As previously reported, the transition to IFRS will not have any significant effect on Orklas operating revenues and operating profit before amortisation of intangibles. Pre-tax profit for 2004 will improve by approximately NOK 800 million, and EPS will improve by NOK 3.80.
Book equity capital as of 31 December 2004 is NOK 5.3 billion higher, compared with reported figures.
In its Annual Report for 2004, Orkla explained the most important changes in the Group's accounting principles following the introduction of the International Financial Reporting Standards (IFRS). For a more general and detailed description, reference is therefore made to the Annual Report for 2004. (The accounting principles from the Annual Report are enclosed).
This document describes the most important accounting consequences of the transition to IFRS. Complete restated income statements and balance sheets for 2004, including breakdowns by quarter, are also enclosed.
On the whole, as previously reported, the transition to IFRS will not have any significant effect on Group operating revenues and operating profit before amortisation of intangibles. Pre-tax profit for 2004 will improve by approximately NOK 800 million, primarily as a result of the discontinuation of linear goodwill amortisation (NOK 384 million) and the fact that the investment in Elkem in 2004 (share owned 39.8 %) is presented as an associate (NOK 404 million). Furthermore, other portfolio investments that constitute more than 20 % of the shares in a company are presented at fair value with changes in value reported in the income statement (under portfolio gains).
In general, Orkla has not used transitional rules that make it possible to revalue/write up tangible assets with the exception of financial assets, for which there are special rules, and the Group therefore largely continues to report book values.
The balance sheet is strengthened primarily because excess value in the investment portfolio is included in assets and equity capital. In future, changes in excess value for most of the portfolio will be regulated against equity capital and will not affect profit until the shares are realised or if excess value is negative.
According to IFRS, allocations for dividends will be part of equity capital until the dividend has been approved by the General Meeting, whereas they were previously presented as short-term liabilities in the balance sheet at year-end. Book equity capital will therefore be correspondingly higher under IFRS.
As a result of the restatement of accounts according to IFRS, book equity capital as of 31 December 2004 is NOK 5.3 billion higher, compared with reported figures.
Below follows a more detailed description of the most important changes consequent upon the restatement of the Group accounts for 2004 according to IFRS. Please note that IAS 39 "Financial instruments" will be implemented from 2005, so neither the opening balance on 1 January 2004 nor profit in 2004 is affected by this.
In addition to the official restatement of the accounts for 2004, we have also calculated pro forma figures for 2004 that take into account the acquisition of Elkem ASA and Chips Abp. The pro forma income statement and balance sheet are also enclosed.
In connection with the introduction of IFRS, Orkla has also looked at certain accounting matters that may affect accrual accounting between quarters and the allocation of costs to the Group administration. Although they do not affect the Group's overall results for 2004 and are not a direct consequence of the introduction of IFRS, some changes of principle have been incorporated into the restated figures for 2004. They include the expensing of accumulated holiday pay. As mentioned above, this has no effect on an annual basis, but it affects the distribution of expenses between quarters for all business areas, especially between the second and third quarters. The effect is greatest for the Media business, where the impact on quarterly profit will be as follows: First quarter: NOK -25 million, second quarter: NOK +33 million, third quarter: NOK +12 million and fourth quarter: NOK -20 million.
In the restated figures for 2004, approximately NOK 29 million in Group administration has been charged to the business areas. A corresponding reduction has been made under HQ/Unallocated. The net effect of this for the Group is zero. The costs have been evenly divided between the quarters. The distribution between business areas is as follows: Foods: NOK -11 million, Brands: NOK -5 million, Media NOK -6 million and Chemicals:
NOK -7 million.
Separate pro forma figures have been calculated to show the Group results as they would have been in 2004 if Elkem and Chips had been consolidated according to the same principles as in 2005 (Elkem for the whole year and Chips from 1 March). Both Elkem and Chips have been restated according to IFRS. Preliminary excess value analyses have been carried out of both Elkem and Chips. The result of these analyses is that excess values of approximately NOK 8 billion have been capitalised as intangible assets in the form of power rights, brands and goodwill. Brands and goodwill will not be subject to ongoing amortisation, while power rights will be written down with a yearly amount of NOK 166 million over the remaining reversion period estimated to 24 years. The final excess value analysis will be completed in connection with the presentation of the annual accounts for 2005 latest. Pro forma equity capital shows a rise of more than NOK 900 million. This is because excess values are calculated on a 100 % basis, while goodwill is only calculated on the basis of the acquired shareholding (approximately 60 % in Elkem and 80 % in Chips), variance in all-inclusive income.
All factors have been calculated and described on the basis of current rules and may be subject to change if either the IFRS rules are changed or the calculations are based on different ways of interpreting the standards before yearend end 2005. The figures have not been audited.
Restatement of Orkla's accounts for 2004 on the basis of IFRS:
Restated income statements and balance sheets for 2004: