Orkla has spent the last year refining and sharpening the focus of our strategic direction. When I took up the post of President and CEO in the autumn of 2010, we indicated early on that the Group had become too broad-based to be able to fully support the development of all our business areas. Selling Elkem was part of the process of simplifying the Group and strengthening our focus on the areas in which the Group has the greatest potential for value creation. Additionally, our share portfolio has been significantly reduced. All in all, since the autumn of 2010, Orkla has divested operations and sold shares for around NOK 20 billion.
On Orkla Investor Day, held on 14 September, we communicated a clear vision for the future of Orkla. The core of the Group’s operations will lie within branded goods. Consequently, over a period of time, we will replace several of our current businesses with new entities in the branded goods sector. The Share Portfolio, REC, Borregaard and Sapa thus lie outside the company’s future growth scope, and Orkla will gradually divest these investments.
A focus on branded goods is not new to the Orkla Group. From 1986 to 2003, growth in Orkla mainly consisted of organic or structural growth in precisely the branded goods sector, with the establishment of separate divisions for Media, Beverages, Foods and Brands. The branded goods segment accounted for between 80% and 90% of Group sales during that period.
For many years, Orkla Brands has demonstrated its ability to both develop and manage strong branded goods positions in the Nordic countries. The multi-local model, based on strong local brands and a strong local business system, has provided a good competitive edge against both international rivals and the grocery sector’s private labels in the geographical areas in which we operate.
We see several branded goods companies looking for new owners in the foreseeable future, both in the Nordic region and in other areas in which we currently operate. Private equity companies are rolling their portfolios, while other companies are seeing that limited access to capital and expertise can impose constraints on their further development. These trends offer significant growth opportunities for Orkla. Orkla will focus on acquiring companies or brands with strong market positions in clearly defined, relevant markets, based on customer insight and differentiated products. Acquisition candidates must be able to demonstrate stable cash flow despite cyclical fluctuations, as well as a potential for further growth. This means that Orkla will not become a smaller, but a more focused, company – we will continue to build on our platform as the Nordic Region’s leading branded goods company.
Sapa is more cyclical, and is less resistant to general economic trends than Orkla Brands. In 2011, the global economic outlook weakened, especially in Europe. Sapa has succeeded in creating profitable growth in North America, and has introduced similar structural measures to its European profiles business during 2011. In Asia, Sapa has now established its business system through several acquisitions in 2011 and the conclusion of an agreement to establish a jointly owned entity with Chalco for the production of high-speed trains in China.
In 2011, Borregaard saw good growth and delivered record-high operating profit. In addition to benefiting from favourable markets, Borregaard has succeeded in improving its production process, among other things by establishing a common control centre for its Sarpsborg operations. Systematic efforts have been made to promote innovation to ensure that Borregaard has a good, balanced portfolio of innovations for the future.
The Group’s primary challenge in 2012 will be to deliver on its strategy of transforming the company into a branded goods company. We are not in a hurry, and value will determine the timing of our transactions. During the transformation phase, it is crucial that we also maintain focus on continuously improving our operational performance in the companies and markets in which we already operate.
Orkla sets its sights high – we aim to deliver long-term value creation and outperform relevant investment alternatives. This level of ambition requires a competent team of staff and the strong commitment of each individual employee. Orkla has few natural advantages, and it is only by developing our human resources that we can continue to create value.
In closing, I would like to thank all our employees for their dedicated efforts in a demanding year of change for the Group.
Bjørn M. Wiggen
President and CEO