Orkla ASA

OSE:ORK

Earnings Call Analysis

Orkla Q3 Results Highlight Underlying Growth Despite Challenges

Orkla's Q3 delivered a 14% revenue growth and a 16% EBIT adjusted increase, primarily driven by price increases as volume declined by 1.8%. Net profit stood at NOK 509 million, mostly due to Jotun's robust performance. However, higher interest costs led to increased financial expenses, with an average interest rate of 5.4%. The cash flow from operations improved significantly, reaching NOK 4.8 billion. Difficulty in ramping up the new biscuit factory persists, estimated to impact earnings negatively by NOK 40 million in Q3. Moreover, Orkla Food Ingredients established a partnership with Rhône, retaining 60% ownership post-transaction, evaluating at NOK 15.5 billion. Looking ahead, growth is foreseen for most portfolio companies with plans to reduce inventory and manage capital more efficiently. Challenges in volume and margin remain top priorities, with a focus on advertising and promotion (A&P) investments to bolster brands in the face of softening consumer buying power and competitive pressures.

Orkla's Q3 Performance Amidst Dynamic Market and New Partnerships

Orkla commenced the third quarter with noteworthy corporate developments, including a transformative partnership with Rhône, aimed at fostering growth and value creation within Orkla Food Ingredients. This partnership is indicative of Orkla's broader strategy of leveraging M&A to enhance its market presence and capital efficiency. Despite a decline in group EBIT adjusted by 14%, reflecting lower hydropower revenues, there were highlights such as an increase in adjusted EPS by 2%, reaching NOK 1.61.

Consolidated Revenue Growth and Resilience Against Market Headwinds

Orkla saw a 14% increase in reported revenue growth for the group, fueled largely by a 6% organic growth across consolidated portfolio companies. This growth was driven primarily by strategic price increases, which outpaced the decline in volume and mix. Underlying EBIT adjusted grew by 16%, signaling broad-based earnings growth and hinting towards a resilient performance amidst challenging market dynamics.

Financial Strategies: Mitigating the Windfall Tax and Capitalizing on Real Estate

The company benefited from strategic real estate deals, such as the handover of apartments from Orkla Brands' previous headquarters, which bolstered EBIT by NOK 91 million. Additionally, the proposal to repeal the windfall tax affecting hydropower offers future financial reprieve.

Operational Challenges and Geopolitical Factors Impacting Input Costs

Orkla continues to navigate a complex supply chain environment, with geopolitical uncertainties and climatic events like El Niño influencing input costs. This has led to a polarization in market prices, with some categories such as vegetable oils seeing price reductions and others, like cocoa, facing increases. The net effect has impacted EBIT adjusted, notably a NOK 153 million outcome for hydropower due to fluctuating electricity prices.

Strategic Response to Market and Currency Challenges

Orkla is countering market and currency pressures with improved operational focus and capital investments. The company has redirected efforts towards capital efficiency, resulting in stronger cash flow from operations at NOK 4.8 billion in the first 9 months of 2023, compared to NOK 2.2 billion in the similar period the previous year. However, they acknowledge the increased net debt including leases at NOK 19.9 billion, and recognize the necessity for continued investment in A&P to sustain brand relevance during turbulent times.

Performance Across Key Portfolio Companies

Individual portfolio companies such as Jotun and Orkla India reported robust performance with both top-line growth and profit increases. Contrastingly, the ramp-up of the new biscuit factory in Orkla Confectionery & Snacks encountered significant challenges, leading to an estimated negative earnings impact of approximately NOK 40 million for the quarter. This, along with other operational issues, like the recall of ketchup, suggests there are areas that require attention and strategic remediation.

Final Thoughts and Forward-Looking Commitments

While Orkla is excited about its latest partnership and has shown underlying growth in most of its portfolio companies, management is candid about the difficulties they face, including the troubled launch of their new factory and the competitive landscape shift towards discount retailers. Orkla's leadership holds a cautious yet optimistic stance towards volume recovery as consumer purchasing power stabilizes and are looking forward to detailing more on their corporate model at the upcoming Capital Markets Day in London.

Earnings Call Transcript 2023-Q3

[Kari Lindtvedt, executive]

Good morning, and welcome to the presentation of Orkla's Third Quarter Results. My name is Kari Lindtvedt, I'm Head of Investor Relations. As usual, we start today with President and CEO, Nils Selte, who will share some reflections on the quarter and also on the transaction we announced earlier today. He will be followed by CFO, Harald Ullevoldsæter, who will give you more detail on the financials for the quarter.

At the end of the presentation, Nils will share and summarize our main messages from today before we move on to Q&A. And also today, in the Q&A session, we will be joined by Investment Executive, [indiscernible] who will be here to answer any additional questions you might have on the transaction we announced this morning. So please throughout the presentation today, you're welcome to post questions on the webcast, and we will address them at the end of the presentations. With that, I will leave the floor to you, Nils.

[Nils Selte, executive]

Thank you, Kari. Good morning to you all, and thank you for joining the presentation. First, as Kari said, I want to say a few words about the transaction we announced this morning. I'm very pleased -- I'm proud to announce that we have established and signed a partnership agreement with Rhône, concerning Orkla Food Ingredients. Orkla Food Ingredients has grown ninefold since it was established back in 1999 and has become a leading food ingredient solution provider within the categories: bakery, ice cream ingredients and plant based. This growth has been the result of organic expansion and successful M&A strategy with over 50 acquisitions across Europe and North America.

Orkla Food Ingredients has shown -- has proven to be a resilient business over time, navigating successfully through economic downturns and recent macroeconomic disturbances. When we last year started the process of finding a partner for Orkla Food Ingredients, we had an ambition to find someone with relevant industry experience who could support and contribute to Orkla Food Ingredient's growth and value creation.

We have undertaken a thorough search and seen strong interest from a wide range of potential partners. Today, we are very happy to announce that this partner is Rhône. Rhône, focus on and has experience from the consumer sector and food and beverage industry through past and current investments.

Rhône is a global private equity firm established in 1996, focusing on investment in companies with a transatlantic presence. They have, over the years, delivered strong financial returns and have a proven track record of substantial value creation for their owners and partners. The partnership will ensure that Orkla Food Ingredients can stay at the forefront of the industry consolidation with a clear ambition to improve margins and continue its growth journey. Both Rhône and Orkla are fully committed and aligned to the plan for increased value creation going forward.

After the transaction, Orkla will own 60% and Rhône 40% of Orkla Food Ingredients. The implied enterprise value of the company in a transaction is NOK 15.5 billion. I see this transaction as a very good example of how the new operating model in Orkla supports our value creation. The new operating model increases our flexibility in terms of ownership models and ability to execute. [indiscernible] will join us, as Kari said in the Q&A session to help answer any question when it comes to the transaction.

There is one slide missing here because now I was supposed to talk about this one. So before commenting on the financial in Q3, I want to remind you of our upcoming Capital Markets Day in London in November.

Just to give you a brief idea of the agenda, we have divided the day into 2 parts. The first part will focus on the overall strategy for Orkla ASA as an industrial investment company. Our ownership role and financial strategy. We will devote time to explain why and how the new operating model will create more value. In the second part, we'll have our 6 most important portfolio companies on stage, outlining, their ambitions, financial targets, unique value drivers and strategies.

As a general comment, we will present most targets and ambitions on our portfolio company level. This is in line with our new operating model, where value is created through the underlying performance in each portfolio company. This is why we have increased transparency in our quarterly reporting since Q2 this year, but we will also comment on our group level ambition for the value creation under the new operating model and give some guidance on selected group targets.

The agenda will run for approximately 4 hours and I hope to see as many as possible of you in London at that event. Now let's dig into the quarterly performance for the group and our portfolio companies.

Starting with the group today, we report a group EBIT adjusted decline of 14%. This reflect the profit decline in hydropower, which was heavily impacted by lower prices compared to the same quarter last year.

At the beginning of the year, we initiated a forced focus on cash flow generation throughout the group and I'm happy to see that this is increasingly visible in the numbers provided in Q3. When we look at our portfolio companies, we can report underlying EBIT adjusted growth for 8 out of 12 portfolio companies.

And let me highlight the strong performance in Jotun, Orkla India, Orkla Home & Personal Care and Orkla Health. Orkla Confectionery & Snacks continue to struggle with the ramp-up of the new biscuit factory, and we see that we have underestimated the complexity and prolonged financial consequences. These challenges will also -- will follow us also into 2024.

The negative earnings impact this quarter is estimated to NOK 40 million. I really regret that we did not see this development earlier so that we could have been more precise in our reporting to the market. But on the positive side, the underlying performance in the rest of Orkla Confectionery & Snacks is quite good.

We also had an extraordinary event in Orkla Foods Europe, the recall of capture from our Swedish factory due to quality issues. Related costs amount to NOK 25 million. This issue, I can promise you, has been solved in the quarter.

As a last comment, adjusted earnings per share increased by 2% in the quarter now at NOK 1.61. Also announced today, the CEO of Orkla Foods Europe, Paul Jordahl, has decided to step down from first of November. Atle Vidar Nagel Johansen will act as Interim CEO while we are searching for his successor. Atle Vidar will step down from Orkla's management team during the interim period. That said, I will now leave the floor to Harald to take you through the details of Q3.

[Harald Ullevoldsæter, executive]

We'll be on the aggregated numbers and the 8 largest portfolio companies. Reported revenue growth for the group was 14% in the quarter. Organic growth for the consolidated portfolio companies was 6%. And the main driver was price increases of 7.8%, while volume mix declined by 1.8%. Taking into account the holding effect in quarter 2 last year, affecting this quarter 3 this year positively, volume performance is largely in line with performance in previous quarters, perhaps a slightly improvement.

EBIT adjusted for the consolidated portfolio companies increased by 16% and the earnings growth was broad-based, and the main driver was price increases. Adjusted for change in ForEx exchange rates and M&A, the underlying growth was 5%. The tailwind from price increases to our customers is reduced in quarter 3 and will be for the rest of this year. When entry into the summer, we saw increased risk for prices of important agricultural products rising again due to drought and reduced crops as we communicated in our Q2 presentation.

This has not materialized in a substantial manner, but geopolitics and the impact of extreme weather such as the ongoing El Nino are still in an unknown for supply and input costs going forward. We are still experiencing an increase in input costs compared to the same quarter last year. The market prices for a weighted basket of our main materials declined in quarter 2, but has displayed a more stable development in quarter 3 as a result of greater market price polarization.

While market prices for materials such as vegetable oils, grain based and dairy products, are lower compared to last year, we see adversely increasing market prices in categories such as cocoa, tomato paste, rice and fruits. The decline for financial investment was mainly driven by electricity prices for Hydro Power. Electricity prices in Norway in the quarter were only a fraction of last year's prices. This resulted in EBIT adjusted of NOK 153 million for Hydro Power.

In the state budget for 2024, it is proposed that the windfall tax, which was introduced last year, and which affect Hydro Power will be removed. Real estate handover of apartments from Orkla Brands previous headquarter in Oslo, increased EBIT by NOK 91 million for financial investments. We had net other income and expenses of minus NOK 77 million in the quarter.

The largest elements were write-downs of Czech brand and intangibles in the European pizza company, offset by a positive reversal from the exit of Hamé, Russia. From associated -- profit from associated was NOK 509 million, mainly related to a strong performance in Jotun, as Nils mentioned. I'll come back to this.

Net financial items were higher than last year, mainly due to higher interest costs but also higher debt level. The average interest rate in the quarter was 5.4% compared to 2.6% in the corresponding period last year. Reported tax expenses were NOK 430 million. This is down from NOK 685 million in the corresponding quarter last year.

The underlying tax rate adjusted for Hydro Power, tax and other nondeductible costs was basically unchanged at approximately 22%. Let's have a look at the cash flow for the first 9 months. Total cash flow from operation was NOK 4.8 billion in the first 9 months of 2023 compared to NOK 2.2 billion for the same period last year. The cash flow from operations in the consolidated portfolio companies was significantly higher than in 2022. This was mainly driven by improved earnings and less negative change in net working capital from lower inventory.

Part of these improvements are related to our increased focus on capital and our ambition is still to reduce working capital to a more normalized level. The largest project under net replacement investments was the construction of the new biscuit factory in Latvia. Replacement investments also include other factory projects.

Next, let me walk you through the net interest-bearing debt rates for the first 9 months of 2023. Net debt including leases increased by NOK 2.8 billion to NOK 19.9 billion from year-end 2022, but decreased by NOK 2.8 billion compared with quarter 2. Taxes paid in the first 9 months totaled NOK 1.6 billion, which is higher than in the corresponding period last year and due to higher Hydro Power profit in 2022 that is being paid in 2023. We also paid out NOK 3 billion in dividend in April.

Next M&A and expansion CapEx were NOK 1.3 billion in the first 9 months of 2023 and were mainly related to the acquisition of Bubs Godis in Sweden and Khell-Food in Hungary. Expansion CapEx made up NOK 452 million in the period compared to NOK 228 million in the period last year. Negative currency translation effects as a result of a weaker NOK increased the net debt level by NOK 1.1 billion.

Orkla has a sound financial position and our debt level at the end of quarter 3 corresponds to 2x EBITDA. Based on the last 12 months, when the acquired businesses are included in EBITDA, a reduction from 2.3x at quarter 2.

Now let's have a closer look at the performance in the portfolio companies, starting with Jotun. Jotun experienced continued underlying volume growth, higher average selling prices and a positive mix that resulted in strong topline growth. All segments contributed to the growth. Strong sales growth, higher gross margin and good cost control resulted in an increase in operating profit. EBITA rose by 50% in the third quarter.

Jotun anticipates further sales growth for the remainder of the year. However, year-over-year growth rates are expected to be lower due to strong comparison months last year. Raw material prices have stabilized after declining since the second half of 2022. Lower raw material prices are expected to continue to result in a year-on-year margin improvement in the upcoming quarter. This is partly counter by inflationary pressure in other operating expenses in several markets.

Let's then have a look at Orkla Foods Europe. Orkla Foods Europe had organic sales growth of 4.4% in third quarter. The growth was price driven and broad-based in the grocery channel, while volumes declined across most markets. The volume/mix decline of minus 5.4% is primarily related to reduced purchasing power and higher consumer prices. This affects consumer behavior where hard discount stores are gaining shares and promotions drive customer activity.

Market shares declined in the grocery channel during the period, primarily in Sweden and Denmark. This goes back to the mentioned change in purchasing patterns. Food service and convenience are still experiencing positive sales trend. High cost of raw materials and packaging will, however, remain a challenge.

Weighted exposure for different procurement categories makes the cost increase more challenging for Orkla Foods Europe than other portfolio companies. Meat, dairy, sugar, tomato paste and rice are examples of raw materials with significant increases. In addition, glass and metals are large packaging categories with strong price increases.

Underlying EBIT adjusted increased by 5%, largely driven by price increases, offset by cost increases and negative volume performance. A recall case for ketchup in several markets affected the quarter negatively, but about NOK 25 million as a result of higher cost and lost sales.

Moving on to Orkla Food Ingredients. Orkla Food Ingredients had an organic sales growth of 4.2% in the quarter. The growth was price driven, as shown by the volume mix of minus 1.1%, mainly driven by the bakery and ice cream segments. As we are summing up, the ice cream season this year was weak due to unfavorable weather in large parts of Europe during July and August. The price contribution was positive in the quarter, but at a lower pace than in preceding periods due to less price increases in 2023 as commodity prices have stabilized.

Volume growth was still in positive territory with implant-based drinkables and margarine in quarter 3. The margarine segment, in particular, will face tougher comparables in quarter 4. The underlying EBIT adjusted margin contracted by 0.5 percentage points compared to last year. This was driven by negative mix effects from a higher sales of low-cost products in some markets and higher costs.

There is still good profit growth in many of our companies as well as growth for the both the bakery and plant-based segments. This was offset by weak ice cream season, as I said, and other costs.

Let's then move to the performance in Orkla Confectionery & Snacks. Orkla Confectionery & Snacks had an organic sales growth of 7.1%, which -- of which price drove 10.1%. The volume decline of 3% was related to delivery challenges from the new biscuit plant in Latvia. Taking this into account, the volume mix development is more or less flat. The start-up of the new biscuit factory in Latvia has been more difficult and complex than anticipated, as Nils mentioned. The challenges have been related to concrete technological issues, but also due to transfer of expertise to the new factory.

Production volume has increased in the past quarter and the factory is expected to reach the planned production volume in the course of the fourth quarter. However, the volume increase has entailed a cost level that is higher than estimated.

The ramp-up issues have weighed negatively on both costs and sales performance. And combined, we estimate this to have a negative earnings effect of approximately NOK 40 million in the quarter and NOK 125 million year-to-date including then lost sales. The situation is expected to prevail throughout the fourth quarter and into the start of 2024.

Market shares are slightly reduced. And an important driver is, of course, the low service level from our new biscuit factory. The earnings progress for the remainder of the business, excluding biscuits, main of the business, sorry, excluding biscuits, was good in the quarter. Raw materials costs show a gradual flattening from most purchasing category, although still at a higher level than in the corresponding period of last year. For certain important input costs like cocoa and sugar, prices have increased and will continue to do so into 2024.

The weak Norwegian krona and Swedish krona are affecting the overall procurement cost level negatively.

Let's then look at Orkla Health. Orkla Health had an organic growth of 6.6% in the quarter. The growth was driven by price as well as by volume growth in Health and Wound Care categories. This was coupled with broad-based subscription growth for NutraQ. Market share picture is mixed in quarter 3. Vitamins, minerals and supplements progressed slightly weekly in the grocery channel as private label is gaining shares.

Underlying EBIT adjusted grew by 7.3% driven by sales growth, but somewhat offset by higher fixed costs and increased A&P. EBIT margin declined up to 15.4% compared to 16% in the corresponding period last year due to negative mix effects.

Let's then move on to Orkla India. Orkla India grew organically by 12.1% in the quarter, driven by both price and volume. The growth was broad-based across core categories, both domestically and internationally. The underlying EBIT adjusted progression of 33.2% was driven by both higher sales and improved contribution margin.

Commodity prices were stable in the quarter. Please note that the profits were positively affected by a government grant of NOK 6.5 million from an incentive program for Indian food producers. Let me also remind you that merger between MTR and Eastern was made effective as of first of September this year. Orkla's ownership in the combined entity is 90.01%, in line with the announcement in connection with the acquisition of Eastern.

Moving on to Orkla Home & Personal Care. Orkla Home & Personal Care saw good growth, particularly in Norway, fueled by a sound mix of price and volume. This resulted in an organic growth of 11.4%. The contribution ratio improved due to price increases, offset by higher input costs, mainly from our weak Norwegian krona.

Some of the improvement was related to high transportation costs and cost of one-off in nature last year. The majority of the input factors are exposed to Europe, where the weakening of the Norwegian krona from last year has a negative effect.

EBIT adjusted was also negatively impacted by higher depreciation due to relatively high investment level last year but still is twice at the level of last year.

Moving on to our pizza franchise business. The European pizza company grew revenues by 28%, of which 5.4% was organic where the difference is the positive consolidation of effect from the acquisition of Da Grasso in Poland and positive currency translation effects.

Sales were positively impacted by increased consumer sales and price increases for the wholesale business. Consumer sales in quarter 3 totaled EUR 111 million, which is an underlying improvement of 2.2%.

In markets outside Germany, the underlying growth in consumer sales was 7.2%. The strategy of acquiring the converting and converting pizza chains in Germany has proven complicated. This is related to a weaker-than-expected franchise network, low brand recognition and generally challenging market environment. Our restructuring process has been initiated in Germany with several underperforming outlets have been closed to secure a more solid platform and leaner organization going forward.

Then let's have a brief look at the remaining of our 4 companies. The remaining 4 companies are smaller in size and more details on these companies can be found on a regular basis in the quarterly financial report. Let me now hand back to Nils for his final remarks.

[Nils Selte, executive]

Just a few comments from me before we open for the Q&A. First, we are very excited about our partnership with Rhone. The partnership will strengthen Orkla Food ingredients with a clear aim to create shareholder value through volume growth, margin improvements, capital efficiency and structural growth. To comment on our Q3 reporting. I'm happy that we see underlying growth in the majority of our portfolio companies, including improvements on important parameters and cost improvement initiatives according to plan.

Let me also state that there are still turbulent times and our value chain from input factors to consumer buying power is affected. Going forward, we need to focus on volume and margin and continue investing in A&P for our brands to stay relevant. The prolonged challenging situation of ramping up the new biscuit factory in Orkla Confectionary & Snacks is not acceptable. And mitigating action are high on the agenda.

We see an improvement in volume but are expecting higher costs continued into 2024. Finally, I'm looking forward to presenting more details on our ambitions and the Orkla model at our Capital Markets Day in London late November. Then back to you, Kari, and we open for the Q&A.

[Kari Lindtvedt, executive]

Thank you. And as we mentioned, we also have [indiscernible] joining our Q&A today. So let me start by asking if there are any questions from the audience. Please state your name and company.

[Unknown Attendee]

My name is [indiscernible], stockholder. Due to the problems in Latvia, Orkla will build the next factory in Latvia too? And the money from the sale to Rhône. I think it's a little bit strange that Orkla don't have coffee in the portfolio. So what about buy some coffee and brands because coffee is hot.

[Nils Selte, executive]

Let me start commenting on the factory problems in Latvia. First of all, there's I guess, it's over 20 years since we last time we did a factory in this size in Orkla system. This is not related to Latvia at all. It's related to actually building this factory through the COVID period. And that -- the effect of that was that we were delayed and we lost some very important employees in that period. So we lost competence. So this is not a Latvia I think, for sure. It has been affected by the COVID situation.

And we have now a lot of people try to fix this problem. We think we are good on the way. And we have a special kind of task force there now to fix it but it takes time. There is 13 production line that has to go continuously and it's kind of complicated.

When it comes to the net proceeds from the transaction with Orkla Food related to Orkla Food ingredients, for sure, we will think thoroughly through what -- how to invest is to invest -- but we have saying that Orkla Food Ingredients will continue doing M&A under the new partnership. So we have now reserves on capital for that purpose going forward.

I think coffee, maybe we should consider that going forward. I think it's very important to say we have now established a new way of operating Orkla. I think it's very important that we prove that this model creates more value to our shareholders before we start investing that much money into new categories or in new platform investments in Orkla.

[Kari Lindtvedt, executive]

Thank you. Any other questions from the audience? Okay. Then we have a couple of questions on the web as well. First, from [indiscernible]. He has 3 questions. I'll take them one at a time. Organic growth has been very strong, driven by price over the last couple of quarters, while volumes have been soft, how should we think about the volume development as price increases ease?

[Nils Selte, executive]

As we always say, we don't guide going forward. But as I said, we will continue investing in A&P to support our brands throughout the portfolio. That's for sure. But -- and in my view, I think what we have seen through the last year or quarters is that the trend is that the consumer buy the products in kind of hard discount store that has -- that trend started in [indiscernible] basically a year ago. It continue into Sweden and Denmark. And now we also see some signs of that kind of movements also in Finland.

We think when people purchasing power is kind of getting back to the consumers, we think that they will return to the more supermarket formats, and that will kind of help gaining back volume.

[Harald Ullevoldsæter, executive]

Perhaps if I could add some comments. I think the most demanding part on the volume side has been the Orkla Foods portfolio. And if you look at the last quarters, the volume decline has been approximately at the same level. And we have been very clear from quarter 3 last year that our main challenge and main risk is the volume development going forward. So it's high on our agenda, how to cope with it.

[Kari Lindtvedt, executive]

Yes. Thank you. And then the second question from Martin. Can you comment on how you see the competitive landscape and your market share development for key segments?

[Nils Selte, executive]

I think it's basically very much the same as I commented on. I think if we look at Norway, we don't have hard discounters in Norway. And in Norway, we see that we are kind of maintaining our market share but we see that in the other markets, as I mentioned, [indiscernible], Denmark, Sweden, Finland, we see that hard discounters are gaining share. They are more kind of private label in those formats. And I think that is hitting our market share short term. And hopefully, if this turnaround, we will gain back market share over time, but who knows when that will happen.

[Kari Lindtvedt, executive]

Okay. Final question from Martin. Can you provide some color on which items you aim to provide guidance on at your Capital Markets Day?

[Nils Selte, executive]

I think we will leave that for the Capital Markets Day. We have a plan, we will definitely come back to that on 29th of November. I think we'll leave it on what I said that we will give some guidance on some financial numbers on the group level, but I will leave it to the Capital Markets Day.

[Kari Lindtvedt, executive]

Then 2 questions from [indiscernible]. First one, can you comment on the potential risk from new weight-loss drugs? And have you seen impact in any of your markets yet?

[Nils Selte, executive]

I don't think we see impact in our markets at this time. This is something that we take, of course, very seriously. We try to understand the effect and the future effect on our portfolio. But I think it's fair to say that we have a quite broadbased portfolio of different categories in the different portfolio companies. And we have said earlier and we continue to say that we want to grow in health, and I think in that regard.

[Kari Lindtvedt, executive]

Thank you. Second Question from [indiscernible], how much did currency impact the contribution margin this year?

[Harald Ullevoldsæter, executive]

Currency has been important factor on the contribution margin, the weaker NOK and weaker SEK, it is significant. But I think I cannot go into the details on actually the effect in the contribution margin.

[Kari Lindtvedt, executive]

And then 2 more questions from [indiscernible]. First one, how much of the NOK 1 billion cost-cutting program has been realized?

[Harald Ullevoldsæter, executive]

What I can say is that we are very happy with the cost program in total. It's continue as planned, and we have some good examples and good initiatives, new initiatives from last Christmas, especially in Orkla Food Europe, where we have 3 big projects. And we see the effects in the numbers in the quarter, and we will continue to see some positive effects in quarter 4 and into next year. So we are happy.

[Kari Lindtvedt, executive]

Good. Second question again from [indiscernible]. Question on the partnership that we announced this morning. What level of expertise does Rhône bring to the table? And how can they accelerate development in OFI?

[Nils Selte, executive]

Let me start and maybe Irwin can fill in. But First of all, I think, as I said in my presentation, Rhône has created a lot of value through the different investments over -- since the late 1990s actually I saw. So -- so I think, first of all, they come in that has a good business. And I think that's a very important thing. Secondly, they have invested in the sector that OFI operates in. And they're not necessarily that successful, but they have -- they came into this process with a very positive attitude and also some experts that they will bring into the boardroom that we think that will really contribute to the development of Orkla Food Ingredients going forward. So maybe you can fill in the your perspective as the future Chairman.

[Unknown Executive]

So first of all, I'm truly excited to announce this deal and the opportunity to talk about it. When we started this process, we had very clear objectives. So we were looking for a partner with specific industry expertise, in addition with a proven track record when it comes to these kind of partnerships. We looked for a partner who believes in the unique business model of OFI and also in the business plan and then obviously also looking for attractive commercial deal from Orkla. Rhône has, as Nils mentioned, specific industry expertise, we will have Board members, for example, [indiscernible] coming into OFI.

They have proven in the past in these kind of situations and partnerships that they contribute both to the operational agenda and also the structural agenda. And I've had the pleasure of talking to a lot of companies who have brought Rhône into their partnership and very good feedback on this from other companies. So I'm very much looking forward to the partnership with Rhône.

[Kari Lindtvedt, executive]

Thank you. Then we have a question from Abhishek Pareek, no company there. And the question goes any M&A plans for Orkla India?

[Nils Selte, executive]

I think Orkla India is in a good position to continue looking for M&A candidates. But I think it's fair to say that I don't necessarily see this eventually -- and I think when we did Eastern that was a combination of cash payment to the seller but also shares in Orkla India.

So also we will be pragmatic when it comes to how we can kind of do M&As going forward, if there is a good transaction to be done there. And we will explore the opportunity to use other thing then cash to settle any M&As if that's on agenda. But of course, we don't -- we are always looking for good opportunities in all the portfolio companies.

[Kari Lindtvedt, executive]

Thank you. Then we have 3 questions from Patrick Folan Barclays. First, it sounds like there is less private label pressure compared to Q2, as you mentioned, it less in this release. Is that the case?

[Harald Ullevoldsæter, executive]

No. It's approximately the same level of pressure from private label as we had in quarter 2 and quarter 1.

[Kari Lindtvedt, executive]

Second question, are there any markets where pricing elasticity or consumer pressure has come -- become more of an issue this quarter?

[Harald Ullevoldsæter, executive]

I think -- in Orkla Foods, it's mainly the same markets where we have volume problems, and it's Sweden, its Denmark and Czech that has been the case for quarter 1 and quarter 2 as well.

[Kari Lindtvedt, executive]

Last question. Again, on the partnership, how does your outlook for the business changed in terms of key financial KPIs that Orkla and Rhône will be monitoring?

[Nils Selte, executive]

I think this goes very much about we have aligned, as Irwin talked about, we have digged into the strategic plans for Orkla Food Ingredients together. We have a buy-in from both parties going forward. I think it will be very much the same KPIs going forward. Hopefully, we will manage to deliver better on KPIs. I think, first of all -- and I think it's safe to say that Orkla Food Ingredient has been kind of vital role in Orkla for the last years.

And hopefully, they will continue being a hero under the new ownership and delivering good on important KPIs. And we will get back on the Capital Market day as well, being more precise on the strategy for Orkla Food ingredients and how they will execute on it and the most important KPIs.

[Harald Ullevoldsæter, executive]

Yes, very much looking forward to presenting the plans and the targets at the Capital Markets Day, end of November.

[Unknown Executive]

But I think the -- in general, we will have an increased focus on cash flow for all our companies, also Orkla Food Ingredients compared with previous years.

[Kari Lindtvedt, executive]

Good point. That was the final question from the web. Any other questions in the audience? No, there seems not to be. Thank you all for joining today. And please remember to save the date for our Capital Markets Day on the 29th of November. Thank you for joining today.