in ABG Sundal Collier.
Thanks for taking my question. I think I have three. A follow-up on the Health question from Ole Martin Westgaard. Is it possible to say if the cost, or call it the restructuring cost here, will be booked under the segment or under the other income and expenses?
This is too early, Petter, to give any clear guidance on it. It's decided in the board of Orkla Health to close down these three factories. That will be It's a gradual wind down of the next quarters up until the end of next year. Any amount when it comes to costs, double cost, increased cost and, you know, possibly of any write downs, of balance sheet items, et cetera, it's not quantified internally either. I can't answer that at this time.
Understood. Then on India.
Okay
How should we think about these government grants for the remaining of 2026? You know, previously we have seen the segment receiving these grants from time to time. What should we think about that for the remaining of the year?
Yeah, it's, we have no, you know, possibility to guide on, if we are to receive any grants for the remaining of the year. It's, you know, it's linked to production. And it's very hard to calculate, going, you know, in the future, how that will, if we are able to receive anything. What we can say is that the current program is ending at the end of March 2027. How it will. If we will receive anything, how it will impact the numbers, we are not able to guide, unfortunately.
Thanks for that. Then final question for the branded consumer goods portfolio companies. I think Nils, and you have highlighted that, you know, you're seeing higher freight costs, packaging costs and energy costs. Is this an effect that we will start to see already in the second quarter, or is this more like a second half effect?
I think first of all, this picture is kind of changing every day, Petter, so it's very hard to guide you on that. We don't expect to see that huge effects in Q2. This will come gradually through the year, is the only guiding that we will give you.
Okay, perfect. Thank you. I drop back in the queue.
Looks like our next question is from Håkon Fuglu in SEB.
Yes, good morning, all. Thank Thank you for taking my question. It's regarding Jotun. You talked about price increases already in the first quarter. Are you able to quantify that?
You mean price on the raw materials, Håkon?
No, pricing, price increases out towards customers.
Some closures of factories in the Middle East for a short period of time through the Middle East crisis. That affected the numbers in Q1 slightly, but no huge effects at all. If you look at Jotun, 8% of their kind of business is kind of affected by the Middle East, directly affected by the Middle East crisis.
I see. Didn't you comment that you already raised prices towards your end customers to mitigate for the input costs?
That's, I don't think we will guide you on that. I think that is As we are operating our consolidated portfolio companies, we give them freedom to act. That's the same way Jotun is operating their business. Different different measures are taken in the different region and countries throughout the world in Jotun.
Thank you. Just a follow-up there on Jotun. Could you compare this sort of raw material crisis and compare that to what we saw in 2022?
No. Again, I don't expect it to have the same huge effect as we saw. For the consolidated portfolio companies and Jotun, as I said, this is not like what we see back in the post-pandemic inflation period.
Okay, thank you. I'll join back in the queue.
That seems to be the last question that we have on video, and it doesn't look like we have any questions from the web. With that, just before we conclude, I want to remind you that we report Q2 results on August 20th. Otherwise, thank you for joining and please enjoy the rest of your day.