Good morning, ladies and gentlemen. I'm here with our CFO, Terje Andersen, and Svein Tore Holsether from Sapa, to present the second quarter results. The main message today is that Orkla is reporting stable performance for the brand and consumer goods in the Nordic region. We had a bit of -8% in the second quarter, but +1% for to date. We have achieved real growth in revenues in the underlying consumer markets in the Nordic area. There are several items that have a negative impact on the results. There is a loss of contract production in Lilleborg Professional and Procordia.
We have a negative impact of restructuring effort in Versa, which will eventually have a positive impact, but negative results and charges up front. Advertising has been front-loaded this year, and there is also some seasonal impact from the effect of Easter. In Sapa, things are pretty much things as we have reported previously. Results in the U.S. are satisfactory. Heat Transfer is back on track and reporting, I think, what I would call fair results.
Of course, the overall impact of the very weak markets in Europe and the restructuring going on in the Profiles Division in Europe completely dominates the accounts also in the 2nd quarter, and will probably continue to do so for some time. Borregaard reports favorable markets and strong results. I have now been in the CEO chair for about two months. What we have done in this period is, first of all, to put in place a new organizational structure. Group management now is dominated by the key operating people in Orkla Brands, who's responsible for managing the consumer Brands Operations, Foods, Brands International and Ingredients.
I think we have a team in place that will focus to a very large extent on operational excellence and the organic growth. In addition to that, we were able to acquire Jordan, which I'll come back to. Of course, this is an acquisition very much in line with Orkla's strategy to focus on fast-moving consumer goods. The divestment process at Borregaard is on track, and we expect to have a solution sometime in the second half. The gradual build-down of the share portfolio continues, so we expect the value of the portfolio to be around NOK 2 billion by the end of the year.
As a consequence of the upcoming equity issue in REC, Orkla's ownership position in that company will be reduced in the third quarter. As I said, we were able to acquire Jordan in the second quarter. This is an acquisition very much in line with what we would like to do, namely, to build the consumer brands activities in Orkla, in the Nordic markets. We paid NOK 1,180 million for Jordan, which has sales of about NOK 900 million, and EBITDA of about NOK 120 million kroner and 600 employees. The activities are divided into two divisions: Personal Care, which we expect will be integrated into the other Oral Care activities that we have at Lilleborg.
While the House Care activities is a new activity for Orkla and new products and also new channels. I think interestingly, Jordan is also a company that has been very active in export markets globally. I think this is something that Orkla has something to learn and something that we look forward to look into. We hope that we will be able to. We're still awaiting feedback from competition authorities, but we hope to close this transaction sometimes later this quarter. With that, I leave audience to Mr. Andersen, who will take you through the numbers.
Thank you. I will then take you through the financial results for the group and also give some highlights for Orkla Brands, Borregaard and Hydropower. Starting with the group PNL, operating revenues was lower than last year. This mainly relates to the sale of Bakers, the weak markets and volume decline for Sapa Profiles in Europe, and also lower prices for our Hydropower business. Total EBITA ended at NOK 992 in the quarter. Here, timing of Easter affected the comparison on last year by approximately NOK 25 million-30 million. On the line for other income and expenses, we have booked approximately NOK 90 million for further restructuring in Russia, while expenses related to ongoing M&A activities amounted to about NOK 50 million .
Regarding associates, Jotun has not yet released their results for second quarter, but we report and or indicate a good quarter also in the second quarter, with growth in sales and margin. In accordance with Orkla's accounting practice, the investment in REC has been written down to market value at the end of the quarter. Including currency translation differences in REC's comprehensive income, the total negative accounting effect amounts to NOK 562 million in the quarter. Dividend and net gains are share portfolio, total NOK 353 million in the quarter, and return on the stock portfolio was about 7% in the first half. This is 1% point better than Oslo Stock Exchange.
Market value at the end of the second quarter was NOK 3.7 million, with an annualized gain of about NOK 800 million. Earnings per share in the first half was NOK 1.60. Orkla has the financial strength and flexibility to support the strategy going forward, and its net interest-bearing debt was in line with year-end at about NOK 10.7 billion. First half, paid dividend and share buyback, total NOK 3 billion, while the sell-down of stock portfolio was NOK 1 billion in the quarter and NOK 2 billion in the first half. Cash flow from operation improved significantly from last year, and we expect reduction in working capital towards the end of the year. Some highlights for Branded Consumer Goods. Nordic market is relatively stable.
We retained our market share in this market and had an underlying increase in sales to the retail sector. Timing of Easter and loss of contract production at the end of last year, however, had a negative impact on reported top line and profit in the quarter. Although the FAO food price index showed a decline in the second quarter, raw material prices are still at a high level. Further, there are no indications that we again might be facing international upturn in the price of raw materials in the short term. Norwegian agriculture subsidy negotiation will also contribute to a rise in raw material prices for our Norwegian operation in the second half.
If you look at the different business areas, underlying top line growth in Orkla Foods Nordic in the first half of was 0.8%, the market shares was in line with last year. Both top-line growth and EBITDA was negatively affected by the loss of contract production in Procordia in Sweden. Underlying EBITDA was in line with last year. A decline for Procordia and Felix was countered by improvement for the other companies, especially for Stabburet. Felix has entered into an agreement to acquire the Finnish company, Boyfood. With this agreement, Felix will strengthen its position as the leading supplier of herring in Finland. For Orkla Brands Nordic, both market shares and underlying top line was at the same level as last year.
Sales to the retail sector had volume growth in the quarter, while the B2B segment suffered from loss of contract production. Continuous good development for ships, for the ships group, particularly related to Sweden and Denmark, while profit contribution from Axellus, that is dietary supplements, was somewhat lower in the quarter. As mentioned, Orkla Brands International has initiated the further restructuring in Russia to improve the cost position. This includes close down of the old factory in St. Petersburg and moving production lines and production to the three remaining factories. A restructuring charge from NOK 92 million is for other income and expenses, and cost reductions will have effect from second half of 2013. This project will be cash positive after expected sale of land. Russian market is also moving towards modern trade and national distribution.
According to this, advertising investments increased to strengthen our position in this channel, and share of sales to the modern trade is now about 50%. Continuous strong top line growth in India, mainly driven by organic growth in core categories as masalas and instant mixes. Orkla Food Ingredients have a satisfactory development in challenging markets in the second quarter. Underlying top line growth, mainly related to price increases, but this effect was lower than last year due to stabilized raw material prices. Bakery business in Norway, Sweden, in addition to marzipan and yeast, had good development in the quarter, and total underlying increase in profit were about 8%.
According to strategy to expand with sales and distribution companies in Eastern Europe, Orkla Food Ingredients continue the structural growth and acquired companies so far this year represent an annual top line, about NOK 390 million. We round off the brands presentation by showing some of the innovation in the first half of 2012. Some comments to Borregaard and Hydropower. Another strong quarter for Borregaard, EBITDA on par with last year. Overall, market conditions still favorable, but the strong NOK, especially compared with euro, have had a negative impact on profit. In connection with the demerger of the power entity in Borregaard, internal profit from the power operation is now eliminated at group level than as before at Borregaard level.
This has resulted in a positive one-off effect of NOK 18 million in Borregaard Chemicals, but had no effect at the group level. Hydropower production, more or less, at normal levels for second quarter, but prices has been significantly lower than last year. For Hydropower, we also see low prices going into third quarter. I leave it to Svein Tore Holsether.
Thank you. Sapa's second quarter result is positively impacted by improvement initiatives within Sapa Heat Transfer. We are faced with weak markets in Europe, impacting Profiles Europe, Building System, and also Heat Transfer in Europe. In North America, we see the positive trend continuing. The EBIT level, we came in at NOK 251 million for second quarter, which is down from NOK 320 million in the same quarter in 2011. Heat Transfer and Building System is down from NOK 105 million to NOK 97 million, we see an improved performance for Heat Transfer, while Building System, faced with a challenging European building and construction market, is down from second quarter last year. Still positively contributing to EBITDA in the quarter. For Profiles, we see a reduction in EBIT of NOK 61 million a quarter.
This is driven by weak markets in Europe, while the North American operations see an improvement compared to same period last year. Our ramp-up and integration of our new activities in Asia is progressing according to plan, and the cost related to this was slightly higher than NOK 30 million in the quarter. After challenging second half of 2011, we launched a number of initiatives to improve EBITDA for Heat Transfer. We can see that the first half has shown satisfactory development for these initiatives. We have improved performance in Finspång and in Shanghai. We have implemented price increases, and we have transferred volume from Sweden to China in order to optimize our production footprint.
However, the contribution from this is not as high as it could have been due to local aluminum prices in China being higher than world aluminum prices at the moment. Our cost optimization and productivity improvement is progressing according to plan. The European market is challenging, and this is impacting demand for Finspång and also for ins- developed tube operation in Belgium. The EBIT margin for the quarter came in at 8%. In North America, the trend continues, and we're seeing a 10% volume increase compared to same quarter last year. This is both due to a general improvement in the market, but also due to Sapa improving its market position in North America. operational improvement and production optimization is progressing according to plan, and our first half EBIT margin for North America came in at 5%.
If you compare that to first half of 2011, that was 4.5%. We continue to have unsatisfactory profitability in Europe. Weak European markets resulted in a market-driven volume reduction of 10% compared to second quarter in 2011. We also see price pressure as a result of this, in particular, in the standard segments. The European restructuring that we launched last year is progressing according to plan, but this is not enough to offset the impact from weak markets. As I said, after first quarter, if the market remained at that level, we would have to evaluate further restructuring initiatives in Europe. We can now see that the second quarter came in at an equally low level and also lower than what we expected going into second quarter.
Thus, further restructuring is needed within Europe to adjust our capacity to the demand in the market. The EBIT margin for first half came in at 2.2% for Europe. If you look at the demand situation for the main end markets for Sapa's products, we see North American market, we had an expectation of moderate growth, and our expectation for North America is unchanged compared to what we saw at the end of first quarter. In Europe, the markets are weak, and we see a further weakening compared to what we saw after first quarter, and this is especially driven by residential, building and construction, and the transportation segment. In China, we expect growth. However, the growth is at a lower level than what we've seen in recent years, and we have adjusted downwards somewhat the expectation for the industrial segment in China.
Turning then to short-term outlook, we expect a continued market growth in North America. However, we expect this to be at a slower pace than what we've seen in first half. I remind you that third quarter is seasonally weaker for all business segments in Sapa, and especially for Europe. Also, Heat Transfer has seasonally lower demand in third quarter. However, the underlying demand picture for Heat Transfer is expected to remain flat from where it is today. Our existing restructuring programs are on track, but as I mentioned, under Profiles Europe, further restructuring is now needed. In summary, we have a positive impact from the improvement initiatives within Heat Transfer. We're faced with weak markets in Europe, impacting Profiles Europe Building System, and to some degree, also Heat Transfer, while the positive trend continues in North America.
It is our ambition to reach an EBIT level for 2012, in line with what we had in 2011. With that, I thank you, and then we turn to a Q&A session.
A few questions. How do you see the competitive situation in Europe, in terms of capacity being taken out permanently? I can take the other one afterwards.
With the volume reduction in Europe of close to 10% in term, a number of competitors are also taking down production lines. So far, permanent capacity reduction has been fairly limited, if markets continue at this level, it will be it's expected that more companies than Sapa will adjust capacity to reflect the demand in the market.
A bit more detailed question on brands and Lilleborg. Have you seen any big effects on Lilleborg's market share in the washing detergents after the introduction by some new competitors?
Not very significant, Tom, but you are, you're right that there are some increased competition in that segment.
We are still dominant market leader, and with the high market shares we have, we have to expect some minor changes when other competitions are launching bigger initiatives. All in all, we hold the position quite well also in that segment.
Could you shed some light on the size of the Procordia loss of contract, and to what extent that will also have an effect for the rest of the year?
That will have an effect, also in third and fourth quarter. I think we have said that total effect from loss of contract, not only Procordia, is some NOK 25 million-30 million in the quarter, but that also includes the other ones.
Hi, can I ask you a question on the confectionery and biscuits, segments? How did they develop during Q2 there? They had a weak trend earlier.
Compared to the same quarter last year, they were more or less in line with that one. We are still not fully satisfied with the trend, but compared to last year, they were in line with that.
Hi, Pedro, ABG. We've seen some relief in raw material prices for the brands business last couple of months there. Suddenly, grain prices started really to rally again, up to 30% last month. Could you try to quantify or elaborate a little bit regarding your exposure towards the sake grain prices, wheat, corn, and sake? Thank you.
We have, I don't have the exact figure with me, so that I think we have to come back to you with. In general, we don't have a huge exposure to that, and we also have the Norwegian situation that is different. You're absolutely right, there are increased uncertainty on raw material prices going forward, that what we also mentioned. I think we, how you know it's more uncertain, and we expect more volatility. As I said, we actually expect increased in natural prices short term.
Just one more question from my side. On Borregaard, have you decided to go for an IPO, or are you still running a dual process?
We still run a dual process, and as Åge said, we expect to conclude the process in the second half. There's no news on that.
Just one question with regard to REC and your thinking about that has been, you could say, back and forward here with regard to the new equity issue and participation for Orkla. Could you shed some light on your thinking on the REC position for the moment?
Well, our position remains the same, that we, that we want to exit that position, while we are determined to reduce the exposure. The, I think in the end, the negotiations with respect to the equity issue and the negotiations with the convertible bondholders have the potential of diluting Orkla to an acceptable level. The reason why we, in the end, decided to, at least partly, participate in the equity issue was simply a need to protect values. It does not change our position. We will exit that position in due course.
That seems to be it. Thank you.