Orkla Foods is a leading developer, marketer and supplier of food products in the Nordic region, and has a growing presence in Central and Eastern Europe and Russia. Operations are concentrated around the company’s own strong brands and concepts. Orkla Foods currently holds number one and number two positions in most of its core segments: pizza/pies, sauces, seafood, ready meals, fruit and berry products, chocolate, baking ingredients and bakery products.

MAIN EVENTS IN 2006	FOCUS IN 2007
Stronger focus on improvement programmes. Improved competence throughout the organisation. Increased launch rate, especially in the Nordic region. Focus on food safety.	Increase the number of major innovations and intensify the focus on brand-building. Increase concentration on improvement programmes, especially in purchasing and manufacturing. Further develop competence throughout the organisation. Increase the focus on food safety, nutrition and health. Continue structural growth.

Orkla Foods is divided into three areas: Orkla Foods Nordic, Orkla Foods International and Orkla Food Ingredients. Orkla Foods Nordic largely holds number one and number two positions on its domestic markets. Orkla Foods International has strong market positions in Russia, the Baltic States, the Czech Republic, Austria, Poland and Romania. Orkla Food Ingredients is a leading supplier of baking ingredients in the Nordic region and has strong positions in the rest of Europe. At the end of 2006, Orkla Foods had 70 production plants and employed a workforce equivalent to 11,182 man-years.

RESULTS

Operating revenues amounted to NOK 14,266 million, equivalent to 5 % growth compared with 2005. Operating profit before amortisation totalled NOK 1,278 million, an increase of 5 %. The improvement in profit was largely due to structural growth. Underlying¹ profit was 2 % higher.

Orkla Foods faces challenging operating parameters, with pressure on prices in the Nordic grocery market and higher raw material and energy prices.



Orkla Foods has implemented several improvement programmes. In the period 2005 to 2007, the aim is to reduce the cost base by approximately NOK 500 million. The improvement programmes have proceeded as anticipated. A purchasing project has also been initiated, the aim of which is to reduce Orkla Foods’ purchasing costs by NOK 300 million in the period 2007 to 2008.

Orkla Foods runs a number of human resource development programmes. Of the employees who participated in the Orkla Foods Management Programme, 61 % have been given a broader area of responsibility. In four years, the number of female managers at Orkla Foods has doubled and at present one out of every five managers is a woman.

Work on implementing the Orkla Food Safety Standard proceeds unabated. Orkla Foods carried out 55 audits of plants in 2006 and food safety is being improved at a growing number of factories. The audit reports are used actively in improvement programmes. The Orkla Food Safety Standard is based on the internationally recognised standard of the British Retail Consortium (BRC).

ORKLA FOODS NORDIC

Orkla Foods Nordic consists of Stabburet and Bakers (Norway), Procordia Food and Abba Seafood (Sweden), Beauvais (Denmark), and Panda and Felix Abba (Finland).

Orkla Foods Nordic posted operating revenues of NOK 9,283 million, compared with NOK 8,864 million in 2005. Operating profit before amortisation amounted to NOK 1,057 million, compared with NOK 997 million in 2005. This is equivalent to underlying¹ growth of 6 %. There was broad-based progress in the Nordic region in the grocery and catering sectors.

In 2006, Orkla Foods Nordic launched more new products than ever before. Every second launch was related to nutrition and health. One example is Naturlig Sunt (naturally healthy), Bakers’ new health and nutrition product range, which has become Norway’s most sold type of bread in a very short time.

A number of innovations and cost improvements contributed to profit growth for both Procordia Food and Abba Seafood. Stabburet also achieved growth and reinforced its strong market positions on the Norwegian grocery market. Stabburet further increased its focus on the Chef service concept for petrol stations, street stalls and large kiosks. Production of Stabburet’s canned mackerel will be moved from the Øyenkilen factory in Norway to the Kungshamn factory in Sweden in the course of 2007.

Beauvais achieved growth in both operating revenues and operating profit. In January 2007, Felix Abba, which achieved a marked improvement in 2006, entered into an agreement with Saarioinen to purchase their preserved vegetable business. Panda suffered a decline on the Finnish market but increased its exports.

Bakers experienced a decline in both operating revenues and operating profit. In January 2007 the company decided to close down its production of traditional potato and wheat flour pancakes. The company is also considering selling its wholly-owned subsidiary Bakehuset Kafé, which consists of 21 wholly-owned café outlets and three franchise outlets.

ORKLA FOODS INTERNATIONAL

Orkla Foods International consists of SladCo and Krupskaya (Russia), Kotlin, Elbro and Superfish (Poland), Guseppe (Czech Republic), Felix Austria (Austria), Ardealul and Orkla Foods Romania (Romania), Põltsamaa Felix (Estonia), Spilva (Latvia) and Suslavicius-Felix (Lithuania).

Orkla Foods International reported operating revenues of NOK 2,429 million, compared with NOK 2,312 million in 2005. Operating profit before amortisation was NOK 55 million, compared with NOK 73 million in 2005. This was equivalent to an underlying¹ decline of NOK 47 million.

The Russian chocolate and confectionery company SladCo, which Orkla Foods acquired in December 2004, reported weak sales growth in 2006. This was mainly due to ongoing changes in the sales and distribution function. However, the company made some progress towards the end of the year. In 2006 there was a certain reorientation of sales towards more branded chocolate products. Towards the end of the year, SladCo strengthened its position on the important domestic markets in the Ural and Volga regions.

In April 2006 Orkla Foods bought 75 % of the shares in the Russian chocolate company Krupskaya, which is market leader in St. Petersburg and North-West Russia. Krupskaya’s operations developed in accordance with the acquisition plan.

Orkla Foods significantly improved its operating revenues in the Baltic States, with 26 % growth in Lithuania, 20 % in Latvia and 8 % in Estonia. Kotlin and Felix Austria reported operating revenues on a par with 2005, while Superfish and Guseppe reported a decline. Orkla Foods Romania increased its operating revenues by 39 %, among other things as a result of the acquisition of Royal Brinkers (margarine). Operating profit for Orkla Foods Romania almost doubled in comparison with 2005.

ORKLA FOOD INGREDIENTS

Orkla Food Ingredients reported operating revenues of NOK 2,857 million, compared with NOK 2,743 million in 2005. Operating profit before amortisation totalled NOK 166 million, compared with NOK 143 million the previous year. This was equivalent to an underlying¹ growth of 10 %.

Most companies in Orkla Food Ingredients achieved growth in sales and operating profit.

Idun Industri in Norway reported a rise in operating revenues, and an improvement programme contributed to profit growth. KåKå in Sweden also achieved growth. Cooperation with nutrition expert Fredrik Paulún is opening up many opportunities for KåKå on the Swedish market. Jästbolaget in Sweden has carried out an extensive improvement programme and operating profit was significantly higher.

Odense Marcipan and Credin bageripartner (Denmark) also achieved profit growth, while the results for Credin (Denmark, Poland and Portugal) were on a par with 2005. In December, Orkla Foods increased its stake in Dragsbæk (Denmark) from 50 % to 67 %. Bæchs Conditori (Denmark) reported good growth in operating revenues. MiNordija (Lithuania) achieved positive operating profit for the first time since it was established in 2001. LaNordija (Latvia) is still at the start-up phase, while Sedba (Czech Republic) is being restructured.

RISK FACTORS

As a result of customer concentration in the Nordic region and consolidation in other markets, customers have an increasing amount of power, which is giving rise to further pressure on prices and a higher proportion of private labels. Risk in the production process is related to unintentional variances in quality and the complexity of the value chain. There is stronger focus on nutrition and health and Orkla Foods is adapting to this trend by introducing a large number of new products. In recent years, Orkla Foods has expanded outside the Nordic region, which has resulted in a different risk exposure. Systematic work is in progress on identifying and reducing risk.




¹ Excluding acquisitions, divestments and currency translation effects.