Carlsberg looks out for M&A opportunities despite profit slump

Carlsberg’s share price has continued to fall after reporting a double-digit decline in sales during the first half of 2020, but it’s optimistic that a planned merger with UK pub group Marston’s will be tied up by the end of the year.

Carlsberg launched a special edition can of beer to commemorate Liverpool F.C.’s Premier League victory this year.

The brewer recorded a fall of 8.9% in operating profit for the first half of 2020, and expects profits to be 10-15% lower for the whole year compared with 2019.

Despite implementing cost-cutting measures such as layoffs and reduced marketing spend as early as January, the results are worse than expected. Carlsberg blamed renewed lockdowns in China, its largest market by volume, as a key reason for the fall.

Its share price fell from 940 DKK (£115.34) to  890.8 DKK when the results were posted on Thursday 13 August, and have continued to trail off since. Carlsberg’s share value was 876.80 DKK when markets opened this morning (17 August).

This is still a rise of more than a third since mid-March, when share prices hit a new low when Europe’s lockdowns came into effect, but are still below the all-time high of 1,065 DKK hit in January.

Beer volumes declined organically by 6.7%, which Carlsberg said was due to the impact of coronavirus in all markers. Non-beer volumes declined organically by 12.9%.

The brewer has said it plans to suspend the second half of its share buyback programme as a result on growing uncertainty around the pandemic.

Carlsberg had already suspended its outlook for 2020 in April, due to “significantly increased uncertainty” caused by the coronavirus pandemic and subsequent bar and restaurant closures.

“During these difficult times, our top priority remains the health and well-being of our employees, while at the same time taking the required actions to protect the health of our business,” CEO Cees ‘t Hart said.

“All our markets have to a greater or lesser extent been impacted by the COVID-19 pandemic, but the organisation and our people have shown tremendous resilience and flexibility, allowing us to stabilise the business, help society and support our customers. To mitigate the impact of weaker volumes and mix, we’ve reinforced our focus on costs, cash and liquidity.

“Recognising that we’re faced with a new market reality, including changed consumer preferences and a reduced level of on-trade activity, we’re taking measures to adapt our business accordingly.”

However, despite implementing certain cost-cutting measures, Carlsberg also announced plans to merge with UK pub and brewing business Marston’s. The deal would give Carlsberg more exposure in pubs around the country, providing a fresh challenge to rival brewers such as Heineken, which run their own bar groups in the UK. ‘t Hart believes this will be finalised by the end of the year.

“We expect to get the final approvals for the deal in Q4,” he said.

While the brewer is largely focusing on building up its sales to get back on track, ‘t Hart told analysts the company has a “strong balance sheet” which will allow it to pursue more “inorganic” growth opportunities like the Marston’s joint venture.

Heine Dalsgaarg, Carlsberg’s CFO, said the two businesses are a “good match” in terms of who is buying their beer brands, and believes the joint venture will help to strengthen the Danish brewer’s sales in the UK.

“Marston’s know how to run pubs. They’ve done that for many years,” he said, “We know how to run a brewing business. We’ve done that for many years.”