Denmark: Royal Unibrew A/S announced 24% increase in sales

Royal Unibrew A/S announced on November 17 that its beer, malt and soft drinks sales amounted to 4.4 million hectolitres, for Q1-Q3 2005 that is a 24% increase over the same period of 2004.

The increase in group sales is primarily attributable to the soft drinks producer Cido and the Lacplesa Alus brewery, both in Latvia, as well as the Polish breweries Brok and Strzelec acquired in H1 2005. Furthermore, Germany, among other countries, saw increasing sales.

Some 19 percentage points of the total sales increase of 24% were due to the acquisition of the abovementioned activities in Latvia and Poland, whereas organic sales growth represented 5 percentage points of the total growth.

Total net revenue of the Group increased by some 13% in the year to date aggregating DKK 2,423 million. 9 percentage points of the increase were attributable to consolidation with the Latvian and Polish activities, whereas organic growth of some 4 percentage points was attributable primarily to increases in Germany and Italy.

Gross margin decreased in the year to date to 50.4% from 52.3% in the same period of 2004. Some 0.5 percentage point of the gross margin decrease was due to the effect of the change of deposit prices introduced in 2004. Furthermore, the gross margin was negatively affected by
the acquisition of Brok-Strzelec, Poland (May 2005) and the acquisition of Lacplesa Alus, Latvia (February 2005).

Furthermore, changes in product mix, partly as a result of COOP deliveries commenced in March 2004 and partly relating to cross‐border trade between Denmark and Germany, affected gross margin negatively in 2005.

For Q3 2005 alone, gross margin was 53.3%, which is higher than in the same period of 2004.
Overall, gross profit increased by DKK 97 million in the first nine months of the year, equal to an increase of some 9% over the same period of 2004. Sales and distribution expenses increased by 10.6% in 2005 to date compared to a sales increase of slightly below 24% for the same period. Considerable amounts were still spent on marketing the Group’s main brands: Royal, Ceres Strong Ale, Faxe Kondi, Kalnapilis, Cido and Faxe (export markets).

Furthermore, sales and marketing expenses were affected by the acquisition of Lacplesa Alus and Brok-Strzelec.

Administrative expenses went up by 18% during 2005, partly due to the activities acquired in Poland and Latvia and partly due to increased expenses in relation to the realisation of the MACH II strategy, eg a general reinforcement of the organisation and increased expenses for consulting services.

Other operating income decreased considerably over the first 9 months of the year, which is primarily due to certain contributions/distributions from collegiate organisations terminating as of 2005.

Operating profit (EBIT) amounted to DKK 196.9 million, which, adjusted for non-recurring income in 2004 of some DKK 30 million (deposit price change and certain contributions / distributions), actually represents an increase of some DKK 10 million over 2004 in spite of eg the above-mentioned negative effect of the acquisition of the Brok-Strzelec activities in Poland.

Income from investments in associates was affected by improved performance by Hansa Borg Bryggerierne ASA. Furthermore, the Company’s 48% share of the results of Perla Browary Lubelskie S.A has been included from 1 May 2005.

The profit before tax for the first nine months of the year amounted to DKK 189.5 million compared to DKK 187.6 million for the same period of 2004. Consolidated profit (after tax) increased by DKK 14.1 million to DKK 148.5 million. The consolidated profit is positively affected by DKK 11 million from an adjustment of the deferred tax liability of Royal Unibrew A/S relating to a reduction of the Danish corporate tax rate from 30% to 28%.

DEVELOPMENTS IN INDIVIDUAL MARKET SEGMENTS
It is estimated that total beer sales in Denmark declined by some 4% in the year to date, whereas soft drinks sales declined by some 2% due to, among other things, illegal import and distribution. Royal Unibrew gained market shares on both beer and soft drinks in the year to date.

In Italy sales and revenue increased by 2% and 4%, respectively, during the year reflecting the price increase introduced. It is estimated that Royal Unibrew succeeded in defending its total market share in Italy.

The overall German market saw increases in both sales and revenue in the first nine months of 2005 driven by both cross-border trade and the actual German market. Cross-border trade continued to be characterised by a shift in sales towards less expensive products, and the still unresolved deposit issue in the German market continued to create difficult circumstances for
products in disposable containers.

Eastern Europe
In Lithuania Kalnapilio-Tauro Grupé defended its market shares in the first nine months of the year and profit development was satisfactory.

Developments in Latvia were affected by the acquisition of Cido (soft drinks) in mid 2004 and Lacplesa (beer) in early 2005, which were key contributors to the heavily increasing sales and revenue experienced by the region in the period. In 2005 to date, Cido achieved satisfactory results, whereas - as expected - Lacplesa affected group results negatively due to the brand relaunch and staff redundancies in connection with the integration with Cido.

Also in Poland sales and revenue increased heavily over the period due to the acquisition of the Brok-Strzelec activities in late April 2005. The integration of these activities is progressing as planned but will have a larger negative effect on the Annual Report of Royal Unibrew for 2005 than originally expected.

Other markets
Sales increased considerably in the period primarily driven by increased beer exports to the Middle East, solid underlying growth in malt drinks sales in the Caribbean and an increase in malt drinks produced under licence in Africa. Revenue did not increase at the sales rate primarily due to a declining settlement price of USD compared to the same period of 2004, which affected revenue negatively in Africa, the Middle East, North America and parts of the Caribbean.

BALANCE SHEET AND CASH FLOW STATEMENT
The equity of Royal Unibrew amounted to DKK 1,154 million at 30 September 2005 equal to an equity ratio of 36.4%.

In connection with the acquisitions made in Latvia and Poland as well as the share buy‐backs in progress, net interest-bearing debt increased by DKK 248 million over net interest‐bearing debt at the same time in 2004.

Free cash flow for the period amounted to DKK 125 million compared to DKK 100 million in 2004. Net investments in property, plant and equipment amounted to DKK 96.8 million.

EXPECTATIONS TO THE 2005 FINANCIAL STATEMENTS
In the first nine months of the year, Royal Unibrew achieved a net revenue increase of 13% of which 4 percentage points relate to organic growth. For the full year 2005, a net revenue increase of 12% is expected. In the Annual Report for 2004 our expectation for the full year 2005 was a net revenue increase of some 10% including 3 percentage points from organic growth.

The integration of Lacplesa Alus A/S in Latvia and Brok-Strzelec (Royal Unibrew Polska) as well as the restructuring of distribution in the relevant market segments mean that these activities affect earnings in 2005 negatively (cf Announcement BG19/2005 of 27 April 2005).

Net financial expenses will, in Q4 as in Q3, be higher than in H1 due to the acquisition of the Brok-Strzelec activities.

Against this background and based on the acquisition in H1 of the Polish and Latvian activities as well as the related start‐up and integration expenses, profit before tax for the full year 2005 is still expected to be at the lower end of the previously indicated range from DKK 290 to DKK 340 million.

STATEMENTS ABOUT THE FUTURE
The statements about the future made in the Q3 Report 2005 reflect Management’s expectations in respect of future events and financial results, as well as of economic trends in key markets and developments in international money, foreign exchange and interest rate markets. Statements about the future will inherently involve uncertainty and may be affected by – in addition to global economic conditions – market-driven price reductions, market acceptance of new products, packaging and container types, unforeseen termination of working relationships and changes to regulatory aspects (taxes, environment, packaging). The actual results may therefore deviate from the expectations stated.

Royal Unibrew is a party to a limited number of legal actions. These legal actions are not expected to have any material impact on the financial position of Royal Unibrew.

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