![#](https://e-malt.com/Images/left_top_corner16x200.gif) | E-Malt.com News article: Denmark: Carlsberg announces its results for Q3 2005![Brewery news](https://e-malt.com/Images/BeerBullet2.gif)
Carlsberg reported on November 8 its results. The company announced that the third quarter brought continued growth in the business, and total beer sales volumes (calculated pro rata) for the first nine months were 10% up on last year. This included 4% organic growth, with positive contributions from BBH, Eastern Europe and Asia.
The Carlsberg brand made progress during the quarter, but nine-month sales volumes were down 3%, which should be seen in connection with the high sales figures during last year's EURO 2004 campaign. The Tuborg brand continued to grow rapidly with volumes up 10%, gaining ground in Russia, Bulgaria, Denmark and elsewhere.
The overall market scenario was unchanged in the third quarter: beer sales volumes generally showed a slight decline in Western Europe but continued to grow strongly in several Eastern European markets, including Russia. Net revenue grew by almost DKK 500m to DKK 10.7bn in the third quarter, due primarily to strong growth at BBH.
Third-quarter operating profit increased by 8% to DKK 1,571m, with growth in all regions except Asia, where investments in the marketing of Carlsberg Chill in China were carried out.
The arbitrations between Carlsberg and Chang (Thailand) were settled during the quarter, ending more than two years of dispute between the parties. Carlsberg sees considerable market potential in Asia and will continue its expansion strategy in the region.
Beer sales totalled 21.2m hl in Western Europe, an increase of 3% including growth due to the acquisition of Holsten last year. Adjusted for this, organic volume growth was -3%, which can be attributed in part to a decision to sell smaller volumes in the discount segment in Sweden. Net revenue totalled DKK 19,405m, down 3% on last year. Excluding the Holsten acquisition, organic revenue growth was around -5%. There was an increase in the average price per hl of beer in the third quarter, leaving beer prices for the first nine months unchanged. Sales of soft drinks and water were down on last year, due mainly to lower sales in Sweden and Denmark.
Operating profit was DKK 1,680m (2004: DKK 1,750m). A weaker performance at the start of the year, due in part to the consolidation of Holsten's first quarter, was followed by improvements in the second and third quarters.
The EBIT margin was 13.1% in the third quarter, an increase of 1.4 percentage points, continuing the improvement seen in the second quarter. However, the EBIT margin for the first nine months was still marginally down on last year, which underlines how market conditions necessitate an unwavering focus on costs and the use of capital.
The Nordic market still features dwindling volumes and fierce competition, but progress has been made in the third quarter in all markets through the launch of new products, price increases and cost savings. Carlsberg Sweden has been turned around and reported much better earnings than last year.
The UK market is seeing intense competition and continued growth in the off-trade at the expense of the on-trade.
BBH enjoyed another quarter of progress and growth. Beer sales for the first nine months grew by 13% to 16.0m hl.
All markets performed well in the third quarter, with growth of 5% in Russia, 9% in the Baltic States, 24% in the Ukraine and 22% in Kazakhstan.
BBH gained ground and strengthened its position in the Russian market to achieve a market share of 36.5% in the first nine months, up 2.9 percentage points on the same period last year. There was an overall price/mix improvement of just under 7% for the first nine months. Together with volume growth of 13%, this led to growth in net revenue of 20% to DKK 5,106m. Operating profit was DKK 1,069m, an increase of 22%, and the EBIT margin was 20.9%, an increase of 0.4 percentage points.
BBH is continuing to work towards the operational integration of its breweries in Russia. As part of this project, it is looking to merge the Baltika, Pikra, Vena and Yarpivo breweries on terms to be determined on the basis of an independent external valuation; work on this has begun. The overall project is viewed as a proactive market initiative to increase the profitability of operations in Russia and so create value for all shareholders.
Beer sales totalled 9.7m hl in Eastern Europe, an increase of 13%, including organic growth of 12%.
Net revenue climbed 17% to DKK 2,639m, and operating profit was DKK 222m (2004: DKK 87m). The Polish operations continue to make progress as a result of the Excellence programmes and product innovation. The Balkan operations are also performing well, fuelled in particular by growth in Serbia for the local brand Lav and the launch of Tuborg Green.
Türk Tuborg reported lower third-quarter earnings than last year, and so nine-month earnings were on a par with last year.
Beer sales totalled 6.0m hl, an increase of 29%, including 3% organic growth. The remainder of the increase was due to the breweries acquired in western China. Net revenue climbed 6% to DKK 1,215m (excluding revenue at associated undertakings in South Korea and China), while operating profit fell 11% to DKK 301m, due mainly to costs associated with the launch of Carlsberg Chill in China, which are reducing earnings in the short term. The high level of marketing activity for Carlsberg Chill in China will be maintained during the rest of the year.
OTHER ACTIVITIES Other activities include the development and sale of properties, primarily at the former Tuborg site in Copenhagen, and the operation of the Carlsberg Research Center. These activities generated operating profit of DKK 19m for the first nine months, against DKK 425m last year, which saw substantial gains on sales of properties.
COMMENTS ON THE ACCOUNTS As of 1 January 2005 the accounting policies have been modified to comply with the requirements of applicable International Financial Reporting Standards (IFRS). This interim report has been prepared in accordance with the recognition and measurement requirements of IFRS and Danish disclosure requirements for interim reporting by listed companies. The impact of the transition to IFRS and a review of the accounting policies applied were reported in the stock exchange announcement of 20 April 2005.
INCOME STATEMENT
The first nine months of the year brought net revenue of DKK 28,533m, an increase of 5% on the same period last year. DKK 600m or 2% of this revenue came from acquisitions, primarily Holsten.
Gross profit amounted to DKK 14,638m, an increase of 5%, and the gross margin was 51.3%, an increase of 0.4 percentage points.
Marketing costs totalled DKK 1,594m or 5.6% of net revenue (2004: 6.4%). This reflects partly the extraordinarily high costs during EURO 2004 and partly a shift away from marketing costs in favour of direct selling costs at BBH.
Other operating costs climbed 11% to DKK 10,145m. Much of the increase can be attributed to the substantial gains on sales of properties in 2004.
Operating profit fell to DKK 2,899m on account of reduced income from Carlsberg A/S' sales of properties. Operating profit from beverage activities was DKK 2,880m, an increase of DKK 330m or 13% due to growth at BBH and in Eastern Europe.
Special items, net, amounted to DKK -495m (2004: DKK -800m). The 2004 figure consisted primarily of losses for accounting purposes due to the outsourcing of Carlsberg UK's servicing of draught beer equipment and restructuring provisions relating to the Holsten acquisition. The 2005 figure includes both redundancy costs in connection with the Excellence programmes and payments resulting from the settlement with Chang with regard to the adjustment of the purchase price for shares in Hite and Lao Brewery.
Financial items, net, came to DKK -899m and were therefore on a par with last year 2004 (DKK -890m).
Tax on the profit for the period was DKK 495m, corresponding to an effective tax rate of 33%. Adjusted for the profit effect of the settlement with Chang, which is not tax-deductible, the effective tax rate was 28% (2004: 27%).
Consolidated profit was DKK 1,010m, against DKK 935m for the same period last year. Minority interests' share of the profit for the period was DKK 217m, against DKK 155m last year, due mainly to minority interests in BBH. However, these figures are not directly comparable because the first quarter of 2004 included a positive contribution of DKK 93m relating to Orkla's minority holding in Carlsberg Breweries in January and February 2004.
Carlsberg A/S' share of the profit for the period was DKK 793m, against DKK 780m last year.
CASH FLOW AND INTEREST-BEARING DEBT Cash flow from operating activities totalled DKK 2,365m for the first nine months, against DKK 2,856m in 2004. The decrease of DKK 491m was due to higher payments of restructuring costs (DKK 129m) and an increase in working capital (DKK 327m), especially in Western Europe. Cash flow from investing activities totalled DKK -2,060m, against DKK -2,318m last year (includes the Holsten acquisition in 2004 and sales of properties). Capital expenditure amounted to DKK 2,148m, against DKK 2,384m last year, a decrease of 10% due to a reduced need to invest in PPE in Western Europe.
Free cash flow was DKK 305m, against DKK 538m last year. Excluding sales of properties, the Holsten acquisition in 2004 and payments of restructuring costs, free cash flow was DKK 433m, against DKK 808m last year. Free cash flow this year was also reduced by DKK 494m by the Carlsberg Asia dispute; adjusted for this, free cash flow for the first nine months was DKK 927m. Cash and cash equivalents increased to DKK 2,088m at the end of the period, against DKK 480m at the same time last year.
Net interest-bearing debt totalled DKK 24.3bn at the end of the third quarter, an increase from the beginning of the quarter. Debt levels have been affected by the acquisition of minority interests, most notably in BBH, and by transactions relating to the settlement between Chang and Carlsberg. A total of around DKK 1.6bn has been invested in this during the year.
EARNINGS EXPECTATIONS Based on the results for the first nine months, our expectations for 2005 operating profit are unchanged.
Assuming current exchange rates, net revenue is expected to grow to around DKK 38bn (2004: DKK 36.3bn).
Operating profit (EBIT) from beverage activities is, as previously announced, expected to be around DKK 3.4bn, an increase of around 14% on 2004, while other activities, primarily property, will contribute a modest profit.
Special items, net, now include the effect of the settlement of the Carlsberg Asia dispute, which will amount to around DKK -250m. Our expectation for this item is therefore now DKK -550m rather than the previously announced DKK -300m.
Carlsberg's share of the profit for the year before the effect of the Carlsberg Asia settlement is still expected to grow by around 15% from the IFRS-adjusted figure for 2004 of DKK 1,100m.The costs associated with the Carlsberg Asia dispute mean that reported profit is expected to be around DKK 1bn.
The above forward-looking statements, including the forecasts of future revenue and earnings, reflect management's current expectations and are subject to risks and uncertainty. Several factors, some of which will be beyond management's control, may cause actual developments to differ materially from the expectations expressed. Such factors include – but are not limited to – matters presented in previously published material from Carlsberg A/S, most recently in the 2004 annual report.
08 November, 2005
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