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Home | News | International | Carlsberg Q3: journey progresses

Carlsberg Q3: journey progresses

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CEO Cees t'Hart: craft, alcohol-free strengths

Funding the Journey on target for DKK 2bn cost cuts

The headline figures presented by Carlsberg for its third quarter weren’t particularly positive. But there were numerous promising indications in the underlying performance to suggest that progress is being made towards the Danish brewer’s better tomorrow.

Beer volumes declined for the July-September months, by 4% on an organic comparison and by 6% overall, from 40.0 to 27.5 million hectolitres.

Net revenues declined, but by not as great a percentage, DKK 48.447 billion, a one per cent decline against the same three months in 2016. The difference indicates a lessening reliance on lower margin discount brands in favour of better margin brands.

And there was volume growth in segments specifically targeted by Carlsberg in its current five year plan, namely craft and specialty beers. Volumes were up 34% for the quarter, alongside a 14% gain in alcohol-free volumes in Western Europe. Grimbergen and 1664 Blanc volume growth was 7% and 42% respectively.

In Asia net revenue grew organically by 7%, with a 5% improvement on price mix and a 2% gain in beer volumes to 11.2mhl.

“North east China and other Asian markets were important contributors to the growth of 1664 Blanc. In Q3 our craft and speciality products grew volumes by 34% serving as evidence of our successful focus on craft and speciality,” said CEO Cees t’Hart.

“Our alcohol-free brews are also gaining momentum, delivering 14% volume growth in the Western European markets in the quarter. There was particularly strong in markets such as France, Denmark, Poland and Greece.”

Tuborg volumes grew by 5% with a strong performance in China alongside market launches in Laos and Vietnam. Flagship premium lager Carlsberg had a modest 1% increase in volumes, with string performances in Poland and China offset by the decline of lower-strength variant Carlsberg Green in the UK and difficult market conditions in India.

In Western Europe the brewer’s least controllable element – inclement weather – was blamed for poor performances, especially in the Nordic countries, during the summer months. That said, while volumes fell market share was gained in all Nordic markets save Finland.

In Italy there was volume growth, with a key driver the continuing expansion of the DraughtMaster PET keg system in the on-trade.

In Eastern Europe Carlsberg’s organic net revenue declined by 2%. There was a trade-off between volumes and revenues in the region. The price mix improved by 10%; against this volume declined by 10% to 9.3 million hectolitres for the quarter.

Carlsberg CFO Heine Dalsgaard reported that year-on-year volumes in Russia had fallen by “high teens” with the decline accentuated by a very strong, warm weather enhanced, Q3 in 2016.

Dalsgaard explained, “In addition, the market is declining due to the PET downsizing and we lost market share year-on-year as a result of our value based approach due to the PET downsizing.”

That said, market share grew slightly from Q2 to Q3 and there was strong performances by brands such as Balitka 3. Price increases were instituted across the portfolio and les volumes in the lower price PET segment, improving the price mix by nine percent.

In the Asian region net revenue grew by seven per cent, boosted by a five per cent improvement in price mix and a two per cent gain in beer volume, to 11.2mhl.

In China volume grew organically by six percent, driven by the performances of international brands Tuborg and 1664 Blanc. Premium brands in China now account for 23% of volumes and 35% of net sales.

In India the implementation of a sales tax, rainy weather and a Supreme Court ban on sales of alcohol near both state and national highways all contributed to difficult trading conditions. Volumes declined by a couple of percentage points. Against this market shares improved and price mix improved as Carlsberg moved to offset the introduction of the Goods and Services Tax in July.

Carlsberg’s cost-cutting programme, Funding the Journey, is now in its second year and on target to generate benefits of around DKK 2bn, this the uppermost total targeted envisioned when the programme was launched.

In answer to a financial analyst’s question concerning an internal target of DKK 2.3bn and if achieved how the additional revenue would be allocated, t’Hart commented, “You’re right, if we are to achieve above the two billion target then a higher percentage of those benefits will flow to the bottom line.”

Eighty-five per cent of Funding the Journey’s benefits are forecast to have been achieved by the end of 2017.


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