Uneven results for the first four months of 1999
Orkla's pre-tax profit of NOK 468 million was NOK 310 million lower than last year. The drop was due to lower profit from Baltic Beverages Holding (BBH) and the Chemicals area, and lower book profit from the Financial Investments area.
As anticipated, the weak Russian rouble led to lower profit for BBH. Volume growth is still high at 25%. Orkla Foods achieved satisfactory profit growth, while profit from the other branded consumer goods businesses was slightly lower than last year. Projects aimed at improving corporate competitiveness are proceeding as planned, but had little impact on profit in the first four months of the year.
Book profit from Financial Investments was NOK 71 million lower than last year. If the increase in unrealised capital gains on the share portfolio is included, the adjusted profit was higher. The return on the portfolio was 12.8% at the end of April. The lower contribution to profit from Orkla's interest in Hartwall reduced profit from associated companies. Group earnings per share, excluding goodwill amortisation, amounted to NOK 2.5, compared with NOK 3.5 last year.
Orkla's total operating income of NOK 9.6 billion was on a par with last year. Beverages and Chemicals reported lower sales revenues than last year, while sales revenues from the other areas increased. So far in 1999, trends on the Norwegian and Swedish grocery markets have been favourable. The Group's market shares of important product groups have largely been maintained. However, market shares for Biscuits in Sweden and Orkla's own brands of carbonated soft drinks in Norway were slightly down.
Results for the branded consumer goods business:
· Orkla Foods increased its operating profit by NOK 63 million to NOK 167 million. All divisions reported profit on a par with or better than last year. Stabburet, Procordia Food and Abba Seafood made the strongest gains. Market positions were largely maintained or strengthened, and investments in marketing are expected to increase in the course of 1999. In Sweden, Procordia Food increased its operating income by 13%, partly due to a shift of sales to the first four months. In Norway, long-term focus on brand-building, innovation and product development and the normalisation of operations at the new pizza factory brought results. The ongoing restructuring process is proceeding according to plan in Sweden and Poland.
· Orkla Beverages' operating profit declined by NOK 105 million to NOK -35 million. BBH's total volume increased by 25% to 287 million litres. Half this growth can be ascribed to new breweries. The fall in the value of the rouble reduced operating profit, excluding goodwill amortisation, (50%) from NOK 162 million to NOK 67 million and the operating margin dropped from 33% to 19%. The Nordic beverages business reported operating profit, excluding goodwill amortisation, of NOK -40 million, compared with NOK -35 million last year. The loss of production for the Coca-Cola Co. and lower volumes for Ringnes' beer and own brands of carbonated soft drinks had a negative impact, while higher volumes for Pripps, a satisfactory trend for Pepsi in Norway and lower unit costs at both Pripps and Ringnes made a positive contribution. The productivity programme for the Nordic businesses is largely proceeding according to plan.
· Orkla Brands' operating profit dropped NOK 9 million to NOK 108 million. Most product areas achieved results on a par with or better than last year. Market growth was moderate and market shares were generally stable. Profit from Biscuits and Snacks declined. Work on a new production structure for Biscuits is proceeding according to plan. In the case of Snacks, tougher competition in Norway and start-up problems in connection with the new production structure in Denmark had a negative impact. In January, Home Textiles took over Freds AB in Sweden, which has an annual turnover of about SEK 300 million.
· Orkla Media posted operating profit of NOK 62 million, on a par with 1998. Profit from Newspapers Norway and Magazines improved. Although the total market for newspaper and magazine advertising declined in terms of volume, Orkla Media's advertising revenues increased. The new printing plant improved its performance. Newspapers Eastern Europe posted somewhat lower profit due to higher marketing investments. The newly-acquired Gazeta Lubuska was consolidated in the accounts from 1 January 1999, and made a positive contribution to profit.
Results for the Chemicals area:
Operating profit dropped NOK 88 million to NOK 49 million. The effects of the Asian crisis have led to lower prices for lignin, and significantly lower profit. The Ingredients business reported a strong decline in profit, due to a reduced contribution from sales of fish oils and a lower margin for soya bean crushing. A weaker market and falling prices for sulphuric acid led to lower profit from Basic Chemicals. Specialty cellulose performed slightly better than last year and productivity improved. Operating profit from Fine Chemicals was on a par with last year. Work on the development of new products for the pharmaceutical industry is making progress. The productivity programme at the Norwegian factory is on schedule, and is expected to gradually bring results in the course of the year in the form of increased capacity utilisation and lower costs. The net impact on profit this year will however be limited.
Results for the Financial Investments area:
The value of all companies listed on the Oslo Stock Exchange rose 21.5% in the first four months of 1999. The value of Orkla's share portfolio rose 12.8%. This was mainly due to the weak performance of the Storebrand share and the portfolio's limited exposure to Norsk Hydro, which has a strong influence on the All Share Index. The net asset value of the portfolio has increased by NOK 1.6 billion since the beginning of the year. On 30 April 1999, the market value of the share portfolio was NOK 14.3 billion, of which NOK 5.3 billion was unrealised capital gains.
Net interest-bearing liabilities rose NOK 0.9 billion to NOK 15.4 billion. Book equity accounts for 34.1% of the balance sheet total of NOK 39.3 billion. If unrealised capital gains before tax are included, the equity ratio was 42.0%. Approximately 50% of interest-bearing debt is at floating interest rates and some 11% of interest-bearing debt is at short-term Norwegian rates. At the end of the first four months, the average borrowing rate was 5.9%.
No significant changes in the market situation are anticipated for the Group's Nordic branded consumer goods businesses. It is necessary to focus strongly on the measures that have been initiated to improve competitiveness. Orkla Foods achieved a substantial rise in profit in the first four months. Due to a shift of sales to the start of the year the same relative improvement is not anticipated for the rest of the year. High beer taxes continue to have a strong negative impact on Pripps Ringnes' breweries in Norway and Sweden. With this level of taxation, it will be difficult to maintain local production over time. BBH expects market growth to continue, but the weak currency will continue to have a negative effect on profit. The Chemicals area expects profit performance to improve during the rest of the year, but annual profit is still expected to be lower than in 1998.
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