O RKL A AN N U A L R E P O R T 2 0 0 6 CONTENTS PAGE 96 PAGE 70 FOCUS ARTICLE BUSINESS PAGE 8 PAGE 63 AREAS REPORT OF VALUE CREATION THE BOARD OF AT ORKLA PAGE 4 DIRECTORS MESSAGE FROM THE CEO INTRODUCTION BUSINESS AREAS Cover Orkla in brief 70 Orkla Foods Cover Orkla in 2006 74 Orkla Brands 1 Key fi gures 78 Elkem 2 Orkla’s business areas 82 Sapa 3 Business area strategies 86 Borregaard 4 Message from the CEO 90 Financial Investments 6 The Group Executive Board ASSOCIATES REPORT OF THE BOARD OF DIRECTORS 94 Jotun AND FINANCIAL STATEMENTS 95 Renewable Energy Corporation (REC) 8 Report of the Board of Directors 18 The Board of Directors of Orkla ASA FOCUS ARTICLE 20 Income statement 96 Orkla and solar energy 21 Balance sheet 22 Cash fl ow statement CORPORATE GOVERNANCE 23 Statement of changes in equity 100 Corporate social responsibility (CSR) 24 Accounting principles 103 Organisation 27 Contents notes 104 Corporate governance 28 Notes 108 Governing bodies and 55 Financial statements for Orkla ASA elected representatives 56 Notes for Orkla ASA 61 Auditor’s report 61 Statement from the Corporate Assembly GROUP INFORMATION 62 Historical key fi gures 109 Group directory 112 Brokerage houses and analysts VALUE CREATION AT ORKLA 112 Investor contacts at Orkla 63 Investing in the Orkla share 64 Underlying value creation 66 Risk factors 67 Asset values 68 Shares and shareholders FINANCIAL CALENDAR 2007 31 OCT All dates subject to change. THIRD QUARTER 9 AUG REPORT PUBLISHED SECOND QUARTER 31 MAY REPORT PUBLISHED CAPITAL 3 MAY MARKETS DAY FIRST QUARTER 20 APR REPORT PUBLISHED SHARE QUOTED EXCL. DIVIDEND PAID OUT 19 APR DIVIDEND ANNUAL GENERAL MEETING ORKLA IN BRIEF Orkla is one of the largest listed groups in Norway. Its core businesses are Branded Consumer Goods, Speciality Materials and Financial Investments. Originally a national company primarily engaged in mining operations, Orkla has developed over the past 25 years into an international industrial group. During that period, the Orkla Group has achieved growth in both revenues and profi t through a combination of effi cient operations and structural initiatives. Orkla’s strategy is to ensure long-term value creation and growth through innovation, operational improvements and structural development. DEVELOPMENT OF OPERATING REVENUES AND OPERATING PROFIT FOR THE INDUSTRY DIVISION* Sale of Orkla Media 5 Acquisition of Elkem og Sapa 60 Establishment of Carlsberg Breweries Sale of shares in Carlsberg Breweries 50 4 Acquisition of Berlingske Acquisition of remaining shares in Pripps Ringnes 40 3 Acquisition of Abba Seafood, Procordia Food, and establishment of Pripps Ringnes with Volvo 30 Merger with 2 Nora Industrier 20 Merger with Borregaard 1 10 NOK billion NOK billion 0 0 82 84 86 88 90 92 94 96 98 00 02 04 06 * Historical figures (incl. discontinued operations) for the period 1982–2005. 2004–2006 in accordance with IFRS, while 1982–2003 are in accordance with Norwegian GAAP. Operating profit before amortisation and other revenues and expenses Industry division (left axis). Operating revenues Industry division (right axis). ORKLA’S BUSINESSES The BRANDED CONSUMER GOODS division comprises Orkla Foods and Orkla Brands. Orkla is a leading supplier of branded consumer goods to the Nordic grocery trade, and has a growing presence in Central and Eastern Europe and Russia. The SPECIALITY MATERIALS division comprises Elkem, Sapa and Borregaard. Elkem is one of the world’s leading manufacturers of metals and minerals. Among other initatives, Elkem is currently developing a new process for the production of silicon for solar cells. Sapa is one of the world’s foremost manufacturers of aluminium profi les, profi le- based building systems and heat transfer strip. Borregaard holds leading positions in the global wood-based speciality chemicals industry. The FINANCIAL INVESTMENTS division comprises the Group’s Share Portfolio, Orkla Eiendom (real estate) and Orkla Finans (investment services). The combination of these business areas makes Orkla a competent, major player on fi nancial markets. SHARE OF GROUP OPERATING SHARE OF GROUP OPERATING SHARE OF GROUP REVENUES PROFIT* EMPLOYEES Orkla Foods 27 % Orkla Foods 24 % Orkla Foods 40 % Orkla Brands 14 % Orkla Brands 22 % Orkla Brands 12 % Elkem 17 % Elkem 27 % Elkem 10 % Sapa 31 % Sapa 16 % Sapa 29 % Borregaard 9 % Borregaard 7 % Borregaard 6 % Financial Investments 1 % Financial Investments 4 % Financial Investments 1 % H.O./Other operations 1 % Total operating profit NOK 5,084 million. H.O./Other operations 2 % Total operating revenues NOK 52,683 million. * Before amortisation and other revenues Number of employees 28,664. and expenses. ORKLA IN 2006 2006 was a good year for the Orkla Group, with the Industry division making progress on a broad front and a high return for the Financial Investments division . At the same time, several strategically important structural changes were implemented . Including the dividend, the return on the Orkla share was 29.2 % in 2006. • Organic growth in the Nordic region, operational improvements and acquisitions contributed to the Branded Consumer Goods division’s 8.5 % increase in operating profi t before amortisation. • The Speciality Materials division achieved an almost NOK 700 mil- lion rise in operating profi t before amortisation. The improvement was ascribable to a good market situation, a high level of profi t from the energy businesses and the effects of improvement programmes. • The return on the Share Portfolio was 27.4 % and the market value was NOK 18.2 billion at year-end. • Orkla increased its exposure in the solar energy industry through its decision to invest NOK 2.7 billion in a new factory for the production of high-purity silicon in Kristiansand (Norway) and by further increasing its interest in the Renewable Energy Corporation ASA (REC). • The Orkla Group signed a letter of intent with Alcoa with a view to forming a new jointly-owned company based on Sapa’s and Alcoa’s aluminium profi le operations. The merged company will be market leader in both Europe and the USA and Orkla will be the majority shareholder. • A decision was made to sell Orkla’s media business, with the exception of Hjemmet Mortensen. The sale was completed in the second half of the year at a gain of more than NOK 4 billion. STRATEGI I VIRKSOMHETSOMRÅDENEORKLA ÅRSRAPPORT 2006 / / ORKLA REGNSKAP ÅRSRAPPORT / S. 1 2006 KEY FIGURES OPERATING REVENUES* OPERATING PROFIT BEFORE EARNINGS PER SHARE AMORTISATION AND OTHER DILUTED REVENUES AND EXPENSES* 60,000 6,000 80 75.4 55,304 52,683 5,084 4,805 45,368 42,979 60 54.3 40,000 4,000 3,827 3,663 32,126 40 2,738 28.1 34.4 20,000 2,000 20 9.2 14.7 7.7 NOK million NOK million NOK 0 0 0 02 03 0405 06 02 03 0405 06 02 03 0405 06 * Historical figures (incl. discontinued operations) for the period 2002–2005. 2004–2006 in accordance with IFRS, Earnings per share before gain on sale while 2002–2003 are in accordance with Norwegian GAAP. of Orkla’s interest1 in Carlsberg Breweries. Earnings per share before net profit and gain on sale of Orkla Media. KEY FIGURES¹ 2006 2005 2004 2003 2002 Operating revenues(NOK million) 52,683 55,304 32,126 45,368 42,979 Operating profi t before amortisation and other revenues and expenses (NOK million) 5,084 4,805 2,738 3,827 3,663 Operating margin before amortisation and other revenues and expenses (%) 9.7 8.7 8.5 8.4 8.5 Ordinary profi t before taxes (NOK million) 8,525 7,206 3,791 2,867 2,407 Earnings per share diluted (NOK) 54.3 28,1 75.4 9.2 7.7 Earnings per share diluted, adjusted² (NOK) 36.5 30.1 17.4 16.2 10.6 Return on capital employed, Industry division³ (%) 12.5 11.3 14.8 12.8 13.0 Return on Share Portfolio (marked to market) (%) 27.4 38.4 21.6 29.8 (14.8) Equity ratio (%) 60.4 50.8 69.6 35.94 35.2 1 Historical fi gures (incl. discontinued operations) for the period 2002–2005. 2004–2006 in accordance with IFRS, while 2002–2003 are in accordance with Norwegian GAAP. ² Adjusted for amortisation, other revenues and expenses, the gain on the sale of Orkla’s interest in Carlsberg Breweries in 2004 and for the net profi t and gain on sale of Orkla Media in 2006. ³ See defi nition page 62. 4 Before additional dividend. NET SALES BY CAPITAL EMPLOYED BY EMPLOYEES BY GEOGRAPHICAL AREA GEOGRAPHICAL AREA GEOGRAPHICAL AREA Norway 23 % Norway 49 % Norway 26 % Other Nordic countries 24 % Other Nordic countries 30 % Other Nordic countries 25 % Central and Eastern Europe 10 % Central and Eastern Europe 7 % Central and Eastern Europe 26 % Other European countries 30 % Other European countries 9 % Other European countries 15 % Asia 5 % Asia 1 % Asia 3 % America 8 % America 3 % America 5 % Net sales NOK 51,535 million. Other 1 % Number of employees 28,664. Capital employed (book value) NOK 42,619 million. 1 ORKLA ANNUAL REPORT 2006 / ORKLA’S BUSINESS AREAS ORKLA’S BUSINESS AREAS OPERATING REVENUES1 KEY FIGURES ORKLA FOODS 15,000 14,266 Operating revenues: NOK 14,266 million 13,650 12,711 2 Orkla Foods is a leading developer, marketer and supplier of 12,000 11,913 Operating profi t : NOK 1,278 million 11,062 food products in the Nordic region, and has also a growing Number of employees: 11,395 presence in Central and Eastern Europe and Russia. Operations 9,000 are concentrated around the company’s own strong brands and concepts .