Orkla Results First Quarter 2008

    Orkla's first quarter operating profit (EBITA) totalled NOK 1,062 million (NOK 1,467 million)1.

    Orkla Brands achieved profit growth in the first quarter. Most of the companies compensated for the rise in raw material prices in the quarter by raising prices.

    Orkla Aluminium Solutions reported a satisfactory quarter despite challenging markets, particularly in the US. The integration of Alcoa's extrusion business is proceeding as planned, while Heat Transfer & Building System continued to perform well.

    In Orkla Materials, Elkem posted considerably lower profit than last year. This is primarily due to financial ­losses on energy trading in the first quarter of 2008, contrary to the high gain realised last year, and continued weak results from Elkem Aluminium. Elkem Solar is pursuing its project plan and start-up is expected towards the end of the year.

    Orkla Associates' contribution to Group profit was lower than last year. REC's profit for the first quarter ended at somewhat lower than in 2007, besides which REC's contribution to Orkla's profit in the first quarter of 2007 was boosted by gains on sales of shares. Jotun continued the positive performance trend it achieved in 2007.

    Partly due to weak stock markets, the return on the Share Portfolio in the first quarter was -7.2 %, ­compared with -13.3 % for the Morgan Stanley Nordic Index and -16.1 % for the Oslo Stock Exchange Benchmark Index.

    Pre-tax profit for the first quarter amounted to NOK 881 million (NOK 3,505 million)1. Realised portfolio gains and the sale of other financial assets were particularly high in the first quarter of 2007, which explains a ­difference of around NOK 2 billion.
 

The Group

Orkla's first-quarter operating revenues totalled NOK 16,944 million (NOK 13,888 million)1. A substantial part of the revenue growth is ascribable to the consolidation of Alcoa's extrusion operations into Orkla Aluminium Solutions. However, all the other segments, except for Elkem Aluminium, reported an underlying2 rise in operating ­revenues.  

The Norwegian krone was significantly stronger in the first quarter of 2008 than in the same period of last year, particularly measured against the USD, but also against euro-related currencies. This has resulted in a negative currency translation effect of NOK -710 million on operating revenues. 

First-quarter EBITA was NOK 1,062 million (NOK 1,467 million)1. Orkla Brands, Orkla Aluminium Solutions and Borregaard all reported a satisfactory performance, and the negative difference in profit is largely explained by certain special items. Elkem Energy's trading operations are naturally subject to some volatility and profit may vary considerably from one quarter to the next. In the first quarter of 2008 the business realised a loss, while it posted substantial gains in the first quarter of 2007. In total, this resulted in a drop in profit of NOK -183 million compared with last year. Costs expensed for Elkem Solar totalled NOK 77 million in 2008 compared with NOK 27 million last year. Elkem Aluminium's profit will be squeezed for some time by higher costs and a weak USD against the NOK, while the prices realised on aluminium sales are lower than current market prices, due to aluminium hedge contracts previously entered into. As a result of the turmoil on the financial markets, demand for Orkla Finans's products was lower at the start of 2008. 

The Nordic grocery market continues to show good growth. Most of the Orkla Brands businesses have implemented price hikes that ­largely compensate for increases in raw material prices in the ­quarter. However, raw material prices continue to rise, and further price in­creases will be carried out. The timing of Easter has had slightly different effects on the various markets, but due to the extra selling day on account of leap year, the net effect in 2008 is viewed as virtually neutral compared with last year. 

The market for Orkla Aluminium Solutions in the US is still slow, but the trend is relatively stable. The European market weakened moderately in the first quarter. Stock rundowns and a weak end to 2007 resulted in a positive timing effect on EBITA in the first quarter, amounting to approximately NOK 30 million. However, the lower number of selling days due to Easter had a somewhat negative impact. One-time costs related to the integration of Alcoa's extrusion business were charged against profit as planned. 

EBITA for the Group as a whole was negatively affected by currency translation effects amounting to NOK -33 million in the quarter.  

Orkla's ownership interests in REC (39.73 %) and Jotun (42.5 %) are presented according to the equity method on the line for associates. REC's contribution to Orkla's profit amounted to NOK 84 million in the first quarter, while its contribution in the first quarter of 2007 totalled NOK 289 million, including a gain of NOK 103 million on Orkla's sale of REC shares to reduce its stake to 39.73 %. REC reported first-­quarter EBITDA of NOK 742 million, compared with NOK 869 million last year. Jotun's contribution to profit amounted to NOK 78 million (NOK 62 million)1.

At quarter-end the return on the Share Portfolio was -7.2 % This ­compares with -13.3 % for the Morgan Stanley Nordic Index and -16.1 % for the Oslo Stock Exchange Benchmark Index. Gross gains of NOK 256 million were realised, but due to impairment charges of over NOK 500 million under IFRS, realised portfolio gains and the change in the fair value of associates amounted to a total of NOK -295 million (NOK 881 million)1. Dividends received for the Share Portfolio amounted to NOK 87 million (NOK 240 million)1. 

In connection with its purchase of additional shares in REC in the first quarter of 2007, Orkla issued three put options in REC to Q-Cells AG. Orkla also had certain rights in the event of selling these shares by Q-Cells. Since the end of the quarter, Orkla has signed an agreement with Q-Cells to cancel these options in return for Orkla renouncing its rights attached to the shares. At the start of the quarter, the net value of the options and rights was assessed at NOK 67 million. At quarter-end, the net value was assessed at 0, resulting in an imputed finance income of NOK 67 million in the quarter. 

 First-quarter finance income in 2007 was boosted by several large one-time items. The biggest of these were the sale of Mecom shares (NOK 311 million), the sale of ownership interests in real estate projects at Fornebu (NOK 261 million) and a share of the sales gain arising from Q-Cells' reduction of its shareholding in REC (NOK 270 million).  

Orkla's earnings per share, diluted, were NOK 0.6 in the first quarter, while first-quarter earnings per share in 2007 were NOK 2.7, due to high realised portfolio gains and substantial finance income. After the first quarter, a tax charge of approximately 22 % has been estimated for 2008. 

1 The figures in brackets refer to the corresponding period of the previous year.

2 Excluding acquisitions, divestments and currency translation effects.