Preliminary results for 1997 - Successful year for the Orkla Group

Orkla`s profit increased by 46% to NOK 3.5 billion before tax and close to NOK 2.6 billion after tax, giving shareholders earnings per share of NOK 53.20. The full acquisition of Pripps Ringnes in 1997 consolidated the Group`s position in the Nordic region, and strengthened its position in Eastern Europe. The acquisition is also the main reason for the 19% growth in Group operating revenues and 36% rise in Group operating profit. Orkla`s investment portfolio added value by NOK 2.6 billion in 1997, and the return on the portfolio was 24.5%. The strong rise in the Orkla share price in 1997 gave shareholders 42% added value, in addition to the dividend. Since 1986, when the current strategy and structure were established, the value of the Orkla share has, on average, increased by 24.8% per year. Group profit includes non-recurring items totalling NOK 545 million. Excluding non-recurring items, pre-tax profit for the year rose by 24% and EPS by 18%. Orkla`s Board of Directors proposes increasing the dividend for 1997 by 21% to NOK 8.50. The Board also proposes splitting the share in 4.

Orkla`s total operating revenues rose by 19% to NOK 31 billion. This improvement is primarily explained by the fact that the figures include 100% of Pripps Ringnes` operating revenues, as opposed to 45% in 1996. Underlying growth in operating revenues from continuing business* was 5%.

There was a slight rise in volume on both the Norwegian and Swedish grocery markets in 1997. Competition remains fierce, and the Nordic beverages market is undergoing changes. Pripps Ringnes` shares of the beer market declined slightly, but the market positions of the company`s own carbonated soft drinks brands improved. Otherwise, the Group has largely maintained its market positions.

The Branded Consumer Goods area reported an operating profit of NOK 2.1 billion, with underlying growth of 23%. Profits improved in all business areas, but the strongest growth was achieved by the Eastern-European brewing group, Baltic Beverages Holding (BBH). Orkla Foods improved profit by 8% to NOK 655 million. Abba Seafood achieved good profit growth due to restructuring and successful marketing. The Norwegian business has

* Continuing business has been adjusted for acquisitions and divestitures. Businesses acquired in 1997 have been included in the figures for 1996, while businesses sold have been excluded in the figures for both years.

strengthened its market positions and improved profit. Apart from the International Division,
which affected profits negatively, the other divisions reported a rise in profit. Part of the synergies achieved by coordinating Norwegian and Swedish operations has been used to increase the competitiveness of this business area. Orkla Beverages reported operating profit of NOK 799 million, an underlying growth above 50%. BBH doubled its volume in 1997 to over 600 million litres. BBH (50%) contributed operating profit of SEK 475 million. Operating profit for the Nordic business totalled NOK 529 million. Pripps reported slightly higher profits than in 1996, while Ringnes maintained its profit level. Orkla Brands increased operating profit by 6% to NOK 458 million. All segments except for Snacks achieved results that were better than, or on a par with, the previous year. Profitability has improved due to lower production and purchasing costs. Investments in advertising rose by 12% and market shares remained stable. Operating profit for Orkla Media increased by above16% to NOK 204 million. Orkla Media has benefited from lower paper prices in 1997, coupled with a rise in advertising volumes. Profit growth was greatest for Orkla Media Poland and Norwegian Magazines. Orkla Media has some investments in local radio and TV and electronic publishing which affected profits negatively in 1997.

The Chemicals area reported operating profit of NOK 324 million, a marked decline from 1996. Increased sales of the most highly processed products in the lignin business generated good profit growth. The new plant for highly processed pulp is expected to become fully operational in the first six months of 1998. Problems in connection with the running-in stage resulted in extra expenses in 1997 which, combined with low pulp prices, reduced profitability. Fine Chemicals reported reduced sales to the pharmaceuticals industry, leading to a fall in profit. Fine Chemicals will make use of its technology to expand its range of products in the future. Sales of new products are expected to increase gradually in 1998, but the full effect will not be seen until 1999. Ingredients reported a significant rise in sales and good profit growth. Exports increased, particularly sales of special fat to Eastern Europe.

Financial Investments
The value of all the companies listed on the Oslo Stock Exchange (OSE) rose by 31.5% in 1997, while the value of Orkla`s share portfolio increased by 24.5%. Several of the largest holdings in Orkla`s portfolio did not perform as well as the OSE All Share Index in 1997. Furthermore, Orkla is underweighted in the offshore sector, which did well in 1997. Financial Investments contributed approximately one third of the Group`s total pre-tax profit of NOK 3.5 billion. In addition, the value of unrealised portfolio gains increased by NOK 1.6 billion. At year-end the market value of Orkla`s share portfolio was NOK 14.4 billion, of which NOK 6.2 billion was unrealised capital gains.

Financial situation
The full acquisition of Pripps Ringnes is the main reason for the NOK 4.9 billion rise in net interest-bearing debt to NOK 13.7 billion as of 31.12.1997. This also explains the decline in equity ratio to 32.9%. If unrealised gains on the share portfolio (before tax) are included, the equity ratio was 42.6%. The Group`s interest expenses did not increase because the Group`s interest rate was reduced by 2%-points during 1997.

Future prospects
Orkla`s Board of Directors expects to see few changes in competitive and market conditions for the Nordic and Eastern European branded goods businesses in 1998. Nonetheless, The Board is concerned that an expansive economic policy and overly expansive wage settlements in the Nordic countries may have a detrimental effect on Orkla`s competitiveness and on financial market trends.