Orkla ASA — Earnings Release 2018

Jul 13, 2018

Second quarter results 2018

13 July 2018

Peter A. Ruzicka, President & CEO

• Good growth across our Finnish and CEE based businesses, and strong recovery in ice cream ingredients following a weak first quarter
• Low campaign activity and sugar tax related volume decline in Norway
• Underlying EBIT (adj.) margin for BCG improved in Q2
• EPS from continuing operations NOK 0.82 in Q2, up 9% from previous year
• Changes in Executive Management team to increase emphasis on strategic priorities

Branded Consumer Goods YTD 2018: Good growth in Food Ingredients offset by lower campaign activity and impact from increased sugar tax

3 All Alternative Performance Measures (APM) are presented in the appendix

Branded Consumer Goods YTD 2018:

Weaker sales combined with growth investments led to negative gap

Changes in Orkla's Group Executive Board

As from 1 October 2018, the Group Executive Board will consist of the following members:

Peter A. Ruzicka will continue in his position as President & CEO

Jens B. Staff will continue in his position as CFO

Karl Otto Tveter, (today: EVP Group Functions): EVP Strategy, Development & New Growth Areas

Atle Vidar Nagel Johansen, (today: CEO Orkla Foods): EVP Supply Chain

Christer Grönberg, (today: EVP HR): EVP Group Functions

Håkon Mageli will continue in his position as Group Director Corporate Communications and Corporate Affairs

Ann-Beth Freuchen, (today: CEO Orkla Confectionery & Snacks): CEO Orkla Foods (Nordics and Baltics)

Johan Wilhelmsson, (today: CEO Orkla Foods Central Europe and the Baltics): CEO Orkla Foods (International)

Stig Ebert Nilssen will continue in his position as CEO Orkla Care

Johan Clarin, (today: EVP Operations): CEO Orkla Food Ingredients

The process of recruiting the CEO Confectionery & Snacks has begun

Terje Andersen, (today: CEO Orkla Investments): will withdraw from Orkla's Group Executive Board and will retain responsibility for Orkla's Real Estate and Hydro Power businesses.

Financial performance

Jens Bjørn Staff, CFO

9% growth in Group EBIT (adj.)

Key figures	Q2-18	Q2 ∆vs LY
Operating revenues	10,017	+3%
EBIT (adj.) BCG	1,050	+3%
EBIT (adj.) Orkla Investments	111	+50%
EBIT (adj.) HQ/Other business	-42	+35%
EBIT (adj.)	1,119	+9%
Other income and expenses	-97
EBIT	1,022	+12%
Profit from associates	105	-9%
Net interest and other financial items	-36
Profit before tax	1,091	+13%
Taxes	-234

Earnings per share cont. operations (NOK) 0.82 +9%

Branded Consumer Goods Q2-18: Revenue growth driven by M&A

Branded Consumer Goods Q2-18: Margin improvement in Q2

Note: Figures may not add up due to rounding

9 ¹Other costs include fixed production costs, SG&A and advertising

Orkla Foods Growth despite challenging retail environment in Norway

	Q2-18	YTD Q2-18
Revenues	3,845	7,697
Organic growth	0.4%	1.0%
EBIT (adj.)	439	839
EBIT(adj.) growth	1.2%	1.6%
EBIT(adj.) margin	11.4%	10.9%
Change vs LY	0.5%-p	0.2%-p

• Good organic growth in Central Europe, India and Finland
• Volume decline in Scandinavia due to changed campaign activity and increased retail prices in Norway
• Cost improvements and reduced advertising spend partly offset by impact of weak SEK on input costs

Orkla Confectionery & Snacks Sales in Norway impacted by sugar tax and loss of distribution contract

	Q2-18	YTD Q2-18
Revenues	1,435	2,888
Organic growth	-5.9%	-4.4%
Adj. for Wrigley	-1.4%	flat
EBIT (adj.)	171	358
EBIT(adj.) growth	-8.1%	-7.5%
EBIT(adj.) margin	11.9%	12.4%
Change vs LY	-0.3%-p	-0.6%-p

• Flat YTD organic growth adjusted for loss of Wrigley distribution contract
• Good sales and profit growth outside Norway
• Weak volume growth in Norwegian confectionery market, partly due to sharp increase in sugar tax (+83%)
• Positive impact from cost improvements

Orkla Care Profit growth from acquisitions

	Q2-18	YTD Q2-18
Revenues	2,032	4,108
Organic growth	1.3%	0.4%
EBIT (adj.)	264	562
EBIT(adj.) growth	7.8%	8.1%
EBIT(adj.) margin	13.0%	13.7%
Change vs LY	-0.5%-p	-0.5%-p

• Total revenue growth in Q2 of 12% driven by M&A
• Growth in most Business Units helped by more sales days
• Decline in Orkla Health and House Care UK
• EBIT (adj.) margin diluted by M&A and higher input costs

Orkla Food Ingredients Good performance boosted by good ice cream season

	Q2-18	YTD Q2-18
Revenues	2,462	4,644
Organic growth	2.7%	2.2%
EBIT (adj.)	176	233
EBIT(adj.) growth	16.6%	14.2%
EBIT(adj.) margin	7.1%	5.0%
Change vs LY	0.3%-p	flat

• Strong Q2 due to increased sale of ice cream ingredients
• Profit improvement driven by ice cream ingredients, sales & distribution businesses and M&A
• Successful efficiency projects in Finland and Romania

Orkla Investments Progress for Hydro Power, another tough quarter for Jotun

Hydro Power

Fully consolidated into Orkla financial statements

Volume (GWh): Q2: 615 (736) YTD: 1,097 (1,272) Power prices¹ (øre/KWh): Q2: 37.4 (25.7) YTD: 37.3 (26.8) EBIT adj. (NOK million): Q2: 97 (79) YTD: 156 (133)

Financial Investments

Fully consolidated into Orkla's financial statements

Book value real estate: NOK 1.6 billion

Jotun (42.6%) Accounted for using equity method

14 ¹Source: Nord Pool Spot, Monthly System Price

Jotun (42.6%) Improved momentum in Q2

YTD Q2-18		YTD Q2-18 comments
Operating income	8,810
Change vs LY	6.8%	• Improved sales momentum in Q2
		– Good growth in Decorative Paints and improvement in Protective Coatings
Operating profit	933	– Marine Coatings still heavily affected
Change vs LY -8.1%		cyclical downturn in shipping
Orkla's share of net profit after tax	188	• Gross margin decline levelling out
Change vs LY	-34.9%	• Operating profits down year to date, but improvements seen in all segments in Q2

Cash from operations (excl. financial investments)

Cash flow per 30.06	2018	2017
Operating profit	1,882	1,717
Amort., depr., and impairment	602	625
Change in net working capital	-722	-296
Net replacement investments	-684	-484
Cash from operations	1,078	1,560

Changes in net debt Q2-18

17 Amounts in NOK million

Summary and outlook

Peter A. Ruzicka, President & CEO

Profit improvement in Branded Consumer Goods

Key takeaways YTD Q2-18

• Growth in Branded Consumer Goods driven by M&A
• Good growth in Finland and Central Eastern Europe
• Low campaign activity and sugar tax related volume decline in Norway
• Recovery in Ice Cream ingredients in Q2
• Underlying BCG EBIT (adj.) margin progress in Q2

Outlook

• Continued soft market growth, especially in Norway
• Organic and structural efforts to shift portfolio towards higher growing categories, channels and geographies
• Supply chain efficiency program continues
• Changes in Group Executive Board to strengthen strategic priority areas

Growth in the Home Care Category

Expand with existing portfolio across markets

Set the agenda for category development and growth

Invest in brands to stay relevant for consumers

Expand with existing portfolio across markets

A selection of initiatives

Q&A

Peter A. Ruzicka, President & CEO Jens Bjørn Staff, CFO

Appendices

EBIT (adj.)

EBIT (adj.) is operating profit or loss before other income and expenses (OIE). The main purpose of this performance measure is to identify material non-recurring items and items substantially relating to other periods to ensure that the changes in and comparability of the items presented in EBIT (adj.) are more relevant to the company.

Organic growth

Reported turnover growth adjusted for the effects of acquisitions and sales of companies and foreign currency, as follows: acquired companies are excluded 12 months after the transaction date. Divestments are pro forma excluded 12 months prior to the transaction date. Currency effects (from companies/businesses that report in a currency other than the presentation currency) are neutralised by recomputing this year's turnover at last year's currency exchange rates. The main purpose of this alternative performance measure (APM) is to show like-for-like growth in the business portfolio exclusive of acquired and sold companies in the last 12 months prior to the reporting date.

Underlying growth

Reported change adjusted for the effects of acquisitions and sales of companies and foreign currency, as follows: acquired companies are included after the transaction date and adjusted by also pro forma including the acquired companies in the 12 months prior to the transaction date. Divestments are pro forma excluded 12 months prior to the transaction date. Currency effects (from companies/businesses that report in a currency other than the presentation currency) are neutralised by recomputing this year's turnover at last year's currency exchange rates. The main purpose of this alternative performance measure (APM) is to show like-for-like growth for existing operations at the reporting date.

Structure/M&A (acquired and sold companies)

Structural growth includes adjustments for the acquisition of Agrimex, Struer, Riemann, HSNG, Orchard Valley, SR Food, Arne B. Corneliussen, Werners Gourmetservice and various minor acquisitions in Orkla Food Ingredients, as well as an adjustment for the sale of K-Salat.

Targeted EBIT (adj.) growth

Annual EBIT (adj.) growth of 6-9% including minor acquisitions and sales, adjusted for currency effects and major acquisitions and divestments.

Expansion investments

Expansion investments are defined as investments in new geographical markets, new categories or investments that represent significant increases in capacity.

R12M

Rolling 12 months: figures presented as a total of the latest 12 months.

Group income statement

			Change	Change			Change	Change
	Q2-18	Q2-17	in MNOK	in %	YTD-18	YTD-17	in MNOK	in %
Operating revenues	10,017	9,771	246	3 %	19,728	18,852	876	5 %
EBIT (adj.)	1,119	1,025	94	9 %	2,016	1,925	91	5 %
Other income and expenses	-97	-116	19	-16 %	-124	-203	79	-39 %
EBIT	1,022	909	113	12 %	1,892	1,722	170	10 %
Profit from associates*	105	115	-10	-9 %	191	288	-97	-34 %
Net financial items	-36	-57	21	-37 %	-106	-60	-46	77 %
Profit/loss before taxes	1,091	967	124	13 %	1,977	1,950	27	1 %
Taxes	-234	-185	-49	26 %	-410	-370	-40	11 %
Profit/loss for the period continuing operations	857	782	75	10%	1,567	1,580	-13	-1 %
Profit from discontinued operations	0	273	-273	n.a.	0	585	-585	n.a.
Profit/loss for the period	857	1,055	-198	-19%	1,567	2,165	-598	-28 %
Earnings per share (NOK)	0.82	1.01	-0.19	-19 %	1.49	2.09	-0.6	-29 %
Earnings per share continuing operations (NOK)	0.82	0.75	0.07	9 %	1.49	1.51	-0.02	-1 %

Key figures: Orkla Foods and Orkla Confectionery & Snacks

Orkla Foods	Q2-18	Q2-17	Change	YTD -18	YTD -17	Change
Operating revenues	3,845	3,977	-132	7,697	7,735	-38
EBIT (adj.)	439	434	5	839	826	13
EBIT (adj.) margin	11.4 %	10.9 %	0.5 ppt	10.9 %	10.7 %	0.2 ppt
Orkla Confectionery & Snacks	Q2-18	Q2-17	Change	YTD -18	YTD -17	Change
Operating revenues	1,435	1,527	-92	2,888	2,971	-83
EBIT (adj.)	171	186	-15	358	387	-29
EBIT (adj.) margin	11.9 %	12.2 %	-0.3 ppt	12.4 %	13.0 %	-0.6 ppt

Key figures: Orkla Care and Orkla Food Ingredients

Orkla Care	Q2-18	Q2-17	Change	YTD -18	YTD -17	Change
Operating revenues	2,032	1,813	219	4,108	3,671	437
EBIT (adj.)	264	245	19	562	520	42
EBIT (adj.) margin	13.0 %	13.5 %	-0.5 ppt	13.7 %	14.2 %	-0.5 ppt
Orkla Food Ingredients	Q2-18	Q2-17	Change	YTD -18	YTD -17	Change
Operating revenues	2,462	2,234	228	4,644	4,047	597
EBIT (adj.)	176	151	25	233	204	29
EBIT (adj.) margin	7.1 %	6.8 %	0.3 ppt	5.0 %	5.0 %	0.0 ppt

	FY 2017	Q2-17	Q2-18
Net interest expenses	-149	-39	-32
Currency gain/loss	-3	-1	0
Result from Share Portfolio and dividends	54	3	0
Other financial items, net	-78	-20	-4
Net financial items	-176	-57	-36

Statement of financial position

	30.06.2018	31.12.2017
Intangible assets Property, plant and equipment Investments in associates and joint ventures etc. Non-current assets	19,854 11,809 4,112 35,775	19,921 11,683 4,108 35,712
Inventories Inventory of development property Trade receivables Other receivables Shares and financial assets Cash and cash equivalents Current assets Total assets	5,799 125 6,037 894 10 877 13,742 49,517	5,684 113 6,165 883 17 4,834 17,696 53,408
Paid-in equity Earned equity Non-controlling interests Equity	1,983 29,640 445 32,068	1,995 32,413 430 34,838
Provisions Non-current interest-bearing liabilities Current interest-bearing liabilities Trade payables Other current liabilities Equity and liabilities	4,485 4,673 302 4,796 3,193 49,517	4,734 4,820 359 4,940 3,717 53,408

Cash flow

	H1-18	H1-17	FY-17
Operating profit	1,882	1,717	4,423
Amortisation, depreciation and write-downs	602	625	1,313
Gain from operations moved to Investments and sold entities	0	-2	-299
Change in net working capital	-722	-296	18
Net replacement expenditures	-684	-484	-1,050
Cash flow from operations	1,078	1560	4,405
Cash flow from operations, Financial Investments	-130	-84	-290
Tax	-689	-365	-934
Dividends received, net financial and other	4	1,523	1,574
Cash flow before capital transactions	263	2,634	4,755
Paid to shareholders, net purchase/sales own shares	-3,355	-2,754	-7,740
Cash flow before expansion	-3,092	-120	-2,985
Expansion investments	-245	-114	-206
Sold and acquired companies	-769	-584	11,619
Net purchases/sales shares and financial assets	0	46	43
Net cash flow	-4,106	-772	8,471
Currency translations net interest-bearing liabilities	257	-464	-429
Change in net interest-bearing liabilities	3,849	1,236	-8,042
Net interest-bearing liabilities	3,863	9,292	14

Strong balance sheet and financial flexibility

Debt maturity profile

Funding sources