Share portfolio

Orkla Financial Investments manages a substantial portfolio and its investment universe is primarily the Nordic region. Orkla Financial Investments’ primary objective is to maximise the return on invested capital, and the Share Portfolio’s main strategy is to identify and invest in value-creating companies.

A strategic decision was made in 2011 to sell off the Share Portfolio, in accordance with which net sales of shares totalled NOK 4,494 million for the full year. At the end of 2011, the market value of the Share Portfolio was NOK 5,497 million. Unrealised gains totalled NOK 1,180 million at year end.

¹ Investor A and B shares: 863,435 A shares, 70,288 B shares.
² In addition to the Share Portfolio, other Group companies have minor shareholdings totalling NOK 5 million.

¹ Investor A and B shares: 985,000 A shares, 85,000 B shares.
² The valuation principle applied entails a share price interval based on different valuation approaches, including external valuations.
³ In addition to the Share Portfolio, other Group companies have minor shareholdings totalling NOK 13 million.

The Share Portfolio mainly consists of large shareholdings in a number of companies and will therefore be skewed in comparison to a market portfolio. 77% of the Share Portfolio consists of listed securities.

Portfolio investments in companies in which the Group owns an interest of between 20% and 50% (associates) are presented at fair value with changes in value recognised in profit or loss. In 2011, a total of NOK 37 million in changes in the value of associates was recognised as income on the line “Gains, losses and write-downs Share Portfolio”.

NOK 2,145 million has been recognised in realised portfolio gains, while NOK 56 million has been recognised in foreign currency gains. Furthermore, securities have been written down by NOK 668 million.

Net unrealised excess values in the Share Portfolio at 31 December 2011, totaling NOK 1,180 million, have been taken to equity through comprehensive income. The Group also has investments presented as “Other financial assets” (see Note 27).

The methods used to determine the fair value of securities in the Share Portfolio are described below.

Unlisted securities and unlisted funds

The value of unlisted securities is measured on the basis of the International Private Equity and Venture Capital Valuation Guidelines.

Several valuation methodologies are used to measure the fair value of unlisted investments. Where there has been a recent arm’s length transaction in the security in question, the value is based on the transaction price. If there has been no recent arm’s length transaction, the value of the company is deduced from a relative valuation of comparable listed companies, adjusted for individual characteristics such as differences in size and selection between comparable companies.

Valuation methodologies other than the one described above are also used in cases where they better reflect the fair value of an unlisted investment.

The fair value of the Share Portfolio’s unlisted fund shares is measured as the Share Portfolio’s share of the fund’s assets as reported by the fund management. If there are indications that the management’s valuation does not take sufficient account of factors that affect the value of the underlying unlisted investments in the fund, a separate valuation is carried out. Adjustments are also made of the value of listed investments in the fund based on the latest bid price.

The changes in the value of Industrikapital 2004 and 2000 from 2010 to 2011 is primarily due to the realisation of underlying investments. The change n the value of Industrikapital 2007 is mainly due to an increase in capital  paid into the fund, but an underlying investment was also realised.

Listed securities

The fair value of listed securities is based on the latest bid price. At the time of acquisition, the shares are recognised at their value on the transaction date including transaction costs.

Prolonged or significant decline in value

A prolonged decline in the value of a security classified as available for sale in the Share Portfolio is defined as having occurred if the market value of a share is lower than the acquisition cost for more than two successive quarters (six months) or if the market value is more than 25% lower than the cost price. Once an investment has been written down, further value impairment will result in an immediate further write-down.

Unrealised gains

Unrealised gains are equal to the fair value of the security minus the carrying value. If the security has not been written down, the carrying value will be equivalent to the cost price of the shares. Write-downs of shares are expensed in the income statement and offset by an increase in unrealised gains through equity. Similarly, the realisation of gains/losses will be recognised as income/expenses in the income statement and offset by a reduction/increase in unrealised gains through equity.

Market risk relating to the share portfolio

The greatest risk factor is a general stock market decline or a major drop in the price of shares in an individual company in which the Share Portfolio is highly exposed.

Assuming that the change in the value of the Share Portfolio is equal to the changes in the stock market, and all other variables remaining constant, based on the Share Portfolio at 31 December 2011 the management’s best estimate is that in the event of a 10% drop, the negative effect on profit will be in the order of NOK 320 million and the negative effect on equity will be a further NOK 230 million. In the event of a 10% rise in the stock market, the positive effect on equity will be NOK 550 million, of which NOK 55 million will affect profit/loss.

A certain percentage of capital is placed in unlisted Nordic companies where Orkla seeks to play as active a role as possible as shareholder. The risk profile of this part of the portfolio will vary somewhat from the listed portfolio in that the investments are less liquid.

Risk management is handled through clearly defined authorisations and mandates and other quality assurance procedures. 

Change in unrealised gains

Change in fair value

Profit and loss Share Portfolio