We have received many incoming questions from various stakeholders around consequences of the Corona epidemic over recent weeks. The short answer is that the virus has so far had limited consequences for Orkla, but as with most other companies there is significant uncertainty how this will play out over the coming weeks and months.
First of all, is important to state that the Corona virus does not spread through food and drink. This means that there is no risk for contagion associated with consuming Orkla products.
Orkla is working closely to safeguard the health and safety of our employees, and to ensure adequate continuity plans for our production and business. As the virus is spreading more rapidly across the globe, and has now been characterized as a pandemic by the WHO, there is clearly a risk for disruptions in our supply chain, including purchasing, production, logistics/transportation and sales.
Orkla has introduced precautionary measures to prevent an outbreak in our own sites and to ensure reliability of deliveries. These precautionary measures include travel restrictions, meeting restrictions, increased focus on habits that prevent infection and guidelines for accepting truck drivers, visitors and contractors to our sites. Despite these measures, there is a risk that we may at some point need to temporarily close down one or several of our 107 factories in case of local outbreaks. We are monitoring the situation closely and take all mitigating actions possible.
Our procurement team have for some time worked on contingency plans to ensure uninterrupted supply of necessary raw materials. Between 50-60% of our raw materials are typically sourced locally, where the vast majority of remaining raw materials are sourced from a wide variety of European suppliers. Looking at Norway, Sweden and Denmark as an example we source between 50-60% of total spend in local currency, and have approximately 1/3 of total spend in EUR. We have not experienced any material disruptions of the supply side so far, but this is clearly an area we are following closely and where there is a risk for supply disruptions depending on how the pandemic continues to develop. Where relevant, Orkla will seek to temporarily increase buffer stocks of raw materials at risk.
There has been media attention around consumers hoarding certain groceries, particularly products with long shelf life like canned food. Orkla has seen increased sales of selected products within these categories, but our overall exposure to canned food is relatively small. At the same time, Orkla’s direct exposure to fresh food is relatively small (low single digit), and primarily within chilled ready meals, which means that the majority of our portfolio constitute products with longer shelf life. In addition, we have indirect exposure to fresh food through the sale of amongst other bakery and ice cream ingredients in our Food Ingredients division. We are in close dialogue with our customers to ensure that we can supply without disruptions so far as possible, also with changing consumer purchasing behaviour. Where relevant, Orkla will seek to increase buffer stocks of finished goods to avoid out of stock situations.
Orkla will not provide sale updates externally until we present Q1 results the 5th of May. According to applicable stock exchange regulations, we will however immediately inform the market in the event of any material disruptions to our operations.
To summarize, we have seen limited financial implications from the corona epidemic so far. At the same time, we acknowledge that the situation is uncertain and that despite our preventive actions there is a risk for disruptions going forward.
The health and safety of our employees, and actions to help limit further spread of this virus in society is our top priority. We are following the situation closely and adapt our actions according to local government advice and regulations.
As a final remark, we wish to stress the fact that the Corona virus does not spread through food and drink. This means that there is no risk for contagion associated with consuming Orkla products.
VP Investor Relations
+47 951 41 147
Konserndirektør, Kommunikasjon og Corporate Affairs
+ 47 928 45 828
CFO Orkla Consumer & Financial Investments
+47 48 25 96 18