Main activities in 2011
Orkla Brands achieved slightly weaker results than in 2010. Nevertheless, its performance is considered satisfactory, in view of the demanding operating conditions that it has faced. Sharp rises in raw material prices were dealt with effectively. The improvement programmes continued to make important contributions in 2011. Bakers is sold, and the Russian businesses SladCo and Krupskaya were merged to increase their competitive strength.
* Operating profit before amortisation and other income and expenses.
Total net sales NOK 24,540 million
The business area
Orkla Brands is a leading supplier of branded consumer goods and concept solutions, primarily to the grocery and out-of-home channels. The business area mainly holds no. 1 and no. 2 positions in its categories. Most of the branded consumer goods are proprietary, and have been on the market for many years. The bulk of the portfolio lie in the Nordic region and the Baltics, although Orkla Brands also holds several strong positions in Russia, India and Austria. Through Orkla Food Ingredients, Orkla Brands is also an important supplier to the European bakery market.
Goals
- Achieve high and durable value creation by delivering products that consumers and retailers “can’t do without”
- Achieve growth through existing businesses and through acquisitions, primarily in markets in which Orkla Brands is already present
- Focus continuously on cost-effectiveness throughout the value chain
Strategy
Orkla Brands operates on the basis of a multi-local model where responsibility for value creation lies within each individual company. High and durable value will be created by innovations based on deep consumer insight, which can be leveraged to build strong brands. Inter-company synergies are achieved by sharing best practices and common support functions.
More about Orkla Brands in 2011
Orkla Brands achieved EBITA1 of NOK 2,784 million in 2011, which is an underlying3 decline of 6%. The result for 2011 must be seen in light of the fact that the markets in which Orkla Brands operates have been relatively demanding, with consumers and B2B customers exercising greater caution. This has been the case particularly in Finland and Denmark.
Furthermore, raw material prices have risen substantially, driven by both reduced supply and increased demand. This applies, in particular, to wheat, vegetable oils and sugar in the EU. The first half of 2011 was therefore affected by a natural lag in the implementation of price rises to compensate for the higher costs. However, this imbalance was corrected during the year. Sales growth for Orkla Brands in 2011 was largely driven by higher prices.
The companies in Orkla Food Ingredients were particularly hard hit by the sharp increase in raw material prices. Combined with a change in market from small bakeries to larger industrial and store bakeries, this has squeezed margins. The large, broad-based food companies in Sweden (Procordia) and Norway (Stabburet) are developing well and can report good profit growth. The same applies to Axellus, the Pierre Robert Group, and the Chips Group (OLW).
In order to utilise a synergy potential, the Russian chocolate and biscuits companies, SladCo and Krupskaya, were merged to form a single company in the first quarter of 2011. The results for 2011 were therefore somewhat affected by non-recurring costs related to workforce reductions, restructuring and inventory write-downs. Due to these costs, and to increased investments in advertising, a significant rise in raw material prices and other cost components (such as energy, transport and employer’s social security contributions), the results in Russia were somewhat negative. Substantial cost reductions were realised as a result of the merger.
Towards the end of 2010, Orkla Brands initiated a process to sell the Norwegian bakery business, Bakers. In the fourth quarter of 2011, Orkla announced that an agreement had been signed to sell the company to NorgesGruppen, and the take-over took place on 1 February 2012. A total of NOK 155 million in asset write-downs and selling costs was recognised in 2011. The company achieved sales of NOK 955 million and EBITA1 of NOK -55 million in 2011, which is a decline of NOK 41 million from the year before.
Good results were also achieved in 2011 from improvement programmes related to sourcing, production and other parts of the supply chain. There is strong focus on structural growth. However, Orkla Brands has only realised minor acquisitions in 2011, including the purchases of Henskjold, Dagens AS and Iglo in Norway and Rasoi Magic Foods in India.
* Operating profit before amortisation and other income and expenses.
* Operating profit before amortisation and other income and expenses.
* Internal sales between segments have not been eliminated
1 Operating profit before amortisation and other income and expenses.
2 Figures in parentheses are for the corresponding period the previous year.
3 Excluding purchased and sold operations and currency translation effects.