Orkla Annual report 2008 conTEnts inTRODUCTiOn Facts about Orkla Cover Key figures Cover Orkla in 2008 1 The Group Executive Board 2 Message from the CEO 3 Improvement projects 4 AnnUAL FinAnCiAL STATEMEnTS 2008 Report of the Board of Directors 8 The Board of Directors of Orkla ASA 22 Income statement 25 Balance sheet 26 Cash flow statement 27 Statement of changes in equity 28 Accounting principles 29 Notes 34 Financial statements for Orkla ASA 67 Notes for Orkla ASA 68 Statement from the Board of Directors 73 Auditor’s report 74 Statement from the Corporate Assembly 74 Historical key figures 75 VALUE CREATiOn in ORKLA Investing in the Orkla share 78 Underlying value creation 80 Asset values 82 Shares and shareholders 84 Risk factors 86 Corporate governance 89 Corporate responsibility 94 Environment, health and safety 95 ORKLA’S BUSinESS AREAS Goals and strategies 98 Orkla Brands 100 Orkla Aluminium Solutions 104 Orkla Materials 108 Orkla Associates 112 Orkla Financial investments 116 Focus article: Orkla Brands 120 Group directory 124 Organisation 127 Governing bodies and elected representatives 128 Brokerage houses and analysts 129 FinAnCiAL CALEndar 2009 23 APR 24 APR 06 MAY 06 MAY 12 AUG 30 OCT AnnUAL SHARES QUOTED FiRST QUARTER DiViDEnD SECOnD QUARTER THiRD QUARTER GEnERAL MEETinG EXCL. DiViDEnD REPORT PUBLiSHED PAiD OUT REPORT PUBLiSHED REPORT PUBLiSHED Orkla wishes to promote the electronic distribution of its Annual Report and notice of the Annual General Meeting rather than paper-based communication. For information on how to receive the Annual Report and notice electronically, see Orkla’s website (www.orkla.com) under «investor Relations». facts about ORKLA OrklA OrklA BrAnds OrklA AlumInIum OrklA OrklA OrklA FInAncIAl sOluTIOns materIAls AssOciates* InvesTmenTs Orkla Foods Nordic Orkla Brands Nordic Sapa profiles Share portfolio Orkla Brands International Sapa Building System Elkem REC ASA Orkla Finans Orkla Food Ingredients Sapa Heat Transfer Borregaard Jotun AS Orkla Eiendom * Orkla’s ownership interest is approximately 40 % ORKLA BRAnDS SHARE OF group KEy FIGURES Orkla Brands is a leading supplier of branded consumer goods and concept solutions, primarily to the Nordic grocery and 36 % Operating revenues: catering sectors. The business mainly holds no. 1 and no. 2 Operating revenues nOK 23,398 million positions in its categories, in which most of the branded goods EBiTA1: nOK 2,590 million are proprietary and have been on the market for many years. 61 % number of man-years: 13,349 Orkla Brands also holds strong local positions in Russia and EBITA1 India, in addition to being an important supplier of ingredients to the European bakery market. The business area consists of 43 % four units: Orkla Foods Nordic, Orkla Brands Nordic, Orkla Brands International and Orkla Food Ingredients. Number of man-years ORKLA aluminiUM solutiOnS SHARE OF group KEy FIGURES Sapa develops, manufactures and markets value-added profiles, profile-based building systems and heat-exchanger strip in alu- 42 % Operating revenues: minium. Sapa consists of the three business units Sapa profiles, Operating revenues nOK 27,809 million Sapa Building System and Sapa Heat Transfer, and is represented EBiTA1: nOK 697 million in Europe, North America and Asia. Its business concept is based 16 % number of man-years: 12,585 on close collaboration with its customers. Sapa is a leader in its EBITA1 field and has customers in the building, transport, engineering and telecommunications industries. 41 % Number of man-years ORKLA materiALS SHARE OF group KEy FIGURES Orkla Materials consists of the companies Elkem and Borregaard. Elkem is a world leader in the environmentally friendly produc- 21 % Operating revenues: tion of metals and materials. Its main products are silicon, high- Operating revenues nOK 13,600 million purity silicon for the solar industry, special ferrosilicon alloys for EBiTA1: nOK 1,373 million the foundry industry, carbon, microsilica and energy. Borregaard 32 % number of man-years: 4,526 has one of the world’s most advanced biorefineries. Using EBITA1 timber as a raw material, it produces a wide variety of advanced biochemicals and biomaterials that are sustainable alternatives 15 % to oil-based products. The company also holds strong positions in additives, fine chemicals and energy. Number of man-years ORKLA associates Orkla Associates primarily consists of Orkla’s investments in the Renewable Energy Corporation ASA (REC) and Jotun AS. Profit from associates was Orkla owns a 39.73 % stake in REC and a 42.5 % stake in nOK 2,189 million in 2008. Jotun. REC and Jotun are presented in Orkla’s financial statements according to the equity method of accounting and Orkla’s share of profit after tax is presented on the line for profit from associates. ORKLA FinAnCiAL inVestments SHARE OF group KEy FIGURES Orkla Financial Investments consists of three main busi- nesses: the Share portfolio, Orkla Finans and Orkla Eiendom. 1 % Operating revenues: The Share portfolio staff manage one of Norway’s largest Operating revenues nOK 876 million share portfolios which primarily comprises investments in EBiTA1: nOK -98 million the Nordic region, Eastern Europe and Asia. Orkla Finans -2 % number of man-years: 188 offers investment services to institutional and private EBITA1 investors, while Orkla Eiendom invests in and develops real estate properties. This business area also includes Borregaard 1 % Skoger, which develops and manages Orkla’s forests. Number of man-years 1 Operating profit before amortisation, write-down inventory Sapa Profiles, restructuring and significant impairments. OrklA 2008 EBITA for 2008 was slightly weaker than in 2007. The reasons are largely associated with the financial crisis, which has gradually spread to the real econo- my, leading to a sharp decline in demand in several of the markets which to Orkla Aluminium Solutions and Orkla Materials are particularly exposed. Orkla Brands is relatively less affected by the economic cycle and reported EBITA1 of NOK 2.6 billion, an improvement of 17 %. profit before tax for the full year came to NOK -2.0 billion, compared with almost NOK 10 bil- lion in 2007. This can primarily be explained by the significant write-downs taken for accounting PrOgress purposes on the Share portfolio in 2008 due to the FOr OrklA BrAnds decline on the stock markets, while large gains Sharp price increases for raw materials and other input factors and the weak were realised in 2007. Write-downs of goodwill performance of Bakers and the Eastern European businesses resulted in a decline in profit for Orkla Brands in 2007. Orkla Brands compensated for this in and material assets and restructuring charges were 2008 by means of extensive improvement programmes and price adjustments and, in line with its stated intentions, brought the business back to its normal also higher than in 2007. profit trend. Both profit and margins improved for all segments. OPERATING REVENUES EBITA1 EARNINGS PER SHARE, DILUTED 80,000 6,000 20 70,000 5,000 5,084 5,112 15 60,000 4,805 15.1 65,579 65,579 4,240 4,000 63,867 50,000 10 10.9 55,304 40,000 52,683 3,000 8.1 2 2,738 6.9 5 30,000 2,000 5.6 1 2.9 32,126 32,126 20,000 0 1,000 10,000 -2.8 NOK NOK NOK 04 05 06 07 08 million 04 05 06 07 08 million 04 05 06 07 08 Historical figures (incl. discontinued operations) Historical figures (incl. discontinued operations) ¹ Earnings per share before gain on sale of Orkla's interest for 2004-2007 for 2004-2007. in Carlsberg Breweries. ² Earnings per share before net profit and gain on sale of Orkla Media. Net sales by geographiCAL area CAPital employed by geographiCAL area employees by geographiCAL area Rest of the America 6 % America 11 % world 14 % norway 18 % Asia 3 % norway 57 % norway 21 % Other European Asia 7 % Asia 7 % countries 9 % Central and Eastern Other nordic Europe 5 % Other European countries 21 % countries 18 % Other European Other nordic Other nordic countries 31 % countries 20 % countries 22 % Central and Eastern Central and Eastern Europe 9 % Europe 21 % Total net sales nOK 63,937 million Total capital employed (capitalised) nOK 66,035 million no. of employees 31,541 1 Operating profit before amortisation, write-down inventory Sapa Profiles, restructuring and significant impairment charges. HIGHLIGHTShighlights 2008 DeveLopment in SoLar orkLa acquireS 100 % ownerShip of Sapa profiLeS Towards the end of 2008, Orkla entered into an agreement with Alcoa to In the Solar sector, Orkla has moved its positions forward in 2008. The exchange its stake in Elkem Aluminium for Alcoa’s stake in Sapa Profiles. Elkem Solar plant, which will produce silicon for the solar industry based The swap agreement gives Orkla 100 % ownership of Sapa Profiles, the on Elkem’s proprietary technology and process, reached mechanical com- world´s leading aluminium profiles company, while Alcoa acquires 100 % pletion at the end of the year. The start-up programme has commenced ownership of Elkem Aluminium. Sapa Profiles is a global business system and the plant will gradually ramp up in the course of 2009, towards its full that has a solid competence base and leading market positions in both capacity of 6,000 tonnes. REC, in which Orkla owns 39.73 %, continued to the USA and Europe. Switching from two partially-owned positions to one expand in 2008. Investments have been made on three continents that wholly owned position has enabled Orkla to focus its portfolio and gain will increase capacity considerably through 2009 and 2010. New tech- more strategic control. When the economic cycle normalises Orkla sees nology is being developed, and expectations are highest with regard to a significant growth potential within the Sapa structure. the new silicon technology Fluidized Bed Reactors (FBR).