Annual Report 2010 Contents Message from the CEO 4 The Board of Directors of Orkla ASA 6 Report of the Board of Directors 8 The Group Executive Board 22 Corporate governance 23 Annual Financial Statements 2010 32 Notes to the Financial Statements 44 Financial Statements for Orkla ASA 81 Historical key figures 90 Asset values 91 Group Directory 92 Organisation 96 Governing bodies and elected representatives 97 Financial calendar For orkla aSa date event 14.04.2011 Annual General Meeting 15.04.2011 Share traded ex. dividend 29.04.2011 Dividend payment 05.05.2011 1st quarter 2011 20.07.2011 2nd quarter 2011 27.10.2011 3rd quarter 2011 THE ORKLA GROUP 3 ORKLA ANNUAL REPORT 2010 The Orkla Group Orkla operates in the branded consumer goods, aluminium solutions, renewable energy, materials and financial investment sectors. Group sales total NOK 57 billion. Orkla has approximately 30,000 employees and operates in approximately 40 countries. • Foods Nordic • Sapa Profiles • Share Portfolio • Brands Nordic • Heat Transfer • Hydro Power • Brands International • Building System • Food Ingredients Operating revenues (NOK million) 23,627 Operating revenues (NOK million) 27,684 EBITA1 (NOK million): 2,967 EBITA1 (NOK million): 744 Number of man-years: 13,918 Number of man-years: 14,239 ¹ Operating profit before amortisation and other income and expenses. KEY FIGURES1 2010 2009 2008 2007 2006 Operating revenues (NOK million) 57,338 56,228 65,579 63,867 52,683 EBITA2 (NOK million) 3,944 2,448 4,240 5,112 5,084 EBITA margin2 (%) 6.9 4.4 6.5 8.0 9.7 Ordinary profit before tax (NOK million) 20 1,071 -2,015 10,059 8,525 Diluted earnings per share (NOK) -0.9 2.5 -2.8 8.1 10.9 Return on capital employed, from industrial activities3 (%) 10.5 5.2 9.4 11.5 13.0 Return on Share Portfolio (%) 31.8 39.0 -45.3 16.2 27.4 Equity ratio (%) 53.6 51.7 47.7 58.3 60.4 1 Figures as reported in 2006-2009. 2 Operating profit before amortisation and other income and expenses. 3 See definition on page 90. 4 Message froM The ceo orkla annual reporT 2010 Message from the CEO In the past few decades, Orkla has created value for its shareholders by exploiting the interaction between its industrial and financial expertise. We will maintain this focus in the years ahead. However, if we are to be able to actively develop and support the different units in the Group, our portfolio cannot be too broad. More particularly, it must not be too heavily weighted towards capital-intensive activities. Orkla is therefore focusing the portfolio on a smaller number of businesses. By doing so, we will ensure that we have an adequate capital and resource base to aggressively develop the areas in which we have the best potential for long-term value creation. “Going forward, Orkla’s competitive edge will continue to lie in the combination of industrial and Bjørn M. Wiggen, financial expertise.“ President and CEO Orkla ASA he sale of Elkem is one step in Orkla Brands has long demonstrated business area also grew in terms of the implementation of this its ability to both develop and manage both sales and market shares. Within T strategy. Following the purchase strong brand positions in the Nordic its existing geographies, Orkla Brands of Elkem in 2005, Orkla invested heavily region. Its multi-local model, based on acquired 11 companies at a total cost in the development of the business, strong local branded consumer goods of around NOK 1 billion. which comprised both Sapa and REC. and a strong local business system, has In future, access to capital and greater ensured good competitiveness against Orkla has contributed to the develop- proximity to important growth mar- both international rivals and the grocery ment of Sapa into a global leader in kets, particularly in Asia, will be key trade’s own brands. We will continue extruded aluminium products. In criteria for Elkem’s success. The sale of to use this model in the Nordic coun- many ways, Sapa’s development is Elkem to China National Bluestar gives tries, and strengthen our business sys- a typical example of how Orkla has Elkem the size and influence it needs tems in selected markets outside the helped to establish competitive to undertake this challenge. At the Nordic region. For a port folio company industrial structures through structural same time, the sale has freed up capital that aims to pay a stable dividend to growth. In future, the main focus will for investment in other parts of the its shareholders, it is also important be on further improving the compa- Orkla Group. that parts of the port folio produce a ny’s cost structure, and on developing relatively stable cash flow. Orkla more profitable products for custom- Both Orkla Brands and Sapa have the Brands is also an excellent fit for the ers. In Sapa, too, we aim to utilise a size, market positions and potential for Orkla Group in this strategic context. multi-local business model based on value creation that make it attractive In 2010, Orkla Brands delivered its strong local business systems. This is for Orkla to focus actively on their best performance so far, achieving important in order to compete in the further development. EBITA1 of close to NOK 3 billion. The local market. At the same time, Sapa 1 Operating profit before amortisation and other income and expenses. MESSAGE FRom THE CEO 5 ORKLA ANNUAL REPORT 2010 will exploit its resource base and eco- The primary value drivers in Orkla’s nomies of scale to effectively serve its business model will continue to be larger, more international customers. operational development through For Sapa, 2010 as a whole was a year improved operational efficiency and of good market growth. Sapa leveraged organic growth in the businesses in this trend, in combination with good which the Group is engaged at any effects from internal improvement given time. For Orkla as a portfolio programmes, to increase profit by company, however, it is important to close to NOK 1.1 billion. Sapa has also be able to reallocate capital over time continued its efforts to strengthen its to the areas in which Orkla has the presence in the Asian growth markets, greatest potential for value creation. among other things by acquiring 65% This has always been a part of the of the Vietnamese extrusion company Orkla model. Ever since the establish- Vijalco, and by almost doubling capacity ment of Orkla Borregaard in 1986, the at Sapa Heat Transfer’s factory in Group’s hallmark has been operational Shanghai. The company will continue expertise as a foundation for value- to focus on the Asian market in 2011. creating structural initiatives. Orkla has played an active role in Going forward, Orkla’s competitive developing the solar industry through edge will therefore continue to lie in both its equity interest in REC and the combination of industrial and the industrialisation of Elkem Solar’s financial expertise, the ability to iden- technology. However, the solar tify and exploit market opportunities, industry is both global and capital- and the optimisation of capital alloca- intensive. Over time, therefore, Orkla tion. will face a challenge as regards allocat- ing sufficient capital to be able to play In closing, I would like to thank all of a leading role in this industry. Orkla’s employees for their efforts and Moreover, the return on the Group’s the results they have achieved in 2010. solar investments has simultaneously Orkla has few natural advantages, and not been satisfactory. Consequently, it is only by developing our human Orkla has reduced its exposure to the resources that we can continue to create solar industry by selling Elkem Solar. value. Orkla’s share investments have a dual objective. The investments must gener- ate a higher return than relevant benchmarks while simultaneously developing industrial options for the Group. Some investments will therefore be realised, such as XXL (15.5% inter- est sold in 2010), while others will expand Orkla’s range of industrial options, as with the purchase of Elkem back in 2005. In both cases, Orkla will focus on the businesses’ long-term value creation. Orkla will therefore be an active shareholder in REC (39.7% interest), with the ongoing objective of creating value for both Orkla’s and Bjørn M. Wiggen REC’s shareholders. President and CEO 6 THE BOARD OF DIRECtoRS OF ORKLA ASA ORKLA ANNUAL REPORT 2010 The Board of Directors of Orkla ASA SHAREHOLDER-ELECTED MEMBERS OF THE BoaRD OF DIREctoRS 1. 3. 5. STEIN ERIK HAGEN, CHAIRMAN OF THE BOARD1 ÅSE AULIE MICHELET PETER A. RUZICKA1 Degree from the Retail Institute (now the Degree in Pharmacy (Cand.pharm.) (studied in MBA and degree in Business Economics (handel- Norwegian School of Retail). Oslo and Zurich). søkonom) (Oslo School of Business Administration). First elected to the Board in 2004 and up for re-election First elected to the Board in 2001 and up for in 2011. Retailer and founder of RIMI Norge AS and re-election in 2011. Various posts in the fields of First elected to the Board in 2003 and sat until Hakon Gruppen AS as from 1976. Co-founder of ICA research, production and marketing at Nycomed, 2005. Elected as member of the Corporate AB and retailer from 1999-2004. Owner and Executive subsequently Nycomed Amersham. From 1999 Assembly in 2006. In 2007 elected as deputy Chairman of the Board of Canica AS and associated CEO of Amersham Health, now GE Healthcare AS, member for the shareholder-elected members family-owned companies since 2004.