NORWAY: Orkla profits dip, looks to strengthen consumer foods
- Group EBITA down on lower financial services profit
- Consumer brands profit up 8%
- Sales rise to NOK2.7bn
Orkla CEO sees room for improvement
Orkla has said it aims to drive continued improvements at its consumer foods unit as it booked a decline in operating profit during the first quarter.
In a regulatory announcement today (2 May), Orkla said first-quarter EBITA amounted to NOK596m (US$103.5m) in the period, down from NOK676m in the corresponding quarter of 2012. Much of the decline can be attributed to lower profits at the conglomerate's financial services arm, where the first-quarter performance last year was boosted by gains from the sale of real estate.
The Norway-based energy-to-snacks company is in the process of transforming itself into a pure-play branded consumer goods manufacturer, selling off its energy and hydro-power interests to focus on core operations. In its branded consumer goods units, Orkla said operating profit rose 8% to NOK579m, driven by "broad based sales and volume growth" in food.
Revenues from continuing operations increased to NOK7.2bn, up from NOK7bn in the comparable period of last year.
Commenting on the group's performance, CEO Åge Korsvold said he was "satisfied with the profit performance" but added that the group must become more competitive. "We must create larger, more effective entities. We are now merging our chocolate, snacks and biscuits companies, and creating one leading company per country in the Nordic region."
Speaking to just-food at the Consumer Analyst Group Europe conference in March, SVP of investor relations Rune Helland claimed Orkla will have a competitive advantage over multinational players from its "multi-local" strategy because it is more focused on the Nordic markets. However, some industry watchers have suggested that as Orkla sells off its non-food operations its strong regional brands will make it an attractive takeover target for international food manufacturers.
Click here for further coverage of Orkla's "multi-local" approach.
IMPROVEMENT FOR ORKLA'S BRANDED CONSUMER GOODS
President and CEO Åge Korsvold
02/05/2013 6:57 am modified 02/05/2013 11:01 am
Orkla's operating profit (EBITA) amounted to NOK 596 million in the first quarter of 2013, compared with NOK 676 million in the corresponding period of 2012.
Operating profit for Orkla's Branded Consumer Goods business rose 8% to NOK 579 million. Operating profit from the acquired company Jordan accounted for around half of this improvement.
For continuing operations, Orkla's operating revenues totalled NOK 7,219 million, compared with NOK 7,069 million in the corresponding period of last year. The Branded Consumer Goods business reported underlying operating revenues on a par with the first quarter of 2012.
"Although I am satisfied with the profit performance of several of our companies, we need to strengthen our competitiveness. We must create larger, more effective entities. We are now merging our chocolate, snacks and biscuits companies, and creating one leading company per country in the Nordic region. Now that the competition authorities have approved our acquisition of Rieber & Søn, we will similarly establish a single food company in each of the Nordic countries," says Orkla President and CEO Åge Korsvold.
THE BRANDED CONSUMER GOODS BUSINESS
Orkla Foods achieved broad-based sales and volume growth in the grocery market, but delivered a slightly weaker performance in the out-of-home sector. Operating profit amounted to NOK 226 million, an improvement of 12%. Both Procordia and Abba Seafood in Sweden reported good sales and profit growth. To further strengthen their position, these two companies have merged to create a leading Swedish food company. In Norway, Stabburet continued to improve its performance in the grocery market. Beauvais foods posted profit growth in a demanding Danish market. Felix Abba in Finland increased its sales in the grocery market, while the Baltic businesses achieved both revenue and profit growth. Overall market shares were maintained.
Orkla Confectionery & Snacks experienced a weaker trend. First-quarter operating profit amounted to NOK 144 million, compared with NOK 169 million in the same period of 2012. Competition on the Nordic snacks market is strong, and the biscuits business saw a decline in Norway and Sweden. Higher sales of "pick and mix" sweets contributed to a certain improvement in profit for Nidar. All in all, market shares weakened slightly.
Orkla Home & Personal achieved operating profit of NOK 214 million, an improvement of 8%. Profit growth was ascribable to Lilleborg in Norway, Pierre Robert Group in Norway and Sweden, and Axellus (primarily in the Nordic region). Jordan, which is Nordic market leader in the oral hygiene sector, is well integrated with Lilleborg. Overall market shares were strengthened.
Orkla International posted an operating loss of NOK 42 million, compared with an operating loss of NOK 37 million in the first quarter of 2012. Orkla Brands Russia saw a decline in sales. The company is undergoing a major time-consuming restructuring process. It is reducing its factories from four to three, and the number of its product lines from 1100 to 600. MTR Foods, on the other hand, increased its operating revenues by 12%. New product launches boosted volume in the company's core categories, powder mixes and spice mixes.
Orkla Food Ingredients (OFI) posted operating profit of NOK 37 million, up from NOK 30 million in the corresponding period of last year. This improvement is attributable to the sale of Kolding Salatfabrik in Denmark. Cold weather had a negative impact on the sale of bakery and ice cream ingredients in Scandinavia. OFI maintained or strengthened its most important market positions in the quarter.
Sapa Heat Transfer reported operating profit of NOK 85 million, an improvement of 20%. This increase is due to a comprehensive improvement programme consisting of cost reductions, operational initiatives and price adjustments. Deliveries to the European automotive industry declined, while the North American market remained at the same level as in 2012. Growth in the Chinese automotive market accelerated. Orkla is engaged in exclusive talks with one strategic buyer for Sapa Heat Transfer.
Operating profit for Orkla Financial Investments was NOK 8 million, compared with NOK 108 million in the first quarter of 2012. Last year's first quarter results were boosted by particularly high gains on the sale of real estate.
Hydro Power posted an operating loss of NOK 3 million, compared with operating profit of NOK 33 million in the same quarter of last year. The fall in profit is mainly due to lower volume production as a result of extremely dry winter months and to a scheduled maintenance halt in Sauda (Norway).
Operating profit for Jotun, which is an associated company, continued to show good growth, while sales were on a par with the first quarter of 2012. New ship building activity in Asia is at a low level, but this effect was counteracted by the continued good performance of the other segments.
Orkla continued to sell off shares and financial assets in the first quarter, freeing up a net total of NOK 677 million in capital. The market value of the Group's shares and financial assets, including the investments in REC and Borregaard, totalled NOK 3,169 million at the end of the first quarter.
Orkla and Hydro wish to jointly establish a leading global supplier of aluminium solutions. A decision by the European competition authorities regarding approval of this joint venture will be reached by 14 May 2013.
The part of Sapa that is to be included in the joint venture with Hydro posted first-quarter operating profit of NOK 46 million, compared with NOK 122 million in the corresponding period of 2012.
Profit has been strongly impacted by weak European markets, while profit performance in North America was positive. The Asian business is undergoing a phase of establishment and expansion.
Orkla's pre-tax profit amounted to NOK 900 million, compared with a corresponding NOK 1,154 million in the first quarter of 2012.
Original source: Orkla
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