Orkla's first half 2010: Solid improvement in operating profit and sales

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Orkla's first-half operating profit (EBITA)* ended at NOK 1,641 million, compared with NOK 567 million in the same period of 2009. All of the business areas have contributed to the profit growth. Group sales had risen 14 percent** to NOK 30.9 billion after the first six months of the year, driven especially by improved markets for Sapa and Elkem Silicon-related.
 
Operating profit (EBITA) reached NOK 937 million in the second quarter, compared with NOK 334 million in the same period of 2009. Sales grew 17 percent in the quarter.
 
"It is gratifying to see that the measures implemented in the last years are taking effect. Orkla Brands and Jotun (42.5 percent ownership) continue to deliver strong results and margin growth. Sapa has had a profit upturn driven by internal improvements and recovering markets. Elkem Silicon-related is experiencing good demand and higher prices. The Group's two solar investments (REC (39.7 percent) and Elkem Solar) are in a ramp-up phase which is expected to show results in 2010/2011," says President and CEO Dag J. Opedal.
 
Orkla Share Portfolio achieved a half-year return of 9.3 percent, compared with a return of 5.9 percent on the Morgan Stanley Nordic Index and -11.7 percent on the Oslo Stock Exchange Benchmark Index.
 
As long as the market price of the REC shares is lower than the capitalised value, the carrying value will be written up and down as the market price fluctuates. The market price as at 30 June was NOK 15.61. For the second quarter, this entailed an accounting write-down of NOK 3.0 billion. Orkla's pre-tax result for the second quarter was thus NOK -1.8 billion (NOK 282 million in 2009).
 
Dag J. Opedal has notified the Board of Directors of Orkla ASA that he wishes to step down as President and CEO in the course of the current year. The Board has commenced the process of finding his successor, and Mr Opedal will continue in his position until the successor is in place. Mr Opedal will continue to chair the Board of Directors of REC, and will remain Orka's representative on Jotun's Board of Directors. The Board of Directors of Orkla ASA thanks Dag J. Opedal for his wide-ranging efforts over the past 20 years to promote the development and growth of the Group, not least as President and CEO since 2005.
 
* Operating profit (EBITA): Before amortisation, and other income and expenses
** Percentage change compared with the corresponding period of the previous year

Key figures Q2-10 (Q2-09) in NOK million:
Operating revenues: 16 002 (13 652)
EBITA: 937 (334)
Profit before taxes: -1 789 (282)
Earnings per share diluted (NOK): -2.0(0.3)
Cash flow from operations: 55 (1 197)
 
As of 30 June 2010(as of 30 June 2009):
Net interest-bearing debt: 24 786(27 903)
Equity (%):47.3 (50.0)
Net gearing: 0.60 (0.59)

The first half-year in brief
  • Improved market conditions for Orkla Aluminium Solutions and Elkem's silicon-related operations boosted sales by 14% in the first half-year and 17% in the second quarter. 
  • Orkla's operating profit (EBITA*) for the first half-year increased to NOK 1,641 million (NOK 567 million)**. Second-quarter EBITA* was NOK 937 million (NOK 334 million)**. 
  • Orkla Brands continued its positive profit trend, achieving 10% profit growth in the first half-year, when EBITA* totalled NOK 1,281 million (NOK 1,160 million)**. The corresponding figure for the second quarter was NOK 657 million (NOK 638 million)**.
  • Orkla Aluminium Solutions experienced higher demand and sales volumes through the first half-year and achieved EBITA* of NOK 427 million (NOK -490 million)**. In the second quarter, which is seasonally the strongest quarter, EBITA* amounted to NOK 298 million (NOK -148 million)**. 
  • Orkla Materials saw good demand for silicon-related products and attained close to full capacity utilisation (excl. Elkem Solar) at the end of the first half-year. Low inflow and reservoir levels for the Saudefaldene power plants led to substantially lower production than normal and weaker results for Orkla Materials Energy. First-half EBITA* for Orkla Materials was NOK 121 million (NOK 84 million)**, while second-quarter EBITA* was NOK 61 million (NOK -54 million)**.
  • The first-half return on the Share Portfolio was 9.3%, compared with 5.9% for the Morgan Stanley Nordic Index (Oslo Stock Exchange Benchmark Index -11.7%). 
  • REC reported first-half EBITDA of NOK 869 million (NOK 760 million)**. Jotun continued to show positive growth at the end of the first four months, with an operating profit of NOK 446 million (NOK 339 million)**. 
  • The Group's investment in REC is accounted for according to the equity method. Orkla bases the value of its equity interest on the market price as long as the market price is lower than the carrying value, according to the principles applied for associates. The market price as of 30 June 2010 was NOK 15.61. This generated an accounting charge of NOK -7.6 billion for the first half-year and NOK -3.0 billion for the second quarter.
  • Group pre-tax profit/loss for the first half-year thus totalled NOK -5,211 million (NOK -33 million)**, and NOK -1,789 million (NOK 282 million)** for the second quarter alone.
 
* Operating profit before amortisation and other income and expenses
** Figures in parentheses are for the corresponding period in the previous year

The Group
Orkla's operating revenues for the first half-year totalled NOK 30,895 million (NOK 27,100 million)**, while second-quarter operating revenues amounted to NOK 16,002 million (NOK 13,652 million)**. The improvement on last year's results was primarily driven by the increased demand experienced by Orkla Aluminium Solutions and Elkem's silicon business.
 
Compared with the first half of 2009, the euro has weakened against the Norwegian krone. In the first half of 2010, the Group had negative currency translation effects that reduced operating revenues by around NOK 1.5 billion and, for the second quarter alone, by around NOK 630 million.
 
Group EBITA* for the first half-year was NOK 1,641 million (NOK 567 million)**, while second-quarter EBITA* came to NOK 937 million (NOK 334 million)**. Orkla Brands reported a satisfactory profit performance and underlying*** profit improvement in both the first half-year and the second quarter alone. Better markets and the positive effects of internal improvement projects resulted in a profit upturn for Orkla Aluminium Solutions of NOK 917 million, compared with the very weak first half of 2009. Orkla Materials posted first-half profit of NOK 121 million (NOK 84 million)**. Increased demand for silicon-related products resulted in nearly full capacity utilisation and EBITA* of NOK 435 million for the silicon-related units (excl. Elkem Solar). Elkem Solar is in a ramp-up phase entailing scheduled stoppages to carry out adjustments and optimisations. Elkem Solar reduced EBITA* by NOK 381 million in the first half-year. Orkla Materials Energy's contribution to profit was lower than normal due to the extremely low reservoir levels at Saudefaldene. Comparative figures for the first half of 2009 also include results from divested power assets. For the Group as a whole, EBITA* was negatively affected by currency translation effects totalling NOK 58 million in the first half-year, and NOK 34 million in the second quarter alone.
 
Other income and expenses came to NOK -161 million in the first half-year (NOK -188 million in the second quarter). The largest items can be ascribed to the second quarter and consisted of the write-down of goodwill in Orkla Finans by NOK 105 million and a provision of NOK 63 million for the closure of Borregaard's factory in Italy, which also produced raw material for Borregaard's vanillin production in Sarpsborg. Meanwhile, Borregaard has entered into a long-term agreement for raw material deliveries from an external supplier. On a full-year basis, these changes are expected to have a positive impact on profit on the order of NOK 25 million.
 
The Group's equity interests in REC (39.7%) and Jotun (42.5%) are presented according to the equity method on the line for associates. Orkla bases the value of its interest in REC on the market price as long as the market price is lower than the carrying value, according to the principles applied for associates. The market price as at 30 June 2010 was NOK 15.61. A total of NOK -7,576 million was thus recognised in the income statement for the first half-year and NOK -3,024 million for the second quarter in connection with REC. Associates' contribution to profit at 30 June (year to date) totalled NOK -7,392 million (NOK -75 million)**, and NOK -2,908 million (NOK -210 million)** for the second quarter.
 
The first-half return on the Share Portfolio was 9.3%, compared with a return of 5.9% for the Morgan Stanley Nordic Index (-11.7% for the Oslo Stock Exchange Benchmark Index). Gains, losses and write-downs on the Share Portfolio totalled NOK 587 million (NOK -87 million)** in the first half-year. The second-quarter contribution to profit was NOK 248 million (NOK 228 million)**. Dividends received by the Group came to NOK 389 million (NOK 225 million)** in the first half-year and NOK 251 million (NOK 180 million)** in the second quarter.
 
Orkla's first-half diluted earnings per share were NOK -5.6 (NOK 0.9)**. The change in the value of REC represented NOK -3.0 per share in the second quarter and NOK -7.4 per share in the first half-year. First-half tax is calculated to be NOK 428 million.
 
On 6 May 2010, Orkla subscribed for a total of 132,078,878 shares at a subscription price of NOK 12.10 per share in the rights issue in REC. The subscription entailed that Orkla ASA subscribed for all of the subscription rights allocated to Orkla ASA and Elkem AS. After the completed rights issue, Orkla ASA owns 396,236,635 shares, thereby maintaining its equity interest in REC of approximately 39.7%.
 
*Operating profit before amortisation and other income and expenses
**Figures in parentheses are for the corresponding period in the previous year
***Excluding acquired and sold operations and currency translation effects

Orkla ASA
Oslo, 21 July 2010
 
Ref.:
 
SVP Corporate Communications

Ole Kristian Lunde 
Tel.: +47-2254 4431
 
SVP Investor Relations
Rune Helland  
Tel.: +47-2254 4411
 
VP Investor Relations
Siv M. S. Brekke  
Tel.: +47-2254 4455
 
This information is subject of the disclosure requirements acc. to §5-12 vphl (Norwegian Securities Trading Act)