Orkla Beverages

Orkla Beverages consisted in 2003 of Orkla’s 40 % interest in Carlsberg Breweries (CB), which was established in February 2001 when Orkla and Carlsberg A/S merged their brewery operations to form a new, jointly controlled company. Orkla’s interest in CB was sold in March 2004. The reasons for this transaction and its financial impact are described in the report of the Board of Directors and the pro forma figures for Orkla excl. CB.

In 2003 Carlsberg Breweries focused particularly on realising synergy effects, implementing improvement programmes and restructuring its operations, as well as on improving the Carlsberg brand’s global position.

Carlsberg Breweries strengthened its position in the Balkans in 2003 by purchasing the Serbian brewery Pivara Celarevo. It also acquired further interests in the Turkish brewery Türk Tuborg, the Bulgarian breweries Shumensko and Pirinsko Pivo and the Polish brewery Carlsberg Okocim. In Asia, Carlsberg Breweries terminated its joint venture agreement with Chang Beverages, but continued to operate in the region through its wholly-owned subsidiary, Carlsberg Asia. Through its subsidiary in Hong Kong, Carlsberg Asia purchased the Chinese breweries Kunming and Dali. In Vietnam the company increased its stake in the South-East Asia Brewery and Hue Brewery. Baltic Beverages Holding (BBH) purchased the Ak-Nar brewery in Kazakhstan, while BBH, through its Russian subsidiary Baltika, inaugurated two newly-constructed breweries in Samara and Habarovsk in Russia. In January 2004 Carlsberg Breweries signed an agreement to purchase Holsten-Brauerei, making Carlsberg Breweries the leading brewery in North Germany.

In 2003 Carlsberg Breweries wound up the Tou brewery in Norway and decided to close down the brewery in Stockholm due to overcapacity on these markets. Hannen’s production plant in Germany and Feldschlösschen’s soft drink tapping plant in Switzerland were sold in order to concentrate production at a smaller number of more efficient breweries and to focus on brand-building.

The Carlsberg brand was strengthened in 2003 as a result of extensive marketing activities. The European Football Championship will be held in 2004. With Carlsberg as the main sponsor for the Union of European Football Associations (UEFA), advertising activity will be intensified and will target more markets. Carlsberg Breweries has also made substantial investments in global sponsorship for alpine skiing and golf.

Results

Orkla Beverages’ operating revenues totalled NOK 15,208 million, compared with NOK 14,516 million in 2002. Adjusted for currency translation effects, this was equivalent to 5 % growth. Operating profit before goodwill amortisation amounted to NOK 1,405 million, compared with NOK 1,364 million in 2002. Adjusted for currency translation effects, this was a rise of 6 %. The businesses in Turkey, Poland and Switzerland achieved significant profit growth.

Carlsberg Breweries’ total beer volume rose 4 % to approximately 81 million hectolitres. This increase is largely ascribable to volume growth for BBH, coupled with increased volumes in Bulgaria and on several Asian markets due to acquisitions. The Carlsberg brand grew 7 % in 2003, and global sales totalled 10.8 million hectolitres. The Group’s aggregate volume of other beverages amounted to 21.3 million hectolitres, which is marginally higher than in 2002.

Northern and Western Europe

The Northern and Western Europe market region comprises breweries in the Nordic region, Carlsberg-Tetley in the UK, the Swiss brewery Feldschlösschen, Carlsberg Italia and the Portuguese brewery Unicer-Bebidas (44 %). In January 2004 an agreement was signed in Germany to acquire 51 % of the share capital of Holsten-Brauerei. An offer was made at the same time to buy out the other shareholders.

Operating revenues for the Northern and Western Europe market region (100 %) totalled DKK 26,182 million, down 3 % from 2002. Operating profit before goodwill amortisation amounted to DKK 2,364 million. Adjusted for currency translation effects, this was a rise of 10 %.

Volume growth in the Nordic region was weaker than in 2002 due to the general market slowdown, increased competition and pressure on prices. Profit was slightly higher than in 2002. While market shares for beer in Sweden, Norway and Denmark declined somewhat, Sinebrychoff in Finland improved its position. In Sweden, profit was affected by competition from low price brands sold by the Swedish wine and liquor monopoly. In response to this competition, Carlsberg has stepped up its marketing activities and made necessary price adjustments. A decision was also made to initiate extensive restructuring, including closing the brewery in Stockholm. In Norway, the launch of Tuborg beer as a low-price brand was a success. The Carlsberg brand achieved volume growth in Denmark and Finland.

Growth in Southern Europe was affected by the generally sluggish economic situation, which resulted in lower sales and pressure on margins. The business in Switzerland improved profit as a result of cost savings from improvement projects and increased marketing. Profit from Carlsberg Italia was weak, and it was decided to implement a restructuring programme. The effect of this programme is expected to be realised in the course of 2004/2005.

Carlsberg-Tetley reported volume growth in the UK, but the underlying growth was affected by pressure on prices and higher distribution costs. Profit growth is ascribable to a gain on the sale of assets. The UK has traditionally been Carlsberg Breweries’ largest market, and the Carlsberg brand achieved satisfactory growth.

Central and Eastern Europe

The Central and Eastern Europe market region consists of Carlsberg Breweries’ 50 % stake in BBH, which comprises operations in Russia, Ukraine, the Baltic States and Kazakhstan, in addition to Carlsberg Breweries’ majority-owned companies in Poland, Turkey, Croatia, Bulgaria, Malawi and Serbia. The company in Serbia was consolidated as of 31 December 2003.

Operating revenues for Central and Eastern Europe (100 %) totalled DKK 7,331 million, down 2 % from 2002. Operating profit before goodwill amortisation amounted to DKK 1,226 million in 2003.

Carlsberg Breweries strengthened its positions in 2003 by increasing its stake in the companies in Poland, Turkey and Bulgaria. The Shumensko and Pirinsko Pivo breweries in Bulgaria are to be integrated in order to further enhance their competitive position.

The businesses in Turkey and Poland reported satisfactory volume growth. Combined with cost savings resulting from improvement programmes and more efficient operations, this helped to boost profit. Significant start-up costs related to the businesses in Bulgaria and Croatia are expected to have a negative impact on profit in the next few years.

Although results for BBH were negatively affected by the weaker rouble, the company largely maintained its margins. Reorganisation of distribution systems resulted in lower volumes for the Baltika Group.

Market growth for beer in Russia picked up after dropping off in the first quarter, and annual growth ended up at 7 %. BBH’s volume on the Russian beer market grew 8 %, and its market share increased. The market for beer in Ukraine continues to grow strongly, and the total market rose 8 %. BBH’s Ukrainian breweries achieved 9 % volume growth and increased their market share to 21.7 %. There was some growth on the Baltic market, while BBH’s volumes were on a par with 2002.

In May 2003, BBH acquired the Ak-Nar brewery in Kazakhstan and inaugurated two new breweries in Russia through its Russian subsidiary Baltika. A new brewery in Kiev, Ukraine, is expected to be completed in 2004.

Asia

The Asian market region consists of Carlsberg Breweries’ 100 % interest in Carlsberg Asia since the joint venture agreement in Asia with Chang Beverages was terminated with accounting effect from 1 July 2003. Results for the first six months were consolidated according to the old structure, while the second half of the year reflects the new structure. The company has operations in China, Hong Kong, Laos, Malaysia, Nepal, Singapore, South Korea, Sri Lanka, Thailand and Vietnam.

Operating revenues for Carlsberg Asia (100 %) totalled DKK 1,290 million, compared with DKK 1,019 million in 2002. Operating profit before goodwill amortisation amounted to DKK 451 million, compared with DKK 467 million in 2002. In spite of increased competition and the spread of SARS in the first half of 2003, volume growth for beer, adjusted for structural changes, was on a par with 2002.

In January 2003, through Carlsberg Hong Kong, Carlsberg Asia acquired all of the share capital in Kumming Huashi Brewery in China. The Dali Brewery was purchased in June. In August Carlsberg Breweries purchased a further 25 % interest in the South-East Asia Brewery and 15 % of the Hue Brewery in Vietnam. The company now owns 60 % and 50 %, respectively, of the two breweries.

Carlsberg intends to strengthen its positions in Asia, and regularly considers further investment in the growing Asian market.

Focus in 2004

Improve profitability on established (mature) markets
Continue to achieve growth for the Carlsberg brand as the portfolio’s global premium brand
Increase competitiveness by rationalising and developing the entire value chain
Integrate Holsten-Brauerei
Establish a common corporate culture by promoting uniform goals and values

The Carlsberg brand is sold in more than 140 countries. The Carlsberg brand grew 7 % in 2003, the third year in succession with higher growth than the total market.

Baltika is the leading Russian beer brand and holds a very strong market position. The brand has achieved impressive growth in recent years.

The Polish company Carlsberg Okocim is a subsidiary of Carlsberg Breweries. Okocim Mocne has been the leading beer brand in the strong beer segment in Poland since the mid-1990s.

Ringnes is the biggest beer brand in Norway with a market share of 58 %.

Solo, the biggest Norwegian branded product in the carbonated soft drinks sector, has slaked Norwegians’ thirst since 1934.

Tuborg was originally launched in 1880, and today the brand has a strong position on many Western and Eastern European markets.