Speaker #1: Good morning. And welcome to the presentation of Orcla's third-quarter results. My name is Annie Bursogl, and I'm the head of investor relations and communications.
Speaker #1: We're going to begin with a presentation from our president and CEO, Nils Zelta, who will give an overview of the quarter. After that, our CFO, Iver Egland, will present more detail on the financials and the individual portfolio companies.
Speaker #1: Nils will conclude with some closing remarks. Just a reminder on the procedure for the Q&A: we are going to have a video Q&A first with analysts, so we're going to take those questions first, but you're welcome to submit questions via the web at any time, and we will take those afterwards.
Speaker #1: So, without other delay, let me turn it over to you, Nils.
Speaker #2: Thank you, Annie. And good morning, everyone. as Annie said, I will go through the highlights of the quarter and then Iver will provide more details after that.
Speaker #2: I'm pleased to report a strong quarter for Orcla in a challenging geopolitical environment. While performance was has varied throughout the year, the overall picture is positive, with the year-to-date polling growth of 1.5%.
Speaker #2: Across the portfolio, we are seeing good progress in profitability, and the companies are navigating a challenging input-cost environment well. Let's look into some of the details for the third quarter.
Speaker #2: Organic growth was 3.1%, with a broad-based positive contribution from a majority of the portfolio companies. Underlying EBITDA just increased by 8.1%. This positive development also contributed to a 4.9% increase in adjusted earnings per share, which reached 1.94.
Speaker #2: A significant part of the organic growth came from volume mix, which contributed 2.7% this quarter. Most of the portfolio companies had positive volume growth, and the growth was particularly strong in Orcla Snack, with a volume mix growth of 11.2%.
Speaker #2: Primarily led by the confectionery category. Orcla Home and Personal Care also had double-digit volume growth this quarter. Despite the challenging environment, Jotun continued to deliver underlying operating profit.
Speaker #2: Growth. I'm pleased to see that 8 of 9 consolidated portfolio companies delivered underlying EBITDA just improvements in the quarter. And in the overall picture, the volume mix was a key driver of EBITDA just growth across the consolidated companies.
Speaker #2: Among those, Orcla Snack, again stands out positively. With volume-driven underlying EBIT growth of 16%. The rolling 12-month EBIT margin improved slightly from the last quarter.
Speaker #2: Input price developments varied across the portfolio. Cost for marine products meat and packaging increased versus last year's. Last year, at the same time, cost for other input factors such as cocoa and dairy increased decreased.
Speaker #2: The outlook for prices remains fragmented across the different input factors. We expect prices to rise modestly in 2027. However, the outlook remains uncertain. As always, we continuously monitor the situation closely.
Speaker #2: This is our last quarterly presentation before our cap market day. On December 1st. We are on track to finish 2026 within mid to upper range of our targets of 8 to 10% annual growth in underlying underlying EBITDA just.
Speaker #2: And the EBIT margin is also tracking within the target range. Return on capital employed has improved significantly over the strategy period, but we do not expect to reach 13%.
Speaker #2: With that, I hand it over to Iver.
Speaker #3: Thank you, Nils, and good morning. So, turning first to the income statement, well, make some comment, to to some other items. first of all, operating revenues reporting operating revenues declined by 2%, this quarter.
Speaker #3: reflecting negative currency translation effects of 6.4%. The reported EBIT adjust increased 2%, but also reduced by, currency effects. Other income and expenses amounted to a net cost of 490 million.
Speaker #3: This relates mainly to write-downs of goodwill and trademarks in health span within Orcla Health, and loss on sale of ICE Union in Orcla Food Ingredients.
Speaker #3: Under discontinued operations, we recorded a gain from reversal of provisions related to the sale of SAPA back in 2017. And as Nils mentioned, earnings per share adjusted increased by 4.9% this quarter.
Speaker #3: Cash flow from operations was 4.4 billion year to date, approximately 400 million lower than last year. And about half of the claim decline is was due to working capital.
Speaker #3: And this reflects both a higher receivables following sales growth and a temporary inventory buildup ahead of an ERP implementation in Orcla Foods Norway. And cash flow before capital allocation was 3.9 billion year to date.
Speaker #3: So, turning to capital allocation and leverage, so during the quarter, share buybacks were approximately 1 billion. And this includes both the completion of the 4 billion share back share buyback program announced, in November last year, as well as the new 4 billion share back program that we announced in September.
Speaker #3: Expansion investments increased with 260 million, this quarter, mainly within Orcla Snacks and Orcla Food Ingredients. The net cash flow effect from acquisitions and divestments during the quarter amounted to about 2.9 billion.
Speaker #3: And the largest element was the acquisition of the European Candy Group. And leverage was 2.1 times EBITDA at the end of the quarter. So let's, move to the portfolio companies.
Speaker #3: with some more details, and as usual, I will start with Jotun, where the underlying revenue grew 13% in the third quarter. Across segments, and markets.
Speaker #3: Driven by both volume and price. The gross margins declined because price increases did not fully offset the higher raw material costs. On an underlying basis, operating profit rose 1.3%.
Speaker #3: Reported operating profit fell 5.1%, reflecting negative negative currency translation effects. And Orcla's share of profit from Jotun was down 6.6% to 563 million. Jotun's outlook, remains uncertain due to the conflict in the Middle East.
Speaker #3: Demand in war-affected markets has been resilient, but the conflict creates uncertainty around supply logistics and business conditions. And margin pressure is expected to continue in the coming quarters.
Speaker #3: In Orcla Foods, organic revenue grew 2.4%, of which 1.5% came from volume mix. Growth platforms delivered volume mix growth of 5.3%, with growth in all markets.
Speaker #3: And there was also a positive effect from the comparison to ERP challenges in the Czech Republic last year. Input cost increased slightly, with higher increases for mackerel and packaging.
Speaker #3: Underlying EBIT adjust increased 7.6%, driven by revenue growth and continued cost discipline. Organic growth in Orcla Snacks was 5.6%, and volume mix contributed a record high 11%.
Speaker #3: Organic growth was partly offset by lower prices, mainly for chocolate products. The confectionery snacks and biscuit categories all delivered volume mix growth. Confectionery was the largest contributor, with four main drivers.
Speaker #3: Bubs continued to grow in the US across the Nordics with further expansion in Finland, and launches in Estonia and Latvia. Secondly, Smash also continued to grow, including from its launch in Latvia.
Speaker #3: thirdly, chocolate volumes continued to recover, supported by lower prices. And lastly, earlier Christmas sales than last year had an additional positive effect on volumes in the third quarter.
Speaker #3: Underlying EBIT adjust increased by 16%, driven by higher volumes, but partly offset by higher advertising spend and SG&A costs. Organic growth in Orcla Home and Care Home and Personal Care was 10%, almost entirely from volume mix.
Speaker #3: Volumes increased in Norway, Sweden, and contract manufacturing, supported by more campaign activity. And part of the growth reflects positive facing, effects that shifted sales in the third quarter, partly from the second quarter, and partly from the fourth quarter.
Speaker #3: And underlying EBIT adjust increased by 8.7%. Orcla Food Ingredients had a more muted development, with organic revenue growth of 0.7%. Prices were lower, reflecting lower input costs, in in several markets.
Speaker #3: And categories. Volume mix grew in bakery and sweet, but within plant-based lower volumes and unfavorable mix effects contributed negatively to both overall volume mix and EBIT development.
Speaker #3: Underlying adjusted EBIT declined by 2%. Volume growth was more than offset by higher operating costs. And as we said last quarter, Orcla Food Ingredients is taking steps to reduce its cost base.
Speaker #3: However, with limited effect this year. Organic growth in Orcla Health was flat in the quarter. Price increases in most categories were offset by lower volume mix.
Speaker #3: Most of the decline came from food supplements, where price increases negatively impacted volumes. Oral health and functional personal care contributed positively to both revenue and EBIT growth.
Speaker #3: And the underlying EBIT adjust increased 6.1%. Pricing and mix lifted the contribution margin, which more than offset higher operating costs. And as communicate communicated earlier, we continued we continued to expect weak profitability in the coming quarters in Orcla Health.
Speaker #3: And at the capital markets day, Orcla Health will present more details about its strategy going forward. In Orcla India, organic growth was 19%, driven primarily by pricing to offset significant inflation in key raw materials.
Speaker #3: But volume growth also contributed 2.9%. Government grants had a net positive data of about 8 million recorded, adjusted for just organic growth was 18%.
Speaker #3: Underlying EBIT adjust growth was 7%, but flat when excluding the effect of the grants. Consumer sales in the European pizza company increased by 9.7%, with the growth in all businesses.
Speaker #3: Organic revenue declined by 1.9%. And as in the previous quarter, this is mainly due to lower third-party sales in Q3 pizzas wholesale business. Underlying EBIT adjust increased by 5.4%, supported by higher consumer sales and positive mix effects.
Speaker #3: And both Orcla Healthcare and the health and sports nutrition group continued to develop well, in the quarter and contributed to Orcla's organic revenue growth and underlying EBIT growth.
Speaker #3: So with that, I'll hand it back to you, Nils, for the closing remarks.
Speaker #2: Thank you, Arvo. In 2023, I set out three strategic priorities: drive organic value, reduce complexity, and carry out value-adding structural changes. Or transactions. This quarter, our progress came from driving organic value.
Speaker #2: And I'm pleased to see the progress made. At the capital markets day, in a few weeks, I will review the full strategy period and present priorities and financial targets for the next four years.
Speaker #2: With that, we are now ready to begin the Q&A.
Speaker #1: Welcome back. We're now ready to begin our Q&A, so please raise your hand if you have a question. And remember to unmute yourselves. And turn your camera on.
Speaker #1: so it looks like our first question is from Ole Martin Vestgaard in DNB Carnegie.
Speaker #4: Hi, and thanks for taking my my questions. when it comes to the volume growth in in this quarter, it was a clear improvement from the second quarter.
Speaker #4: but at the same time, you highlight that you benefited from some promotion phasing and, forward from Q4. And, snacks also had some Christmas phasing.
Speaker #4: Can you quantify this effect on organic, volume growth on the group level? And, what should we expect on on Q4 for that?
Speaker #2: As you know, Ole Martin, we don't guide you for Q4, but but what I said in the presentation was that if you look at the year-to-date numbers and the growth volume growth year-to-date, 1.5%, we we think that that that's a kind of a correct underlying or or view on the underlying performance of the business at the moment.
Speaker #4: Okay. And just on snacks then, to follow up on that, can you say anything about how much BEPS contributed to the organic growth in snacks in Q3?
Speaker #2: Sorry, we will not give you precise numbers of that. What what we see in BEPS is that BEPS is growing across its markets. So it it's growing healthy in in the Nordics, in the Baltics, and also in the US.
Speaker #2: So good performance across the board in BEPS.
Speaker #4: Okay. And then, a question on on, the cost side, both in food, snacks, and food ingredients. You point to higher energy packaging, fright, and raw material cost.
Speaker #4: is this reflected in Q3, or is this something that we would accelerate going into to to Q4?
Speaker #2: It is reflected in in the Q3 results as well. And and given the picture we see today, we expected also continue in Q4 and the coming quarters.
Speaker #2: But obviously, it depends highly on the Middle East situation. but as as of now, it's it's, a picture that we have seen and continue to see going forward.
Speaker #4: And and then just a a last one on on the cost side. On the marketing spend in this quarter, how was that compared to to to to Q3 last year?
Speaker #4: Was it stable, and how has the marketing spend been so far this year?
Speaker #2: Slightly increased this quarter, Ole Martin, compared to last year.
Speaker #4: Okay. Thank you. I'll jump back in the queue. Thanks.
Speaker #1: It looks like our next question is from Andrei Klondrea in UBS.
Speaker #5: Good morning. everyone, and thank you for taking my questions. if we could go to, go back into the volume growth, particularly in foods. Obviously, we saw a nice, step up there.
Speaker #5: Can you speak to what's, what's changed in your underlying markets? And whether the performance was a bit flattered by any any small one-offs beyond the Czech ERP implementation?
Speaker #2: I think the volume in foods was, as you said, affected by the ERP, implementation in the Czech. So so that has been kind of adjusted in the presentation.
Speaker #2: But otherwise, we see a good growth, in Sweden as communicated. We see weaker performance in Finland. And what we see across the board and, in all, the markets that Orca Foods are operating in, that we see that prioritized categories have a fantastic growth this quarter.
Speaker #2: Otherwise, we we are not precise on other items, or or more. We will not like to be more precise than that, actually, at the moment.
Speaker #5: Understood. And if we were to go to India, obviously, pricing strong acceleration, Q3 versus Q2. You mentioned that it's driven by, input cost inflation.
Speaker #5: If we look ahead, do you see is is there a potential for it to accelerate further, and conversely, is there a risk that price elasticities are gonna increase?
Speaker #5: And this question applies re applies really for the rest of the group as well. Just seeing where where we have inflation right now. Thank you.
Speaker #2: So so if you look at India, through the third quarter has experienced high extreme high inflation on input prices. And that's also reflected in the numbers as well.
Speaker #2: I think we as always, we don't guide precisely on the different input factors. it will give a lot of sense for you to to watch the call that they have, last or yesterday morning.
Speaker #2: So so it probably can ha enlighten you from that perspective. But we are monitoring the situation, closely to together with the team in India.
Speaker #2: And but I think what's encouraging is that they are able to take out price to the market, on the increased input prices that they are experiencing at the moment.
Speaker #2: Do you think to add to that, Ole?
Speaker #3: No, but I I think in general, you know, the Indian business is is affected by, special categories of in input costs, raw materials. That's a more particular for for that market, which is, you know, highly volatile.
Speaker #3: And and and for the rest of the group, it's it's more in general, as as you said, for the for the last couple of quarters, freight, packaging, energy, that kind of cost that runs through all all the portfolio companies and and affects you know, the general business.
Speaker #3: In in addition.
Speaker #5: Understood. Thank you very much. I'll jump back in the queue.
Speaker #1: Looks like our next question is from Petter Nyström in ABG.
Speaker #5: thanks, Annie. So two questions from me. I'll take one at a time. So starting with Jotun. you you talk about margin pressure. you now say, you know, raw material costs are are starting to benefit or starting to to impact the margin.
Speaker #5: With more to come, does this mean that we should expect, you know, more margin pressure here? into Q4 and 27. Thanks.
Speaker #3: You know, this is in line with what you said the last couple of quarters, Petter, that, input costs for Jotun, started, input prices in the market started, to to increase, highly after the Middle East conflict, started, earlier this year.
Speaker #3: And we have expected this to gradually impact margins, throughout the year. And we have seen this now in Q2. We are be expect this picture to continue going forward.
Speaker #3: But you know, the the, the magnitude of it, it's it's very hard to give a precise answer on. But, it's it's according to what you said, that the the the impact on the numbers has some lag effects.
Speaker #3: And we see it in the Q3. We expect it to continue in the coming quarters as well.
Speaker #5: Thanks. Perfect. And and then, one final question on UFE and then the turnaround there. are you seeing any, let's say, call it early benefit from the cost measures?
Speaker #5: And when should we we expect to see any meaningful impact? This is a first half 27, effect, or is it more like in the in in the in the second half of 27?
Speaker #5: Thanks.
Speaker #2: first of all, we have, currently Marianne Kirkegård as the acting CEO in the companies. She has initiated a lot lot of different, kind of, projects within within Orca Food Ingredients.
Speaker #2: That is ongoing. We don't expect to see anything, this current year because this is longer processes. But you should see gradually effects throughout 2027 from these initiatives.
Speaker #5: Thanks, Nils. I'll jump back in the queue.
Speaker #1: From Håkon Fuglerud in SEB.
Speaker #5: Yes. Morning, all. Thank you for taking my question. And could you explain a bit around the, stronger, Norwegian crown? How does that sort of impact your EBIT margin and your input costs?
Speaker #5: And what should you think about the lag effects there? Thank you.
Speaker #3: Well, LH, it has, obviously a positive effect for for in particular for the for the Norwegian business. but compared to the, to the negative currency translation effects, it it is, a much smaller impact.
Speaker #3: But it has some it has some positive effects on, in particular the Norwegian business on on the margin side. But we we haven't we we are not precise on how much that will be.
Speaker #3: And and you know, going forward, it's it's it's very hard to quantify, the effects also going forward, related to input cost.
Speaker #5: Okay. Thank you. That's all from me.
Speaker #1: It looks like we have another question from, let's see, is this yeah, from Ole Martin Vestgård.
Speaker #5: Yes. I just wondered if you could provide some, color on what you aim to guide for at your capital markets day. Which, sort of, are is are we still gonna get an underlying EBIT growth?
Speaker #5: Will the EBIT adjust margin? Is return on capital available with that kind of framework we should expect at this capital markets day, or, any color would be interesting?
Speaker #2: I think you need to be patient there, Ole Martin. There's, Just a few weeks, until the capital markets day. So, we will let you be curious and, follow up at the capital markets day and get the answers there.
Speaker #5: Okay. Okay. Thanks.
Speaker #1: That seems to be the last question on the video. if I turn to the questions from the web, it looks like the first question is from Robin Scott.
Speaker #1: Have quarterly payouts been discussed in Orcla to improve interest in the stock?
Speaker #2: It has been discussed, but this is, up to the board, to the side. and, I think, this will be continuously discussed. And if you have something to to to announce in that regard, we will come back to you.
Speaker #2: But as of now, we will stick to yearly dividend.
Speaker #1: The second question is from Bit August, Fardrup Oskud in Nordea. How do you view the current count of portfolio companies? It is above the stated target range of 7 to 9.
Speaker #1: Can we expect any divestments anytime soon?
Speaker #2: We are currently, 10 portfolio companies, in Orcla. I think we guided on the capital markets day, 7 to 9. That was an ambition. having said that, we we will not guide, the market on any M&A activities.
Speaker #2: And, so we will just announce something when when it has happened. So so from that perspective, we will not give any more comments on that.
Speaker #1: That seems to be the last question here. so before we conclude, let me just remind you that we are holding our capital markets day on the 1st of December.
Speaker #1: And we will report fourth quarter results on February 10th. So thank you again for joining us. And then please enjoy the rest of your day.
