Date:Thu, 20.Jun 1996Orkla
Pripps Ringnes and The Coca-Cola Company (TCCC) today signed a letter of intent relating to the orderly phasing out of the marketing, sales, distribution and bottling of TCCC products currently performed by Pripps Ringnes in Sweden and the Norwegian franchise areas serviced by Pripps Ringnes. Hansa is not included in the agreement. TCCC will assume responsibility for its products in Norway and Sweden during the first half of 1997, but Pripps Ringnes will bottle all TCCC products in both countries to the end of 1998. Non-recurring items associated with the termination of the agreement will have a positive effect on profits over the phasing-out period. It is also anticipated that Pripps Ringnes' profit before tax will remain approximately at current levels.
According to the letter of intent, Pripps Ringnes is to be responsible for marketing, sales and distribution of TCCC products in the two countries until 28 February 1997. TCCC will have the right to request Ringnes to distribute its products in Norway up to 31 May 1997. Pripps Ringnes will bottle Coca-Cola products for TCCC on a contract basis up till 31 December 1998. The parties are to negotiate a final agreement based on the principles set out in the letter of intent.
Under the terms of the letter of intent, TCCC undertakes to pay Pripps Ringnes a lump sum and to pay for services etc. provided by Pripps Ringnes during the phasing-out period. The total value for Pripps Ringnes will be some SEK 1.1 billion. The lump sum will make up well over half the total sum agreed, the rest being payment for services provided up till the end of 1998. In addition TCCC will pay for costs directly related to the contract bottling.
TCCC products represent around 35% of total operating revenues at Pripps Ringnes. The loss of so large a part of the business will result in significant restructuring in both countries. It is considered that over time Pripps Ringnes may have to reduce its workforce by some 1,400 employees.
Pripps Ringnes made provisions of SEK 200 million in the 1995 accounts to meet possible restructuring costs associated with a change to the TCCC contract in Sweden. This provision is considered adequate for its task, but there will be a need for further restructuring provisions, now that the Norwegian bottling agreement is also to be brought to an end. These costs are estimated as somewhat higher than those found necessary in Sweden. It is too early to say when the lump sum and restructuring costs will appear on the accounts, but these items will be booked as "Other income and costs" and their combined effect will be a positive one.
The reduction in operating profit from current operations which is expected to result from the loss of the TCCC products will partly be compensated by lower depreciation. When the TCCC volumes disappear, Pripps Ringnes will have high capacity and thus require lower capital expenditures. Combined with the size of the lump sum, the company's financial situation will improve and financial costs will be reduced. Profits after financial costs as well as cashflow are expected to remain on approximately the same level as previously.
Pripps Ringnes has a strong business system with its own strong brand-names. Once the first stage of the phasing-out is complete, the resources freed for sales, marketing and distribution will be concentrated on Pripps Ringnes' own brands.
Orkla considers the present letter of intent to be suitable for both parties. Like the other companies within Orkla, Pripps Ringnes wants to control the major brand names. This agreement will ensure that the relations with retailers and consumers will be maintained in favourable way, while the gradual pace of the phasing-out will give Pripps Ringnes the necessary time to restructure. This will reduce the negative consequences for employees.
Orkla, tel.: +47 22 50 10 80:
Executive V.-President Halvor Stenstadvold,
Chief Financial Officer Bjørn Erik Næss,
Director Information Lisbeth Lindberg
Pripps Ringnes, tel.: +46 8 757 70 00:
Managing Director Paul Bergqvist