Good afternoon, and welcome to Orkla's first Investor Day here in London. We are extremely pleased to see so many important followers of the company being able to join us here today, both here at the London Stock Exchange and also via the web. We have a comprehensive program of presentations for you this afternoon. We have listened to your information requests, and will therefore be focusing on Orkla Brands, the strongest brand builder in the Nordic area, Sapa, the leading aluminum solution company in the world, and Jotun, the fastest-growing paint company in the world. We will, however, as we always do, start by presenting the Orkla Group strategy. Most of our executive board, as well as other managers from Orkla, is here to answer your questions, so please make the most of this opportunity.
There will be a Q&A session after each presentation, if you still have unanswered questions, there will be a final Q&A at the very end. With that, I will now hand over to our CEO, Bjørn M. Wiggen, to present the Orkla Group strategy. Bjørn?
Thank you, Rune, and I would also like to welcome you all, and I'm very pleased to see the strong interest of Orkla shown by your presence here today. I'm going now to talk about the strategic direction of Orkla. How we are looking at the company a few years ahead, what kind of company we want to be, and then what kind of strategy and execution we will go through to get to that kind of company. Initially, I would like to say that the main strategic messages that I have today is that we see Orkla for the future as a branded goods company.
We will allocate our capital towards growth within the branded goods area, and we are going to talk quite a lot about what kind of opportunities we see that there, and also more into details on our current positions and what we can do from those. This means that we will divest our shared portfolio, which has been an important part of Orkla for many years, but where we see changes now in the capital markets and in the structure of the Orkla group.
Meaning that we think that the role the portfolio has had as a part of our business development, creating new investment opportunities, not only financial investment, but also entering into new business opportunities, new business areas, we think that can be handled very well within our M&A department and activities in support of our new branded goods strategy and direction. It means regarding Sapa, that we, in the long term, we see that Sapa is not a natural part of a branded goods company. However, we also see a lot of value enhancement possibilities in Sapa in the shorter term, so that we will continue to support Sapa in its development.
We do not look upon Sapa as a part of the future growth of Orkla. I'm going to go into detail on each of these points later. We're happy to announce also this morning that the board of directors of Orkla have proposed to the general assembly that we will make an extraordinary dividend of 5 NOK per share, and that is related to our total view of our balance sheet, where we see that we have a very strong financial situation currently.
We have looked that against the potential investment opportunities that we have, and we have concluded that it would be correct to propose to that part of the strength of the balance sheet is used for an extraordinary dividend back to our shareholders. The existing business portfolio, as most of you are very familiar with, consists of Orkla Brands as the major part when it comes to the profitability. My colleague, Torkild Nordberg, is going to talk much more about Orkla Brands later. Sapa is the other large part of our portfolio currently, and Svein Tore Holsether is going to present Sapa and give you much more detail about the Sapa group.
Then we have several other investments where we have the share portfolio, we have the hydropower assets, we have the shares in REC, we have the ownership of Borregaard, and we also have the 42.5% ownership in Jotun. We are lucky to have Morten Fon here to present Jotun to you today. If you look at where Orkla is coming from, how have we gotten to where we are today? We have a long history of growth which is both through organic development and a lot of M&A activities over the years. In the period between 1986 and 2004, the growth was related to branded goods companies.
We built a large beverage division, we built a large media division, a foods division, and a brands division during that period, and successfully so as well. We had a large change in the structure of the group in the years from 2004 to 2005, because we then exited Carlsberg breweries in 2006, exited Orkla Media, and we bought Elkem. With Elkem, we also then have got the shares of Sapa and REC. That meant that the structure of the group changed significantly during that period. From being a company that mainly had its activities within branded goods, with an investment portfolio on top, we then became a balanced group with a lot of different activities between branded goods, specialty materials, and investment portfolio.
In reality, if you look at the part of the revenue represented by branded goods, it until the period up till 2004, it was in the 80%-90% area. While in the last few years, it's been down to the 40% area. Actually, what we are now looking at is an Orkla that looks more like the industrial part looked like in the period up to 2004/5, but without the investment portfolio on top, but a more focused branded goods business. That's where we are now heading. I have now personally been the CEO of this great company for a year. When I started 1 year ago, it was very clear that we had a too broad footprint.
We just had too many business areas of a very large size, that all demands a lot of follow-up, both from a capital perspective and, of course, also an organizational perspective. The work was very clear. We need to be more focused in our approach, that's what we have delivered on during this period. We have sold off the Elkem business, we have divested from the forests, we have reduced the value of the investment portfolio, mainly in blue chip liquid shares, with a value of around NOK 4 billion. We have been on this route of towards a more focused company all the time, also during the last year.
Now we see that the opportunities that we have within the branded goods area in itself, they are sufficient enough to see that we have enough growth opportunities, that we can now focus our capital and resources long term on new growth opportunities and investments within that area. At the same time, as we have done all this restructuring, it is, of course, extremely important that the business is going according to its plans and delivering steady profit improvements. And we now have over the last 8 quarters had steady improvements in profitability. That has come actually in some from all 3 major business areas on the industrial side, brands.
Sapa and also Borregaard has helped in getting this improvement over the last few quarters. We have been able to, at the same time, handle all the structural change and also improve the operations during this period. That is some of the current status of the business, and I'm now going to go into more, what do we then see as opportunities of allocating more capital within the branded goods area for for the future? Our basis is very clear. We do have a very strong position in the Nordic area. We have mainly number one positions with our brands, of course, in our home market, Norway, in Sweden, in Denmark, and in Finland.
I would also include the three Baltic countries, Estonia, Lithuania, and Latvia, where we have also strong positions. The same goes for Russia, and particularly the St. Petersburg region, which is then, of course, also geographically close to the Nordic area. The other investment that we have is in growth market, is our investment in India, which again, has been a strong local position in Bangalore, through MTR Foods. Which is not large in terms of turnover so far, but it's a very interesting position to build from, which we now can clearly see that that can also create opportunities for the future. That is the market positions that we have.
When we look at the shareholder value development of the brands business over a long period, we see that we steadily have a return on capital employed within the brands business that are clearly above our weighted average cost of capital, which is around 10%. Here we have steadily been at more 16%-17% level. We also have been able to do quite a few add-ons and then invest in new entities, but successfully integrate those into our business, and improve profitability by doing that. We think that this is an area where we certainly have competence. The competence we think are related to brand building as one, a very important part.
With the brand building, we mean, both, consumer and customer, insights. We are the leading player in the Nordic field, which means that, we do know, the Nordic consumer and also the Nordic customers, I think, better than anybody else, and we know how to operate in that space. That can create then new opportunities for brand development. We also are working consistently with improving our competence in the organization through our own academies, through the daily work that we do with our brands, to regularly strengthen our positions. This can be combined with our M&A skills and expertise. As I showed on the previous slide, Orkla is built by a lot of different M&A activities over the years.
We do have also internally, resources to support the activities we do in this field. We think we can, in this combination, by understanding the markets, the customers, the consumers, the opportunities, and at the same time, work with M&A activities. We do have the potential of growth and do that successfully in this field. We have seen over the last months, I would say, or last year, that there is an increasing opportunity to make investments within this area and within the relevant areas to us. I think that that is coming from different reasons.
I think it's due to the fact that there are private label, sorry, private equity players that now are in the situation they want to free up capital. I think there is around 50 branded goods companies in the Nordic regions owned by private equity firms. Those are obviously for sale at a certain time and certain price. We also see an interesting development based on the tougher competitive climate. You can see in the markets that you have the global players, which are operating within our markets. You have, on the other hand, the private labels from the retailers competing in the market.
You have players like us, which is maybe we are relatively unique, but a large regional strong player in this geography. There are then mid-sized players who can feel rather uncomfortable in this situation, which also might give us new opportunities for expansion. We see that there are three ways we can expand, which the first thing is the most obvious, and that is to look at the categories and geographies where we already are present. If we then can see growth opportunities through acquisitions in those areas, that's obviously the most interesting to us, because that's where we have the largest synergies.
The valuation of these kinds of companies, I mean, fast-moving consumer goods companies, in this case, is relatively stable over the cycles, as also their business is relatively stable. Normally, you have to pay what is the market price at any time. What we can do with it is to realize synergies, make operational improvements, and support the growth of the business through our innovation procedures and support. Those are obvious areas for growth. Secondly, you could think about fast-moving consumer goods expansion outside the Nordic countries.
Before you tell me that I'm crazy and say that you cannot compete with the global players in the U.K. or, and Germany or the U.S., I will immediately say that you are correct, so that we are not going to do that. However, we do have our multi-local model, which is a quite interesting and unique model, and Torkild Nordberg is going to talk much more about that later today. That model can actually work very well in smaller or medium-sized countries, where there are strong leading national brands. So there might be some opportunities there in other countries in Europe, not the large countries, because there it would be too expensive to take the fundamental platform position initially to build from.
In smaller countries, that might be a clear opportunity to us. Last, we could think about growing in niches, in a more global market, where we take products or brands that we have, which are strong in a certain area, and being able to do that, because it doesn't have a national specific taste to compete with, or it has some uniqueness in its approach. That would be the third expansion opportunity to us. When we have looked at all these opportunities really there, and we have made an analysis based on the size of the company, that it should be a certain size. It should have owners where you can look upon it realistically, that you could buy it over some period of time.
Thirdly, that they fit within the criteria we have set for the kind of companies we could look at. When we have done that, we have seen that within the existing area, meaning fast-moving consumer goods in the Nordic area, there are companies with a turnover of around NOK 40 billion that are possible to think about. This means that there are opportunities out there. If you look at the same kind of categories, but outside the Nordic area, but in other smaller or medium-sized countries, there are companies with a turnover of some NOK 20 billion plus, which we have seen.
The largest is, of course, then the other branded goods areas, where there are lots of opportunities if we want to look at it. Obviously, we will be more restrictive there to really understand whether this is an area where we could make a difference and get an added value from an investment. If you, of course, want an example there for me, as with my previous background as a brewery director, it would be easy to say that the beverages area is an obvious place which is very close to our current business and which we then could look at. Before you go ahead and run out and buy some beverages share, I'm not saying that that is the area we are going to invest in.
It's an example of the kind of category we could be looking at. We have also looked at what kind of capital allocation criteria would we look at when we are looking at growth opportunities? What we have focused on here is that we look at companies that have a clear leading market position with a competitive edge. This, as we have talked about earlier, has to be in defined product categories and in the relevant markets. The whole customer insight base is something that we always have as a fundament. Either that the company has it itself, or in combination with our insight, this can be an attractive investment.
We also look for scalability and opportunities to replicate the business model or the way of operating if in other areas. We see that this is a company that in itself has an interesting base for future growth. Those are criteria. We look at all the different businesses and evaluate, are they covering that when we look at opportunities? We do have, of course, then also a demand on the expected return on capital. It has to be above the weighted average cost of capital of 10% before tax, which we then require on new investments.
We look for companies with a stable cash flow, as we want to be a kind of company that can pay a regular high dividend to our shareholders, also in the future. A few words on Jotun, because we think that Jotun is an example of a company which is within our branded goods scope. It is partly business to consumer, it's partly business to business. It has a strong brand, and it has a very interesting niche global position, especially in the marine and protective sectors within the paint industry. We have an ownership of 42.5%. Morten Fon is going to talk much more about what Jotun is all about.
I will hear more mention that we have, as you know, made an offer for the remaining A shares in Jotun recently, which was turned down by the family members that owns the A shares. The reason we made that move was that we wanted to make sure that we could have an access directly to all the A shareholders of Jotun, to give them an opportunity to look at a value, which we meant was the right market price for those shares. We would have been ready also to have a discussion about the B shares, but we have different procedures legally in our agreements around Jotun, how to approach A shares and B shares.
We now understand that the family thought that the offer was not good enough. That is, of course, up to them to look at. We now then continue with our current ownership, which we have had earlier. We still think Jotun is very well positioned with an interesting paint industry in total. We'll then continue to work with the family as a large shareholder in developing Jotun for the future. On the other assets than Jotun and Orkla Brands, I think you will then see that they are not within the branded goods area.
That means that these four businesses, the share portfolio, REC, Borregaard and Sapa, has to be looked upon individually on what to do with the different parts of the business. That I'm going to comment more on each of them now. The share portfolio has delivered consistent improvements and its consistent return on investments, which has steadily been above the Oslo Stock Exchange for many years. It obviously has some competence, some value, and thus, we will look at whether there might be some system values in our share portfolio and the people that are there that can be realized.
We can prove this extra return relative to the market and the indexes that we can measure it against and see if the possibility for a solution is done that way. We are going to consider that with different exit routes. Here it's all about defending and getting as much value as possible out of the shareholdings that we have within the share portfolio. Some positions, for instance, in private equity companies that are tied up for a certain period of time, where it wouldn't make so much sense to sell it off with a discount at an early stage.
Other are, of course, liquid shares that you can sell off at any point of time, if that's the way we look at the markets, that that is a good thing to do. We are going to work quickly on the different exit routes and possibilities within the share portfolio. Secondly, Borregaard. Borregaard is now more and more accepted to be a very advanced biorefinery. It is obviously a global niche player. It has had a very good development, so over the last periods. It has now a very good market situation, and it has done a lot on its own improvement programs.
We think that there is interest for Borregaard among other industrial players, and we also think that Borregaard could possibly be IPO'd if the capital markets came back, and it was possible to do an IPO. When we have made the internal necessary restructurings of Borregaard, which we have now initiated already. The most important thing there is to handle the hydropower assets within Borregaard correctly so that we don't lose any value on the hydropower assets by separation from the industrial part of Borregaard. On REC, we have our shareholding of close to 40%. We have for quite a while been clear that it is, for us, a financial investment. At the right price, we would sell.
We see a very good development within REC. It's now become very clear that REC is the number one polysilicon player in the world when it comes to its cost position, and its Singapore operations is among the best in the world. However, the situations around the negative developments in the market with low prices and also the competitiveness of the Norwegian part of the business has affected the share price negatively. Our plan around REC is to continue to work where an exit is the aim at the right price with the right timing. We think there is a value potential in REC through operational improvements and structural solutions, possibly within REC, where we have in reality 3 parts of the business.
We think Sapa is in a little bit of a different situations than the three I've already mentioned. There we see that Sapa is on its way to reach its long-term targets, with the operational improvements that will be done. We, in addition to that, are far away from a mid-cycle level in the markets. To exit Sapa currently would not be good for the shareholder value of Orkla, as far as we can see it. We think the potential is clearly to have an improvement.
We also think that we can act well as an owner, and Sapa needs also to work more on its internal organization and development to be ready to be a separate entity that could be separately listed or where we made some other structural solutions with Sapa. That is the direction we are working towards. We think that we now focus on the operational improvements. We have done a lot of expansion in Asia, and we will also talk about today that we have finalized another expansion opportunity in China. We are steadily improving our position in the Asian markets. We also work on strengthening our organization within Sapa.
We, as mentioned, think that the targets that we have set for Sapa are still very realistic targets. We also think that, at some point of time, the markets will be back at the mid-cycle levels. Although I think it also for us, like everybody else, it's taken longer time than we had hoped for due to the world market development. We are then now in a situation, as you understand, that we, on the one hand, we want to build our branded goods business, and that's where we will allocate our resources, and I mean both capital, but also organization, people, and competence for the future.
That's, that's the way we are heading, and the way I see it now, we have a very good and strong operational organization in place in within our brands business, which we can build from. We also have a strong M&A environment, which will support this development of growth. That combination will be important for the future. We will need some of our internal M&A and legal resources to handle the exits and the changes that needs to be done within the other areas. That will be handled sort of individually on a project base, on a separate route, so that we can handle those two in parallel. Of course, hopefully we can do that sooner rather than later.
All the time, we will look at what is creating the largest shareholder value in the exits we are looking at. That's how we think around the organization and the people part. On the financial part, we do have a strong balance sheet currently with our existing business. I mean, before we do anything more than we already have done, we have a debt capacity of some 20 billion-25 billion Norwegian kroner. As of now, we have unused credit lines of NOK 13 billion. We have no covenants. We have no loan syndicates. Of course, that in itself gives us a very good platform for expansion opportunities.
At the same time, we will have additional flexibility also from the reallocation of assets, as we have been talking about from other parts of the business into branded goods. On our return of capital to shareholders, I just remind you about the dividend strategy. We are paying a steady dividend each year. That is our aim also in the future, so that our shareholders would know that their direct return is steady. We also, at certain points of time, we also do share buybacks to supplement the dividend. We know that some of our shareholders prefer dividends, some other shareholders would prefer share buybacks. We plan to do a little bit of both.
We make special dividends when we see that the situation is such that that is the correct thing to do. That is what we then looked at now that when you look at the combination of the current balance sheet, the projects that we have in line, where we see that we do have opportunities to grow, so we might make investments, and at the same time, see that there might be reallocation by exiting some assets. We felt that it was right now to announce an extraordinary dividend of 5 NOK per share and propose that to an extraordinary general meeting of Orkla, which will be sometime in fourth quarter, maybe in the middle of that quarter.
We have to look at the details on the days there. To sum up, the key strategic messages that we have here today is that we want to develop Orkla to be the leading branded goods player with a Nordic base. We think there are big growth opportunities within that area. That means that there are other than parts of our current setup, like the share portfolio, that will be exited. REC is a financial investment to us. We will prepare Borregaard for a structural solution, and we will work on Sapa, on developing the value of Sapa over the next period.
Long term, we will not see Sapa as part of the growth strategy of Orkla, but we see a big value growth potential in Sapa, still. Based on these views, we have now set up then the plan to pay an extraordinary dividend of 5 NOK. We will work on developing now the combination of growth and exit, and handle that through the organization in a balanced way, but with the clear aim to be the leading Nordic branded goods company for the future. Thank you.
Before we open up for questions for Bjørn, I will just like to take the opportunity to welcome all those of you who are following on the web, and also welcome your questions. I'd just like to remind you here to use the microphone when you are asking the questions.
Hi, I am Ari Lisetta from Fund Finance. I just wonder if you can put some more color on your thoughts of what could fit as branded goods into Orkla. I mean, the perception of foods and brands is clear, but since you also define Jotun as branded goods, potentially very many things could be branded goods.
Mm-hmm.
If you could put some more color on your, on your thinking about that.
Yeah. I think the obvious categories that are close to what we look at, as I mentioned, is the old categories where Orkla has been in, like the beverages, media, that kind of business, where it's very much based on the consumer and customer insight. I would say that Jotun is then more a combination, because it also have an industrial part. That's, that could be a sort of a discussion point. I feel Jotun has such a strength coming from its brand, that that's why we feel it's within the defined area. I would say, well, if you could, of course, say that, well, maybe telecom or yeah, and I would say no to that, because it's more technology-based.
While I would say maybe, sportswear or, things like that, where we really have much more focus on the, on the consumer insight, that is, would I way, would be within, the definition. Try to, just to illustrate it. We'll of course, work more on that, and we also will be very clear on each individual target we would be looking at, and critical on that. Mm-hmm.
Robin? Okay, Samir.
Samir Bendriss from Pareto. Just 2 questions. One, on REC. Could you provide a bit more flavor on what options you have there? It's a little bit tricky, I understand that.
If you can give us some flavor on recent thinking, we can probably start with that.
Yes. I think, basically, there are 2, 3 ways of thinking about the REC shareholding. First, of course, could be to the possibility that all of REC would be sold.
including our 40% shareholding, where we would be sort of the active part in. That could happen. That could be a possibility, but of course, it's not many companies within that industry that has that opportunity. Secondly, I think you can see that in REC, we have different parts. They are a little bit interlinked, but you can also see Silicon as one part, you can see Singapore as one part, and you can see Norway as a third part. To think around those lines is something that could possibly create some developments.
To my second question was on Sapa.
You've given us some targets, but on our numbers, that translates to about an EBIT of about NOK 2 billion. Is that ballpark correct?
Yeah, I guess if you say 6% mid-cycle, yeah, you are not far off.
Okay. Thank you.
Robin? Robert Askew, JP Morgan. Just on Sapa, are you just having to wait for the, for the markets to improve? Is essentially that the situation?
The second question is on the risk profile of M&A. Obviously, in the past, you were able to use the investment portfolio to buy stakes, to get to know the business, et cetera, and then go for full ownership.
Now, you're doing more straight M&A-
Yeah.
you're just going to go and buy a business. How do you weigh up the risk profile of those different strategies?
I think, when we look at the way we have structured and worked with the investment area for the last five years, in reality, we have had so many business areas already within the industrial part, that the focus on within the share portfolio has very much been on pure financial investments without any sort of thoughts on a future industrial arm. In reality, I feel that that's not the kind of strategy we have followed over the last period. I also think with today's markets, I don't see a big difference from actually going straight to sort of M&A thinking, rather than building it up.
Of course, if it's necessary now to see that we can buy, 30% in a company, that we are interested in 100%, we might do that. That would be then, for looking for opportunities for the future, to increase the position, or if we failed, of course, we could exit again also, but then the thinking would be to go further. I guess the Sapa. Maybe I didn't answer your question on Sapa, whether it was just on a timing issue. I think, as I mentioned, there are two things I think we. One is clearly on the market.
I think most would agree that the current market conditions are not very good for Sapa, neither in the capital markets nor in their end markets. Secondly, we also see that there. You know, we have tripled the size of Sapa over the last five years, and we have done a lot of improvement works, and we would like to see the sort of rewards from that. Svein Tore Holsether is going to talk more about, you know, what kind of possibilities there are there, because we now can start to see effects of that work in some regions, but not all over Sapa. We would like to see that happening in a bigger part of Sapa than where we have seen it today.
Tore Aspheim, Nordea Markets. A follow-up on the share portfolio.
Yeah.
Have you or will you consider to sell the whole portfolio as one kind of company? A second question, do you consider any of the assets in the portfolio as strategic, for instance, Tikkurila or Tomra?
other holdings?
The answer is, yes and yes. Meaning that, yes, we will consider to sell it as a whole and as an ongoing concern, if possible, but only, of course, if that creates the biggest value. It's an interesting thing to see whether there is a market for that kind of setup. Secondly, I think on... Within the portfolio, there are a few shareholdings we would keep because we think it's more linked to the branded goods area. Which they are, I will not comment.
Thank you.
Svein Høgset , DBD EXO. First of all, congratulations with a move that makes complete sense. Two questions: You're mentioning a 10% weighted average cost to capital hurdle rate for new investments. If you could comment on the pricing of Jotun. It's a great company, but would NOK 70,000 per share sort of meet those criteria? That's sort of one question. Second question, you're talking about selling the investment portfolio. You've formerly said that to the extent that you're selling non-EBITDA generating assets, those proceeds will be paid out as special dividends. Is that something that we should sort of assume as a base case going forward as well? Are you, in effect, sort of prepaying, you know, proceeds through the, through the NOK 5 corner special dividend that you announced today?
Yes, I think on the last, if I take that first, I think on our dividend policy, we will continue to think like you are talking about. If we are selling off non sort of cash-generating assets, we would look for an extraordinary dividend. RC, which I've used as an example before, is still relevant in that kind of thinking. In the totality, we will, like we did now, we will continue to consider whether the balance sheet is such that it can afford to pay more extraordinary dividend relative to what we see as realistic growth opportunities.
That's something we will also consider in the months ahead, and when we look at the balance between what we are exiting and what we are having of investment opportunities. On Jotun, I would agree that 70,000, if you calculated that on the total number of shares, A, B, and looked at the 10%, Morten would have to do a fantastic job, which he is, of course, is doing. And that is a very high number. You have to look at that the we had 39% or have 39% of the voting shares.
I think we all could agree that if we had got more than 50, that would be a higher value in itself than the 39, and that we looked at a balance between the shares with a strong vote, 10 to 1 between the A and B shares, and that thus, we calculated a large premium on the A shares. We then think that if you looked at the other possibility to buy both A and B with a realistic balance between those two, then we think we could defend that valuation.
One more question here? Here, second row.
Nils Folda Ludvig Lorentzen. It seems that you are now going for entities that where you control 100%. How satisfactory is it to continue then to be a part owner of Jotun, given that approach?
I think in most cases, we would like to have 100% within our core areas, and certainly if we see that there is a then a clear synergy case, we want to realize and work on that as much as possible. That would be the priority. We have a 40-year history with Jotun being a minority shareholder, and I think we have had a very strong, actually, improvement on the value of Jotun during that period, and especially during the last 5 or 6 years. In that way, it has worked. I don't think it's critical to look at the necessity there.
Of course, I would have preferred to have a different shareholding, but I wouldn't take the opposite conclusion immediately and say that then it was not interesting to own the 42.5%.
Would you be open to receive a bid for Jotun, given that they will make your test requirement?
Well, I'm open to offers. Certainly.
Okay, we got time for one more question.
Henrik Schultz from SpareBank 1 Markets. Expansion outside of the Nordics and consumer brands, looking back over the years, you made a few acquisitions, generally speaking, moderately sized, and having a moderate impact to your results and your focus and so on and so forth.
Your by far, the largest acquisition, of course, indirectly, was Baltika in, in Russia.
Much larger acquisition, much bigger impact, much more successful outcome altogether.
in many ways.
Yeah.
Going forward, how do you see that in terms of categories, to some extent, regionality, nationality, in terms of size and scale of operation? Have you thought along those lines? Are we going to see something different?
in the years to come than what we have seen based on your experiences and learning so far?
Yeah, I think certainly we have learned a lot, as you are mentioning. What is actually going to work if you enter these kinds of different markets? As I also said, to go for then the strong number one, clear market leader position in defined categories is certainly something we would look at, and we would look at whether it then was a possibility to also be of a size in total, so that you did have some scale effects on your total business. I think that one good example of the thinking, even if it's in a small country, is Kalev in Estonia, the clear market leader in confectionery, which we then bought, and then we immediately...
There, we have some other activities as well, so we immediately get an impact into the market and gives us something to build from. That would be the thinking, and that's why I also said that you can't expect us to make a big transaction in the U.K., because, you know, that platform would be so huge in itself, that it probably would be too high, too large for us, especially when we would then be in competition with the global players around that kind of assets.
Okay. Thank you, Bjørn.
Thank you.
From the group level, we are now moving over to the business area. The next speaker should be well known for most of you here today. It's the CEO of Orkla Brands, Torkild Nordberg.
Good afternoon. My name is Torkild Nordberg. I am the CEO of Orkla Brands. As Bjørn just have told you, the branded consumer goods has always been a dominating part of Orkla until 2004, when the share of the turnover was going from 80% - 40%. Our EBITA share, however, has even in the recent period been quite significant. During my presentation, I will actually try to explain the picture you can see on the screen. The reason for that is that we in Orkla Brands, when we compete with the big players globally, consider ourselves to be the guy in the red tracks. When we compete with the global players locally, we find ourselves in the black corner.
In that respect, we are slightly different animal than most of the global competitors we do compete with every day. It's probably also fair to say that during my presentation, some of the more conventional wisdom being used in our types of industry will be challenged. If you remember these three aspects of my presentation, you will understand the base for our strategy, our operation, and our EBT, EBITA, and cash flow growth. First, our companies possess very strong positions in the Nordic markets, which are wealthy and healthy. Secondly, our unique multi-local model, which I will explain to you shortly, is proving its strength to us also during the last years, and will, as such, form the basis for our strategy going forward. Thirdly, our targets are based on doing both structural and organic growth. My presentation will actually be divided into those three parts.
Let's first then have a look at our financial targets. We have put up stretch targets for all our units, asking them to deliver 10% EBITA growth every year, again, through a combination of organic and structural growth. Our structural growth will primarily come from increasing the scale in the existing geographies. We do target volume growth above the market growth, meaning creating category growth for the trade and taking market share for ourselves. We do expect our cash flow over time to be in line with our EBITA levels. This slide shows the top line of the branded consumer goods part of the Orkla business over the last 25 years. It shows a 8% yearly increase in top line, again, through organic and structural growth.
The EBITA growth, as you can see, is even higher, coming out from taking out synergies and continuous improvement in our business units. We started out in Norway, then went to Sweden, Finland, and Denmark, then to the three Baltic countries, and then we went regionally into Russia in 2005, and also regionally into India in 2007. 80% of our turnover is coming from the Nordic area, and is in business to consumer types of operation. Our total turnover at the moment is around NOK 23 billion, with an EBITA of roughly NOK 3 billion. 80% of our turnover is coming from market-leading positions. As you surely know, having number one positions offer you better profitability, clear better profitability, and better sustainability.
Compared to most of our competitors, which are the global players, we have a broad category portfolio, do not apply the more horizontal category thinking in our expansion work. Our strength is more built on the vertical geographical dimension, where we try to reap local scale by being bigger in each country and regions. Some of our brands are crossing national borders, we have no global brands being sold everywhere. In that respect, we are quite different also from most of our competitors. To compare our positions, I will give you some examples of our market position compared to the big players in some of our countries.
First, starting with Norway, where we have a strong position, as can be seen from the chart in the frozen pizza segment, whereas our biggest competitor, the German Dr. Oetker, has a smaller share. For the home care business, in this respect, the detergents business, our market share is close to 80, whereas the international player has a 6% share. For those of you recognizing some Unilever brands on the chart, it's probably worth mentioning that our company in Norway owns most of the Unilever brands in Norway. Unilever owns them in the rest of the world. Going to Sweden, in ketchup, you see that our Felix brand has a 50% market share, whereas Heinz has basically 1/3. In Sweden, in biscuits, our Ballerina brand has a market share of 12, whereas Oreo still has a small market share.
Our total market share in Sweden is around 40% at the moment, this is the biggest brand, we have several brands in the Swedish market. Some examples from Denmark, showing that our snacks business is, again, has roughly 50% of the market, whereas Frito-Lay runs at 9. Bjørn also mentioned in Estonia, where we bought the market leader in the confectionary chocolate market last year, and they have and operate with a market share of 35, compared to the Mars and Kraft's market share in the same area. Orkla Brands companies, therefore, do have strong position in very wealthy Nordic markets. You can see, in fact, the Nordic market in total size, in GDP terms, is at the same level as Russia and little below India.
It's a market area known for very strong buying power, very strong consumer confidence and optimism, probably because of the job security and well-developed welfare systems. It is also quite homogeneous kind of markets, both in relation to food habits and wealth distribution. The growth in the Nordics is expected, as you all know, to be between 3% and 4%, same in Russia, India being probably in the 7% to 8% area. The Nordic area has the highest retail concentration in the world. The normal pattern in this area, that we have 3 or 4 retailers completely dominating the retail scene. Still, however, the private label share are quite low compared to a more average European picture. Again, why is it like this? Two reasons.
First, strong buying power from a consumer point of view, I also think, secondly, that the trade has pretty low economics of scale in this area, making it effective to manufacture and market private label. That is actually worsened by a certain retail banners fragmentation in this area. Orkla Brands has been increasing the EBITA margin close to 1% over the last 3 years in pretty challenging raw material markets. As you can see below on the chart, this is the 4 business units we presently operate with within Orkla Brands. The Orkla Foods Ingredients is a NOK 4 billion business. It is a business-to-business operation, serving bakeries, artisan, and semi-industrial bakeries in Europe.
I will not cover that part of the operation further in my presentation, but as it can be seen, the margin in that business is lower than normal business to consumer. The Orkla Brands International is consisting of our businesses outside the Nordic area, including the Baltics, and is, as Bjørn already have told you, primarily our businesses in Russia and India. As you can see, it's a weak EBITDA margin at the moment. That is because our two Russian confectionery companies are, together with the rest of the Russian confectionery players, struggling with the market development and very steep increases across the board on the cost side. This is affecting short term, at least, our volumes and margins.
For our Russian business, we have said that we will be in black figures by the end of the year, so it will improve. This slide shows our operational cash flow in absolute amounts and in relation to our EBITDA. As you can see, the cash conversion is close to 100% over time. Orkla Brands' strength is built on consumer pull. At the moment, we have 8 million consumers buying our product every day. The very concentrated trade, however, makes it important also to have very strong and good relations with the retail trade, and we are working hard to have the so-called preferred supplier status, seen from our retailer customers. Here are some examples from some markets.
In Norway, from the last official ranking, from the trade point of view, we had five of the five top positions, when the trade are rating the suppliers. In Sweden, our snacks business was rated as the best supplier, again, seen from the retailer point of view, OLW, Old London Wasa. Also our Russian confectionery business was rated the most effective food marketer in Russia, showing that we are working in Russia also heavily on the top-line side of the business to improve the market offerings, and over time, also the results. Let explain to you our multi-local model, our key differentiator, and how it works. Let us start a bit simplistic. Simply put, we try to be a big fish in smaller ponds, and doing that by searching geographical scales in each country.
The thinking behind our model is that it creates barriers by satisfying the local consumers better and faster than our competitors are able to do, and at the same time, take out relevant synergies from the center. Of course, it is a balance of power then between the local autonomy and central value-adding activities. In that respect, we are helped by the fact that both the local and central people only have a local agenda. To us, multi-local means multiple countries and multiple operations per country. Some would argue that our model is more like a transnational model, but we have kept the term multi-local. As good marketeers, it's probably make sense to keep the name and define the proper content of it. Let's also remind ourselves a very basic fact: most businesses are local.
From distance, and not a big distance, the Nordic countries are very often perceived as being identical or the same. For that reason, many of our competitors have been forming Nordic clusters the last years. We think that is good for us, because clusters hate differences, whereas we, locally based, love differences between countries. Looking at the chocolate market between Sweden and Norway, that is the assortment in turnover for Norway and Sweden, the fact is that only 50% of the turnover is made up of products being sold in both two markets. Why is that? Most of the food preferences, most of us has, is consisting of acquired tastes, programmed more or less during childhood. For chocolate, it's very fine nuances, which we normally don't think about, like the melting point, the bitterness, the sweetness.
Most of you know that the Belgians are claiming that the Belgian chocolate is the world's best chocolate. For 90-plus % of the global population, the world's best chocolate is the chocolate they grow up with. This slide illustrates this point quite well. When we evaluate what kind of geographical area are we looking for, we are looking for distinct differences. We are looking to see whether our relevant taste and preference differences between this location and the other locations. We have to see that the trade assortment is predominantly locally based, and the assortment decisions are taken locally. The fact is, of course, that most of the trade do accept that business is local and do take local trade assortment decisions. That has nothing to do with the ownership of the trade.
It must be, of course, possible to keep over time. It must be sustainable. We also, for a mass communication intensive business, it's important for us that the relevant market also contain a media scene, which we can relate to. I will come back to that. For the Nordics, this consists of countries. In Russia, in particular for India, there are regions. It's very difficult to compare a country in Norway with the Indian continent. We do think that we can go in, as we have done, regionally in the state of Karnataka, and have a good and sustainable business even in that area. We consider our business to be innovation, sales, and communication-intensive business. It is not a capital-intensive business. We are investing twice the amount every year on advertising compared to CapEx.
What we are trying to do is to be the biggest media buyer in that relevant market. We try to have the strongest and biggest sales forces and key account teams. The agenda for most of our global competitors looks slightly different. They are more international or even global in scope. They are far bigger than our own operations, and a lot of them, more and more, I would say, focus on global power brands, and the strategy is to further stretch geographically those power brands. Most of them are pursuing a race for scale, I would argue, upstream, and in particular in production. To us, at least, this is a bit surprising, taking into the fact that this is not a very capital-intensive business. For us, at least, the local scale seems more important.
This slide try to illustrate the total size of all Orkla Brands companies on different geographical levels, and compare that with the average size of the big players, Nestlé, Kraft, P&G, Unilever, and L'Oréal. This slide is actually showing that on a global basis, Orkla Brands currently is only 10% of our average global competitors. The figure is held up to 20% on a European basis. We're still far from where we define our market. When we come into the Nordic area, we are 3 times bigger than the average of our competitors, and when we take the extreme Norway, our strongest country, we are 11 times bigger in the market than the average of our global competitors.
This is basically the core of our thinking, and we are, of course, then trying to take our scale locally, and downstream, close to the markets. We think that global scale is not everything. The Orkla Brands companies, this is the mission statement, shall be the leading suppliers of fast-moving consumer goods and B2B offerings, because we have B2B, as I mentioned, based on the local strength, based on knowing the consumer locally better, and being able to respond to his or her needs through our local value chains. It also, probably good to note that we have placed our ambitions with our companies, not with the global Orkla Brands kind of picture. This is actually the key secret of our multi-local model, being in the black corner on the local scale. Our organization model and structure follows our strategy.
Our companies are handling their own business. The underlying structure, the four business units and Orkla Brands, do execute an active leadership, ownership role, and a synergy takeout role. If you take the example from India, our colleague, Sanjay Sharma, he is running our MTR company in Bengaluru, in the state of Karnataka. He has the local freedom, he has his own local products, he is doing his own innovation, his customer handling, value chain. As I mentioned, we have no global brands being pushed from center, and we have no global value chain to source him. We are trying to have few mandatories and kind of mechanical requirements, and it's really go far to convince instead of telling our local CEOs. He would typically be incentivized 80% on his own business and 20% on the business unit he is reporting to.
It is a pretty autonomous kind of setup, but we are trying hard to find the balance between the local leadership and the central value-adding activities. We try basically to do that through 3 levers: the leadership, competence, and scale, and I will go through them quickly. Orkla Brands try to be very close to our companies. Nearness, meaning being close, is one of our key cultural values. We try to be very active owners, and we are stressing to the extreme that the financial reporting focuses on the underlying explanations. Far from kind of dashboard, red and green light, our financial reporting is almost 100% based on the underlying challenges and opportunities. We are trying to use the phrase, brutal honesty, in our financial reporting, and that's extremely important in this multi-local model.
As you can see, our local CEO is not left alone. On the competent side, we have been working hard over many years to develop tools, training, and we even have our own specialist consultants for the companies to use in marketing, mix development, in sales management, and so on. Basically, across the value chain. I'll show you some examples of top-line-oriented guidelines. Consumer insight, brand positioning, innovation, advertising, packaging, promotions, negotiations, category management. They are all developed internally from our own people and our own experience. We have tried to get in best practice, and we have tried hard to fit it to our model and strategy. It is really proprietary thinking behind all our guidelines. Last, the scale. We, of course, have also to reap the scale synergies, which is possible in our model.
First of all, through global purchasing, we have a huge number of people, at the moment, 25 people, doing global purchasing, for the entire Orkla Brands group. Secondly, we do national purchasing of media, as you can understand, from my previous slides. Generally, back office, we try to take out all relevant synergies. Hopefully, you can see that we try to be close and help our companies to improve the performance even further. Do we find the right balance between the local leadership, entrepreneurship, versus the more central thinking? I think we do. This is the result from our last employee survey, which we did last year in all our companies, and actually, on the motivation and engagement part, we actually had a result on top globally from the consultancy agency we used.
Summing up the competitive advantages we see in our multi-local model, it's resting, of course, on the strength of our positions, the loyalty, in our consumer's mind. Secondly, we always operate in home markets. When we are in the market, that is our home market, whether that is in Finland or in the state of Karnataka, south in India. Our Indian business developed products and brands based on the local needs and the local market and their own value chains. Of course, at the base, it's the consumer insight, our ability to understand the local consumers better and respond faster accordingly. This model is actually quite appealing to entrepreneurs and owners of companies, and we had, at least from time to time, some experience in that. When we bought the MTR company in India, actually, the highest bidder was not us.
It was the German, Dr. Oetker. We know because the owner went out in the newspapers and told so. They did offer, according to him, at least 20% higher price than we. The reason why he took and accepted our offer was that we were interested to develop what he had done further, whereas Dr. Oetker was more interested to sell their own pizza through that system. We all know money talks when it comes to that kind of decision. From time to time, at least, we see it even reflected in the price. Coming to the last point, our targets is based on the growth target, setting up both structural and organic growth. When it comes to organic growth, we sincerely think innovation is the key tool for creating organic growth for most of our companies and categories.
This is one page from the innovation guideline, this is the way we define innovation in Orkla Brands. We say that is activities that offer consumers better value, so that they are willing to spend more, meaning more value to the trade and more value to us. This is a pretty demanding definition because it immediately picks out what is true innovation and what is basically good maintenance. Most new launches in our business do fail, that's very good. If it was the opposite, if it is was easy, our position would, of course, be quickly eroded, the same would happen with our profitability levels. The fact that it is difficult underlines the strength of our positions.
What we, of course, try with our model is to have a better hit rate than our competitors in the local market, but we will certainly, and do fail. I've just taken two examples of local innovation, one being a new brand being developed locally, and one being a very old brand, which we have developed and growth. First, from Norway, where we, in 1999, had the idea of launch a new hair care range for market leadership. You would probably know that the hair care market is at least, that we know of, the most competitive, fast-moving consumer goods category you can think of, in the terms of number of launches every year and the advertising levels being spent every year.
It is extremely competitive market. In contrast to a lot of our product and category areas, it's not basically a local business. This business is totally dominated by the global players, this is an exception to the categories we are in. It was developed in Norway. It was developed by two people, we are up against the Wella, the P&Gs, the L'Oréal. We had two people in the lab, L'Oréal had 2,000 in R&D on the hair side. You could argue there are some scale advantages, not this time. We have actually been able to take we took the market leadership and kept the market leader for 10 years, and we're still is the market leader in Norway. An example of an old brand. This is, for some of you, a very well-known brand.
It was launched in 1958. It is a canned mackerel in a tomato sauce. To British people, it probably is quite exotic. I think it's our version of your local Marmite, which I happen to know as an exotic product. Again, it is acquired taste over time. It's used for bread spread, and fresh bread is very important for several meals in the Norwegian consumer pattern. We did, from 2002, and some of you are very good at numbers. You'll see we didn't do anything for 44 years, so this was the same product.
You could argue we could have seen the potential before, but we did, and has actually been through packaging innovation, making more use locations and increase the convenience part of this product, has been actually able to near quadruple the turnover of this very old and strange product. It's very delicious for Norwegians. The Swedes do not like it. Go into the structural growth. This is the growth, the most important growth objects we have done over the last 6 years. We have been growing with it, having acquired company with a turnover of roughly NOK 1 billion a year. Small and medium-sized, and the average sales multiple is 1.3. Bjørn has already mentioned it, but I certainly will repeat it, that for Orkla Brands, we have set up these geographical priorities.
Remember, increasing scale in the existing geographies is important in our strategy. First, Norway, Sweden, Denmark, and Finland, Estonia, Latvia, and Lithuania, regions in India, and regions in Russia. That is the present geographical map. When it comes to category criteria, we are for the geographical areas, which you saw. We are looking for local relevant differences in the consumer needs. Can we grow the category? Can we realize synergies across the value chain? We of course, look at the competitive picture. If it is a lot of international players on the market, that normally is a sign of lack of localness, as it is the case with home care and personal care throughout the world. Food is very, very different.
When evaluating a company, we strongly believe in the good to great thinking, basically saying it's much easier for taking a good company into being great, than to take a weak company into a kind of good position. Of the obvious reasons that weak companies normally lacks strong positions, and normally lacks competent leadership to do it. To buy them is normally quite difficult and costly. Summing up, Orkla Brands companies do possess very strong positions in healthy and wealthy Nordic markets. The multi-local model, which you hopefully then understand better, forms the basis for our strategy going forward, and our growth strategy is based on a combination of organic and structural growth. This is the last slide from Orkla Brands, from the guys and girls in black trousers. Thank you.
Very good. Thank you, Torkild. Now we will open up for questions. Hafslay, you have a microphone over there. Yeah.
Asle Røyrås, DNB. First of all, I think you should give some credit to Rieber & Søn, because they challenged you in the macro and tomato sauce market in 2000, and I think that was a wake-up call, wasn't it? What I really want to ask you about is the Bakish process. You said that this could be sold first half 2011, and I guess you're a bit behind schedule on that one. The second question I have is, what makes it easier to find acquisition targets going forward? You've been looking for targets for quite some time, haven't you?
I love to give credit to my competitors. They make us being better. Probably the reason also for getting into that kind of activity, so fine. Bakish, we said we will sell it before the summer holiday. We have to realize that it's late summer holidays this year, and we haven't done it so far. We are in process of selling it and have a process for it, but it hasn't been finalized yet. We are pushing hard for finding a solution both for Bakish and in particular, also for the people working in Bakish. It's a difficult situation over time. The most important reason why the number of targets now increase was actually also covered by Bjørn.
The availability of targets are increasing. I mean, a lot of acquisition targets during the last three years has actually been, even the department of consumer goods, has been withdrawn from the market, now coming, I would say back. That is, to me at least, the most important external reason for an increase in number of alternative acquisition targets.
Hi, André Masi from Mallin Company. just curious, on the non-food brands, business, whether you grow them organically or acquire them, what factors really, what you understand and differentiate the, you know, the brands in the Nordic market? Like the shampoo example, it's not as clear for me as the food side.
We didn't acquire the non-food brands like the home and personal care in recent years. It is actually, the reason why we're in home and personal care is actually a long history that part of our group was part of Unilever. It was sold back to Norwegian owners in 1958 and has since then, has a good cooperation with Unilever and an agreement for that. You're right, home and personal care is not the areas where you find very local, relevant differences. What we actually did, however, in contrast to all the international players, we hired, it is actually, the concept is actually a hairdresser brand being sold in the groceries. That's the concept.
We actually, for the first time in our history, we hired local hairdressers to develop the brand. Few or no others would have done that, and it gave us extremely credibility in the market. That's part of the secret. You are quite right, it's very different. You're right.
Hi, Ole Liseth here. In the talk of defining the whole Orkla group, which is now to be focused more on brands, there was a discussion in expanding the product area of brands. For example, it could be beverages, was mentioned, could be sportswear, could be other things. Would that fit into your organization to be a part of what you and to expand your part? Or would that be a different leg to the Orkla group? If so, are there adjacent areas that could fit into your organization and your strategy, as opposed to some that would be outside?
Regarding categories, starting with that, as I've pointed out, we have a very broad category search because we're not a category-based kind of animal, so we can search for very broad categories. I didn't mention it, but we are also operating very successfully small textile operation inside Orkla Brands in Norway and Sweden, so we could be very broad. How the organizational will fit in over time, it's far too early to say. That will, of course, be a question of the size, how close it is, and what's the best way to have a good corporate governance and an active leadership towards new areas.
Of course, the competence so far is primarily at the moment, sitting with the Orkla Brands organization.
Henrik Schultz again from SpareBank 1 Markets. I'm just wondering, can we ask a bit about the current business, actually, rather than the strategy? Because I'm specifically interested in how the Russian businesses are getting along, and the Norwegian price hikes, which you implemented on the 1st of July of this year, and which I think a lot of people in Norway seem to sense. Are you able to comment anything on the progress, at least from a non-financial point of view, for example, with respect to Russia, the restructuring, the organization, how that's coming along, and to some extent, the traction in the Nordic and the Norwegian grocery markets in terms of the categories, the prices, how they're affected, and so on and so forth? Thank you very much.
Regarding Russia, we have been announcing quite dramatic measures to improve the situation in Russia. First of all, by actually merging our 2 operations in Russia, SladCo and Krupskaya. That is going very well, both on the top line side and taking out synergies and cost savings in the system. We are moving a lot of tonnage. We have 4 factories in Russia, in order to optimize that with a 1 unit kind of perspective. That is working well, we still believe strongly that we are in black figures in the end of the year, which is challenging, but it seems to be working pretty well. For those of you knowing Russia, when you push a button, it happens.
It really happens. That will probably work out quite well. We are actually in the same boat in Russia as most of the international players, which you can read about. Most confectionery players and some other also are struggling in Russia. It's very difficult. It's very difficult. Second question was about pricing. Yeah, we have been very clear to the market, and still is, that we take out the raw material price increases in our prices and take the volume risk, and that we have done.
Of course, as we have pointed out before, there will be some lagging effects when the raw materials are exploding as they have been, but at the moment, we have that under control. Over this year, we are on par with the raw material development so far. We don't know, the raw materials, we consider it to be very dynamic, so, it's difficult to say, what will happen, one month from now. At the moment, it seems, in control.
Just a follow-up question, if I may, because the reason I ask is, of course, that we've seen the numbers coming out of the Unilever and the Nestlé of this world, and they seem to be very effective in passing on prices, pushing through price rises, and actually creating some category growth and some top-line growth in the process, whereas you've been lagging behind in the first half. Will we see some more traction, do you think, moving into the second half into 2012?
Compared to our competitors, we are not lagging regarding taking out the raw material prices. That can be seen from the margins of competitors, not at all. When it comes to the top line growth, and the way we target them is actually to measure the volume part of it, because the price is basically raw material inflation. What you see at the moment from a lot of our competitors is quite good top line, basically coming out from compensating raw material into the prices. Our thinking is basically to keep that separate and concentrate on the volume side, because I think that's the most sustainable measurement.
One last question in the back.
Your, your 25 years, 8% revenue growth and 12% profit growth, could you say what that would have been without acquisitions? What your target is without acquisitions? Surely, an EBIT target, including acquisitions, is relatively meaningless.
Yeah. We historically most of our growth, when we started out, as you saw, as a small company below NOK 5 billion, has been through acquisitions. No doubt about that. If you take the bottom line part of the story, it would be much more balanced between structural and organic growth. Of course, we are well aware of the fact that we're if we acquire companies, that has to have its own fin ancial targets and delivery, no doubt. No doubt.
All right. Thank you, Torkild. We will now take a 20-minute coffee break, and I'll kindly ask you to be back here in your seats at quarter past three.
Okay. We have had numerous requests for the next speaker. It's therefore a pleasure for me to introduce for the first time at the Orkla Investor Day, the CEO of Jotun, Mr. Morten Fon. Please, Morten. Back on the movie.
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That was a short introduction to the company I intend to talk more about here today. Jotun has been a fast-growing company for many years. I will revert a little bit to that later. Jotun has been a global company, brought globally by our marine business, meaning that we are basically all over the world. We have some regional strongholds, also driven by some of the other businesses we are in. Scandinavia, we have very strong positions. Middle East, we have very strong positions, and also in Asia, we have very strong positions. I will also revert to this. Last year, we reported annual turnover of NOK 2 billion. If you look into the total size of the business, it is a little bit bigger. It's approximately NOK 2.4 billion.
The difference is what we do not consolidate, basically business we do on behalf of our partners. I will revert a little bit to size of the company later. We are approximately 8,000 employees. We have our headquarter in Sandefjord. For some of you don't even know where that is. It's slightly south of, south of Oslo. We have two divisions managed from Sandefjord, and we have two divisions managed from Dubai, and that has actually helped us to think internationally and also brought us closer to some of our markets. That has been important. Other elements that have been important for our development that I would like to emphasize is, number one, we have a very strong corporate culture.
We talk about it as the Penguin Spirit, the penguin culture, and because of that, we walk as penguins. We have penguins all over, and wear ties. It's all over the place. We address each other as penguins. We are sort of sticking together just as the penguins do. The second issue I would like to emphasize is the fact that we have had a very firm strategy over a long time, being very consistent, focusing on organic growth, and also very much what Orkla is doing, on the business, doing the business locally, what they call the multi-local business model. Thirdly, it is our footprint.
Our footprint is different from most of our competitors in the sense that we are strong in Asia, and we are strong in the Middle East, and we are relatively weak in continental Europe, mature Europe, and also in the U.S. That has sort of been very good lately. Before I dig into these three elements, I would like to give you some more insight into the company as such. Starting with this is the development. Jotun was founded in 1926, but it started to grow from 1972, when four companies in Norway were merged, and that was also when Orkla came into the company. I have to say that Orkla has been a long-term investor in Jotun for the last 40 years.
Looking at the development, I brought these slides, sort of try to keep your attention a little bit, because I hope you like the growth we have had recently. It was said previously here that we are the fastest-growing paint company in the world. I think we are, if you compare the international players. I think you can probably find some local players in India and somewhere that are growing faster than us. We have been doing fine, and today, our structure is like this. The way we define the market is basically the four segments we are in. It's decorative, it's protective, it's powder, and it is marine coatings. We estimate the market to be approximately $80 billion, and we sell 2.4. That gives us a market share somewhere around 3%.
In that sense, we are a relatively small player, but still we are among the 10 largest players in the market. If you look at the four segments and how we operate, in decorative, it is the multi-local model, because those markets are basically local, as Torkild Nordberg described earlier. It's local preferences, and we have to be there for the local consumer. On the other hand, you have the marine industry, which is a true global industry, and we have to be able to handle the global customers all over the world. They require us to have delivering capabilities all over the world, delivering the same kind of products. In between, we have the powder coatings, which is products that are used in industries.
Also here, it's a very local business, and we have a very local business model. Protective used to be a local business model, but that it's changing, and it's changing because the customers are changing. The big oil companies, for example, they are requiring us to supply the same basic products all over the world, and that means that also there, the business is becoming more global. If you look at the market shares, in decorative, we estimate 1.5% global market share. It's not a lot. I will revert with some examples on local market shares that we believe are more important. In powder, it's the same. In protective, we have approximately 6% of the global market.
We learned a lot from the North Sea when the oil and gas sector developed there, that has given us a substantial market share. If you look at marine, we have 20% global market share, which means that basically every fifth ship of the world is painted with our products. This is an example from the Middle East to sort of give you an impression of our positions. Don't worry too much about the number as such, but as you can see here, when you look at the positions, we have very strong positions in basically all these markets. This is, again, part of this multi-local model that we would like to have strong positions in these markets.
If you look at decorative, we are mostly competing in the Middle East with local companies, but some of the big guys are there, for example, Akzo, and we are doing, I would say, fairly well. If you look at protective and marine, as I said, that's a more global market. In this region, we mainly compete with the big international players. It's very few local players in these segments. Looking at our development, over the last eight years, you can see that, up to the left, we have had high volume growth year by year.
We were not too satisfied in 2009, but I can assure you that if you compare our growth in 2009 to competitors, it is very good, because most of them lost a lot of volume that year. If you look at this as an average, we have approximately added 10% volume every year. Looking at our cost and capital structure, we have become more efficient, so we feel that we have relatively good control over the operations. That, of course, has given us a better profitability. As you can see down to the left, we've slightly improved EBITA over the, over the 8 years. I think most industries would also say that the return has been reasonably good over the years. The ownership structure is something that has been discussed lately.
We have a bit more than 400 shareholders. The Gleditsch family holds 54% of the shares and 59% of the votes. Orkla, as was said earlier, holds 42% of the shares. It is important for me to say that the Gleditsch family and Orkla has had a very good cooperation over the years. For us, running the company, it has been sort of a very good situation to be in. Orkla has supported with everything they have. We have had access to purchasing cooperation. We have had access to competence development. We have had access to lots of competence through our board, and all this has sort of added to our business.
I would like to convey that message, that over the years, we have had a very good cooperation, and we hope it can continue this way now. One of the reasons why this dividend thing is mentioned is that Jotun has been prudent in the sense that we have made sure that all our growth are financed internally. When you look at our balance sheet, January first, basically, there were no net debt in there. That means that when you saw the graph earlier, saw the growth, that has been financed internally. We have not borrowed anything to handle that. I think that's a good achievement by the company over a number of years. Let me revert to the three main items I started to talk about. First, the corporate culture, the Penguin Spirit.
Our vision here, at the top, Jotun Protects Property, has a lot to do with our business, of course, but it has also a lot to do with our basic values as such. When I said we have the Penguin Spirit, or we are called penguins, you might ask, where is this penguin coming from? We certainly don't have penguins in Norway. They are mostly down, around the South Pole. The history is that our founder, Mr. Gleditsch, he went whaling in the 1920s, and down there, he saw this nice animal, good looking, in very harsh conditions, managing in cold, ice, water, whatever, and they still hold together. Of course, normally, they are well-dressed. He thought this would be a good symbol for a paint company.
In 1942, he decided to sort of implement this as the symbol of Jotun, and it has followed us since then, and also into the logo. When you talk about values and corporate culture, loyalty, care, and respect, we call them family values in Jotun. We are deeply concerned that we take care of people, that we respect cultures, and when you talk about loyalty, we are working hard to have long-term relations with suppliers, with customers, but also with our employees. If you measure turnover of people in Jotun, it is surprisingly low. I don't think any other company has that low turnover, being a global company working in many cultures. That is very important for us.
We like people to stay, so when we hire people, we hire them for life. Of course, some people, they leave anyway, and so some people we have to get rid of, but that is our target, and that's why we measure our companies on it. To give you a small example, I myself, I worked in Egypt a few years ago, and we had a 15-year anniversary in that, in that company. At the end of year 1 in operation, they had 24 employees. 22 of them were still there, 15 years later. This is not something we talk about only in Europe, but we do this all over the world.
As a small, sort of token of that, this picture is taken in Shanghai, in China, outside the Expo main hall last September, where we had what we call the Penguin Day. We had a big party in this hall with 6,000 people present. Among them were our 1,400 employees, which is approximately 20% of the Jotun employees worldwide. Those employees have made us number one in marine and number one in protective in China, and they are very proud of that. That's good. The Penguin Spirit is extremely strong. Moving on to strategy. The strategy has stayed firm over the years. We have focused the four segments.
What we have had beside that, we have sort of sold out and made sure that we have been very focused on the four segments. Then we talk about organic growth, and we talk about that in two ways. One is to grow each company in the market they are operating, but we also talk about organic growth into new markets. The model has been, historically, we have developed new markets from existing markets, and from there on, when we have had volumes, we have built factories and moved on from there. That's the way sort of we have spread our 42 factories around the world, market by market. We will continue to do that.
When it comes to the differentiated approach, that is sort of an expression that very much plays up to what Torkild talked about in the multi-local model, because we also make sure that we empower people locally and that we follow up on them, but we let them do the job in each market. It's very much the same thing. I have to mention this building on the picture here, because that's the world's tallest building. Maybe you can say that we are not only the fastest growing paint company, but maybe the tallest one also. Moving a little bit into the segments. Decorative paints, we have a very strong position in Scandinavia, and we run it with branded goods. LADY here is an example of that. Our main target in the Norwegian market now is to fight private labels.
We have a market share in the range of 60%-65%, private label is growing, and we have to sort of handle that. We have been in Norway for many, many years, and we have a challenge also with our production structure. Because of that, we are now building a new factory to replace all the factories in Scandinavia. In markets outside Scandinavia, we do not run branded products strategy as we do in Scandinavia. We sell everything under the Jotun brand. We only have one brand outside Scandinavia. All products are sold under that brand, and we believe that's a strength. Another thing that has been important outside Scandinavia when it comes to our distribution is the multicolor tinting system. It was mentioned in the film.
We launched a multicolor tinting system in the mid-'70s, and still today, we are among the leaders in the world in tinting all colors in shop. That is, or has been the most important part of our distribution success in other markets outside Scandinavia. Innovations is very important to compete with private labels, but also to move into new markets. I brought a small example of a film, a commercial from the Swedish market, and that will explain this a little bit.
I have some fabulous news for you. It's called Lady Sensitive. Creamy and luscious, and it smells like absolutely nothing. Let's choose a color. Lucas! Even if you have allergies, you can choose whatever color you like.
That one.
Lady Sensitive from Jotun is developed in cooperation with the Norwegian Asthma and Allergy Association, which probably has the toughest health requirements to interior paint in the world. Are you pleased, Lucas?
You mixed it well.
We know that from a health perspective, this is the best product in the world. Of course, now, what we will do is that we will use this technology also in other markets around the world. Moving on to protective coatings. Protective coatings is about protecting values from corrosion, it being steel or concrete. For us, we have a lot of new markets, and it's about, for us, it's about growing profitably in those markets. What we do is that within the protective coating segment, we add new segments all the time. For example, wind power, which is now coming up as a market segment, we make sure that we develop products for that purpose. In that respect, we can increase also within the segment we are already established.
As I mentioned earlier, we have to be global also in this segment going forward. We have an advantage because of the marine network. We are already basically everywhere in the world. Marine coatings is our biggest business segment. It is a challenge to be there because you have to be global. We have to have delivery capabilities in 1,700 ports around the world. That is a challenge. It is also a challenge that the profitability has been very cyclical in this business. To take out that cyclicality is a challenge, but I think we have succeeded fairly well in that.
There are also a few very important markets in marine, because today, 90% of the shipbuilding of this world is done in Japan, Korea, and China, and that means that we have to be strong in those markets. Talking about innovations, on this picture, you can see what we call the Hull Performance Solutions. That is basically for us, thinking past the products. We believe we have the best antifoulings in the world. We have to be able to convince the customer that they should use these products. What we have done now, we have developed this concept that we can put on board a vessel. We put the coating underneath the vessel. We put equipment on board the vessel to measure the effectiveness of the antifouling and the effectiveness of the hull.
Some of you might not believe that that is important, but if you take today a big container vessel, they use approximately 200 tons of fuel every day. With the prices we have today, that would be approximately $120 million. If the effectiveness of the hull is being reduced by 5%, they have to compensate that by using 15% more fuel to keep the speed. That would add cost of $18 million a year. If we can help the ship owner to keep the hull clean, keep the ship moving, and convince him that we can do that by putting this on board the vessel, we believe we have a competitive advantage. This is an example on how we can sort of compete not only with the products, but with concepts around the products.
Our last, our last segment is powder coatings. Powder coatings is different from the other coatings because powder coatings is a dry powder. It has no evaporation, and because of that, there is no solvents going up in there, and because of that, it's more environmental friendly. It can only be used in factories because you need special equipment and so on. We believe in this for the future, and that's why we have invested in it. There are pigment synergies and other synergies to our other segments, and because of that, it's also very well linked into our 4 segments. If you look at how we have grown, and what has made us grow fast in recent years, you can see here how we have developed from 2003 and up to last year.
Asia and Middle East has become very, very important. Of course, with the foothold we have today, we believe that this will be even more important in the future. The logic when we look for new markets is on the other graph here. If you find a market where GDP is expected to grow, you can expect paint consumption to grow faster than GDP. From what we have seen, paint consumption grows 2 to 3 percentage points faster than GDP in emerging economies. What we'll look for is emerging markets expected to develop, that is exactly where we should enter. It's a very simple model, but it's functioning for us. This is a small example from our operation in Indonesia. Indonesia is a good example of our organic growth strategy. We came in early, we had patience.
When the market started to develop, we invested in factories, from there on, we have grown fast. I could have shown you 20 models like this with the same kind of growth. Profitability, as you can see here, is coming in fairly quickly. Again, it's a good, it's a good model for us. People ask: What about new markets? Where are you heading from here? If you are going to continue to grow, how are you going to do that? Of course, there are a lot of smaller markets around the world that we are working on every day. There are also some bigger markets that we are not in yet. Russia is an example of that. We have decided to build a factory in Russia.
U.S. is not a typical market where we enter. We are there because of the protective and the marine business, and because of that, we have to upgrade our manufacturing facilities to handle the volumes. North Africa, maybe it's not good to say that today. North Africa is an area where we definitely see a future. We have been in Egypt for a while, we have been in Libya for a while. The rest of the North African coast, we see as very interesting. China, I said we are number one in marine and protective. We are now entering China with powder coatings. We are currently building two new factories there. Brazil is coming up as a protective market. We are building a factory there these days.
The rest of South America will be more interesting in the future. Bangladesh is an example of a smaller market that we also see is going to develop, and it's important for us to be early to market. Summing it up, I believe, again, we have the three main reasons for what we see as a success. Number one, excellent people with a very strong corporate culture. You may remember the penguin thing again. We have a very strong strategy that is easy to understand. I think basically all the penguins in the company understands the strategy and why we are doing what we are doing, and I think that's also good for success. It's about organic growth, it's about handling both the multi-local model and the global model.
Lastly, I believe we have a unique footprint. We have had a good footprint in recent years, but I think for the future, it will be even better. If we can develop that further, I am certain that we can continue to grow this company the way we have done.
Thank you, Morten. I'm sure there will be some questions for you. Please.
Collett from Arctic Funds. The question is about the shareholders and are there shareholder agreement inside the Gleditsch family? That's one. Two, what are the structure of the shareholder agreement in Orkla and the family of 68, or is it a family of a smaller number?
The first part of the question, I think, I can answer on behalf of the Gleditsch family. They have agreements in between them, handling how this is functioning in the family. When it comes to how this is handled towards Orkla, I think, I should not probably answer that question.
Torasp, Nordea Markets. A question regarding growth strategy. You've primarily been focused on organic growth. Do you have any comments regarding the structural growth acquisitions? I know there's been a lot of speculations regarding consolidation in the paint industry.
In our strategy, we have made sure that we are very firm on this organic growth thing. We would like our organization to focus organic growth every day. Of course, now and then, there are opportunities out there, and we have a look at what's possible. We have one big worry also, and that is that me and my team, we are experts on organic growth, and we simply believe that we might not be good at mergers and acquisitions. I think we are honest, we are brutally honest with ourselves in this respect. We will continue to focus organic growth. That's what we know how to do.
Henrik?
Yes, thank you very much. Henrik Schultz, SpareBank 1 Markets. I'm just wondering, in your interim statement, the first part of the year, on the back of this very strong set of results for 2010, you indicated that raw material cost and general market conditions would mean that 2011 was unlikely to be as strong as 2010. I wonder whether you could elaborate a little bit on that, and with the current outlook lining up for 2012, whether you could look a little bit beyond that. That's the first question. I have a second question. Should I take that straight away, or should I wait?
I can answer. I might forget it.
Yeah, yeah. Let's do the first then. Let's do the first first.
The picture of the first surgery is more or less the same. We have seen raw material prices increasing now for 24 months. We have seen a raw material price increase in Jotun on our purchase of 60%. It's very difficult to push that onto the market without a time lag. Because of that, you are right, we will see a somewhat lower results in 2011, but we will continue to grow, and that is important.
For 2012, this will be, of course, very difficult to say.
I think when you talk about the raw material markets, they are so volatile. I think it's very difficult to predict, but we certainly don't expect them to go down. It's very difficult to predict.
The second part of the question, if you, if you'll allow me, that you were through a number of investments a couple of years ago. It seems to be tapering off a little bit. With the new markets and that you're pointing to, will we see an increasing rate of investments again into various types of activities, from production facilities to market initiatives and so on? How should we look at the CapEx, the cash flow side of it? Thank you.
Yeah, you will see more investments. Some of the markets I mentioned here, we have decided to invest in. We have projects ongoing, Brazil, China, 2 factories, and so on. Yes, you will see higher CapEx than you have seen.
Samir Bendriss from Pareto. Your earnings were remarkably resilient throughout the financial crisis, even though you are somewhat cyclically exposed. Can you provide some more flavor? How much of that was simply a time lag, meaning that you had a backlog of business, ships on order that still needed paints, et cetera? How much is just the, you know, pure resilience in your business model and the fact that you're present in growing economies, et cetera?
I think it's mostly resilience, not only across our segments, but also based on our footprint. Remember, again, what I said about where we are, China, the rest of Asia, and the Middle East, where the growth was still there throughout the crisis. We have little business in continental Europe and the U.S. That is part of the explanation. You are also touching another element, because most people believe that shipbuilding has dropped dramatically, but the fact is that it hasn't. There is a time lag when it comes to shipbuilding, and our volumes today going into shipbuilding, is still high.
Got one more question.
You said that you're very good at organic growth, that's for sure. That's impressive, what you have done. We saw on this other slide before you that Orkla had, they done some 200 acquisitions last 10 years. Given the fact that Orkla has been one of the largest shareholder and also been on your board for 40 years, shouldn't it be possible to do both? Should there be a learning curve here on acquisitions, going over to Jotun maybe, or?
I think I will only repeat what I said. In our genes, in the Penguin genes, it is organic growth. I think it's a bit difficult to change that from outside. Then you can ask Orkla, if they would like to change it from the outside. In the genes of a Penguin, it's organic growth. That's what we know how to do.
Very good. Thank you so much, Morten. Although it's only two weeks he was appointed, CEO of Sapa, the next speaker knows Sapa inside and out from his time as a CFO and also the head of the Asian operation. It's a pleasure to me to introduce the new CEO in Sapa, Svein Tore Holsether. Please.
Thank you. My name is Svein Tore Holsether. I'm President and CEO of the Sapa Group, a position, as Rune said, I held for only two weeks. Sapa is a company that I've spent a great deal of time with during the last five years. First, being part of the Orkla team that worked on putting together the businesses of Sapa and Alcoa in extrusions, that finally ended up with a joint venture in the middle of 2007. At that point, I joined Sapa as CFO, and I've been fortunate to work together with very dedicated colleagues at Sapa in a period of tremendous growth. I now look forward to lead Sapa in its next phase of realizing its potential. The strategy of Sapa remains firm. We're not making any changes to our financial targets.
In fact, with what we're seeing in our businesses, and in particular in North America, we have increased confidence that these financial targets are realistic. We have set out to establish a footprint in Asia, and I'm pleased to say that with the finalization of letter of intent in China over the last days, we have a good footprint in place for our profiles business as well in Asia. Before I go into further details on these topics, I think it's worthwhile to take a step back to look at where did Sapa come from. If we go back to 2005, when Orkla took 100% ownership in Sapa, it was a mid-sized European company with revenues of around 12.5 billion NOK.
We had 18 sites, mainly located in Europe, but we also had 1 operation in North America and 1 in China. If you look at where we're at today, Sapa has become a truly global company, and this has happened in 2 major steps. One, being the joint venture and later, full acquisition of Alcoa's extrusion assets, happened in 2007. In 2009, Sapa acquired its biggest competitor in the North American market, Indalex. Since then, we've had a number of add-ons, but lately, during the last 18 months, our main focus has been on establishing a footprint in Asia. I'll get into more detail on the latest development there. If you look at the end use markets of Sapa, we serve a great variety of industries, but the main segment is building and construction.
If you look at consumption of extrusions in general, 40% of that goes into the B&C markets, that's very much the case in Sapa as well, where we have approximately 36% of our total output going into B&C. As you're all aware, the B&C markets remain depressed. In Sapa, we will always have a focus and a dedication to the B&C segment, at the same time, we're trying to develop other applications and diversifying our portfolio. If you recall where we were at just a few years ago in terms of where our main focus or our main bulk of our products went, it's a reduction going into the B&C segment.
If you look at consumption of extrusions in North America and Europe, we can see here the long-term trends for the markets. We are still significantly below mid-cycle levels. In Europe, we're 12% below, and in North America, we're 28% below mid-cycle level. That's obviously, to a great extent, driven by building and construction, which is still lagging behind several of the other industries. The long-term outlook is still positive for aluminum. There is no new material that has come in to replace aluminum. I would say it's the opposite. We have macro trends working in our favor. Aluminum is the green metal. When you recycle aluminum, you only use 5% of the original electricity input to recycle it. In Sapa, half of our consumption is recycled aluminum. In addition to that, we have the lightweight capabilities of aluminum.
As you're all aware of, there's a tremendous increase in focus on energy efficiency, and that's also illustrated in the auto industry. As late as July of this year, the Obama administration launched initiatives to double fuel efficiency of autos in the U.S. from today until 2025. Of course, aluminum will play an important role in making cars lighter and thereby reducing emissions. If you look at Europe, the consumption of aluminum in cars has tripled in the last two decades. There are other macro trends working in aluminum's favors as well. You're all aware of the development in the copper price, which has increased significantly, and there are trends now where we see aluminum coming in to substitute copper.
If you take a normal air conditioning unit, like the one you see on top, there are copper tubes within a unit like that. If you replace these copper tubes with aluminum, it's a saving of $10-$13 per unit. In addition to that, there are new bracing technologies being developed, which means that aluminum can help shrink the size of air conditioning units by themselves, and thereby increase, improving the energy consumption in the life cycle of these units. Today, this is a market that in total is about 35,000 tons. There's 5% penetration into the total market of aluminum. It's growing by 24.5% per year. If we have a full substitution from copper to aluminum, we're talking about a market of more than 500,000 tons. There are good trends working in aluminum's favor.
It will take time, the future looks bright for aluminum. As I said, Sapa has been through a tremendous growth. We have 65 units operating in 35 countries, there are a number of advantages that we can subtract from being a large global player. I'd like to highlight some of these. Health and safety is tremendously important for us at Sapa. When we merged our activities with Alcoa, we got access to a system and work practice that I believe is world-class when it comes to safety. Developed by Alcoa, we were able to adopt that into our operations. If you look at where Sapa was on lost work day ratio, if you go back to 2006, Sapa had a lost work day ratio of 8.42.
Today, the same ratio is 2.69. That's a reduction of 70%. At Sapa, we're never going to be satisfied until that number is 0, but I'm quite pleased to see the development in safety. A more recent example would be Indalex. We acquired Indalex in the summer of 2009, and the lost workday ratio at Indalex, the same facilities, reduced by 60%, if you look at year-to-date numbers. It shows the potential when you have a system to put in place and you have dedicated employees implementing it. When it comes to world-class operations, there are a number of advantages with having Sapa size.
We have 110 presses spread throughout our network. That provides a data set that where we can compare our operations and see where it's possible to improve efficiency. If you take one example, our Spanish Fork facility in the United States, a well-run facility we took over in 2007. The Sapa Group has worked with the local employees, benchmarking, implementing best practices, and having task forces that have worked together with the local organization. Productivity since 2008 until today, close to 40% improvement. A more recent example, we just acquired a facility in Vietnam back in November of last year. The productivity of that facility is up by 50%, if you look at where we're at today.
Having these opportunities within the network means that there are already synergies taken out of the system. There are plenty more to be gained in the future. When it comes to purchasing, Sapa is the world's largest consumer of aluminum billets. The aluminum industry in itself has been through a great consolidation in the last few years. We have large global players. Sapa is one of the few players that have a large global network of purchasers of billets, and we can play a unique role in the supply chain of the primary aluminum producers, providing them with base load, but also flexibility that such a network could provide, providing win-win situations for us and the primary producers, and a competitive advantage for the Sapa system.
There are a number of categories like that, where we have a central function working together with our local units to gain value from our size. If you look at the customer side, as a general rule, our facilities throughout the world are set up to serve the local market. In addition to that, Sapa, with this network, can provide a unique offering to global players. We, through one interface, can deliver to global players on a local basis. At the same time, we can serve local customers with our entire network of facilities. I'll show an example of that later in Germany, where we have one operating site, but we're serving the German market from 20 facilities. Another example, in the United States, our largest customer is served out of seven plants.
That means that we can provide unmatched logistical advantages to our customer and flexibility to ramp up volume in peak demand. When we look at where we're at in terms of results, looking at the North American operation, we are now seeing the potentials when we're realizing each of the areas that I just went through on world-class operations, on purchasing, and on providing solutions to our customers. Our financial targets remain firm, 6% EBIT margin, with a capital turnover of 3, which then in turn will mean return on capital employed of 18%. When we say that we have more confidence that we can reach these targets, we have a good example here in North America, where we are at 4.5% EBIT margin after first half of 2011.
That's moving from a negative margin of -1.7% in 2009, in a market that continues to be weak. As you recall from earlier in the presentation, the North American market is still 28% below mid-cycle level, we're at 4.5% now. This has been carried out by the organization in North America. It means that we have optimized our footprint, it means cross-tooling, it means working with the customers to provide optimal solutions, 80% of the improvement from the negative -1.7% up to 4.5% is internal improvement. If you turn to our European operations, we're not pleased with the results that we show year to date. We're at 2.4% EBIT margin.
Keep in mind that first half of the year is seasonally better than the second half of the year. Volumes have improved, but the mix is poorer than it was in 2010, and there are a number of ongoing initiatives to address this result, to improve the results going forward. A number of restructuring programs have been started up. We're now working on transferring the results that we have in North America to also realize the same potentials in our European operations. That said, within Europe, it's a mixed picture, and if you look at the 21 facilities that we have in Europe, and first look at the top 7 of those, they are already at a level close to or at 6% EBIT margin.
The middle seven are around 2%, still room for improvement and several activities ongoing. We have a bottom seven, where we have a negative EBIT margin of some 4%. The ones in the bottom are either being located in economies that are very hard hit. We have a footprint also in Portugal, Spain, Italy, which remain challenging markets, but also areas where we need to do further optimization of our production structure. These seven, several of these seven companies at the bottom are being addressed in the restructuring initiative that has already been set in force for Portugal and Denmark, where it's implemented. We have a proposal to have a closure of our extrusion activities at Ghlin in Belgium.
That means that approximately 450 employees would be affected, with an annual saving going forward of some NOK 150 million-NOK 175 million. We remain committed to serve our customers in these regions. That's also what we have realized in our North American operations, that we have had a significant change to our plant structure, with 8 facilities being shut down in the last 2 years. Yet, our market share has grown. I mentioned Germany a little bit earlier, I think this is a good example of what's possible to do when we utilize the capabilities of all our facilities. Sapa is today the market leader with a 16% market share in Germany.
Germany is the largest extrusion market in Europe. We have one facility in Germany today producing some 10,000 tons. Yet we have been able to use the capabilities of all facilities. We are today serving Germany from 20 different facilities in Europe. In the future, you will see us serving Germany, also from our facilities in North America and from Asia. Over to heat transfer. This is a picture of our facility in Shanghai, which we have been very pleased with the development of. We established ourselves in Shanghai in 1996, one of the first coming into that market. We've grown tremendously with the market. We are a market leader in China.
As recent as fourth quarter of last year, we initiated the expansion phase of Sapa Heat Transfer, where we then had completion of the expansion up to 75,000 tons. We are the global number one in delivering aluminum strips to the heat transfer industry, and we are that because that's what we do. If you look at our competitors, that's part of their offering within rolled products. Sapa only delivers into this segment. We are the market leader, we are also the technology leader, and we spend considerably on R&D to improve the product and the offering that we have to our customers. In terms of results, as we have grown the business, we then have an increase in turnover and EBIT.
As I mentioned, we had initiated production at the expanded part of Heat Transfer in last quarter of 2010. We are now implementing a new stage of expansions in Shanghai, where we're taking the production up to 100,000 tons. The ramp up in Shanghai has been successful. After finalizing the acquisition of Indalex in 2009, Sapa was clearly the number one in the aluminum extrusion industry. That number one position was based on our strong number one position in North America and our number one position in Europe. While in Asia, we had a very limited footprint for extrusion. We set out to establish that late 2009, going into 2010, as we explained in the Investor Day we had in October of last year, we had a plan to have a significant footprint in Asia.
For China, the plan was to have a niche strategy where we go into specialized segments, and we have done that now with the latest project, where we signed a letter of intent to acquire Haihong. It's an extruder located outside, two hours outside Shanghai. Get back to more details on that. We have entered into Vietnam, a market that is still at the very early stages of development, much like Jotun mentioned on Indonesia. Per capita consumption of extrusions in India is only one-tenth of what it is in Sweden. When you take into account that Vietnam has 10 times the population than the market in total is still the same. There are very good opportunities to grow in a market like Vietnam.
We're entering in a small, with a small acquisition at this point, and then we'll grow with the market. We have also established a joint venture with the Chalco, I'll get back to that. We have entered into India. Our approach to India is more broad. Today, the Indian market is around 300,000 tons, very low per capita use. If we compare it in absolute terms to China, for instance, China is more than 6 million tons. India today is small enough that we can go in, and we can grow with the market as a general extruder, but also serving the more complex parts of the industrial side. In addition to that, we have also established a fabrication unit outside Bangalore.
The latest project in China, we have searched extensively to find the right candidate for acquisition in China, and we have now signed a letter of intent to acquire Haihong. That's a 15-press operation. They have small presses, 600 ton presses, but they also have a 3,600 ton press. In addition to that, we will move one of our idle presses from North America, a 6,800 ton press, which can serve very specialized segments, and we believe that with that press, we will have unique capabilities to serve very demanding applications of aluminum extrusions. 585 employees, and we believe that after investments to increase productivity and moving the press from North America, we will be at the level of 95,000 tons.
This will take time, but that's the level it could be at. In 2010, this plant had total sales of 20,000 tons. We expect to have this transaction closed in fourth quarter. I mentioned a joint venture with Chalco. That's a joint venture to serve rolling stock industry, meaning, for instance, trains, metros, subways, and so on. That's a very interesting segment that's growing tremendously in China. Every year, 1 percentage point of the population moves from rural area into urban area. That means 10 million people a year, and that presents tremendous logistical challenges for the country, and the best solution to that would be even more focus on rolling stock.
We have searched for a long time to find the right way to enter this interesting market, and we were able to partner up with a very strong partner, Chalco. Chalco is the largest primary producer in China. We have decided to together establish production of aluminum profiles going into the rolling stock industry. Sapa provides technology. We have a leading position in joining technology through friction stir welding. We have worked with rolling stock companies in North America and Europe for a number of years, and we now very much look forward to join with Chalco in China.
Chalco has close cooperation with the two state-owned train manufacturers, with their capabilities on primary side, this joint venture would then be able to have the entire value chain under its control, with everything from bauxite to ready joined panels going straight into rolling stock. We're anticipating startup of production in 2013. In summary, strategy remains firm, financial targets are unchanged, and with what we see in North America, we believe that these numbers are realistic. We're pleased to say that we now, with the footprint that we have established in Asia, we have made a good footprint, and now focus will be on ramp up and integration of these facilities. Thank you.
Thank you, Svein Tore. We will open up for questions. The one in the back.
Hi, Jimmy Bo, Credit Suisse. I have a question about the target for Sapa as a group. Just to understand, is this target 6%, EBITDA target, contingent on closing the gap to the mid-cycle levels? If so, what are you seeing in your end markets that indicate that that is indeed the direction that the market is going? Secondly, you showed a split of the group as it is by division. Do you see that growing being balanced in the future? Is there an area that you could invest more in going forward?
When it comes to our financial targets, they are based on mid-cycle volumes. When we are saying 6% EBIT margin, that's based on when the market is back at mid-cycle. When mid-cycle will happen, I'm sure if we made a poll in this room, we will get as many answers to when that will happen as there are people. My main focus and the top organization's main focus is to do whatever we can to improve our cost position internally, and then we will be at our targets when we reach mid-cycle. When it comes to imbalance between the regions, I think that's quite natural that we will see that going forward as well. I don't think we'll have everything peak at one time.
At this point, there are great variations between the different countries, especially in Europe. In terms of our target, it's to be at, 6% EBIT margin when we're at mid-cycle.
A few questions on the potential acquisition in China. Could you give some more numbers, revenue, margins, transaction price? Also, if this is successful, do you see any need for further acquisitions in China, or are you satisfied with the position you will have in that market?
When it comes to the financials of the company that we're acquiring, we're not at this point, allowed to share that. When it comes to the size of this investment for the Sapa Group, it means that we're acquiring the company, but we're also going to invest in the company to increase productivity, and we're also then moving a large press from North America to China. I would say that the total frame for what we're doing would be in the range of NOK 400-500 million. With respect to further acquisitions, I'm quite pleased with the footprint that we have in Asia now, with the latest addition of the plant in Shanghai.
Further acquisitions would be more of an add-on nature and not major acquisitions.
All right, just coming back to the margin target, one more time. I guess you don't want to give too much commitment on how much, on when and how you're going to reach the target. Since you have a margin today of about 4%, and the target is 6, and you have some positive comments on development in the market or your operations, the 6% you say, is dependent on the mid-cycle. I mean, how far can your initiatives bring you? Even if you assume that the market would never come back to mid-cycle, it is what it is. I mean, how confident are you that you can still improve operations and take it from where you are without help from the market?
We're not going to set new targets for Sapa today. Our target remains firm at 6% EBIT margin and three times capital turnover. Each market is different, and the impact of the improvement initiatives will be different for each market. As we've shown here, we have been able to reach four and a half percent EBIT margin in North America in a challenging market. We're sticking to our ROC of 18% at mid-cycle for the company in total.
Atle Vereide, SEB Enskilda. A question about the current trading situation. I mean, not necessarily the margins for the moment, but how is your order income these days? Secondly, to what extent have you sort of reaped the purchase possibilities you have to get better purchases? To what extent have you exploited that area?
When it comes to the current order intake, I think we delay comments on that until we present the third quarter results. Keep in mind that we just came out of August. August is a vacation month for several of our facilities and our customers. To read much into August numbers, we've never done that. Our sales volume will, at the end of the day, be dependent on where the economies in general are. It totally depends upon that. With regards to purchasing, we have several initiatives on that. We have a metals group. We are getting benefits from buying as one company. There's more to be gained. There's more that can be done on optimizing our cost houses.
There's more that we can do for our suppliers to improve their value chain as well. That's continuous work.
One more question?
actually, I have a question for, Bjørn. Maybe I can wait.
I'll let you wait.
Yeah.
We have time for one more question.
... Bernt Berg-Nilsen, Arctic Securities. What's the utilization level on your factories now? At what level would you like to see that in order to reach the margin targets? Could you also comment on the capital turnover, where are you now? You're aiming for three times, right?
When it comes to capacity utilization, that's a difficult question to answer for Sapa, because it depends on how many days of operation. If you have 24 hour operation, if it's 5 days or 7 days. I would say that with our current setup, we could probably handle another 100,000 tons in our system. With regards to capital turnover, we're not at 3, we're working on improving it up to 3.
All right. Thank you, Svein Tore . Before Bjørn open up for the final question, and his closing remarks. I'll just remind you that after his closing remarks, there will be served drinks and canapes at the auditorium. The management will be there to answer your questions in a more informal way. I hope you'll be able to stick around. Bjørn?
Microphone. I think we'll take questions first.
Yeah. Hi, it's Mikael Berglund from DPD Action. Bjørn, can you please elaborate a little bit on Borregaard, the type of exit you see, and also on timing on that? I know you say that there's some internal restructuring that needs to take place, but that would be helpful.
Yeah. First of all, the internal restructuring, as I think, I mentioned, it's about getting the company in the right shape, and the right legal frame, and also all kinds of things for separating it from the group. Particularly, to make sure that the hydropower assets are handled in a way, so we make absolutely sure that we do not lose the value of that part. I expect that work to be something that Most of it, we can do sometime this year. When it comes to the kind of alternatives, I think, if the capital markets come back, I think, an IPO is a possibility for Borregaard.
Obviously, also, we look for other possibilities, and also, if there are interest from industrial players, that's something we would consider as an alternative.
Actually, can I just follow up? If I ask the exactly the same question for Sapa.
Yes. On Sapa there, I have clearly a longer time frame, because I think it will take maybe two to three years before we are in a situation where we have a mid-cycle level on when it comes to the market. That, and that also that we have a profitability that optimizes the value of the business. That will take some more time, but of course, things might change before that, so that changes that time frame. Currently, realistically, that I think is what we are looking at. Also, there, you know, both alternatives.
Certainly, IPO of Sapa would be a clear possibility if the capital markets are open for IPOs, which I think is not the case at the moment.
Okay. It seems like there's no more questions for the time being, Bjørn. Over to you and, final remarks.
All right. Thank you for listening to us today. We have, I hope, made a very clear direction for the Orkla group going forward. We see that there are clear growth opportunities within branded goods. That's where we are going to focus our efforts, our capital, our management, is going in that direction. We think that there are opportunities out there that will be clearly value-enhancing over time. We will then, in the meantime, work on the exit of the different other alternatives, or other businesses that we have. Our main goal there will be to optimize shareholder value.
We will handle that on a project-by-project basis separately. We have a clear definition on governance, and how we then make sure that we are able to handle both things at the same time. That is the way we are going to work now over the next few periods. We will come back to you on and update on those on a regular basis. We also see that our capital structure is still very strong, even with the extraordinary dividend, with the NOK 5. We have the balance sheet that is necessary in order to make further growth within the branded goods area.
We are then going to have also continuous high, steady dividend policy, and we will look at the possibility for share buybacks as well. We will look at the balance between the exits and the investment opportunities we have, like we have done now, when it comes to extraordinary dividend policies or possibilities in the future. The these are the messages that you hopefully can leave with, and this is the direction we are starting working on immediately. Thank you very much for taking your time to come here. As Rune said, we are happy to talk with you more in the rooms outside here. Thank you very much, and have a good trip back.