Carlsberg A/S Annual Report 2008 Carlsberg A/S Annual Report 100 Ny Carlsberg Vej 1760 Copenhagen V 2008 Denmark Phone: +45 3327 3300 Fax: +45 3327 4701 E-mail: [email protected] www.carlsberggroup.com CVR No. 61056416 Northern & Western Europe Beer volume 51m hl Net revenue DKK 37.1bn Operating profit DKK 4bn See page 28 for regional performance. 47% OF TOTAL VOLUME Operating profit Share of operating profit* DKKbn % 5 60 4 50 3 40 2 30 1 20 0 10 2007 2008 * Before not allocated expenses and other activities (rhs) Eastern Europe Operating profit Share of operating profit* DKKbn % 43%OF TOTAL VOLUME 5 50 4 40 Beer volume 46.8m hl Net revenue DKK 19.1bn 3 30 Operating profit DKK 4.1bn 2 20 See page 32 for regional performance. 1 10 0 0 2007 2008 * Before not allocated expenses and other activities (rhs) Asia Beer volume 11.5m hl Net revenue DKK 3.6bn Operating profit DKK 511m See page 36 for regional performance. 10%OF TOTAL VOLUME Operating profit Share of operating profit* DKKbn % 0.6 7 0.5 6 0.4 5 0.3 4 0.2 3 0.1 2 2007 2008 * Before not allocated expenses and other activities (rhs) The world’s fourth largest brewery group 2008 was a year of significant progress and strong results Beer volume, pro rata Net revenue Operating profit Operating margin EPS (Million hl) (DKKbn) (DKKbn) (%) (DKK) 120 70 10 15 25 100 60 8 13 20 80 50 6 11 15 60 40 4 9 10 40 30 2 7 5 20 20 0 5 0 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 Organic development Full bar shows Group total Management review 4 CEO STATEMENT 8 FIVE-YEAR SUMMARY 4 10 2009 EARNINGS EXPECTATIONS Markets and strategy 14 GLOBAL BEER MARKETS 12 16 MARKET OVERVIEW 18 BRAND PORTFOLIO 20 STRATEGY 24 EXECUTIVE COMMITTEE Regional performance 28 NORTHERN & WESTERN EUROPE 26 32 EASTERN EUROPE 36 ASIA 40 EVENTS IN THE MARKETS Finance and risk 46 FINANCIAL REVIEW 44 52 RISK MANAGEMENT Corporate matters 56 CORPORATE RESPONSIBILITY 54 58 CORPORATE GOVERNANCE 64 SHAREHOLDER INFORMATION Financial statements 70 CARLSBERG GROUP 68 140 PARENT COMPANY CARLSBERG A/S 170 MANAGEMENT STATEMENT 171 AUDITORS’ REPORT 169 172 BOARD OF DIRECTORS This report is provided in Danish and in English. In case of any discrepancy between the two versions, the Danish wording shall apply. 4 Management review: CEO statement A new Carlsberg THE TRANSFORMATION 2008 was a truly special In May and June Carlsberg successfully carried year and marked a mile- out a rights issue. We raised new capital of around stone in Carlsberg’s history. DKK 30bn to help fi nance the Scottish & Newcastle The acquisition of Scottish & transaction, which amounted to a total of around Newcastle together with Heineken DKK 57bn. Unfortunately, since the rights issue the was by far the largest transaction share price has been heavily impacted by the global in Carlsberg’s history, immediately economic recession. increasing Carlsberg’s beer sales by 33% (pro rata). Carlsberg is now a much larger Business development player in the global brewing industry with a strong position as the world’s fourth largest 2008 was a year of substantial business integration brewer. More importantly, Carlsberg holds a following the acquisition of assets from Scottish strong position in virtually all of the markets in & Newcastle. It was also another year of signifi - which we have chosen to compete. cant progress and strong results. During the year Carlsberg continued to develop its business in line The acquisition has transformed Carlsberg into a with its stated strategy, building on its strong brand far larger player with new ambitions and goals, full portfolio and execution skills throughout the Group. control over key parts of its business, and a much clearer growth profi le than before. Our business Although not immune, the beer category is resilient portfolio is now more exposed to growth markets, to economic recession. However, market conditions especially Eastern Europe. Our operations in softened further in the fourth quarter of the year. Northern & Western Europe still provide a mature In Northern & Western Europe, consumer spending and stable foundation for the portfolio, while Asia declined in both the third and fourth quarters provides Carlsberg with exposure to additional long-term growth and development. The process leading up to the takeover date was lengthy, demanding an extraordinary effort from S&N ACQUISITION many people in our organisation. In order to be well prepared, Carlsberg set up internal working 28 April 2008 brought formal groups well before the takeover agreement was approval for Carlsberg’s acquisition of Scottish & Newcastle together signed to plan and implement the subsequent ma- with Heineken. Carlsberg acquired the jor task of welcoming the acquired businesses and remaining 50% of Baltic Beverages integrating them into the Carlsberg Group. Thus Holding (BBH), the French brewer 2008 was a year in which the focus was mainly on Brasseries Kronenbourg, the Greek ensuring seamless integration and on working and brewer Mythos, a stake in Chinese delivering on the opportunities that the new, bigger brewer Chongqing, and a new joint venture in Vietnam. Carlsberg has to offer by combining the best of the acquired businesses with the best of the former Carlsberg Group. 6 Management review: CEO statement resulting in market growth being lower than trend Net revenue climbed 34% to DKK 59.9bn (DKK volume development. However, the impact of 44.8bn in 2007), organic growth amounted to 8% the recessionary environment did not impact all (5% in DKK). Strong focus on brand-driven value markets equally and signifi cant individual factors growth through pricing and mix continued, and price impacted some markets. The United Kingdom, increases were implemented throughout the year. Denmark and the Baltic markets in particular were However, above-average volume growth in low- severely hit by sharp declines in consumption driven priced markets capped the net effect of growth on by the on-trade in the United Kingdom, a signifi cant net revenue per hl beer at 5%. increase in promotional price points in Denmark and severely deteriorating economies across the Baltic Operating profi t before special items increased by States. 52% to DKK 7,979m (DKK 5,262m in 2007) with organic growth of 9% (6% in DKK). Beverage activ- Growth in the markets in Eastern Europe also ities generated operating profi t of DKK 7,605m decelerated in the second half of the year as the ex- (DKK 5,001m in 2007), an increase of 52%, of which pected recovery in the Russian beer market failed to 7% was organic growth (4% in DKK). This improve- materialise, initially due to extremely poor weather ment was driven by continued growth in Eastern and then due to increasing uncertainty about Europe and Asia. Other activities, including the sale the economic outlook. In Asia, growth continued of real estate, generated operating profi t of DKK throughout the year with beer markets only mar- 374m (DKK 261m in 2007). ginally affected by the weaker economic outlook. Net profi t climbed 15% to DKK 2,631m (DKK 2,297m Carlsberg Group beer volumes were up 33% to in 2007). The average number of shares in circula- 109.3m hl of beer (calculated pro rata) versus 82.0m tion increased during the year from adjusted 94.5m hl in 2007. Organic growth accounted for 3% of this to 118.8m due to the rights issue, and earnings per increase and acquisitions for 30%. share were DKK 22.2 (DKK 24.3 in 2007). Earnings for the year were therefore in line with the updated expectations published in connection with the fi nancial statement for the third quarter released on 5 November 2008. A stronger Carlsberg Carlsberg is now a stronger business, and the OTHER ACTIVITIES acquired businesses will play a key role in the future In addition to beverage activities, development of the Carlsberg Group. Successful Carlsberg has interests within sale of real integration of the acquired assets is key to our goal estate, primarily at its former brewery of building stronger regional units. Previously an- sites, and the operation of the Carlsberg nounced plans for securing transaction synergies Research Center. These activities are on track and being implemented in France and generated net operating profi t of DKK the former BBH business. Full control over the 374m in 2008 against DKK 261m in 2007. former BBH business allows us to respond more Monetising the value of redundant quickly to changing market conditions and to assets, including brewery sites which ensure the unique strengths of this business can are no longer used in operations, remains be exploited versus competition in the region. an important focus to provide additional capital to the rest of the Group and During the course of 2008 a series of initiatives was enhance return on invested capital. The move from Valby and the realisation implemented to continue to optimise the produc- of capital from this substantial site in tion network. In Denmark, the brewery in Valby, central Copenhagen remain on track, Copenhagen, was closed as planned at the end of notwithstanding the changed economic the year. In Italy, production has been concentrated environment. In January 2009, the City at the Varese brewery north of Milan, and produc- of Copenhagen gave the necessary tion has ceased at Ceccano. In Portugal, it has been approval for the redevelopment of this site. This approval provides for 600,000 decided to close the brewery in Loulé. In the United sqm of redeveloped space. Carlsberg Kingdom, Carlsberg has proposed the closure of will continue to work to release the brewery in Leeds.