Carlsberg Group CEO Discusses Q3 2010 Results - Earnings Call Transcript
Carlsberg Group (
)
Q3 2010 Earnings Conference Call
November 9, 2010 3:00 AM ET
Executives
Jørgen Buhl Rasmussen – CEO
Jørn P. Jensen – CFO
Anton Artemiev – SVP, Eastern Europe
Analysts
Søren Samsøe – Danske Markets
Nico Lambrechts – Bank of America/Merrill Lynch
Ian Shackleton – Nomura
Jorgen Buhl Rasmussen
Trevor Stirling – Sanford C. Bernstein
Matthew Webb – JP Morgan
Melissa Earlam – UBS
Andrew Holland – Evolution Securities
Hans Gregersen – Nordea
Michael Rasmussen – SEB Enskilda
Matthew Jordan – Matrix
Adam Spielman – Citigroup
Jon Fell – Deutsche Bank
Gerard Rijk – ING
Paul Hofman – CA Cheuvreux
Presentation
Operator
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Welcome to the Carlsberg conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to your host, CEO Jørgen Buhl Rasmussen. You may now begin.
Jørgen Buhl Rasmussen
Good morning everybody, and welcome to the conference call of our nine months 2010 results. My name is Jørgen Buhl Rasmussen, and I have with me today our CFO, Jørn P. Jensen; also, our Senior Vice President, Eastern Europe, Anton Artemiev, and then Peter Kondrup, Vice President of Investor Relations.
The performance for the first nine months was strong. Firstly, we are seeing signs of market recovery in Eastern Europe. And secondly, we are improving overall market share trends. And then thirdly, we have achieved significant profit improvements through efficiency improvements and lower input costs. Going in to this year, we were clear on our ambitions to strengthen our market position for this year, and in the coming years. And therefore, we have increased our spend behind brands and activities, and we have introduced and successfully executed many new products, campaigns and events, all driving the improved market shares in a significant part of our business.
During the year, we have continued our focused efficiency agenda as we still see substantial opportunities to improve the profitability of the group and reducing the profitability gap to all best-in-class FMCG companies.
After the very strong margin improvement for the nine months, we believe we are clearly on track to meet our medium-term margin targets. However, we’ll have to work hard to mitigate the impact on rising raw materials and packaging costs which will require sales price increases.
I’ll now give you a summary of our performance for the first nine months, and then briefly go through the regions. And as always, Jørn will then walk you through the numbers and our 2010 outlook. And thereafter, we will be happy to take your questions.
We have seen generally improving market trends across our regions. The Northern & Western European beer markets declined by an estimated 2% for the nine months. While this is an improving trend compared to 2009, consumer dynamics remain challenging in a number of markets in the region.
The Eastern European markets are benefitting from better macroeconomics and improved consumer sentiments, and in Q3, also from warm weather. The Asian market continued the strong growth trends in the mid-to-high single digit growth rates. For 2010 we had intensified the focus on driving market shares across all three regions. To drive and support volume and value market share growth, we have increased investments behind our brands and activities. We have also increased spend behind innovations and accelerated the number of product introductions. All these efforts, together with value management, have been and will continue to be an important driver.
Our marketing investments increased by double-digit percentages. Due to all these efforts, we have been able to gain market share in a large part of the business during 2010. A particularly satisfying outcome has been a 4% volume growth of the Carlsberg brand, well ahead of the overall volume development, driven by successful activation during the summer and the World Cup.
For the nine months, our beer volumes declined organically by 1%, impacted by the Russian de-stocking in Q1. Adjusting for this, volume growth would have been plus 1%. However, in Q3, the volume growth for the quarter was plus 3%, and mainly driven by continued strong growth in Asia, flat Northern and Western European volumes, and very importantly volume growth in Eastern Europe, where Russia helped by warm weather returned to growth.
Organic net revenue development was minus 2% but the 2% growth in Q3. Price and mix was flat with small positive pricing in most of markets. However, negative country mix offset the positive pricing impact.
And now to Slide 4. The focus on driving efficiencies across all regions and functions continues. For the nine months, we have again been able to deliver substantial savings in most part of the business. Part of the savings have been synergies from the S&N acquisition. By the end of Q3, we have realized all DKK 1.3 billion which is approximately six months ahead of plan. Gross margin improved organically by 260 basis points due to production efficiencies and favorable hedges and input cost.
Excluding sales and marketing spends, which was up double-digit, operating expenses were down and reported operating margin improved strongly by 270 basis points to 19.6%. The third quarter improvement was even stronger with a 330 basis point improvement to 23.5%. The Q3 margin benefited from the phasing of sales and marketing activities between Q3 and Q4 versus last year in Eastern Europe. The operating margin improved in all regions.
Organic operating profit growth was 9%. But adjusting for the de-stocking in Russia in Q1, operating profit growth was an estimated 12%. In Q3, we delivered double-digit organic operating profit growth in all three regions. Net results growth was very high at 57% due to growth in recorded operating profits and lower financial expenses. The strong focus on improving cash flow continued and the group kept cash flow at a high level.
Now let’s turn to the regions and let’s begin with Northern and Western Europe on Slide 6. For the Northern and Western European markets, we saw an improving trend in the nine months compared to the weaker 2009 markets. However, the markets remained challenging with an estimated 2% decline. Our beer volumes in Northern and Western Europe grew organically by 1%; and Q3 volume development was flat. The beginning of Q3 was weak in some of the markets such as the UK, where there had been strong volume growth during the World Cup campaigns.
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