Carlsberg(CABGY) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The pandemic significantly impacted the business, with volumes declining by 7.7% and a price/mix decline of 4% due to negative channel and country mix [10][31] - Organic revenue declined by 11.6%, with a reported decline of 12.6% due to currency effects [31] - Operating profit declined organically by 8.9%, with reported operating profit at DKK4.6 billion, a year-on-year decline of 10.8% [37][38] - The operating margin improved by 30 basis points to 16% despite the decline in organic operating profit [37] Business Line Data and Key Metrics Changes - The on-trade channel was severely impacted, accounting for around 25% of volumes, leading to substantial revenue and profit declines [10] - In Western Europe, volumes declined by approximately 7%, with operating profit declining organically by 19.2% [19][20] - In Asia, China saw a strong rebound with 18% volume growth in Q2, while other markets faced challenges [24][25] - Eastern Europe experienced modest growth with beer volumes up 1.4% and non-beer volumes growing by 20.4% [26][27] Market Data and Key Metrics Changes - Western Europe saw a 50% decline in on-trade volumes during Q2, with gradual recovery expected but not returning to pre-COVID levels [66] - In Asia, the situation remains volatile with recent lockdowns affecting performance, particularly in Western China and Central Vietnam [79] - Eastern Europe was less impacted by COVID-19, with a 1% growth in the Russian market and no significant changes in competitive dynamics [28][29] Company Strategy and Development Direction - The company aims to respond for top-line growth and reset for the future, focusing on core brands and long-term growth opportunities in craft & specialities and alcohol-free brews [15][16] - The strategy includes prioritizing fewer brands and activities, enhancing value management, and expanding e-commerce activities [16][17] - The company plans to review cost structures and processes to adapt to a post-COVID-19 reality, which may lead to employee reductions [17] Management's Comments on Operating Environment and Future Outlook - Management highlighted the uncertainty in the operating environment due to the pandemic and government actions, impacting consumer behavior and spending [51][52] - The company issued new guidance forecasting an organic operating profit decline of 10% to 15% for the full year, reflecting cautious optimism [51] - Management emphasized the importance of maintaining a strong balance sheet and financial flexibility amid ongoing challenges [43][45] Other Important Information - The company made significant cash returns to shareholders, amounting to DKK5.5 billion in dividends and share buybacks [43] - The acquisition of Brooklyn brand rights is expected to enhance profitability and reduce complexity in operations [106] - The company is focused on maintaining a disciplined approach to costs, with a significant reduction in operating expenses during the first half [34][100] Q&A Session Summary Question: Guidance implications and margin performance - The guidance reflects significant uncertainty, with higher marketing spend expected in the second half but no major changes in other cost groups [61][62] Question: Changes in the on-trade and regulatory impacts - On-trade in Western Europe was down by 50% in Q2, with gradual improvements expected but not returning to last year's levels [66] Question: Volume declines in the on-trade and M&A focus - Volume declines in the on-trade are gradually improving, and while the company is open to inorganic opportunities, the primary focus remains on organic growth [66][67] Question: Volume and sales trajectory in July - June saw low to mid-single-digit volume growth, but July was impacted by bad weather and ongoing volatility in various markets [78] Question: Key assumptions for guidance and COVID-19 risks - The guidance does not factor in potential second waves of COVID-19, assuming current conditions remain stable [84] Question: Updates on India and competitive dynamics in Eastern Europe - India faces significant challenges with a slow recovery, while competitive dynamics in Eastern Europe remain stable with successful market share recovery [90][91]