Profit growth for Orkla in fourth quarter - comprehensive cost reduction measures generate positive effects
(Thomson Reuters ONE) - Orkla's operating profit (EBITA*) amounted to NOK 1,070 million in the fourthquarter of 2009, compared with NOK 998 million in the same period of 2008. Goodresults for Orkla Brands and reduced costs for Sapa contributed to the profitgrowth. The Share Portfolio performed well in the fourth quarter; the return forthe year was 39 percent, which is 3 percent better than the Nordic benchmark.Orkla's full-year operating revenues totalled NOK 56.2 billion (NOK 65.6billion**). The decline can be ascribed to weak price and volume peformance inSapa's and Elkem's markets. The Group's operating profit (EBITA) amounted to NOK2.4 billion (NOK 4.2 billion). Orkla Brands and Jotun (Orkla owns 42.5 percentof the shares) delivered their best full-year results ever, and comprehensivecost reduction programmes lowered break-even levels for Sapa, Elkem andBorregaard.Orkla's cash flow from operations increased from NOK 2.5 billion in 2008 to NOK5.8 billion in 2009. At the same time, the Group's financial position wasstrengthened by reducing net interest-bearing liabilities by NOK 7.6 billion.In line with Orkla's dividend strategy, the Board of Directors proposes to payan ordinary dividend of NOK 2.25 per share for 2009, the same amount as in thetwo preceding years."2009 was a challenging year with weak markets for several of Orkla'sbusinesses. However, comprehensive measures have proved effective, and the Groupstrengthened its financial position in the course of the year. The Group is wellpositioned for the future," affirms President and CEO Dag J. Opedal.A number of strategic moves were also carried out in 2009. Orkla took overAlcoa's stake in Sapa Profiles, thus becoming sole owner, while Alcoa took overOrkla's stake in Elkem Aluminium. Through the acquisition of the aluminiumextrusion company Indalex in the USA, Sapa considerably strengthened itsposition in the North American market. Elkem Solar's factory in Kristiansand andthe expansion of Sapa Heat Transfer's factory in China were other importantexpansion projects in 2009. Furthermore, REC (Orkla's stake: 39.7 percent) isalso in a ramping-up stage that will continue into 2011.Orkla's investment in REC is reported as an associate. As long as REC's marketprice is lower than the carrying value of the associate in Orkla's financialstatements, Orkla will apply the market price at quarter-end as the accountingvalue. The value will be written up or down according to the future market priceuntil the market price is higher than the carrying value of the associate. Inthe fourth quarter, this approach entails an accounting charge of NOK 3.1billion.The sales value of Elkem's hydropower plants in Salten and Bremanger was NOK 6billion, generating an accounting gain of over NOK 4 billion.Key figures Q4-09 (Q4-08) in NOK million:Operating revenues: 15 040 (16 492)EBITA: 1 070 (998)Profit before taxes: 610 (4 375)Earnings per share diluted (NOK): 1.1 (4.1)Cash flow from operations: 2 687 (1 070)As of 31 Dec 2009(as of 31 Dec 2008):Net interest-bearing debt: 19 848 (27 424)Equity (%):51.7 (47.7)Net gearing: 0.41 (0.55)The fourth quarter in brief * Improvements in the Group's cost position contributed to profit growth in the quarter. Group EBITA* totalled NOK 1,070 million, up NOK 72 million on the corresponding quarter in 2008. * Continued weak markets for Aluminium Solutions and Materials explain the decline in sales to NOK 15,040 million (NOK 16,492 million)**. * Comprehensive measures implemented during 2009 to cut costs and free up capital generated strong cash flow from operating activities in the quarter, amounting to NOK 2.7 billion (NOK 1.1 billion)**. Full-year cash flow from operating activities totalled NOK 5.8 billion (NOK 2.5 billion)**. * Orkla Brands achieved 9% profit growth in the quarter. Orkla Brands achieved strong full-year results, with EBITA* of NOK 2,793 million (NOK 2,590 million)**. * Orkla Aluminium Solutions reported a positive profit and positive cash flow in the fourth quarter, with EBITA* of NOK 117 million (NOK -102 million)** and cash flow from operating activities of NOK 581 million (NOK -371 million)**. Markets remain weak. * Although capacity utilisation were somewhat higher, markets remaind weak for Elkem's silicon-related business (excluding Elkem Solar). Borregaard's chemical business reported satisfactory fourth-quarter results. Both prices and production volumes were slightly lower for Elkem's and Borregaard's energy operations, compared with the good fourth quarter of 2008. * REC reported EBITDA of NOK 567 million (NOK 936 million)** in the fourth quarter. Jotun had a positive development in the fourth quarter, and improved results for the year in total. * The investment in REC is accounted for according to the equity method. In future, for accounting purposes, Orkla will use the market price to value its shareholding, as long as the market price is lower than the carrying associates-related value. The value will be adjusted upwards or downwards on the basis of the market price on the balance sheet date. The market price as at 31 December 2009 was NOK 44.75, while the carrying value was NOK 56.62, resulting in an accounting charge of NOK 3,135 million in the fourth quarter. * Stock markets showed a positive trend in the fourth quarter, and the full-year return on Orkla's Share Portfolio was 39.0%, compared with 36.1% for the Morgan Stanley Nordic Index (64.8% for the Oslo Stock Exchange Benchmark Index). * Following the Norwegian parliament's adoption of a new reversion regime in the autumn of 2008, Elkem signed an agreement on 4 October 2009 to sell its hydropower plants at Salten and Bremanger, which operate under licence, for NOK 6 billion. Financial risk and control were transferred to the buyers as of 31 December 2009, and the transaction generated a post-tax accounting gain of NOK 4.2 billion in the fourth quarter. * Taking into account the sale of the power assets, net interest-bearing liabilities at year-end totalled NOK 19,848 million, a reduction of NOK 7.6 billion from the start of 2009. * The Board of Directors proposes to pay an ordinary dividend of NOK 2.25 per share for the 2009 accounting year.The GroupOrkla's fourth-quarter operating revenues totalled NOK 15,040 million (NOK16,492 million)**. The decline is ascribable to continued weak markets for OrklaAluminium Solutions and Orkla Materials. Full-year sales amounted to NOK 56,228million (NOK 65,579 million)**. Currency translation effects had a negativeimpact of NOK 933 million on fourth-quarter operating revenues, but a positiveeffect of NOK 722 million for the full year.The Group's EBITA* for the fourth quarter was NOK 1,070 million (NOK 998million)**. For 2009 as a whole, EBITA* was NOK 2,448 million (NOK 4,240million)**. The results were impacted by negative currency translation effectstotalling NOK -64 million in the fourth quarter and NOK -102 million for thefull year.Orkla Brands continued to report good profit growth in the fourth quarter. For2009 as a whole, Orkla Brands achieved its best EBITA* ever. This improvement isprimarily attributable to cost-cutting programmes and the effect of earlierprice increases. Successful innovations and sales campaigns helped to achieve arelative improvement in volume and market share performance towards the end ofthe year.Although Orkla Aluminium Solutions' markets have been relatively stable during2009, on an annual basis both the European and North American markets haveexperienced drops from 2008 (estimated at 23% and 19% respectively). As a resultof comprehensive programmes to cut costs and improve capital efficiency,however, the business reported positive operating results for the secondhalf-year at this low volume level. Sapa also achieved its target of neutralcash flow for the full year, even taking into account the acquisition of Indalexin North America. Further, in the fourth quarter, Sapa decided to close down aproduction line in the Netherlands, and a restructuring provision of NOK 91million was made in the quarter for this purpose. Restructuring provisions forthe full year totalled NOK 195 million, which also covers the simplification ofthe production structure in North America following the acquisition of Indalex.In Orkla Materials, average capacity utilisation for Elkem's Silicon-relatedunits (excluding Elkem Solar), increased to 67% in the quarter, but marketgrowth remained weak. Elkem Solar followed its ramp-up plan in the fourthquarter, and aims to be operating at full capacity at the end of 2010.The gain on the sale of Elkem's power plants at Salten and Bremanger totalledNOK 4.2 billion. The gain is presented on two lines of the income statement: NOK3.1 billion is shown on a separate line above operating profit, while NOK 1.1billion is reported as reversed deferred tax.The Group's equity stakes in REC (39.7%) and Jotun (42.5%) are presentedaccording to the equity method on the line for associates. Orkla has, however,decided to use the market price on the balance sheet date as the accountingvalue of the shareholding in REC as long as the market price is lower than theGroup's carrying associates-related value. This value was NOK 56.62 as at 31December 2009, while the market price was NOK 44.75 per share. Isolated thisentails an accounting charge of NOK 3,135 million in the fourth quarter 2009. Infuture, the accounting value will be adjusted upwards and downwards on the basisof the market price and the accounting effect will be shown on the line forassociates.In 2009, the return on Orkla's Share Portfolio was 39.0%, compared with 36.1%for the Morgan Stanley Nordic Index (64.8% for the Oslo Stock Exchange BenchmarkIndex). At year-end, the market value of the Share Portfolio was NOK 11,037million after net share sales totalling NOK 2,866 million during the year. Inthe fourth quarter alone, Gains, losses and write-downs on the Share Portfolioamounted to NOK 337 million (NOK -3,537 million)**. The corresponding figure forthe full year was NOK 584 million (NOK -6,043 million)**. Accounting write-downsin compliance with IFRS totalled NOK 47 million in the quarter and NOK 1,214million for the full year.Dividends received by the Group totalled NOK 13 million (NOK 16 million)** inthe fourth quarter and NOK 252 million (NOK 473 million)** for the full year2009.In the legal dispute regarding taxation of convertible debentures, Orkla and theCentral Taxation Office for Large-Sized Enterprises agreed in September 2009that the valuation of the REC share as at the conversion date in March 2006should be reduced from NOK 81.50 per share to NOK 65 per share. Accordingly, ina new tax assessment decision for 2006, the Central Taxation Office has reducedOrkla's tax on the gain by NOK 189 million, from the original NOK 751 million.Although the amount of tax that Orkla has paid has thus been reduced to NOK 562million, Orkla still disagrees with the basis for tax liability, and willcontinue to contest this in court. In January 2010, therefore, Orkla appealedagainst the judgment of Oslo District Court of December 2009, which found infavour of the State as represented by the Central Taxation Office.Orkla's industrial activities are subject to ordinary company tax in thecountries in which one have business. The Share Portfolio's investmentactivities in the EEA are largely exempt from taxation. The sale of power assetsresulted in an accounting reversal of deferred tax of NOK 1.1 billion, andtherefore, for accounting purposes, caused a tax income of NOK 496 million forthe Group in 2009.Orkla's diluted earnings per share were NOK 2.5 in 2009, compared with NOK -2.8in 2008.The Board of Directors proposes to pay out an ordinary dividend of NOK 2.25 pershare for the 2009 accounting year, same as for the 2008 accounting year.* Operating result before amortisation, gains on sales of power plants,write-downs of inventory in Sapa Profiles in 2008, restructuring and significantwrite-downs.** Figures in parentheses are for the corresponding period in the previousyear.Ref.:SVP Corporate CommunicationsOle Kristian LundeTel.: +47-2254 4431SVP Investor RelationsRune HellandTel.: +47-2254 4411VP Investor RelationsSiv M. S. BrekkeTel.: +47-2254 4455This information is subject of the disclosure requirements acc. to §5-12 vphl(Norwegian Securities Trading Act)[HUG#1383234] 4th Quarter 2009: http://hugin.info/111/R/1383234/342081.pdf Quarterly and accounting figures 4th Quarter 2009: http://hugin.info/111/R/1383234/342089.xls Presentation of 4th Quarter: http://hugin.info/111/R/1383234/342086.pdf
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