Post date: 03/12/2018 - 16:36
Carlsberg Performance Trends 2013-2017 - results dataIn early-February, Carlsberg released its full-year results for 2017. The brewer saw sales last year inch up by 1% despite a flat performance in the second half. Here is Carlsberg's performance over the last five years.
In early-February, Carlsberg released its full-year results for 2017. The brewer saw sales last year inch up by 1% despite a flat performance in the second half. Here is Carlsberg's performance over the last five years.
When Carlsberg bought out the remaining 15% stake in the Russian Baltic Beverages Holding joint-venture in 2012, securing outright ownership, the group heralded the move as providing an immediate and enduring lift to its earnings. Fast-forward to February this year, and the Danish brewing giant revealed its financials for 2017, the end of a five-year span in which things in Russia not going according to plan has been a more persistent theme for the group.
The country has been the main constituent of Carlsberg's global ambitions since its first buy-in to BBH, which owns the Baltika brand, in the early 1980s. Since then, serious economic headwinds and regulation of the alcohol industry have taken their toll, bringing China, India, the rest of Asia and the more beer-friendly markets of western Europe into sharper focus for the company. Even in these, Carlsberg's performance has increasingly been reliant on hacking away at costs and pruning spare brewing capacity as much as organic sales growth.
Its efficiency strategy was formalised under the banner of the 'Funding the Journey' programme in 2015, with the aim of delivering between DKK1.5bn and DKK2bn of savings by the current calendar year. The programme has a broad sweep, from focusing attention on premium brands and delivering supply chain cost savings, through to spending better on professional services and executive travel. The strategy came on the back of Carlsberg's business standardisation programme that was already being rolled out at the start of the five-year period, aiming to remove duplication, share common processes, IT, supply chains and best practice across different territories.
Funding the Journey reduced the number of SKUs in the business by 1,200 in 2016 as Carlsberg sought to strike what it calls the "golden triangle" - the trig points between market share, gross margin and earnings, effectively shifting revenue and volumes away from price-fighting markets to those with premium prices and higher margins. By the end of that year, Carlsberg had achieved a reduction in white-collar headcount of 2,280, including the outsourcing of shared service roles in India, reduced capacity at four Russian breweries and the closure of seven Chinese breweries.
Calendar-2017 saw the company exceed its own expectations, delivering an extra DKK1.2bn in savings, and causing it to revise upwards its original goal to DKK2.3bn.
The programme reaches the end of its formal period at the close of the current year, but has engendered an ongoing cultural shift, with CEO Cees 't Hart saying: "It is very important that we ensure that the governance structures and processes established are embedded in our daily routines and operations."
Some of the savings have been reinvested in Sail 22, the other big Carlsberg project de jour, geared towards brand growth, prioritising craft and speciality beers and alcohol-free.
Carlsberg's Full-Year Sales 2013-2017
The five-year picture reflects the focus on costs and margins, with sales down from DKK64.35bn in 2013 to DKK61.81bn in 2017, a fall of just shy of 4% over the full period after a sales peak of DKK65.35bn in 2015. Profit trends have also been downwards, from DKK9.72bn in 2013 to DKK8.24bn by 2016, though a 7.8% uplift to DKK8.88bn in 2017 may show that the efficiency drive is starting to pay off. Operating profit remains 8.6% off the pace since 2013.
Carlsberg's Full-Year Operating Profits 2013-2017
At the end of 2013, Carlsberg had been forecasting high-single-digit operating profit growth for 2014. That increase turned out to be just 1% with sales up 2% at DKK64.5bn. The Eastern European storm clouds had already gathered with depressed sales in Russia and Ukraine holding back organic beer volumes, which were down 3%.
In Ukraine, the group managed to ride the disruptions caused by military conflict, but the going was tough, in a beer market that dropped 8% overall and saw a 43% hike in excise tax.
In 2015, Carlsberg posted 2% organic sales growth, driven by a strong Asian performance. Group beer volumes declined by 4% to 120.3m hectolitres, with continued poor performances in Russia and Ukraine, offset slightly by a positive acquisition impact from takeovers in Greece and China.
In 2016, total beer volumes were down 3% impacted by brewery closures in China and a shift away from some high-quantity but low-margin beer supply contracts in the UK, Poland and Finland.
Then, in 2017, organic sales inched up 1% and total beer volumes dropped 3%, impacted by legislation introduced at the start of the year to take big PET packs out of the market in Russia (which we'll come back to later). Sail 22's themes around premium brands were gaining traction, with craft and speciality volumes up 29%, while healthier consumption trends in Western Europe helped alcohol-free sales rise 15%. The performance of Svyturys Go in Lithuania and Kronenbourg 1664 Blanc San Alcool in France were especially notable.
Carlsberg's Full-Year Sales by Region 2013-2017
Carlsberg has steadily built on its strong position in Asia over the past five years. The brewer began the period already with Tuborg as the largest premium beer in India and the fastest-growing in China. The Carlsberg brand was also in strong growth in both markets.
Acquisitions and closures have been a hallmark of Carlsberg's operations in the region throughout the period as it seeks to get a balance between generally positive beer drinking trends and production/supply chain efficiency. The purchase of an increased stake in China's Chongqing Brewery in 2013, along with new plants at Yunnan in China and in Myanmar, impacted cash flow in calendar-2013, a year when it also increased its stakes in Tibet's Lhasa and the Lao Brewery in Laos.
In 2014, the company converted majority holdings in two Vietnamese breweries into outright ownership. As a result, volumes in the region rose 24% and sales jumped 38%, to stand at DKK12.5m, with the region accounting for a fifth of group operating profits.
Yet, while acquisitions helped its top-line in China grow, its organic performance in the country showed a 7% volume decline in calendar-2014, with several provinces hit by poor summer weather. Carlsberg's strategy to focus on higher-margin, premium products took some unprofitable brands, and thus volume, out of the market.
In 2015, Carlsberg bought out China's Wusu brewing group. Beer volumes rose 2% led by India, Cambodia - driven by the Angkar brand - and Nepal. Indian market share hit the 15%, led by sales in the states of West Bengal, Haryana and Bihar.
The following year saw the disposal of Vung Tau in Vietnam, a 50% shareholding in Carlsberg Malawi (included in the Asia region) and Carlsberg Uzbekistan. Organic sales growth was at +4% in Asia, although organic volumes were down 3% as a result of brewery closures in China, where a cost-saving programme resulted in the closure of 17 sites in 2015 and 2016.
By 2017, the depressed Chinese beer market - where Carlsberg was already routinely outperforming the market - had returned to a more or less flat position and the country turned in 8% growth in sales and a 3% uplift in volumes for Carlsberg. Local power brands like Changqing, Wusu, Dali and Xixia were supporting 12% combined growth for the international trio of Tuborg, Carlsberg and Kronenbourg 1664 Blanc.
The year saw positive beer trends in India take a hit from the ban on highway sales of alcohol and the impact of the national goods and services tax on beer, though a drop of 2% in volumes still meant increased market share. The premium brands Tuborg, Carlsberg and Somersby cider brought a shine to sales in Laos.
Malaysia, Singapore and Nepal all performed well across the five-year review period.
Overall, Asia saw a 5% increase in Carlsberg's sales amid flat volumes in 2017, with the group reporting that premiumisation trends and supply chain cost-savings had had a positive impact. Margins in China have increased from around 5% three years ago to around 14%, and Carlsberg excepts that to move towards 15%-to-16% in 2018.
The region's beer volumes have long been in, at best, a docile state, with Carlsberg facing with a mainstream market that is increasingly under the spell of AB-Inbev and Heineken.
Carlsberg's beer volumes took a 3% dip in 2013, though non-beer beverages and improved margins took sales in Western Europe up 3%.
Beer volumes rallied in 2014 and sales from the region rose 1% in an overall flat beer market. Savings from cost efficiencies helped Carlsberg post a 7% increase in organic operating profits in the region. The company reported healthy sales trends in France, Denmark and Poland but volumes declined in the Balkans, Italy and the UK, where it chose to opt out of heavy price promotions to bolster margins. The year also brought the merger of its Mythos brewery with rival Olympic to create the number two player in the Greek market.
In 2015, beer volumes and sales came in flat. Finland was a particularly tough area, with heavy promotional pressure and Carlsberg's volumes hit by its decision to withdraw from one major retailer to protect margins. The UK, meanwhile, was affected by the loss of some major customer contracts, most notably a brand cull by Tesco.
Voluntary opt-outs from discount activity in Poland contributed to improved margins in 2016 but declines in sales (by 1%) and volumes (by 2%). Operating profits rose 3% as a consequence.
France perhaps matched as closely in Western Europe as any country to the growth trends Carlsberg's Sail 22 strategy had identified. Volumes were building, driven by alcohol-free brands like Tourtel and speciality brands such as Grimbergn, Pietra and Brooklyn.
In 2017, sales for the region were flat once more, with beer volumes down 1%. Reported sales performance was held back by the divestment of German wholesaler Nordic Getranke and negative currency impacts. Highlights in the year included growing volumes in a declining Polish beer market through brands in the upper-mainstream and premium segments such as Okocim, Kasztelan and Carlsberg. The UK, however, was down 6% due to another post-football slump, after Euro 2016 the year before.
The roll-out of gluten-free Celia and San Miguel, a distribution tie-up with Brooklyn of the US, the acquisition of craft brewer London Fields, the launch of draught craft brand Shed Head and a rebrand for Carlsberg Export are all signs of Carlsberg's ambitions to tap into premium beer trends in the UK market.
No sooner had Carlsberg taken over full control of Baltic Beverages Holding in 2008 than the group was hit by rising barley prices, beer tax rises and alcohol advertising regulations. By 2012, the Russian beer market had fallen by a fifth. Things haven't got any easier since, with a 2013 ban on sales at street kiosks and transport hubs and the 2017 curb on sales of beer in PETs over 1.5 litres.
The combined effects of a consumer squeeze brought about by high inflation and outlet restrictions took an 8% chunk out of Carlsberg's sales in the region in 2013. For 2014, regional beer volumes took a further 11% hit, and a fall in the Russian and Ukrainian currencies drove sales and operating profits down by double digits.
January 2016 saw the closure of two Russian breweries in a bid to reduce costs, corresponding to 15% of its Russian capacity at the time.
By 2015, Russia accounted for just 16% of group operating profits; the figure had once been as high as 40%. Regional beer volumes for the year declined by 14% from downward market share trends and distributors reducing inventory. A better price-mix ratio offset some of the volume decline, resulting in sales growth of 2%.
In 2016, Carlsberg saw sales in the region rise by 8%, though extra sales volumes were largely being generated by non-beer brands, with beer flat across the region.
Last year brought an 8% drop in organic beer volumes and a drop in sales of 1%. Russian volumes were down 14%, although Carlsberg reported that tight cost controls and a strong price mix were delivering increased margins and profits. The group responded to the government's PET downsizing policy by aiming for higher price points against competitor brands, sacrificing volume in the pursuit of value. At the end of 2016, Carlsberg claimed, it had been 2%-to-3% more expensive in PET than competitors. This had risen to 20%-to-30% by the end of 2017.
Talking to analysts in February, CEO Cees 't Hart said the group remained "cautious" on the Russian market adding: "I don't want to predict if or when the market really turns. Our outlook will be flattish. On the positive side, there's no new regulation or tax increase for 2018 – the economy is improving. However, consumer sentiment remains depressed and consumers have become more price-cautious."
Carlsberg's premium brand, Tuborg, has enjoyed significant growth. Global sales were ahead by 10% in 2013 and by a further 24% in 2014, as it became a key brand in Asia for the group. Tuborg was again ahead by 15% in 2015, with China and India the main engines of growth, where sales were ahead by more than 50% in both markets. Overall brand growth was 9% in 2016, decelerating to +3% last year.
For the more mature flagship Carlsberg brand, the performance has been understandably less spectacular. Value sales are holding up better in markets where it carries a premium cachet. In 2013, the brand succumbed to the sponsorship cycle of four-yearly football tournaments, with a 2% fall on the previous year when it backed Euro 2012. By 2014, it had seen a restorative 1% increase in sales, driven by more premium markets such as China, India and France, but down in the struggling big volume markets of Eastern Europe.
Sales in the Far East responded particularly well to its English Premier League football tie-ins but, in 2015, the Carlsberg brand had another football hangover, this time from the previous year's FIFA World Cup, with declining trends in Western and Eastern Europe overriding another strong Asian performance.
There was some bounce-back in 2016 with overall brand growth of 5%, followed by a further 1% rise in 2017, thanks to growth in Russia, Poland and China that offset decline in the UK.
The rollout of Blanc wheat beer has been a highlight for the Kronenbourg 1664 brand franchise over the past five years, with especially strong growth reported in the early years of the period. Total 1664 sales were up 6% in 2013, with a further 9% increase in 2014. Blanc had a particularly impressive start in Asia, where it has super-premium positioning.
Increasing interest in cider in many international markets spurred Carlsberg into the release of the Somersby brand in 2012. Initially launched into the more established cider territories of the US and UK, Somersby had landed in over 40 markets by 2013. Naturally, for a new brand, growth rates were high, reported as high double-digits for the next two years. It was particularly hot out of the blocks in the UK, Ukraine, Portugal, Canada, Australia and Switzerland, while 2017 saw Asia and Poland - where it has premium positioning - mentioned in dispatches as positive growth drivers for the brand.
Grimbergen abbey beer has headed up Carlsberg's international drive to mine speciality beer trends. It launched in nine new markets in 2013, and France was singled out as an engine of brand growth in 2014, buoyed by flavour innovations and strong market activation. The last reported separate figures for the Grimbergen brand came in 2016, when organic volumes were up 11%.