Orkla ASA: results second quarter 2008 – Solid quarter in challenging operating conditions
Operating revenues 17 569 (14 049)
EBITA 1 230 (1 194)
Profit before taxes 2 498 (3 053)
Earnings per share diluted (NOK) 1.9 (2.6)
Cash flow from operations 331 (790)
As of Q2-08 (as of Q2-07):
Net interest-bearing debt 22 649 (17 728)
Equity (%) 52.6 (57.1)
Net gearing 0.43 (0.32)
The second quarter in brief
# Orkla's EBITA for the first half of 2008 ended at NOK 2,292 million (NOK 2,661 million)1, while EBITA for the second quarter alone was NOK 1,230 million (NOK 1,194 million)1.
# Orkla Brands continued to improve its profit performance in the second quarter, and the underlying2 increase in EBITA at the end of the first half year was 8 %.
# Despite declining volumes in the second quarter, Orkla Aluminium Solutions reported satisfactory profit for the first half-year. However, the market outlook is clearly weaker in Europe, and there are still no signs of improvement in the US.
# In Orkla Materials, profit from Elkem was in the second quarter again impacted by the low contribution to profit from aluminium operations and the higher costs recognised, as planned, in Elkem's solar project. For this reason, combined with the lower contribution to profit from energy trading in the first quarter, Elkem's first-half profit was NOK 379 million lower than last year. Borregaard's profit growth continued in the second quarter, but the market outlook in important product areas is weaker forward.
# Orkla Associates' contribution to profit was boosted in the second quarter by a gain of NOK 830 million on the sale of Orkla's stake in Hjemmet Mortensen. REC's second-quarter profit rose 10 % to NOK 889 million, while Jotun continued its positive trend.
# Orkla Financial Investments has written down portfolio investments in accordance with IFRS requirements by NOK 527 million in the second quarter. At the end of the first half-year, impairment charges totalled NOK 1.056 million. This contributes to an accounting loss of NOK -183 million on portfolio investments in the first half of 2008.
# The first-half return on the Share Portfolio was a negative 8.3 %, compared with a negative 16.9 % for the Morgan Stanley Nordic Index (a negative 5.6 % for the Oslo Stock Exchange Benchmark Index).
# Pre-tax profit for the first half-year amounted to NOK 3,379 million (NOK 6,558 million)1, while profit for the second quarter alone totalled NOK 2,498 million (NOK 3,053 million)1.
Orkla's first-half operating revenues totalled NOK 34,513 million (NOK 27,937 million)1, while second-quarter operating revenues amounted to NOK 17,569 million (NOK 14,049 million)1. A large part of the revenue increase is ascribable to the consolidation of Alcoa's extrusion operations into Orkla Aluminium Solutions, as the operations are included in the figures as from the third quarter of 2007. However, there was underlying2 improvement for all the business areas in the Group's industrial operations. In the first half of 2008, the Norwegian krone was considerably stronger than in 2007, particularly measured against the USD, but also against euro-related currencies. This has resulted in a negative currency translation effect that has reduced operating revenues by NOK 1,347 million so far in 2008 and NOK 637 million in the second quarter.
The Group's EBITA rose 3 % in the second quarter to NOK 1,230 million (NOK 1,194 million)1, while first-half EBITA was NOK 2,292 million (NOK 2,661 million)1. Orkla Brands and Borregaard achieved profit growth in the second quarter. This was counteracted by Elkem Aluminium's continued poor profit performance, higher costs recognised in Elkem Solar and lower activity and contribution to Group profit on the part of Orkla Finans. For the Group as a whole, EBITA was negatively affected by currency translation effects totalling NOK 65 million so far this year and NOK 32 million in the second quarter.
In the second quarter, Orkla signed an agreement with Egmont regarding the sale of Orkla's shares in Hjemmet Mortensen AS. Egmont has taken over Orkla's 40 % minority holding for NOK 950 million. In the second quarter, Orkla also received dividends totalling NOK 72 million from Hjemmet Mortensen, relating to the 2007 accounting year. The share sale gave rise to a book gain of NOK 830 million for Orkla in the second quarter. This is presented in the financial statements on the line for profit from associates. The cash flow effect of the transaction will be seen in the second half of 2008.
Orkla's stakes in REC (39.73 %) and Jotun (42.5 %) are presented according to the equity method on the line for associates. The contribution from associates to Group profit so far this year totals NOK 1,332 million (NOK 646 million)1 , while the contribution in the second quarter amounted to NOK 1,153 million (NOK 294 million)1. Of the total amount, REC's contribution to Orkla's profit so far in 2008 accounts for NOK 280 million (NOK 487 million)1 of which NOK 196 million (NOK 198 million)1 is the second-quarter contribution.
At the end of the first half-year, the return on the Share Portfolio was a negative 8.3 %, compared with a negative 16.9 % for the Morgan Stanley Nordic Index (a negative 5.6 % for the Oslo Stock Exchange Benchmark Index). Gross portfolio gains of NOK 663 million were realised in the second quarter, but due to impairment charges of NOK 527 million under IFRS, net realised portfolio gains and changes in the fair value of associates amounted to NOK 112 million (NOK 1,011 million)1. Dividends received in the second quarter amounted to NOK 310 million (NOK 413 million)1.
Orkla's earnings per share, diluted, were NOK 2.5 in the first half of 2008, while first-half earnings per share in 2007 were NOK 5.3, due to the realisation of high portfolio gains and other financial gains. As of the end of the first half-year, a tax charge of approximately 21 % was 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.
Oslo, 13 August 2008
Terje Andersen, CFO, Tel.: +47 22 54 44 19
Rune Helland, SVP Investor Relations, Tel: +47 22 54 44 11
Lars Røsæg, Investor Relations, Tel.: +47 22 54 44 26
Solid quarter in challenging operating conditions
Orkla's second-quarter operating profit (EBITA)* ended at NOK 1,230 million, compared with NOK 1,194 million for the same quarter of 2007. Orkla Brands continued its positive profit trend, and Sapa delivered satisfactory profit despite declining volumes. The Share Portfolio outperformed the Nordic index, but delivered a negative return in a weak financial market.
"We are satisfied with our profitability performance in the second quarter, and the Industry division reported good overall results. However, we expect future market conditions to remain challenging," says President and CEO Dag J. Opedal.
Orkla's second-quarter operating revenues totalled NOK 17.6 billion, up from NOK 14.0 billion in 2007. A substantial part of the increase in the operating revenues (but also a lower operating margin) is ascribable to the merged aluminium profile business (Sapa/Alcoa).
Orkla Brands, Sapa and Borregaard all posted satisfactory performances. Both Elkem Solar's construction project and the integration of Sapa's and Alcoa's profile businesses are on schedule.
As expected, profit for the primary aluminium business was negatively impacted by the weak USD and hedge losses. Moreover, costs expensed for Elkem Solar's new plant were NOK 53 million higher than in the same quarter of last year.
Second-quarter profit before tax amounted to NOK 2.5 billion (NOK 3.1 billion in 2007). Orkla signed an agreement with Egmont in the second quarter to sell the remainder of the Group's media business, i.e. its 40 per cent stake in Hjemmet Mortensen. This generated a book gain of NOK 830 million for Orkla in the second quarter. All in all, therefore, the sale of Orkla's media business has brought in approximately NOK 9 billion, and a gain of around NOK 5 billion.
In a weak stock market, Orkla's Financial Investments division delivered a negative return of 8.3 per cent, compared with a negative return of 16.9 per cent for Morgan Stanley Nordic Index and a negative return of 5.6 per cent for the Oslo Stock Exchange Benchmark Index.
*) Operating profit (EBITA): Before amortisation, restructuring and significant impairments
SVP Corporate Communications
Ole Kristian Lunde
Tel.: +47-2254 4431
SVP Investor Relations
Tel.: +47-2254 4411
Date: 13 August 2008