E-Malt.com News article: 3598

Denmark: Carlsberg A/S announced on 4 November 2004 Q3 2004 financial results. Company’s beer volume rose by 11% during the first three quarters of the year driven by strong organic growth in BBH and by the acquisition of Holsten-Brauerei. Net revenue totalled DKK 27.1bn corresponding to an increase of 3%. Measured in local currencies, revenue rose by 5%. Operating profit increased by 5% to DKK 3,054m. Carlsberg A/S' share of profit (before goodwill amortisation and write-down, etc.) was DKK 1,129m against DKK 1,007m in the same period last year (+12%). New business plan and management for the Swedish activities following unsatisfactory financial results. • Expectations to full-year operating profit are reduced from DKK 3.5-3.7bn to approximately DKK 3.4bn (last year DKK 3,564m). Carlsberg A/S' full-year share of profit (before goodwill, etc.) is now expected to be approximately DKK 1.4bn (about 19% up on last year) against previous expectations of DKK 1.5-1.6bn (last year DKK 1,179m).

Carlsberg's brewing activities showed stable and satisfactory developments in both August and September. The disappointing development which characterised the business during the early summer as a result of the poor weather particularly in Northern Europe was thus turned around. However, as expected, it was not possible to make up the entire loss registered in July and, consequently, the quarter ended with an operating profit 9% down on the corresponding quarter last year. The individual geographic segments generally showed satisfactory developments. On the positive side, BBH's strong sales development, Feldschlösschen's positive results and the advanced restructuring process for Holsten-Brauerei should be emphasized. On the negative side are the lack of improvement in the Swedish activities, only modest results in Turkey in Q3, and weak results in Italy due to a declining market and comprehensive restructuring of the business model. During the first three quarters of the year, Carlsberg's pro rata calculated beer volume showed significant progress totalling 48.2m hl (41.7m hl in the same period last year), which corresponds to a 16% rise. The beer business also saw favourable developments in gross volume with an 11% increase - of which 7% was organic growth - to a total of 70.0m hl. The soft drink and water business fell to 15.0m hl (9% down on last year) due to the weather conditions during the summer months and the divestment of the water business in Switzerland in 2003. During the period, the Carlsberg brand saw an 8% increase in volume; the most significant increase was registered during the EURO 2004 marketing campaign. Several markets continue to experience intensified competition and Carlsberg's countermove is to invest in the build-up of a strong brand portfolio and to improve the cost structure. The initiatives launched under the Operational Excellence programme are proceeding according to plan and are expected to provide the previously announced financial results.

The western European region realised a beer volume of 20.6m hl which is an increase of 16%. When excluding the acquisition of Holsten, the beer volume is at the same level as last year. In total, revenue rose to DKK 20,017m (+2%: -5% organically and +7% acquisitively). Of the 5% organic decline in revenue, 2.5% was due to lower beer prices and 2.5% was due to the divestment of the water business in Switzerland in 2003 as well as the adverse development within the soft drink segment. Operating profit totalled DKK 1,676m, corresponding to an operating margin of 8.4%. In the Nordic region, operating profit was considerably down on last year. The development in Carlsberg Sverige was particularly disappointing as no improvement was seen despite the revision of the business plan and the measures carried out. Carlsberg therefore launches an action plan with immediate effect, which ensures profitable development of the Swedish activities, cf. separate announcement sent to the Copenhagen Stock Exchange today. In Norway, Ringnes has used aggressive pricing of the Tuborg brand and maintained its market share despite intensified competition. Last year Ringnes implemented measures to reduce the cost level and these measures have significantly reduced the effects of the present competitive situation. In Carlsberg UK, the retail chains in particular saw favourable developments in volume in connection with the EURO 2004 campaign at the beginning of Q3. The sale of the Holsten brand has been taken over by Carlsberg UK and shows satisfactory development. Holsten-Brauerei continues to show increasing PET-packaging sales. The restructuring process is proceeding very satisfactorily and results are in accordance with plans despite difficult market conditions. Holsten's contribution to the full-year results is expected to be at least in line with previous statements. The Swiss business delivered fine results driven by a positive volume trend in the retail trade. Both the Carlsberg and the Feldschlösschen brand did well following successful campaigns during the summer months. In Italy, the poor summer weather led to a decline in sales and financial difficulties for a number of customers. As a consequence, Carlsberg Italia had to make further write-downs for bad and doubtful debts; however, it is important to note that the Italian company is currently implementing a new business model.

Baltic Beverages Holding (BBH) regained momentum in Q3 and saw a substantial increase of 19% in beer volume. Net revenue rose to DKK 1,604m (+19%) which resulted in an operating profit of DKK 442m (+11% or +15% measured in local currencies), corresponding to an operating margin of 27.6%. Year-to-date, operating profit is 2% up on last year, corresponding to +6% measured in local currencies. Year-to-date, operating margin is 21.5%. BBH's most important markets continued to show positive developments in volume, and during the quarter the market saw a 10% increase in Russia, 18% in the Ukraine, 26% in Kazakhstan, but a minor decline of minus 3% in the Baltic States. BBH was extremely active in the Russian market and achieved significant progress for the brand "Baltika" in a newly designed bottle and can. Overall, BBH continued to outperform the Russian market's growth rates in the previous quarter and achieved total volume progress of 20%, corresponding to a market share of 35.9% (+2.9 percentage points compared to the same quarter in 2003). Estimated full-year growth for the Russian market is approximately 10%. Following the successful reorganization, BBH is expected to consolidate its strong position in this market and - as a minimum - to realise a market share at level with 2003 (33%). The operating margin (EBITA) will be affected by considerable marketing activities and increased sales and distribution costs and is expected to be approximately 20% for the full year.

The eastern European region achieved a net revenue of DKK 2,249m. Carlsberg Okocim in Poland maintained its market share and realised a quarterly result at level with last year despite the poor summer weather. The Carlsberg brand continues to show strong growth in this market. The earnings situation in Türk Tuborg has been highly unsatisfactory after the government's two increases in beer duties at the end of 2003 and at the beginning of 2004. An action plan has been initiated in order to improve earnings.

The Asian region achieved a 21% rise in beer volume, i.a. due to the acquisition of Dali (China) and Lhasa (Tibet). Revenue rose by 25% to DKK 1,146m and, consequently, operating profit was 3% up on last year. The net revenue in Q3, 2004 and 2003 cannot be directly compared, as costs in Malaysia in 2004 were reclassified from other operating costs to be set off in net revenue. The figure is DKK 61m, after which net revenue in Q3 is the same in 2003 and 2004 on a comparative basis.

During the first three quarters, net revenue rose by 3% to DKK 27,066m. Growth measured in local currencies amounted to 5% and reflected the continued progress in BBH as well as the inclusion of the Holsten revenue. Gross profit totalled DKK 13,929m (4% up on last year) and - despite continued price pressure - led to a marginal increase in the gross margin to 51.5%, i.a. due to the Production Excellence measures initiated. As expected, continued high marketing costs (advertising) especially in Russia totalled 6.5% of revenue. The marketing costs thus totalled DKK 1.8bn - an increase in the investments to build up the brand portfolio of more than DKK 300m compared to last year. In the short term, the investments have an adverse effect on earnings, however, they are estimated to be vital to the long-term development in earnings. The summer months showed a general decline in operating profit compared to last year, which is mainly attributable to the weather. The first three quarters of the year totalled an operating profit (EBITA) of DKK 3,054m, corresponding to a 5% increase on the same period last year. This includes gains of DKK 471m against DKK 205m last year from the sale of property. In Q3, special items amounted to minus DKK 96m, bringing the total for the first three quarters of the year to minus DKK 486m against minus DKK 16m last year. This year, special items are extraordinarily high, which reflects the important activities currently carried out in order to adapt and secure the future business model. At the end of Q3, special items are approximately DKK 50m up on previous estimates included in the expectations due to the decision to change the production structure in Poland. Financials show net expenses of DKK 833m against DKK 438m in the same period in 2003. The increase in financial expenses is due to the acquisition of the 40% shareholding in Carlsberg Breweries as well as the acquisition of Holsten-Brauerei. As mentioned in the H1 financial statement, financials include an earlier than expected charge to the income statement of minus DKK 94m relating to repayment of a credit facility as well as currency translation adjustments etc. of minus DKK 61m. The tax charged amounted to minus DKK 437m and the effective tax rate for the period thus totalled 25% (26% in the same period in 2003).

Carlsberg A/S' share of profit totalled DKK 457m against DKK 841m last year. The profit development is more apparent when looking at Carlsberg A/S' share of profit before goodwill amortisation and write-down, etc., which amounted to DKK 1,129m against DKK 1,007m in the same period in 2003 (+12%). Goodwill amortisation and write-down, etc., totalled minus DKK 701m and minority interests were minus DKK 140m. Neither of the figures are comparable with last year due to the altered ownership structure of Carlsberg Breweries. Net interest-bearing debt was reduced by another DKK 1.1bn in the past quarter totalling DKK 22.3bn at the end of the quarter. During Q3, comprehensive refinancing of the credit facility obtained in connection with the acquisition of Orkla's shareholding in Carlsberg Breweries has been completed. The new loan agreements have been made on the same favourable conditions Carlsberg had prior to the acquisition of Orkla's shareholding in Carlsberg Breweries. The free cash flow of the Carlsberg group - prior to divestment of properties and the net effect of the Holsten acquisition - was DKK +546m against DKK +1,572m in the same period in 2003. The basis for comparison from last year was positively affected by substantial one-time reductions in working capital due to the implemented Cash Race programme. This year's cash flow also comprises a number of non-recurring factors with an adverse effect, including mainly the cash flow effect from last year's provisions for restructuring, which have been paid this year, as well as reduced deposits on returnable packaging in Denmark and lower excise duties payable in Finland (totalling a somewhat lower level as regards creditors). On this basis, the underlying cash flow is deemed to be relatively stable.

Due to the Q3 results and Q4 profit expectations in Carlsberg Sverige, the expectations to this year's operating profit are changed from DKK 3.5-3.7bn to approximately DKK 3.4bn. This figure includes a marginally higher gross margin than last year but also significantly higher marketing costs; not least as a result of EURO 2004 and the activities in Russia, which are expected to have a favourable effect on results in the long term. Furthermore, it is expected that approximately DKK 100m will be allocated for further restructuring initiatives in Carlsberg Sverige. This amount is expected to be entered under special items in Q4 and net special items for the full year are expected to total approximately minus DKK 250m. Lower financial costs and lower calculated tax than previously expected mean that Carlsberg A/S' share of profit (before amortisation and write-down of goodwill, etc.) is now expected to be approximately DKK 1.4bn against previously DKK 1.5-1.6bn (last year DKK 1,179m). Net interest bearing debt is expected to be about DKK 22bn at year-end. The forward-looking statements contained herein, including forecasts of sales and earnings performance, inherently involve risks and uncertainties and could be materially affected by factors such as global economic matters, including interest rate and currency developments, raw material developments, production and distribution related problems, breach or unexpected termination of contracts, price reductions resulting from market-driven conditions, market acceptance of new products, launches of competing products and other unforeseen factors. Carlsberg will only update and adjust the specifically stated expectations in as far as this is required by law, etc.


05 November, 2004