Carlsberg A/S Annual Report 2006 Annual Report 2006 Management review 1 Profi le 2 CEO statement 4 Five-year summary 5 Results and expectations 7 Strategy 10 Markets 12 Western Europe 16 Baltic Beverages Holding 20 Eastern Europe excl. BBH 24 Asia 28 Other activities 30 People and management 34 Social and environmental responsibility 38 Shareholder information 42 Corporate governance 47 Risk management 49 Financial review Financial statements 57 Consolidated fi nancial statements 58 Income statement 59 Statement of recognised income and expenses for the year 60 Balance sheet 62 Statement of changes in equity 63 Cash fl ow statement 64 Notes 110 Group companies Carlsberg A/S 113 Parent Company fi nancial statements CVR No. 61056416 Ny Carlsberg Vej 100 134 Management statement DK-1760 Copenhagen V, Denmark 135 Auditor’s report Phone: +45 3327 3300 136 Board of Directors, Executive Board and Fax: +45 3327 4701 other senior executives E-mail: [email protected] www.carlsberg.com This report is provided in Danish and in English. In case of any discrepancy between the two versions, the Danish wording shall apply. Probably the best … Carlsberg is one of the world’s largest brewery groups. We have a beer for every occasion and for every palate and lifestyle. The Group’s broad portfolio of beer brands includes Carlsberg Pilsner, known as Probably the best beer in the world, and strong regional brands such as Tuborg, Baltika and Holsten. We also have a wide range of leading brands in our local markets. We operate primarily in mature markets in Western Europe but are generating an ever-growing share of revenue in selected growth markets in Eastern Europe and Asia. Carlsberg’s business builds on a proud history. We were founded in 1847 and have always been renowned for consistently high quality. In recent years things have really taken off. Expansion and dynamic marketing extern- ally, and streamlining and innovation internally, have brought growth in both revenue and earnings. Carlsberg A/S, the Parent Company of the Group, is owned by 20,000 institutional and private investors all over the world and is listed on the OMX Copenhagen Stock Exchange. 51% of the shares are held by the Carlsberg Foundation, established by Carlsberg’s founder J.C. Jacobsen, which backs the Company as an active and long-term shareholder as well as supporting scientifi c research. No. 1 83 million 10 billion We are the No. 1 brewer We sell 83 million That is more than in Northern Europe and bottles of beer every day 10,000,000,000 litres in the top 10 worldwide of beer a year DKK 41bn 15% 10% Sales revenue totalled Operating profi t rose The operating margin DKK 41 billion in 2006 by 15% to DKK 4,046 climbed to 10% million in 2006 60% 30,000 150 countries Carlsberg’s share price The Group has We sell beer in more than gained more than 60% 30,000 employees 150 countries in 2006 2 Management review / Carlsberg Annual Report 2006 A good year for Carlsberg 2006 was a good year for Carlsberg – and a great This makes it all the more remarkable that Carlsberg’s launch pad for Carlsberg’s future. breweries in Western Europe managed to sell slightly more in 2006 than the year before. Coupled with lower Thanks to both well-known and new products, and to costs due to recent years’ investments in our Excellence ever more effi cient means of producing, marketing, sell- programmes, this led to a 20% increase in operating ing and distributing these products, we strengthened our profi t, which we can consider satisfactory. position in most markets. This meant that we markedly in- creased volumes, revenue and, not least, earnings. It was the Nordic countries that delivered the lion’s share of the earnings growth seen in Western Europe, with When acquisitions and divestments of breweries are ex- solid progress in every one of them, but developments in cluded, volumes grew by 5%, resulting in revenue of the UK, Switzerland and Germany were also pleasing. DKK 41bn and operating profi t of DKK 4,046m. Only Italy and Portugal failed to match expectations – and we will be doing something about that in 2007. This is an all-time record for Carlsberg. Although Carlsberg has long been a well-known name worldwide, Eastern Europe continued the rapid growth of recent until just a few years ago we were the market leader in years, and once again the main reason was Baltic Bever- only a handful of countries. Today we are the leading ages Holding (BBH), which is Carlsberg’s growth engine. brewery in a large number of countries. This business has been built up in less than 15 years and its consistent progress is without parallel in the recent his- I think that 2006 was a year of which we can be proud. tory of the European brewing industry. We supplied millions of customers in almost every coun- The merger of BBH’s Russian breweries into the new try of the world with beer and soft drinks which, we Baltika was implemented in 2006, and we are daring hope, contributed to many happy and enjoyable mo- even now to consider it a success, as costs have been ments. cut and the product range strengthened. This resulted in increased market share and earnings growth of no less We also delivered more to our shareholders than we pre- than 37% in 2006. dicted at the beginning of the year, and our share price gained more than 60%. The Balkans exceeded expectations in terms of both revenue and earnings. Progress was made in Turkey, but So 2006 has helped to future-proof Carlsberg – to en- without achieving satisfactory earnings, while Poland sure that we continue to be successful in rising to the was a downright disappointment after good results in challenges of the mature markets of Western Europe, 2005. further increasing revenue in the growth markets of East- ern Europe, and strengthening our position in good time At present we generate less than 10% of our operating in the emerging markets of Asia, where we are already earnings in Asia. But we are taking a long-term ap- clearly seeing the contours of tomorrow’s growth. proach in this market, and in 2006 we again saw how quickly both the economy and consumption are grow- This Annual Report includes a detailed review of devel- ing. The sale of our minority stake in South Korean brew- opments in the three regions in which Carlsberg has its ery Hite reduced operating profi t by DKK 116m, but this main markets. was partly offset by earnings growth of more than 20% in the rest of our Asian operation. The overall result was Allow me to highlight a few key areas, starting in West- therefore almost on a par with 2005, which is better than ern Europe, where the demographic trend has meant expected and underlines just how much potential the re- declining beer markets for several years. gion has for us in the longer term. Carlsberg Annual Report 2006 / Management review 3 At the start of 2006 we were awarded investment-grade tomers, suppliers and other partners for a rewarding ratings by two of the world’s leading credit rating agen- business relationship – and not least our shareholders cies, which can be taken as a stamp of approval for the for their faith in our strategy. way in which we are investing in and developing our business. Following a decrease in our net debt to DKK 2007 will be an exciting year of many challenges. We will 19bn at the end of 2006, as promised after buying back build further on the positive trends from 2006 by further Orkla’s stake in Carlsberg Breweries at the beginning of strengthening our many strong companies and continu- 2004, Carlsberg has a healthy balance sheet, giving us ing to build our brands and our employees’ skills so that the fi nancial latitude needed to continue the business’s we can perform at our very best. positive development. Following a generation change at a number of subsidi- This increased freedom, our stronger organisation and aries, and with forward-looking talent and management recent years’ progress in our brewery operations to- development programmes in place, we are also well gether give us a good basis from which to pursue am- equipped for the future organisationally. bitious targets in the coming years, when we will be focusing primarily on the following four areas: We continue to aim high. We want to be the best beer company in the world – probably. • Increasing operating profit in Western Europe to 10- 12% of revenue. 2007 will be a year that takes us closer to this goal – • Continued progress at BBH. with a major helping hand from the results achieved in • Building a future-proof platform in Asia. 2006. • Optimising the value of the company’s unused brew- ery properties. Nils S. Andersen Our increased competitiveness and the prospect of a better economic climate in Western Europe also provide scope for growth ambitions in our mature markets. Closer relationships with our customers and an ex- tended product range through the development of new products, such as the Jacobsen specialty beers and the DraughtMaster system, will make it possible for us to pursue this goal. Work on boosting the Group’s competitiveness will natu- rally remain a key focus area going forward. We have amassed considerable experience from our Excellence programmes, and in 2007 we will work further on cutting costs by pooling administrative functions.