First eight months 1998 - Profit affected by weak performance for beverages and restructuring programmes

Orkla`s pre-tax profit was up 12% to NOK 1,866 million if non-recurring items are excluded. An 8% drop in profit from the Industry area was more than offset by higher book profit from Financial Investments. Operating profit before non-recurring items and goodwill amortisation fell 8% to NOK 1.7 billion primarely due to a significant decline in profit from the Nordic beverages business in the second four-month period. A new restructuring programme is now being initiated. Over a two-year period the annual cost level for the beverages business will be reduced by more than NOK 600 million. Of a total restructuring provision of NOK -259 million, NOK -175 million is linked to this programme. The devaluation in Russia and Ukraine did not affect Baltic Beverages Holding`s (BBH) operating profit in the first eight months, and BBH continued to report profit growth. The other branded consumer goods businesses reported a slight decline in profit compared with last year, but it was less in the second four months (-6%) than in the first (-16%). Profit growth in the Chemicals area continued. Orkla has achieved a better return on its share portfolio (-8.9%) than the Oslo Stock Exchange All Share Index (-22.6%). Earnings per share fell 20% to NOK 6.7. However, if goodwill amortisation and non-recurring items are excluded, earnings increased by 9%.

Profit for the first eight months of this year was affected by non-recurring items totalling NOK -412 million. An RUB/USD exchange rate of 17 (62% devaluation) which was used to calculate BBH`s balance sheet items led to a currency loss of NOK 138 million which has been charged against ` Financial items, net `. The NOK -259 under `other revenues and costs` relates to provisions in connection with the restructuring of Beverages, Biscuits and Magazines and the winding up of the branded consumer goods business in Asia.

Orkla`s total sales of NOK 20.3 billion were on a par with last year. With the exception of Orkla Beverages, sales from all areas were somewhat higher than or at the same level as last year. If Coca-Cola products are excluded, sales from continuing business* rose by some 4%. Volume growth on the Norwegian grocery market has been positive so far this year, while there has been a slightly negative trend in Sweden. The cold summer weather in Norway and Sweden led to a fall in demand for beer and carbonated soft drinks. In Sweden, market shares for beer and some of Procordia Foods` product groups declined. With the exception of carbonated soft drinks, the market positions of Orkla`s Norwegian brands were largely maintained. The East European beer markets continued to grow in the second four months.

Results from the Branded Consumer Goods area:
* Orkla Foods` operating profit dropped 14% to NOK 331 million. In the second four months alone, profit was 7% lower than last year. The main reasons for the decline were lower sales for Procordia Food, higher raw materials costs in Norway and high establishment costs in Poland. Several divisions have introduced cost-cutting measures. Procordia Food and Abba Seafood gave notice of dismissal to 120 employees in the second four months. The effects of these measures will gradually become apparent in the latter part of the year and the beginning of 1999.
* Orkla Beverages` operating profit of NOK 465 million included a significant decline in profit in the Nordic region and a strong performance by BBH. The combination of changes in Coca-Cola production in Norway and Sweden, the cold summer in the Nordic region and high beer taxes all contributed to a profit decline of NOK 371 million to NOK 74 million for the Nordic operations. The beer market fell 6% in Norway and 7% in Sweden. Market shares increased in Norway but declined in Sweden. In Norway, the market share for Orkla`s own carbonated soft drinks declined while in Sweden it increased. Operating profit from Orkla`s 50% interest in BBH rose NOK 215 million to NOK 512 million. Total sales volumes for BBH (100%) increased by 48% to 621 million litres. The significantly weaker exchange rate for the Russian and Ukrainian currencies will reduce the value of BBH`s future profit translated into western currency. Substantial raw materials costs in foreign currencies will put pressure on margins. This will partially be offset by future price hikes.
* Orkla Brands` operating profit dropped 3% to NOK 270 million, although profit in the second four months of the year was on a par with last year. The profitablity of the Biscuits business is unsatisfactory. Advertising investments and fixed costs were somewhat higher than in the same period last year, the latter being partly due to planned strengthening of some business areas. With a few exceptions, market shares were stable.
* Orkla Media`s operating profit for continuing business fell 13% to NOK 91 million, mainly due to higher wages costs for Norwegian Newspapers. Measures have been initiated to reduce manpower costs in this business area. Full production at the new printing plant close to Oslo has been delayed and the anticipated gains will therefore come slightly later than planned.

Chemicals. Operating profit from the Chemicals area rose 39% to NOK 311 million due to improved production, increased sales of fine chemicals and speciality pulp, an improved product mix and a favourable trend in important currencies, particularly USD. The running in of the new plant for highly processed pulp products is making progress, but in the case of some qualities productivity still has to be improved. Speciality pulp prices were on a par with last year, as was profit from the edible oils business.

Financial Investments. The value of all the companies listed on the Oslo Stock Exchange dropped 22.6% in the first eight months of the year while the value of Orkla`s share portfolio dropped 8.9%. Financial Investments contributed NOK 1,153 million of total Group profit before tax, which amounted to NOK 1,886 million. On 31 August 1998, the market value of the share portfolio was NOK 12.7 billion, of which NOK 3.8 billion was unrealised capital gains.

Financial situation. The Group`s net interest-bearing debt was NOK 15.1 billion as of 31 August 1998. The balance sheet total was NOK 38.7 billion and the book equity to total assets ratio 34.4%. If unrealised gains on the share portfolio before tax are included, the equity ratio was 40.2%. The proportion of interest-bearing debt at floating interest rates was reduced to 51% and less than 20% of interest-bearing debt is at short-term Norwegian rates. The average borrowing rate was approximately 5.6%.

Prospects. Orkla`s Board of Directors anticipates continuing strong competition on the Nordic grocery markets. Orkla will further reinforce measures and activities relating to cost reductions, product development and brand-building. The situation in Russia and Ukraine is currently unclear in terms of both market and economic parameters. In the short term, profit from BBH is expected to be significantly weaker. With modern breweries and market leadership, the long-term competitive situation is considered to be good. Orkla`s chemicals business will have a negative impact from the economic crisis in Asia. The financial markets are expected to remain nervous, particularly due to uncertainty about the economic situation in Eastern Europe, Asia and Latin America.


Ref: Telephone
Lisbeth Lindberg Director of Information +47 22 54 44 23
Astrid Løken Øyehaug Investor Relations +47 22 54 44 25
Bjørn Erik Næss Chief Financial Officer +47 22 54 44 19
Harald Ullevoldsæter Deputy Director +47 22 54 44 20

Switchboard, phone +47 22 54 40 00, fax +47 22 54 44 90


Full press release including tables is ready for download on http://www.huginonline.no/ORK/DR/ork98t2pm_eng.pdf