Orkla is well equipped to meet these challenges. The Group's companies have solid market positions, and refinancing needs in 2009 and 2010 are limited.
Orkla companies will be affected by slower economic growth to varying degrees and will respond to the challenges with appropriate counter-measures. There will be particular focus on ensuring satisfactory cash flow, which will entail strict controls on the use of capital and higher ambitions for cost productivity.
Vigorous steps have been taken by Orkla's business areas to adapt their cost bases and production capacity to lower demand and shrinking volumes at the start of 2009. These are demanding processes that impose a considerable strain on both employees and management, but profitable operations are essential for the longer term development of our companies.
After several years with high levels of financial value creation, Orkla felt the effects of the financial crisis in 2008. The price of the Orkla share fell in parallel with the Oslo Stock Exchange, ending up at NOK 45.45 at year-end, compared with NOK 105.25 at the start of the year. Over a five-year period, however, the annual return on the Orkla share has still been 15 %. By comparison, the return on the Oslo Stock Exchange over the same period was 6 %.
Despite increasingly challenging markets throughout 2008, the Group's underlying operations have achieved satisfactory results. Operating revenues rose 7 % to NOK 65.6 billion, while operating profit (EBITA) for continuing business was
NOK 4.2 billion, compared with NOK 4.8 billion for 2007. Orkla Brands reported its best ever performance in 2008 and, as a result of innovations, cost reductions and measures to compensate for rising raw material prices, increased its operating profit (EBITA) by NOK 372 million to NOK 2,590 million.
Due to the sharp stock market decline, however, Orkla had to undertake substantial accounting write-downs in 2008. Orkla's financial share portfolio was written down by NOK 5,656 million, while write-downs and restructuring provisions in the industry division amounted to NOK 1,282 million. These write-downs, which totalled NOK 6.9 billion, are the main reason why pre-tax profit was NOK -2.0 billion in 2008 compared with NOK 9.8 billion the year before.
In 2008, active strategic moves were carried out that are improving Orkla's positions or entail restructuring. Orkla is taking over Alcoa's equity interest in Sapa Profiles, thereby becoming sole owner, while Alcoa is taking over Orkla's stake in Elkem Aluminium. This swap will simplify Orkla's structure and give the Group strategic control of Sapa.
REC continued to upgrade its technology and expand capacity on three continents. The Elkem Solar factory was mechanically completed in 2008 and production will be ramped up in the course of 2009.
Orkla sold its stake in Hjemmet Mortensen, thereby concluding its involvement in printed media. A decision was made to close down Borregaard's cellulose business in Switzerland. Orkla Brands' East European business was restructured. An agreement was signed with Q-Cells to cancel three put options in REC.
Orkla has a long-term strategy for growth and value creation that is precisely summed up in the Group's mission statement «Developing people – creating value». Strong, competent organisations build up competitiveness over time.
We have faith in the future but are preparing for rough seas in the short and medium term. I am convinced that Orkla companies will demonstrate that they can still maintain headway in troubled waters.
Business and industry are currently undergoing a challenging process of adaptation and restructuring that will gradually lay the foundations for new growth. In this respect, we are already planning for recovery!
Dag J. Opedal
President and CEO