Orkla Asa · OSL:ORK
Orkla Asa — Investor Day (November 2023)
57 slides from Orkla Asa's investor day presentation, Nov 29, 2023
Slide 1: Capital Markets Day
Capital Markets Day 29 November 2023
Slide 2: Disclaimer
Disclaimer This presentation has been prepared by Orkla ASA (the “Company”) solely for information purposes. The presentation does not constitute an invitation or offer to acquire, purchase or subscribe for securities. Certain statements included in this presentation contain various forward-looking
Slide 3: Welcome & Strategy
Welcome & Strategy Nils K. Selte President and CEO
Slide 4: A strong foundation of brands and consumer companies
A strong foundation of brands and consumer companies 66.1 >300 Operating revenues Local consumer brands (NOK billion) 12 >20,000 Portfolio Companies Competent and engaged employees 4 2022 numbers. Operating revenues R12M Q3-2023
Slide 5: Orkla has a long history of adapting to transformations
Orkla has a long history of adapting to transformations 1654 2023 1986-2010 2011-2022 Mining company Industrial conglomerate Leading BCG company Industrial investment company Year of establishment Consolidated Nordic Branded Reallocated capital into An industrial investment company Consumer Goods (B
Slide 6: Transforming into an industrial investment company
Transforming into an industrial investment company 6
Slide 7: The purpose of the new operating model is to accelerate value creation
The purpose of the new operating model is to accelerate value creation Business Service Portfolio Companies Orkla ASA Companies 12 autonomous A leaner Orkla ASA focusing on Business Service Companies to Portfolio Companies with full the ownership role and disciplined maintain and strengthen account
Slide 8: 12 autonomous Portfolio Companies
12 autonomous Portfolio Companies Jotun* Orkla Foods Orkla Food Orkla Orkla Health Orkla India Europe Ingredients Confectionery & Snacks 27.9 17.8 14.7 7.6 5.4 2.5 NOKbn NOKbn NOKbn NOKbn NOKbn NOKbn The European Orkla Home & Orkla House Health and Pierre Robert Lilleborg Pizza Company Personal Care
Slide 9: Orkla has a unique position combining the best elements from two worlds
Orkla has a unique position combining the best elements from two worlds Combining Orkla's DNA of branded consumer goods expertise with an investment mindset • Orkla applies a long-term perspective as Investment BCG active owners and is flexible regarding holding periods and ownership companies compa
Slide 10: How the new operating model will increase value creation
How the new operating model will increase value creation Full accountability for Create more structural Implement a more Strengthen critical performance in Portfolio optionality and ability to disciplined and effective synergies and Companies act fast on opportunities capital allocation process cap
Slide 11: Accomplishments so far
Accomplishments so far Implemented a new operating model to improve performance 1 and build a stronger performance culture Finalised Full Potential Plans outlining the full organic 2 potential for all Portfolio Companies 3 Established Portfolio Company boards consisting of external and internal prof
Slide 12: The hard work starts now
The hard work starts now 12
Slide 13: Our target: TSR as the ultimate KPI
TSR as the ultimate KPI Our target 12-14% • TSR reflects the underlying value and development in all Portfolio Companies combined with the value from any structural moves • The target for Orkla is to deliver annual TSR of 12- 14% in the period 2024-2026 • The target is based on a long-term mindset a
Slide 14: Strategic priorities in the short-term
Strategic priorities in the short-term Drive organic value in existing Optimise and simplify the Pursue structural portfolio overall portfolio opportunities when they arise Accelerate organic growth and boost value Reduce complexity by simplifying the portfolio Consider bolt-on acquisitions and stru
Slide 15: Develop a more balanced and dynamic portfolio over time
Develop a more balanced and dynamic portfolio over time Today Next ~3 years 12 Portfolio Companies ~7-9 Portfolio Companies Varying in size More similar and larger in size • By simplifying the portfolio, Orkla will be able to increase its focus and investments in select Portfolio Companies • Value-a
Slide 16: A framework to help reduce portfolio complexity
A framework has been created as a tool to help reduce portfolio complexity The framework will serve as the cornerstone for the strategic prioritisation and capital allocation going forward Grow Transform and build Anchor or exit • Grow organically with select • Ensure long-term, leading • Ensure lon
Slide 17: All Portfolio Companies are categorised in the framework
All Portfolio Companies are categorised in the framework Grow Transform and build Anchor or exit Orkla Food Ingredients Jotun (42.7% interest) Orkla Home & Personal Care Orkla Health Orkla Foods Europe Orkla House Care Orkla India Orkla Confectionery & Snacks Health and Sports Nutrition Group The Eu
Slide 18: Enabling a responsible transition towards net zero
We create positive change by enabling a responsible transition towards net zero and sustainable production and consumption Governance Protecting the Empowering and ethics in environment people business 18
Slide 19: ESG targets
Governance Protecting the Empowering and ethics in environment people business ESG targets 1 2 3 Scope 1 & 2 GHG reduction of All food companies to create Balance in gender 70%* by 2030** positive health impacts representation in management towards 2030 teams by 2026 Target for Scope 3 GHG reduction
Slide 20: Key priorities
Key priorities Drive organic value in Reduce the complexity of Perform value-adding existing portfolio existing portfolio structural transactions 20
Slide 21: Target: TSR 12-14% per annum 2024-2026
Target 12-14% Total Shareholder Return (TSR) per annum 2024-2026 21
Slide 22: Creating sustainable value through active ownership
Creating sustainable value through active ownership of brands and consumer companies Brave | Inspiring | Trustworthy 22
Slide 23: Active ownership
Active ownership Øyvind Torpp EVP and Investment Executive 23
Slide 24: Areas instrumental for the new approach to active ownership
Areas that are instrumental for the new approach to active ownership Company Full Potential Incentive Expertise and boards Plans programmes synergies Established Portfolio Strengthened approach to Implementing new incentive Continued and accelerated Company boards consisting strategic planning – pro
Slide 25: Active ownership through the Portfolio Company boards
Company boards Orkla carries out active ownership through the Portfolio Company boards • Established value-adding boards tailored to each Portfolio Company, consisting of both external and internal members with broad industry expertise and a proven track record of value creation • The company boards
Slide 26: Full Potential Plan
Full Potential Plan Developed to outline the full organic potential of each Portfolio Company • Conducted Point of Departure analyses to understand historical value creation and enable fact-based decisions in the subsequent strategy process - through honest and data-driven analyses • Finalised and
Slide 27: Implementing new incentive programmes
Incentive programmes Implementing new incentive programmes • Historically, Orkla has had one incentive model across all businesses • The incentive programmes in the new operating model will have increased focus on long-term value creation for each Portfolio Company - Both short and long-term incenti
Slide 28: Centres of Excellence & Business Service Companies
Expertise and synergies Centres of Excellence & Business Service Companies • Historically, Orkla has employed a centralised approach to extract synergies and accumulate experience • Realising competence and cost synergies will continue to be important in the new operating model, but set up in a new
Slide 29: Financial framework
Financial framework Harald Ullevoldsæter EVP Finance and CFO 29
Slide 30: Three integrated topics
Three 1 Financial targets 2024-2026 integrated 2 Capital allocation priorities topics 3 Financial policy 30
Slide 31: Financial targets 2024-2026
1 FINANCIAL FRAMEWORK Financial targets 2024-2026
Slide 32: Our target
Our target 12-14% Total Shareholder Return (TSR) per annum 2024-2026 32
Slide 33: Our target: building blocks of TSR
Our target ~70% of Consolidated ~25% of enterprise value* Portfolio Jotun enterprise value* Companies (42.7% ownership interest) (including HQ) TSR 12-14% equals NOK 32-38bn** ~5% of Hydro Power Structural enterprise value* & Real Estate opportunities * Based on an average of analysts’ sum-of-the-pa
Slide 34: Each Portfolio Company has defined 2026 targets
Each Portfolio Company has defined 2026 targets aligned with its strategy Grow and build Anchor Transform or exit Orkla Food Ingredients Orkla Foods Europe Orkla Home & Personal Care ▪ Revenue CAGR: 5% ▪ Revenue CAGR: 2-3% ▪ EBIT CAGR: >10% ▪ EBIT CAGR: 12% ▪ EBIT margin: 13-14% in 2026 ▪ Cash conv
Slide 35: NAV improvement will be NOK 40-45bn
Based on the consolidated Portfolio Companies reaching their targets the NAV improvement will be NOK 40-45bn Change in NAV of consolidated Portfolio Companies (including HQ) Portfolio Company targets (consolidated) Underlying EBIT (adj.) 8-10% CAGR 2023-2026 +NOK 40-45bn Margin expansion 1.5-2.0%-p.
Slide 36: Our methodology to estimate value creation
Our methodology to estimate value creation 2023 2026 Estimated enterprise value (EV) of Portfolio Companies* Estimated enterprise value (EV) of Portfolio Companies* + Net cash flow to equity 2024-2026 + Change in minority interest Change in value in the period is estimated to be NOK 40-45bn based on
Slide 37: Jotun's targets
Jotun’s targets 42.7% ownership interest Dimension Target Sales growth >8% EBITA/Sales >12% Equity ratio >50% ROCE >25% Liquidity* >5% * Cash and unutilised long-term credit lines available in Jotun A/S, as percentage of Jotun 100% sales 37
Slide 38: Cash flow from Hydro Power and realisation of Real Estate projects
Cash flow from Hydro Power and realisation of Real Estate projects HYDRO POWER REAL ESTATE Market value portfolio 1.4 TWh NOK 2.3bn Book value projects Annual sales volume in the spot market NOK 0.3bn Hydro Power consists of power plants in Orkla Real Estate primarily focuses on Sarpsfossen and Orkl
Slide 39: We are ready to deliver on all building blocks
We are ready to deliver on all building blocks Organic value Consolidated Increased creation potential of Portfolio Jotun long-term financial NOK 40-45bn Companies (42.7% ownership interest) targets (including HQ) TSR target 12-14% equals NOK 32-38bn* Cash flow from Ready to explore Hydro Power and
Slide 40: Capital allocation priorities
2 FINANCIAL FRAMEWORK Capital allocation priorities
Slide 41: Main priorities for capital allocation are unchanged
Main priorities for capital allocation are unchanged, but with sharper M&A priorities Value accretive acquisitions & Return excess capital Maintain a stable and to shareholders divestments plus increasing dividend through extraordinary organic investments to increase value creation dividends or shar
Slide 42: Pay a stable and increasing dividend
Pay a stable and increasing dividend Historical dividend payments Dividend, NOK per share 3.00 3.00 2.75 2.60 2.60 2.60 2.60 2.50 2.50 2.50 2.50 2.50 2.50 2.25 2.25 2.25 2.00 1.50 0.90 0.80 0.65 0.68 0.60 0.50 0.39 0.41 0.27 0.32 0.19 0.23 1993 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11
Slide 43: Active capital allocation is critical to increase value creation
Active capital allocation is critical to increase value creation going forward Value accretive M&A Organic investments • Prioritise Portfolio Companies within “Grow and • CapEx and other investments of significant value build” and with high strategic importance - Orkla Food Ingredients - Orkla Healt
Slide 44: Clear capital allocation process with internal competition for capital
Clear capital allocation process with internal competition for capital 3-year plan for each Portfolio Consolidate plans and take a Capital allocation priorities Company with focus on value broader view of the portfolio and guidelines creation Each Portfolio Company develops a Full Consolidate all pl
Slide 45: Return excess capital to shareholders
Return excess capital to shareholders Extraordinary or Share dividends buybacks Return excess capital to shareholders Buyback of shares might be an effective way to through extraordinary dividends adjust the capital structure in the company Going forward Orkla will prefer larger buyback programmes o
Slide 46: Financial policy
3 FINANCIAL FRAMEWORK Financial policy
Slide 47: Orkla to retain investment grade credit quality
Orkla to retain investment grade credit quality FINANCIAL POLICY NET DEBT TO EBITDA Investment grade credit 2.5x quality Net debt to EBITDA Maintain a financial and business risk profile consistent with an investment grade credit quality in the credit market as our guiding principle Reduce financial
Slide 48: Several reasons why value creation will increase
There are several reasons why value creation will increase CFO PERSPECTIVES Disciplined capital Increased transparency Strengthened allocation and accountability governance Stronger focus on cash flow in the Increased external and internal Strengthened governance through Portfolio Companies and tran
Slide 49: Concluding remarks
Concluding remarks Nils K. Selte President and CEO 49
Slide 50: Performance culture
Performance culture Footer 50 Scorce
Slide 51: 3 Commitments
3 COMMITMENTS Drive organic value Reduce the Perform value- in existing complexity of adding structural portfolio existing portfolio transactions 51
Slide 52: My commitments
MY 3 COMMITMENTS Our target 12-14% Drive organic value in existing portfolio Reduce complexity in our existing portfolio Total Shareholder Return (TSR) Perform value adding structural transactions per annum 2024-2026 52
Slide 53: Orkla
‘Orkla
Slide 54: Alternative Performance Measures (APM)
Alternative Performance Measures (APM) Contribution ratio Contribution ratio is calculated by dividing the contribution margin by operating revenues. Operating revenues minus variable operating expenses constitute the contribution margin. Variable operating expenses are reported on the financial sta
Slide 55: Alternative Performance Measures (APM)
Alternative Performance Measures (APM) Change in underlying EBIT (adj.) Change in underlying EBIT (adj.) shows like-for-like EBIT (adj.) growth for the group’s business portfolio and is defined as the group’s reported change in EBIT (adj.) adjusted for effects of the purchase and sale of companies a
Slide 56: Alternative Performance Measures (APM)
Alternative Performance Measures (APM) Return on Capital Employed (ROCE) cont. Average capital employed is at all times an average of the closing balance for the five last reported quarters. ROCE shows the return that the Orkla group receives on the capital invested in the various consolidated portf
Slide 57: Alternative Performance Measures (APM)
Alternative Performance Measures (APM) Structure (acquisitions and disposals) Structural growth includes adjustments for the acquisition of the businesses Norstamp, Bubs Godis, Da Grasso, Khell-Food, Denali Ingredients, Lofoten Marine Oils, Healthspan and Hadecoup, and the winding-up of Hamé Foods i