Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Carlsberg A/S (CABGY, Financial) delivered continued volume growth of 1.4% despite poor weather in Q2 and weak consumer sentiment.
- Revenue increased by 3.9%, supported by a 2% improvement in revenue per hectoliter due to premium brands and price increases.
- Solid organic operating profit growth of 5% was achieved despite a significant 20% increase in sales and marketing investments.
- The company returned DKK5.5 billion to shareholders, driven by higher share buybacks.
- Carlsberg A/S (CABGY) adjusted its full-year earnings outlook upwards, reflecting confidence in future performance.
Negative Points
- Poor weather in Q2 and weak consumer sentiment negatively impacted performance, particularly in Western Europe and China.
- The acquisition of Britvic and other strategic investments increased financial leverage, with net interest-bearing debt to EBITDA expected to be below 2.5 times by 2027.
- The company faced supply chain constraints in the UK, impacting volumes and market share in Q3.
- Adverse currency movements, particularly in China, Laos, and Ukraine, negatively impacted reported operating profit.
- The loss of the Schweppes license in Switzerland impacted other beverage volumes in Western Europe.
Q & A Highlights
Q: Can you provide insights into the shape of the P&L in the second half, particularly regarding gross margin and marketing investments?
A: We are pleased with the gross margin improvement in the first half, which is a key priority for us. While we won't guide on intra-year movements, we expect continued focus on gross margin improvement over the next couple of years. Marketing investments will remain significant, with at least high single-digit increases for the year, despite some market-related weaknesses. The overall P&L will reflect gross margin improvement and substantial reinvestment into sales and marketing.
Q: Can you elaborate on the impact of losing the San Miguel contract in the UK?
A: The volume impact is about 1.8 million hectoliters, with a revenue impact of DKK1.4 billion. While we are not disclosing specific profit numbers, we are working to replace lost volumes through our own brands like Brooklyn, 1664 Blanc, and Carlsberg Danish Pilsner. We are also looking at different cost initiatives to mitigate the loss.
Q: How is Carlsberg performing geographically in China, particularly in core strongholds versus the south and east?
A: We are not seeing major changes in consumer sentiment, which remains subdued. The weather has exacerbated this in June and July, particularly impacting on-trade in big cities. Our focus is on maintaining people within the premium category, especially affordable premium brands like Tuborg.
Q: Can you provide more details on the cost of goods sold (COGS) outlook for 2025?
A: We are about 50% hedged for 2025, which means market conditions will significantly impact the outcome. While volumes in aluminum are below 2023 levels, we are seeing increased costs in sugar, glass, labor, and energy. Conversion costs remain sticky.
Q: What is driving the guidance upgrade for organic operating profit growth to 4-6%?
A: The upgrade is due to solid earnings performance in the first half, supported by good cost control and performance management. Western Europe is improving in July compared to a weak June. However, we remain cautious about the second half due to weak consumer sentiment in Asia and China.
Q: Can you provide more color on the volume performance in Western Europe and the impact of supply chain constraints in the UK?
A: Western Europe saw a return in July after a weak June, with broad-based improvement across most markets. We expect full-year volumes to be flattish, leading to low single-digit revenue growth. The UK supply chain issue is under control and will be resolved by the Christmas season.
Q: What changes can we expect in the India business once Carlsberg gains full control?
A: We are seeing low double-digit volume growth and around 20% revenue growth in India, driven by brands like Tuborg Strong and Carlsberg Elephant. While we won't detail the strategy yet, gaining full control will allow us to pull additional levers for growth.
Q: Can you clarify the impact of the Schweppes license loss in Switzerland on Western Europe volumes?
A: The impact is small from an enterprise perspective and will cycle out in the second half. The effect started in the second half of last year, so it will have a minimal impact going forward.
Q: What were the volume and revenue growth figures for China in Q2?
A: In Q2, volumes were up 1%, while revenue was down 1%. The negative price mix was driven by down-trading from high-end premium to affordable premium and more strength in the mainstream portfolio.
Q: Can you provide more details on the financial impact of the acquisitions announced this year?
A: The acquisition of the remaining 40% of Carlsberg Marston's will increase net interest-bearing debt and interest payments but reduce non-controlling interest. The acquisition of the remaining 33.33% of CSAPL will not reduce non-controlling interest due to the partner's put option but will positively impact net profit as it will include 100% of the net profit in Nepal.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
