8 things I learned from the 2021 Carlsberg Malaysia AGM

Established in 1969, Carlsberg Brewery Malaysia Berhad manufactures and sells beer and alcoholic beverages. It has operations in Malaysia and Singapore, as well as stakes in a brewery in Sri Lanka. Its portfolio of brands includes Carlsberg Danish Pilsner and France’s premium wheat beer Kronenbourg 1664 Blanc. Its Somersby ciders are popular among young consumers and ladies.

COVID-19 continues to put a dent in the company’s business as the pandemic rages across Malaysia, where more than two-thirds of its revenue is derived from. Pubs and international travel remain restricted in both Malaysia and Singapore. Carlsberg Malaysia has also stopped distributing dividend to shareholders on a quarterly basis in the latest financial year.

Here are eight things I learned from the 2021 Carlsberg Malaysia AGM:

1. Revenue and net profit excluding one-off items declined by 20.9% and 38.6% year-on-year to RM1.8 billion and RM173.8 million respectively in 2020. The larger drop in net profit was due to the seven-week suspension of brewery production and distribution operations in Malaysia. During that time, Carlsberg Malaysia’s revenue was affected across all of its markets while operating expenses were still incurred. The volume of core and premium beer sold in 2020 fell by 20% and 17% year-on-year respectively. The company intends to tap on its premium beer to grow its business.

2. Approximately RM9.9 million was spent on restructuring costs during the year. A number of salespersons and part-time sales promoters were made redundant as part of the restructuring process. The annualised cost avoidance in 2020 was estimated to be about RM27 million.

Carlsberg Malaysia also settled one-off tax charges by paying RM6.4 million to the Royal Malaysian Customs of Selangor. The appealed amount was very much lower than the initial bills of demand for excise duty, sales tax, and penalty of RM56.3 million. Inventories written off surged from RM1.5 million in 2019 to RM6.0 million in 2020. Expiring beers were returned to the company as some pubs and entertainment outlets were closed during the various phases of movement control orders in Malaysia and the circuit breaker in Singapore.

3. The management was reluctant to disclose the revenue breakdown by sales channel. Managing director Stefano Clini only told shareholders that the on-trade (coffee shops, restaurants, pubs, etc.) and off-trade channels (supermarkets, convenience stores, and sundry shops) contributed quite equally to the company’s revenue. Since the onset of the pandemic, consumers purchased more alcohol from off-trade channels because of various social distancing measures and dine-in restrictions.

The company has also allocated more resources towards boosting its e-commerce growth. It set up official stores on Shopee and Lazada in 2020 while it continued to work with other e-retailers such as Potboy and Pandamart to deliver beer to consumers’ doorsteps. Sales from e-commerce channels surged by two and a half times year-on-year in 2020 as it grew from a low base.

4. Dividend per share dropped from 100 sen in 2019 to 40 sen in 2020. The dividend payout has also decreased from the usual dividend policy of 100% in recent years to 75.4% in 2020 as pointed out by Minority Shareholders Watch Group. Independent non-executive director Chew Hoy Ping mentioned that the move was to balance between cash flow, working capital, and the capital expenditure needs of the company as well as to ensure business sustainability and liquidity while still delivering shareholder value.

5. In 2020, the company continued to release new products to the market and refreshed several packaging designs to appeal to consumers. In July 2020, the brewer launched two new alcohol-free beer variants (i.e. Carlsberg Alcohol Free Pilsner and Carlsberg Alcohol Free Wheat) in Singapore in alignment with the company’s target to have alcohol-free brews in its product portfolio. The beers have less than 0.5%alcohol by volume and it is branded as alcohol-free.

The introduction is timely to cater to different niches and fast-growing demand for alcohol-free brews as consumers opt for the taste of beer but not the effects of alcohol. The new variants currently own 25% of the market share among alcohol-free brews in Singapore. The company is in the midst of reviewing relevant labelling regulations like whether it can brand the two products as de-alcoholised beverages in Malaysia. The newly introduced alcoholic sparkling water, Somersby Hard Seltzer, owns a 14% market share in its category in Singapore.

6. Carlsberg Malaysia has set aside RM5.3 million to help the community and its business partners navigate through the crisis. The company provided handheld thermometers and disinfection services for free to more than 1,400 Chinese and Tamil vernacular schools in Malaysia under its Safer Schools campaign. The company also subsidised utilities payment and offered higher profit margins on selected alcoholic drinks for neighbourhood coffee shops that have been long-time customers.

7. The recovery of Carlsberg Malaysia is still uncertain. Chairman Datuk Toh Ah Wah expects the company’s business to slowly improve in the short term while COVID-19 vaccination programmes are carried out in both Singapore and Malaysia. The chairman described the pandemic as a situation no modern-day company has ever experienced in its history. The management has learnt a lot and will better handle the situation if Malaysia faces a fourth wave of COVID-19 infections in Malaysia. Since the outbreak, the company is fortunate to have reported zero cases of COVID-19 infections in their factory and remains open. Standard operating procedures were strictly adhered to as the factory received spontaneous inspections from relevant authorities.

8. Clini brushed off the company’s intention to shift its operations from Malaysia to neighbouring countries such as Vietnam because of political uncertainty when enquired by a shareholder. Malaysia is in fact one of the parent group’s top three performing countries in Asia according to Clini.

On a side note, the company fully hedges its aluminium supply and a portion of its raw materials so that it will not be caught off guard by the fluctuations in their prices. The company does not plan to buy back its shares for now.

Management fees paid to related companies increased from RM7.7 million in 2019 to RM10.5 million in 2020 despite drops in both revenue and net profit. Clini explained to shareholders this was because the company received additional support and sourced more inventories from its parent and sister companies when the brewery was asked to shut down.

The fifth perspective

Carlsberg Malaysia remains a fundamentally sound company and forms one half of a duopoly (along with Heineken Malaysia) in its industry in Malaysia. However, lockdowns have impacted its business and it is uncertain when the pandemic will fully recede as a new wave of cases emerge around the world.

If I were a current shareholder, I may hold onto my shares as I still receive a dividend (albeit a reduced one) as I wait for the company to emerge from the pandemic. But if were on the sidelines, I would wait for the overall situation to clear up before I decided to invest.

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

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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