Orkla: reports increase in profits for Q1/2010

Oslo / No. (ob) Orkla ASA first-quarter Ebita* amounted to 704 million Norwegian Crowns (NOK), compared to 233 million NOK in the same period of 2009. Orkla Brands, Sapa, Elkem Silicon and Jotun (42,5 percent stake) all show profit growth in the first quarter of 2010 compared to last year. Operating revenues rose by eleven percent to 14,9 billion NOK due to improved market conditions for Sapa and Elkem Silicon.

«It is positive that the measures we have implemented in the past few years have strengthened our competitiveness. We expect Orkla Brands and Jotun (42,5 percent) to continue to deliver a robust performance. Sapa, Elkem Silicon and Borregaard should be well positioned when markets normalise. Furthermore, the Group´s two solar energy investments (REC (39,7 percent stake) and Elkem Solar) are currently in a ramp-up phase, the results of which we expect to see in 2010/2011», says President and CEO Dag J. Opedal.

Orkla Brands has recently acquired several businesses: Kalev (chocolate manufacturer in Estonia), Peterhof (chocolate spread in Russia) and Sonneveld (bakery ingredients in the Netherlands). In total, these companies generate sales of almost 750 million NOK. Elkem Solar has entered into an agreement with a leading solar energy company to deliver up to 1’000 tonnes of solar-grade silicon in 2010.

As long as the market price of REC shares is lower than the book value, the accounting value will be written up and down in step with market price fluctuations. For the first quarter, this meant an accounting charge of 4,6 billion NOK. Orkla will guarantee and participate in REC´s rights issue in proportion to its shareholding. Following the issue, Orkla´s average cost price per share will be 33,99 NOK, while the book value at the end of the first quarter will be 22,48 NOK per share.

The Share Portfolio has had a satisfactory start to the year, generating a first-quarter return of 11,2 percent, compared to the 10,2 percent return on the Nordic index (MSCI Nordic). At quarter-end, the market value of Orkla´s Share Portfolio was 11,7 billion NOK. At quarter-end, Orkla´s equity-to-assets ratio was 52,9 percent, while its net interest-bearing liabilities, which totalled 19,9 billion NOK, were at the same level as at the end of 2009.

Key figures Q1/2010 Q1/2009
Operating revenues million NOK 14’893 13’448
Ebita million NOK 704 233
Profit before taxes million NOK minus 3’422 minus 315
Earnings per share diluted NOK minus 3,6 0,7
Cash flow from operations million NOK minus 50 255
2010-03-31 2009-03-31)
Net interest-bearing debt million NOK 19’861 26’588
Equity percent 52,9 49,9
Net gearing million NOK 0,43 0,56

The first quarter in brief

  • Improved market conditions for Orkla Aluminium Solutions and Elkem´s silicon operations contributed to eleven percent growth in sales: 14’893 million NOK compared to 13’448 million NOK in the first quarter of 2009.
  • Group Ebita* totalled NOK 704 million NOK, compared to NOK 233 million NOK last year.
  • Satisfactory profit improvement for Orkla Brands compared to a relatively weak first quarter in 2009.
  • Orkla Aluminium Solutions reduced its cost base and experienced positive market growth that led to a significant turnaround in profits. First-quarter Ebita* amounted to 129 million NOK (minus 342 million NOK)**.
  • Increased capacity utilisation and higher prices for Elkem Silicon-related (excluding Elkem Solar). Due to the extreme weather situation experienced by the Saudefaldene plant, with low inflow and low reservoir levels, production was considerably lower than normal, and the results for Elkem´s remaining energy operations were weak. Comparative figures for 2009 include divested power plants.
  • REC reported Ebitda of 415 million NOK for the first quarter (510 million NOK)**. Jotun has had a satisfactory start to the year, with results that are slightly better than last year.
  • The Group´s investment in REC is accounted for according to the equity method. Orkla calculates the value of its stake on the basis of the market price, as long as the market price is lower than the carrying value under the principles applicable to associates. The market price was 27,80 NOK on 31 March 2010, compared to 44,75 NOK on 31 December 2009. A total of minus 4,55 million NOK has been recognised in the income statement in connection with REC in the first quarter.
  • Including the change in the value of REC, the Group´s pre-tax result in the first quarter was minus 3,42 million NOK (minus 315 million NOK)**.
  • The Share Portfolio delivered a first-quarter return of 11,2 percent, compared to the 10,2 percent return of the Morgan Stanley Nordic Index and the 1,4 percent return of the Oslo Stock Exchange Benchmark Index.
  • Net interest-bearing liabilities remained more or less unchanged during the first quarter, totalling 19’861 million NOK at the end of the quarter.

The Group

Orkla´s first-quarter operating revenues totalled 14’893 million NOK, compared to 13’448 million NOK in the weak first quarter of 2009. The improvement is due to the increased demand and volume growth experienced by Orkla Aluminium Solutions, as well as higher prices and better markets for Orkla Materials´ silicon-related products. Currency translation effects had a negative impact of 846 million NOK on first-quarter operating revenues.

Group Ebita* for the first quarter totalled 704 million NOK (233 million NOK)**. Profit was impacted by negative currency translation effects totalling 24 million NOK in the quarter.

Orkla Brands delivered yet another good quarter. There was a positive trend in volume/mix, but sales were also positively affected by the timing of Easter compared to last year. Profit growth was broad-based and driven by innovations, cost improvements and positive currency effects related to purchasing.

Orkla Aluminium Solutions´ markets showed a positive trend in the first quarter. There was market growth in most segments in North America, and there were signs of improvement in several European markets. The exception is the building and construction market, which remains weak on both continents.

As regards Orkla Materials, Elkem Silicon-related reported a positive underlying*** trend, with higher capacity utilisation and higher prices for key products. While Borregaard Chemicals reported improved profits for the speciality chemicals and ingredients businesses, this was more than counteracted by the more demanding market conditions faced by the fine chemicals business. Orkla Materials Energy reported abnormally weak results in the first quarter, due to the extraordinary weather situation at Saudefaldene. Extremely low inflow and very little snow resulted in low reservoir levels at quarter-end. Production totalled only 203 GWh, compared to a presumed normal first-quarter level of over 500 GWh. Elkem Solar continued to ramp up its plant in Kristiansand, and around 400 tonnes of solar-grade silicon were produced in the quarter.

The Group´s equity interests in REC (39,7 percent) and Jotun (42,5 percent) are presented according to the equity method on the line for associates. Orkla uses the market price as the value of its stake in REC, as long as the market price is lower than the carrying value in accordance with the principles applicable to associates. The market price was 27,80 NOK on 31 March 2010, compared to 44,75 NOK on 31 December 2009. A total of minus 4’552 million NOK was recognised in the income statement in connection with REC in the first quarter.

The return on Orkla´s Share Portfolio in the first quarter was 11,2 percent, compared to the 10,2 percent return of the Morgan Stanley Nordic Index (1,4 percent for the Oslo Stock Exchange Benchmark Index). At quarter-end, the market value of the Share Portfolio was 11’727 million NOK, after net share sales totalling 389 million NOK. Gains, losses and write-downs on the Share Portfolio amounted to 339 million NOK in the quarter (minus 315 million NOK)**. Accounting write-downs totalled eleven million NOK in the first quarter.

Dividends received by the Group in the first quarter totalled 138 million NOK (45 million NOK)**. Orkla´s diluted earnings per share were minus 3,6 NOK in the first quarter, compared to 0,7 NOK in 2009. The change in the value of REC accounted for minus 4,5 NOK per share.

* Operating result before amortisation, gain on sale of power plants, restructuring and significant impairments
** Figures in parentheses are for the corresponding period in the previous year
*** Excluding acquisitions, divestments and currency translation effects.
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