Cees 't Hart - CEO Jorn P. Jensen - CFO

Trevor Stirling - Bernstein Ian Shackleton - Nomura Soren Samsoe - SEB Jonas Guldborg Hansen - Carnegie Bank Andrew Holland - Société Générale Michael Rasmussen - ABG Sanjeet Aujla - Credit Suisse Simon Hales - Barclays Andrea Pistacchi - Citi Hans Gregersen - Nordea Tobias Bjorklund - Danske Bank Olivier Nicolai - Morgan Stanley Richard Withagen - Kepler Cheuvreux Chris Pitcher - Redburn

Good morning, ladies and gentlemen. And welcome to the Carlsberg Q2 Report for 2015 Conference. At this time all participants are in listen-only mode. And 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, Cees 't Hart. You may begin. Cees 't Hart: Good morning, everybody. Welcome to Carlsberg's six months 2015 results conference call. My name is Cees 't Hart and I have with me our CFO, Jorn P. Jensen, and Vice President of Investor Relations, Peter Kondrup. Before I hand over to Jorn who will go through today's presentation and answer the majority of your questions, I would like to make a few remarks about my first two months at Carlsberg and what you can expect from us for coming quarters. I joined the Company in mid-June and have spent the first weeks getting to know the business, meeting employees, and key stakeholders. There is clearly a strong commitment and engagement among our employees and in the leadership team, also a clear aspiration to take Carlsberg to the next level. To add to that I have a few other observations that I can share with you at this point of time. I believe we do well commercially with our international brands shown by the strong performance of for example, Tuborg and Somersby, in addition to good execution on our local power brands, such as Kasztelan in Poland and Huda beer in Vietnam. I also see good work of innovations, for example with the non and low-alcoholic segment with new products such as Carlsberg Nordic and Tourtel Twist. On the other side, our current financial position is not what it should be and that means we have to further improve profitability, cash flow, returns, and reduce leverage. This need for improvement is supported by today's Q2 results and our changed 2015 outlook. Jorn will go through the changed outlook in a few moments. For the future, my ambition is that Carlsberg is the most successful, professional, and attractive company in the areas where we choose to operate, successful by winning in the markets; professional towards customers and partners; and attractive to shareholders, employees and the societies where we operate. We have just initiated a process in the leadership team where we will develop a new strategy for the group. This will be done during the autumn and we'll be ready to announce and start the implementation during the first half of 2016. With this, I will hand over to Jorn who will go through the half year results. Jorn? Jorn P. Jensen: Thank you Cees. And now please turn to slide three for a few highlights of the first six months. We achieved strong market share improvement in the majority of our markets. This was driven by several factors such as strong growth of our international premium brands, especially in Asia and good momentum of product launches. Price/mix grew 5% with particularly strong improvements in Eastern Europe. Organic operating profit declined 13%. The continued strong performance in Asia was more than offset by the continued weakness in Eastern Europe and in Q2, weaker than expected results in Western Europe as the region was impacted by bad weather, also in itself leading to a 1% negative price/mix. Adjusted net result declined by 23%. This was mainly a result of the organic operating profit decline. We have revised our 2015 outlook and lowered our expectations for organic operating profit. We now expect organic operating profit to decline slightly. I will give more details on the outlook, later in the presentation. And now to slide five please and an overview of the operating profit development. Organic operating profit was DKK 3.5 billion. This was a result of growth in Asia, which however was offset by lower profits in Eastern and Western Europe. I'll go into more details per region, shortly. The lower unallocated costs were mainly due to different phasing between quarters than last year. The currency impact was more positive than previously assumed, as stronger Asian, Swiss and UK currencies more than offset the negative impact from the weaker Eastern European currencies. The small negative net acquisition impact, mainly relates to the consolidation of the Chongqing Eastern Assets that was consolidated from November ‘14. All-in-all, reported operating profit was DKK 3.6 billion, a decline of 12% versus ‘14. And now to slide six, and a look at the development per region in beer volumes, net revenue and operating profit. Beer volumes declined organically by 5% with the major impact coming from Eastern Europe. Despite the negative volume development, organic net revenue was flat year-on-year, driven by a price/mix of 5%. The decline in operating profit was 12% and a result of the lower volumes in Eastern and Western Europe and higher operating expenses, which I will elaborate on, in the next slides. The Q2 numbers, which are shown in brackets, were more negative than the half year. This mainly reflects bad weather in Western Europe in addition to different phasing versus last year due to earlier sell in to Easter as well as starting in some markets ahead of the BSP1 implementation, in early April, as we explained after Q1. And now to slide seven please. Taking a look at some of the individual P&L items, COGS per hectoliter was up organically 4% due to the negative transaction impact from hard currency denominated input costs in Eastern Europe. Thanks to the positive price/mix, we were able offset the higher COGS; and gross profit per hectoliter was up 4% organically. Operating expenses were up 3% organically and 4% in reported terms. The main driver of the organic increase was higher sales and marketing investments in all three regions, as a result of our decision at the beginning of the year to slightly increase these investments to support our brands and new product launches. Special items primarily related to a number of restructuring measures across the group, including the initiative taken in the spring when we reduced the headcount in central functions by around 20%. Net financials were minus DKK 770 million which was an increase of DKK 56 million. The increase was only due to other financial items which were negatively impacted by foreign exchange adjustments. Net interests were down 14% or DKK 91 million, reflecting lower average funding costs. Tax rate was 28%. This was three percentage points higher than last year and mainly due to the fact that Russia where corporate tax rate is lower than the group average, corporate tax rate accounted for a smaller proportion of pretax profits and the acquisition of the Eastern Assets in China. All-in-all, adjusted net profit was DKK 1.7 billion. And now to slide eight. Free cash flow showed significant improvement this year, reaching DKK 2.2 billion versus DKK 641 million in ‘14. The improvement was mainly driven by improved working capital and lower CapEx. The change in trade working capital was plus DKK 86 million versus minus DKK 673 million last year. We succeeded in bringing down the average trade working capital to net revenue further to minus 3.9%; this compares with minus 3.6%, at the end of last year. The change in other working capital amounted to DKK 394 million and was among other things, positively impacted by VAT payables. As we communicated at the beginning of the year, CapEx will come down significantly this year. Net CapEx was DKK 1.7 billion, down DKK 483 million compared to the same period last year. Net paid interests were also down in the first six months, reflecting the lower average funding costs. The decline versus last year was DKK 65 million. And slide nine please. Net interest bearing debt end of June was down DKK 372 million compared to year-end '14. Net interest bearing debt to EBITDA was 2.7 on a rolling 12-month basis. Reducing this ratio further remains a key focus area for the year. And the target is still a leverage below 2.5, at the end of the year. 95% of the gross financial debt is long-term and of the net financial debt, 95% is denominated in euro or DKK and 78% is at fixed interest rates. The specification of movements in net interest bearing debt is shown in Note 6 of the press release. And now turning to slide 10, as communicated in February, we have intensified our focus on return on invested capital across the group. The half year numbers are not satisfactory, reflecting the continued difficult trading environment in Eastern Europe and lower operating profit in Western Europe. In Asia, the region was able to maintain return on invested capital, unchanged versus ‘14, despite the consolidation of Eastern Assets. And now to slide 11 and the outlook. Based on the group's Q2 and July results, we have revised our ‘15 earnings expectations downwards, primarily due to three reasons. Firstly, the Q2 and July performance of our Western European region has been weaker than expected. The bad summer weather has impacted volumes and channel mix negatively; in addition to an overall challenging price environment, this leads to a more negative price/mix development than expected. Secondly, our supply chain savings initiatives are progressing and we are continuously becoming more efficient and reducing costs. However, the benefits this year will be less than previously expected also compounded by the lower than expected volumes in Western Europe. Thirdly, the macroeconomic environment in Eastern Europe is deteriorating, putting further pressure on the consumers. Consequently, we expect organic operating profit to decline slightly versus ‘14. In spite of the recent weakness of the ruble, we expect the negative translation impact to be smaller than previously expected due to the strengthening of several Asian currencies. We now assume a negative translation impact on operating profit of DKK 300 million compared to the previous assumption of minus DKK 400 million. Other assumptions remain unchanged. And we anticipate cash flow to improve significantly this year compared to ‘14. Further, the Supervisory Board is expected to be able to propose to the AGM in March that dividend per share is kept unchanged compared to ‘14. Slide 13 and Western Europe where the markets were cycling tough comparisons with last year's favorable weather and the World Cup. Compounded by bad weather this year, especially in Q2, the market declined 1% to 2% for the six months and 2% to 3% in Q2. The strong market share progression continued. Our volumes declined organically by 1% for the six months and 5% for Q2. As said, Q2 was impacted by weather and tough comps in addition to phasing between Q1 and Q2, due to earlier sell in to Easter versus last year and the stocking in Q1 ahead of the go-live of BSP1 in four markets in early April. Price/mix was minus 1% due to a challenging price environment and a negative customer and channel mix, the latter also impacted by the bad weather in Q2. After many years of earnings improvement in Western Europe, we saw earnings and margin declined for the six months. The main reasons were the weaker than expected top line and that we didn't achieve the full range of anticipated savings. In addition, we have increased our sales and marketing investments to drive innovations and further strengthen, both international premium brands and selected local power brands. And now to slide 14 please. Our volumes in the Nordics were flat for the six months, while the markets declined slightly. We gained market share in all four markets, achieving more than one percentage point improvement in Denmark, Norway and Finland. This was mainly driven by sales execution and good performance of our products in the specialty segment. Our French volumes grew 7%. Strong performance of Kronenbourg 1664, Grimbergen, Tuborg Skøll and innovations supported the market share gain. In addition, the launch of the non-alcoholic Tourtel Twist brand has been promising. In Poland, we continued the positive volume and value market share trend and grew our volumes by 2%. The Okocim and Kasztelan brands delivered good performance, and Somersby achieved strong growth of 38%. Our UK volumes declined by 6% in a market that declined by an estimated 4%, cycling tough comparisons with last year's favorable weather and World Cup. Revitalization of the Carlsberg brand, including the communication platforms “Probably the best …” and “If Carlsberg did”, increased brand visibility and achieved initial favorable consumer response. The Somersby portfolio was strengthened at the beginning of the year with the international flavor variants. The Swiss market declined slightly due to bad weather in Q2 and the stronger Swiss franc which have led to changing consumer dynamics and growth in the imported beer category. And now to slide 15 please. As expected, the Eastern European markets remained very challenging due to the uncertain macroeconomic environment. The Russian market declined by an estimated 9%. The market in Ukraine deteriorated even further and declined by an estimated 17%. While the Russian market is declining in volume, the value of the market is still grown in rubles, as a result of strong pricing. Our regional market share was flat driven by strong performance in Ukraine and Kazakhstan while our Russian market share declined slightly in volume terms but was flat in value. Regional beer volumes declined organically by 18%, as a result of lower volume in Russia and Ukraine and growing volumes in Kazakhstan. Volumes in Russia were impacted significantly by lower inventory levels at distributors which I will address further on the next slide. Price/mix was plus 14% due to significant price increases in most of the markets in the region; mix was flat. Driven by the strong price/mix and despite the negative leverage impact, we achieved 9% organic growth in gross profit per hectoliter. However, as a result of the market decline, destocking, higher cost of sales, and sales and marketing investments, and the negative currency impact, operating profit declined by 45%. Slide 16 please. The weak Russian market development was as expected for the first six months. The market declined by around 9% for the six months with a slight acceleration of the decline in Q2. Our market share declined slightly as a result of our price leadership and last year's downsizing. Our value market share was flat. We executed three price increases in January, February and May of 3% to 4% each. During the recent year, inventories at distributors have been reduced significantly as a response to the market decline and the change in the retail landscape. Consequently, our shipments have been below consumer off-take. In Q2, shipments and off-take were largely in line in actual terms but declined 19% year-on-year due to the much lower inventories at distributors, end of June this year compared to last year. In Ukraine, the market decline accelerated in the second quarter as the macro economy deteriorated further and inflation went up. Local CPI is now running at more than 50%, which also led to significant beer price increases. We gained market share in Ukraine as a result of the activation of the Lvivske brand and good performance of the Brewmasters Collection portfolio and regional brands. Finally, we gained market share in a slightly growing market in Kazakhstan. This was driven by the re-launch of the local power brand Irbis and packaging innovations. And now to slide 17 please. We saw market growth in most of our Asian markets for the six months. India, Malaysia and Vietnam grew, while the Chinese market declined. We gained market share in most Asian markets and volumes grew organically by 5% and 11%, including the Eastern Asset acquisition in China. Price/mix for beer was plus 3%, mainly driven by premiumization in a number of markets, as a result of the growth of our premium portfolio. The Carlsberg brand grew 6% in its premium markets, primarily driven by Carlsberg Elephant in India. Tuborg grew more than 60%, doubling volumes in China and growing 50% in India. In addition, we are continuously upgrading our local power brands. All-in-all, organic revenue growth was 9% and 34% in reported terms, due to the positive currency impact and the Eastern Assets acquisition. Organic operating profit grew 12%, driven by top-line growth and tight cost control. The Asian business has been piloting our new budgeting framework and has already seen positive results. The profit growth was achieved, in spite of tough comparables with Q2 last year when we booked an income for a terminated license agreement. Operating margin increased organically by 60 basis points but declined in reported terms by 70 basis points, as a result of the consolidation of Eastern Assets. And now slide 18. We delivered 4% volume growth in Indochina. A key driver was strong performance of the Angkor brand in Cambodia, in addition to growth in Laos and Vietnam in Q2, where both businesses delivered mid single-digit growth rates. In Vietnam, we have re-launched one of our local power brands, Halida, with promising results. Our Chinese volumes grew by 1% organically. We thus outperformed the market significantly as it declined by mid single-digit percentages. The growth was mainly derived from a business in Xinjiang and the central parts of Chongqing. Price/mix improved by 4%, driven by a healthy mix improvement as a result of our premiumization efforts. The Chongqing Brewery integration is now completed. Our Indian business grew 43% organically in a market growing by an estimated 5%. The business delivered a significant earnings improvement driven by the volume growth and tight cost control. The business is now close to breakeven which is earlier than originally planned. In Q2, our Indian market share was around 15%, the highest level ever and Tuborg became the second largest brand in the country. In May, we opened our new brewery in Myanmar as the first international brewer. Slide 19 please and an update on our international premium portfolio. Most of our international premium brands continued to established strong performance. The Carlsberg brand grew strongly in Asia due to strong results in China and India. In Western and Eastern Europe, the brand declined due to the overall market decline and cycling last year's World Cup activations. All-in-all, Carlsberg declined 2% in its premium markets. We have started activating EURO 2016 as well as the tag lines “Probably the best…” and “If Carlsberg did”, using a broad range of platforms. A few line extensions were launched and include Carlsberg 0.0 in the UK and Carlsberg NOX in Poland. Tuborg grew 16%, as a result of continued very strong growth in Asia, particularly in China and India. The growth was driven by increased distribution, increased sales per outlet and well executed above the line campaigns. Kronenbourg 1664 grew 2%, driven by continued growth in France and 20% volume growth in Asia. Grimbergen grew 19% and remains the fastest growing international abbey beer. The growth was driven by continued growth in France, packaging innovations, including a 70 centiliter sharing bottle, and further geographic expansion. The Somersby cider brand grew 26%, with strong results in several Western European markets and export markets, such as Canada and Australia. In the UK, the growth was driven by the launch of the international flavor variants, while in Ukraine it was driven by line extensions and overall category growth. And slide 20 and a few comments on selected power brands. The Kasztelan brand in Poland is positioned in the unpasteurized segment and has been a key driver of the growth in our Polish business in recent years. Again this year, Kasztelan has delivered strong results. In France, we launched the non-alcoholic Tourtel Twist brand in two flavor variants. It is an important add-on to the French portfolio and is expected to play an important role in the growing non-alcoholic segment. The brand has already achieved a market share of close to 0.5%. In Ukraine, the Lvivske brand developed very well in a challenging market. Through a well executed campaign around the 300-year anniversary of the Lviv brewery, the performance of the brand was a key contributor to the strong market share improvement in Ukraine. After re-launching the Chongqing brand in November last year with new packaging, new communication and consistent pricing, the growth of the brand has been an important lever in the progress in the Chongqing province. As mentioned before, in Myanmar we opened the brewery in May and we are in the process of launching a completely new local mainstream brand called Yoma. We are now building brand awareness and establishing distribution in key cities. So that was all from us for today. And so to summarize, the operating profit decline in Eastern Europe and in Q2 also in Western Europe was partly offset by operating profit growth in Asia. Based on the Q2 and July results, we have revised our ‘15 earnings expectations downwards. Cash flow improved strongly as a result of lower CapEx and working capital improvements. And now, we are ready to take your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Jonas Guldborg Hansen -- sorry. Our first question comes from the line of Trevor Stirling from Bernstein. Please go ahead with your question. Your line is now open.

Two questions from my side, probably more for Jorn. Jorn, could you just give us a bit more color on the margin contraction in Western Europe? So, I'm struck by the contrast between this year and last year. The last year, Q2 volumes were up 70 bps; margins were up 60bps. This year volumes are down 5% but margin contracts 280 basis points. So, it looks like you are losing an awful lot more on the way down than you were on the way up last year. And the second question around Russia, volume market share is 36.1. That's quite a long way down sequentially and 30 bps down year-on-year and yet Q2 last year was when you were having a lot of difficulty around the legal status of Baltika, and deliveries in Q2 were affected by that. So perhaps a bit more color on that too would be great. Jorn P. Jensen: If we take the first one, Western Europe margins basically, then it is -- as we also at least tried to explain, it’s about two things. It is about a top line that has been quite weak versus last year for those several reasons that I just talked about. Weather definitely a very important element to this, of course impacting volumes negatively but also negatively impacting price/mix, which of course in itself is impacting the margin or the bottom-line significantly versus the volume effect. On top of that, it's not so that we are not getting supply chain savings -- we are getting supply chain savings, it's just so that we are getting less than what we had expected. So, it is in short, the margin contraction is coming from worse top-line than expected; it's coming from increased sales and marketing investments, as said before; and it is coming from lower savings than planned for the year. Is that clear?

Yes. Jorn P. Jensen: On Russia, yes, volume market share slightly down for the first half year; as stated, in value terms, same as last year. So, it is this balance between volume and value that we have been talking about for many, many, many years in Russia that we do our utmost to keep. So, as always, Russia is not just about gaining volume share, it is also about ensuring that our value share is developing at least in line with our volume share. And then as you know, we have tough comps in the sense that we downsized as the first ones last year, which is not fully reflected in the news numbers. Finally as also said, price leadership, as always do and especially in the years where we are seeing a lot of price increases, and this is definitely such a year for obvious reasons, then we are in shorter term of course negatively impacted by that.

Our next question comes from the line of Ian Shackleton, Nomura. Please go ahead with your question. Your line is now open.

Cees talked about presenting on this new strategy in the first half of 2016. I just wanted to confirm, are we talking about with the Q4 results or could it even be later? I know there will be a lot of new initiatives there but one of the initiatives that you'd already talked a lot about was introducing ZBB across the group, I wonder if you could just give us an update of how that is progressing. Cees 't Hart: Yes, we were talking about 2016 but that will not be with the Q4 results, as we see it now but slightly later. We're planning a strategic review. That will take some time. I would like to distinguish the financial health of the business and the strategic health. Obviously with regard to the financial health knowing Q2, we need to make a significant step-up. That's what we will focus on in the coming days, weeks, and months. On the other hand, our strategy is not there for one or two years; it will be there for hopefully five to seven or even longer years. And that means that we need to have a holistic and robust strategy; we’ll take the time for that. It will not be a boardroom exercise but exercise we do together with our 60, 70 senior leaders of this business. So, it will take a bit more time. But by that the implementation will go faster and more rigorously afterwards. So, we will come back on that in the first half year of 2016. Jorn P. Jensen: And on ZBB, the short answer is that there's no news versus what we talked about three months ago, which means that we are implementing this, as we talked about three months ago. And that means that where we are right now is that we are these days actually implementing or working on all the, call it, cost saving potentials for next year with our regions, with those markets, and then the normal budget process is now slowly starting for everybody. And when all of that is done, it will be done in this new ZBB too and then of course we will -- when we come back in February and talk about 2016, we will be able to talk in more detail about what we expect to get out of all our cost initiatives.

Just a quick follow-up on Russia on the regulatory situation. Could you update us where we are on the potential PET ban and also what your expectation is for beer duty next year in Russia? Jorn P. Jensen: When it comes to beer duty, we expect that what is current law will also be reality for next year. And when it comes to PET, I don't know if you have seen the brewers union’s announcement about [audio gap] that you have not yet seen but so, you can say that until you see an announcement from the brewers union, then there is basically no news; the ban is still being implemented. But as we have talked about in the past, the industry has made a voluntary proposal to the government. And as we see it now, it’s quite likely that that will be implemented. If not, we will of course come back but no big news at this point in time on PET.

Our next question comes from the line of Soren Samsoe from SEB. Please go ahead with your question. Your line is now open.

Four questions from my side. First of all, regarding the BSP1 program, it now seems that that's not delivering this year but I was just wondering whether you stick with the original timeframe of improving the margin at least 250 bps over five years or so that it will now be more back-end loaded you can say? That was the first one. The second one, just if you can say when Eastern Assets will stop contributing with a negative impact to EBIT, will that already be in 2016 or will that be later? Third question, if there is any further say initiatives done in relation to the renew program? And then finally, if you can just give us feeling for your visibility on the Q3, at this stage in late August here. Jorn P. Jensen: So BSP1 or what we call the CSC savings as said, we do have a lot of initiatives ongoing on CSC in general as we have also talked about before. The thing to-date so to speak on savings and for this year is not that we're not delivering savings based in CSC, of course very much enabled by the BSP1 tool or SAP platform but not all the planned savings are coming through this year. It doesn't mean that the operating agenda, all the activities that is in CSC will not eventually be executed but it will come slower than what we have anticipated. When it comes to Eastern Assets or when it comes to ‘16 in general, as always we will talk to you in detail about that in February and not start guiding on individual elements before that. On renew implementation as you know in headquarter before the summer, and then as we said, further communication around this as we are implementing throughout the organization. But there it's more or less like the brewery closures. We will talk to you about it as we go and when we are ready to announce this also per market. When it comes to Q3, then of course we know July and we have also taken that into account in our guidance today. We have also seen the first 10 days of August. So that is what we know. We know July and we know the beginning of August and the rest we do not know.

Just to follow-up on the first question. Can you just confirm that you can still do the 250 bps improvement in margin just so we know what to model in here? Jorn P. Jensen: Yes, there's no change to our mid-term margin guidance on Western Europe.

Our next question comes from the line of Jonas Guldborg Hansen from Carnegie Bank. Please go ahead with your question. Your line is now open.

First, a question on Russia and price/mix. You paint a rather gloomy picture for the second half but will you be able to increase prices in Russia in H2? And then another one also on Russia. If I read your statement right, then you increased costs in an absolute term in Eastern Europe in the first half, which explains part of the EBIT decline. Could you elaborate a bit on the background for this cost increase? Jorn P. Jensen: When it comes to Russia and pricing, then as I said, we have been increasing prices three times, each time 3% to 4%, so far this year. And as always, we would rather not talk about because it is, as you can imagine, a bit commercially sensitive about when we will do more pricing in Russia. Assuming again as we talked about just before that there will be excise duty increase 1st of January, you can say that in all previous years that of course have also led to price increases in the second half of the year but no promises on this at this point in time. When it comes to costs, it's basically two things: It is underlying inflation in Russia, which of course is increasing our cost in ruble terms; and then it is, which is even more important, it is the imported inflation coming from the devaluation of the ruble, especially to the U.S. dollar that of course brings our input costs or at least those parts of the input costs that are denominated in U.S. dollars up quite significantly this year. It's not a surprise and we talked about that also three months ago and six months ago. But of course that is bringing up the costs in ruble terms in Russia this year.

Our next question comes from the line of Andrew Holland from Société Générale. Please go ahead with your question. Your line is now open.

Just on Cees’s opening comments on what he found, unless I misheard it, you didn't mention the brand Carlsberg in there. You mentioned Tuborg, Somersby, certain innovations but there was no mention of the Carlsberg brand that I found an extraordinary oversight if that's what it was. Is that indicative of a need to increase investment behind that brand so that it becomes rather more front of mind? And just on the China Eastern Assets, can you confirm that that will still be loss making for the full year? Cees 't Hart: For sure, Carlsberg would be an oversight, of course. I was quoting the brands that at this moment of time are really growing very well. And that's what -- these brands I quoted, they have seen these in the figures. And for that I didn't mention Carlsberg because it was down by 2%. For sure, Carlsberg is a beautiful brand, globally very well known and have a very strong history. And obviously, we will look towards the possibilities to strengthen the brand equity in the countries where we operate. So, it was not an oversight; it basically I was mentioning my first views on strong performance of some of these brands and unfortunately not yet Carlsberg is part of that. Jorn P. Jensen: And Andrew, the answer to your second question is basically yes, it will be loss making on a full-year basis.

Can I just press Cees a little bit? Do you think that the brand does need more investment; does this have implications for the longer-term margin structure of the business, if you've got to put more support behind the brand? Cees 't Hart: Well, I'm a marketeer from origin. So, as you know, marketeers always want to have more support for brands. But I think we should come back on that later. I need to further see -- or develop my view on allocating the resources we have. But for sure, support levels of our brands are part of that consideration.

Our next question comes from the line of Michael Rasmussen from ABG. Please go ahead with your question. Your line is now open.

Three questions, please. If you could go through in a little bit more detail, exactly what has changed in your supply chain integration, since we talked at the end of May, because at that stage I got the impression that things were going quite well also in 2015. And my second question goes to you, Cees. So, welcome on-board to you. Obviously, as said before, it's too early to talk about the strategy at Carlsberg. But if you could add a little bit of flavor on your focus areas and what you did change while you were all those years at FrieslandCampina please. And then my final question on your comment in terms of the weather and July, was July and the first part of August any better or any worse versus Q2 in Western Europe? Jorn P. Jensen: If I just take the first and the third questions on savings, yes, it was definitely so in the beginning of the year. I think you also saw that in the Q1 numbers for Western Europe that we are both growing volume for those technical reasons as well as we have talked about before, like the stocking for BSP and the Easter, but also that we were getting savings through. But of course it is also, it is just so that when you have lower volumes, when you have -- and that then gets back to the weather and so on and so forth, when you have lower volumes then you also have, everything else being equal, negative operational leverage. And that is of course also impacting savings or putting even more pressure on delivering and even more in other areas. And what is clear is this is not specific to one area, say it's not procurement and not production or logistics; it is more about that the very busy operational agenda with lots of initiatives for all areas within CSC that had to be delivered on this year, most of those are being delivered, but some are not being delivered. So, as said before, we are getting more and more savings out of CSC but we are not this year getting all of the savings out that we had expected going into the year and what the whole plan for this year was based on.

So, I just wanted to get around that it's nothing to do with some of the recent markets that you put on the platform like Denmark, France, et cetera? Jorn P. Jensen: Exactly. No, it is not. When it comes to the third question, what we have seen in July and what we have seen in the first 10 days of August will of course be part of how we talk about Q3 in three months. But I guess you have also been around or probably been around in Denmark in July and have noticed as the rest of us that the weather was just bad also in July and it goes for all the Nordic markets. But all of that, as I said before, all those observations and all that knowledge, that is incorporated in our guidance for the full year. Cees 't Hart: With regard to your question on what I did in the past, thank you for the question and I would be delighted to talk for very long on that one. But probably that's not of that much interest at this point of time. Dairy obviously is a very different category and I'm afraid at the moment that I would tell you what I did or what we did in dairy that you might see that as a guidance for what we're going to do in beer. And basically, as you obviously know, these are very different categories with very different dynamics. However, if I take let's say the process we will move into in the coming weeks and months, it's all about in my view, a holistic strategy. And we talk about three things hat's the portfolio, portfolio in terms of brands, segments and geographies. On the basis of these choices, assessing the capabilities of the company as wide as the work capability stated and then building the right performance culture. That's what I did in the previous company and that's I think what I can bring to this company.

Our next question comes from the line of Sanjeet Aujla. Please go ahead with your question. Your line is now open.

Just a follow-up on Russia please, Jorn. At the Q1 results you expressed some degree of confidence that you're close to the end of destocking. So, what's changed in Q2; why have we had more destocking; and what confidence do you have looking into the second half of the year that there won't be any further destocking? Jorn P. Jensen: So, this destocking thing is not about Q2. Destocking started basically end of June, 1st of July basically, last year and then there have been, as we talked about three months ago, little more destocking to take place in Q1 as we came out of last year with slightly higher inventories than what was actually planned. So, this year, it's not about destocking in Q2; it's on the year-to-date numbers, about the little more destocking we had to do in Q1 and then of course, on our comparables, it's very, very negative in the sense that we are for year to date and for Q2, comparing to last year's Q1 and Q2 where there was a stocking up to end June. So that is why -- I tried to explain that with that consumer off-take and our primary sales, our invoiced volumes were basically in line in Q2. So, there's no -- within the quarter very, very small inventory movements. It's about the small facilities on Q1 and all of the destocking in the second half of last year.

So, in the second half we should expect a normalization? Jorn P. Jensen: We are very, very, very observant on ensuring that our inventories at distributors in Russia are not at all higher than what they should be in order to service our customers in the optimal way. Of course, we will always have to have inventories with distributors; it is a very big country. So just to make this work efficiently from a pure operational point of view, we need to have inventories but we don't want to have more inventories than absolutely needed, also to ensure that the products that our customers are getting are fresh and so on and so forth.

Our next question comes from the line of Simon Hales, Barclays. Please go ahead with your question. Your line is now open.

A couple of questions please. Can I just clarify, Jorn, on your comments just now again, on H2 expectations for your shipments versus depletions? Are you actually saying that in the second half, we should expect your volumes to be -- your reported volumes to actually match the consumer off-take? And then secondly, just coming back to the Western European margin backdrop, can you just talk a little bit about how much of an impact the higher A&P had on Q2 and how we should think about A&P as we go into the second half? And also your outlook generally for price/mix for the full year now given that further weaker backdrop you saw in Q2. Jorn P. Jensen: Simon, to the first question, yes, in principal, it should be. Of course, the thing is of course with primary sales or inventories that is something that you work on, on a forward-looking basis versus consumer off-take which is happening now. So of course, you will always see small variations up or down on primary sales versus secondary sales, which is also adjusting for different seasons kind of is the coming month higher or lower than the previous month and so on and so forth. But generally yes, we should have primary sales in line with -- more or less in line with secondary sales. Definitely, we do not want to increase inventories at distributors. We don't want to have higher inventories than what is needed. When it comes to margins Western Europe and brands in the market or A&P in general, we’re not talking in detailed terms about that but it was up in the first half. And for the full year, as said before, we expect it in as a percentage to net revenue to be slightly higher than last year. And then third question was on price/mix, Western Europe. As said, also when it comes to Q2, of course Q2 was also negatively impacted by price/mix due to a more negative channel mix than what we structurally expect to see in Western Europe and then you're back to weather and all that. So everything else being equal, we do expect that our price/mix in general in Western Europe in the second half will be somewhat better than what we have seen in the first half.

So, you're still sort of comfortable -- you were talking before about full year price/mix in Western Europe being down 0% to 1%, is that still where you think it'll be? Jorn P. Jensen: We are not guiding that specifically on all those elements but we have definitely plans in place. And it's not so that we are not at this point in time also working on improving price/mix in general Western Europe. So, as said, we do expect it to be better in the second half than what have realized in the first half.

Our next question comes from the line of Andrea Pistacchi from Citi. Please go ahead with your question. Your line is now open.

I have three questions please; the first one on Russia. You've commented that of course the macro continues to deteriorate there. Do you expect this to result in a worsened market decline in 2H? The second question, to achieve your new guidance of a slight decline in EBIT, organic EBIT growth, let's call it 1%-2%, if I calculate correctly, it’s required about a 10% growth in the second half. Now if Russia remaining very difficult, Western Europe not off to a great start, what gives you the confidence that you can achieve that? And then my last question please, partly related to this is on the cost savings in Europe. Now the reasons that caused the delay in delivery of these cost savings partly, I think you said the volume weakness made it more difficult to deliver cost savings. Should we expect Q3 and Q4 to be affected by delay in cost savings? Jorn P. Jensen: First one on Russia market, as said before, year-to-date market down 9%, pretty much in line with what we have talked about before but also slightly worse, but now we are into decimals in the second quarter. I guess we have all noticed that the oil price has come down quite a lot very recently. As we have that that with everything else being equal, further impact the Russian economy in a negative way for the remainder of this year. And of course, we also then expect that to negatively impact the Russian consumer. So, we're not changing our view kind of more structurally on Russia at this point in time but we are starting to get a little more negative on what to expect from the Russian consumer basically from the Russian market, not necessarily in volume but just in general in value terms for the remainder of this year. All of that has been built into our guidance, announced earlier today. When it comes to H2 versus H1, there is different elements and explanations per region. One of the things is what we have already talked about, which of course that in Eastern Europe last year we had this significantly destocking. So, in that sense, everything else being equal, easy comps on the volume side. Last year, if you go back and read the Q3 release, you will notice that in Western Europe, we did not have a very good performance, which by the way was due to bad weather last year in Western Europe. That was basically volumes down. So different explanations per region. But I can promise you that we’ve been through this in all the needed details. And the outlook we have provided today with a slight decline in operating profit is where we expect the year to end.

And lastly on the cost savings, the recent impact in the cost savings, whether these will linger into 2H? Jorn P. Jensen: Well, yes, in the sense. So, to repeat myself, we are getting cost savings out of CSC; we will get that in Q3 and Q4 as well. So, we will definitely deliver cost savings but in general, we will deliver -- and that, so yes that will also be an element of Q3 and Q4. We will deliver less than what we had planned going into the year for all the reasons I have talked about.

Our next question comes from the line of Hans Gregersen from Nordea. Please go ahead with your question. Your line is now open.

Regarding the cost savings initiatives across Western Europe, could you be a little bit more detailed about what -- or give us some examples on what has actually gone wrong in terms of extracting those savings, so we can get real insights into this? And secondly, you mentioned that the guidance for this remains unchanged across the strategy period. Does this imply that you will catch up on these delays in ‘15, already in ‘16 or when will that be done? So just can you explain to us what has actually fallen behind schedule and the reasons and why? That's the first question. Second is India, is that now in profitable terms on a full year basis? And thirdly, in terms of A&P spend, if we look on the absolute spend for H2, is that up or down compared to initial budget at the beginning of the year? Jorn P. Jensen: Hans, to your first question on savings/2016, then yes, we're not changing our mid-term margin ambitions or targets for Western Europe; we're not changing our ambitions on savings in general, the supply chain savings in Western Europe either. So, this is all about that very busy agenda, a lot of things that we need, we can deliver on, that we must deliver on in Western Europe and that we show many, many different reasons. And there's nothing which is -- it's not in one area specifically; it's not in one market specifically. Basically behind plan, I guess you can say, on implementing all those initiatives. So, when that will come from a model point of view and talking about ‘16 and all that, as always that we will talk about in more detail in February.

Jorn, you did not provide any -- can you give just one or two examples on what has gone wrong or can you say when did you discover this was starting to fall behind schedule? Jorn P. Jensen: I don't want to be specific because it will be small, small, small things that I don't think can be used for anything. It is a thing that of course [Technical Difficulty]. with negative operational leverage versus what was expected. So, we will -- as you know, we will talk about these kinds of things in more detail for ‘16 and onwards when we announce guidance for ‘16 in February.

Can you just elaborate finally, if you look on the delayed impact on this, is that at all related to the lower volumes due to weather conditions? Jorn P. Jensen: Yes, that is incorporated in this.

No, I said is the part of the delays, is that caused by the lower volumes created by weather impact? Jorn P. Jensen: No. The delivery this year is of course also impacted by lower volumes, which also are impacted -- or due to weather. So that means of course that everything else being equal, gives -- or puts even more pressure on what needs to be delivered to the bottom line in general in Western Europe. But the variance to the plan is on the many, many, many activities within the different areas of CSC which is procurement, production, logistics that were supposed to come through and deliver EBIT impact this year. Are we okay on that one, Hans?

Yes. Jorn P. Jensen: On India, as said before, we are getting very close to being breakeven in India, which is ahead of plan. So, let's see when the year ends. But that is what we are targeting. And then, yes, when it comes to A&P, there is no change to plan so to speak, on our A&P spending for the year.

Our next question comes from the line of Tobias Bjorklund from Danske Bank. Please go ahead with your question. Your line is now open.

So, two questions. So in Russia, how far are we in the shift from traditional to modern trade, if you could give a feel on that and how the split is made up? And secondly for China, there have been some reports out indicating some challenging Chinese markets or lower volumes at least; you are still growing. And over the longer term here, are you expecting that your regions will be able to outgrow like an average Chinese volume growth; is that in your assumptions and how do you think about that? Jorn P. Jensen: To the first question, modern trade is now 40% and traditional trade 60%. And as you will recall, it was quite -- much, much less just a few years ago. There is no doubt that also the crisis in Russia is helping modern trade to grow, as you would expect. So, now 40% of the market. On China, yes, we are outgrowing significantly year-to-date, 1% up in a market, down mid-single-digits. Of course, if you take this longer term, we cannot forever outgrow the market as much as what we have seen here. In general, i.e. we are definitely also exposed to the much lower growth in China and to the market decline in China. No doubt about that. Structurally and I guess the macroeconomists can talk more about that but everything else being equal, we do expect to see more economic growth, wealth growth, if you like, in Western China than in Eastern China but that is basically just kind of helped by the investments that the Chinese government is doing into Western China. But of course, all of that said, we are also exposed to the more negative volume development in China and as reported by all our competitors. [Ph]

Our next question comes from Olivier Nicolai. Please go ahead with your question. Your line is now open.

Just a follow-up on this modern trade and traditional trade; it’s at 40% and 60%. Is it for the market or is it for Carlsberg specifically? And could you give us an idea of the margin differential between the two channels, is it 200 to 300 basis points? Jorn P. Jensen: The 40-60 is market -- so, 40% modern trade in the market and 60% traditional trade in the market. As you will know, we are not disclosing our margins in our different channels. We also have different margins within the channel and so on so forth. But of course we are also impacted by the change in the retail landscape in Russia. It also gives us opportunities with the strength of our brands in the market and all of that we are working on.

Do you think you are overweight the traditional compared to the market? Jorn P. Jensen: We are still slightly underweight, but it's increasing in modern trade and slightly overweight in traditional trade. We used to be very much underweight in modern and significantly overweight in traditional but that is -- it's getting closer and closer to the right balance.

Our next question comes from the line of Richard Withagen from Kepler Cheuvreux. Please go ahead with your question. Your line is now open.

I have two questions as well. First of all, you are citing higher marketing spending in both Eastern Europe and Western Europe. And nonetheless, your volumes have been disappointing in those markets. So, can you talk a bit about your return on marketing spending in general? And the second question that I have is, obviously given the volatility in some of your markets, what are you doing to adjust to changing market conditions more quicker? Jorn P. Jensen: The A&P question, of course it is -- well, as you're saying, it is obvious that in spite of us having increased A&P this year, then you don't see that in the revenue this year. But I think you need to basically remember that spending money on increasing brand awareness on building brand equity and so on and so forth, is not just about revenue in the next month; these kinds of things do take time. And then as you -- or as we also talked about, our market share in many, many markets in Western Europe, same actually goes for Eastern Europe, have shown very good results in the first half. I'm not sure I understood what you meant by what we are doing on the volatility market side. Could you please repeat the question?

I'm basically -- obviously the markets are volatile and what are you doing to adjust, I mean if markets change, what do you do in terms of take out costs or accelerate initiatives to grow volumes? So basically, how quickly can your organization adjust to changing market conditions? Jorn P. Jensen: It's very difficult to give kind of call it generic answer to that question because of course it depends on why the market is changing rapidly. In general, there are not that many of our markets that are kind of structurally changing kind of within a day or two or within a month but of course you can have markets where you suddenly have -- easy primitive example here is weather; if you have a very, very bad summer or very bad weather in one month, of course you're not adjusting anything because you don't expect that to last forever. And the other way round, if it's extremely warm, then you don't suddenly add a lot of FTEs [ph] on your P&L. Of course, in general, we are taking out costs throughout that's more a structural thing. And that we will continue to do.

Our next question comes from the line of Chris Pitcher from Redburn. Please go ahead with your question. Your line is now open.

Two questions from me please. Firstly, on -- Cees, your review that you are undertaking now. Can I just understand a bit more detail how broad a mandate you have in reviewing the Carlsberg business? Are there any sacred cows in terms of operating assets that you own? And secondly, you've reiterated the medium-term margin target for Western Europe. Is that sacrosanct within your review or could we come early next year and find you've reviewed your investment requirements in Western Europe? And then the second question is your CapEx guidance of DKK 4 billion, what's the lowest level you think this business can run on in terms of CapEx? Cees 't Hart: Jorn will talk to more if you like operational questions in Note 1. In terms of the mandate I have is the full support of the board to review the totality of the business and that means, no sacred cows. Jorn P. Jensen: And to the other two questions, on margin guidance, of course now as Cees was saying, now we're doing this complete strategic review and that will end in us talking about a strategy. How we will, as a consequence of that strategy in general guide the market, what KPIs we will then focus on and so on so forth, it is simply too early to say. So, what I'm saying with -- on the 50 bps is that there are no changes structurally to all our ambitions on driving costs out in Western Europe. And then, when it comes to how will we talk to you guys about our ambitions, that we will come back on when we are communicating the new strategy. On CapEx, it's difficult to answer the question because you can say, you can always, in the very short term lower your CapEx significantly below depreciation but you cannot do it forever. And then, on the other hand we also do have what we consider to be good CapEx in our CapEx. So, when it is for, call it demand driven or volume increases, say in Asia, in India, in EMEA and so on and so forth, then of course we are happy to spend money on CapEx. What is crucial is that in those markets that are not growing, that are mature, that we are ensuring that we are not spending more than what is absolutely needed. Jorn P. Jensen: Good. I think that was the last question for today. So, thanks a lot for joining. And we will be back as we will see some of you over the next 10 days or so and then we'll be back in three months' time. Thank you. Cees 't Hart: Thank you everyone for now. Have a good day.

The conference call. Thank you all for attending. You may now disconnect your lines. Thank you.