Strategic positions strengthened - profit affected by accounting write-downs

Orkla's operating revenues totalled NOK 65.6 billion in 2008 (up from NOK 61.4 billion in 2007). Operating profit (EBITA) ended at NOK 4.2 billion (NOK 4.8 billion ), while pre-tax profit amounted to NOK -2.0 billion (NOK +9.8 billion), mainly due to accounting write-downs on the Share Portfolio. Fourth-quarter operating revenues amounted to NOK 16.5 billion (NOK 17.5 billion), and EBITA was NOK 998 million (NOK 1.2 billion).

In line with Orkla's dividend strategy, the Board of Directors proposes an ordinary dividend of NOK 2.25 per share for 2008, the same amount as the year before.
 
"At the start of 2009 the economic operating parameters are very weak. The international financial crisis is exacerbating a global slowdown in the real economy. Orkla companies will be affected by lower economic growth to varying degrees, and will respond to these challenges with appropriate countermeasures. Vigorous steps have been taken in the business areas to adapt cost bases and production capacity to lower demand and reduced volume growth," says President and CEO Dag J. Opedal.
 
Particular attention will be focused on ensuring a satisfactory cash flow. This will entail strict management of use of capital within the Group and higher ambitions with regard to cost productivity.
 
"Orkla is well equipped to meet these challenges. The companies in the Group have solid market positions, and refinancing needs are limited in 2009 and 2010," says Mr Opedal.
 
In 2008 active strategic moves were carried out that are advancing Orkla's positions or involve restructuring. Orkla is taking over Alcoa's ownership interest in Sapa Profiles, thereby becoming sole owner, while Alcoa is taking over Orkla's stake in Elkem Aluminium. This swap will simplify the structure of the Orkla Group and give it strategic control of Sapa.
 
REC continued to upgrade its facilities in terms of both technology and capacity. Elkem Solar's factory in Kristiansand was mechanically completed and production will start up in the course of 2009.
 
Orkla sold its interest in Hjemmet Mortensen, thereby concluding its involvement in the printed media sector. A decision was made to close down Borregaard's cellulose business in Switzerland. Orkla Brands' operations in Eastern Europe were restructured.
 
Key figures Q4-08 (Q4-07) in NOK million:
Operating revenues: 16 492 (17 514)
EBITA: 998 (1 206)
Profit before taxes: -4 375 (1 249)
Earnings per share diluted (NOK): -4.1 (1.1)
Cash flow from operations: 1 246 (1 243)
 
As of Q4-08 (as of Q4-07):
Net interest-bearing debt: 27 424 (16 178)
Equity (%): 47.7 (58.3)
Net gearing: 0.55 (0.29)
 
Fourth Quarter in Brief
- Orkla's adjusted EBITA1 came to NOK 998 million (NOK 1,206 million)2 in the fourth quarter.
 
- Orkla Brands had another good quarter with a profit growth of about 16 %.
 
- As expected, weak markets and a rapid decline in demand gave a poor result for Orkla Aluminium Solutions in the fourth quarter.
 
- In Orkla Materials, the energy businesses had a high level of production and profit growth in the fourth quarter. This was offset by weaker markets near the end of the year for both the chemicals business in Borregaard and the silicon business in Elkem. Elkem Solar's factory has been mechanically completed and the start-up programme has begun.
 
- Orkla has initiated strong measures to counteract the real effects of the financial crisis. Borregaard's cellulose plant in Switzerland has been closed down. In Orkla Aluminium Solutions, the production capacity has been significantly reduced and the workforce has been reduced by about 2,000 man-years in 2008, equivalent to a 15 % reduction. In addition, measures have been introduced to free up working capital and strict control of investments. As a result of these measures, write-downs and provisions for restructuring amounting to NOK 1,620 million were carried out in the fourth quarter.
 
- The contribution from Orkla Associates to Group profit amounted to NOK 284 million in the fourth quarter compared with NOK 5 million last year. REC had an increase in EBITDA of 10 %, whereas demanding markets diminished growth for Jotun towards the end of 2008.
 
- The weak trend in the stock markets continued in the fourth quarter, and the Share Portfolio had a return of -45.3 % (-46.0 % for the Morgan Stanley Nordic Index) in 2008. Substantial write-downs entail a loss on portfolio investments of NOK 3,537 million for the quarter.
 
- After accounting write-downs and provisions for restructuring totalling NOK 4,839 million, the profit/loss before tax in the fourth quarter came to NOK -4,375 million (NOK 1,249 million)2.
 
- Initiated measures contributed to reduced working capital in the fourth quarter and cash flow from operating activities in the industrial operations amounted to NOK 1,246 million. The equity ratio at year-end was 47.7 %, while net gearing was 0.55.
 
- Orkla entered into an agreement in the quarter with Alcoa, where Orkla acquires Alcoa's shares in Sapa Profiles in exchange for Orkla's stake in Elkem Aluminium. As a result of this agreement, Elkem Aluminium is reported as discontinued operations.
 
The Group
Orkla's operating revenue came to NOK 16,492 million (NOK 17,514 million)2 in the fourth quarter. The decline is explained by a weaker market trend for Orkla Aluminium Solutions and some of the operations in Orkla Materials. After having been relatively strong in the first part of 2008, the Norwegian krone weakened relative to the USD and EUR in the fourth quarter. Currency translation effects for the Group in the fourth quarter amounted to NOK 1,367 million, whereas the translation effects for the whole year came to NOK 39 million.
 
The Group's EBITA1 in the fourth quarter was NOK 998 million (NOK 1,206 million)2, and for the whole of 2008 EBITA1 was NOK 4,240 million (NOK 4,825 million)2. The financial crisis has varying effects on Orkla's Business Areas. Orkla Brands had good profit growth in the fourth quarter as well, despite increased costs for purchasing in EUR and USD. At the same time, the energy businesses in both Elkem and Borregaard had a good trend as a result of increased production and high power prices. High prices at the start of the fourth quarter enabled Elkem's silicon-related operations to achieve profit growth corrected for higher recognised costs at Elkem Solar. Throughout 2008, Orkla Aluminium Solutions worked to adapt its operations to weaker markets in both the USA and Europe. The trend was especially weak in December, and in the fourth quarter the operations had a negative EBITA1 of NOK -102 million (NOK 205 million)2. Weakened market conditions also resulted in a decline for Borregaard's chemicals business, at the same time as low activity resulted in poor results for Orkla Finans. Currency translation effects in the quarter amounted to NOK 81 million, while the translation effects for the whole year amounted to NOK 26 million.
 
The income statement in the fourth quarter is charged with provisions for restructuring and significant impairments, plus write-downs of metal inventory in Orkla Aluminium Solutions. Altogether, this amounts to NOK -1,620 million. The biggest items are associated with the advertised closing of Borregaard's plant in Switzerland, which amounted to NOK -527 million, write-down of goodwill in SladCo amounting to NOK -547 million and NOK -188 million in provisions for restructuring in Orkla Aluminium Solutions. The situation at year-end 2008 has been characterised by uncertainty with regard to the trend in both demand and prices. The stock of aluminium utilised in end products not expected to be sold at normal conditions has been written down to replacement cost. The write-down of NOK -372 million is classified on a separate line in the financial statement. Of the total cost associated with restructuring and write-downs in the fourth quarter, the cash flow effect is about NOK -300 million, of which about NOK -100 million was paid out in the quarter.
 
On 22 December 2008, Orkla and Alcoa entered into an agreement to exchange stakes in jointly owned companies, where Orkla is to acquire Alcoa's 45.45 % stake in Sapa Profiles, while Alcoa is to acquire Orkla's 50 % stake in Elkem Aluminium. The accounting figures for Elkem Aluminium for 2008 and 2007 are presented on separate lines in the income statement and balance sheet as discontinued operations.
 
Orkla's stakes in REC (39.73 %) and Jotun (42.5 %) are presented according to the equity method on the line for associates. Orkla's contribution to Group profit from REC came to NOK 441 million (NOK -3 million)2 in the fourth quarter and NOK 1,217 million (NOK 607 million)2 for the year in its entirety. In the fourth quarter 2007 the contribution to Group profit from REC was negatively affected by the full-year effect of changes in accounting principles related to recognised costs of built-in derivatives in sales contracts in USD. The contribution to Group profit from Jotun in 2008 came to NOK 253 million (NOK 209 million)2.
 
Accounting loss for portfolio investments came to NOK -3,537 million (profit of NOK 337 million)2 in the fourth quarter. Realised loss amounted to NOK -264 million, whereas the portfolio write-down was NOK -3,219 million. At year-end, the market value of the Share Portfolio was NOK 11,426 million, and unrealised gains amounted to NOK 847 million. In 2008, the Share Portfolio had a return of -45.3 % compared with the Morgan Stanley Nordic Index (-46.0 %) and the Oslo Børs Benchmark Index (-54.1 %).
 
Orkla's profit per share (diluted) was NOK -2.8 in 2008 compared with NOK 8.1 in 2007. Accounting write-downs and provisions for restructuring amounted to a total of NOK -8.0 per share in 2008.
 
Orkla Financial Investments' investment activity in the EEA is primarily exempt from taxation, whereas industrial operations are charged ordinary corporation tax in the countries where the operations are located. Accounting loss for Orkla Financial Investments in 2008 can therefore not be offset against profit from industrial operations in the tax calculation. This, together with a decision received from the Central Office - Taxation of Large-Sized Companies to change the assessment for 2006 related to the conversion of two convertible bond issues in REC in May 2006, helps explain the tax expenses for the year. The authorities above-mentioned tax claim of NOK 750 million is partly offset by a reversal of previous tax provisions in the Group. Orkla disagrees with both the indicated basis for tax liability and the valuation that is derived from the decision, and the Group will take legal steps to follow up the decision.
 
The Board of Directors proposes an ordinary dividend of NOK 2.25 per share for 2008, the same amount as for the 2007 accounting year.
 
1) Before amortisation, write-downs on Sapa Profiles' inventories and restructuring and significant impairment charges
2) Figures in brackets are for the corresponding period of the previous year
 
Orkla ASA
Oslo, 19th. february 2009
 
Ref.:
 
CFO
Terje Andersen
Tel.: +47-2254 4419
  
SVP Investor Relations
Rune Helland   
Tel.: +47-2254 4411
 
SVP Corporate Communications
Ole Kristian Lunde  
Tel.: +47-2254 4431
 
Investor Relations
Lars Røsæg
Tel.: +47-2254 4426