27.11.06 Carlsberg in China .pdf - Carlsberg Group

Carlsberg in China
Sunny Wong
CEO, Carlsberg China

Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years

Overview of the China Beer Market
• World’s fastest growing beer market – +10% in 2005
• World’s largest beer market – 306 million hl in 2005
• Per capita consumption of 23.4 liters per capita in 2005
• Compared to Europe, the potential for growth is very high
Global Beer Volume Grow th CAGR 1999 - 2005
Global
Western Europe
North America
Asia-P acific
ex-China
China
-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
Source: Tsingtao, Candadean, M erill Lynch estimates

Potential of China beer market
HL'000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-
252,547
+10%
277,567
+10%
+2007A to 2009F
+2005A to 2007F
CHG PA of +5%
CHG PA of +6%
379,257
343,997
306,156
2003A 2004A 2005A 2007F 2010F
Source: China State Statistics Bureau
Potential of China Beer Market
• Average annual growth estimated at around 5 to 6% per year
• West China provinces are expected to grow at faster rate
Low per capita consumption in west China provinces

Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years

Economic fundamentals supporting beer
market growth
• Increasing consumption levels across China continue to drive overall
beer market growth
• Central government shifting focus from growth to creation of
‘harmonious society’, increasing rural incomes and consumption
• Continued support to West China narrows disparity between East and
West, increasing economic activities in West – therefore, expectation
of higher beer market growth rate in West China
• Emerging lower middle-class / middle-class allows for premiumisation
of the category

Competition will continue
• Consolidation trend and fight to increase market share will
continue
- Consolidation of owners, capacity and brands
- Smaller and less effective brewers would not stay
- Number of breweries and brands will decline over time
• Brewers are becoming better at branding and management;
and more conscious to deliver better results (particularly for
listed brewery companies)

Price is increasing over time
Factors pushing increase:
Driving need for every brewer in China to raise pricing
Elimination of weakest breweries – either acquired or unsustainable due
to loss
Consolidation creating dominant provincial players
Gradual tightening of tax system reduces size of ‘grey market’
Economic growth, urbanization and higher disposable income allows for
portfolio strategy and premiumisation to increase average price
Greater professionalisism on advertising and branding
Brand consolidation and investment – small brands of acquired breweries
are being replaced by main brands of acquirer to increase average selling
price

Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years

Carlsberg Has A Long History In China
1876:
- Carlsberg first
entered the
Chinese market by
exporting Carlsberg
Beer
1981:
-Carlsberg Brewery
Hong Kong was
established,
supplying
Carlsberg Beer to
the Chinese and
Hong Kong market
- Commence
establishment of
sales & distribution
network in China
1995:
-Carlsberg acquired
Huizhou Brewery in
Guangdong,
- Started to brew
Carlsberg Beer
there, and supply
both China and
Hong Kong
markets.
- Huizhou Brewery
is now one of the
best quality brewery
brewing Carlsberg
Beer around the
world
From 2003
Carlsberg carried
out “West China
Strategy” started
investing in local
breweries in
West China

Carlsberg’s Vision in China
To become the leading brewery group in West
China, and a major brewery group in China
To make Carlsberg a leading international
premium brand in China
Through:
growing existing and new businesses

Carlsberg’s Strategy in China
• Acquisition of controlling shareholding and
establishment of JVs in selected
provinces/markets
• Establishment of strong position /
dominance in such provinces/markets
• Explore potential synergies among
operations/provinces
• Develop and strengthen Carlsberg brand
position nationwide and as part of portfolio
in West China

Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years

Carlsberg investment in China - YUNNAN
Kunming Huashi Brewery
2006 Wind Flower Snow
and Moon exported to and
sold in Hong Kong
XINJIANG
TIBET
Lhasa
GANSU
Jiuquan
QINGHAI
Xining
Dali
Kumming
YUNNAN
NINGXIA
Lanzhou
Tianshui
SHAANXI
Dali Brewery
• Market leader
• Main beer brands: Dali beer,
Wind Flower Snow & Moon
Carlsberg Brewery Guangdong

Carlsberg Investment in China - TIBET
Lhasa Brewery
• Market leader
• Beer brand: Lhasa beer
XINJIANG
TIBET
Lhasa
GANSU
Jiuquan
QINGHAI
Xining
Dali
Kumming
YUNNAN
NINGXIA
Lanzhou
Tianshui
SHAANXI
Carlsberg Brewery Guangdong

Carlsberg Investment in China
– GANSU & QINGHAI
XINJIANG
TIBET
Lhasa
GANSU
Jiuquani
Jiuquan NINGXIA
QINGHAI
Xining
Dali
Kumming
YUNNAN
Lanzhou
Tianshui
SHAANXI
Tianshui
Lanzhou Huanghe Brewery Group
(3 breweries in Gansu, 1 brewery in
Qinghai province)
• Market leader
• Main beer brand: Huanghe beer
Carlsberg Brewery Guangdong

Carlsberg Investment in China - XINJIANG
Xinjiang Wusu Brewery Group
(10 breweries )
• Market leader
• Main beer brands: Wusu, Xinjiang beer
XINJIANG
TIBET
Lhasa
GANSU
Jiuquan
QINGHAI
Xining
Dali
Kumming
YUNNAN
Lanzhou
Tianshui
SHAANXI
Carlsberg Brewery Guangdong

Carlsberg Investment in China - NINGXIA
XINJIANG
TIBET
Lhasa
GANSU
Jiuquan
QINGHAI
Xining
Dali
Kumming
YUNNAN
NINGXIA
Lanzhou
Tianshui
SHAANXI
Ningxia Xixia Jianiang Brewery
• 2 breweries
• Market leader
• Main beer brand: Xixia beer
Carlsberg Brewery Guangdong

Carlsberg Investment in China
- Geographically covering half of China
- Market leader in all West China provinces where Carlsberg invested
Xinjiang Wusu Brewery Group
Lhasa Brewery
Kunming Huashi Brewery
XINJIANG
TIBET
Lhasa
Ningxia Xixia Jianiang Brewery
GANSU
Jiuquan
QINGHAI
Xining
Dali
Kumming
YUNNAN
NINGXIA
Lanzhou
Tianshui
SHAANXI
Lanzhou Huanghe Brewery Group
Dali Brewery
Carlsberg Brewery Guangdong

Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years

Carlsberg Chill launched in August 2004 to reach the
large segment for “lighter tasting beer”
– very well received in the market
Authentic
European beer
taste, more
intellectual
Cosmopolitan, Witty,
Passion for excellence, Contemporary
Carlsberg Green label
Carlsberg Chill
Easy-to-drink
Fun-loving

Carlsberg has #1 or 2 market leading position
(premium segment) in 12 provinces/cities
Solid leading international beer in West China
Province/City Ranking
Xinjiang No. 1
Gansu No. 1
Qinghai No. 1
Tibet No. 2
Yunnan No. 3
Tianjin No. 2
Shenyang No. 2
Harbin No. 2
Province/City Ranking
Chengdu No. 2
Chongqing No. 2
Sichuan No. 2
Xi-an No. 2
Shenzhen No. 2

Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years

2006 - executing improvement
projects to upgrade operations
and profitability
Common goal as JV partners enable
strong co-operation & successful
improvement projects implementation

• Brand & Portfolio improvement
• Investment in brands
• Commercial excellence projects
• Production efficiency improvement
• Continue emphasis on environment

Brand and portfolio development:
Building & Releasing the value of
local brands
• Yunnan
- Application of HQ Commercial Excellence tools
- Reorganize portfolio to maximise revenue
- Successfully launched two new variants
•Gansu
- Launched Huanghe beer new brand ID with substantial
marketing support
• Xinjiang
- Brand re-launch focus to capture the growing local premium
and mainstream plus segment
Increased market share and improvement margin

Brand building and innovation:
• Launched new Carlsberg Chill can design
• Launched Sol beer, very well received
Marketing investment in Chill pay off
better than expectation

Production Excellence and
Cost Control
• Joint procurement project to leverage on
economies of scale in procurement
• Several projects in 2006 to upgrade capacity
and equipment standard.
- More such projects in the pipeline in 2007
• Carlsberg technical team work with local team
right from the start
- In Yinchuan greenfield brewery & other
expansion projects
• Provide training to JVs on quality improvement
project

Attention to the environment
Carlsberg – China Environmental
Program
• Traditionally China environmental
standards have been weak
• However new Government legislation
and enforcement is tightening and
approaching Western standards
• All breweries as a minimum are required
to install SO2 reduction systems (main
energy source is coal) and Waste Water
Treatment plants within next 2 years

Environmental Next Steps
• Carlsberg Central Technical Function place
high priority on performing Corporate
Responsibility Audit (Environmental and
Health & Safety) of all breweries including
JV’s
• Minimum standards will be established that
surpasses local government directives
• Key Performance Indicators and targets will
be established
• Measures will be supported by Capex spend
over next 3 years
• Monthly reporting system will establish up to
date Environmental Protection System
• All 100% owned companies will look to adopt
ISO14000 next year as part of corporate
policy
• This year, Carlsberg Brewery Guangdong
obtained ISO14000 certification & Lhasa
Brewery expected to complete by year
end

Agenda
• China Beer Market
• Our outlook of the beer market
• Carlsberg in China
- Develop West China businesses
- Carlsberg brand business
• Year 2006 - Strengthening & Optimizing
• Focus areas in the next 5 years

Building long-term sustainable
growth
– Consolidate and integration to yield synergy among
breweries
– Develop and train local talents to ensure adequate pool
of high caliber management team to support growing
business
– Continuing evaluation of further acquisition and cooperation
opportunities
– Continue 2006 efforts in knowledge transfer &
implementation of improvement projects (all functional
areas)
– Commercial enhancement programs in the pipeline for
different breweries to maintain robust in-market strategy
and skill development
– Continue brand building and portfolio improvement
based on market demand and innovation to create new
opportunities

Therefore, we expect continued growth in our results
Despite
Competitive
beer market
Beer market growth
& maturity
+
On-going
improvement
projects
+
Focus on cost
Volume &
EBIT growth

West China strategy …
• Created value to local community,
employees & JV partners
• Carlsberg appreciates the good cooperation
and support from Chinese
local government
- Continue building good and
constructive relationship with
Government
• Carlsberg to continue developing in
China

Carlsberg Breweries
Probably the best beer
company in the world