Orkla Reports Operating Profit Increased by 16%
Operational excellence is the core of Orkla's value creation, and it is therefore gratifying that operating profit shows improvement for the eighth consecutive quarter.
Jul 20 2011 --- Orkla's operating profit (EBITA) increased by 16% to NOK 1,079 million in the second quarter of 2011. Sapa continued to achieve profit growth. Profit was also boosted by strong markets and good results for Borregaard, as well as normalised production in the hydropower business. Profit for Orkla Brands was affected by a natural lag in the effect of price increases to compensate for higher raw material prices. Price rises have been implemented for the second half of 2011.
"Operational excellence is the core of Orkla's value creation, and it is therefore gratifying that operating profit shows improvement for the eighth consecutive quarter. Sapa is experiencing a positive trend in North America, in terms of both market growth and operations, while the trend in Europe is still weak. The current situation with higher raw material prices has impacted negatively on profit for Orkla Brands in the second quarter," says Orkla President and CEO Bjørn M. Wiggen.
Sapa's extrusion business in North America is experiencing improved markets, particularly for deliveries for the production of means of transport, and has delivered satisfactory results in the second quarter. The restructuring of the company's North American operations following the acquisition of Indalex has laid the foundation for good operational performance.
Sapa is now further restructuring and optimising its European production system. This will initially affect its operations in Denmark, Benelux and Portugal. The restructuring entails proposals to close plants, entirely or partially, and relocate production equipment. The restructuring process will affect 450 persons.
"The restructuring is an important step towards strengthening Sapa's long-term competitive ability and achieving the business's operational goals," Bjørn M. Wiggen points out.
Orkla Brands reported slightly lower second-quarter profit this year than in 2010. Stabburet and Procordia in particular delivered good results, while results for Orkla Brands Russia and Bakers were weak. The Nordic branded consumer goods business is impacted by a natural lag in the effect of price increases to compensate for higher raw material prices, and has implemented price rises that will have effect in the second half of 2011. The process of selling Bakers is still ongoing.
Borregaard's chemicals business is experiencing very good market conditions for several of its products, and is delivering good results. However, profit is negatively impacted to a certain extent by the high exchange rate for the Norwegian krone, and market performance is expected to weaken somewhat towards the end of the year. After heavy precipitation in the second quarter, hydro power production was back at the more or less normal level in the quarter, and significantly higher than last year. At the same time, reservoir levels have been built up from substantially below normal to above normal.
In accordance with Orkla's accounting principles, the Group's shareholding in REC has been written down to the market price at 30 June. The return on the investment portfolio was higher than the return for the Oslo Stock Exchange Benchmark Index and the Morgan Stanley Nordic Index in the second quarter, while portfolio holdings were reduced to under NOK 10 billion during the quarter, in line with the Group's strategic objective.
