Orkla ASA
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Orkla ASA
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Good morning, and welcome to this presentation of Orkla's Fourth Quarter Results. My name is Kari Lindtvedt, I'm Head of Investor Relations here at Orkla. With me today in the auditorium in our head offices in Oslo, I have CEO, Jaan Ivar Semlitsch; and CFO, Harald Ullevoldsæter. They will share some reflections on the quarter, and also give you some more details on the financials. During the presentation, you're welcome to post questions on the web, and we will address them at the end of this session. With that, I leave the floor to you, Jaan Ivar, please.
Thank you, Kari. Good morning on this sunny but very cold day here in Oslo. And welcome to this presentation of the fourth quarter results. Q4 marks the end of a very special year for all of us, both on a personal level and for the world economy. Needless to say, COVID-19 has had a strong impact on our business and results in 2020.Early on, we set 3 immediate priorities for our business: safeguarding our employees, securing supply of our products and maintaining a strong balance sheet. I'm happy to say that we have delivered on this. Succeeding with our contingency work allows us also to work on our cost efficiency programs and long-term growth agenda. An example of the latter is the acquisition of Eastern Condiments in India, which we announced in September. During 2020, we have also acquired Norgesplaster and the Havrefras brand. As part of our active portfolio management strategy, we have also divested Vestlandslefsa, SaritaS and our Skin Care portfolio in Poland. Strategically appropriate acquisitions and active portfolio management are key elements of Orkla's growth strategy and value creation model in parallel with our organic work agenda. During these special times, we have also continued to support our brands and innovations with marketing and A&P spend in order to maintain momentum in our long-term growth plans. At the Q4 presentation last year, I highlighted the new Grandiosa pizza concept with thinner and crispier crust and Nidar Favoritter chocolate tablets as good examples of strong innovations around our core local brands. One year later, I'm very happy to say that the performance of these innovations has exceeded our own expectations. Talking about successes, I would also like to highlight our international cod-liver oil Möller brand who grew by 29% in 2020. Regarding the cost efficiency programs, as I mentioned, I'm impressed by the organization's ability to keep up momentum during 2020. I'm especially happy with the work done on the turnaround in Orkla Care so far. Our initiatives have already resulted in cost reductions. Furthermore, we have clarified roles and responsibilities between business units and countries, and separated the Norwegian part of Orkla Home & Personal Care as a separate business unit. I believe these changes make us well positioned for the future. I'm also proud by the fact that Orkla has been recognized for our ambitious sustainability agenda in 2020. It's encouraging that Orkla is included in the Dow Jones Sustainability Index Europe for the 10th year in a row as one of the 3 leading food companies in Europe. Moreover, the investor initiative, CDP, has ranked Orkla among the best listed companies when it comes to climate change leadership. And Orkla is included in the Corporate Knights Global 100 Index of the world's most sustainable companies. Before diving into the 2020 figures, I would also like to mention the recent changes in our group executive management team as from mid-January Atle Vidar Nagel Johansen has taken over as CEO of Orkla Foods. Hege Holter Brekke has been appointed CEO of Orkla Care. And Ingvill Berg heads up our Confectionery & Snacks business. They have all made strong positive impressions on me since I started, and I feel that we have a strong team in place with a very good team spirit, and I look forward to building the future Orkla with this team.Overall, I'm pleased with our progress in the fourth quarter. EBIT from Branded Consumer Goods, including HQ, improved by 7%, a bit lower than the 14% year-on-year growth, partly due to increased advertising investments in the quarter. Our revenues grew organically by 1.3% in Q4, resulting in a total of 2020 of 1.6% organic growth, up from 1.3% in 2019.During Q4, COVID-related restrictions were reimposed in several of our markets and impacted negatively on our out-of-home related businesses. On the other hand, we continue to see growth in the grocery channel from more in-home consumption and less border trade. The strong performance in Jotun continued in Q4, and I will give you some more insight into the Jotun story in a minute. In sum, adjusted EPS improved by 13% in the quarter. The Board proposed an ordinary -- intends to propose an ordinary dividend of NOK 2.75 per share, an increase of 15 øre from recent year's level. Orkla has historically never reduced the absolute dividend. And the Board's proposal is in line with our target to grow our dividends over time. We normally don't talk much about Jotun in our quarterly updates. The last time we gave a more thorough update was then CEO Morten Fon, poke at our Capital Markets Day in October 2018. At that time, Jotun reported operating result of NOK 1.4 billion and Orkla's share of Jotun's net profit was approximately NOK 250 million. With operating profit well ahead of NOK 3 billion in 2020 and Orkla's pro rata share of net profit reaching NOK 1 billion, Jotun clearly deserves proper attention. Also, I know there is an increasing interest from both our investors and analysts in better understanding Jotun and Orkla's shareholding. There is clearly an element of cyclicality in Jotun. And their earnings are more volatile than Orkla's Branded Consumer Goods business. At the same time, there is an underlying growth in the paints and coatings industry that leaves many BCG businesses with envy. Global demand has increased by around 4% to 5% for several decades and is forecasted to continue growing at this rate towards 2030. There is a clear GDP link to growth in this industry, which also explains why emerging markets consistently grow at approximately twice the rate of mature markets. This is one of the key points I would like you to know about Jotun. They are one of Norway's most international businesses. The Asian and Middle Eastern markets accounts for 2/3 of Jotun sales and Scandinavia and Europe about 1/3. Through consistent international expansion over many years, following their customers into new markets, Jotun has built a highly attractive geographical footprint. This has contributed to Jotun having one of the industry's highest organic growth rates over time. And as you can see, over the past 10 years, Jotun has achieved an average growth of 8% per year without any structural activity. Those of you following the paints and coatings industry already know that there has been a wave of consolidation going on for many years. Some of the largest players in the industry like Sherwin-Williams, PPG and Nippon have been quite acquisitive. The ongoing bidding war for Tikkurila is the latest example that the industry is attractive. I'm by no means an expert on the industry, but I know that PPG is bidding more than 18x EBITDA for Tikkurila, which has a predominantly mature market footprint and an essentially flat top line over the past 5 years.So what are the implications for Jotun and Orkla as a shareholder? Orkla remains a committed long-term shareholder in Jotun. We have strong confidence in Jotun's management team, where CEO Morten Fon has demonstrated an impressive ability to consistently keep expanding Jotun into new markets. All paints sold globally carries the Jotun brand, and the company holds market-leading positions in local decorative markets, #1 globally in Marine Coatings and top 3 position globally in Protective Coatings. We remain an active shareholder in Jotun and are enthusiastic about the continued journey and cooperation with the family shareholders on the Jotun Board. You will get a more thorough update on Jotun at our next Capital Markets Day in November. Now with that introduction, I'd like to hand over to Harald who will take you through the main financials for the quarter.
Thank you, Jaan Ivar, and good morning, everyone. Let's have a look at the financial performance in quarter 4. Revenues in Branded Consumer Goods increased by 6% in the quarter. In the same period, earnings for Branded Consumer Goods, including headquarter, improved by 7%.Industrial & Financial Investments, including Hydro Power, had a profit decline of NOK 49 million from Q4 '19 as a result of lower power prices. We had nonrecurring items totaling minus NOK 468 million in the quarter, mainly from the write-down of our ongoing ERP project, which I will revert to on my next slide. Profit from associated companies ended at NOK 225 million, an improvement of 53% from last year. This increase was mainly driven by strong profit and margin growth for Jotun. Adjusted earnings per share grew by 13%. Let me then give you more details about the status of our ongoing ERP projects. Back in 2017, Orkla decided to implement a common ERP solution based on 3 main reasons. First, many of our companies had systems that were close to end of support. Second, common systems would enable a closer integration between businesses according to the One Orkla thinking. And finally, implementing modern platforms would make us better equipped for future digitalization. Building on a common template based on SAP S/4HANA was chosen for our Branded Consumer Goods business, excluding Food Ingredients, which would implement its own common ERP platform based on Microsoft Dynamics. Today, more than 3 years later, we have built the 2 platforms. The SAP S/4HANA solution was recently implemented in our largest company, Orkla Foods Sweden. And the Dynamics solution has been implemented in several companies in Food Ingredients. However, the project leading up to where we are today had been a lot more complicated and time-consuming than expected. And further, the COVID-19 has led to additional delays. Our assessment is that an overall write-down of approximately NOK 550 million is needed, of which NOK 437 million was booked in quarter 4 '20, while more than NOK 100 million will be booked in 2021, mainly in quarter 1. Our view is that we are now past the most demanding phases of these projects. We expect the remaining part of the rollout of SAP S/4HANA to involve less risk and resources that we have experienced until now. And as a result of SAP expanding its support period for all their solutions, meaning those we still are running in many of our companies, we have more time and we expected -- than we expected back in 2017. So we will spend more time on the rollouts than originally planned and now expect a gradual implementation over the next 7 to 8 years. Let's then have a look at the cash flow performance for the year. Securing a strong cash flow has been one of our main priorities during 2020, as Jaan Ivar said, and I believe we have succeeded. Cash flow from operation for the full year increased from NOK 4.9 billion to NOK 5.4 billion in 2020, a 10% increase over the year. The improvement in working capital continued in 2020. After reducing working capital more than NOK 800 million in 2019, we had a further reduction of NOK 670 million in 2020. The reduction was mainly related to receivables and account payables. These positive factors were partly offset by a temporary buildup of inventory levels to meet increased demand and to maintain high service levels. Replacement investments were primarily driven by the ongoing implementation of new ERP systems and factory projects. In 2020, we have also seen an increase in depreciation and write-downs related to higher investment levels over the last few years. Let's then have a look at the investments in 2020. In 2020, we have invested NOK 2.7 billion in our existing operation, corresponding to approximately 5.9% of revenues. Maintenance investments, excluding ERP, were NOK 1.8 billion, including leasing, corresponding to approximately 4% of revenues and approximately 0.5 percentage point of this relates to leasing investments from IFRS 16. And as mentioned already, we continued to invest more in building our future ERP platform, which accounted for approximately 1% of revenues in 2020. Our largest expansion investments were related to the upgrade and expansion of pizza production at Stranda, this is in Norway. We also increased our production capacity for plant-based products. We expect maintenance CapEx, including ERP and leasing, to be in the range of 5% to 6% range for the next couple of years, meaning '21 and '22, driven by construction of a new biscuit factory in Latvia. And from 2023 and onwards, we expect maintenance CapEx to be around 4% of revenues. Let me then walk you through the net interest-bearing debt bridge for the full year of 2020. Net debt, including leasing, decreased by NOK 0.2 billion to NOK 6.4 billion at the end of 2020. The main cash out was related to dividend payment of NOK 2.6 billion in April, expansion CapEx and M&A of NOK 1.0 billion and taxes and financial items of another NOK 1 billion. Currency translation effects from a weaker NOK increased the net debt by approximately NOK 0.6 billion. Orkla has a strong financial position, and our debt level at the end of quarter 4 corresponds to 0.9x EBITDA based on the last 12 months, well within our ambition not to exceed 2.5x EBITDA over time. Now let's have a closer look at our Branded Goods performance. First, I will present the overall picture for Branded Consumer Goods, and then I will take you through the individual business areas. Let's start with the top line performance for Branded Consumer Goods. Overall, revenues from our Branded Consumer Goods business grew by 6% in quarter 4, of which organic growth accounted for 1.3%. Positive ForEx translation effect of close to 5% from a weaker NOK versus euro and SEK added to the top line growth. In addition, we had small net negative impact from structural changes. As we can see from the graph to the left, organic revenue growth was 1.6% in 2020, up from 1.3% in 2019 and 0.4% in 2018. We have experienced a very volatile and very unusual development during 2020. In quarter 4, organic growth came in at 1.3%, as illustrated on the right-hand side of this slide, but with large differences between the business areas. We continue to see good market growth in grocery retail, driven by higher in-home consumption, but this growth is partly offset by reduced demand in sales channels outside grocery retail. With organic growth of 8.7%, Orkla Care benefited from strong market growth in several categories as a consequence of the COVID-19 pandemic. Continued strong sales of painting tools, driven by a general boost in home improvement activity, contributed to the strong growth in consumer investments. Organic revenue growth in Orkla Foods was positively impacted by good market growth in grocery retail, but growth was partly offset by decline in out-of-home sales channels again. Confectionery & Snacks had sales decline in the quarter due to the timing of seasonal sales, as we mentioned in quarter 3, and the destocking in trade in anticipation of the removal of the sugar tax in Norway in December. In Food Ingredients, growth was hampered by reinforced COVID-19 restrictions in out-of-home. Now let's have a look at this quarter's profit and margin performance. Let's start by looking at the chart on the left-hand side. Branded Consumer Goods, including head office, earnings grew by 7.4% in the quarter, of which 2% was underlying improvement. The underlying improvement for the full year was 5.4%. Revenue growth and cost reductions were the main drivers of the underlying progress in quarter 4. Our earnings growth in the quarter was partly offset by increased A&P spend and higher depreciation expenses following increased investment levels in recent years. In addition, several timing effects had a negative impact on earnings growth this quarter. ForEx translation effects and M&A contributed positively to the reported earnings growth. And as you can see from the graph on the right-hand side, underlying EBIT margin improved by 0.4 percentage points on a rolling 12-month basis. This progress was mainly driven by revenue management, positive mix, production efficiency and as well as other cost improvements. Our underlying margin growth was partly offset by increased depreciation and higher advertising costs of approximately NOK 100 million in the year. Let's have a look at the performance per business area, starting with Orkla Foods. Orkla Foods reported a revenue increase of just about 4% in fourth quarter, of which 1.7% was organic growth, primarily driven by the Nordics and in India. Our Central European business had a small sales decline in the quarter. Increased in-home consumption following the coronavirus had a positive impact on the grocery sales in most markets. At the same time, we see less sales activity in food services, exports and out-of-home consumption compared with last year due to the reinforced COVID-related restrictions. Revenue management and production cost reduction contributed to an earnings growth of 11% in the quarter. This progress was partly offset by increased advertising investment, especially in India. Earnings were also impacted by higher maintenance costs and increased depreciation expenses from technology and capacity investments. The negative ForEx effect from a weak NOK and SEK have decelerated during the quarter, but raw material prices continue to increase. Currency translation effects had a positive impact on reported EBIT growth. Moving on to Confectionery & Snacks then. Revenues from our Confectionery & Snacks business grew by almost 4%, driven by currency translation effects. Organic sales declined by 1.6% as a result of the destocking in the trade in anticipation of the removal of the sugar tax in Norway from 1st of January this year. Adding to this, sales in the quarter were negatively impacted by the timing of seasonal sales between quarter 3 and quarter 4. And if you adjust for these effects, our organic sales growth in the quarter would have been more in line with the full year growth rate. We have seen good market growth in the Nordic grocery chain, especially in Norway. In the Baltic markets and in sales channels outside grocery, the coronavirus situation has led to reduced demand and lower sales. In Denmark, reduced listing with 1 larger customer continued to have negative impact, but a new agreement with this customer was entered into at the year-end, which is expected to lead to a gradual improvement during this year. We experienced good sales growth and market share development with our other customers in Denmark. Earnings growth in the quarter was driven by currency translation effects and cost improvements. Let's now have a look at the performance in Orkla Care. Revenues from Orkla Care increased by 16% in the quarter, of which organic growth was almost 9%. Good market growth in several of our care categories contributed to improved sales. Orkla Health had good sales growth in all markets, especially in Norway and from export sales. HSNG continued its positive sales development. And sales from our Home & Personal Care categories continue to grow, but at a flattening rate compared with a strong quarter in 2019. Wound Care had organic sales decline also in quarter 4 due to COVID-related lockdowns in several of its key markets. Despite sales growth, earnings in the quarter were a bit lower than in quarter 4 last year, mainly due to higher advertising spend and fixed cost accruals. Adjusted for these effects, our EBIT growth in the quarter would have been closer to the full year level. These effects in combination with negative product mix were the main reason behind the 2 percentage point drop in the EBIT margin in the quarter. Let's then turn to Orkla Food Ingredients. Food Ingredients improved revenues by 2% in the quarter, driven by structural growth and currency translation effects. Organic revenue growth was negative by 4.3% due to reinforced COVID-19 restriction, impacting out-of-home consumption in most of our markets. There is still great uncertainty going forward. The performance will largely depend on how the pandemic evolves and the prevailing government restriction in -- on out-of-home eating. Earnings fell by 20% in the quarter as a result of lower sales, but partly offset by cost reductions from profit protection measures in the quarter, positive currency translation effects and M&A. Let's have a look at performance in Consumer Investments. Consumer Investments had organic sales growth of 13% in the quarter, contributing to growth also for the full year. As in the previous quarter, the single strongest driver continued to be exceptionally high demand in our painting tools business, which saw high double-digit sales growth across markets in quarter 4. While the COVID situation is likely to continue, contributing to a high home improvement activity, we expect demand to ease as we enter into 2021. Our Kotipizza franchise in Finland continues to see record restaurant sales. The restaurant sales were up 20% in the quarter 4. And to put this into perspective, the total limited-service restaurant market is estimated to be down by 5% to 10% in Finland. And this is visible also in Kotipizza, where the ingredients wholesale business has seen lower demand from external customers. Our professional cleaning business had sales growth, mainly from higher demand for disinfecting. An our textile business, Pierre Robert Group, continued to be negatively affected by social restriction and canceled festivities. On a positive side, they had strong growth on online channels. The strong growth and margin improvement in 2020 should be seen in conjunction with the weak comparable figures from quarter 4 2019, especially from Pierre Robert Group. M&A and positive ForEx translation effect added to the progress. So this concludes the details for quarter 4 for our Branded Consumer Goods area. But before I move on, looking at the performance in Orkla Industrial & Financial Investments, I would like to share some reflections regarding the status of our targeted financial progress. These targets were set for Branded Consumer Goods, including head office, in 2018 for a 3-year period ending in 2021. And we often get the question, is Orkla committed to these targets? And the answer is, yes, we are still aiming for working towards these targets every day. We are now 2 years into the period, and this is a good opportunity then to give the status update. Let me start with our progress on organic growth. As we saw in 2018, our organic growth guidance should be seen as an ambition over time, and it is not limited to this 3-year period. In 2019, we came in a bit short of our target with 1.3% organic growth. But I'm glad to see that we are moving in the right direction with 1.6% growth in 2020. And with presence in a broad range of markets, categories and sales channels, it is, of course, difficult to estimate our relevant market growth exactly. And clearly, we have seen huge shifts in the market dynamics during 2020. It is our view that we are growing our business just below market growth with variation between markets and categories. Moving on to our margin targets. 2/3 of -- into the period, we have achieved a margin improvement of 0.7 percentage points during quarter 4. And for the full year, we have chosen to increase advertising spend. During quarter 4 and for the full year, we have chosen to increase advertising spend, and we expect to continue to increase investments in advertising to strengthen our brands and support growth also in 2021. This means that we consider the targets to be challenging to reach by the end of 2021. We will, nonetheless, continue to work to improve profitability through both top line and cost initiatives. Continuous improvement in all parts of the value chains is embedded in our genes here at Orkla. That said, we must balance our margin focus with an ability to maintain market position, strengthen our brands and secure long-term growth. Now let's have a look at our working capital levels. Back in 2018, we targeted a step change in working capital efficiency. And as you can see from the graph on the right-hand side of this slide, we have already reduced our net working capital over net sales by 3.2 percentage points so far. And our progress in 2020 is partly as a result of deferred deadlines for payments of public taxes related to COVID-19, which we do not expect into 2021. This improvement is still well in line with our targeted minus 3 percentage point reduction, which corresponds to approximately NOK 1.5 billion in reduced capital employed. Before I leave the floor to Jaan Ivar, again, I would like to give you a summary of the financial performance for the Orkla Industrial & Financial Investments in the fourth quarter. Hydro Power had a profit decline of NOK 47 million from quarter 4 '19. Although volumes increased during the quarter, significantly lower power prices continued to impact profit in Hydro Power. We have, however, seen a recovery in the power prices in January this year, with average prices around 50 øre and while forward prices for this year indicate prices in the range of 20 øre to 35 øre. The other major asset in Orkla Industrial & Financial Investments is our shareholding in Jotun. Let's look at Jotun's performance in quarter 4. Jotun will release their 2020 results on February 18. So this is based on the sales update released this morning. The positive revenue growth continued for Jotun in quarter 4. All segments, except Marine Coatings contributed to sales growth. Lower activities levels in a market for shipbuilding and maintenance led to a slowdown for this segment. On the positive side, Decorative Paint saw increased demand partly driven by boost in the in-home improvement following COVID. Both EBITDA and margin doubled in quarter 4 as a result of increased sales, favorable raw material prices and good cost control. There was limited currency translation effects in the quarter. As for our Branded Consumer Goods business, Jotun also emphasizes the uncertainty related to COVID in their outlook into 2021. So with this, I leave the floor to you Jaan Ivar to sum up the main points of the presentation today.
Thank you, Harald. As Harald just described, our overall organic growth improved in 2020, and our margin progress continued. At the same time, we continue to support our brands and innovations with increased marketing and A&P spend. Even though this will be at the expense of margin improvement in the short term, I'm confident that this is positive for Orkla's medium- to long-term growth prospects. And as I said at the beginning of this presentation, I'm pleased that we have improved EBIT by 7% during the quarter for Branded Consumer Goods, including HQ. In this number, we see negative effect from COVID-related restrictions being reimposed in several of our markets and impacting our out-of-home businesses. On the other hand, we continue to see growth in the grocery channel from more in-home consumption and less border trade. Jotun continues to be a good investment for us, delivering strong results on the back of increased sales, favorable raw material prices and good cost control. I'm also pleased with the adjusted EPS improvement of 13% to NOK 1.43 for Q4 and plus 19% improvement for the full year 2020 to NOK 5.04. The Board intends to propose a dividend of NOK 2.75 per share. When we move on to make a few comments on the outlook, we see both opportunities and continued uncertainty. We see rapid changes in consumer habits, some even stronger now during COVID-19. And it's paramount for us to spot and act on these changes early on. During these special times, it has been important for me to balance contingency work with our long-term growth plans. And our strategic M&A agenda will continue to play an important role. As mentioned at the start of this presentation, the acquisition of Eastern Condiments, which we announced in September, is a good example of that. The process of closing is unfortunately taking longer than expected, but we are diligently working towards closing. We will send an update as soon as we are ready. There are no changes to our expectations about closing this transaction. We are entering 2021 with a touch of optimism related to the ongoing COVID vaccination program and hope that we will, at some point, return to a more normal everyday life. Nevertheless, uncertainty related to COVID-19 remains high in all our markets, and we continue to navigate to deliver on our short- and long-term priorities for building the future Orkla. Regarding the latter, I look forward to welcoming you back for more details on our long-term growth plans during our Capital Markets Day on the 23rd of November. That's really exciting times ahead. This concludes our presentation. I know it was a bit longer than normal, but thank you so much for listening during these special times. And we'll now move on to Q&A.
Thank you, Jaan Ivar. We have received a couple of questions from the web. So I'll start from the top. First one is from Markus Heiberg. In 2019, you disclosed that the variable margin improved by 50 basis points. But fixed cost leverage was down by minus 20 basis points to the total improvement of 20 basis points. Can you please elaborate on the 2020 improvement of 50 basis points? How much did your variable margin improve? And how much lower is the underlying fixed cost base in 2020?
We will not go into those details, but I can say that the same pattern continued into 2020.
And then second question from Markus Heiberg from Kepler Cheuvreux. Can you comment on the magnitude of advertising spend versus lower electricity cost in production in 2020 versus 2019?
So if I can start with advertising spend and you can do electricity. No, the advertising spend increase was very significant during 2020, on a full year basis approximately NOK 100 million and for the quarter, Q4, a significant investment of NOK 65 million. So -- and we see that Q4 was important for the increased advertising spend, then there is a lot of momentum in the market. So we think that will have an effect on the medium to longer term on having that strong visibility. So that's on the advertising spend, Harald. And we know that the electricity prices have been low during 2020.
Yes. I'm not sure why we have this comparison between advertising and electricity. But yes, it has been low, and we have, of course, lower costs in our industrial part of Orkla. But we also have poor results in our power plants, that's for sure. So our net exposure is, of course higher -- to higher electricity cost will improve earnings in Orkla.
Thank you. And then the third question from Markus. The Norwegian Parliament recently instructed the competition authorities to make sure suppliers with dominant positions can document and explain all price differences. It appears from the media that it lists 2 of your major customers in Norway now expect lower prices from key suppliers. How should we be thinking about this going forward? What share of your subsidiaries could be considered to have such dominant positions?
Yes. So that's a good question. First of all, we don't comment on specific customers in the Norwegian markets or in any markets. But I would say we have very good dialogue with all our customers in Norway, good momentum, both in 2020 and into 2021. Of course, we would have liked to have even more customers in Norway. But we work very well with those customers we have. I think the work we have ongoing won't change our financial targets. It's always a combination of good organic growth and having #1 and #2 positions and really being strong in the marketplace. And our brands are important to our customers, and we think we have a good momentum and good dialogue with our customers.
Thank you. Then, we have a question from Ole Martin Westgaard, DNB. You are taking massive write-downs and restructuring costs related to ERP project. What went wrong? And are you confident that this is the end?
That's a difficult question to -- [ in the short term ]. But of course, what went wrong? We -- I guess we underestimated the complexity in this project. To build a common platform for a lot of businesses with different processes given the value chain is not easy. So I think that's the main part. It has -- we have underestimated complexity. And as I said in the presentation, I think we are past the most demanding part of the project. We have established this platform both for our Branded Consumer Goods business, but also for Food Ingredients business. And we have implemented it in our biggest company and most complex company with 8 factories and a lot of external interfaces. So yes, I'm more confident than I was a year ago, yes.
Yes. And if I could add, we went live 2 weeks ago with our food solution in Sweden, and it was a very good launch. So we are -- I'm very confident that this will be a very good platform for us going forward, but with a more pragmatic approach in terms of how we implement going forward.
And of course, if I may add, the COVID situation has also added the complexity to this project. We were planning to have approximately 150 people into 1 room to do the end-to-end testing and now we have to sit in our home offices doing the same. So that's a huge replanning, and of course, driving costs as well, but not driving values.
Of course. Thank you. Second question from Ole Martin. Can you quantify what we should expect the negative margin impact from your increased marketing investment in 2021? How much are you increasing marketing spend and which product category segments should benefit?
If I could start, Harald?
Yes.
The advertising investment is not destroying or hurting our margin work. It's more that the target for 2021 is more challenging to reach, which is -- it's still a target with increased margin improvement.
Yes. As I said, we increased advertising cost by NOK 100 million in 2020. But we will not guide anything around -- but to say that -- we think this trend will continue into '21. And we will support our brands and we'll support our market position and also fuel for our long-term growth.
And I think if I was asked the question, if you have to choose between growth and margin, we focus on the value creation. So if we see that increased marketing spend is important for organic growth and perhaps less increase in margins, then we will balance that in a good way and work on that and focus on the value creation part, which has turned out well during 2020, I believe, and also with an uptick in our organic growth.
Great. And then last question from Ole Martin. Can you quantify the impact on organic growth in Confectionery & Snacks from the sugar tax in Q4?
We won't go into those details. But as I said, if you adjust for this -- that effect and the effect that the seasonal sales from -- between quarter 3 and quarter 4, you will end up approximately the same organic growth rate as the full year figures, approximately 2%.
Yes. Thank you. Then we have a question from John Ennis, Goldman Sachs. Can you give an update on the pricing environment in your core markets? Are you taking pricing to compensate for higher raw material inflation yet? How do you see the promotional levels of your categories evolve over 2021?
Yes. So we are factoring in increased raw material prices and also during 2020, a weaker Norwegian krone. So we are adjusting our prices based on that, and that's part of our revenue management plans, and that's going very well. So yes, we are taking those actions. In terms of marketing spend, it's a mix in different categories and different markets where we have increased the spend. So it's difficult to comment upon specific markets or specific categories here. For competitive reasons, we are not revealing those kind of details.
Great. Petter Nyström, ABG Sundal Collier. Can you repeat the marketing spend increase year-on-year in Q4?
No, we cannot. We said NOK 100 million for the year. But of course, a major part of that is into quarter 4.
And should we expect marketing spend as a percent of sales in 2021, in line with 2020?
As I said previously, we don't comment and don't give any guidance on these numbers.
Final question from Petter. Margin in Care is soft. What is the fixed cost accruals? And does this mean a lower fixed cost base in Q1 2021?
It's a lot of different things that happened together in quarter 4 in Orkla Care, both last year and this year. So it's -- what I would say is that the profit -- the conversion -- profit conversion rate vary especially in the quarter. And you have to look more on the full year figures to have -- to give a more correct picture of it. So this profit decline in quarter 4 is not representing for the underlying growth in these categories. And of course, we have also increased marketing spend, as we said, that it has been spent in this category.
Good. Then we have a question from Bruno Monteyne in Bernstein. Margins in Jotun were very high in 2020. Is that a new level? Or should we expect some inevitable decline?
Well, there is always an element of cyclicality in Jotun and also based on the raw material prices. But I think it's been working very well with Jotun in terms of cost discipline. But I wouldn't give any guidance on Jotun as such in terms of Jotun going forward. But again, it's a strong year for Jotun and with very good momentum and a significant part of also Orkla.
Okay. Second question from Bruno. With food commodity going up across the world, should we expect gross margin compression in 2021?
That's also very difficult to answer very precise. But as we have said, we will take out and compensate our price increases. But if we compensate on margin, that's more difficult to comment on.
Okay. Thank you. Final question from Bruno. Is this the end of the margin target? Is this the time to move on and focus on top line without reference to this margin target?
I think we will wait for our Capital Markets Day to go into more details of new targets. But Jaan Ivar, you have...
Yes. I would say also that we've said that the margin target for 2020 to reach the -- what we said in 2018 is challenging, but we have not given up the target, and we -- our messaging is important that we always balance organic growth versus margin improvement and focusing on the value creation as such. And as Harald mentioned, we'll come back to the Capital Markets Day on our targets for 2022 and onwards.
Great. I believe that concludes the questions from the web. And unfortunately, we don't have an audience in the room to continue. So thank you, Jaan Ivar and Harald. We will be back with our first quarter results on 29th of April this year. And I'd also urge you to remind you to save the date for our Capital Markets Day on the 23rd of November later this year. I think that wraps up our session here today. Thank you for joining.