Good afternoon to all of you in Europe, and good morning to all of you in the West, and welcome to this conference call covering Orkla's Q2 results. Around this table on this end, we have CEO, Åge Korsvold, CFO, Terje Andersen, CEO of Sapa, Svein Tore Holsether, and myself, Rune Helland, Head of IR. CEO Åge Korsvold will give you a brief introduction of status, and we will then open up for questions. Please, Åge.
Thank you. The second quarter for Orkla shows stable performance for the branded consumer goods operation in the Nordic region. We have underlying sales growth, but there are also several factors that have a negative impact on the P&L. We have charges related to restructuring in Russia. There is a loss of contract production that influences the results. Advertising has been front-loaded this year, and there is also a seasonal impact related to Easter. The European markets for Sapa continues to be weak and more than offsets the satisfactory development for profiles in North America and the heat transfer. The favorable markets and strong results for Borregaard continues.
Since also in this quarter, we have now established a new organizational structure and a group executive board, focused on the consumer branded goods activities and dedicated to support Orkla's strategic direction. The divestment process in Borregaard is on track. We are also on track in the reduction of the share portfolio, and the ownership of REC will be reduced, and there is no change in strategy there. We will reduce our ownership in REC. Finally, in the second quarter, we were able to acquire Jordan, which is a strong branded goods company in the Nordic region, but also with an interesting export activity.
Jordan will considerably strengthen an oral care activity under the Lilleborg umbrella. In addition, we have a home care division, which we will run independently within the Orkla Brands portfolio. Then maybe we should open for questions? Yep.
To queue up for questions, please press star one. I repeat, star one.
Mohit Khanna from Value Investment Principles.
Go ahead, please.
Good, good afternoon, guys, and congratulations for the good set of numbers out there. Well, I know that there can be some volatility in numbers on quarter on quarter, whereas I suppose we are progressing well with the disinvestment strategy overall. I had a question regarding the cash balance on the balance sheet, that despite the sales of our share portfolio, the cash balance seems to be bit down. Could you just help me connecting the dots there?
Yes, we have canceled one loan agreement. It's probably connected to that. That was about NOK 3 million. We had quite extensive loan arrangements, but we don't need all the drawing rights that we had. We actually had to put some cash in our banks in for a while, and that has ended through that canceling of that loan agreement
Okay. I suppose the next quarter should be a more normalized one?
Yes, I guess so.
Okay, great. Great. A follow-up question on Sapa, how is the business progressing in Europe now, particularly the heat transfer business?
Mr. Holsether will answer that question.
Just to clarify, is your question on market conditions in Europe for heat transfer or for profile?
No. There was some kind of restructuring done, you know, at the last quarter. What are we seeing in the current quarter for the business?
Well, when it comes to the profiles business, we did a fairly extensive restructuring, last year shut down extrusion in one of our facilities in Belgium, one facility in Portugal, and also our fabrication in Denmark. Since then, the markets have continued to be challenging, and we had a 9% reduction in volume first quarter compared to first quarter last year. In second quarter, we see a further 10% deterioration in market volume. We are looking at further capacity reduction, as we announced after first quarter. If the market continued at the same level, we would have to evaluate further plant closures. With second quarter coming in at this level, there is a definite need for further restructuring, and we're currently working on that.
Okay. Okay. Yep, thank you so much. Thank you so much.
If further questions, please press star one. At this time, no further questions. If questions, please press star one. Next?
Mohit Khanna from Value Investment Principles.
Go ahead, please.
All right. Guys, a bit of follow-up on the brands business. How are we seeing the remaining year in terms of EBITDA margins? You know, commodity prices have come down, do we have the tailwinds of cheaper commodities or raw materials?
It's Terje Andersen here. We don't think we have tailwind here. It's right that the international raw material prices has a declining trend in Q2. We see more uncertainty going forward. It might be an upturn in raw material prices going forward. We don't think we will have a tailwind in terms of a margin. We see, however, the brands, the Orkla Foods Nordic business increasing margin slightly, while we have somewhat lower margin for brands. I think the raw material prices will be neutral to the margin going forward. We are able to pass on raw material prices in our own prices, but I don't think we will have a strong positive effect on margin from eventually declining raw material prices.
Right. Right. We saw some considerable, you know, participation from real estate business in the EBITDA, in the first half. How much is, you know, do you expect in the coming quarters for this current year?
It's Terje Andersen again. We expect contribution from sales of this real estate project, to amount to the same, to be in the same level also in Q3 and Q4.
Okay.
Around NOK 50 million, NOK 40, NOK 50 million a quarter.
Okay. Okay. That, that's good.
The project, just to end that, the project will be finalized at the end of this year. This will be a contribution this year and not for next year.
Right. Right. Yes.
Next?
Emmanuel De Figueiredo, LBV Asset Management.
Go ahead, please.
Yes, hello. I have three questions, please. The first one is, if you could perhaps give a little bit of color on how you see currently the consumption environment in Norway and in Russia. In the case of Norway, if, you know, the weather has had any, you know, is having any impact in July, and if you think that this Q3, let's say, will be a clean, a clean quarter from, you know, holidays and that type? My second question is, could you give also some guidance on how much you're spending on advertising? Finally, are there any currency impacts which you would like to highlight? Thank you.
If I start, as Terje Andersen, if I start with the Nordic market for brand consumer goods, quite stable. We don't see any major changes there, neither in consumer demand or in the retail sector. We don't see any dramatic changes to private label either. The overall picture for the Nordic brand consuming this market is stable. Russia's of course, more volatile. Seasonality also very strong in Russia. Q4 is the big quarter in Russia. That's the quarter where the business there make its profit or not. We are on a rolling basis in black figures in Russia. We have ambitions to deliver better profit there than last year. Your second question. That was, can you repeat your second question?
Yes. My other two questions would be on the advertising, if you can give some color on the amounts you're spending on advertising and what is your guidance for advertising for this year? My last question would be on the currency. Are there any important currency impacts affecting your group at the moment?
It's now, the advertising spending is of course, very depending on how the market look at. I think marketing spend in the Nordic Markets will typically be at a slightly lower percentage than you see in some other markets. We think we spend enough, and on a yearly basis, we will be a little bit above NOK 1 billion in advertising spending. Front-loaded a little bit this year, but for the whole year, we expect to have advertising spending in line with last year. For the brand consuming goods business, there is no huge impact from currency.
There are some translation, in fact, I think we have explained them in the quarterly report. When it comes to the other areas, the only one with some real exposure to currency is the Borregaard business, the chemical business, which has an exposure to euro and dollar. You have the heat transfer business in Sapa, that has an exposure also to euro and dollar. That is the two most relevant currency exposure that we have. The rest is, as I said, translational effect, and they are quite small so far this year.
Thank you.
If further questions, please press star one. Seems to be no further questions.
Okay, there's no further questions, so we would just like to thank you.