Substantial progress for Orkla
Operating profit of NOK 1,721 million is NOK 308 million higher than in the same period last year. Orkla Beverages and Chemicals recorded the biggest increase in profits, but the other business areas also made a positive contribution, both in the second four months alone and in the year to end-August.
Operating revenues totalled NOK 22.0 billion in the first eight months of the year, a growth of 8% for continuing business. Orkla's turnover in the second four months rose by NOK 1.4 billion to NOK 11.9 billion.
A positive cash flow and sizeable realised gains on the share portfolio (particularly NetCom, Dyno and Elkjøp shares) raised the equity ratio from 34.5% in the second four months of 1999 to 39.3%.
The Group's earnings per share came to NOK 16.3 compared with NOK 5.2 in the second four months of 1999. The Industry area contributed NOK 4.0 (NOK 1.2 higher than last year) and the Financial Investments area NOK 12.3 (NOK 9.9 higher than last year).
BRANDED CONSUMER GOODS
Orkla Foods recorded an operating profit of NOK 448 million, entailing an increase of 7% for continuing business. Turnover was NOK 7.1 billion, up NOK 384 million compared with the same period last year. Market positions were largely maintained. In Sweden, however, market shares in some product groups are under pressure, and in Denmark the share of the herring market has deteriorated.
Abba Seafood signed an agreement to buy 51% of the shares of the Polish company Superfish, the market leader in herring and deep-frozen fish in the Polish grocery market.
Orkla Beverages' operating profit of NOK 596 million before other revenues and expenses in the first eight months was an improvement of NOK 212 million. The second four months in isolation brought a profit improvement of 35%. In the year to end-August turnover rose by 17% to NOK 5 billion. Volume growth in Russia and Ukraine contributed to a substantial increase in turnover at BBH, while turnover in the Nordic region is at last year's levels despite a colder summer and lower volumes. The "Competitive Edge" cost reduction programme is running on schedule.
The agreement with Carlsberg AS on the creation of Carlsberg Breweries AS was approved by Orkla's Corporate Assembly in June. Orkla's reporting for the year to end-August covers Orkla Beverages in its entirety. This will be corrected and Orkla Beverages will be incorporated as a jointly controlled company as of 1 July 2000 at the earliest, provided that the agreement is implemented by 31 December 2000. Orkla will control 40% of the new company which will be one of the world's biggest breweries.
Operating profit before goodwill amortisation for the Nordic brewery business came to NOK 252 million in the year to end-August, up 31% from the same period last year. BBH's operating profit before goodwill amortisation rose by 56% to NOK 487 million. Volume growth was highest for the Ukraine operation (88% higher than last year) thanks to acquisitions and organic growth.
Orkla Brands increased its operating profit by 18% to NOK 317 million in the second four months. Turnover amounted to NOK 2.9 billion, a marginal increase compared with last year. The Biscuits business is increasing its market shares in Norway and Sweden; market positions are otherwise stable.
Orkla and the Finnish group Chips Abp are joining forces to form one of the biggest snacks operations in the Nordic region. The company, comprising KiMs Denmark, KiMs Norway and OLW Snacks in Sweden, is to be named Scandinavian Snack Company (SSC). SSC will have 550 employees, a turnover of about SEK 1.1 billion, and an expected operating profit for 2000 of about SEK 150 million. The merger will provide synergies in terms of purchasing and product development, and reduce the need for new investment on the production side. The company will be Finnish and its head office will be located in Åland. Sixty per cent of the company will be controlled by Chips Abp, forty per cent by Orkla. Orkla will retain 19.8% of Chips Abp's shares. The agreement is subject to approval by relevant authorities.
Orkla Media increased its operating profit by 18% to NOK 86 million, and in the second four months in isolation profit was NOK 19 million up on last year's figure. For continuing business the accumulated growth in operating profit measured 9%. The improved profit performance in the year to end-August is mainly attributable to Newspapers Norway/Sweden and Newspapers Eastern Europe. Turnover rose by 7% to NOK 2.3 billion. Growth for continuing business was 4%.
The improvement posted by Newspapers Norway/Sweden is attributable to the expansion in the overall advertising market, which has brought higher advertising volumes for daily newspapers. Circulation figures were in line with last year. Adopted workforce cuts are proceeding more rapidly than planned, and further staff cuts were adopted in some of the company's newspapers. The local Internet portals that have been established have shown a positive trend. Substantial development costs were associated with CRM activities in the Direct Marketing area in the second four months as in the first.
CHEMICALS
Operating profit posted by the Chemicals area rose from NOK 138 million in the first eight months of last year to NOK 267 million this year. Most profit areas showed improved results compared with last year. Speciality cellulose showed the biggest improvement aided by prices, exchange rates and productivity gains.
Turnover rose by 20% to NOK 4.4 billion. Much of the increase derives from the Ingredients area, where contract production of soy flour and oil in Brazil, trading of soy beans and high fish oil volumes made sizeable contributions in the second four months.
FINANCIAL INVESTMENTS
The Financial Investments area's pre-tax profit was NOK 3.5 billion in the first eight months compared with NOK 660 million at the same point last year. Realised gains came to more than NOK 3 billion compared with NOK 342 million last year. Unrealised capital gains on the portfolio were reduced by NOK 1.5 billion to NOK 8 million. The portfolio's market value at end-August was NOK 19.9 billion.
In the year to end-August the Oslo Stock Exchange All Share Index showed an increase of 16.1% - a sound performance by international standards. Stock Exchanges in the USA, Japan and the United Kingdom have all shown a negative share price trend so far this year.
Orkla's portfolio showed a return of 9.6% for the first eight months of the year. This weak performance compared with the Oslo All Share Index is due in part to the fact that major holdings such as Elkem, Storebrand, Merkantildata, Dyno and Nokia have all been outperformed by the All Share Index. At the end of the reporting period Norwegian listed companies accounted for less than 50% of the portfolio. A further 6% of the portfolio is in unlisted Norwegian securities. This entails wide divergence from the All Share Index.
FINANCIAL SITUATION
Net interest-bearing debt was reduced by NOK 3 billion from the first four months to NOK 15.8 billion, and the average borrowing rate at end-August was 5.1%. The balance sheet total was NOK 44.3 billion, and the book equity ratio 39.3%. When gains on the share portfolio (before tax) are included, the equity ratio was 48.6%. In the year to end-August the Financial Investments area sold shares worth NOK 2.7 billion, net. Free cash flow from operations for the Industry area was on a par with 1999.
OUTLOOK
According to Orkla's Board of Directors, the likelihood of a balanced development in the Norwegian economy has diminished in recent months. This could affect both prices and interest rates and create increased uncertainty in the stock market. Underlying growth impulses are in evidence in the other Nordic economies. The favourable trend in several Central and East European markets is expected to continue. Despite uncertainties attached to both economic and political conditions, this augurs well for Orkla's branded consumer goods business, particularly BBH which is expected to continue to achieve growth. A continued positive performance is expected for the Chemicals area in the final four months of the year compared with last year.
For full report with tables please follow the enclosed link: