Carlsberg Lifts Forecast as Russian Market Improves

Beer volumes declined by 2% to 55.8m hl with an organic volume development of -3%. Excluding the Russian de-stocking effect in Q1, the estimated organic volume development was -1% for the first six months.

Aug 17 2010 --- The Carlsberg Group achieved 12% operating profit growth to DKK 5.0bn for the first six months of 2010 and driven by increased sales and marketing investments the Group gained market share in a large part of the business. The focus on improving profitability continues and Group operating profit margin improved strongly by 210bp to 17.2%.

Beer volumes declined by 2% to 55.8m hl with an organic volume development of -3%. Excluding the Russian de-stocking effect in Q1, the estimated organic volume development was -1% for the first six months. Asia continued the very strong growth at double-digit percentage rates. Northern & Western European volumes grew slightly organically. Eastern Europe, excluding Russia, reported double-digit organic growth. Russian volumes declined mainly due to de-stocking in Russia in Q1 and overall market decline following the 200% excise duty increase. Group organic beer volume development was flat in Q2.

In Northern & Western Europe, the overall market share started to improve after flat market share development in recent years. In Eastern Europe, market shares improved strongly with Russia improving sequentially to 40.1% in Q2 after 39.1% in Q1. In Asia, strong market share gains were once again achieved. This was driven by increased brand investments, product introductions, and continued value management efforts.

The Russian beer market declined by 9% in the first six months driven by significant price increases following the higher excise duty. Due to improving macro economics and slightly better consumer sentiment, Carlsberg now expects a high single-digit percentage decline for the Russian market for 2010 (previously expected low double-digit percentage decline).

Net revenue declined by 2% to DKK 28.9bn (DKK 29.4bn in 2009) with a -4% organic net revenue development. Price/mix was flat. Q2 net revenue increased by 2% to DKK 18.0bn (DKK 17.6bn in 2009) with organic development of -3%.

Operating profit increased by 12% to DKK 4,982m (DKK 4,443m in 2009) with 3% organic operating profit growth in the beverage activities. Currency movements impacted positively by 8%, mainly related to the ongoing recovery of the Russian Rouble. Q2 operating profit was DKK 4,247m (DKK 3,655m in 2009) with a 7% organic growth in the beverage activities. The Asian business delivered high organic operating profit growth throughout all six months and the Northern & Western European region reported 21% organic operating profit growth. In Eastern Europe, organic operating profit declined for the six months, but improved in Q2 compared to the weak Q1 that was affected by the Russian de-stocking.

Net profit was DKK 3,103m (DKK 1,728m in 2009) including the non-cash, non-taxable income in special items amounting to DKK 390m booked in Q1 related to new acquisition accounting regulation. Excluding this one-off item net profit grew by 57%.

Free cash flow was DKK 2,443m (DKK 4,100m in 2009) and net interest bearing debt was DKK 35.3bn (DKK 40.8bn end H1 2009). The change in working capital was according to plan and supports management's focus on reducing average trade working capital throughout the year.

Based on a more positive RUB exchange rate and a lower level of market decline in Russia than previously expected Carlsberg upgrades its full-year outlook:
• Operating profit is now expected at around DKK 10bn compared to previous expectations of operating profit being in line with that reported for 2009.
• Net profit growth is now expected to be around 40% compared to previous expectations of more than 20% (both excluding the DKK 390m one-off acquisition related special item).

Commenting on the results, CEO Jørgen Buhl Rasmussen says: “The Group's performance was strong for the first six months in spite of challenging consumer dynamics. We achieved higher margins in all three regions for the first six months showing that we are clearly on-track to meet our medium-term margin targets. We will continue to balance our plans to improve efficiency and margins with our ambitions to drive top-line growth. During 2010 we have successfully undertaken several initiatives that will help us strengthen our market positions across all three regions.”