Presentation of the third quarter results for Orkla. I will present some highlights from the third quarter. Our CFO, Terje Andersen, will discuss the results with you. Mr. Alf Vidar Hansen, who heads up Orkla Foods Nordic, will talk about the branded consumer goods area. The third quarter and October has been an eventful period for Orkla. I think we have announced transactions and initiatives that explains to you how we plan to transfer Orkla from a widely diversified company into a branded consumer goods company. We announced in August that we will acquire Rieber & Søn. That is a transaction that we expect to close in the first quarter.
We have closed the transaction with Jordan and are integrating Jordan into the Orkla Brands organization. We have announced the establishment of a world-leading aluminum solutions provider, Sapa, together with Norsk Hydro. We have also initiated a process whereby we expect to sell Sapa Heat Transfer in the first quarter next year. Borregaard was IPO'd in October, the reduction of the share portfolio continues according to plan. The ownership of REC has been reduced. Let me first talk a little bit about the acquisition of Rieber. With this acquisition, we strengthen our position in the Nordic market. Rieber and Stabburet are very complementary operations in Norway. They are complementary in technologies and complementary in products.
In addition, we get important footprints in other Nordic markets and in Czechia. The main argument for engaging in consolidation is, of course, first of all, that we would like to grow the Branded Consumer Goods operation. In addition, I think that it is important to note that 85% of Orkla's products operate in a global competitive market. We meet all the multinational companies in our local markets. In addition, during the last 20 years, the retail trade in the Nordic countries have undergone a tremendous structural change, and in order to stay competitive and service the trade, we need more resources, more innovation, we need financial muscle to stay competitive.
These are underlying reasons why we believe that a continuing consolidation of the food industry in Norway will continue. The transaction means that we have an enterprise value of Rieber of 6.1 billion NOK. As you see from the chart, Rieber provides important number one and number two positions in Norway, in the Nordic countries, and in Czechia. Of course, increasing the number one positions and the number two positions is at the core of the strategy that we are pursuing in all markets where we operate. We closed the transaction with Jordan August 30th, and the integration is now taking place.
Personal care is integrated into the Lilleborg organization and house care is operated as a separate entity. Everything in that section is moving pretty much as planned. The enterprise value for Jordan was NOK 1.18 billion. We also announced a combination of our extruded aluminum assets with Hydro in October. Orkla will provide profiles, building systems, and extruded and welded tubes, while Hydro will provide its extruded products division into a 50/50 joint venture. This will be a clear market leader in its industry. The name will be Sapa.
Orkla will receive, in addition to the 50% ownership, a claim against the new company of NOK 1.8 billion to compensate for the difference in valuation between the two entities contributed to the joint venture. The Sapa Heat Transfer, which in many ways operate as a separate entity even today, will be sold. We've had a process underway for some time, we expect that we can announce something in the first quarter next year. As I said, this joint venture will be the clear market leader in its industry. There is a strong footprint in the U.S.
There is a clear number one position in the European market, the combined company will have very interesting positions in China, Vietnam, India, and South America, from which we can build further growth. There is significant synergies. We have estimated synergies to be around 1 billion NOK. Of course, given the very difficult market environment in Europe, a significant part of the synergies will come out of that region. You can almost graphically see it on the chart that that is where the major restructuring will take place. We expect that we will be able to close this transaction sometime towards the end of the first half of 2013.
Borregaard was successfully IPO'd in October. Orkla will end up with an ownership share of between 7% and 19%. The cash proceeds will be somewhere between 2.7 billion and 3 billion NOK, partly accounted for in the third quarter, partly accounted for in the fourth quarter. In this quarter and going forward, you will see a principally quite changed Orkla in the sense that the branded consumer goods company now accounts for approximately 90% of the P&L. Of course, the branded consumer goods is fully consolidated, so is hydropower, and so is Sapa Heat Transfer. While Borregaard, the Sapa joint venture, and RSE will be accounted for as discontinued operations, as Mr.
Andersen will explain to you later. You will see that this has a significant impact on the accounts, but hopefully, we now produce accounts that are easier to analyze and understand. Of course, while the P&L is significantly impacted, we still have a significant value in the non-core activities that we need to manage and where we need to extract values as we go forward. As I said, through the transactions that we have announced, I think that the way forward and the way we will extract those values should now be clear to everyone. That is part of the objective of what we've done.
Having restructured and announced the transactions that I have described, there is really one agenda going forward, and that is to execute on what we have planned. First of all, we need to plan the integration and execute on the integration plans and extract the synergies that we have that we expect to generate from the Rieber transaction, Rieber & Søn transaction, and the Hydro transaction. Secondly, Orkla needs to provide top-line growth in its Branded Consumer Goods operations. We will focus on organic growth, that growth will be supplemented by acquired growth in the future. Obviously not on the scale that you saw in the third quarter.
Thirdly, there are significant operational synergies still in the branded consumer goods operation in Orkla. We will focus on our own organization and the synergies present there to extract those synergies and create improved profitability from where we are today. In summing up the operational highlights for the third quarter is first of all, that I feel that we can describe the third quarter as stable in terms of the performance of the branded consumer goods. I think the quarter also tells you that in spite of a lot of transactions and a lot of activity, the organization has been able to keep focused on producing top sales and profitability as we expect it to do.
There's both sales and profit growth for Orkla Foods Nordic. I think the profit development of Orkla Brands is in line with last year. We are still influenced in the third quarter by the loss of a large contract in Lilleborg Profesjonell last year. As you will see, or as you know, the Sapa Heat Transfer operations had a setback last year in profitability, and there have been active actions taken, and you see the result of that. The profitability in Sapa Heat Transfer has recovered and shows improvement from last year. As we have explained previously, the market for profiles in Europe is very weak.
That is, of course, also reflected in the results for Sapa, in this quarter. With that, I leave the word to Terje Andersen.
Thank you. I will take you through financial statements and also comment some of the business units. Before going into that, I'd like to give some comments on the presentation of the group accounts. Structural changes related to Sapa Profiles and Building System, Borregaard Chemicals, and the shareholding in REC, have had a significant impact on the presentation of the Orkla consolidated financial statements this quarter. All these business units has been presented on the line for Discontinued operations. This means that they no longer will be fully consolidated at subsidiaries and associates, but will be presented as net profit after tax on the line for Discontinued operations.
Going forward, the remaining shareholding in Borregaard and REC will be presented as financial assets, while Sapa, following the closure of the JV agreement, will be presented according to the equity method, similar to the presentation of associated companies. All these changes are implemented in the financial statement as of Q3. As you see, 2011 figures have been restated accordingly. For continuous operations, operating revenues were in line with last year in the quarter, and line growth for Branded Consumer Goods was slightly positive. EBITA increased by 5% and total NOK 857 million in the quarter. Gain on sale from real estate and progress for Branded Consumer Goods in the Nordic markets were partly offset by weak performance for Branded Consumer Goods in Russia, and lower market prices for hydropower.
On the line, for other income and expenses, we have booked NOK 24 million, mainly related to immediate recognition of M&A costs at group level. Profit from associates is now mainly related to Jotun. The paint coating company reported strong figures for the first eight months, with sales growth of 9%. EBITA increased to NOK 888 million, compared to NOK 755 in the same period last year. Dividend net gains from share portfolio totaling NOK 426 million in the quarter. Net sales from the portfolio amounted to approximately NOK 900 million. Market value at the end of the quarter was NOK 2.9 billion. Results from discontinued operations amounted to NOK 1.1 billion negative. The breakdown of that is shown on this slide.
Net profit for Borregaard is adjusted for IPO cost at Orkla level. We expect a minor net gain from Orkla selling Borregaard through the IPO to be presented on the same line in fourth quarter. When restating REC as discontinued operations, accumulated currency effects from REC in Orkla's comprehensive income has been recycled and contribute to a reported net gain in the quarter. Orkla has also agreed on a final settlement for the fire in Elkem Solar in 2009, and have received a cash contribution of NOK 100 million in the third quarter. Net profit for the Sapa business that are included in the JV agreement with Norsk Hydro, is also presented on this line. This part of Sapa has been established through a series of merger and acquisition, that have given rise to accounting goodwill over time.
An impairment assessment has been carried out in the third quarter. The investment has been written down by NOK 1.5 billion in the third quarter. Orkla retains a strong balance sheet through all these structural changes. Equity ratio was 52.1%. Net interest-bearing debt was NOK 9.5 billion at the end of the quarter. Expected proceeds from future sale of non-core assets represents financial strength and flexibility to support the strategy going forward. Over to some of the business units. Hydropower experienced very low market prices, also in the third quarter. Profit was down about 50% compared to same quarter last year. Production, though, in line with or slightly above last year in the third quarter.
As long as Sapa Heat Transfer remains a fully owned subsidiary of Orkla, it will be reported as an independent segment in Orkla's reporting. For heat transfer, the volume development was stable in the quarter, while profit improved compared to the same quarter last year. Profit improvement was related to both Finspång in Sweden and Shanghai in China, and is ascribable to the improvement measures taken after last year's poor performance and weak results. The export margin in Shanghai was, however, negatively affected by higher local metal prices compared to world market prices in the quarter. The part of Sapa that will be included in the joint venture with Hydro will, as I said, be presented on the line for discontinuous operation.
The underlying business, North American part continued to improve performance also in this quarter, and volumes were up 7%, and operating margin increased to 5.2% in the quarter. This was, however, offset by very weak market in Europe, affecting both Profiles and Building System. Compared to last year, European volumes were down by 13%. The restructuring initiatives are progressing as planned, but this only partly offset the very weak market development in Europe. With the weak market development in Europe, Sapa will most likely not reach the overall ambition of matching last year's profit this year. Then I hand it over to Atle Vidar to go through the brands business.
Good morning, everybody. My name is Atle Vidar Johansen. I'm CEO of the Orkla Foods Nordic business area. I will present the results for Orkla Branded Consumer Goods area of the third quarter. The overall highlights in the quarter is that we have good performance in the Nordic area with healthy profit growth. In Russia, we are still facing some challenges in a demanding transition period. The organic sales growth in the quarter was 1%. Market shares are overall well-maintained. The consumer confidence in our core market is generally low, but stable, with an exception of Norway. Of course, the confidence level in our markets is nowhere close to the low levels we see in other parts of Europe for the time being.
We are still facing raw material price increases in our results. These are fully compensated with price increases to the market and through internal improvements. This chart shows the EBITA of Orkla Branded Consumer Goods area on a rolling 12-month basis. After several demanding quarters, we are happy again to can report profit growth in this quarter. Innovations, we believe, is the core of getting organic growth in our stable markets. Orkla has also, this quarter, launched several new products in most markets, and a representative sample is showed here. Of all these promises launching, I will comment upon the launch of the new takeaway pizza by BigOne, that you can see in the middle. It's a tasty, big, takeaway-style pizza with rich topping.
It fills your freezer, it fills your ovens, and it fills your stomachs. It comes in two variants: meat lover with beef and the dream team with pepperoni, and there is sour cream sauce inside the packages, which reflects the typical Norwegian habit. These pizzas are produced on the production lines from that we acquired from the company Dagens last year. These lines offer a technology that has helped enable a launch of these big, tasty, takeaway-style pizzas. The lines were relocated to Stranda, where we have the main pizza center in Norway, in the second quarter.
This launch aims at taking a portion of the big takeaway delivery pizza market in Norway into the grocery retail trade, and is a good example of how we aim at driving growth in the Norwegian deep frozen pizza market, despite high market shares and one of the highest per capita consumption globally. These delicious products deliver better taste and quality when consumers enjoy the pizza, because it comes directly out hot and freshly baked out of your ovens. To mention the price, retail prices seems to be around NOK 140 per pizza, including the sour cream sauces, which is reflection of the taste and the quality delivered. This is a new and higher price level in retail, but still considered a bargain compared to most delivery or takeaway pizzas in Norway.
To Orkla Foods Nordic, we have an underlying sales and EBITDA improvement in Q3. The EBITDA is up NOK 51 million, or 19%, and the operating margin increased by 3.2 percentage points. It should be noticed, however, that somewhat more than half of the profit growth is explained by non-recurring items and the negative result in the bakery of Baker's operation in the corresponding quarter last year. Underlying sales growth in the quarter of 4% is considered satisfactory, but is also somewhat affected by the non-recurring items. The growth is driven by good product launches and some price adjustments due to increased raw material prices. Market shares are overall somewhat improved.
In Denmark, we have recently announced that Beauvais Foods, which is the food company there, will stop production of the pickles and canned food and source this from existing production facilities from other Orkla companies. The workforce there will be reduced by more than 50 employees, and the changes will gradually take place in sequences during first half next year. A small acquisition, Procordia in Sweden, has recently signed the acquisition of the brand JOKK in Sweden. JOKK is a niche brand of juices based on wild berries coming from the northernmost parts of Sweden. The annual turnover is about SEK 65 million, and the transaction is expected to take place or be closed in the beginning of next year.
Orkla Brands Nordic reports a drop in EBITA of NOK 11 million in the quarter, which is entirely explained by the earlier mentioned loss of the industrial contract in Lilleborg Profesjonell in 2011. These deliveries ended in Q3 last year. The retail part of Lilleborg, however, had sales and profit growth in the quarter, and also Axellus and the Chips Group continued to deliver EBITA growth. The challenging market situation for the biscuits operation in Norway and Sweden affects both sales and profits negatively for this unit. Pierre Robert, the textile operation, in Norway, reported lower sales and profit in the quarter, primarily due to reduced listing with one customer in Norway. Higher prices on wool has also impacted the profit in the quarter. As Mr.
Korsvoll mentioned, Jordan, transaction, was took place, the closing took place on 31st August, and Jordan is now reported, in Orkla Brands Nordic as of 1st of September. Orkla Brands International had a NOK 15 million lower EBITA in the quarter. In Russia, there are quite substantial external and internal transitions going on, which are affecting our business and the performance for the time being. In the marketplace, we see that national retailers are taking shares from traditional regional distributors. Orkla sees the same in our sales to customers. In addition, Orkla's operation are in significant transition. After the merger of Orkla's two operating units, in Russia last year, we are this year preparing and executing a streamlining of production with the aim of reducing four factories to three.
To reduce complexity, a significant reduction in number of product lines is taking place, this hits the top line development negatively in the quarter. In this situation, production planning has been challenging, leading to discounting of discontinued product line and products with short remaining shelf life. This situation must be expected to have some negative impact also in the fourth quarter. In India, the positive development continues with solid sales growth. We are currently reinvesting a high share of the profit in building a stronger market position in the neighboring states of Karnataka. This relates both to strengthening MTR's organization there and presence in these states and increased investment in media and in distribution. For Orkla Food Ingredients, the EBITA was NOK 58 million in the quarter, down NOK 4 million from last year.
Sales in the third quarter last year was positively affected by stockpiling with customers in front of the implementation of the tax on saturated fats in Denmark. This explains the drop in sales of 5% in the quarter. As you can see, the growth in this corresponding quarter last year was very high, 16%. OFI has strengthened the market positions overall in the mining markets. Now, the plan is to show you two commercials. One for Bergene milk chocolate with Polly nuts inside, the other for the commented takeaway launch by BigOne .
Try Bergene milk with Polly nut mix. Caramelized almonds, cashew and pecan nuts have gotten a touch of sea salt and are mixed with velvet smooth Bergene milk. That's good. Always something good from Bergene.
Hi, there!
It was a film and pizza package, right?
Correct.
Let's see.
Thanks.
and soda.
Yes, cool.
pizza.
You can just keep the change. Bye.
Huh?
Now you can finally bake the takeaway pizza yourself. Takeaway by Big One is just as big and just as juicy as the pizza you usually order. You will find it in the freezer section.
You were kidding now, right?
No. Thanks a lot!
Håkon Oskaug, DNB. You mentioned some nonrecurring items in Foods Nordic. Could you please elaborate on that? You said it was 50% of the improvement year-on-year, is that correct?
Yes, I said that 50% or somewhat around half of the profit increase comes from nonrecurring item and the fact that we have divested Borregaard business in 2,000 or from 2011. The nonrecurring item is mainly relating to sales gain on the sales sale of a property in Sweden.
Tore Aspaas, Nordea Markets. Question regarding organic growth. We know that you talked about a lot of initiatives in the Norwegian, or in Stabburet, Norwegian Foods business a year ago, which actually seems to have boost the organic growth in that part of the business. Can you elaborate a little bit on other initiatives to boost the organic growth in the other units?
Yes, I can. If we go to Sweden, I think the most successful launch we had there was a concept, a dinner concept, launched by Abba Seafood, which is aimed at making it easy to prepare fish. The insight there is based that everybody in Sweden would like to eat more fish, but they find it complicated to make delicious dishes from fish. It's basically a sauce, a gratin sauce, that you pour over salmon fillets, and that has been one of the biggest launches in the Swedish market this year. There are many things to comment upon, but I would like to highlight that one. We also launched a calzone pizza in Sweden from our subsidiary, Procordia, last year.
Also, this innovation has been awarded among the top three in the Swedish market, last year.
Can I follow up with a question on regarding the new acquisitions? Jordan seems to be on its way kind of being integrated in Lilleborg and can you describe how you see synergies, cost synergies, and what how you can incorporate and boost the profits for Jordan?
I mean, Jordan is this being integrated into the Lilleborg retail operation. Of course, there will come both cost synergies and income synergies out of that, combining those two strong organizations. We are also exploring Jordan's very extensive network abroad, to see if there are products in our portfolio that they can carry with them out there. Yeah. More details, it's a little bit too early to comment upon with the Jordan acquisition.
Per Even Olsen, Carnegie. Could you, in a broader perspective, talk a bit about the private labels? Do we see a new wave of private labels coming from the retail industry? Seems like your biscuit business is now experiencing some problems. We've seen some in chocolate as well, which is kind of.
Mm.
given how you think about private labels.
There is a tendency that we see a wave in Sweden of increased intensity around private label. The situation in biscuits is mainly related to competition from international players, and not so much about private label. In other markets, we regard the situation as very stable with respect to private label.
A couple of questions from the web. What are your plans for the hydropower? Secondly, is brewing something that you will look at in the future?
Hydropower is clearly non-core. I think for the time being, there is no specific plans for that we are prepared to discuss. We will have to revert to that. With respect to brewing, I think that there is no. I'm sure that we will, from time to time, review other categories, and I've been clear on that previously. For the time being, as I said in my presentation, executing what we have done is the number 1 priority.
We have one more question here from Stanley Eta from Value Investment Principles. Do you expect some sort of a special dividend in November this year?
We expect to pay an ordinary dividend. That seems to be it. Thank you.