Orkla ASA (ORK) Earnings Call Transcript & Summary

Hello, and welcome to Orkla ASA Conference Call. My name is Ben, and I will be the coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]. I will now hand you over to your host, Kari Lindtvedt to begin today's conference. Thank you.

Thank you, Ben. Welcome to this Orkla conference call. My name is Kari Lindtvedt. I'm Head of Investor Relations. I am joined by our CFO, Harald Ullevoldsæter and Investment Executive Hege Holter Brekke; and Atle Nagel-Johansen. The purpose of this call is to answer any questions you might have regarding the financial background information that was published yesterday. The purpose is not to go into detail about performance or development for specific quarters and companies nor is to comment on expectations going forward. Our CFO, Harald will now give you a brief introduction, and then we move straight to Q&A.

Thank you, Kari. I will give a short introduction before we open up for Q&A, as Kari said. As you know, Orkla's new organization has been in operation since the 1st of March 2023. We are transforming to be an industrial investment company with a brands and consumer-oriented scope. We currently have 12 companies in our portfolio. An important part of the change is that we want to increase both internal but also external transparency on each portfolio company going forward. We think the financial market will be in a better position to assess the different parts of Orkla. We also think that by opening up, we can increase accountability and focus on portfolio-company level. We will be reporting our second quarter results on the 14th of July, and they will be presented on an updated reporting format in line with the new operating model. The purpose of the information that was released yesterday is to give the market some background in advance of quarter 2 reporting and a better starting point for understanding our businesses. I want to emphasize that not all of the information we launched this week is representative for quarterly reporting going forward. We will, however, continue to split organic growth into both price and volume mix. We will continue to give you the development in contribution ratio, and we will give you the underlying development in both EBIT-adjusted and EBIT-adjusted margin as well as return on capital employed. We have also included some estimates of the cost effects we expect for each portfolio company following the new organization. The role of head office has changed and some functions have been moved to the local companies and some pricing models have been changed. The effect for the portfolio company will be modest in 2023, but larger in 2024 when the main changes will take place. EBIT for headquarter ended at minus NOK 374 million in 2022. If we make this comparable to the new operating model, the figure is minus NOK 392 million in 2022. The difference is primarily the cease of existence of the business area of Consumer Investments, which moves central business's area costs to Orkla headquarter with a net effect of 0 for the group. In 2023, we estimate headquarter results to be around minus NOK 400 million to minus NOK 420 million. From 2024, we expect improved EBIT level for Orkla ASA headquarter, partly to the change of the -- in the pricing models and partly due to further cost improvement initiatives. So before we move on to Q&A, I also want to remind you that the figures have been prepared solely for information purposes. The financial information is derived from the unaudited financial statement of certain Orkla subsidiaries and from unaudited financial information relating to historical business segments in the Orkla Group. The information should be treated accordingly. Let me on this regard also refer to the disclaimer that is included in the release material. So let's move on to Q&A.

Thank you very much. [Operator Instructions]. We currently have no questions coming through. [Operator Instructions]. The first question comes from the line of Eirik Rafdal calling from Carnegie.

Eirik from Carnegie here. And also thank you for the background material. I've got a couple, but I can take one by one. If we could just start actually with India, it takes a big gross margin dip in 2021 and 2022. Just to understand, is this kind of solely related to the acquisition of Eastern? And how should we kind of think about this going forward?

Yes, the answer is it's solely related to Eastern coming into the accounts with a lower contribution margin. And we'll not specifically comment on how you should think about that going forward. So just confirming that it's related to the consolidation of Eastern acquisition. But let me add perhaps that when we acquired MTR back in 2007, we had the kind of same situation with quite low margin and we have improved over many years. So we, of course, are planning for the same patterns for the Eastern company.

That's very clear. Would you like me to jump back in the queue with other questions? Or can I go ahead with the 2 more?

Please go ahead.

On Pierre Robert, it seems that you've kind of managed to turn it around after a couple of tough years in the late 2010s. Do you kind of view the turnaround as completed after 2 years with positive volume growth?

No, I don't think we are finished with Pierre Robert. We are still in a kind of turnaround situation.

Perfect. And just one last one on Foods Europe. The 3% negative volume in 2022, do you have any idea of how that kind of compares to the overall market? It's a bit tough with all the different categories or subcategories and geographies.

I think when you're looking into 2022 volumes, it's really difficult to see the underlying development because of the comparables with the COVID effects. So I think the first, more or less, normal quarter is actually the first quarter of this year.

But also looking at how our peers have reported for those quarters, it's more or less in line.

But we have big movements both in out-of-home and in-home in the grocery. So it's really, really difficult to really assess the underlying performance.

We currently have no questions coming through. [Operator Instructions]. There are no further questions, so I will hand you back to your host to conclude today's conference.

Okay. Thank you all for joining today. We are now entering silent period ahead of quarter 2, and we will be back with our Q2 financial results on the 14th of July. We wish you all a nice day.

Thank you for joining today's call. You may now disconnect.