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Minor setback for Carlsberg

18-Aug-2003

Baltic Beverages Holding, the joint venture brewing group owned by Carlsberg and Scottish & Newcastle, has boosted results at both companies in recent quarters as it has expanded rapidly throughout eastern Europe, but the negative impact of currency exchanges at the unit has now begun to take its toll, with Carlsberg announcing a decline in revenues for the first half of the year.

Net revenues for the half were down 7 per cent to DK16.3 billion (€2.2bn) while operating profits were particularly badly affected, dropping 31 per cent to €1.2 billion

 

Sales in western Europe were down 5 per cent for the half to DK12.4 billion, while operating profits were some 24 per cent lower at DK753 million, primarily due to the sale of the Swiss soft drinks and wine business, adverse currency translations with the UK and increased marketing costs.

 

In the Nordic region, beer sales declined slightly during the period, particularly in Sweden, impacted by a weak on-premise sector. The market was characterised by severe price competition especially in Systembolaget, the state monopoly outlet, and this led to a market share reduction for Carlsberg Sverige. The company is considering restructuring its Swedish business in a bid to revitalise its business there.

 

In Denmark, the market was characterised by increasing parallel imports of beer and soft drinks, while in the UK, the Carlsberg brand achieved a 5 per cent gain and Tetley's maintained volume in the decreasing ale market.

 

Eastern Europe, where the company operates primarily through BBH, also saw a marked decline, with sales down 9 per cent to DK3.5 billion and operating profits slumping 24 per cent to DK503 million. The declines were due almost entirely to exchange rate declines, which had a negative impact of DK431 million over the half.

 

BBH's net revenues declined by almost 14 per cent to DK2.05 billion, despite a 5 per cent increase in volumes, while operating profits of DK453 million were DK182 million below last year, mainly because of exchange rate developments but also because it was not possible to increase sales prices in line with inflation (among other things because of increased beer duties).

 

BBH's market share in Russia was 33.4 per cent during the half, 0.3 percentage points up on last year. The Russian beer market continues to be one of the most dynamic in Europe, growing by 8 per cent in the second quarter alone, and BBH's performance there continues to outperform even that, rising 10 per cent during the same quarter.

 

In Asia, where Carlsberg recently announced it was scrapping plans for a joint venture with Chang Beverages, the company posted sales of DK472 million for the half, some 15 per cent lower than in 2002, while operating profits were 14 per cent lower at DK208 million.

 

But despite the joint venture setback, and the ongoing impact of exchange rate translations, Carlsberg is still convinced that Asia offers positive development possibilities, and that the region holds major potential for the Carlsberg brand. This is borne out by the excellent volume growth during the half - sales rose 16 per cent to 2.2 million hectolitres.

 

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