Preliminary results for 1998

Orkla's pre-tax profit totalled NOK 2,057 million. NOK 1,033 million of the NOK 1,408 million drop in profit was due to the difference in non-recurring items from 1997 to 1998. Operating profit from the Nordic beverages business and Procordia Food also declined and the food business in Poland is still weak. Overall profit from other industrial activities was higher in 1998. Several comprehensive improvement measures were initiated in the course of the year to strengthen the Group's competitiveness. Consequently, more than NOK 300 million was allocated under Other revenues and costs in connection with these measures.

Excluding non-recurring items, pre-tax profit fell 15%. For Baltic Beverages Holding (BBH), operating profit increased by 27% and volume by 48% in 1998. Volumes continued to rise in the last four months of the year. The return on Orkla's share portfolio (-7%) was better than on the Oslo Stock Exchange All Share Index (-26.7%). Excluding non-recurring items and goodwill amortisation, earnings per share were NOK 11.4, compared with NOK 13.0 in 1997. The Board of Directors proposes a dividend of NOK 2.25 per share in 1998, compared with NOK 2.13 in 1997.

Non-recurring items totalling NOK -488 million were charged against profit in 1998, NOK 138 million of which were losses on exchange for BBH. Moreover, NOK 335 million were allocated for restructuring in the Beverages, Biscuits, Newspapers and Magazines sectors and for the winding up of branded consumer goods operations in Asia. Provisions totalling NOK 76 million were made in the last four months of the year, primarily to cover restructuring programmes in the food sector. A comprehensive improvement project is also being implemented in the Chemicals area. The measures that have been initiated are expected to substantially improve the Group's competitiveness over time, but the short-term effects are uncertain.

Orkla's total operating revenues of NOK 30.8 billion were at the same level as last year. With the exception of Orkla Beverages, sales in all areas were higher or on a par with 1997, and the growth rate for continuing business was just over 3%. Growth on the Norwegian and Swedish grocery markets was weak in 1998. Orkla Foods and Orkla Brands largely maintained their market shares in Norway. In sum, the Beverages business maintained its position in the Nordic region. In Sweden, Abba Seafood strengthened its market position while Procordia Food lost market shares. BBH increased its market shares.

Orkla's 1998 operating profit was NOK 1,797 million, compared with NOK 2,613 million in 1997. Adjusted for non-recurring items, operating profit was NOK 300 million lower (-12%) for the year and NOK 133 million lower in the last four months. The latter was primarily due to the weaker performance of BBH resulting from the devaluation in Russia.

Net financial items were up NOK 307 million. A higher level of debt led to a rise in interest costs. The NOK 138 million loss on exchange for BBH due to devaluation in Russia and Ukraine was charged against financial items in August, while the reduction in the value of these currencies in the last four months was charged against BBH's operating profit. In 1997, financial items were reduced by a NOK 61 million gain on the sale of Hansa.

Results from the Branded Consumer Goods area:
· Orkla Foods' operating profit fell 12% to NOK 579 million. The main reasons for this unsatisfactory result were lower sales from Procordia Food, weak performance in Poland (Kotlin) and higher raw materials costs for Stabburet. Abba Seafood and the Danish and Finnish businesses achieved profit growth. In the last four months alone, operating profit totalled NOK 248 million, 8% lower than in the corresponding period of 1997. Stabburet's profit showed an upward trend in the last four months of the year. Procordia Food has initiated a restructuring programme that affects all areas of the business and is expected to take some time to complete. The Polish business will be reducing manpower to achieve more cost-effective operations.
· Orkla Beverages' operating profit dropped 36% to NOK 508 million. BBH's operating profit (50%) rose 27% to NOK 563 million. Total volume for the BBH breweries rose 48% to 913 million litres (100%). The strong growth rate continued in the last four months of the year. Due to the high inflation rate, BBH increased its beer prices in Russia by 30-55% during autumn 1998. The weakened Russian and Ukrainian currencies reduced BBH's profit in the last four months, translated into NOK, and a NOK 66 million loss on exchange in connection with the re-translation of balance sheet items was charged against profit in this period. Operating profit for the Nordic business totalled NOK 125 million, compared with NOK 529 million in 1997. Profit in the last four months dropped NOK 33 million to NOK 51 million. The loss of TCCC products in Sweden, the transition to tollfilling in Norway, the cold summer and the weak overall market all contributed to the decline in profit. In Norway, Ringnes strengthened its market share for beer but lost market shares for its own carbonated soft drinks. The company therefore decided to reduce the prices of its own carbonated soft drinks, effective from the latter part of 1998, which had favourable consequences. Pepsi products performed well towards the end of the year. In Sweden, Pripps increased its market shares for both carbonated soft drinks and class 1 and class 3 beer but lost shares in the class 2 segment. Pripps carried out several successful launches of new beer products in the second half of the year.
· Orkla Brands' operating profit of NOK 456 million was on a par with 1997. Profit performance for Biscuits was unsatisfactory, but work on a new production structure is proceeding according to plan. The Snacks business improved its performance in Denmark, but tougher competition and weaker distribution weakened profitability in Norway. Lilleborg Home and Personal Care reduced the prices of certain laundry products and unfavourable exchange rates led to a rise in raw materials prices. Profit improved towards the end of the year as a result of higher productivity at the new detergent factory and lower fixed costs due to other rationalisation measures. Chocolate/Confectionery strengthened its market shares by focusing on its own brands, and profits continue to rise.
· Orkla Media's operating profit of NOK 208 million was on a par with 1997. Norwegian Newspapers and Orkla Media Poland achieved profit growth, while the results for Magazines and Direct Marketing were on a par with last year. However, a rise in wage costs for Norwegian Newspapers had a negative impact. Advertising revenues increased in both Norway and Poland. The circulation figures for Norwegian Newspapers increased, but there was a moderate rise in paper prices compared with 1997. Profit rose in the last four months of the year.

Profit from the Chemicals area rose NOK 78 million to NOK 402 million, mainly due to more favourable exchange rates and improved production and increased sales of fine chemicals and speciality cellulose. The fine chemicals business introduced new intermediates for the pharmaceutical industry and improved its capacity utilisation. Increased sales of highly processed cellulose also made a positive contribution. The lignin business reported weaker profit than in 1997. The market situation in Asia led to lower sales to the building industry and contributed to a decline in volumes and pressure on prices.

Financial Investments. The value of all the companies listed on the Oslo Stock Exchange dropped 26.7% in 1998, while the value of Orkla's share portfolio dropped 7%. The Financial Investments area contributed NOK 1,042 million of the Group's total pre-tax profit of NOK 2,057 million. On 31 December 1998, the market value of the share portfolio was NOK 12.6 billion, NOK 4.1 billion of which consisted of unrealised gains.

Financial situation. The Group's net cash flow in 1998 was NOK -0.9 billion. The NOK 4 billion improvement from 1997 was due to lower expansion investments. Net interest-bearing debt increased by NOK 0.9 billion to NOK 14.5 billion. On the basis of the balance sheet total of NOK 38.8 billion, the book equity ratio was 34.2%. If unrealised gains on the share portfolio before tax are included, the equity ratio rises to 40.5%. The proportion of interest-bearing debt at floating rates was approximately 62%, and approximately 20% of interest-bearing debt is at short-term Norwegian rates. At year-end, the average borrowing rate was 5.8%.

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For tables 3. tertiary, follow the enclosed link.