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Andersen of Carlsberg on Acquisitions, Markets (Transcript)

March 22, 2007

Carlsberg A/S (CARLA) Chief Executive Officer Nils Smedegaard Andersen spoke with Bloomberg's Nina de Roy about consolidation in the beer industry, the company's acquisition strategy and the outlook for Carlsberg's Russian operations. A charter stipulating that a 131-year-old foundation must own a majority of the Danish brewer's stock means the company is unlikely to pair up with larger competitors, Andersen said. They spoke at the company's headquarters in Valby, Denmark, on March 19. (Source: Bloomberg)

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)

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DE ROY: Nils Andersen, CEO of Carlsberg, thanks very much for taking the time to join us on Bloomberg Television, For the Record.

Let's start out with you and beer. Why beer, why Carlsberg?

ANDERSEN: Well, when I was a student, like many students, I formed a deep interest in beers. And when I left the university, I worked for a very short while in controlling in another big Danish company, and I found it utterly boring.

So, I thought I wanted to do something more entertaining, so I wrote Carlsberg and asked whether they would need somebody with a lot of ambition and drive. And they took me in, and I had a great time ever sense.

DE ROY: When you say a student with a keen interest in beer, what exactly do you mean?

ANDERSEN: Well, I think most students have a keen interest in beer as sort of a leisure activity and going out and having good fun, and so on. And beer is a helpful device in that whole program .

DE ROY: Do you find that that helps motivate you in your current job?

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ANDERSEN: Well, I actually do. I think beer is fun. You should consume it in moderation, obviously, but it's a great socializing product. And it's a nice social atmosphere around the whole company and the product.

So, I think it's a great motivation. And it's also - internally in the company creates a different way of working. Not that we go around drinking all of the time. But when we socialize with colleagues or up and down in the hierarchy, it gives a little smoother, you can say contact between people, so that's good.

DE ROY: What drives you in your particular role, aside from beer?

ANDERSEN: Aside from the social part, obviously a strong will to perform. I think it's fundamental in business people that they have to have this will to perform and the will to drive change and see the company grow and develop. So, the entrepreneurial spirit next to, you can say, the more technical management side is what drives me.

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DE ROY: Nevertheless, there must be challenges in a role like this. One thing you mentioned in particular was also the government firing warning shots against some alcohol companies, you know, trying to encourage some of the consumers to drink in moderation. Is that something that's a particular challenge in your role?

ANDERSEN: I think you're right. I mean, it's - sometimes industry professionals see this as challenges, and so on. I have to say, I see it as a challenge also, but it's a positive one, because there's no doubt that, if you drink too much alcohol, whether it be in beer, or wine, or spirits, then it's not good for you, and it's not good for the social systems in the countries where we operate.

So, we can only be successful as companies if we make sure that our products are consumed in moderation, and that people have enjoyment with them, and that they're not creating social problems.

So, yes, I think, it's a challenge, but it's also something necessary for the industry.

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DE ROY: Now, you've been CEO of Carlsberg for a number of years now. What do you think has been the hardest thing you've had to deal with so far?

ANDERSEN: Well, I think the hardest thing, when you come into a new role in a company like Carlsberg, is basically the role of changing the culture, the fabric of the company.

When I became CEO of the company, I'd been outside the country for many years, just back for a brief time as member of the executive board, before becoming the CEO. And I think Carlsberg, at that time, was a quite dusty, old-fashioned company, like many institutions become, if you're not careful.

So, for me, the challenge has been changing that fabric of the company, getting the right people in place, getting new, young, energetic ambitious people in who really want to drive change, and want to develop all of the time.

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DE ROY: Would you say that's one thing that people recognize in Carlsberg, that's one of the main sort of images?

ANDERSEN: I think, if you look at my leadership style, I think they would recognize that, for sure, they recognize that. And I think the level of buy-in into that has been tremendous. I think even the people like myself, who have been in the company for many, many years, we clearly saw the need for change, and the backup has been tremendous, yes.

DE ROY: So what about changes going forward? What's - what will continue to drive you in this particular role?

ANDERSEN: I think the moment when you see - when you don't see a need to continue to change, I think you're losing your justification in a job like mine. It - we will never reach a phase in Carlsberg history where we can say we can lean back and say, well, now things will run themselves, we've done all of the right things. We can relax. This is utterly dangerous. The world is changing, and we need to change every day.

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DE ROY: So, that brings me to an interesting question - how long is long for a CEO of a company like Carlsberg? You've been at the helm since about the turn of the millennium. It's now 2007.

ANDERSEN: Yes, I've been here for six years, and I must say, I've had tough days here. But I never had a day where I didn't go into the office and say, OK, Jesus Christ, what a challenge I have to do things today. And as long as I feel like that, I'll stay on.

But you never know. When you run out of ideas, I think it's up to you to say, OK, now it's time, and maybe if you don't get that idea, somebody else should get the idea.

DE ROY: Now, Carlsberg is one of the iconic brands of Denmark, hence the reason why it's also a very interesting company to work for from that perspective, that you have spent a number of years within the food and beverage industry.

Would it now be time for change? Could you entertain doing something like, for instance, what Robert Paullette, where he went from the president of the ice cream division at Unilever to Gucci instead. Is that something that you could see?

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ANDERSEN: I think, you know, if - if there are interesting opportunities, I think everybody thinks about what they want to do with their lives, and so on. And I wouldn't exclude that a change could happen at a point in time. Maybe you run out of steam in your current job. But Carlsberg is a great company, and I think you can stay here and keep driving things for many years.

DE ROY: What do you think that the original founder of Carlsberg, Mr. Jacobsen, would have said if he were to see you today, and the company that you've partly helped to create as it stands now? It's very different from the Carlsberg that was founded in 1847.

ANDERSEN: Of course it's different, because at that time, a big successful brewery would still be operating more or less, you can say, within the boundaries of what a horse could bring out in a day and come back with. So, that meant that there was a geographical limitation.

They were pioneers in exporting their beers. So, they were early into the export markets.

But, of course, the very, very important thing at that time was, how did you do in your domestic surroundings. So, yes, you would find it inconceivable, probably, the way we operate today. But he was an entrepreneur. He started the company. He went out from the city center, built a factory in - out in the countryside, which was unheard-of at the time, got royal permission to do so, actually. And he drove, I would say, change very hard.

So, I think he would have been extremely disappointed if he would reappear and he would have seen things the way they were when he was responsible.

DE ROY: Do you find you identify with some of that entrepreneurial spirit?

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ANDERSEN: I hope the company is increasingly identifying with the entrepreneurial spirit. It's not probably so much in the fabric a brewer to be entrepreneurial because our business, in its essence, has, for many, many years, been quite a stable business. Once your consumers associate with your brand, you have a pretty stable business. So, you can say the temptation to change all of the time, has been less, maybe in our industry than others.

But I think Carlsberg is getting an entrepreneurial attitude to things. We enter into new markets as first. We come up with new products, and so on. So, yes, I think so.

DE ROY: And personally, do you find that you have certain traits in common with Mr. Jacobsen, who started all of this so many years ago?

ANDERSEN: I think if I had too many traits in common with him, I probably wouldn't be employed. But I hope, you know, I have some of the good sides of it, and that I carry tradition and this will to change.

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DE ROY: Let's talk about what you do in your time off. What do you do relax as a CEO of a company? Do you spend any time doing sports?

ANDERSEN: Yes, I think relaxation is probably not what I do most. Being a CEO of a big company takes a lot of time. And when I'm off duty, I should try to do something, and mainly physical activities to stay active.

It's quite hard, I think, when you drive extremely fast in your everyday life, just to lean back and say, now I'm going to do nothing for a couple of hours and just relax and so on. So, I try to be active, skiing or tennis or playing a round of golf, or just walking in the forest, and spending the relaxing time, I spend it with my family.

DE ROY: Which one in particular, then? Would it be skiing. Obviously it's seasonal, but ?

ANDERSEN: Skiing is, unfortunate, seasonal, but I spend probably most of my, you can say vacation time, I spent - when I do active things, spent skiing.

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DE ROY: Do you bring any of sort of that competitive spirit into the workplace? Do you encourage your employees to do so here?

ANDERSEN: Well, we have changed, actually, a number of things also, you can say, in the way we pay people, the way we give bonuses, the way we have annual or semiannual discussions on performance and so on. So, we try to have a certain level of competitiveness.

But actually, what I try to encourage, even if I may not be the best team worker myself, but I really try to encourage teamwork in the company. I'm a deep believer in teamwork. I don't think we can - especially in a big company like Carlsberg, where we have, you can say, very close relationship with our customers.

We have four people visiting a draft beer outlet. So, we have the technical service. We have the salesman. We have the advisor who gives - or the people who bring in the beer. We have a team salesperson as well.

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So many people need to work together in our company to satisfy the needs of customers.

And I think, essentially, that goes all the way up. Being a service company, you need to respect teams. You need to work with people. So, we try to encourage teamwork. But we also try to encourage, you can say, the accountability and the need - the understanding of the need to perform and to compete.

DE ROY: Let's focus a little bit on the beer industry as a whole, because that's obviously where you operate. Where you do expect this particular industry to be come, say, three to five years? Do you expect there to be an increased wave of consolidation within it?

ANDERSEN: I think we have to be realistic. Yes, consolidation will continue. It's hard to say what kind of pace will it take, three, five or 10 years, or maybe just 12 months - nobody knows. But we will see increased consolidation in the industry. I think that's a really safe bet.

And I guess your next question is, what will be the roll of Carlsberg in that.

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DE ROY: Precisely.

ANDERSEN: And to that, I will say, I believe it's possible to be a very, very, well-performing mid-size player, and do well with that. I think, really, the key to success in our industry is being the leader in the markets where you operate. Beer is a very local thing. People have their local brands. Local consumption patterns are different. Service is a very local business as well.

So, for me, it's really what - how strong a leader, and how good are you where you operate?

DE ROY: But you're currently about number of five in the world, in terms of the volume number eight, as far as I make it out, in terms of sort of market value, market sales. Nevertheless, analysts have been saying that they're pricing in large scale mergers potentially between sort of ImBev, Anheuser-Busch, Coors, SABMiller.

If that were to happen, you'd be virtually eclipsed. How would Carlsberg be able to compete?

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ANDERSEN: Well, I don't know whether we would be eclipsed, but we would be very small compared to the very large players. And I think what we have to do is really be strong leaders where we operate.

And we are, actually, a market leader in Northern European, in Eastern Europe, and in some parts of Asia. Continue to build on that. Continue to be very close to the customers, understand the markets well. And be entrepreneurial and driven as a company. Then I think we can do well.

DE ROY: Is it not a case, though, that Carlsberg could potentially have to partner up with somebody else, say Heineken or ImBev just to make up the numbers to be able to compete with these large companies?

ANDERSEN: I think it's really, you know, a question of being strong locally. Of course, there will also be advantages of being large globally. There will be advantages and disadvantages. And the question is, will we not be large enough to compete effectively? And I think, as long as we realize that we can't be everywhere, I think we can compete effectively.

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As you know, the foundation has, in its charter, that they need to control the company. And as long as that is in the charter, and they need to control it, then it's very hard for me to envisage that we should team up with someone two or three times the size of ourselves because that, of course, is not a partnership, what they would allow the foundation to be in control.

DE ROY: But, in your personal view, would it make sense?

ANDERSEN: I think there would be some partnerships that could make sense. You'd have to evaluate them and so on. But it's really, you can say, outside the scope of the management to enter into these discussions, because it's not up to us. It's up to owners to decide that.

DE ROY: When it comes to putting cash aside for that kind of situation, because obviously, as I was just saying, you know, everybody is expecting these consolidations over the next three years, potentially some larger competitors than you currently have, you could have on the horizon. Are you putting any money aside, having a war chest, let's say?

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ANDERSEN: I think we have probably the smallest war chest in the industry of the big players, which we have no problems with, because what we actually want to do is to create value for the shareholders. And if we can do something big, then I'm sure the shareholders would be happy to contribute to that.

But we, as a company, we see our job as running the company well, being there for our customers and our consumers, and creating value to our shareholders. And we do that very well at the moment with the scale we have.

DE ROY: When you say creating value, are we talking about small acquisitions being made, potentially in some of those emerging markets that you look to expand ?

ANDERSEN: We're talking about building the share price when we talk about creating value. But we think, in terms of building value, true acquisitions, we're very firm in what we want to do. We want to buy companies in growth markets, where we see ourselves establishing strong platforms that can later become important income earners for us, or doing acquisitions in markets where we have synergies.

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We don't see ourselves going out and buying companies just to expand, of course, not to expand at the cost of the shareholders.

DE ROY: So, are we talking about sort of bolt-on acquisitions, potentially in the emerging markets, as opposed to large-scale acquisitions here, within the more mature markets?

ANDERSEN: I would say bolt-on acquisitions in the mature markets, small or large acquisitions in the developing markets, when we see long-term value creation. They don't have to be small. If we want to do something which is value creating for the shareholders, they can be big as well. We don't really worry that we shouldn't be able to finance things that are sensible for the shareholders.

What we, of course, don't want to do is sit on a pile of cash and say, maybe one day we'll need it, so we'll just keep it in the company.

DE ROY: One thing that is a hindrance that you alluded to earlier on, about when it comes to approving acquisitions, and actually being able to move speedily, is the fact that you're 51 percent owned by that foundation. How is it to balance that, being the CEO of the company? Is it difficult to balance that?

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ANDERSEN: No. I think it's actually not difficult, because the times we've suggested something important to the foundation, they've actually accepted it. For instance, when we decided to buy out the minority shareholder of Carlsberg Breweries, which meant that we went out of, you could say, investment grade territory for a couple of years, they did that. They accepted that.

And so, if you communicate in the right way, if you really believe in what you want to achieve, then, I mean, the foundation is no different from other shareholders. They will be prepared to take risk. The only thing is that they have to respect their charter.

DE ROY: Is the charter likely to change any time soon?

ANDERSEN: I think this is not a question you should ask me. This is a question that needs to be asked to the chairman of the foundation, and he probably will not give you the answer to that.

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But the charter has been changed a couple of times when it was required for the company. But I don't think it has ever been contemplated to change it in a way where control of the company would not be in the hands of the foundation.

DE ROY: You, in particular, if I'm not wrong, were nominated by the five professors that are actually on the board of Carlsberg at the moment, that do represent the foundation, those people, they're not likely - they don't have an economic background. You have a background in business, in economics.

Is it sometimes hard to have to keep explaining stuff, or are they very well-versed in business? Does it make sense?

ANDERSEN: Well, first of all, I was not appointed by the professors, as you put it. I was appointed by the board. And in that sense, our company works just the same as any other company.

We have three professional businesspeople, and five members of the foundation on the board. But when it comes to day to day operations of the company, you know, it's essentially the management and the - you can say the commercial - people with a commercial background.

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But having said that, I think the five representatives of the foundation had a long experience, most of them with Carlsberg, and they're well versed in our problems and in our opportunities. So, I think it's more a theoretical issue than a practical one.

DE ROY: Let's come to expansion, because that's obviously key for your company for the brewery - breweries in general across the world. Which market is key for Carlsberg at the moment?

ANDERSEN: Well, at the moment, obviously the most key market of all markets are the former Soviet Union markets. We have a very, very big business in Russia. We're investing into the Ukraine, into Uzbekistan as well, Kazakhstan, a very good business in the Baltic countries.

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So these markets, as a whole, are by far the most important markets. Strongly growing, very profitable, and market leader positions. So that is, you can say, the most important part for midterm, how they develop.

Of course, most of our earnings still come from the Western European operations, and in that respect, you can say that the Nordic countries are generating most of our profits and will continue to do so - the Nordic Western European countries will do so for some years to come.

And then, what we're doing is we're investing in the real developing markets in Asia, like northern Vietnam, western China, but these are going to pay off, maybe in five or 10 years, so that's a real long term.

DE ROY: What do you envisage investing in western China - excuse me - in eastern China, because you're predominantly present in western China, and all of your competitors are in the other end.

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ANDERSEN: I think we could contemplate that at a point in time, but I must say, when we endeavored on the western China strategy three or four years ago, it was because we thought that the markets in eastern China were too competitive, too many people making, you can say, uneconomical decisions on how to compete there. And we decided that we didn't want to go into that contest.

And we've been happy with our investments in western China, because the competition level is more rational. You don't have fine people who want to establish themselves there for prestige reasons.

But, I guess, when we're established there, when the situation changes in eastern China, why shouldn't we be interested in that for sure? But for now, it's western China for the next future.

DE ROY: There has been speculation that you could be buying a brewery in Yung Gin. Is there any news on that? Are you looking at it?

ANDERSEN: Well, I think, basically everybody looking to what can be achieved in China. And Yung Gin is one of the few breweries which are not of the big ones, which are not firmly associated with other global players.

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So, I guess, everybody talks about it, but as we're concerned, this - there's nothing I can comment on here, or would like to comment on.

DE ROY: Let's go back to Russia and Uzbekistan, Ukraine. You're currently in 50-50 joint venture with Scottish & Newcastle out there. And of course, both Baltic Beverage Holdings, which is the company that you jointly hold, is actually one of the jewels in the Carlsberg crown.

How long is that existing agreement going to remain in place for, do you think?

ANDERSEN: Well, I think, if standing a little bit on the theoretical foot, of course, joint ventures make an awful lot of sense, as long as the partners are agreeing on what to do, and I guess, as long as markets and businesses are growing.

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And as - to the first thing, actually Scottish & Newcastle and ourselves, are totally committed to making this company a winner in the market. So we're agreeing on investing ahead of the curve, and being very aggressive. We don't have any fundamental disagreements on how to run the company.

We do have, you can say, an issue, which is, which international brands are going to be promoted? And there, of course, we have an interest in Carlsberg. And needless to say, Scottish & Newcastle also have brands that they would like to promote. So far, it's been - the decisions have been taken on a very objective level, and we've had very few disagreements on that.

DE ROY: But nevertheless, if you're both counting on this particular unit for growth, and you're two large Western beer makers in an already - a market that's already becoming increasingly crowded because you've got even larger competitors coming into Russia seeking out growth there, how long will it remain a happy marriage like this? Would you consider buying their part out?

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ANDERSEN: Then we come to, you can say exit clauses. And the situation in BBH is that it's very difficult for any of the parties, actually, to buy the other one, because there's a so- called shootout clause in the agreement which means that, if I would like to buy Scottish & Newcastle's shares, I would have to start by offering my own at a given price. And none of us are very likely to do that, because we're both keenly interested in the business. We're both, as you say, depending on it for growth.

And also, because it's such a big part, already the half wheel contributes more than a third of our group profits. So, if we worked by all of it, we would have a very, very big part of our business, of our profits coming from that region.

So, I think, for both of the companies, it's a marriage that is, first of all, well working. And then, it's accepted for its logic.

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DE ROY: Are you coming under pressure from shareholders, though, to potentially buy out that particular joint venture?

ANDERSEN: Not really. Of course, when we go to shareholders and we have meetings with them, or with analysts, the question always comes up, what is happening with BBH, is it still working well? When are you going to merge with Scottish & Newcastle, or when are you going to buy each other's stakes? And the answer is really, as I just gave to you, I mean, we consider it a good marriage, and we'll continue with it for quite a while, if you ask my bets.

DE ROY: Can I read you a quote, that you have been reported to have said, ?People have got it wrong when they think our position is vulnerable and that we could concede some power to Scottish & Newcastle. There's room for consolidation, and we're in a position of being a buyer.?

What exactly does that mean?

ANDERSEN: Well, I think that quote was not related to Russia. I think that quote was related to the U.K. where we are number four, and therefore, we are often rumored as being a weak or takeover target.

<time begin= 00:26:03>

And with that statement just to underline that we're not a takeover target in the U.K. We intend to stay and fight. And we have a pretty good business, and we have lots of plans to improve it further.

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