Improved performance for Orkla - 3rd tertiary 1999

Orkla’s profit before tax in 1999 increased by NOK 262 million to NOK 2,319 million. The Group’s favourable performance in the second four months was further strengthened in the last four months in both the Industry and the Financial Investments areas.

Operating profit rose by NOK 380 million to NOK 2,177 million. The Nordic branded consumer goods business reported higher profit, mainly attributable to good volume growth for certain product groups and a better cost structure. Baltic Beverages Holding (BBH) continued to achieve strong volume growth and satisfactory profit in the light of the economic situation in Russia. While profit for the year for the Chemicals area was unsatisfactory, profit in the last four months improved in comparison with 1998.

The value of Orkla’s investment portfolio rose substantially in 1999, yielding a return of 48.2%. Of a total value-adjusted profit of NOK 6.2 billion, only 13% was realised. The book gain on sales of portfolio shares was therefore lower than in 1998. Group profit included non-recurring items totalling NOK 91 million, a difference of NOK+579 million compared with 1998. Group earnings per share, excluding goodwill amortisation and non-recurring items, amounted to NOK 9.70 compared with NOK 10.30* in 1998. The Board of Directors proposes a dividend for 1999 of NOK 2.50 per share, compared with NOK 2.03* in 1998.

Orkla’s aggregate operating revenues rose by NOK 0.7 billion to NOK 31.5 billion. Beverages and Chemicals posted lower sales revenues than last year, while sales increased in the other business areas. Sales volumes in the Norwegian grocery market fell by about 1.5% in 1999, while in Sweden they rose by about 2.5%. Orkla has largely maintained or strengthened its market shares in the Nordic markets, and BBH has strengthened its position in the East European markets.

* Adjusted for the rights issue in autumn 1999 in connection with the amalgamation of A and B shares. The average number of outstanding shares was calculated to be 211,859,518 in 1999.

BRANDED CONSUMER GOODS:
Orkla Foods increased operating profit by NOK 130 million to NOK 709 million. All divisions reported higher profit, chiefly due to improved sales of highly processed products and a better cost structure in several of the larger units. All divisions focused on brand-building and innovation, and generally maintained or strengthened their market positions. The ongoing cost reduction programmes are producing results.

Orkla Beverages reported a decline in operating profit of NOK 26 million to NOK 482 million, although profit in the last four months rose by NOK 55 million to NOK 98 million. Operating revenues in the Nordic region fell by 5% to NOK 4.8 billion. The overall beverage market (in terms of volume sales of beer, carbonated soft drinks and mineral water) increased by 7% in Sweden and 4% in Norway. Pripps increased its sales volume by 3% and Ringnes by 13% (excl. Coca-Cola). Market shares improved for the Pepsi products in Norway, while Pripps’ share of the beer market in Sweden declined. Market shares were maintained for the other product groups. Operating profit for the Nordic region, excluding goodwill amortisation, increased by NOK 122 million to NOK 253 million. Pripps’ profit performance improved significantly, while Ringnes posted slightly lower profit than last year due to the loss of the Coca-Cola tollfilling contract. The rise in profit is explained by lower costs in Norway and Sweden and satisfactory summer sales in Sweden. The “Competetive Edge” cost reduction programme is largely proceeding according to plan, with full effect from 2001. A weakened Russian rouble reduced BBH’s operating profit excluding goodwill amortisation (50%) from NOK 567 million to NOK 414 million and operating revenues (50%) by 8% to NOK 1.6 billion. However, overall volume rose by 40% to 1.3 billion litres. In the last four months of 1999, profit increased by NOK 50 million to NOK 102 million, due to strong volume growth in Russia, both for existing and new breweries. Slightly lower prices resulted in lower margins in the last four months than in the two previous periods, but had a positive impact on volume and utilisation of brewery capacity. BBH has consolidated its position in all its markets and has a market share of 23% in Russia.

Orkla Brands posted a rise in operating profit of NOK 21 million to NOK 477 million. Except for Snacks, all product areas performed well. Confectionery reported profit growth for the fourth year in a row and ended the year with a strong performance. Apart from Snacks in Norway, market shares were maintained or strengthened in the course of the year. Continuous efforts to achieve improvements in all businesses are making a positive contribution. All production of biscuits in Norway will be moved to Sweden in summer 2000, thereby reducing costs and investments by about NOK 20 million per year. An allocation of NOK 30 million will be made in the first four months of 2000 to cover the costs of relocation.

Orkla Media’s operating profit declined by NOK 37 million to NOK 171 million. Newspapers Norway/Sweden reported a slight fall in profit. Lower advertising revenues (4% decline in volume) and costs related to coordination projects had a negative impact on profit. Circulation figures remained stable and workforce reductions are proceeding more quickly than planned. The marked profit growth for Magazines may be ascribed to cost savings, productivity improvements and a 3% rise in advertising volume. The decline in profit for Direct Marketing is largely explained by substantial costs related to the winding up, restructuring and change of parts of the business. Newspapers Eastern Europe posted lower profit due to the start-up of new printing plants, investments in editorial product development and a decline in advertising volume for some newspapers. The Orkla Media Group’s Internet activities were amalgamated into a separate division in the last four months of 1999. Substantial assets have been built up in several of the companies in which Orkla Media is involved.

CHEMICALS
Operating revenues declined by 2% to NOK 5.7 billion, largely due to lower sales of edible oils/fats and basic chemicals. Operating profit fell by NOK 142 million to NOK 260 million. Apart from Fine Chemicals, all areas reported significantly lower profit. Operating profit increased by NOK 23 million to NOK 114 million in the last four months of 1999. The difficult market situation in Asia and Europe led to reduced sales of highly processed lignin products, which resulted in lower profitability. Although lower contributions from the sale of fish oil and lower margins for the crushing of soybeans have led to considerably less profit for the Ingredients business, profit in the last four months of 1999 was on a par with last year. Fine Chemicals achieved significant profit growth and made substantial deliveries of advanced intermediate products to the pharmaceutical industry in the last four months of 1999. Profit from specialty cellulose was slightly lower than last year. There are signs of an upswing in the overall cellulose market, but it has yet to affect the market for specialty cellulose. The comprehensive improvement programme currently being carried out at the Sarpsborg factory is largely proceeding as planned. Efforts to improve capacity utilisation and upgrade quality at the factory are however somewhat behind schedule. Borregaard ChemCell is now the leading producer of specialty cellulose in Europe. In the international arena, specialty cellulose customers are moving in the direction of fewer units and increased globalisation. At the same time, there are still a relatively large number of fairly small suppliers. Borregaard therefore sees a need for structural changes on the production side in future. A process is now being initiated to establish a partnership for this part of the business. To achieve this, Borregaard is prepared to merge its present specialty cellulose business with a larger international company, in which Borregaard would have an interest.

FINANCIAL INVESTMENTS
While the total value of the companies listed on the Oslo Stock Exchange increased by 45.5% in 1999, the value of Orkla’s investment portfolio rose by 48.2%. Investments were made in several Internet and technology companies during the year. In total, the Telecom/IT/Internet sector now accounts for about 35% of the portfolio. The net asset value of the share portfolio increased in 1999 by NOK 6.2 billion to NOK 16.6 billion. The market value of the portfolio was NOK 20.9 million as of 31 December 1999, of which NOK 9.5 billion was unrealised capital gains. Sales of Dyno and Elkjøp shares will result in gains of approximately NOK 700 million in year 2000 and free up capital totalling about NOK 1.5 billion. The Orkla Finance group performed well in 1999. In January 2000, an agreement was signed to merge the brokerage business with Enskilda Securities. Orkla will own a 22.5% interest in the new company. Activities related to fund management and insurance brokerage are not included in the agreement.

FINANCIAL SITUATION
Orkla’s net interest-bearing liabilities increased by NOK 1.2 billion to NOK 15.7 billion. The book equity ratio accounts for 34.2% of the balance sheet total of NOK 41.6 billion. Including unrealised gains on the share portfolio (before tax), the equity ratio was 46.4%. Net purchases of shares by the Financial Investments area totalled NOK 1.7 billion in 1999. The Industry area’s expansion investments, amounting to NOK 1.2 billion, were related to capacity expansion and acquisitions in BBH, and the purchase of the Polish newspaper Gazeta Lubuska, the Swedish household textiles supplier Freds AB and the bakery ingredients supplier KåKå in Sweden.

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