Orkla Brands (formerly Orkla Branded Consumer Goods) consists of four business units: Orkla Foods Nordic, Orkla Brands Nordic, Orkla Brands International and Orkla Food Ingredients. The business area is a leading developer, marketer and supplier of strong proprietary brands and concepts.
The business area bases its strategy and organisation on a multi-local model, where responsibility for value creation and decision-making lies at the local level with the individual companies.
The Nordic region is Orkla Brands' domestic market, besides which the business area has established strong market positions in parts of Central and Eastern Europe, Russia and India. At the end of 2007, Orkla Brands employed a workforce equivalent to 15,001 man-years and had 85 production facilities in 15 countries.
Orkla Brands holds number one and number two positions in most of its target areas. In 2007, Orkla Brands reported operating revenues of NOK 22,253 million, representing an underlying1 growth of 1 %. EBITA amounted to NOK 2,218 million, an underlying1 decline of 11 %. Businesses were impacted by a rise in factor input prices in 2007 which was insufficiently compensated for by finished-goods prices.
The greatest challenge is to ensure that the business area returns to a positive profit trend in the course of 2008.
Orkla Foods Nordic
Orkla Foods Nordic comprises Stabburet and Bakers (Norway), Procordia Food and Abba Seafood (Sweden), Beauvais (Denmark), Panda and Felix Abba (Finland), Pöltsamaa Felix (Estonia), Spilva (Latvia) and Suslavicius-Felix (Lithuania).
Orkla Foods Nordic's operating revenues totalled NOK 9,548 million in 2007, compared with NOK 9,483 million in 2006, and underlying1 revenues were on par with 2006. EBITA amounted to NOK 893 million, compared with NOK 1,074 million in 2006. This was an underlying1 decline of NOK 179 million (18 %).
Procordia Food, Abba Seafood, Beauvais, Felix Abba and Panda all achieved growth in operating revenues, while Stabburet reported a slight decline. Bakers had a very difficult year.
All the businesses were negatively affected by higher prices on input factors, which were not sufficiently compensated for in the prices of finished products. A majority of the companies conducted price negotiations, but due to contractual conditions the effects of price increases did not feed through until late in the fourth quarter and early 2008.
Orkla Foods Nordic was unable to continue the successful programme of innovation carried out in 2006. A comprehensive improvement programme aims at returning Orkla Foods Nordic to a positive profit trend in the course of 2008.
Bakers is working on adjusting and improving its business model in response to changed market conditions. This entails optimising its product portfolio, transport costs and production structure. Bakehuset Kafé, which owns more than 20 small bakery outlets in Oslo and Akershus, was sold in 2007 at a small gain. Bakers also discontinued its production of potato pancake bread (lomper).
In April 2007 Beauvais in Denmark acquired the shares in Pastella, which is the Nordic market leader in fresh pasta. The integration of Pastella is proceeding as planned.
Orkla Brands Nordic
Operating revenues ended at NOK 7,666 million, up from NOK 7,250 million in 2006. Underlying1 revenue growth was 4 %, which exceeds Orkla Brands Nordic's performance in previous years. All the businesses, except Lilleborg and Dietary Supplements, contributed to this improvement. Growth was particularly strong in Snacks, Biscuits and Confectionery, and was largely related to successful innovations. In the case of Lilleborg, the decline in revenues was ascribable to a drop in sales generated by new launches, and fewer launches of new products than in 2006. Steady efforts are still being made to strengthen the innovation programme to contend with competition and generate profit growth.
The biggest new launch in 2007 was the Textile business' introduction of Pierre Robert tights and socks. Other major new launches were Sun Alt i 1 and Define from Lilleborg, Bokstavkjeks from the Biscuits business, several new Polly products introduced by the Snacks business, and Yade chocolate from the Confectionery business. All in all, market shares were strengthened somewhat compared with 2006. Biscuits and Confectionery increased their market shares, while Lilleborg maintained its shares at the same level. Dietary Supplements' market shares declined in Norway.
EBITA amounted to NOK 1,218 million. This was an increase of NOK 41 million compared with 2006, of which NOK 19 million was related to the full-year effect of the acquisition of Dansk Droge within Dietary Supplements. Growth in operating revenues was only partly offset by lower margins and higher fixed costs. Snacks and Confectionery reported the greatest underlying1 improvement. Lilleborg and Dietary Supplements were the only businesses that reported lower profit, in Lilleborg's case a significant drop.
Several businesses experienced challenges on the margin side, largely related to higher purchasing costs for both raw materials and finished products. Most negatively affected was Lilleborg, which also faced significantly tougher competition in the dishwashing segment. Efforts are currently being made to raise prices to compensate for climbing purchasing costs. There was an underlying1 rise of 4 % in fixed costs. This was related partly to some businesses' desire to increase manpower, but also to the fact that cost improvement measures have not fully compensated for general wage and price increases. Several businesses focused on cost improvements in 2007 and the largest projects are currently being implemented by Snacks, Dietary Supplements and Biscuits.
Several structural projects were implemented in 2007 in the Snacks business, resulting in the sale of the Finnish food manufacturer, Chips Food. A decision was also made to liquidate two companies, Topp Livsmedelprodukter and the Russian Snack Company. The liquidations will be carried out in a controlled manner, with a view to completing the process in the first half of 2008. A provison of NOK 106 million has been made for restructuring costs related to the liquidations.
Orkla Brands International
Orkla Brands International comprises SladCo and Krupskaya (Russia), Kotlin and Elbro (Poland), Guseppe (Czech Republic), Felix Austria (Austria), Orkla Foods Romania and MTR Foods (India).
Orkla Brands International's operating revenues totalled NOK 2,262 million, up from NOK 2,207 million in 2006. This was an underlying1 decline of 10 %. EBITA was NOK -71 million, compared with NOK 38 million in 2006. In terms of underlying1 performance, this was a fall of NOK 132 million.
The businesses in Poland, the Czech Republic and Romania reported a significant decline. The Polish seafood company Superfish was sold with effect from November 2007. Further structural initiatives and changes in the businesses in Central and Eastern Europe are being considered. The businesses in the Baltic States achieved 21 % underlying1 growth in revenues, and all three companies made good progress.
Krupskaya reported a positive EBITA, while SladCo had a negative EBITA. A range of measures have been implemented to improve SladCo's operations, including changes in management.
In February 2007, Orkla acquired MTR Foods in Bangalore, India. MTR Foods manufactures processed vegetarian food products, such as ready meals, ready mixes, spices and condiments. The company's sales for a nine-month period in 2007 totalled NOK 200 million, which was an increase of 16 % compared with the same period in 2006.
Orkla Food Ingredients
Orkla Food Ingredients is the leading developer, manufacturer, marketer and distributor of bakery ingredients in the Nordic region. Orkla Food Ingredients aims to grow in Central and Eastern Europe.
Operating revenues totalled NOK 3,200 million in 2007, compared with NOK 2,857 million in 2006. The underlying1 improvement was 4 %. EBITA amounted to NOK 178 million, compared with NOK 166 million in 2006. This was an underlying1 rise of 7 %.
Most of the businesses in Orkla Food Ingredients achieved growth in sales and EBITA. Collaboration and internal trading between the companies increased.
KåKå, Jästbolaget and Candeco (Sweden), Credin Bageripartner (Denmark), Credin (Portugal) and MiNordija (Lithuania) all reported their highest EBITA ever. In the course of 2007, Orkla Food Ingredients acquired seven small companies, which have all performed favourably.
1 Excluding acquisitions, divestments and currency translation effects.