Carlsberg As Shs A

Thank you very much, operator, and good morning, everybody. Welcome to Carlsberg's half-year 2024 conference call. As said, my name is Jacob Arvandes, and I'm the Group CEO of Carlsberg. I have with me our CFO, Ulrike Fern, and Vice President, Investor Relations, Peter Kontrup. Let me begin by summarizing the key headlines for this call. First of all, we delivered continued volume growth despite poor weather in Q2 and continued weak consumer sentiment. We reported solid organic operating growth despite a significant increase in sales and marketing investments. And as you will have seen, we've adjusted our full year earnings outlook upwards. We did all this while taking some major strategic steps that will support the future of Carlsberg. I'll go through the key headlines for the group and the regions, and then Ulrike will take over and explain the financials and the full year outlook. So let's move to slide number three. We saw a total volume growth of 1.4%, and that's driven by all growth categories. Revenue increased by 3.9%, supported by continued solid revenue per hectolitre improvement of 2%, which was thanks to our premium brands and price increases. Thanks to the strategic and financial strength of the business, we have the capacity to invest for the future. Consequently, we continue to increase our sales and marketing investments significantly across all three regions. Despite increasing marketing investments by almost 20%, we delivered solid organic operating profit growth of 5%. We returned 5.5 billion Danish kroners to our shareholders, and that's half a billion more than in H1 last year, and that's driven by higher share buybacks. We stopped the second quarterly share buyback on July the 8th, following the recommended offer on Britwick. We continue to be very focused on capturing the short-term opportunities. managing the current challenges in our markets and delivering on our short-term commitments. But we also take major steps this year to support the future of Carlsberg. In February, we launched our refresh strategy with higher top and bottom line ambitions. Despite the weather and the current consumer sentiment in some Asian markets, we're off to a good start executing the strategy, which, as we said in February, includes a significant step up in investments behind the long-term growth accelerators. In July, We announced the recommended offer for Britwick. We also announced the acquisition of the remaining 40% of Carlsberg Martens in the UK. That transaction completed at the end of July. And less than two weeks ago, we were pleased to finally sign an agreement, which when completed will give us full control of the businesses in India and Nepal. And it's going to allow us to accelerate investments to capture the long-term opportunities in these markets. All of these initiatives are very exciting. They will strengthen our business considerably and support us in capturing the long-term growth opportunities and delivering long-term value growth for our shareholders. Please turn to slide four. A few comments on the recommended offer for Britwick. We're very excited about this potential deal. Whether you look at it from a strategic, operational, and financial angle, the proposed acquisition is highly accretive to the Carlsberg Group, to our Western European region, and to the UK business. For the group, adding Britwick to our business will be supportive of our organic revenue growth ambition of 46%. For Western Europe, combining Britwick and our UK business will improve the region's top and bottom line growth trajectory and step change cash generation. The deal will also strengthen our longstanding relationship with PepsiCo. In the UK specifically, we've identified several operational and synergistic benefits from combining our beer portfolio with Britvic's very strong soft drinks portfolio. The acquisition will be value accretive for shareholders, including cost synergies. The deal will be mid single digit accretive to adjusted EPS in year one and double digit accretive in year two. In addition, the deal will be margin accretive for the group and ROIC will exceed the WAC of 7% already in year three. The transaction is 100% debt financed and therefore our financial leverage will of course increase. will be very disciplined and focus on deleveraging as fast as possible, and we remain committed to maintaining investment-grade ratings. We expect net interest-bearing debt to be below our new leverage target of below 2.5 times during 2027. Thanks to the excellent management teams in both these businesses, the shared values and similar cultures in the two companies, and our long-standing track record of successfully running integrated beer and soft drinks businesses in several markets, we consider the integration risk to be low. The transaction is subject to the UK takeover code. That also means we're restricted in our communication, and we're only allowed to share information that is available in the public filings. Those filings you can find on carlsberggroup.com. Since the announcement in July, the only piece of news is that Bridgewick will have its general meeting on the 27th of August. The deal is currently expected to close in Q1 2025. Please turn to slide five and an update on our premium and alcohol-free brew categories. So we're pleased to see the good progress of our key growth categories, all categories that are important for our long-term growth ambitions and are created to revenue per hectolitre, to cross-profit, and to margins. We saw good growth for the premium beer portfolio, which was up by 4% for the half year and 2% in Q2. Premium brands are more skewed to the on-trade, and therefore they are more impacted in times of bad weather. which particularly was the case in Q2 in Western Europe and in China. When we look at alcohol-free brews, they grew by 6% for the half year and 8% in Q2. The growth was supported by strong performance in Ukraine, the Middle East, and Southeast Europe, and solid growth in many Western European markets. We recorded double-digit growth for the alcohol-free versions of Carlsberg, Chuburg, and Garage. Several local alcohol-free brews also did very well, examples being Fix in Greece, in Ukraine and Lipsa in Germany. So let's move to slide number six and our international brands that grew well ahead of our average portfolio. Carlsberg volumes were up by 12%. We saw very strong growth for premium Carlsberg volumes. They grew by 24%, particularly due to strong performance in markets such as China, India, and Ukraine. We also saw good growth for Tuborg volumes. They were up 8%. driven by strong growth in Asia and CE&I. Markets to call out here would include China, Vietnam, India, Ukraine, and Serbia. 1664 Blanc saw broad-based growth across all three regions, with volume growth of 4%. We saw very good performance in markets such as Ukraine, Vietnam, Switzerland, Finland, and Poland, while the brand declined in China, Denmark, and some export markets. The Brooklyn brand grew by 7% in Q2 and 4% for the half year. The growth in Q2 was driven by most markets in Western Europe. Please turn to slide number seven in Western Europe, where volume growth year-to-date May was reversed in June, when the region experienced unusually cold and wet weather, and in addition was cycling tough comes from good weather from last year. The beer volume development for the half year ended at minus 1.7%, with 3% in Q2, minus 3% in Q2, of course. Other beverages declined by 2.4%, impacted by the loss of the Schweppes brand in Switzerland and lower volumes in Denmark. The increase in revenue per hectolitre was 3%, and primarily the result of price increases. That was partly offset by country and channel mix that later impacted by the bad weather. In addition, revenue per hectolitre in Q1 was positively impacted by the inclusion of excise duties for Kronenberg 1664 in the U.K., There was no impact from this in Q2, and revenue per hectolitre in this quarter was up 2%, mainly due to price increases. Organic revenue growth was 1.3%, while reported growth was 2.6%, positively impacted by the Swiss, Polish, and UK currencies. We delivered high single-digit organic revenue growth for April to May, but this was reversed in June due to the weather, and revenue for Q2 declined by 1.3%. Looking at a few markets, we had positive start to the year up until May in the Nordics, where volume growth was actually in all four markets. The weather in June reversed this positive development and volumes for the half year declined slightly. We saw good performance of our premium and alcohol-free portfolios. In France, very poor weather in Q2 impacted volumes. They were down by high single-digit percentages. We gained market share and premium, but our total market share was under pressure, And that was driven by a lower level of promotional activities compared to what we observed in the market. In Poland, we saw good results for our premium and algorithm-free portfolios. Our total volumes were flat, slightly ahead of the market. Our volumes in the UK grew thanks to very good performance of Carlsberg Danish Pilsner. And the first indications of 1664 Blanc, the launch we did in the beginning of the year, they're positive. We're currently facing some short-term supply chain constraints in the UK. That's going to impact volumes in market share over Q3, but we expect capacity to recover fully as we enter the Christmas season. Please go to slide number eight in Asia, where our beer volumes grew by 2.5%, supported by growth in China, Laos, Vietnam, and Malaysia. The minus 2.5% volume development of other barriages was mainly due to Cambodia. Revenue per hectolitre increased organically by 3%, and consequently, organic revenue growth was 4.7%. The positive revenue per hectolitre development was supported by solid growth for the international premium brands and price increases. In Q2, revenue per hectolitre was more muted at 1%, which was due to a negative country mix and weaker brand mix. The depreciation of the Laotian and Chinese currencies led to a reported revenue development of minus 1.2%. Operating profit in Asia grew organically by 5.3%. That was achieved despite a significant increase in marketing and sales investments. Adverse currency movements meant that reported operating profit declined by 2.5% and operating margin by 30 basis points to 24.2%. Looking at a few markets, we continued to gain market share in China. Our volumes grew by 3%, which was ahead of the market, which declined by an estimated 5% in the first half. Volume growth in the second quarter slowed down due to heavy rainfalls in southern China and weak consumer sentiment. Our premium portfolio outperformed the core mainstream portfolio for the half year, but this was reversed in Q2 when growth for the core mainstream portfolio was ahead of premium. The bad weather and the weak consumer sentiment continued in July, and as a result, we're cautious about growth rates in the second half. They're expected to be lower than in the first half, leading to modest expectations for the full year growth in China. On the back of tough comps with double-digit growth rates in the first half last year, our volumes in Vietnam grew by low single-digit percentages. This growth was well ahead of the market, with decline by an estimated low single-digit. While consumer sentiment remains weak, we saw early signs of a stabilization of the beer market. Our volumes in large grew by mid-single digits. We saw growth in all categories, including beer, soft drinks, and water. Inflation remained high, and we therefore continued to take significant price increases. Our business in Laos has delivered strong growth for a number of years, and that resulted in some capacity constraints during the peak season. We're, of course, addressing this challenge to avoid future out-of-stock situations. Slide 9, and Central and Eastern Europe and India, which we internally just referred to as CENI. The region delivered very good results with organic growth for volumes of 4.5%. 8.8% for revenue and 14.1% for operating profit. It should be noted that the 6% volume growth in Q2 was helped by easy comms due to bad weather last year in the southeastern part of the region. Revenue per hectolitre grew organically by 4%, both for the half year and in Q2. That's thanks to price increases and a positive product mix. The strong organic operating profit growth was the result of volume growth, the positive revenue back to little development and good cost control that more than offset higher sales and marketing investments. The lower reported operating profit growth of 12.2% was mainly because of the depreciation of the Ukrainian currency. The operating margin improved by 60 basis points to 19.4. Looking at our two largest volume markets in the region, our volumes in Ukraine grew organically by double digit percentages, despite the very volatile environment. Revenue actually continued to improve, supported by a strong growth of the premium portfolio. And the alcohol-free brews portfolio also grew strongly. Our volumes in India grew by low double-digit percentages, despite dry days being enforced in connection with the elections, and despite challenging weather conditions impacting one of our breweries. Our national market share in India strengthened. And with that, handing it over to you, Ulrike.

And thank you, Jakob, and good morning, everyone. Now let's go to slide 10 for more details on the P&L. So revenue grew organically by 3.9%, and that was driven by a 2% increase in revenue per hectolitre and a volume growth of 1.4%. And revenue per hectolitre improved in all regions as a result of premium growth and price increases, and then partly offset by a negative channel and country mix. Reported revenue grew by 2.6%, and the main delta from the organic growth was the adverse currency impact, which mainly related to Chinese, Laotian, Ukrainian currencies. And the small acquisition impact related to Waterloo Brewing in Canada and the Jing'e Carp Brewery in China. Cost of sales per hectolitre declined by 1%, primarily due to the country mix and efficiency improvements. The higher revenue per hectolitre and the lower cost of sales per hectolitre led to an organic growth in gross profit per hectolitre of 7%. The reported gross profit improved by 6.3%, and the gross margin improved by 160 basis points to 46.3%. And as we said in the beginning of the year, we increased sales and marketing investments. our marketing investments were up organically by almost 20% with higher investments across all three regions. But we maintained our strict cost focus and administrative expenses increased in line with revenue. Total operating expenses increased organically by 9.6% and mainly because of higher sales and marketing investments and higher logistics costs. And the higher logistics costs were primarily driven by salary inflation and higher transport tariffs in some markets. Operating profit grew organically by 4.7% and by 1% in reported terms. And again, the main offset in currency impacts came from China, Laos, and Ukraine. The reported operating margin was down by 30 basis points to 16.3% because of the higher sales and marketing investments. Looking at the items below operating profit, special items amounted to minus 139 million Danish kroner, mainly impacted by M&A-related costs. Net financials amounted to minus 550 million, and excluding foreign exchange gains and losses, net financial items amounted to minus 452 million. And this was minus 141 million more than in 2023, and due to higher interest rates on bonds, issued in 2023, and also higher net interest-bearing debt. The effective tax rate was 21.2%. Net profit for the group ended at 3.7 billion. Adjusted net profit was 3.9 billion, which was a decline of 3.4% due to adverse currencies and the higher net financials. Adjusted earnings per share was 28.6 Danish kroner. So let's go to slide 11. Pre-operating cash flow amounted to 3.6 billion Danish kroner. The reported EBITDA growth was 1.5%, and that was offset by negative impact from the change in working capital and higher capex. The change in total working capital was minus 836 million. And zooming in on trade working capital, the 12-month average trade working capital to revenue remained strong at minus 20.4%. Other working capital was, however, particularly impacted by VAT payables. CapEx amounted to minus 2.3 billion compared to 1.8 billion in half one 2023. The higher investment level was partly explained by the new brewery in China and capacity expansion in Laos. Net interest-bearing debt was 25.2 billion, which was 2.9 billion higher than year-end 2023. And the increase was mainly due to the share buybacks of 1.9 billion Danish kroner and dividends to shareholders and non-controlling interests of 4.5 billion. Net interest-bearing debt to EBITDA was 1.65 times. Return on invested capital was 14.5%, and the 70%... 70 basis points decline year on year was due to currencies, acquisitions, and a higher tax rate. And now to slide 12 and our capital allocation priorities. So I will skip through priority one and four, as we have already given details on these, but go to the fifth priority and provide some more details on the financial impact of the acquisitions that we have announced this year. We've entered into a strategic partnership with two craft breweries, Mikkeller in Denmark and Brasserie de Paillemont in France. In both cases, we have acquired a minority stake and will sell and distribute their strong local craft brands, which will strengthen our local portfolios. And Jakob has already provided details on Britsvik, so no more from that on me, from me. The acquisition of the remaining 40% of Carlsberg Martens amounting to 206 million pounds was completed on the 31st of July. The transaction will increase net interest-bearing debt and interest payments, but will reduce non-controlling interest, which were expected to be close to 100 million for 2024. Finally, we signed an agreement to acquire the remaining 33.33% of CSAPL which is the holding company owning 100% of the business in India and 90% in Nepal. The agreement also includes an additional acquisition of 9.94% of the business in Nepal, and therefore it gives us more than 99.9% ownership of this business. We expect both deals to complete in Q4 this year. The purchase price is $744 million U.S., And of this amount, $537 million will be paid at completion and $207 million retained for three to five years. Perhaps a bit counterintuitive, but the acquisition of the 33.33% of CSAPL will not reduce non-controlling interest. And this is because of the partner's put option, which meant that the Indian business has been accounted for as a fully owned subsidiary. And this is in accordance with IFRS and described in the annual report. On the other hand, the accounting treatment on the pool will change. This business has been accounted for as an associate, but upon completion of the transaction, it will be fully consolidated. Had it been in 2024, this would have added approximately 0.7 million hectolitres in volumes and 0.5 billion in revenues. Net results will also be positively impacted, as it will include 100% of the net profit in Nepal instead of currently 90%. So please go to slide 13 and the earnings outlook for the year. Yesterday, we adjusted our outlook for organic operating profit growth for the year to 4% to 6%, compared to our previous expectation of 1% to 5% growth. The adjustment was due to solid business performance year to date, and good cost control, which compensated for the poor weather in Western Europe in June, a continued soft consumer sentiment in some of our Asian markets in half one and into Q3. Following the week June, we expect volume dynamics to improve in Western Europe in half two, and we do already see growth in July, which is also helped by easy comparables due to poor weather last year. In C and I, we expect the good momentum to continue, while we're more cautious on Asia, and especially China, where we now expect a softer half-to-development due to weather in July and continued soft consumer sentiment. Included in the outlook is a significant increase in sales and marketing investment. Marketing investment to revenue for the year will increase in line with accelerated sales ambitions, although the absolute increase will be lower than expected earlier in the year, This is due to the weaker consumer sentiment in some Asian markets and the impact from bad weather that has impacted our volumes. Based on yesterday's spot rates, we assume a currency impact on our operating profit of minus 300 million compared to the previous assumption of minus 250 million. The change is mainly due to Chinese and Laotian currencies. Financial expenses, excluding FX, are now expected to be around 1.2 billion. This is compared to the previous expectations of $1.1 billion. The increase is due to the acquisitions, the purchase of the remaining 40% of Carlsberg Martens in July, the expected completion in Q4 of the acquisition of the Indian and Nepalese businesses, and the financing costs related to the establishment of bridge financing facilities for Britswick. Assumptions for tax rate and capex are unchanged at 21% and around 5 billion, respectively. So with that, back to you, Jakob.

Thank you, Ann Operator. Let's turn to slide 14. It's time for Q&A, but before opening up for that, let me just summarize the key messages. First of all, we deliver continued volume growth despite the poor weather in Q2 and the weak consumer sentiment. We reported solid organic operating growth despite a significant increase in sales and marketing investments. As a consequence, we've adjusted our full year earnings outlook upwards. And we've taken major strategic steps that will support the future of Carlsberg. As always, please note that we are going to limit the number of questions to two per person to ensure that as many of you as possible get a chance to get through. You're welcome to rejoin the queue. With that, let's go to questions.