AnalysisBursa

7 things I learned from the 2020 Carlsberg Malaysia AGM

Listed on Bursa Malaysia, Carlsberg Brewery Malaysia Berhad produces and distributes alcoholic beverages primarily in Malaysia and Singapore. The excise duties on alcohol in these two countries are among the highest in the world. It also owns a number of well-known brands ranging from its flagship Carlsberg, Kronenbourg 1664 Blanc, and Somersby.

Recently, Carlsberg Malaysia has aimed to expand its portfolio of premium brands to drive further business growth. Its premium brands – Kronenbourg 1664 Blanc, Somersby, Connor’s Stout Porter, and Asahi Super Dry – achieved a combined volume growth of 13% in 2019. Its craft beer brand, Brookly Brewery, registered a 58% year-on-year growth in 2019.

Here are seven things I learned from the 2020 Carlsberg Malaysia AGM:

1. Carlsberg Malaysia recorded a 13.8% year-on-year increase in its revenue to RM2.3 billion in 2019. Net profit increased by 5.0% to RM291.0 million in 2019. The increases were primarily due to growth across its core, premium, and craft beer segments.

2. Dividend per share (DPS) has been increasing steadily over the years. Carlsberg Malaysia adopts a dividend policy that seeks to distribute at least 100% of its annual net profit as dividends to shareholders. Its dividend payout ratio in 2019 stood at 105.1%. Therefore, any future increases in DPS will have to come from business growth rather than increasing the dividend payout ratio.

Source: 2020 Carlsberg Malaysia AGM presentation slides

3. Carlsberg Malaysia’s Q1 2020 financial performance has taken a dip because of COVID-19. During the Movement Control Order (MCO) period in Malaysia, its brewery was not allowed to operate for about seven weeks between March and May as the business was categorised as a non-essential service. Its quarterly revenue and net profit slipped by 10.6% and 16.7% to RM589.9 million and RM73.0 million respectively. The company has temporarily suspended its interim dividend payment in 2020 but will still maintain its minimum annual dividend payout of 100%.

Part-time sales promoters were retrenched as the company navigates challenges posed by COVID-19. It is also worth noting the board of directors willingly took a 20% pay cut in 2020 in response to the current challenging business environment.

4. Managing director Stefano Clini responded to a shareholder’s claim that only a small portion of inventory was written off during the MCO. A low level of inventory is usually kept so that they stay fresh. As a result, some customer businesses ran out of Carlsberg products during the MCO as Carlberg Malaysia’s operations were suspended temporarily and ran only with minimal staffing. The company intends to increase its inventory level and will be better prepared if Malaysia or Singapore enter into another lockdown in the future.

5. Carlsberg Malaysia reaches consumers through on-trade, off-trade, and e-commerce channels. A majority of its revenue is derived from on-trade customers such as coffee shops, restaurants, bars, and pubs. Traditional outlets like coffee shops and restaurants face slower recoveries as a result of reduced capacities. The company will continue to help them drive more sales via deliveries.

Meanwhile, nightclubs and pubs are still closed during the Recovery MCO period at this point of writing. The Kuala Lumpur City Hall’s decision to freeze applications for new liquor licences following a number of road accidents involving drunk drivers lately could further dent the revenue growth of Carlsberg Malaysia in the short term.

Off-trade customers like supermarkets and convenient stores are experiencing higher sales as more consumers consume alcohol at home rather than at establishments. Carlsberg Malaysia intends to ramp up its e-commerce presence by reallocating resources and marketing initiatives here as the volume of beer sold via e-commerce surged.

6. Carlsberg Malaysia incurred proportionally higher production costs during the MCO due to a higher fixed cost to sales. The price of raw materials has remained rather stable. Carlsberg Malaysia foresees tougher competition in Singapore due to foreign imports from 2020 onwards, as the import tax on beer from the EU was removed following the implementation of the EU-Singapore Free Trade Agreement in November 2019.

7. Counterfeit alcohol remains the biggest challenge to the company’s operations in Malaysia. The Confederation of Malaysian Brewers Malaysia estimated that counterfeit alcohol accounted for 20% and 80% of the total beer sales volume in Peninsular Malaysia and East Malaysia respectively. Each year, the Malaysian government loses about RM1.5 billion worth of potential tax revenue from illicit beer alone.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

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Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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