Ladies and gentlemen, welcome to the Carlsberg H1 2018 interim financial statement hosted by CEO, Caset Hart and CFO, Heine Detskol. Today, I am pleased to present CEO, Caset Hart and CFO, Heine Call. For the 1st part of this call, all participants will be in listen only mode and afterwards there'll be a question and ask session. As a reminder, this call is being recorded.
Good morning, everybody, and welcome to Karlberg's H1 2018 Conference Call. My name is Katie Pipes, and I have with me CFO, Heine and Dalsgaard and Vice President of Investor Relations, Peter Gondroek. Let me first briefly several the key headlines for the first half year. We see good growth coming from our sales 22 priorities. We now expect that funding the journey will deliver benefits in excess of 2,300,000,000 giga K.
We delivered strong financial performance and we adjust full year earnings outlook upwards. I will go through the highlights of the 1st 6 months and regions and Heine will talk you through the financials and outlook. Please turn to Slide 2. We delivered a strong set of numbers in the first half of twenty eighteen and we are pleased that we are also delivering against our key sales 22 KPIs. We grew Those top and bottom line net revenue grew organically by 5.1% but declined 0.7% we reported terms due to adverse currency movements.
Organic operating profit grew strongly by 14.2% and adjusted EPS grew by 9.3%. Return on invested capital improved by 110 basis points to 7.6%. The gross cash generation remained strong at 5,800,000,000 giga K and as a result, we continued to reduce net debt and leverage. That now stands at 1.29 times. As we stated at the beginning the year, 2018 is a year that we will show that the group can accelerate top line growth.
Heine and later, we will talk you through the upgrade of the expected benefits of funding the journey which we have been able to invest significant resources back in the business to drive growth while at the same time, thanks in margins and cash flow. We expect to reinvest around 500,000,000 gigabytes this year, bringing the total investment during the 3 years period to more than 1,000,000,000 gigabytes. A few areas where we have decided to allocate further investments in the second half of this year are the rollout of DraughtMaster, the launch of BRL and alcohol free beer, further expansion in China, and further development of our digital capabilities. Slide 3 and a few words on our golden triangle, which serves as a key KPI in our performance management. It helps us to continuously aim at balancing growth, margin and profits, but at the same time, delivering a strong free cash flow.
We are very pleased with the well balanced golden triangle for H1 as we delivered top line growth, margin improvements and operating profit growth, while maintaining a strong free cash flow. The organic volume growth of 3.4 percent, driven very much by continued growth in Asia and the recovery in Eastern Europe. Ebro margins strengthened by 170 basis points due to a solid 2% pricemix volume leverage and efficiency improvements. The 14.2 percent organic operating profit growth was the result of improved GPO and cost efficiencies, which were positively impacted by funding the journey. Free cash flow remained strong at last year's high level.
Please turn to Slide 4 and a few comments on our international premium brands, which also good growth. 6064 Blanc continued its strong performance and grew by 55% even after having achieved 46% growth in 2017. The brand grew in most markets with particularly strong growth in China, Russia, France, Ukraine and some export markets. Greenbergen also continued its double digit growth and grew by 11%. The growth came from Western And Eastern Europe is particularly strong results achieved in markets such as France, Russia, and Denmark.
To work, our largest brand, grew by 8% supported by strong growth in India and China. The brand also grew in several markets in Western Europe such as Denmark, Norway, Serbia and Bulgaria, In Denmark, the growth was achieved in spite of a price increase as consumer traded up into more premium tour line extensions. In Turkey, our partner has been very successful in making Tuborg 1 of the largest beer brands in the country. Volumes of the Carlsberg brands grew by 4%. We saw good growth in Asia from China, India and Malaysia and in Eastern Europe from Russia.
Investor Europe, volumes grew in markets such as Poland, Denmark Norway, and the Baltics, but declined in the UK. Please turn to Slide 5 and a brief update on some of our strategic priorities, which are receiving significant support from our sales 22 investments. The strong growth trajectory of the craft and specialty category continues and we grew our portfolio by 26%. Russia, France, China and Poland were important drivers of the growth. During the half year, we established microbrewery in Lithuania and we launched Brooklyn in Poland.
The rollout of the DraughtMaster System continued, supporting the availability of our craft facility portfolio in the own trade. The system is now available in all Western European countries, and we are in the process of converting old fuel CAC installations in the 4 Nordic markets to the truck master system. Elbow fleet brews grew by 26% investor Europe. We launched a new alcohol free beer, Birrell in Poland and Bulgaria and the new health version alcohol free beer in Switzerland. In Russia, Delta Cat 0 strengthened its market leading position within the alcohol free beer segment.
The brand grew by double digit percentages which was supported by last year's launch of Balticazir wheat. Asia is a key drive, the growth driver for Gaalsburg and the region had a front exparts through the year with 40 percent organic revenue growth. 1 of the key investments in the region is the expansion of our international premium portfolio in China, where momentum remains strong and delivered 15% volume growth. With that, I will hand over to Heine, who will take us through the financials and outlook.
Thanks, please, and good morning, everyone. Please turn to Slide 6 and a few comments on the P and L. As said, net revenue grew organically by 5.1%. This was driven by volume growth and the past pricemix of 2% In reported terms, net revenue was impacted by the adverse currency development and declined by 0.7%. There was slight negative impact from net acquisitions, which was due to last year's disposal of Nordic Getranke in Germany.
Customer goods sold per hectoliter was flat. The positive impact from volume leverage and efficiency improvements were offset by the overall cost inflation and by mix. The positive volume growth, pricemix and the efficiencies led to a solid gross margin improvement of 90 basis points to 50.6%. Operating expenses increased organically by 4%. This was driven by higher marketing expenses in support of our sales into 2 growth priorities.
Marketing expenses grew organically by more than 10%, reaching 8.8% of net revenue compared with 8.1% last year. Excluding marketing expenses, Reported operating expenses declined by 3% as a result of funding the dividend initiatives compounded by the effect of currencies. Depreciation was down versus last year, mainly due to an extraordinary depreciation charge in first half last year. In second half, depreciations will be slightly lower organically than second half last year. In total, we delivered 14.2 percent organic growth in operating profit with high teen organic growth in Eastern Europe and in Asia and with around 8% organic growth in Western Europe.
Reported terms, operating profit grew by 6% due to a significant impact from currencies of minus 8.5%. The most significant contributors to the currency headwind by the Brazilian ruble, the Chinese rumble bean and the Swiss franc Slide 7, please. Further down, the P and L net special items amounted to minus 37,000,000, primarily due to restructuring measures in Western Europe. Net financials were minus 330,000,000 compared to minus 1,000,000 last year. Excluding currency gains and fair value adjustments, financial expenses amount to CHF 380,000,000 versus CHF 518,000,000 in 2017.
The improvement of BRL138 1,000,000 compared to last year was mainly due to a reduction in our gross debt and the repayment of the billion bond in October 2017. The effective tax rate in the first half was 28%, which was exactly in line with our expectations. Non controlling interests amounted to CHF 413,000,000 was not in part of last year. Non controlling interest primarily relates to our businesses in Malaysia, Chongqing and Laos. The Castberg's group share of consolidated profit increased by 7.2 percent to SEK 2,500,000,000.
Adjusted earnings per share were up 9.3% to 16.4 And now some comments on the cash flow on Slide 8, please. Free cash flow was 5 point 1,000,000,000 positively impacted by the change in trade working capital up plus 1,000,000,000 on a rolling 12 month basis, trade working capital to net revenue was minus 15.2%, which was a very strong number and driven by strong focus and an impressive effort, particularly in our Asian region. As said before, we believe that we are doing well a trade working capital and we do not see any easy wins for further improvements. The change in other working capital was amounting to BRL471,000,000,000 primarily due to a reclassification of certain trade loans. Net interest paid were BRL 311,000,000 last year's number on net interest was impacted by 1 off income related to the settlement of financial instruments.
Tax amounted to BRL1.3 billion, which was BRL371 1,000,000 more than last year, and due to certain one off tax payments and phasing within the year. Total operational investments amounted to 1 $900,000,000, slightly below depreciations of $2,100,000,000. The cash contribution from financial investments and other activities were plus 358 and related almost solely to dividends received. Free cash flow showed a slight decline of CHF97 1,000,000 compared to the first half twenty seventeen. The decline was due to dispose of entities and certain one off financial income included last year's numbers and higher tax paid this year.
The combined effect of these factors more than offset the significant working capital improvement. Slide 9, please, and a few words on leverage, which continues to decline. And by June, the net debt to EBITDA ratio was 0.1 29 times. Net interest bearing debt was reduced by SEK2.4 billion versus year end 2017, as a result of the strong cash flow that more than offset the significantly higher dividend payout in March this year. 2018, we have so far increased our ownership in 2 businesses.
The most significant one This year was the deal announced on Monday this week, namely the further increase in ownership of our Cambodia businesses to now 75% giving us management control. That means that we will consolidate cash flow fully as of August this year. The acquisition is in line with our SAIL'twenty two priority of growing our businesses in Asia. We see interesting opportunities in Cambodia both in terms of future market and in terms of further strengthening the business through an enhanced portfolio and improved route to market And it is, as you know, we increased our ownership in the Olympic Brewery in Greece to 100%. Please turn to Slide 10 and the outlook for the year.
As a result of the continued good execution of funding the journey, we now expect the benefits of the program to exceed $2,300,000,000 compared with the previous expectations of around $2,300,000,000 and well ahead of the original expectation of CHF 1,500,000,000 to CHF 2,000,000,000 when the program was first launched. The reason why we're able to operate the expected benefit is the positive momentum of several streams within the program, including value management, supply chain, and operating cost management. The good fraction of the many initiatives across the group's group make us confident that even after the completion of funding the journey, the strict financial discipline will remain a key pillar in our continuous effort to improve profitability while at the same time also growing top line. Based on the strong first half performance, the upgrades of the expected benefits from funding the journey and a good start to Q3, we are able to adjust our earnings expectations for the full year upwards to high single digit percentage growth in operating profit. Despite the favorable start to Q3, especially in Western Europe, we still expect H2 profit growth to be lower than H1 properties main reasons.
Firstly, in 'eighteen, Asia was impacted by the sell into the festive season and in Europe witnessed an extraordinary strong month of June, due to weather. Secondly, we will accelerate sale investments in second half. And thirdly, There will be a different basin of certain costs, including depreciations versus last year. Based on spot rates and ops 15, we now assume a negative translation impact on operating profit of around minus 425, an improvement of 125,000,000 compared to the previous expectations.
Thank you, Heine. Please turn to Slide 16 and Western Europe. Our Western Europe business recovered in Q2. Delivering organic net revenue growth of 2.3 percent, but half year net revenue was flat organically. Price mix was 1% plus Reported net revenue declined by 2.7% due to the disposal of the German wholesaler Nodek Katchenke in a day drill 2017, and the negative currency impact.
Price mix was positive in most Western European markets due to our successful premiumization efforts and some price increases, although negatively impacted by the higher growth of non beer products. On a regional level, the positive pricemix partly offset by country mix and the volume loss in high revenue Middle East export markets due to high duties and VAT. Organic operating profit growth was 7.8 percent and operating margin improved by 120 basis points. The earnings progress was driven by value management, premiumization, funding the journey benefits and lower depreciation. Beer volumes declined organically by 1.2% with improving dynamics in Q2.
In Q2, our markets in the northern part of the region benefited from warm weather, while the southern part of the region witnessed less favorable weather conditions. Non vehicle volumes grew by 1.9% due to good performance in the Nordics, We estimate that our regional market share was largely flat compared with some the same period last year. Reported volumes declined by 1.7% due to the divestment of Nordic Catranke. Slide 12, please, and a few country specific comments. In the Nordic markets, our total volumes grew by 4% with a slightly positive pricemix.
The Scandinavian businesses all benefited from the very warm weather in Q2 positively impacting volumes, net revenue and earnings. In a flat Danish beer market, we delivered significant value share gains as a result of strong sales execution, good results for Carlsberg, 883, and price increases for the Tuborg brand. In Norway, we saw solid vehicle volume growth driven by premium products, while our Nordea business was impacted by a large sugar tax increase at the beginning of the year. In Sweden, total volumes grew driven by strong growth of the non beer products. Beer volumes declined slightly due to the loss of distribution rights for 3rd party brands.
In Finland, volume growth was strong, driven by relisting in Q1 for the winter campaign at the main year retailer. The French market was flat negatively impacted by weather. Our craft and specialty and alcohol free brands delivered double digit growth. Total volumes declined slightly due to the continued challenges for the mainstream protocol brand and supply chain challenges arising from the real world strike in Q2. Pricemix improved due to the growth of premium products and lower promotional pressure, although the overall pricing environment remains difficult.
Our Swiss business continued its positive development, driven by strong performance of our beer portfolio, which delivered volume, value and price mix improvement. Our key beer brands, Sales Flushing, our regional brands, and our alcohol free brews are delivered, all delivered good growth. Our Polish business recovered strongly in Q2 after an challenging start to the following our price increase. Our volumes declined by 4% for H1, but we achieved strong pricemix of high single digit percentages due to the price increases and good performance of upper mainstream brands. In the UK, we saw very good performance of our premium brands growing by double digit percentages.
The mainstream Carlsberg brand lost market share resulting in a total volume decline of 5%. We completed our exit from the port rich activities, which reduced net revenue. In the rest of the Western European region, craft facility and alcohol free brews achieved very strong growth rates, supporting a positive price mix development. Our businesses in the Belgian markets delivered particularly good results. Slide 13 and Asia.
The Asia region delivered a strong set of results for the 1st 6 months. Net revenue grew organically by 14.3% driven by 10.4 percent organic volume growth and 4% pricemix. The reported net revenue grew by 7% due to a negative currency impact in most countries in the region. The pricemix improvement was a combination of strong growth of our international premium brands to work Carlsberg and 664 Blanc as well as price increases. Organic operating profit grew by 17.4%, mainly driven by the strong revenue growth.
Operating margins improved by 10 basis points to 20.3%. A strong gross margin improvement was largely offset by a significant increase in marketing investments as a sizable proportion of our Shail32 investments is allocated to further strengthening our Asia business. The 10.4 percent organic volume growth was broadly based and all major markets delivered solid growth in H1. As expected, Q2 was less strong than Q1 and Q1 was positively impacted by the sale hit to the festive season in several Asian markets and easy comparables in India Slide 12 please and a few country specific comments. We are very satisfied with the continued growth growth of our Chinese business which led to China becoming our largest market in terms of volume and revenue for the first half year.
Our net revenue grew organically by 17% in a market that grew by an estimated 12%. Our revenue growth was driven 10% organic volume growth and 7% pricemix as a result of continued stellar performance of our international portfolio, toward Carlsberg and 66 Foot Blanc that grew volumes by 15%. In addition, we saw growth for all our key local power brands. Our Indian business delivered 16% volume growth, showing good recovery after the very volatile 2017. Pricemix was very strong, supported by growth of the Carlsberg brand and improved pricing.
Profitability improved significantly. In layoffs, our volumes grew by low double digit percentages, mainly driven by strong growth of water and soft drinks. As a result of this, pricemix was negative. In the beer category, we achieved particularly strong growth in the premium category in Strasburg, and summer sweet. Our Malaysian business delivered solid results, driven by Sierra Games and the reduction in contraband.
The share gain was supported by strong execution of the Chinese New Year activations at the beginning of the year and a successful football campaign. The country's goods and services tax is currently being replaced by a sales and services tax. It's too early to estimate the consequences of this change for the beer market. As Hanger has already mentioned, we increased our ownership in Cambrew and Cambodia to 75% Byely now have management control. In Nepal, our business delivered strong progress, supported by a new good to market approach.
At the end of Q2, the net lease government implemented a 3% excise tax increase, which has led to increases in the retail prices of beer of approximately 15%. In Vietnam, our volumes grew slightly in line with the market whereby we maintained our market share. The MRV continued expansion of our operations and almost doubled volumes albeit from a low base. Slide 15 and Eastern Europe. Our Eastern European business benefited from warm weather, a cost region in Q2 and delivered strong progress for the 1st 6 months.
Net revenue grew organically by 9.1% as a result of 3% 3.4% volume growth and 6% pricemix. Due to weakening currencies across all markets, reported net revenue declined by 4.2%. All markets, but Russia improved pricemix, mainly driven by price increases. Organic operating profit grew by 70%, driven by volume growth and the positive pricemix. Operating margins strengthened by 130 basis points due to 20.3%.
Volumes grew in all markets. And now please turn to Slide 16. The Russian beer market grew by an estimated 12% in H1 after strong growth of around 6% in Q2, which was driven by good weather and the World Cup tournament. Our ratio volumes increased by 1% as 10% growth in Q2 offset the decline of 11% in Q1, The growth in Q2 was due to the overall market growth and easy comparables due to the undesirable pricing dynamics in the market following a large size PET than last year. Our market share in Q2 improved sequentially by 70 basis points to 31.4% and was flat year on year.
This was driven by positive performance of brands in the economy segments such as Sibaleski, as well as new product launches in the economy segment. The Carlsberg brand also delivered strong growth. Price mix was flat as our price increases were offset by a high level of promotions on PET bottles in the economy segment. These promotions were successful and regain market share in the segment. Profitability remained strong with operating profit margin in excess of 20%.
In the Ukraine, the market grew slightly, supported by warm weather, our Ukraine business, continued its strong performance, delivering 10% volume growth and strong pricemix. The team in Ukraine has done a fantastic job in recent years, expanding and strengthening distribution launching innovations and premiumizing the portfolio. Our business in Belarus, Kazakhstan and Azale all delivered solid revenue and earnings growth. That was all for today, but before opening up for Q And A, a few concluding remarks on Slide 17. 2018 is the year when it will show that the group can accelerate top line growth.
Internally, we talk about shifting gears to growth, but at the same time, continue to improve margins and profitability. In today's in today's environment that is a bold ambition, but we feel that we are well on our way to achieve this ambition. While we admittedly were helped by favorable weather in markets in Eastern Europe and Scandinavia, the first half year, the results provided solid indications that we will deliver on our 2018 priorities as well as our sales 22 financial priorities. So to summarize the first half, we see good growth from our sales 22 priorities. We now expect funding the journey to deliver more than 2,300,000,000 gigawatts.
We achieved strong financial results with 5.1% revenue growth, 14% to 0.2% operating profit growth and a strong cash flow and the adjusted full year earnings outlook efforts And with this, we are now ready to
you. And the first question comes from the line of Jonas Guilbo from Danske Bank. Please go ahead. Your line is open.
Good morning. I have a couple of questions. Firstly, on your new guidance, which calls for high single digit organic in operating profit with 14.2 percent in H1, it looks also comparable numbers are getting easier, I guess. So could you just repeat the reasons why we should see a much lower organic growth in earnings in H2?
And then maybe you
could also put a couple of comments on the net debt to EBITDA level of 1.3, which is significantly below your target. I know maybe you could say how much you will spend on the increased stake in Cambrew and then also give an update on HAPIGO.
Thank you, Jonas. Jaime, how can I help you?
Yes. Good morning, Jonas. So a few comments on, on, from our side, so start with the guidance. So, you are absolutely right and we are very satisfied with the 14% organic EBIT growth in the first half. But we do expect, the growth in second half to be low and the 3 main reasons for that The first is that we had a strong H1 this year as Asia was impacted by the sell into the festive season and Eastern Europe witnessed an extraordinarily strong month in June due to extraordinary weather conditions.
So that was the first part of the reason Second has to do with the fact that we will accelerate sale investments even further in second half within, for instance, draft month of bureaus of our alcohol premium expansion in China and also further investments into digital. So that was sort of the second reason Third reason is that there will be a different phasing of certain costs, including depreciations versus last year's on total. We expect organic EBIT growth in the second half to be lower than first half and therefore, we expect the full year organic EBIT growth to be high single digit. Just a comment on the net debt to EBITDA of 1.29 And then your question relating to cash from Cambro. So first of all, we don't comment and we don't disclose the purchase price per acquisition here.
In this case, actually also as per agreement with the seller, But what we can say is that in total, for the 2 acquisitions, we have done this year, so that is Cabrew and also speak in Greece, the cash payment is a few €100,000,000. And then on
Habrico, we are still in good contact with the government and there are no further developments at this moment of time.
Okay. Then just one follow-up on the full year guidance because what kind of weather for Q3 has you incorporated because we had very bad weather last year as I remember in both Eastern Europe and Northern Europe?
We are forecasting normal weather conditions.
And next question is from the line of Soren Samser from SEB. Please go ahead. Your line is now open.
Yes. First, a question regarding the risks you're seeing. I mean, if you look at the multiple prices up, I think more than 20% the last couple of if you could sort of say how much you expect COGS to be up in 2019, for example? Secondly, your free cash
flow looks,
I can say, strong underlying but reported is down since last year. I guess it's the big, tax payment, but what should we for second half, in terms of free cash flow development. And then finally, if you could just give us some or elaborate on how much you paid for Cambodia because I don't think you have given any indication of the price for the increased stake in Cambodia. Thank you.
Thank you, Severin. So
if we, good morning, so let's start with Cambodia at said, we don't disclose the purchase price per acquisition, and yes, in particular, not in this case, because We have agreed now to do with the seller, but in total, for Camperu and for Olympic, the cash payment, it's a few 100,000,000 Then referring to your question on free cash flow, we do expect a very strong, we do have, we did have a very strong cash performance in the first half And based on that, you can expect for the full year, positive inflow from working capital this year of course, depending on the country mix. It is the fact that we are very depending on country mix and particular first half is positively impacted by the strong growth we saw in China. So, overall, I would say that we are very satisfied with the minus 15% the trade working capital There are no more sort of low hanging fruits and now focus on maintaining the current strong performance. With respect to your question, Hassan, on raw materials, first of all, we don't comment on anything relating to 2019 before we give our guidance in February. This is our usual practice.
We are following, in particular, of course, the harvest season very closely. It's too early to make any firm conclusion however, it is clear that the current indications are not positive, and we will most likely see some pressure from higher grain price in 2019 and perhaps already in Q4 this year, we have hedged made a significant portion of our filing needs for 2019. And of course, we will work hard to pass the higher grain prices onto sales prices.
And next question is from the line of Trevor Stirling from Bernstein. Please go ahead. Your line is open.
A few questions from my side. So first one, it'd be clearly a very strong quarter, but partly as you say, the weather and the easy comps contributed. It may be impossible to say, but if you to estimate the underlying growth rates. It seems that you're still in Europe probably at the high end of your long term guidance case of 2 to 4. The second thing is in Russia, has there been any change since we saw that merger between ABI and FS in Russia.
That's it. Thank you.
Thank you Trevor and good morning. I think you are right. And that gives us a confidence for this year as well for next year in terms of our growth numbers. Yes, we are, we have been helped by a very good summer, but we see as well that Asia is during particularly well, not only because of the fact that the comps were easy, but when we look at our performance in, for example, China, when we look at our petri performances, craft, the specialties and our alcohol free drinks, we really feel that we are at a slightly higher end of the kind of outlook we gave between 2% 4% longer term. However, I said we should, I think, remain to be modest.
We have been helped by the weather as well. With regard to Russia, we have seen, of course, some changes in the competitive landscape. The two parties now are really together. It's pretty forceful with regard especially with regard to their promotions during the World Championship. However, we can report an improvement of our shares So, in that respect, yes, we will see how that will unfold, but so far, then behind the huge investment, we are satisfied with our Q2 market share and as well as the improvement of our so called balance the golden triangle.
Very good. Thank you, Casey.
Thank you, Trevor.
And next question is from the line of Hans Gregersen from North Please go ahead. Your line is open.
Good morning. The strong cash flow, Heinz, you have in the past those signals that you can no longer or did not expect to continue doing networking care capital improvements. Still, you did a significant improvement this, half year. Kavix is also very low in, in the first half versus the full year guidance. Can you elaborate a little bit further into details what we should be looking to the net working capital, going forward.
Secondly, unallocated costs were quite high in H1 versus the full year guidance. Any comments on that? And then, if you look on sell 22 investments, what are the total accumulated investment and what is the distributed sort of distribution on a regional basis for 2018?
Hi, there. I'll see you. Thanks, Hans. Good morning.
Good morning, Hans. So on cash, and the trade working capital performance, it is important to say that there's 2 main drivers behind the strong, 1st half performance and that is strong focus within the company. And then it is, mainly driven. That's the second part of it by Asia and here in particular by China and with a negative sort of trade working capital to revenue ratio in China and high revenue growth infertile we did see a very strong trade working capital for first half from Asia. We do not see the same revenue growth in second half.
And hence, we do not expect the same positive for Jens, but it is also very clear as we've said before, I discussed before, the trade working capital will remain a key priority for us in Carlsberg. So, we will target to keep the current level that you have and for the full year expect a small, a positive number. The second part, as you pointed, sorry?
Heine, does that imply a negative net working capital in H2?
Then I have all the reasons that I just mentioned. And then on our pages, that's negative versus the year before cost. Unallocated cost in first half, It is absolutely right that our allocated unallocated cost or central cost is up with around 6% or something like that from 700 750,000,000. That is entirely as planned. And it relates to, sort of, sales, 22 investments, in particular, within marketing, as you saw, our marketing investments are going up and that includes actually also a quite big investments into some central and marketing activities and also increased digital investments in the first half.
So that is sort of half the explanation. The other half of the explanation has to simply facing between first half and second half. If you look at full year on allocated at central cost, you can expect something broadly in line with last year. So, 1.3to1.4 1,000,000,000, depending, of course, on the specific split of sale investments in the second half. With respect to your last question, Hans, on sale investments.
So in total, you can expect we are expecting more than now more than 1,000,000,000 versus our initial expectations of around SEK 750,000,000. So we have accelerated sales investments throughout the period because of the strong performance of of our funding, the Journey program. And I will say it's across the regions that we are investing, but it is clear with Asia being one of the key product priorities within sale at 22, there is a relatively high portion of the investments within sale that has gone to strengthen our position in China, in particular, our big cities initiative in China. The rest of it has been focused on, in particular, on Western Europe, within alcohol free, within dry master rollout, so a significant step up and acceleration of draft master. And then the last part has to do with, with process specialty focus.
And as you can see from the numbers, it seems to pay off.
And next question is from the line of Tristan Van Strien from Redburn Partners. Please go ahead. Your line is now open.
Hi, good morning, Casey, Heine. Just a few technical questions. First, just to follow-up on the previous question. So, the working capital benefit that we saw in Asia, is sounds like it's primarily been driven by the better growth of China. So I want to see if that was fair.
Then the second question is your sugar tax Is that just carried in your net revenue or is that sitting is that sitting your gross revenue? And then third bit, just the clarity obviously, your turkey, Tuberok turkey has grown quite well. Is that just captured in your revenue? So there's no cost involved that. And what would your European farmers have been ex Turkey.
Good morning, Tristan. So, so trade working capital, but that's the 2 factors driving it. First, it is a strong focus across the entire group and then it is the other one is Asia, which is very high this year. And it's not only China, but it is clear if you look at the split also the relative size of China in Asia, China is a main main driver. It's not the only one we see strong trade working capital basically across the region.
Then it's, in your questions, sugarcak, that's including Cox, certainly, what was the question on Turkey?
Turks, so your royalty revenue that you get, you're only getting royalty revenue in your numbers. And I guess I'm just confirming that and what would it be in Europe, what would your growth have been in Europe ex Turkey, if you want to give that?
So you asked me to write that that in Turkey, we have some volume, and of course, there's no FX impact on volume. But if you look at our financials, the FX from sort of what happens in Turkey right now is definitely limited to royalty. So, it is primarily royalty income. We get from, from Turkey, we don't disclose any growth figures for Western Europe, excluding or excluding the Turkey.
Okay. Maybe just one just to follow-up
on the working capital again. You said basically you're going to balance it out a bit in H2 like your normal normally Is that mostly the payable balance? Because when I look at your previous years, your payables in H2 are always a little bit, less lower days than it is in H1. Would that be a fair way of looking at it?
Thank you.
And next question is from the line of Mitch Collett from Goldman Sachs. Please go ahead. Your line is now open.
Good morning. 3 questions, please. So the majority of your EBIT growth in the first half came from lower D And A, which I think you explained is because of a step up in D And A in the first half of last year. I guess I'm interested in why therefore EBITDA growth lagged organic sales growth? That was the first question.
The second was price mix in Eastern Europe I think was plus 6 or thereabouts and price mix for Russia you said was flat. So can you explain what's driving the strong pricemix within Eastern Europe, if it isn't Russia? And then finally, if we think about the the favorable weather you've had and maybe a modest benefit from the World Cup to come back to the 2% to 4% guidance range, in medium term for growth. I think you've argued that you're probably towards the top end of that extra weather benefit. So is the right way to think about next year to think about that range and then take off the benefit you had this year?
Is that the right way to think about how we should factor in the comparator when we think about F 'nineteen?
And good morning. And the EBIT question, hope to you.
Yes. Good morning. So on depreciations, you're right that they are lower versus, with this last year, it is important to notice that approximately 1%, so approximately 35% of the lower depreciation come from FX. So if you take that out, we are around BRL300 1,000,000 lower than last year. And that has to do with one offs last year in for the past.
For the full year, it's not high an impact because we did not have the same extraordinary charges in second half, last year. Actually, our EBITDA growth you know, report terms, it's a downward 2. If you look at organically, actually it's up with 4%, 5% and why it does not have more that has to do with our investments into, in particular, our marketing spend the acceleration that we've seen in the marketing up organically with 10% from 8.1% to to 8.8%. So, the reason why it is under this has to do with accelerated product investment into future growth.
Okay, sorry to interrupt, but EBITDA, I think you said organically grew 4.3 sales and net revenue grew 5.1 and operating expenses including marketing grew 4. So I guess there must be something else that's causing EBITDA growth to lag revenue growth I've missed?
No, it has to do with increased investments in to marketing primarily adding to other sale related growth initiatives.
Sorry, I thought that the 4 of operating expenses included that marketing growth?
No.
Your second question with regard to pricemix in Eastern Europe, indeed the pricemix in Russia was more or less flat and the other countries like Ukraine, Belarus, Kazakhstan, and Kazakhstan has a very strong pricemix, in particular, you agree that had an organic volume growth of 10.4% and a value growth of 28.5 percent. So, basically, particularly, it has influenced that figure. Then with regard to your question on the growth for next year, but first of all, we're not going to guide year by year, our top line is at our Capital Market Day that we would change gears to growth. And in the coming years, you should expect from us between 2% 4% net revenue growth and we can only now say that we had a very strong start of that. It makes it more confident about the outlook for our top line, but we should indeed as well consider that this year was particular in the court to traditional because of the weather.
And next question is from the line of Sanjeet Oshla from Credit Suisse. Please go ahead. Your line is now open.
Two questions, please, from me. Firstly, on the balance sheet, outside the Habeco, do you see further opportunities for deals, particularly in Asia. And then my second question is just coming back to Russia. The competitive environment there. Can you just talk a little bit about how your price gap on the PET has developed versus competition now?
Thank you, Sandeep, and good morning. Well, we are looking of course at the market for potential attractive investments. Habeco is one of them. KenBlue was the other and we might have some others on our list we are not going to talk about that at this moment of time. With regard to our Russian price gap, as we said earlier, we needed to change the balance in our golden triangle.
Last year, we had contracts from volume loss. We have to repair that this year because if you like the marching order to the Russian team, it was repaired the golden triangle. And I think that it very well on that one. Our pricing on shelf is now in line with the average of the market, which is in the PET segment, 95 rubles.
Got it. And just a follow-up on the increased investment. I think a few months ago, you actually spoke about the investment opportunities perhaps not been compelling enough. And therefore, you actually lowered the amount you were going to invest relative your initial expectations, I think, as a percentage of the gross savings. So you seem to be stepping that that back up again.
So I'm just trying to understand why that's changed over the last sort of 6 to 9 months.
Do you mean with respect to state investments?
Yes, exactly.
Yes, so, and good morning. So what we said originally was that since we were targeting to start with, for the journey benefits of 1,500,000,000 to 2,000,000,000. What we said was that in order to be prudent, we started out planning for investments of around 750,000,000. So, 50% of that Then as we set up towards the SEK 2,000,000,000, we also said that that we're going to step up in our investments. But as you go above the $2,000,000,000, we really don't see a lot of additional investments.
We will invest more, but the target was set be approximately 50% of the total benefits. Now that we are significantly above the 2,000,000,000, we don't see the all of it, you know, can be invested in future growth. So the 50% will be lower as expected once we are significantly above 1,000,000,000, that means that the part that goes to the bottom line will be higher. But it is right. That as we saw and became more positive sort of towards the outlook to increase up towards the 2 and also a little bit higher than we also increased our our investments.
And it's not that we don't see a compelling sort of business cases. There is There's a lot of energy within the organization and a lot of good ideas. So, we do see a lot of good opportunities to continue to invest into future growth.
Okay. Many thanks.
And next question is from the line of Nicole Von Stackelberg from Liberum. Please go ahead. Your line is now open.
Hi, good morning. Could you please provide me with your top markets, the top country by profits. Could you maybe rank the top maybe 3 or 5 please? Because there's some shifting going around here. I just want to make sure I got all my numbers right.
The next one's on, progress with exercise legislation in Russia. I understood there was a bill
in the
Duma that could hold the excise, flat for the next 2 years. Is that still Is, is that still, in the Duma? And what's the progress there? And, and lastly, I see that, trade loans, Well, I guess they were reclassified out of other receivables. And now they have their own line here in the cash flow from investing activities, why did you do that?
And, why is there a 270,000,000 Ckk outflow? Thanks.
Good. Thank you. Well, we don't give a lead stable, but, as you yeah, for this morning, the first half year, China was the largest that overtook Russia. So it's logic that that China and Russia are our largest market in both revenues and profit. So, that gives you a bit of a feel.
With regard to the excise, yes, there is something happening in the regulations, in Russia, A few members of the Duma have proposed to reduce the maximum size of the PET even further. That's what we see now is not backed by the government at this stage and the proposal doesn't seem to get further traction at this moment of time. The Texas as we see here now, probably with the same information as you have, they are unchanged for 2017 to 2019 at 21 ruble. And for 2022, then 22 ruble and then further 23 in 2021. And the latest conversation I had is the Ministry of Finance, but that person has changed, he said that he intended to follow excise increases in line with inflation So that's so far the information we have.
This, however, and a different proposal of introducing special steps and that's something that could unfold in the coming 18 months and we are in in conversations with government officials about how to do that. We as an industry strongly opposed to it, And I said, we are having, as we speak more or less, conversations with the new government on that.
And good morning. The question on trade loans, and important to notice that it is a classification within the free operating cash flow. So, and it's simply correcting a mistake in one of our markets, that correctly, that by mistake had the correct set of classified trade loan wrongly. So it's simply moving correcting that mistake and moving that from other working capital now down to the specific line that we have for this, which is a can also see included in free operating cash flow and exchange in on trade loans. It's around BRL238 1,000,000.
So it's a classification within free operating cash flow and it's simply correcting the mistake.
And it's a pretty big number to be frank compared to the previous year. So can you give more color as to why a bigger number there, bigger outflow? Thanks.
Yes, it's because we didn't have the mistake last year. So it's simply correct. A mistake in one of our markets that had classified trade loans as other working capital, which is not the case.
Okay, thanks.
The next question is from the line of Ken Tringpong from HSBC. Please go ahead. Your line is now open. Thank you very much for taking my questions. I have two questions regarding to the China market as your China business is getting better and better.
The first question is that we noticed that AB InBev has been gaining market share mainly through one local brand, Harbin and International brand. And we see Crossworks International brands performs very well. Discuss will consider to develop 1 of your local brands into a national brand in China? And the second question is that cost work promise to solve the horizontal competition between different business units in China. Between 2017 to 2020.
So, can you elaborate us about the process and different ways that may help solve the problem? Thank you very much.
We'll go back to the first one. Moving from local brands, international brands, if you like, well, we're not going to unfold our, commercial agenda here. A fact of the matter is that we are very much focused on Western China and in that respect, we have a good position there. East in China, as you know, we have less coverage. We treat from that.
3 years ago. And in Eastern China, we very much focus on the big cities and we will then invest in our international brands. So, as you have seen in the figures, that serves as well. We grew our portfolio by international portfolio by 15% which calls back 12%, Tuborg, 15%, sixty six-four Blanc, 64% coincidentally. So in that respect, we continue on that.
And last on the regard to market share, we basically are gaining market share in the premium and sub premium segment and our total market share is has grown out to even 6.5%.
Yes, and good morning. And then just reflecting on the other parts of your you're absolutely right that as part of the partial takeover, CTC, where we increased our ownership to 60%, we made a commitment So within the next 4 to 7 years, result potential competition between our sort of other local Chinese businesses and CBC and the tender offer of C2C was completed in 2015. So we are getting close-up. The element, there's a lot of elements that we looking into and that we need to address and we are carefully evaluating all of these different elements at CBC, it's a listed company. We can't for good reasons not make any further comments on this, but just to be clear, and I'm sure you're fully aware, a non compete undertakings are quite common in China.
So this is something we will come back to within the next 1 to 2 years.
Well, thank you very much.
Thank you.
And next question is from the line of Andrea Staki from Deutsche Bank. Please go ahead. Your line is now open.
2 questions, please. First one on Poland. You had a a better Q2 compared to Q1 has a competitive environment been improving there. I think one of your main competitors hasn't really moved on price at the beginning of the year when you had has this changed? 2nd question on Russia, which is obviously also improved in this year in a in H1, leaving aside World Cup and weather benefits, how would you characterize the under lying market performance in Russia?
Is that getting better? And what would you expect for the market full year?
Good morning, Andreas. Thank you for your questions. Linda, I do apologize indeed. In Q2, we improved We have not, let's say, yet, improved our market share there, but that's because of the fact that we indeed took pricing in Q1 together with Heineken aside and followed there. So, however, price that we price increase 32+3.1 percent.
And basically some others are far below that. So in that respect, on pricing, we don't get yet the same development from, from others. And by that, we have a slightly higher price premium. On the other hand, our premium part of the portfolio is doing very well. So we have a very positive a price mix in Poland and we are very satisfied with that.
We are satisfied as well with our underlying performance in Russia. Both the market is behaving a bit better as you see or is better and as well our market shares are coming back and we expect that the underlying market development for this year will be positive in Russia for a change. And that will in our view be between 1% 2%.
Thank you.
Andreas, can we have the last question, please?
Of course. And the final question is from the line of Andrew Holland from Societe Generale. Please go ahead. Your line is now open.
Yeah, thank you. Just a couple. Firstly, I'm just interested in your use of words where you in relation to funding the journey where you refer to moving from about 1,000,000,000 to above CHF 2,300,000,000. I just wonder what you've what you think that means in numbers. And the second one is just coming back to Russian beer regulation.
My memory is that the Russian government proposed a ban on advertising, which was then reversed because of the impending World Cup, the World Cup's now out of the way. And I'm just wondering whether you're either anticipating or knowing that the government is going to reimpose an advertising ban? And could you also enlarge a bit on the special stamps that you were talking about Can you tell us what that scheme might involve and what the impact might be? Thank you.
Okay. Thank you, Andrew. Good morning. First questions will be answered by Heine.
Good morning, Andrew. So on the funding, the G and A benefit above or more than 2,300,000,000. We don't want to be more precise at this point in time. Of course, you will know more when we come with the full year results in February. But just to confirm, that we are very pleased with the development of funding the dividend.
So from originally 1.5 to 2, to now, to around 2.3 and now above 2.3, which makes us confident, first of all, that we will deliver above a 2.3 and secondly also that it is sustainable in Carlsberg that the sort of continued focus on cost. The financial discipline is now a way of living.
Then on the ban, as we said in the conversation, we had this investors in this year as well is that we thought that for 2018, there would be less focus on some of the regulations because of the big championship in 2018. There's a new government and as you said, the 200 is over. So yes, we expect that maybe some of these rules, which were more strict in the past than in 2018 might come back again, but we have not we don't have any new news on that one. With regard to special stamps that will be introduced in Russia. That's still too early to say.
There are different proposals to introduce these kinds of regulations Some of them, basically, will have a bigger impact than others. So at this point of time, nothing is certain. First of all is uncertain that it will happen and the second thing is not certain which kind of regime they will put onto us and that means that it's too early to make any calculation of that. With that, thanks Andrew, and we will close the call. This was the final question for today.
Thank you for listening in and thanks for your questions. We are looking forward to meeting some of you during the coming days weeks. Have a nice day.
And this now concludes the conference call.