Carlsberg Reports Profit Growth Despite Eastern Europe Challenges

10 Nov 2014 --- Carlsberg has reported positive market share development in Q3 and organic profit growth in spite of challenging Eastern European markets. Its 2014 outlook is maintained, the group said.

Commenting on the results, CEO Jørgen Buhl Rasmussen said: “The Group managed to deliver organic earnings growth and increased cash flow despite the market challenges in Eastern Europe.

Our results underpin the strength of our business model, brands and people as well as our ability and determination to execute on our key strategic priorities which will drive the value of the Group”.

Group financial highlights 

Group beer volumes declined organically by 2% (Q3: -2%), driven by the Eastern European market decline. Reported beer volumes grew by 4% (Q3: +5%) due to the acquisition at the end of last year of Chongqing Brewery in China. Other beverages grew organically by 6% (Q3: +6%). 

Net revenue grew organically by 3% as the positive price/mix of +4% more than offset the organic decline in total volume of 1%. Reported net revenue grew by 2% as a result of -6% from currencies and a net acquisition impact of +5%. The negative currency impact was due to weaker currencies in several markets, including Russia, Ukraine, Norway and Belarus.

Cost of sales per hl grew slightly as a result of negative operational leverage and write-off on obsolete stocks in Eastern Europe. Gross profit grew organically by 4%, while gross profit per hlincreased organically by 6%. The gross profit margin was up organically by 60bp (Q3: flat) to 50.2% (reported 49.6%).

Operating expenses grew organically by approximately 6%, mainly due to higher logistics costs, primarily in Eastern Europe, higher BSP1-related costs in Western Europe (approximately DKK 350m versus DKK 290m in 2013), and higher sales and marketing investments.

Group operating profit grew organically by 5% (Q3: +1%). We achieved organic operating profit growth in Western Europe and Asia while we saw an organic decline in Eastern Europe. Group operating margin grew organically by 30bp to 15.4% (reported 14.8%).

Adjusted net profit (adjusted for post-tax impact of special items) was DKK 4,422m (2013: DKK 4,474m). Reported net profit was DKK 4,246m (2013: DKK 4,344m).

Free operating cash flow was DKK 2,642m (2013: DKK 2,958m). For the first nine months, total working capital impacted cash flow negatively due to seasonality, higher invoiced prices and lower VAT payables. Average trade working capital continued to improve and was -3.7% to net revenue at the end of Q3 (MAT) versus -3.5% at the end of Q3 2013 (MAT). Free cash flow was DKK 2,611m (2013: DKK 2,492m).

Group operational highlights 

Our commercial agenda remains unchanged. In 2014, it has included the continued embedding and, in some mature markets, further development and improvement of our value management toolbox, which is an important driver of the Group’s overall market share gains and positive price/mix.

Our innovation agenda is a key priority and included the further roll-out of brands, concepts and innovations. 

Among the many activities were the further roll-out of Radler (now available in 11 markets), new packaging formats for Jacobsen, the roll-out of Seth & Riley’s Garage (now available in six markets),and further expansion of our proprietary DraughtMaster technology, which – in comparison to using steel kegs – enhances consumer experience and customer portfolios and revenue per hl positively. Additionally, we successfully launched the non-alcoholic beer Carlsberg Nordic in Denmark; Brewmaster’s Collection in Russia, Finland and Denmark; and K by Kronenbourg in France.

Supporting and expanding the market shares of our international premium brands is another key priority. The Carlsberg brand grew 3% in its premium markets, with particularly strong performance in markets such as India, China and France. As a result of the overall market decline in Eastern Europe, the brand volume was down in this region. Carlsberg’s second season as the official beer of the English Premier League kicked off in August and we activated the sponsorship in 66 markets. The activation of UEFA EURO 2016™ kicked off in September, when the qualifiers for the tournament began. 

Carlsberg and our local power brands will receive significant exposure during these matches. 

The Tuborg brand grew strongly by 23% as a result of impressive growth in Asia, particularly in China and India. 

The brand has become the fastest growing international premium brand in China and the no. 1 international premium brand in India. We continued the deployment of the brand rejuvenation programme which was rolled out in more markets, such as the Baltics, the Balkans and Nepal. ”Always Say Yes” – a fully integrated, 360 degree campaign, encompassing new TVC, print, digital and point-of-purchase materials for the on- and off-trade – was launched globally. 

Kronenbourg 1664 grew by 10%, partly as a result of easy comparisons last year due to French destocking in Q1 2013. 

Somersby continued its very successful progression, growing 43%. The key reasons for this impressive growth were continued positive performance in Poland, the UK and Portugal, the new activation programme #Friendsie, line extensions in established markets and launches in new markets. Somersby continues to be the fastest growing cider brand among the top 10 biggest ciders globally and is now available in 43 markets across the world.

Our Belgian abbey ale, Grimbergen, grew 30% for the nine months, and since 2011 it has been the fastest growing international abbey beer. We are continuing to expand the brand’s footprint and it is now available in 33 markets around the world.

We are expanding our digital activities and aim to continuously strengthen content, maximise connections and develop and implement tools and systems to reach consumers and customers. 

We use digital platforms such as YouTube, Twitter, Facebook, brand websites etc. Currently, our digital activities include #happybeertime for on-trade customers; the Carlsberg Premier League 
Live Match Centre; UEFA EURO 2016™ engagement through Facebook and Twitter; and in Denmark Zulu BFF, a new reality show showcasing multiple channel viewing.

During Q3 2014, Carlsberg joined forces with a coalition of the world’s biggest companies and non-profit organisations to launch a global digital media platform, “Collectively”, which aims to drive conversation and action on sustainability.

In March, BSP1 was rolled out in the UK and on 1 October, in Finland, Poland and Switzerland. 

The next wave of markets is expected to be in the spring of 2015.
The Western European beer markets grew by 0-1% for the nine months, but declined by an estimated 3% in Q3 cycling a strong quarter last year that was impacted by very warm weather in July.

Overall, our market share grew slightly for the nine months and by 50bp for Q3. We delivered good share performance in France, Denmark, Norway, Poland, Portugal, Italy, Greece, Germany and Bulgaria.

The Western European beer markets grew by 0-1% for the nine months, but declined by an estimated 3% in Q3 cycling a strong quarter last year that was impacted by very warm weather in July.

Overall, our market share grew slightly for the nine months and by 50bp for Q3. We delivered good share performance in France, Denmark, Norway, Poland, Portugal, Italy, Greece, Germany and Bulgaria.

Beer volume dynamics in our Asian region improved in Q3 versus the first six months. Our quarterly beer volume grew organically by 4%, putting beer volume for the nine months, measured in organic terms, on a par with last year. Including acquisitions, beer volume grew by 26% (Q3: +35%). 

We achieved particularly strong growth in India, Nepal, Cambodia and Laos, and for our international premium brands in China. Our Chinese volumes declined due to specific circumstances in some provinces. The acquisition impact related mainly to the consolidation of Chongqing Brewery Group. Other beverages grew organically by 12% (Q3: 12%), mainly due to strong performance in Laos.

As a result of driving our international premium portfolio, constantly upgrading local power brands and further strengthening our commercial capabilities, we grew market share in all Asian markets, except China.