Carlsberg(CABGY) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue growth was strong at 11%, driven by a 10% improvement in revenue per hectoliter, attributed to premium brand growth and price increases across all markets [4][26] - Organic operating profit growth was 5%, with adjusted earnings per share for the continuing business increasing by 0.2% despite adverse foreign exchange movements [4][26] - Free operating cash flow was DKK 4.3 billion, down from DKK 7 billion in 2022, primarily due to adverse foreign exchange movements [31][32] Business Line Data and Key Metrics Changes - Premium portfolio grew by 3%, with a 5% increase in both Asia and Central and Eastern Europe, while Western Europe saw a 2% decline due to down-trading [7][11] - Non-beer volumes grew by 2%, driven by strong performance in soft drinks, with revenue per hectoliter increasing by 12% [13] - Operating profit in Central and Eastern Europe grew organically by 8%, supported by strong revenue per hectoliter growth of 19% [24] Market Data and Key Metrics Changes - In Asia, volumes grew by 4.8%, with organic revenue growth of 12% and operating profit increasing organically by 8% [19] - Western Europe faced challenges with low single-digit volume growth, impacted by high inflation and bad weather [14][18] - The Polish beer market declined by 7%, with consumers affected by lower disposable income, leading to significant down-trading [17] Company Strategy and Development Direction - The company is executing its SAIL'27 strategy, focusing on premium brand growth and long-term value creation [6][47] - Investments are being made in key brands and capabilities to drive sustainable growth, despite short-term challenges [38][39] - The company aims to increase its market share in China from 8% to 10% over the next few years, supported by a balanced portfolio [54][56] Management's Comments on Operating Environment and Future Outlook - Management upgraded the earnings outlook for organic operating profit growth for the year to 4% to 7%, citing better-than-expected performance [37][70] - High inflation in Europe and the ongoing war in Ukraine remain uncertainties that could impact consumer sentiment and volumes [39][70] - The company is optimistic about growth in China, despite macroeconomic challenges, and expects to continue premiumizing its portfolio [54][56] Other Important Information - The company signed a sales agreement for its Russian business, but a presidential decree has temporarily placed it under state management [5][41] - The fair value of net assets in Russia was DKK 5.7 billion as of June 30, with a write-down of DKK 1.2 billion due to reassessment [41][44] - The company has initiated a second quarterly share buyback program of DKK 1 billion due to solid performance and a healthy balance sheet [3][5] Q&A Session Summary Question: Outlook for China and consumer weakness - Management expressed optimism for China, noting a growing market share and strong performance in premium segments despite macroeconomic changes [53][54] - In Europe, while there are signs of consumer pressure, the company is outperforming in premium segments and gaining market share [57][58] Question: Input costs outlook for 2024 and cash flow - Input costs for 2024 remain uncertain, with 50% of commodities not yet hedged, but some costs like aluminum and barley are showing signs of decline [62][65] - 2022's cash flow was likely boosted by one-offs, suggesting that 2023 represents a more normalized cash flow environment [65] Question: Guidance for the second half and WuSu brand performance - Management reiterated guidance for mid- to high single-digit organic sales growth in China, with expectations for WuSu brand growth in the second half [79][75] Question: Premiumization in Europe - The company remains committed to premiumization strategies in Europe, despite challenges in specific markets like Poland due to high inflation [86]