Earnings call transcript: Orkla Q2 2025 sees revenue rise, stock stable

Orkla ASA reported its second-quarter earnings for 2025, showing a 5% year-over-year increase in group operating revenue. Despite a flat earnings per share (EPS) of NOK 1.56, the company’s stock saw a modest increase of 0.56% to 86.96 NOK at the last close. The company remains focused on long-term value creation amid challenging market conditions, particularly in Norway.

Key Takeaways

• Group operating revenue rose by 5% year-over-year.
• Orkla’s EPS remained flat at NOK 1.56.
• Stock price increased by 0.56% following the earnings report.
• Organic growth was 3.8% in consolidated portfolio companies.
• Strategic portfolio reshaping continues with acquisitions and asset sales.

Company Performance

Orkla’s performance in Q2 2025 reflects its strategic focus on long-term value creation and portfolio reshaping. The company achieved a 5% increase in group operating revenue, driven by a 3.8% organic growth in its consolidated portfolio companies. This growth was complemented by strategic moves such as the acquisition of Levesub, a Belgian ice cream ingredients producer, and the sale of the Pierre Robert Group and hydropower assets.

Financial Highlights

• Revenue: Increased by 5% year-over-year.
• Earnings per share: NOK 1.56, unchanged from the previous year.
• EBIT adjusted margin: 10.3%, up by 0.6 percentage points.
• Cash flow from operations: NOK 2.4 billion, down by NOK 0.4 billion.

Outlook & Guidance

Orkla’s forward guidance remains focused on executing its Capital Markets Day strategy, with an emphasis on long-term value creation. The company anticipates raw material prices to stabilize in 2025, with cocoa prices expected to normalize over time. The upcoming launch of the BEBS brand in the US and a potential IPO for Orkla India are key strategic initiatives.

Executive Commentary

CEO Nils Selte emphasized the company’s commitment to long-term value creation and strategic portfolio reshaping. He stated, "Our focus remains on long-term value creation," highlighting the company’s lessened concern about short-term fluctuations. Selte also acknowledged the challenges facing Orkla Health, noting that the new CEO, Mats, has a significant task ahead to improve performance.

Risks and Challenges

• Fluctuating raw material prices, particularly cocoa, could impact profitability.
• Challenging market conditions in Norway may affect growth.
• The performance of Orkla Health, which saw a 21% EBIT decline, poses a risk.
• Economic uncertainties and potential interest rate changes could affect financial stability.
• Execution risks associated with strategic initiatives and acquisitions.

Q&A

During the earnings call, analysts raised questions about the sustainability of growth in Food Ingredients, the performance of Orkla Health, and the potential impact of inventory reductions. Concerns were also voiced regarding the effects of lower interest rates and cocoa price fluctuations on Orkla’s financial outlook.

Full transcript - Orkla ASA (ORK) Q2 2025:

Annie Bersagel, Head of Investor Relations and Communications, Orkla: Good morning and welcome to the presentation of Orkla’s second quarter results. My name is Annie Bersagel, and I’m the Head of Investor Relations and Communications. To begin the presentations today, our President and CEO, Nils Selte, will be presenting some highlights from the quarter, as well as from the first half year. After that, EVP and CFO, Arve Regland, will be presenting some more detail into the financials. Once he is done, Nils will return for a few concluding remarks. After all the presentations are over, we will be going over to our Q&A. We’re going to begin our Q&A as a video Q&A with our analyst community before we go over to taking questions from the web. If you’re interested in sending any questions, you may do so at any time during the presentation, and I will read those up at the end.

With that all out of the way, let me hand it over to you, Nils.

Nils Selte, President and CEO, Orkla: Thank you, Annie. Good morning to everyone. Overall, we continued to progress according to our Capital Markets Day targets. Organic growth was 3.8%. Came primarily from price increases in most portfolio companies, as well as a return to volume growth on a consolidated basis. Underlying EBIT adjusted growth continued but was somewhat slower than previous quarters, with mixed developments across the portfolio companies. Earnings per share adjusted was 1.56%, up 0.6% from the same period last year. Let’s turn into the breakdown of the portfolio companies’ performance. There was a significant variation in profitability across the portfolio companies in the quarter. Arve will present a more detailed picture of the individual companies with a few developments they served mentioned. Orkla Fuel Ingredients delivered a strong quarter driven by both top-line growth and continued successful implementation of the cost program in the Sweet cluster.

While the headline numbers in Orkla SNACKS are below our expectations, the company has successfully navigated a challenging input cost environment. Orkla India had an impressive underlying EBIT adjusted growth of 20%, excluding government grants. On the other hand, Orkla Health had a weak quarter, and I’m disappointed by the development. I see significant potential in the company, but the results over the last quarters are not good enough. Closing the gap between the company’s current performance and the full potential is the key focus for the new CEO coming in in August. A few highlights from the first half year. In May, the CEOs of Orkla Foods, Orkla SNACKS, and Orkla Fuel Ingredients outlined the operational and commercial steps on the way to secure value creation for the rest of this strategy period and beyond. On the structure side, we continued the disciplined reshaping of our portfolio.

We closed the sale of Pierre Robert Group in March and Orkla’s hydropower assets in April. This has significantly simplified our structure further. In June, Orkla India filed a draft hearing prospectus with the Securities and Exchange Board of India. This marks an important milestone in Orkla India’s pursuit of structural options to unlock value. Let’s have a look at our CMD targets. Our progress on improving underlying EBIT adjusted was within the target range on a rolling 12-month basis. Underlying EBIT adjusted margin remained unchanged since the first quarter, and return on capital employed increased to 11.8% since the first quarter. As we said at the Capital Markets Update in May, with a diverse portfolio, we expect some portfolio companies to overdeliver on their targets and others to underdeliver. In sum, however, we are on track.

With that, I will now invite Arve to provide a more detailed overview of the financials.

Arve Regland, EVP and CFO, Orkla: Thank you, Nils, and good morning, everyone. Let me turn to some more details on the financials for the quarter. The group’s operating revenue rose by 5% year over year in the second quarter, following organic sales growth in the consolidated portfolio companies. Orkla’s EBIT adjusted grew by 6%, driven by profit growth in most of the portfolio companies. Profit from Jotun and other associated companies was NOK 422 million in the quarter. Jotun’s positive underlying operational performance continued in the second quarter, but due to currency translation effects, they reported a slight decline in EBITDA. The decline in net profit versus last year in our P&L is mainly related to timing of the recognition of tax expenses between the first and second quarter. These effects are eliminated in the half-year results. Adjusted earnings per share amounted to NOK 1.56 in the quarter, on par with the same period last year.

Note that reported earnings per share includes the gain of the investments of the Hydropower portfolio reported as discontinued operations. The rolling 12-month EBIT adjusted margin for the consolidated portfolio companies was 10.3% in the second quarter, an increase of 0.6 percentage points over the last 12 months. In terms of input prices, our guidance remains unchanged. We continue to expect raw material prices in some to stabilize in 2025, excluding cocoa. Organic growth was 3.8% in the consolidated portfolio companies, with positive volume mix growth of 1.4%. The greatest positive contributions to volume mix growth was from Orkla Fuel Ingredients and Orkla Home and Personal Care, offset by volume mix declines in Orkla SNACKS and Orkla Health. Cash flow from operations in the first half amounted to NOK 2.4 billion, a decline of NOK 0.4 billion year over year.

The decline was mainly due to increased net working capital and higher net replacement investments in the consolidated portfolio companies. Turning to capital allocation, as guided, we increased our debt level in the second quarter after distributing a dividend of NOK 10 billion. We also closed both hydropower transactions in April. We ended the quarter with a net interest-bearing debt level of two times EBITDA and 1.6 times if excluding Orkla Fuel Ingredients. Now, let me move on to some more details on the portfolio companies. Jotun recorded an operating revenue decline of 0.6%, excluding negative currency translation effects from the stronger Norwegian krone. Sales growth in the quarter was 3.5%. Top-line growth was mainly due to higher volumes. In addition, increased premium sales, especially in the decorative segment, contributed positively. Operating profit declined by 2.1% compared to the same period last year.

However, excluding negative currency translation effects, underlying operating profit increased by 2.6%. While we see uncertainty related to currency fluctuations, our outlook for Jotun for 2025 remains unchanged. Organic growth in Orkla Foods was 1%, with a flat volume mix development overall. Volume mix increased in all markets except for Norway. Within prioritized growth categories, we see an improvement in both Sweden and Finland, as well as continued progress in the Czech Republic. Underlying EBIT adjusted declined by 1.8% due to lower activity levels in key categories in the Norwegian market, as well as increased advertising spend. Lastly, execution on the revised commercial strategy that Orkla Foods presented at the Capital Markets Update is progressing according to plan.

Organic growth in Orkla SNACKS was 4.3%, and both biscuits and snacks contributed positively to volume mix growth, while lower volumes in the chocolate segment resulted in a volume mix decline of 1.8% overall. Despite continued pressure from high cocoa prices, underlying EBIT adjusted was flat. Orkla SNACKS has successfully harmonized recipes, reduced the fixed cost base, and implemented continued cost improvements across the value chain. We still expect cocoa prices to come down to a more sustainable level over time. As we said in Q1, we have returned to a normal cocoa hedging strategy. During the quarter, Orkla SNACKS was named to Time Magazine’s list of the 100 most influential companies globally, reflecting the strength of the BEBS brand. The BEBS US launch is now planned for Q3.

This is the first quarter report results for Orkla Home and Personal Care as a part of the Anchor category. The company’s positive trajectory continued in the quarter. Organic growth remained high at 8.5%, driven primarily by volume mix growth in Norway, Sweden, and contract manufacturing. Underlying EBIT adjusted growth was 13%, with revenue management driving positive mix effects. Organic growth in Orkla Fuel Ingredients was 9.2% in the quarter, with positive contributions from all three clusters. Volume growth was primarily driven by sweet ingredients, with positive contribution from plant-based and a flatter development for bakery. Underlying EBIT adjusted growth was 20%. Sweet ingredients contributed the majority of the improvement due to both volume growth and the successful implementation of the cost program that began in Q3 2024. That program is now closed following full implementation of all planned initiatives.

Orkla Fuel Ingredients continued to execute on its structural growth strategy in the second quarter as well, with the bolt-on acquisition of the Belgian ice cream ingredients producer Levesub in April. Organic growth in Orkla Health was 2.2%, driven entirely by price. Organic growth from price was offset by volume mix declines in most geographies and categories. In the Omega 3 category, headwinds from high cod liver oil prices negatively impacted both margins and volumes. The underlying EBIT decline was 21%. Higher AMP spend has not yielded sufficient results. In addition, SG&A spending to build the commercial organization continues to outpace sales growth. As Nils said, addressing these challenges is the top priority for Orkla Health going forward. Moving on to Orkla India, second quarter revenues included.

Financial incentives provided by the Government of India amounting to NOK 6 million compared to NOK 20 million in the same quarter last year. Excluding the government grant, organic revenue growth was 0.6%, driven by volume mix growth of 3.9%. In the domestic market, organic revenue growth was impacted by price decline on back of input cost reductions, while volume mix growth continued to be positive. Underlying EBIT adjusted growth was 5.7% in the quarter and 20% if excluding government grants. EBIT adjusted margin increased 2.8 percentage points year over year, driven by contribution margin development and continued cost discipline. The European Pizza Company’s organic revenue growth was 1.2%. Consumer sales gained momentum on the back of targeted growth initiatives, although the market situation remains somewhat challenging. Improved results for the New York Pizza in the Netherlands were supported by third-party dough sales.

Underlying EBIT adjusted growth was 11%, driven by consumer sales momentum and cost control. Health and Sports Nutrition Group continued to improve profitability, while Orkla Health had a weaker development over the quarter, driven by volume and seasonal phasing. With that, I’d like to give the floor to Nils to present his concluding remarks.

Nils Selte, President and CEO, Orkla: Thank you, Arve. Our focus remains on long-term value creation. I am less concerned about quarter-to-quarter fluctuations as long as this trajectory stays firmly on course. Overall, our progress during the first half of 2025 continues to reflect disciplined execution of the strategy we announced at the 2023 Capital Markets Day. On that note, we now open the floor for questions. Thank you.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: Welcome back. We will now begin our Q&A, and we’re going to start with the video Q&A with analysts. Please remember to raise your hand if you have a question, and I’ll introduce you. As we all learned during the pandemic, remember to unmute yourself and turn on your camera. Are there any questions from the web? Yes, it looks like the first question is going to be from Callum Elliott from Bernstein.

Callum Elliott, Analyst, Bernstein: Perfect. I hope you can all hear me. Thank you very much for the questions. Two from my side. The first is on the food ingredients business. Obviously, fantastic growth for a couple of quarters in a row now. In particular, fantastic to see that it’s being volume mix driven. My question is, can you talk a little bit about within, you called out sweet ingredients, what is it within sweet ingredients that’s really sort of driving this volume mix strength, and how sustainable do you think that is? My second question is on the Orkla Health business. You highlighted the recent appointment of Matt to be the CEO of that business. My question is, the slowdown there this year in Orkla Health has been very abrupt. What do you think has driven it?

As Matt starts next month, where are you in this journey of the organizational investments that you were talking about? Thank you.

Nils Selte, President and CEO, Orkla: Okay, let me start by the first question when it comes to the sweet cluster in Orkla Fuel Ingredients. I think it’s, first of all, been announced for the second half year last year that we are initiating a cost initiative program or a turnaround on that business. I think we have done, or Orkla Fuel Ingredients have done that turnaround quite well. Through this year so far, we see good progress broad-based in the sweet cluster in OFI. We see positive momentum in the US market, and we see also positive momentum in the European market. From that perspective, and also the cost program that they have worked on, if you combine these two things together, we see good progress. We expect this to continue going forward as well. The second question was about health.

I think we will leave to Mats when he comes in to talk more about the strategy going forward. We see a broad-based negative volume development through the whole company, actually. We see when you combine that with increased AMP and also organizational buildup, as we have seen over the last few quarters, that gives us the results that we clearly say that we are a bit disappointed about. Mats coming in in August has a big job to do to turn this company around. We will for sure, through the boardroom and together with Mats, discuss the future strategy of that company and revert to the market on that.

Thank you very much.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: Looks like our next question is from Patrick Fullen with Barclays.

Patrick Fullen, Analyst, Barclays: Hey, good morning, everyone. Just two from me. Within your foods business, what was the estimated impact of the inventory reductions on the segment in Q2? Is this reduction still ongoing? With the category levels, I mean, which categories are you seeing lower activity levels in the Norwegian food market? Maybe why is that the case? Thanks.

Nils Selte, President and CEO, Orkla: Let me start by the last question. I think if you look at Norway, we have seen a slowdown in our categories in Norway through the first half year. I think this is something that we are discussing with our customers, and we have a good relationship now with the customers. I think we have good plans. We think we will kind of get back to normal activity in Orkla Foods Europe going forward. I would be careful to give you any more guidance on that, actually. When it comes to the destocking, I think we are now seeing more normalized level, and we are not specific on where and which customers we are talking about.

Patrick Fullen, Analyst, Barclays: Thank you.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: I don’t see any additional questions on video. I think we’re going to go over to the web. We have quite—oh, it does look like Patrick has a follow-up question.

Patrick Fullen, Analyst, Barclays: Yeah, sorry, I just thought I’d ask one more. Within India, anything to call out from a category perspective that you’re seeing? I guess you talked about raw material prices leading to lower pricing. Is competitive activity quite normal? Just anything from a category perspective you could point to. Thank you.

Nils Selte, President and CEO, Orkla: Yeah, no, not really. I think. Not any specific when it comes to categories other than a sort of solid improvement. In particular in the domestic market in India, both when it comes to—particularly when it comes to volume. So overall. I think fairly broad-based the development that we reported.

Patrick Fullen, Analyst, Barclays: Thank you.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: All right, I do not see any additional raised hands on the video call. We can go over to questions from the web. First, we have four questions from Ole Martin Veskård from DNB Carnegie. The first question here, we can maybe just take them one at a time. The figures from the health segment were very weak this quarter. Could you elaborate on the key drivers behind this performance?

Nils Selte, President and CEO, Orkla: Yeah, I think I just commented upon that, so I don’t think I need to elaborate more than that.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: The second question is on food ingredients. Food ingredients delivered strong organic growth in both volume and price. Was there anything specific this quarter that contributed to this, and what are the main factors driving the growth?

Nils Selte, President and CEO, Orkla: I think I’ll give a comment. I think we see good progress in the sweet cluster, and we are very happy about that. We also see good progress or top-line growth also in the plant-based segment in Orkla Fuel Ingredients. So broad-based good development.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: The third question is, what is the current status of the international expansion of BUBS?

Nils Selte, President and CEO, Orkla: I think we gave some comments on that, but we are planning to launch during Q3. We are excited about that launch, and we will see. Do not expect that to hit the numbers in Q3. I think this is a long-term initiative that hopefully will create value to Orkla and Orkla shareholders going forward.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: Could you provide an update on the targeted IPO in India?

Nils Selte, President and CEO, Orkla: As I said, I think we filed the prospectus now in June. Due to restrictions, we are not able to give any more comments on that, actually.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: We also have three questions from Håkon Fuglu in SEB. First, historically, how long has it taken for lower interest rates to impact consumer demand for Orkla’s products?

Nils Selte, President and CEO, Orkla: Good question. I think we saw that during the financial crisis that demand for branded goods came quite fast back into the market. I think that’s our most recent kind of experience in kind of going out of high inflation, high interest rate market. I think we hopefully that will be the case this time as well. We do not have that much experience from what is actually and when will things hit into our P&L, actually. I think for us, it’s about doing good business every day and trying to deliver.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: The second question from Håkon is, how much of the strong results in OFI is due to price increases ahead of increased raw material price increases, and when will higher input costs impact negatively?

Nils Selte, President and CEO, Orkla: Yeah, we’re not giving any clear guidance on that, but I wouldn’t say that it’s any particular timing effects of input costs related to prices out. It follows quite gradually. No specific impact on the numbers in this quarter either.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: One last question from Håkon here. Can you elaborate on the impact from cocoa prices for snacks in Q3?

Nils Selte, President and CEO, Orkla: Obviously, not any specific. As we said, we have secured the volumes for cocoa for the rest of the year. Obviously, as we said for the coming quarters, it’s still at levels which will impact profitability. Now we delivered two quarters of flat EBIT in snacks, which I think is a very solid performance given the headwinds from cocoa. Nothing particularly changing in the Q3, rather than we continue to have impact on profitability from the cocoa price situation also for the coming quarters.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: We have another question from Ole Martin Veskård on the web here. What was the impact on organic growth from the timing of Easter in Q2?

Nils Selte, President and CEO, Orkla: We had very limited Easter effects in the second quarter. We had some positive for some categories in the snacks company, but rather than that, in total, limited impact of Easter this year.

Annie Bersagel, Head of Investor Relations and Communications, Orkla: That appears to be the last question on the web. Before we conclude, I just want to remind you that we’re going to report third quarter results on October 29th. Thank you for joining and enjoy the rest of your day.

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