Excluding non-recurring items (NOK 220 mill. in 1997 and 0 in 1998), Orkla`s pre-tax profit of NOK 778 mill. was 9% higher while total operating profit was at the same level as last year. Chemicals and Baltic Beverages Holding (BBH) posted higher profit while profit from branded consumer goods in the Nordic region was lower. The net asset value of the investment portfolio rose NOK 1.4 bill. and the return was 10%. While profit per share dropped from NOK 3.4 (after the split) to NOK 2.8, it was 12% higher before non-recurring items.
Orkla`s total operating revenues rose by just under 2% to NOK 9.6 bill.. Due to the winding up of cooperation with Coca-Cola in Sweden and the change to tollfilling in Norway, beverages sales were lower in the Nordic region. Baltic Beverages Holding (BBH) reported strong sales growth, and revenues from the Chemicals business and Orkla Media increased. Excluding Coca-Cola products, revenues from continuing business rose by approximately 5%.
Grocery market volumes declined in Norway and Sweden in the first four months of the year. In Sweden, some of Procordia Food`s products lost market shares. Also the beer market share fell slightly. In Norway, Orkla`s branded products largely maintained their market positions. All the beer markets in Eastern Europe are expanding rapidly and BBH is increasing its market share in Russia.
For Branded Consumer Goods, operating profit for continuing business was 13% lower than last year. While profit from BBH increased substantially, profit from the other businesses declined. Orkla Foods` profit dropped 25% to NOK 104 mill., mainly due to lower sales in Sweden and higher raw materials costs in Norway. Some of the negative effects on profit were temporary, the most significant of them being the restructuring of wholesale stocks in Sweden and the start-up costs of a new pizza factory in Norway. Procordia Food is experiencing tougher competition from both European competitors and private labels. Abba Seafood`s profit was on a par with last year and the company`s market positions in the Nordic region have been strengthened or maintained. In Norway, Stabburet`s sales were higher and market positions were largely maintained or improved. Orkla Beverages` operating profit of NOK 70 mill. reflected a decline in profit in the Nordic region but an improvement for BBH. The phasing out of production for Coca-Cola and a decline in the total beer market of 6% in Sweden and 3% in Norway resulted in a loss of NOK 36 mill. in the Nordic region. Work is in progress to reduce costs to a level proportionate to the lower volume. Ringnes` beer bottling operations in Oslo will be moved to the company`s main soft drinks plant. Ringnes will take over the remaining Pepsi franchises for Norway at year-end. Operating profit from Orkla`s 50% share of BBH rose by NOK 95 mill. to NOK 161 mill.. BBH`s total sales increased by 72% to 230 mill. litres. As a result of this positive trend, investments in increased capacity are being accelerated. Orkla Brands` operating profit dropped by 5% to NOK 117 mill.. Profitability has been somewhat reduced by price reductions for certain textile detergents and higher purchasing prices, and a delay in cost savings from the new factory. The restructuring of Snacks production in Denmark is proceeding according to plan. A more competitive production structure for Biscuits will be completed in the course of 1999. Operating profit for Orkla Media fell 14% to NOK 59 mill.. The Norwegian Newspapers business is feeling the effects of higher wage costs. While paper prices have increased for both Norwegian Newspapers and Magazines, advertising volumes have risen by 3%. Most of the 28% rise in turnover came from new acquisitions.
For Chemicals, operating profit was NOK 137 mill. and profit from continuing business rose by 15%. The good performance was due to higher margins for lignin products, improved production of speciality cellulose and increased sales of fine chemicals. The lignin product mix has been improved. Speciality cellulose prices in NOK are on a par with last year. Work is in progress on expanding the technology and product range for the pharmaceutical industry. Operating profit for Ingredients was at the same level as last year, but due to record high raw materials prices and a scarcity of fish oil, fish oil-based products will be less competitive in future. Total operating revenues rose 16% to NOK 1.9 bill. due to higher sales from Ingredients and the Fine Chemicals division.
The value of the Oslo Stock Exchange All Share Index rose 9.8% in the first four months of 1998, compared with 10% for Orkla`s portfolio. Financial Investments contributed NOK 477 mill. of the Group`s total pre-tax profit of NOK 778 mill.. The value of unrealised gains rose NOK 1 bill. in the same period. As of 30 April, the market value of the share portfolio was NOK 16 bill., of which unrealised gains accounted for NOK 7.2 bill..
The Group`s net interest-bearing debt increased by NOK 0.9 bill. to NOK 14.6 bill. as of 30 April 1998. On the basis of a balance sheet total of NOK 38 bill., the book equity ratio was 33.3%. If unrealised gains on the share portfolio before tax are included, the equity ratio was 43.9%. Approximately 70% of the Group`s interest-bearing debt is at floating interest rates, and as of 30 April the Group`s average borrowing rate was approximately 5.4%.
Orkla`s Board of Directors anticipates moderate volume growth on Nordic grocery markets for the rest of the yearThe competitive situation for important food and beverages products will necessitate strong focus on cost improvements, product development and brand-building. BBH`s volumes and profits are expected to rise. The economic crisis in Asia is expected to affect both speciality cellulose and lignin products. Somewhat weaker profit trends are therefore anticipated for Chemicals for the rest of the year. A generally high level of economic activity and an expansive wage settlement will influence the financial and industrial operating parameters in Norway, which may in turn have a negative impact on the financial market and Orkla`s competiveness.
Lisbeth Lindberg SVP Information and IR +47 22 54 44 23
Astrid Løken Øyehaug VP Investor Relations +47 22 54 44 25
Bjørn Erik Næss Chief Financial Officer +47 22 54 44 19
Harald Ullevoldsæter VP Corporate Finance +47 22 54 44 20
Switchboard +47 22 54 40 00
Fax: +47 22 54 44 90
Full tertiary report is ready for download on http://www.huginonline.no/ORK/DR/ork98t1_eng.pdf