Financial Investments manages Orkla’s share portfolio, which is one of the largest portfolios in Norway. Besides the securities portfolio, the division consists of the Orkla Finans Group, which is engaged in investment management, insurance broking, financial advisory services and pension counselling, Real Estate, which develops property, and Borregaard Skoger, which manages Orkla’s forest properties.
The return on the investment portfolio was 38.4 %. Ordinary profit before tax from the portfolio was NOK 3,131 million, compared with NOK 1,649 million
in 2004. Of this, realised portfolio gains amounted to NOK 2,186 million while dividends received totalled NOK 994 million. Unrealised gains increased by NOK 1,427 million to NOK 5,102 million. The actual profit on the portfolio, measured as the change in net asset value, was
NOK 4,908 million. As of 31 December 2005 the net asset value was
NOK 17,042 million.
Net sales of shares totalled NOK 309 million in 2005. With dividends received, this means that cash flow from the portfolio was NOK 1,303 million.
In connection with Orkla’s takeover of 100 % of the shares in Elkem, the portfolio’s 39.8 % stake in Elkem was transferred to the Industry division. The transferred amount was NOK 4,634 million, NOK 2,010 million more than the cost price.
At year-end, 47 % of the portfolio was invested in Norwegian securities, compared with 65 % in 2004.
The global markets in 2005 were characterised by economic growth, high commodity prices and a solid increase in company earnings. However, with the exception of the key interest rate in the USA, interest rates remained relatively low. There was therefore a strong rise on global stock markets in 2005 (the FTSE World Local Currency Index dividend-adjusted rose 17.2 %). The stock markets in Europe and the emerging markets rose significantly more strongly than in the USA (the S&P 500 dividend-adjusted was up 4.9 %). In Europe, the Nordic stock exchanges were especially strong (the MSCI Nordic Local Currency Index rose 36.3 %), driven by high raw material prices, good export markets and continuing low interest rates. Rising oil prices and higher rates in the oil services industry contributed to the strong rise on the Oslo Stock Exchange (OSEBX rose 40.5 %).
The main strategy is to identify and invest in individual companies that create value. The portfolio must take clear positions and will therefore be skewed in comparison with a market portfolio. In addition to creating substantial value, the investment portfolio has played an important role in the Group’s industrial development by providing financial freedom of action and industrial options. The investment in Elkem is an example of this strategy.
Efforts will be made to pursue an active investment strategy, focusing on larger shareholdings combined with a more targeted approach to investments in unlisted companies.
The Orkla Finans Group achieved strong growth in the number of customers, operating revenues and profit. At year-end the company had offices in Oslo, Bergen, Stavanger and Trondheim and a total of 110 employees. There was strong demand for the company’s investment products, especially in the field of alternative investments. Structured products amounted to NOK 3.0 billion, while NOK 1.7 billion was invested in real estate projects. Assets under management in unit trusts and hedge funds increased by NOK 1.0 billion to a total of NOK 3.2 billion. The return on the company’s unit trusts in the Nordic region and Norway amounted to 34.5 % and 45.5 % respectively, well above the respective reference indices, where the return was 30.2 % (Enskilda Nordic Index) and 39.8 % (OSEFX). Orkla Finans was named the best supplier in Norway in the field of structured products in the annual survey by Euromoney magazine. The hedge fund Nordic Alpha, which Orkla Finans established in 2003, has been a success. In the same Euromoney survey, Orkla Finans came in second place for hedge funds.
In 2006 the company will intensify its focus on alternative investments and also plans to increase its activities targeting private and institutional investors throughout the country. The insurance broking business grew significantly in terms of the number of contracts and customers. The company was chosen as adviser for several large companies that wish to change their pension arrangements, and anticipates a strong demand for contribution-based pension schemes in the months and years ahead.
Operating revenues totalled NOK 329 million, an impressive 83 % higher than in 2004.
Orkla’s real estate company focuses on property development and is involved to only a limited extent in the management of developed property. The most important development projects are the Ringnes Park, Idun and Fornebu projects, which, measured in terms of Orkla’s stake, have a development potential of approximately 130,000 m2.
Operating revenues increased from NOK 88 million to NOK 487 million as a result of current revenues from property development and, to a lesser extent, rental income and pure gains on sales.
Borregaard Skoger manages Orkla’s forest properties. The total area is 108,000 hectares, of which 78,000 hectares is productive forest. The main activities of the company are related to the management of forests, real estate and uncultivated land. The volume of timber harvested in 2005 was just under 100,000 m3, marginally lower than the previous year. Operating revenues amounted to NOK 189 million, compared with NOK 165 million in 2004. The accounting gain on the value of forest properties in 2005 was NOK 26 million. Adjusted for the sale of forest properties and change in fair value of forest in 2004, this is on par with the previous year.
Behind the success of Orkla Finans is a highly competent team
