Good morning, everyone, welcome to Orkla's presentation of the first quarter actual figures. My name is Rune Helland, I'm the Head of Investor Relations in Orkla. As you all know, from Monday's announcement and appointment of new Acting CEO in Orkla, we decided to release the preliminary results for the first quarter at that same morning. The agenda for today's result presentation will therefore be as following: Acting CEO, Åge Korsvold will start this presentation with a short brief regarding Orkla's strategy and his role. CFO, Terje Andersen will go through the highlights and key figures for the quarter before CEO, Orkla Brands, Torkild Nordberg, and CEO of Sapa, Svein Tore Holsether, will give some more details within their respective areas. Please, Acting CEO, Åge Korsvold.
Good morning. I just wanted to make a few remarks. I think there are essentially two messages that are important. The first is that the strategy that we have previously announced is there's no change in that strategy. Orkla will focus. Orkla will become a branded goods company. That means that, as you know, Sapa, REC, and Borregaard will eventually leave the portfolio of Orkla companies. The other key message is that we have initiated a search for a new CEO. That search is expected to be concluded in such a way that we'll have a new CEO in place sometime in the second half of this year.
In terms of the strategy, I feel that my mandate is simply to continue the change processes that are already in place. As you all know, the Orkla Consumer Goods portfolio is a portfolio of great companies, great brands, and strong market positions. The first priority is to ensure that that portfolio continues to be a strong portfolio. That is the first priority, and as part of the focusing process, we need to develop a group corporate center, set up, staffed, and manned to service the branded goods portfolio. That is the objective that I have and the mandate I have, and we expect to complete that over the next few months.
That's really all there is to say at this point. I leave the word to Terje Andersen, our CFO. Thank you.
Thank you. I will take you through some highlights in the quarter and the group financial results. Since there are no changes between the preliminary figures announced on Monday and today's official Q1 figures, I will do this rather briefly. Starting with some highlights, reported EBITA for Orkla Brands was in line with last year. Underlying top-line growth was approximately 4%. There was volume growth for products sold through the grocery channel, and Orkla Brands retained the overall market shares. Positive effects from Easter sales were, however, offset by front-loaded advertising investment at the start of the year. Sapa had somewhat lower EBITA than 2011, mainly due to negative market trend for profiles in Europe. The European profile market was down 9% in the quarter compared to last year.
Profiles North America continued this positive trend with market growth and increased market shares. Heat Transfer posted a profit that was significantly better than the weak Q4 2011. Another strong quarter for Borregaard, with profit almost in line with Q1 last year and significantly better than Q4 2011. Sell down of the share portfolio continues. Net sales of shares total NOK 1.1 billion so far this year. After a return of 12.9%, 2 percentage points better than Oslo Stock Exchange, the market value at the end of the year was about NOK 5 billion. Gains from sale of real estate amounted to approximately NOK 100 million in the quarter. This includes delivery of apartments in the ongoing property development project at Idun, here in Oslo.
Apartments will be de-delivered on an ongoing basis throughout the year. We expect a profit from these projects of NOK 30 billion-NOK 50 billion also in the second quarter. As regards the Borregaard, the divestment process continues, preparing for an IPO at full speed, while also targeting potential industrial buyers. New legal entity has been established, and Borregaard chemical activities were formally transferred to this new entity as of April 1st this year. As previously stated, our aim is to complete the process by the end of the year. Group income statement for the first quarter shows an EBITA of about NOK 888 million, up 13% from last year. Profit from associates total well NOK 350 million.
Here, positive accounting effects from investments in REC was NOK 187 million, mainly due to currency translation effects presented in REC's comprehensive income statement. Jotun has had a good start also in 2012, with increase in both sales and margin. Jotun, however, has not released their first four months results yet. In addition, sale of shares in Fornebu Utvikling contributed to an accounting gain of NOK 77 million under associates. Gains from sale of portfolio shares was NOK 427 million, while unrealized gains amounted to NOK 1.4 billion at the end of the quarter. In total, profit after tax was NOK 1.3 billion. Cash flow from operations improved from last year. However, there was, as always, in Q1, some negative seasonal effects on working capital also this year.
This graph illustrates the EBITA bridge compared to first quarter last year. As previously commented on, the main difference mainly relates to gains from real estate projects over approximately NOK 100 million. Hydropower, too, improved every day due to higher power production. Energy prices, however, was significantly lower Q1 this year compared to last year. The group's financial flexibility has strengthened further, and net interest-bearing debt was down to NOK 9.5 billion as of the first quarter. Equity ratio ended at 52.6%, and net gearing was 0.27. In total, Orkla has a strong financial flexibility and capacity to support the strategy going forward. Then, I leave the floor to Torkild Nordberg.
Thank you. Good morning. My name is Torkild Nordberg, I will present you results for Orkla Brands. The graph shows the profit for Orkla Brands over the last eight years. The last quarters, we, as most operators, have seen a reduction in our profit growth as a result of increased headwind in the European markets. We still observe negative or stagnant volume trends on top of high raw material costs. In quarter one, we have been able to stop the profit erosion, basically coming from the two mentioned factors. Thus, the EBITA is in line with the last year. The underlying top growth in the quarter were 4%, of which 1/3 is related to the positive phasing of Easter.
Totally, we had a slight positive volume and mixed development. We see a distinct difference between our business-to-consumer and business-to-business operations. In our business-to-consumer operations, we realized, in the current market environment, a pretty healthy volume and mixed growth of 1%, whereas we saw a reduction in our B2B volumes at 2%, reflecting basically the weak markets and loss of some industrial contracts previously announced. Reported and underlying profit for the quarter was in line with last year, if you adjust for the positive Easter effect of roughly NOK 25 million-NOK 30 million, with the fact that we have front-loaded and increased our advertising investment in the quarter with basically the same amount. Later this year, we plan to reduce our market advertising spending to bring it in line with last year.
Overall, our total market shares are stable during the quarter. We are still improving our business in Russia and increasing the market investment in that area. In the quarter, we are also back on the normal speed of add-on acquisitions, amounting the last year's to roughly NOK 1 billion in turnover during the year. I will come back to the four business units in more detail. The Food and Agriculture Organization index is now at a somewhat lower level, both compared to the corresponding quarter of 2011, and the fourth quarter. However, Orkla Brands experienced, as earlier communicated, still increasing raw material costs in the quarter, primarily related to our composition of raw material, and some time lags in our contracts. They are all covered in our pricing.
In Norway, prices are at a higher level than in the same period last year, especially on wheat flour and dairy products. For EU sugar, longer time contracts gives us significant cost increases, as the price was dramatically increased from year-end 2010 to year-end 2011. Higher price levels of crude oil increases our packaging, transport, and energy costs across our companies. Generally, we still believe in high volatility in the raw material markets. The key for us is to follow the market extremely closely and deliver on our price management objectives. Orkla Foods Nordic reported a profit growth of 6% in the quarter. The growth is positively affected by the divestment of our fresh bread operation and phasing of Easter, and negatively affected by front-loaded advertising investments.
Increased raw material costs, primarily in fish, fruit, and berries, and EU sugar, has been compensated. Adjusted for the phasing of Easter, the underlying top-line growth was 2%, mainly driven by price. Stabburet, our Norwegian food operation, is performing well, and so is all our four Baltic companies. Panda, our confectionery business in Finland, is improving, whereas we saw a weaker start from our Finnish food company. Orkla Brands Nordic reported profit decline compared to last year, primarily as a result of loss of contract production, and again, front-loaded advertising investments. Increased raw materials for this unit has also been compensated. Adjusted for the phasing of Easter, the underlying top line was in line with last year. We saw good top-line growth in our Nordic Ships group and Lilleborg, our home and personal care operation.
The Ships group continued the consistent good profit trend since our acquisition back in 2005. This quarter, the Swedish and Danish operation were the best performers in that group. The biscuit production in Gothenburg, our central production unit, will reduce manning in the production area of roughly 70 people, partly due to loss of B2B contracts, partly outsourcing, but it will also increase our efficiency in the operation. There will be some non-recurring costs, which will be booked through the year, the effect will come positively into 2013. Our dietary supplement company, Axellus, has acquired a small Danish operation, which will be completely integrated into our existing setup.
They will also take over the Borregaard's mega-3 oil, Deno mega, and these units primarily serve customers in the dietary nutrition and health segments. This, to us, will open up new innovation opportunities for that area. Orkla Brands International improved the profit in the quarter by NOK 26 million , primarily related to improved profit in Russia. Even though an important part of that was explained by non-recurring structural costs last year, there was also underlying improvement in the Russian business. The merged company is realizing synergies in line with our plan. We are constantly improving our market offerings by upgrading the portfolio away from bulk volumes into branded goods and products, and these launches are supported by increased advertising levels.
More and more of our sales are going through national key accounts, the modern part of the trade. Our sales into that part of the trade is increasing at 40%, and basically now representing also 40% of the business. The rolling 12 months EBITA in Russia is now in black figures. Our focus is to now to further strengthen the business as outlined. In India, we saw a pretty strong top-line growth of 23% in core categories, like masalas, that is mixed spices, and instant mixes. Also, in this area, higher input cost were covered by price increases, while advertising investments increased significantly, and will continue to increase to support the planned expansion into the neighboring states.
As previously announced, we specifically plan to invest in the neighboring states of Andhra Pradesh and Tamil Nadu. Our plan is basically to reinvest all the profit from the existing Indian MTR operation into the two neighboring states. In this way, we are planning for a break-even results in India this year. With the very high and present M&A multiples in India, this approach looks pretty attractive, although we also are pursuing M&A opportunities in parallel. Our European bakery ingredient operation is predominantly a B2B business. As already mentioned, the ingredient markets are very challenging today. More depressed economic outlook in several of our countries makes most operators in this business having a pretty challenging time.
In very competitive markets, we see an increased shift in the market volumes from traditional artisan bakeries into industrial bakeries, and that is affecting the margins in the markets. For this unit, increasing raw material costs have been put into our pricing. Result is slightly below last year. We do continue to do value-adding add-ons, acquisitions for this business in order to increase our geographical scale and synergies. Being right at the center of organic growth, we are working extremely hard to increase the market value by launching big news to the market. This is, of course, of particular importance in stagnant markets. On the slide, you can see some examples of innovation being launched lately. Our weight management brand, Nutrilett, is now successfully launched in Poland and Denmark through our own subsidiaries.
Our very strong Swedish biscuit brand, one of the strongest brand in Swedish, in Sweden, Ballerina, has successfully launched a cookie filled with chocolate. Stabburet is following up its Ready- for- the- Chef, Kokkeklare, dinner range with meatballs. The idea is to represent the gold standard in the market for easy home cooking. The Ready- for- the- Chef, Kokkelare Fiskesuppe soup is now already the biggest fish soup in the Norwegian market in value. Lastly, our biggest brand in the whole Orkla Brands, Grandiosa, is daring to change and improve the original pizza in Norway with an even better crust. We'll show the advertising later. As mentioned, in the fourth quarter, loss of contract production will hurt our bottom line in 2012, in excess of NOK 50 million.
In the short term, food commodity prices are dependent on weather conditions and yield levels, and are certainly on the development of the world economy. In the longer term, we strongly believe population growth and rising purchasing power will lead to higher prices. In Norway, the farmers' unions have presented their demand in this, the year's agriculture negotiation. The outcome we don't know, but will probably result in higher prices on several commodities. In soft or stagnant markets across the board, we are working intensively also to increase our internal efficiencies by scrutinizing and cutting costs in every part of our value chains. Continuous improvement in our results is always our ambition, even in tougher times. As I said, we estimate the negative Easter effect in Q2, positive in Q1, to be in the area of NOK 25 million-NOK 30 million .
The advertising for Grandiosa, if I can do it [Foreign language].
[Foreign language] You got a problem with that? [Foreign language]
Good morning. I'm Svein Tore Holsether, CEO of the Sapa Group. Sapa reported an EBIT of NOK 182 million for the first quarter, compared to NOK 215 million for the same period last year. In the second half of last year, we saw a negative trend for our profiles business, this has continued into the first quarter in Europe. We see a 9% volume decline in Europe. In North America, as a combination of market volume growth and share gain, we see an increase in volume of 13% compared to the same period last year, also improved results. Our restructuring that was launched last year is on track, the effects in first quarter are not enough to mitigate the effects of the negative markets in Europe. Within Heat Transfer, we see softer markets.
We have a volume decline of approximately 8% compared to same period last year, and a reduction in EBIT, compared to fourth quarter, a significant improvement in EBIT. Within building system, we face challenging markets in Europe, our EBIT level remains close to the same as it was in first quarter of last year. Heat Transfer experienced a challenging second half of the year last year, in connection with our fourth quarter presentation, we launched a number of actions to improve the situation. These actions have had effect in first quarter. We have implemented price increases. We are continuously improving our product allocation to maximize return between Sweden and China. Our operational improvements are progressing according to plan.
In addition, towards the end of the year, we will have some impact from an upgrade of our cast house and the cold rolling mill in Sweden. In North America, we see continued volume growth, 13,000 tons better than last year. We are continuing to see impacts of our footprint optimization and productivity improvements within North America. We have, however, seen some price pressure in some segments in North America in the first quarter compared to the same period last year. In Europe, the declining trend that we saw at the end of last year has continued into first quarter, and we see 9% volume reduction, down to 106,000 tons.
We see volume reductions across most parts of Europe, but especially the southern part of Europe is hard hit, and as a result of that, we also see margin pressure in particular in Southern Europe. Our European restructuring is progressing according to plan. As a result of our new leadership in Europe, we have strengthened and reorganized our European organization significantly, also the sales and marketing part of it. Inspired by the positive results that we had in North America, we have implemented a pan-European sales organization, while still maintaining local ownership, which is very important. We have also strengthened in the area of application support and technical support. As we announced in fourth quarter, we now have our footprint in place in Asia.
We have established ourselves in Vietnam, we are in India, and in China, we have our joint venture with [Chaokoh], which is under construction. In December, we acquired an extrusion plant outside Shanghai. We're now in the integration and ramp-up phase, and the cost related or the net impact of our profiles Asia in first quarter is NOK -12 million. Included in that figure is a one-off positive due to sale of equipment of approximately NOK 20 million, so the underlying cost is around NOK 30 million. In the buildup phase in the next quarters in 2012, we expect the level to be around NOK 20 million-NOK 30 million per quarter. In Vietnam, we're already EBIT- positive. In India, we're close to become EBITDA positive.
For China, we expect to reach EBITDA positive by mid-2013, and to have a positive EBITDA contribution by the end of 2013. Right now, we're in the middle of the installation of a large press that we have moved from one of our idled North American operations. This press will have unique capabilities in this area of China, and we're targeting the industrial segment in China. Looking at growth, 2012 compared to 2011, we're expecting moderate growth in total in North America, while the picture is bleaker in Europe. In China, we expect growth, but at a lesser rate than what we have seen in recent years.
If you compare this to the outlook that we had back in our fourth quarter presentation, we have highlighted here that the change since then, and marked by red, where we have a reduction in outlook compared to what we expected after fourth quarter. As you can see, we have across all segments in Europe, a deterioration compared to 2011 and to what we expected last quarter. For the outlook, we're looking for continued growth in North America, but not at the rate that we saw in first quarter, so a slower rate, while the weak trend in Europe is expected to continue. Second quarter is seasonally stronger than first quarter for Profiles. In Heat Transfer, we expect that the markets will be in line with first quarter going into second quarter. Our restructuring programs are on track.
The reductions of 900 employees have been effectuated, and we will reach our target of an EBITDA improvement of NOK 250 million-NOK 300 million as a result of that. We will be at that by the end of the year. With our current market outlook, we expect that the 2012 results for Sapa will be better than the 2011 results. Thank you. We open up for Q&A.
Yes, thank you. Martin Stenshall, Danske Markets. I guess, the first question is to Torkild. Regarding Brands Nordic, could you please talk a little bit more about the loss of a contract, production contract, and maybe comment on the magnitude that's played on the EBITA?
Yeah. It is in our Lilleborg Professional area. It was a B2B industrial contract, now expired and will not be renewed, as we announced last quarter. We said in total, the loss is NOK 50 million. Most of that is actually inside Orkla Brands Nordic.
Thank you. The next question to Svein Tore. You said that the weak trend in Europe is continuing, and the restructuring programs that are in place or ongoing are not enough to mitigate those trends. Would that imply that we could see another restructuring program going forward if the weak markets in Europe continue?
The restructuring programs that are in place now were launched last year based on the market outlook that we had last year. As you can see, the first quarter volume is significantly below last year, 9%. If it continues at that level, as you can also see by the results, we need to do further adjustments to our production.
Good morning. [ Tor Espen], Nordea Markets. A question to Åge Korsvold. You mentioned Orkla's corporate culture in your comments on Monday. Can you elaborate a little bit on your thoughts about the Orkla's corporate culture and changes you want to implement in that culture?
Well, I think that, what you see in the branded consumer goods market is very intense competition, very fast pace of change. I think, we simply need to assure that we meet those changes. It's, you know, I don't think that it is a very major change in the operating companies. I think to the contrary, I think there's every indication that Orkla has a strong corporate culture in the operating companies. I do think that the skill sets and the ability to support the operating companies in the corporate staff functions will have to be adapted.
I don't think that I should kind of go into some details, but I think there are some fairly obvious issues. One of those issues, as an example, is how do we-
I think going forward in a, I think that there will always be an element of acquired growth in a company like Orkla. I think there is a discussion to be had, you know, to what extent is the line organization responsible for that, and to what extent is the support staff responsible for that? Obviously, there is no easy answer, and there is a trade-off between how we organize it. but I do think that there is a skill set required to maybe to continue to have a sensible share of acquired growth. That is a discussion that need to be held between the line management and the corporate headquarters.
I, you know, it's, you know, in my mind, it's not a question of, you know, creating fundamental change in that sense. I think, quite to the contrary, I think that historically, Orkla, it has certainly been one of the strengths of Orkla management to develop a strong corporate culture. It is a robust culture and certainly the key elements of that corporate culture, I certainly think that that should be continued.
Then, quick question regarding the growth in the future. Do you primarily see organic growth or acquired growth for Orkla? Or do you see Orkla move faster and take more risk in acquisitions? How do you see Orkla growing in the next few years?
Well, first of all, I think that to the largest extent possible, we should ask the current organization to create as much organic growth as possible. Now I think on the one hand, we are in markets that are growing very rapidly. I think there is a, I think by definition, there is a limit to how much organic growth you can have on the current portfolio. I think the first priority is for the current organization and the current portfolio to generate as much organic growth as possible. I think Orkla has the ability and the opportunity to generate acquired growth.
If you ask me, I think that the priority should be to have, I think, a sensible element of acquired growth and not transitional acquisitions. Whether that acquired growth is NOK 1 billion per year or NOK 5 billion per year, I think that to some extent depends on the opportunities that are there. I do think that the dynamics of this market has changed somewhat over the last 10 years, in the sense that there is more private equity in this marketplace. There is intense competition, and I do think that Orkla, with its ability to take on synergies, should be quite competitive in that market.
I think first priority, organic growth, a sensible element of acquired growth on top of that. I think transitional or transformational acquisitions is in a way, a very different game and needs a separate set of analysis.
Thank you.
Preben Rasch-Olsen, Carnegie. Quick question on Sapa. Is it possible to say something about utilization in the North American units versus the European units?
At current, our capacity utilization is higher in North America than in Europe, as we have a more stronger market, and share gain development in North America. It's difficult to give exact figures when it comes to capacity utilization, because it depends on how you run the plants, if it's five days, seven days, and so on. I would say approximately 75%-80% in Europe and 80%-85% in North America.
I have a question. I'm Nils Foldal from Ludvig Lorentzen. I have a question related to the new strategy that was presented in the fall of last year, which seemed to be a sensible strategy. Åge Korsvold , what's your explanation why the markets haven't really taken that strategy? Why haven't they really applauded the strategy of a more focused company going forward, do you think?
As far as what I have seen is, markets have accepted that strategy, and it's been well received. I think also that what was said in September was that it will take time to execute the strategy. I think in the trade-off between executing fast and executing sensibly, which has to do with values, I think Orkla should execute sensibly.
Don't you also fear that, in a sense, it seems that it's very predominant, clear what you're going to do, and that, with a few of your assets, for instance, like REC, it really seems that you, at any price, are willing to sell the company or you're not willing to support the company. To me, it seems that Orkla has lost some of its opportunistic strategy in handling, large assets. What's your comment to that?
Currently, the market value of REC is NOK 1.4 billion. It's a very small part of the asset value of Orkla. I think it's, and it is, so I think it's in terms of the priorities, in the known core area, there are really, at this point, only two assets that we should focus on. One is to have a good exit process and a good [audio distortion], and the other is, of course, to support Sapa management and ensure that that transformation happens. REC supports historically. I mean, it's been a huge loss.
At this point, it should not be something that dominates Orkla management attention.
We got one question from the web. That's from Anita Huhn from Handelsbanken. You said at the capital markets day in September that you expect a 10% growth in EBITDA for Orkla Brands. Market estimates seems to expect that you will reach this, even with the loss of the sourcing contract. Is this realistic given the start to 2012?
Yeah, the target is still the same. That must be, as we also said, a combination of organic and structural growth. It also is dependent on whether we are able to have a proper speed on the acquisition side in order to reach it. Yes, the target is still our ambition.
Just a quick question on the investment portfolio. There was a net sale of NOK 1 billion in the quarter, I believe. Could you please give a comment on the structure of the portfolio now with respect to liquid assets and, let's say, less liquid assets in some kind of private equity funds and so on? Just to get a picture of how liquid the portfolio is right now. Thanks.
It's, it is still a large part that are listed companies. I think the listed part is about 70%, so it's a liquid part of it still. We expect to continue with the sell-off of NOK 1 billion a quarter for the coming quarters. You're absolutely right, at the end, the portfolio will be more and more limited, and there are some more illiquid asset in it. It might take some time before we have fully sold it off, but you should expect the rate to continue over the next quarters, at least NOK 1 million a quarter.
That seems to be it. Thank you for all for coming. Thank you.