Denmark: Carlsberg releases financial results saying annual profit expectations are maintained

Denmark’s Carlsberg announced on August 11 its financial results for the second quarter of 2005. The company says they obtained good results in Q2 and annual profit expectations are maintained.

• Beverage activities showed increased profit in all regions in Q2.
• Net revenue increased by 5% in H1 to a total of DKK 17.8bn, driven by the positive trend in BBH and the other Eastern European activities.
• Operating profit (EBIT) in H1 amounted to DKK 1,328m of which profit from beverage activities accounted for DKK 1,314m (DKK 1,105m in H1 2004), corresponding to an increase of 19%.
• Carlsberg's share of profit for H1 increased to DKK 314m (DKK 104m in H1 2004).
• Annual profit expectations maintained. Operating profit approximately DKK 3.4bn, Carlsberg's
share of profit up by approximately 15%.

BUSINESS DEVELOPMENT
H1 shows a healthy development with progress in activities and profitability. Beer volumes (calculated proportionally) rose by 13%, of which 6% was organic growth, and operating profit from beverage activities was up by 31% in Q2 and 19% in H1. The growth markets in Eastern Europe, including Russia and Poland, have contributed significantly to this development.

The Carlsberg brand saw a decline of 5% which should be seen in the light of the fact that last year's figures included significant sales in connection with EURO 2004. The Tuborg brand achieved a substantial 15% increase in volumes. Despite continued weak markets, the Western European region experienced a good Q2 driven by Sweden, Germany, and others, but the region is still behind last year's earnings at H1 following the weak start of the year. The Excellence programmes maintain a positive trend in profitability despite weak market trends.

The initiatives are implemented in accordance with the plan and are providing the expected efficiency and savings; i.e. in the order of DKK 800m at the end of 2006 compared to the cost base in 2002. As a supplement to the Excellence programmes, a number of the Group's other processes and functions are being reviewed in order to identify savings and rationalization potentials. As part of this process, Carlsberg has entered into an outsourcing agreement regarding IT-services in Europe and has concentrated its European media planning and buying services.

During the past quarter, the ownership share in Carlsberg Malaysia Berhad was increased to 51.0% from 49.7%.

Carlsberg is also expanding in the important growth markets in Asia, and Western China and Vietnam are the most dynamic markets. During the past quarter, Carlsberg has signed a letter of intent regarding strategic cooperation with the Vietnamese brewery Habeco, Hanoi Beer Company.

Carlsberg believes that it is crucial for the company's future strength to be at the leading edge of the changes expected to take place in the markets where the Group is active and systematically look for new market opportunities. Consequently, Carlsberg is making targeted efforts to continuously optimize capital expenditure and operational development of the Group's activities.

In Western Europe, total beer sales amounted to 13.3m hl, corresponding to an increase of 4%. Adjusted for the acquisition of Holsten, beer sales were 5% down on the corresponding period last year, however - when taking into consideration the planned volume reduction in Sweden and last year's sales related to EURO 2004 - it was actually slightly better than the general market development in the region. Net revenue totalled DKK 12,247m, corresponding to a 3% decrease compared to last year. The organic development in revenue was minus 7% and beer prices showed an average decline of 2%. However, price developments were more favourable in Q2, among other things due to increased prices in UK and Sweden.

Operating profit amounted to DKK 741m (DKK 886m in H1 2004). The profit decline is primarily due to the weak markets at the beginning of the year, whereas the past quarter showed progress resulting in a 1.8%-point increase in the profit margin to 11.9%. Despite the positive development in Q2, market conditions make it necessary continuously to consider costs and capital expenditure. In Q2, the Nordic region realized marginally better results than last year. However, the general market situation is still characterized by tough competition and declining volumes. In Denmark, the re-launch of the old Carlsberg bottle reversed the decline. However, it has not yet lifted sales to previous levels and together with logistics problems, this led to a decline in earnings in Q2 as well. Carlsberg Sverige achieved improved results due to price increases combined with cost savings. Ringnes in Norway showed reduced results for H1 due to a weak market. The Norwegian government has decided to remove the tax on PET non-returnable bottles, which may lead to a need for structural changes in Ringnes.

BBH continued its strong progress and at H1 beer sales had risen by 15% to 9.7m hl. Net revenue was DKK 3,037m (up 19%). BBH's markets generally developed favourably in H1. Russia rose by 4%, the Baltic States rose by almost 7%, and the Ukraine and Kazakhstan rose by 19% and 22%, respectively. BBH strengthened its position in the important Russian market and managed to increase its market share to 36.3% (up 4.1%) through 17% growth. The growth was driven by sound progress in the premium segment as well as continued strong growth in the low-priced PET-segment, and BBH holds a favourable position in both these market segments. In the premium segment, Tuborg distinguished itself by more than doubling its volume and the brand Baltika no. 7 rose by 29%. Operating profit totalled DKK 568m, corresponding to an increase of 33% and the profit margin thus rose to 18.7% (up 2.0%-point).

Earlier in the year, BBH announced the launch of a project aimed at carrying through operational
integration of the individual breweries in Russia. The objective is to optimize sales, production,
logistics, etc. and ensure that customers are offered outstanding service. In its present phase, the
project work is focused on best-practice identification. As a whole, the project is regarded as an
offensive, market-orientated initiative to increase profitability in the Russian activities and consequently create value for all shareholders.

Eastern Europe saw beer sales of 6.1m hl, corresponding to an increase of 22% with organic growthconstituting 18%.

Total sales rose to DKK 1,619m (up 24%) and operating profit amounted to DKK 94m (minus DKK 39m in H1 2004). The favourable development was particularly driven by Poland where the past years' optimisation and simplification efforts are now reflected in the results. The activities in Bulgaria, Serbia and Croatia also show sound developments whereas Türk Tuborg is still loss-making despite progress.

Beer volumes totalled 3.8m hl, corresponding to an increase of 36% of which 10% is organic while the rest derives from the breweries acquired in Western China. Net revenue rose by 3% to DKK 782m (not including revenue from associated undertakings in South Korea and China), and operating profit was unchanged at DKK 204m. Costs related to the marketing of Carlsberg Chill in China put a strain on earnings in the short term. In Malaysia, the rise in excise duty levels led to increased retail prices and lower sales.

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