2005 was a year of growth and expansion for the Orkla Group. Compared with 2004, operating revenues increased by more than 70 % to NOK 55.3 billion, while ordinary profit after tax almost doubled, ending at NOK 6.0 billion.
The Branded Consumer Goods business has been strengthened by a number of acquisitions. The takeover of the Finnish company Chips, which was the largest of them, gave Orkla the position of market leader for Snacks in the Nordic region with positions in the Baltic States and Russia. The acquisition of the Russian biscuits and confectionery company SladCo, which has approximately 3,500 employees, brought Orkla an interesting business system in Russia with potential for development. Other acquisitions, such as Panda in Finland and Collett Pharma in Norway also strengthened Orkla’s position as the leading supplier of branded consumer goods in the Nordic region. However, the most important events in 2005 were the acquisitions of Elkem and Sapa, as a result of which Orkla now has two more or less equally important industrial areas, Branded Consumer Goods and Speciality Materials. With these acquisitions and its substantial financial resources, Orkla now has a broad frontier of opportunity for value creation. Through the acquisition of Elkem, Orkla has, among other things, gained an interesting position in the solar industry, with a stake of approximately 27.5 % in the Renewable Energy Corporation (REC). In addition Elkem has its own development project for highly purified silicon for the solar industry, which is expected to be industrialised in the course of 2007. Orkla will continue to have a dual approach to value creation, focusing on continuous improvement of underlying operations and on structural opportunities that will create long-term value for shareholders.
In 2005 all Orkla’s business areas planned and implemented extensive programmes to ensure a competitive cost position. The target is to achieve a total reduction of
NOK 2 billion in the cost base by the end of 2008 compared with the end of 2005. Elkem’s silicon business faced more difficult operating
parameters in 2005, in the form of high energy costs, higher raw material prices and strong competition.
An agreement has therefore been entered into to sell the silicon metal business in the USA, and it has been decided to carry out a number of structural
changes in Norway. All in all, these measures will reduce the silicon business production capacity by approximately 50 % or 100,000 tonnes.
Earnings per share, fully diluted, amounted to NOK 28.1. In 2004 earnings per share were NOK 75.4, of which the gain from the sale of Orkla’s interest in Carlsberg Breweries accounted for NOK 60.7. Before amortisation and other revenues and expenses, earnings per share totalled NOK 30.1, compared with NOK 17.4 in 2004.
For the Branded Consumer Goods area, total operating profit before amortisation increased by 8 %. This improvement was primarily the result of structural measures, but the growth in advertising markets for Orkla Media and the effects of cost reduction and improvement programmes also made a positive contribution. The Swedish grocery market is challenging, with stronger focus on prices and discounts as well as growing competition from private labels. In the Speciality Materials area, market conditions were favourable for the energy businesses and for Elkem Aluminium, which achieved satisfactory results, while Elkem’s silicon business, Sapa and Borregaard faced challenging market conditions. High energy prices and the weak USD against the NOK had a negative impact, especially for Borregaard. Sapa’s profit was reduced by higher raw material prices. Both Sapa and Borregaard increased their prices towards the end of the year. The restructuring process carried out by Borregaard in the past two years had a positive impact on profit in 2005.
In the Financial Investments division, the rise on the stock markets significantly increased the value of the Group’s investment portfolio, which increased by
NOK 4.9 billion, equivalent to a return of 38.4 %. NOK 3.2 billion of this is reflected in book profit.
Stronger focus on investment management by the Orkla Finans Group resulted in very satisfactory profit growth in 2005. Real Estate also sold several real estate properties.
In 2005 the price of the Orkla share increased from NOK 199.00 to NOK 279.50. Including ordinary and additional dividends, this represents a return for shareholders of 46.3 %.
With its strong financial situation and its broad frontier of industrial opportunity, the Orkla Group has a good foundation for continuing its strategy of long-term value creation.
The Board of Directors proposes an ordinary dividend of NOK 7.50 per share, 67 % higher than the dividend of NOK 4.50 the previous year.
The financial statements have been prepared in accordance with IFRS, as adopted by the EU. The Board of Directors confirms that the going concern assumption applies.
