Orkla Earnings Call Nuggets: Restructuring Program, Corporate Culture

On Thursday, Orkla (OL:ORK.OL) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Restructuring Program

Torkild Nordberg – CEO, Orkla Brands: Yeah. It is in our Lilleborg Professional area. It’s of course a B2B industrial contract. Now expired and will not be renewed as we announced last quarter. We said it total, the loss is NOK50 million. Most of that is actually inside the Orkla Brands Nordic.

Martin Stenshall – Danske Market Equities: Next question to Svein Tore. You said that the weak trend in Europe is continuing and the restructuring programs that are in place are ongoing are not enough to mitigate those trends. Would that imply that we could see another restructuring program going forward if the weak markets in Europe continue?

Svein Tore Holsether – CEO, SAPA: The restructuring programs that are in place now were launched last year based on the market outlook that we had last year. As you can see the first quarter volume is significantly below last year, 9%, and if it continues at that level, as you can also see by the results, we need to do further adjustments to our production.

Corporate Culture

Tore Ostby – Nordea Markets: Tore Ostby, Nordea Markets. Question to Korsvold. You mentioned Orkla’s corporate culture in your comments on Monday. Can you elaborate a little bit on your thoughts about the Orkla’s corporate culture and changes you want to implement in that culture?

Age Korsvold – Acting President and CEO: I think that what you see in branded consumer goods market is very intense competition, very fast pace of change and I think we simply need to assure that we meet those changes. I don’t think that it is a very major change in the operating companies on their – I think on the contrary, I think there is every indication that Orkla has a strong corporate culture in the operating companies and – but I do think that the skillsets and the ability to support the operating companies in the (corporate staff) functions will have to be adapted. But I don’t think that I should go into some details, but I think there are some fairly obvious issues. One of those issues as an example is how do we – I think going forward – I think that there is always been elemental acquired growth in a company like Orkla, and I there is a discussion to be have to what extent is the line organization responsible for that and to what extent is the supports have and responsible for that and obviously there is no easy answer, there is a trade-off between how we organize it, but I do think that there are, there is skill set required to maybe to continue to have a sensible shareholder acquired growth and that is a discussion that need to be held between the line management and the corporate headquarters. So, it – in my mind is it is not the question of creating fundamental change and that I think on quite at contrary I think but historically (indiscernible) it is robust a culture and certainly the key elements of that corporate culture. I thought that should be continue.

Tore Ostby – Nordea Markets: The quick question regarding the growth in the future, you primarily see organic growth or acquired growth for do you see Orkla move faster and take more risk in acquisitions or how do you see Orkla growing in the next few years?

Age Korsvold – Acting President and CEO: Well, first of all I think that to the largest extent possible, we should ask the current organization to create a smart organic growth as possible. Now, we are I think on the one hand we are in mark instead of growing rapidly, so I think there is I think a definition there is a limit of how much organic growth you can have on the current portfolio, but I think the first priority is for the current organization in the current portfolio to generate as much organic growth as possible. Then I think Orkla has the ability and the opportunity to generate acquired growth, but if you ask me I think that the priority should be to have I think a sensible element of acquired growth and not transitional acquisitions, but whether that acquired growth is NOK1 billion per year or NOK5 billion per year, I think that to some extent depends on the opportunities that are there, but I do think that the dynamics of this market has changed somewhat over last 10 years in the sense that there is more private equity in this marketplace. There is intense competition and I think we, but I do think that Orkla with its ability to take out services should be quite competitive in that market. So I think first priority organic growth is a sensible element of acquired growth on top of that and I think that transitional or transformational acquisitions issued a very, very different gain and is a separate analysis.

Preben Rasch-Olsen – Carnegie: Preben Rasch-Olsen, Carnegie. A quick question on Sapa. Is it possible to say something about utilization in the North American units versus the European units?

Svein Tore Holsether – CEO, SAPA: That at current our capacity utilization is higher in North American and in Europe as have a more stronger market share gain development in North America. It is difficult to give exact figures when it comes to capacity utilization because it depends on how you run the (ponds) if it’s five days, seven days and so on, but let’s say approximately 75% to 80% in Europe and 80%, 85% in North America.

Unidentified Analyst: I am (indiscernible) from (Ludwik Larsen) I have a question related to the new strategy that was presented in the fall last year, which seem to be a sensible strategy, but Age Korsvold, what is your explanation why the markets haven’t really taken that strategy? Why haven’t they really applauded the strategy of a more focused company going forward do you think?

Age Korsvold – Acting President and CEO: As far as what I have seen is (I feel) markets have accepted out strategy and is being well received. So but I think also that what was said in September was that it will take time to execute the strategy and I think in the tradeoff between executing fast and executing sensibly which has the good values, I think Orkla should execute sensibly.