Grolsch improves quality of profit
Royal Grolsch N.V. PRESS RELEASE
GROLSCH IMPROVES QUALITY OF PROFIT
Royal Grolsch N.V. posted a net profit of Euro 6.5 million in the first half of 2006 (2005: Euro 7.4 million). Excluding non-recurring items this represents an improvement. Although the deliberate scaling-down of promotional effort in the Netherlands resulted in some loss of volume, this was more than compensated by improved margins in the Dutch market and volume growth and better margins internationally.
OPERATIONS IN THE FIRST HALF OF 2006
- Over the years, the Dutch supermarket price war has resulted in extremely high promotional pressure in the beer segment, in terms of the percentage of retail sales at promotional prices compared with the percentage at regular prices. In view of the strength of its premium brand and the position it seeks to maintain for that brand, Grolsch has actively run counter to this trend and significantly scaled down its promotional effort in the first half of 2006. As expected, this resulted in some loss of market share (in a stable market).
- Volumes in the UK remained more or less stable. In the US, where Grolsch and its new partner Anheuser-Busch are in a transitional period, the task of switching distribution from the old USB network to the new AB network is proceeding very smoothly. The other core markets (Canada, France, Australia and New Zealand) saw double-digit growth in the first half of 2006.
FINANCIAL RESULTS FOR THE FIRST HALF OF 2006
- The first half of 2006 and the first half of 2005 can not be compared without eliminating non-recurring items. The change of the pension scheme into an average salary based system resulted in an exceptional gain (Euro 1.5 million pre-tax) in the first half of 2005. The 2006 interim result includes a net non-recurring expense of Euro 0.9 million pre-tax, comprising the cost of migration of the distribution function in the US (Euro 3.4 million) and the gain on the disposal of plant and equipment at the old Enschede-Noord brewery (Euro 2.5 million).
- The positive effects of the decision to raise prices more than compensate for the loss of volume due to the deliberate scaling-down of the promotional effort in the supermarket channel in the Netherlands. This, combined with volume growth and improved margins in international core markets, the inclusion of beverages wholesalers in the course of 2005 and positive exchange differences, translated into growth of more than 3% in net revenue (Euro 152.2 million in 2006 versus Euro 147.2 million in 2005).
- Operating expenses excluding depreciation and amortisation were Euro 5.6 million (4%) higher, as a result of exchange differences, the inclusion of beverage wholesalers, higher costs of raw materials and packaging materials reflecting changes in the sales mix and repair and maintenance costs, which are normalising now that the new construction programme has been completed. The increase in operating expenses excluding depreciation and amortisation also reflects the above non-recurring items.
- The operating result before depreciation and amortisation (EBITDA) was Euro 26.3 million, up Euro 0.1 million on the first half of 2005 (2005: Euro 26.2 million). Excluding the above non-recurring items, the operating result before depreciation and amortisation would have been Euro 2.4 million higher.
- Depreciation and amortisation rose Euro 1.5 million to Euro 16.0 million, mainly due to the commissioning of parts of the new brewery in the course of 2005 and due to on-trade related depreciation.
- The operating result (EBIT) was Euro 10.3 million (2005: Euro 11.6 million). Excluding the above non-recurring items, the operating result would have been Euro 1.0 million higher.
- The tax burden declined from 31.4% to 28.8%, reflecting a change in the tax rate.
- Net profit fell to Euro 6.5 million (2005: Euro 7.4 million), but would have been Euro 0.7 million higher without the non-recurring items referred to above.
- Earnings per share in the first half of 2006 amounted to Euro 0.38 (2005: Euro 0.44).
- The cash flow from trading activities amounted to Euro 22.1 million in the first half of 2006 (2005: Euro 8.7 million).
OUTLOOK FOR THE FULL YEAR
- Netherlands
The Dutch beer market is expected to remain stable for the rest of 2006. Grolsch intends to reduce promotional effort significantly and, in the specific context of the Dutch supermarket price war, has opted for recovery of margins in preference to increasing volume.
- International
Grolsch expects that by the end of the year, 80% of its volume in the US will have been transferred to the Anheuser-Busch distribution network. Based on this positive development Grolsch expects to maintain US volumes over 2006 as a whole, despite the migration exercise. The other core markets are projected to perform in accordance with their performance in the first half of 2006.
- Forecast
Royal Grolsch N.V. expects to achieve a net result for the full year on a similar level to 2005, excluding non-recurring items (the change in the pension system in 2005, and the migration of the distribution function in the US and the sale of old plant and equipment in 2006). Grolsch is confident that it can offset higher costs (mainly depreciation) and the reduction of the promotional pressure with improved margins in the Netherlands and volume growth and better margins in international markets.
Royal Grolsch N.V.
Enschede, 12 September 2006
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For more information, please contact:
Coen Thönissen, Head of Corporate Communication, Royal Grolsch N.V.
Tel. +31 53 483 3176, [email protected]
Annexes:
- Condensed consolidated profit and loss account of Royal Grolsch N.V.
- Condensed consolidated balance sheet of Royal Grolsch N.V.
- Condensed consolidated cash flow statement of Royal Grolsch N.V.
- Consolidated statement of movements in group equity of Royal Grolsch N.V.
- Notes to the Royal Grolsch N.V. interim report
CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT OF ROYAL GROLSCH N.V.
In thousands of euros 1 January 2006 1 January 2005
30 June 2006 30 June 2005
Revenue 152,153 147,203
Operating expenses excluding depreciation
and amortisation (134,819) (129,212)
Other operating income 8,948 8,188
------- -------
Operating result before depreciation
and amortisation 26,282 26,179
Depreciation and amortisation (16,017) (14,540)
------- -------
Operating result 10,265 11,639
Net financial result (1,402) (1,199)
Share in results of associates 210 298
------- -------
Profit from ordinary activities before tax 9,073 10,738
Tax on profit from ordinary activities (2,615) (3,371)
------- -------
Net profit 6,458 7,367
EARNINGS PER SHARE (ordinary and diluted)
Net profit 6,458 7,367
Weighted average number of ordinary shares
in issue during the first half year 16,921,507 16,921,507
Earnings per share (in euros) 0.38 0.44
CONDENSED CONSOLIDATED BALANCE SHEET OF ROYAL GROLSCH N.V.
In thousands of euros 30 June 2006 31 December 2005
ASSETS
Non-current assets 350,735 364,436
Current assets 77,563 73,597
Cash 21,941 14,378
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Total assets 450,239 452,411
EQUITY AND LIABILITIES
Group equity 243,534 244,821
Long-term liabilities 122,654 124,126
Current liabilities 84,051 83,464
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Total equity and liabilities 450,239 452,411
CONDENSED CONSOLIDATED CASH FLOW STATEMENT OF ROYAL GROLSCH N.V.
In thousands of euros 1 January 2006 1 January 2005
30 June 2006 30 June 2005
Net profit 6,458 7,367
Depreciation, amortisation, financial
result and tax paid on profit 19,778 19,493
Share in results of associates (210) (298)
------- -------
26,026 26,562
Movements in provisions and working capital (3,965) (17,888)
------- -------
Cash flow from trading activities 22,061 8,674
Interest received, interest paid
and tax paid on profit (2,342) (8,549)
------- -------
Cash flow from operating activities 19,719 125
Cash flow from investing activities (1,878) (16,820)
------- -------
Free cash flow 17,841 (16,695)
Cash flow from financing activities (10,648) (9,912)
Other movements (78) 199
------- -------
Movement in cash and bank overdrafts 7,115 (26,408)
As at 1 January 7,086 8,846
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As at 30 June 14,201 (17,562)
ANALYSIS OF BALANCE AT 30 JUNE
Cash 21,941 10,887
Current debts to credit institutions (7,740) (28,449)
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Balance at 30 June 14,201 (17,562)
CONSOLIDATED STATEMENT OF MOVEMENTS IN GROUP EQUITY OF ROYAL GROLSCH N.V.
In thousands Capital in Reserve Hedging Retained Total
of euros issue and for reserve earnings group
share exchange equity
premium differ-
reserve ences
Balance at
1 January 2005 46,335 13 (2,877) 193,502 236,973
2004 dividend distribution - - - (9,984) (9,984)
Exchange differences in
respect of foreign associates - 262 - - 262
Revaluation of derivatives - - (3,087) - (3,087)
Revaluations taken to
profit and loss account - - 1,010 - 1,010
Adjustment of pension assets
in connection with
corporation tax rate change - - - 28 28
Result for period
1 January-30 June 2005 - - - 7,367 7,367
------- ------- ------- ------- -------
Balance at 30 June 2005 46,335 275 (4,954) 190,913 232,569
Balance at
1 January 2006 46,335 189 (3,469) 201,766 244,821
2005 dividend distribution - - - (10,661) (10,661)
Exchange differences in
respect of foreign associates - (32) - - (32)
Revaluation of derivatives - - 2,154 - 2,154
Revaluations taken to
profit and loss account - - 783 - 783
Other movements - - - 11 11
Result for period
1 January-30 June 2006 - - - 6,458 6,458
------- ------- ------- ------- -------
Balance at 30 June 2006 46,335 157 (532) 197,574 243,534
NOTES TO THE ROYAL GROLSCH N.V. INTERIM REPORT
GENERAL
There were no changes in the valuation principles for assets and liabilities, the determination of results, the cash flow statement or the consolidation compared with the 2005 financial statements.
IAS 34 for interim reporting has not been applied. The interim report has not been examined by an expert within the meaning of Section 393 of Book 2 of the Netherlands Civil Code.
FINANCING ACTIVITIES
The total number of shares entitled to dividend remained unchanged as compared with 31 December 2005 at 16,921,507. Dividend of Euro 10.7 million was distributed on 9 May 2006.
SEGMENTED INFORMATION
In thousands of euros Western Europe Rest of Total
1 January 2005 - 30 June 2005 the world
Revenue 131,467 15,736 147,203
Contribution to result 27,940 1,719 29,659
Fixed production costs and overhead costs (18,020)
-------
Operating result 11,639
Net financial income (1,199)
Associates 298
Tax (3,371)
-------
Net profit 7,367
In thousands of euros Western Europe Rest of Total
1 January 2006 - 30 June 2006 the world
Revenue 132,855 19,298 152,153
Contribution to result 30,642 565(a) 31,207
Fixed production costs and overhead costs (20,942)
-------
Operating result 10,265
Net financial income -(1,402)
Associates 210
Tax (2,615)
-------
Net profit 6,458
Owing to the concentration of assets in the Netherlands, the balance sheet items are not segmented by region.
(a) = The contribution to result in the first half of 2006 includes the cost of migrating the distribution function in the US (Euro 3.4 million).
