Annual Report 2018 SUSTAINABILITY REPORT INCLUDED 01 Use of interactive PDF This is an interactive PDF of Orkla’ s Annual Report. Here are some explanations for using the navigation. 02 Sustainability Orkla Board of Contents Orkla’s sustainability work Directors Nutrition and wellness 03 Safe products STEIN EIRK HAGEN Sustainable sourcing Click on the names for Environmental engagement Chapters info 01 Care for people and society Flip trough chapters or go to the contents page. Some pages have clickable elements that makes Some pages have clickable elements that makes 04 navigation easier. navigation easier. 05 Contents Sustainability Orkla’s sustainability work 03 Nutrition and wellness Safe products Introduction to Orkla Sustainable sourcing Environmental engagement Message from the CEO Care for people and society 01 About Orkla Orkla’s Business Areas Orkla Foods Orkla Confectionery & Snacks Orkla Care Orkla Food Ingredients Orkla Investments Financial statements Annual Financial Statements Group 04 Notes Group Annual Financial Statements Orkla ASA Declaration from the Board of Directors Independent Auditors Report Historical Key Figures Alternative Performance Measures (APM) Report of the Board Additional information of Directors Corporate Governance Share Information 02 05 Additional Information for Valuation Purposes Report of the Board of Directors The Board of Directors of Orkla ASA Corporate governance The Group Executive Board Governing Bodies and Elected Representatives Group Directory Responding to consumer trends with strong local brands We have strengthened our position as a leading branded consumer goods company through several acquisitions in line with Orkla’s strategy of growing in new channels. At the same time, we are focusing even more visibly on sustainability, and are contin- uing to launch products in response to prominent consumer trends. Peter A. Ruzicka President and CEO 5 Message from the CEO In the course of last year we made a number of strategic acqui- UN’s global goals. Sustainability has become a natural part of sitions. Pizza is an important category for us, and the purchase our business model, and we have drawn up criteria for defining of Finland’s biggest pizza chain, Kotipizza, is aligned with our sustainable products. A growing number of our launches are 01 strategy of pursuing growth in new channels. Our investment meeting consumer demand for more environmentally friendly in the restaurant channel began right from the start of the year grocery products, healthier food products and vegetarian food. with the purchase of Gorm’s pizza restaurant chain in Denmark. Examples are Jordan Green Clean, a toothbrush that is made of We’ve also improved existing positions and selected categories recycled plastic and has eco-friendly packaging, and plant mince by means of several other acquisitions. from our Danish brand Naturli’, which has become a global success. We also work closely with our customers and the rest 2018 was also a demanding year for Orkla. An increase in sugar of the industry to make popular favourites healthier. 02 tax and challenges at Orkla Health in Poland and House Care UK weighed on results. On the positive side, we achieved good Our strategy of being a leading branded consumer goods growth outside Norway and our ongoing cost reduction pro- company remains unchanged, and we will continue to strength- grammes are on track. en our portfolio in higher-growth categories, channels and geographies. We have to be wherever the consumer wants to In the Czech Republic and Slovakia, we merged our two be and therefore have intensified our focus on being present 03 companies, Hamé and Vitana, into a single Orkla Foods com- in new channels outside the traditional grocery trade. Through pany. We’ve also taken action to optimise our value chain and strong innovations based on local insight, we will continue to ensure competitive production of our branded consumer goods. make each day better with sustainable, local brands that delight With our new common ERP solution, which we will gradually be consumers. rolling out in the Group as from 2019, we’re making it easier to work together as “One Orkla”. At the same time, we’re launching more and more new products and brands across our markets. A We are committed to helping solve global health 04 good example is Panda Lakriskuler liquorice balls, which are now and sustainability challenges and support the available in all the Nordic countries. The Norwegian chocolate UN’s global goals. Sustainability has become a snack favourite, Smash!, which is a huge hit in Sweden, has now also been launched in Denmark. natural part of our business model, and we have We are committed to helping find solutions to global health and products. 05 sustainability challenges and supporting the achievement of the developed criteria for how we define sustainable 6 About Orkla A leading branded consumer goods company 01 Orkla is a leading supplier of local branded consumer goods with strong market positions based on local insight and presence. Orkla’s strategic objective is to strengthen its position as the 02 leading branded consumer goods company in the Nordics, Baltics and other selected markets. Innovations based on the Group’s unique local customer and consumer insight are an important growth driver. By working more closely as “One Orkla”, the Group will more effectively exploit economies of scale and create cross-cutting synergies. In this way, Orkla will strengthen its long-term competitiveness, while preserving 03 its local presence. Orkla ASA is listed on the Oslo Stock Exchange and head- quartered in Oslo. 04 Vision and values Orkla’s vision is to be “your friend in everyday life”. This vision is underpinned by the values “brave”, “trustworthy” and “inspiring”. Orkla’s mission is to improve everyday life with sustainable and enjoyable local brands. 05 7 About Orkla 01 Leading positions in selected Orkla’s ten largest categories Breakdown of sales revenues markets Snacks by geographical region1 Confectionery Leader in the Nordics and Baltics Hygiene Orkla is the leading branded consumer goods Sauces and flavourings company in the Nordic and Baltic regions. Ready meals 02 Dehydrated casseroles, soups and sauces Unique customer and consumer insight Pizza Orkla is known for branded consumer Fish and seafood products that hold #1 or strong #2 positions. Bread toppings Desserts and between-meal products Orkla’s products are sold in over 03 100 countries. Norway 29% Nordics ex. Norway 39% Baltics 5% Europe other 23% Key figures World other 4% 04 1Excluding internal sales and other operating revenues. Operating revenues EBIT (adj.) EBIT (adj.) margin Earnings per share Number of employees 40.8 4.8 11.7% 3.24 18 510 NOK billion NOK billion NOK 05 All alternative performance measures (APM) are presented on page 224. 8 About Orkla Orkla’s markets and business areas through closer collabo- Goals and strategy ration across borders and individual companies. Long-term value creation is Orkla’s first priority. • Priority will be given to further developing and strength- 01 ening customer relations, with a shared goal of profitable By working together more closely as “One Orkla”, the Group growth. will exploit strategies and opportunities across its opera- • Orkla will strengthen its presence in emerging sales chan- tions more effectively. The aim is to strengthen the Group’s nels and focus more purposefully on export. long-term competitiveness and create higher growth and profitability, while preserving Orkla’s strong local presence. Improved profitability through more efficient operations in every part of the value chain 02 Orkla’s strategic objective is to strengthen its position as the • The Group will to a greater degree exploit economies of leading supplier of branded consumer goods and services in scale, reduce the complexity of its portfolio and create the Nordics, Baltics and other selected markets. synergies across different companies. • The Group will also realise synergies through the integration In line with the Group’s strategy and financial targets, activities of acquired companies. that drive organic growth and improve profitability are prioritised. • Production will be concentrated on fewer, but larger 03 production units, thereby freeing up resources for innovation, Through acquisitions Orkla will develop its operations in its growth and competence building. home markets and within selected geographical areas, channels • Steps will be taken to simplify the organisational structure, or niches where we can achieve leading positions based on including IT and administration. the Group’s core competencies. Acquisitions in Branded Consumer Goods The primary driver for long-term value creation is • Strategically appropriate acquisitions will remain a key element 04 organic growth for local brands and services of Orkla’s growth strategy and value creation model. At the • Orkla aims to distinguish itself significantly from its compet- same time, the Group will reduce its complexity to a greater itors through its unique local insight and presence. degree through more active portfolio management. • Innovations based on the Group’s unique local customer • Through acquisitions, Orkla wll strengthen its activities in and consumer insight will be a main growth driver. selected geographical areas, channels or niches where we • A growing number of new products will be launched across can achieve leading positions based on the Group’s core 05 competencies. 9 About Orkla A clear capital allocation strategy The Board of Directors has proposed a dividend policy entailing an ambition of increasing the dividend from its current level of 01 NOK 2.60 per share, normally within 50-70% of earnings per share. Our first priority in allocating excess capital is to strengthen Branded Consumer Goods by making acquisitions and invest- ing in existing operations. 02 Alternatively, an extraordinary dividend or a share buyback will be considered. The Group’s goal is to remain an investment-grade company. This means ensuring that the net interest-bearing liabilities / EBITDA ratio over time is less than 2.5.