Carlsberg is a fast growing global beer company and becomes a significant player in the beer market according to our analysis of their annual report 2008. The main objective of this report is to evaluate Carlsberg's financial conditions and market performance in order to provide investing recommendations. Carlsberg's annual report 2008 is difficult to comprehend and the shareholder information is insufficient. The information is organized in a complicated structure which creates difficulties for investors to look for financial information.
Carlsberg employs the International Financial Reporting Standards (IFRS) and Danish accountancy policies for taxation. The investors are obliged to understand both accounting policies. KPMG, Carlsberg's auditor, stated that the annual report provides a true and fair view of the financial position.
The financial figures are presented in Danish Krone (DKK) which makes it incomparable to competitors who use more common currencies in their financial reports. In the annual report the currency exchange rate of DKK to Euro or Dollar is not stated. The analysis was based on the following:
Past, present and future performance of Carlsberg
Competitor SABMiller
Beer industry
Analysts views
Ratio calculation and analysis
Stock price and market performance
Carlsberg has low liquidity (Current Ratio; 0.7 times and Quick Ratio; 0.5 times) which indicates that the company cannot settle its short-term obligations. In addition, the interest cover ratio tends to decrease (from 4,38 in 2007 to 1,83 in 2008) as a result of increasing long-term liabilities. As affected by high interest payments, there will be lower dividend payout and retained profits with Carlsberg's average profitability.
Carlsberg also confronts difficulties in attracting investors with their low and infrequent dividend payout (16.7% in 2008), price per earnings ratios (11,87% in 2008) and earnings per share ratios (4,2 times in 2008), are main criteria for investment. However, Carlsberg proves to have less dependency on long-term liabilities compared to SABMiller and Heineken, this may indicate less risk concern in Carlsberg's business compared to the others. In addition, Carlsberg has efficient funds and stock management which also contributes to future profit maximization. During the period, Carlsberg acquired S&N with attempt to enhance the organization's global market position because of the high potential growth of China, Russia and Vietnam.
Based on the financial analysis and market evaluation, Carlsberg currently may not be a good investment option, because of the unstable financial position. However, when the acquired entities are fully merged with Carlsberg and the company's financial situation becomes stable, Carlsberg may be a good investment. Further analysis on Carlsberg's financial statement and market performance in the next years should also be considered, to make a precise investment decision.
1. INTRODUCTION
The Carlsberg Group is analyzed from an investor's point of view. The report is based on the analytical review and interpretation of the financial position over 2007 and 2008. A comparison is made with competitor SABMiller and the beer industry.
The main objective of this report is to evaluate Carlsberg's financial conditions and market performance in order to provide investing recommendations.
Firstly, comments on Carlsberg's standard financial reporting in terms of clearness, helpfulness and comprehensiveness are stated. Secondly, a critical appraisal is provided of the accounting policies used by Carlsberg. Thirdly, a financial analysis is presented based on the strengths and weaknesses of Carlsberg's performance by use of ratio's and interpretation. All calculations are compared to SABMiller. If not, it is stated differently. Furthermore, the position of Carlsberg is evaluated in terms of size and influence compared to the industry. Finally, a review is made of Carlsberg's market perception in terms of stock price performance and response is given by the analyst community.
Throughout the report the acquisition of Scottish Newcastle made by Carlsberg and Heineken in 2008 will be analyzed.
2. COMPANY OVERVIEW
2.1 Company introduction
Carlsberg is the largest brewery in Northern- and Eastern Europe and also operates in Western Europe and Asia. Carlsberg is the fourth largest brewery in the world. (McWilliams, 2009). The Danish company, established in 1847, has grown out to be a multinational with over the 45,000 employees worldwide, 500 brands and operating in more than 150 markets (Carlsberg, Annual Report, 2008). The flagships are Carlsberg, Tuborg, Baltika, 1664 and Kronenbourg. Besides the core business beer, Carlsberg offers bottled water and organic soft drinks.
2.2 Vision & Mission
The vision of Carlsberg is to create value for their shareholders and all other stakeholders. The mission of Carlsberg is to build the fastest growing global beer company and to become a significant player in the chosen markets. (Carlsberg, Annual Report, 2008)
3. ANNUAL REPORT OVERVIEW
Carlsberg´s annual report has been criticized on understandability, relevance, consistency, comparability, reliability and objectivity by looking at the clearness, helpfulness and comprehensiveness. Note that examples are stated in appendix 2.
3.1 Understandability
For non financial specialist the shareholder information in Carlsberg's annual report is difficult to comprehend. The shareholder information is very short and not into detail compared to SABMiller. Investors have to look through different tables of content to find the requested information which makes it hard to find.
3.2 Relevance
The impact of the acquisition of S&N is not clearly shown in financial statements of 2008. From the investor's point of view, the acquisition has an impact on the market position and market share of Carlsberg. Therefore, investors are interested in the impact the acquisition had on the financial data.
3.3 Consistency
In the annual report shows inconsistency, Carlsberg uses Danish Krone as their currency as well as US Dollars in graphs.
3.4 Comparability
The financial figures are presented in Danish Krone (DKK) which makes it difficult to compare. In the annual report the currency exchange rate of DKK to Euro or Dollar is not stated.
Throughout the annual report pictures indicate a multinational society, which are associated with Carlsberg. However, the Board of Directors does not represent this multicultural society.
3.5 Reliability
Firstly, Carlsberg does not use brackets for negative figures but uses a "-", which take away the clearness of the report, due to standardized norms in financial accounting. Secondly, the written language is often vague and general, especially the notes. Lastly, grammar and spelling mistakes are found, repetition and unclearness by not defining information.
3.6 Objectivity
Carlsberg uses the International Financial Reporting Standards (IFRS) and Danish accountancy policies for taxation, the investors are obliged to understand both accounting policies. KPMG, Carlsberg's auditor, stated that the annual report provides a `true and fair view´ of the financial position.
4. ACCOUNTING POLICIES
In this chapter the critical accounting policies are stated of Carlsberg versus SABMiller. The accounting policies are judged by international- and industry specific regulations. Note that details are stated in appendix 3.3.
4.1 International Financial Reporting Standards
On January 1st 2005, Carlsberg implemented the IFRS, which has changed the accounting policies. The implementation of IFRS has no influence on the financial figures presented in the annual report 2008.
4.2 Taxation
Danish subsidiaries that are included in the consolidated financial statements are subjected to the joint taxation policy. The competitors of Carlsberg, SABMiller and Heineken, use taxation policies subjected to local tax regulations.
4.3 Intangible assets measuring
Intangible assets with finite useful life and property, plant and equipment are measured at cost less accumulated amortization, depreciation and impairment losses. Amortization and depreciation are dealt with on a straight-line basis.
4.4 Foreign currency translation
Carlsberg calculates the average exchange rate per month. The financial position of the company would be affected by unmeasured currency exchange risks. Gains or losses on sale can show a higher or lower value than the real foreign sales value.
4.5 Exceptional items
Carlsberg's annual report uses the term "special items" instead of "exceptional items" (Carlsberg, Annual Report, 2008). Goodwill, trademarks and other intangible assets with indefinite useful life are not amortized as of January 1st 2005, by annual impairment test. All trademarks and other intangible assets with a definite useful life are amortized, as before the implementation of IFRS, the systematic basis of Carlsberg.
5. RATIOS
In order to evaluate Carlsberg's performance, the ratios analysis focuses the following five areas:
Liquidity
Profitability
Efficiency
Stability
Return on Investment
The ratio calculations are based on Carlsberg's financial statements 2007/2008, and SABMiller's financial statements 2008/2009. SABMiller's fiscal year's end the 31st of March 2008/2009, therefore they match with Carlsberg's 2007/2008 annual report as Carlsberg's annual report end at December 31st. For ratio explanations and calculations refer to the appendix 1.5 (Horngren et al., 2007 and Atrill & McLaney, 2008).
5.1 Liquidity
Liquidity refers to the organization's ability to generate sufficient funds to pay their short-term obligations. The liquidity analysis includes:
• Current Ratio
• Quick Ratio
5.1.1 Current Ratio
Ratio analysis
Ratio Carlsberg
SABMiller
Current Ratio
2007/2008
0.9 times
0.7 times
2008/2009
0.7 times
0.6 times
Change
(0.2) times
(0.1) times
Table 1: Current Ratio
The decline of Carlsberg's 0.2 current ratio (table 1) is due to the significant increase of current liabilities by 48.7%, whereas the organization's assets only increased by 28.2%.
5.1.2 Quick Ratio
Ratio analysis
Ratio Carlsberg
SABMiller
Quick Ratio
2007/2008
0.6 times
0.5 times
2008/2009
0.5 times
0.4 times
Change
(0.1) times
(0.1) times
Table 2: Quick Ratio
Carlsberg's low liquidity ratios may indicate the characteristics of the industry, since competitors SABMiller (table 1-2) and Heineken also have relatively low liquidity ratios.
Heineken's current ratio is 0.9 and quick ratio is 0.7. Beer is a fast moving consumer good, therefore, the inventories will remain lower compared to other industries, like construction or car manufacturer.
Another reason for Carlsberg's low liquidity ratio is high deferred income and trade payables which enlarges the current liabilities. However, SABMiller does not have any deferred income. Perhaps this is due to Carlsberg's business policy, where Carlsberg demands distributors to pay a certain percentage in advance. However, Carlsberg takes longer periods to pay its suppliers.
Carlsberg's low liquidity ratio may be caused by investing activities. The Danish brewer uses relatively large amounts of cash for acquisition. For example, S&N acquisition in 2008 resulted in cash outflow of DKK 52,992 million. This reduces the amount of cash and eventually the value of current assets.
5.2 Profitability
The profitability of the company refers to the entity's ability to maximize income with invested assets and resources. The measurement of profitability includes:
Return on capital employed
Return on total assets
Gross profit margin
Operating profit margin
5.2.1 Return on capital employed (ROCE)
Ratio analysis
Ratio Carlsberg
SABMiller
ROCE
2007/2008
12.0%
11.6%
2008/2009
6.8%
12.0%
Change
(5.2%)
0.4%
Table 3: ROCE
Despite the operating profit growth of 51.63% (from 5,262 to 7,979 million DKK), the significant increase of total assets (134.1%, from 61,220 to 143,306 DKK million) has lowered the ROCE ratio. The raise in assets is mainly due to acquisition activities.
In comparison to Carlsberg, SABMiller's ROCE ratio tends to be more stable (table 3), with a slight increase of 0.4%. The ROCE ratios are quite similar for both organizations in 2007. In 2008 SABMiller's ratio is almost two times higher than Carlsberg's.
5.2.2 Return on total assets (ROA)
Ratio analysis
Ratio Carlsberg
SABMiller
ROA
2007/2008
4.2%
6.3%
2008/2009
2.2%
6.8%
Change
(2%)
0.5%
Table 4: ROA
The 2% decline of ROA (table 4) is a result of the significant increase of assets compared to the profit growth (23.5%, from 2288 to 2958 million DKK).
The ROCE and ROA indicate that SABMiller is more efficient than Carlsberg in optimizing assets and working capital to generate profit. During 2008, SABMiller disposed some of their assets which partially helped to increase the organization's ROCE and ROA ratio. By disposing the "lazy asset" and optimize high performing assets, the organization can achieve higher ROCE and ROA ratios. (Atrill & McLaney, 2008, p. 215)
Carlsberg increased the assets value significantly through the acquisition. This led to a decline of ROCE and ROA. However, decreasing ROCE and ROA ratios in this case may not appear as a concern since it is due to Carlsberg's expansion. The acquired entities are expected to generate more income and eventually improve the ROCE and ROA ratios in the foreseeable future.
5.2.3 Gross profit margin
Ratio analysis
Ratio Carlsberg
SABMiller
Gross profit margin
2007/2008
37.1%
48.3%
2008/2009
37.4%
41.8%
Change
0.3%
(6.5)%
Table 5: Gross profit margin
In comparing the gross profit margin of two organizations, there is a considerable difference. In the past two years, the gross profit margin ratios of SABMiller were respectively 11.1% and 4.3% higher than Carlsberg's (table 5). This can be interpreted in two ways. The difference may be due to different profit margin' policies in which Carlsberg sets up a lower profit margin than SABMiller in order to achieve higher sale volume. On the other hand, it may indicate that SABMiller has better control over their manufacturing costs. However, the gross profit margin ratios of SABMiller changed significantly over these years and this may negatively affect the overall profitability of the organization.
5.2.4 Operating Profit Margin
Ratio analysis
Ratio Carlsberg
SABMiller
Operating profit margin
2007/2008
8.7%
15.2%
2008/2009
10.4%
15.8%
Change
1.7%
0.6%
Table 6: Operating Profit Margin
As shown in table 6, Carlsberg has improved their costs control which increased the operating profit margin by 1.7%. In 2008, the operating expenses only increased by 21.4% (from 18,099 to 21,976 DKK million), whereas the gross profit increased by 28.5% (from 22,327 to 28,696 DKK million).
In comparison to SABMiller, the operating profit margin of Carlsberg is relatively low. SABMiller has maintained this ratio around 15% over the past two years, whereas Carlsberg's ratio only varied between 8% and 10%. Carlsberg´s low operating profit margin may be due to the company's low gross profit margin. In addition, Carlsberg's ratio is also hindered by the organization's high financial expenses which are incurred by aggressive acquisition activities.
5.3 Efficiency
As suggested by (Atrill & McLaney, 2008, p. 195) the efficiency ratios examine the way in which the business's assets are managed and utilized. Evaluating efficiency includes:
Average inventories turnover period
Average settlement period for trade receivable
Average settlement period for trade payable
5.3.1 Average inventories turnover
Ratio analysis
Ratio Carlsberg
SABMiller
Stock turnover period
2007/2008
57.3 days
71.2 days
2008/2009
53.3 days
91.3 days
Change
(4.0) days
20.1 days
Table 7: Average inventories turnover
Compared with SABMiller, Carlsberg is more efficient in terms of managing stock. The average stock holding period of Carlsberg is 1.7 times lower than SABMiller (table 7). Stocking inventories incur costs for the organization in terms of storing, preserving, human resources and other overhead costs. Thus, by having lower average stocking holding period, Carlsberg will have numerous costing advantages comparing to SABMiller.
5.3.2 Average settlement period for trade receivable
Ratio analysis
Ratio Carlsberg
SABMiller
Debtor collection
period
2007/2008
37.8 days
32.0 days
2008/2009
30.3 days
37.1 days
Change
(7.5) days
5.1 days
Table 8: Average settlement period for trade receivable
Carlsberg appears to be more effective than SABMiller in terms of debt collection. In 2008, Carlsberg only took six weeks, whereas, SABMiller needed seven weeks and two days to collect their debts (table 8).
A shorter trade receivables settlement period enables the business to collect the funds faster for investment, limit the risk of bad debts and support the liquidity. Thus, with a lower average debt collection period, Carlsberg has advantages over SABMiller in collecting and utilizing funds for profit maximization.
5.3.3 Average settlement period for trade payable
Ratio analysis
Ratio Carlsberg
SABMiller
Creditor collection
period
2007/2008
87.0 days
53.2 days
2008/2009
77.0 days
60.1 days
Change
(10.0) days
6.9 days
Table 9: Average settlement period for trade payable
Overall, Carlsberg's settlement period is three weeks longer than SABMiller (table 9). Trade payables provide free source of finance for company (Atrill & McLaney, 2008, p. 197). A longer settlement period for trade payables provides financial advantage which is funds utilization for Carlsberg, compared to SABMiller.
5.4 Stability
Financial stability refers to the balance between equity and debt. The measurement of stability includes Gearing Ratio and Interest Cover Ratio (Horngren et al., 2007).
5.4.1 Gearing Ratio
Figure 1: Gearing Ratio
Despite the high increase of long-term debt from 19,385 to 43,230 million DKK, the significant increase of Carlsberg's equity caused the fall of this ratio. The three reasons for this strong equity growth are:
An increased recognized income
A high retained earning
A capitals growth of 2,389 million DKK. This is due to the acquisition activities.
Since Carlsberg's competitors, SABMiller and Heineken also have high gearings of 53.90% (figure 1) and 70.63% respectively; high gearing ratios may be characteristic for beer industry. A lower gearing ratio indicates Carlsberg is less dependent on long-term debt, compared tom SABMiller and Heineken. Therefore, Carlsberg is more appealing towards investors.
5.4.2 Interest Cover Ratio
Figure 2: Interest Cover Ratio
Carlsberg's and SABMiller's interest cover ratio dropped in 2008, as shown in figure 2. This is due to aggressive acquisition activities, which incur higher financial expenses. Carlsberg's interest cover ratio is much lower than SABMiller. In addition, Carlsberg's lower ratio is also the result of low operating profit margins. As stated before, the operating profit of Carlsberg in 2008 is only 11.6%, whereas SABMiller has an operating profit of 15.8%. Therefore, SABMiller has more operating profit to cover for the interest obligations.
As the long-term liabilities of Carlsberg increased significantly during 2008, the interest expenses will be higher in upcoming years. There is a high possibility that the interest cover ratio will decrease to less than the current 1.8. In the context of economic downturn this will result in a "bottleneck" situation for Carlsberg.
5.5 Investor return ratios
Investor return ratios measure the returning value to shareholder's investment in the business. There are three ratios taken into account, including (Horngren et al., 2007, p. 723 - 730):
Dividend payout ratio
Earnings per share ratio
Price/ Earnings ratio
5.5.1 Dividend payout ratio
Figure 3: Dividend Payout Ratio
Carlsberg has used 16.7% in 2008 (figure 3) of its profit to pay the dividend, while SABMiller has paid more than twice this percentage to its shareholders. During 2007 and 2008, Carlsberg had paid a total dividend of $9.7 per share, whereas SABMiller had paid eleven times higher amount $110.0 per share (Scott, 2008). This indicates a different dividend policy, in which SABMiller pays more frequently and higher dividends compared to Carlsberg. The Danish brewer tends to retain the profits for future investments, rather than pay out high dividends to shareholders.
5.5.2 Earnings per share ratio (EPS)
Figure 4: Earnings per share ratio
In 2008 the net profit of Carlsberg increased from 2,596 million DKK to 3,206 million DKK. However, due to the issue of new shares the EPS dropped by $0.60, as shown in figure 4. SABMiller has a higher net profit than Carlsberg. Nevertheless, Carlsberg's EPS is 3.4 times higher than the EPS of SABMiller because of significant difference in share volume. In 2008, SABMiller had 1.5 billion shares, whereas, Carlsberg had only 152.5 million shares.
5.5.3 Price/ Earnings ratio (P/E ratio)
Figure 5: P/E Ratio
During 2007 and 2008, Carlsberg's P/E ratio decreased significantly with 13.6% and SABMiller with 27.4%. The decrease of Carlsberg's P/E ratio indicates that the market confidence towards Carlsberg's has dropped considerably. This may be due to Carlsberg's weak operation in Russia and the currency disadvantage concerning the Russian Ruble (Wiggings, 2008). As a result of an increasing EPS and a decreasing market expectation the P/E ratio of Carlsberg dropped radically. The market confidence towards Carlsberg is higher than SABMiller, due to a higher P/E ratio.
5.6 Investor's point of view
In this paragraph an evaluation of the ratios are provided in the strengths and weaknesses from an investors' point of view.
Strengths
Weaknesses
Good efficiency
Carlsberg has efficient funds and inventories management which will support the company's profitability.
Low gearing ratio
Carlsberg is less dependent on long-term liabilities for financing the business. In the context of the economic downturn there will be less risk for investment in Carlsberg, compared to SABMiller and Heineken.
Average profitability
As the profitability has direct impact on the return on investment, Carlsberg's average profitability comparing to competitors, may limit the company's credibility to investors.
Low liquidity
Low liquidity ratio may indicate a high risk, as Carlsberg may be unable to pay short-term obligations.
Low interest cover ratio
Carlsberg has a low interest cover ratio which is likely to decrease in the upcoming years, due to the increase of long-term liabilities. With current average profitability, this will result in less dividend payout and retained profits, for future expansion.
Infrequent dividend payout, low P/E and EPS ratio
Carlsberg P/E and EPS ratio have decreased. Together with infrequent dividend payout, low P/E and EPS ratios, this will negatively affect the investor's perception on Carlsberg.
Table 10: Investor's point of view
Overall, Carlsberg may not be a good option for investment. However, the expansion of Carlsberg should be taken into account, as the acquired entities will generate more income in the foreseeable future.
6. MARKET PERFORMANCE
The position of Carlsberg in terms of size and influence will be discussed in this chapter. The tables and figures in this chapter are based on the annual reports of Anheuser-Busch (InBev), Carlsberg, Heineken and SABMiller.
6.1 Carlsberg's Market Performance
Carlsberg possesses a global market share of approximately 5% in 2008, with four of the Europe's largest beer brands. Due to the joint acquisition Carlsberg increased the net revenue by 33.9% in 2008 as shown in appendix 4.1.
Figure 6: Regional beer consumption of Carlsberg in Volume 2008
In Northern and Western Europe Carlsberg gained 47% in volume and in Asia 10%. The second biggest region for Carlsberg is Eastern Europe responsible for 43% of the total sales volume, as shown in figure 6.
6.1.1 Carlsberg versus the industry
Figure 7: Beer Production volume in the world
To measure the market share of Carlsberg, beer production and consumption in volume is analyzed. Carlsberg's market share is compared with InBev, SABMiller and Heineken as seen in the figure 7. Carlsberg has a worldwide sales volume of 115 million hectoliter (mhl), whereas, InBev has 285 (mhl). Carlsberg produced 6.0% of the entire beer production of 1815 (mhl) in 2008 as shown in Carlsberg's annual report.
Company
Beer sales volume in
Europe in 2008 in
Million Hectoliter
Beer sales volume in
Asia Pacific in 2008
in Million Hectoliter
Anheuser-Busch InBev
80.09
38.5
Carlsberg
103.5
11.5
Heineken
94.8
2.6
SABMiller
47.2
-
Table 11: Beer volume sales in 2008 of the main competitors in the regions Europe and Asia Pacific.
Table 11 shows the beer volume sales in 2008 for Carlsberg's main competitors. Carlsberg only operates in Europe and Asia while its competitors have presence in America, Latin America and Africa. Overall, there is only small difference in sales volume in Europe between InBev and Carlsberg. Comparing with Heineken, Carlsberg performs better in both Europe and Asia market. (Van Tartwijk, 2009)
6.1.2 Future Market Growth
Carlsberg uses acquisitions as a growth strategy. According to Meyer & Tran (2006), Carlsberg acquired several beer breweries shown in appendix 5.1 independently in the past.
In 2008, Carlsberg and Heineken acquired S&N for $15.4 billion (Scott, 2008).
Figure 8: Former Operations of S&N
Figure 8 shows the joint acquisition between Heineken and Carlsberg. This is part of the multi-tier strategy; appendix 5 shows the expansion in its three market regions. This interprets the future growth of Carlsberg with a focus on Eastern Europe and Asia. In Western Europe and the U.S, the consumption of beer tends to flatten or even decline. Therefore, the acquisition in Asia benefits Carlsberg with high market growth potential. (Van Tartwijk, 2009). Most importantly; Carlsberg also took over Russian brewer, Baltika which is one of the major players in Russian market.
7. MARKET PERCEPTION
In this chapter a description on stock price performance over the last three years is given. In addition, a comparison of Carlsberg and the beer industry over the last nine years is given. Furthermore, focus will lie on the SWOT analysis (strengths, weaknesses, opportunities and threats) of Carlsberg's stock performance according to analysts.
7.1 Stock price performance
The stock price performance of the last three years (appendix 4.2) is explained in table 12.
Time guide
Performance
Reason
Start of 2007-half Oct 2007
Gradual raise
Good performing companies, due to high spending power
of consumers
Half Oct 2007
Down stream
US Banking crisis which also effect the global economy
First quarter 2008
Slow recover
Issuing new shares
May 2008
Collapsed
Bottled water replaced by tab water (Wiggings, 2008)
12 Oct 2008
Raise
Entrance to Russian market
Nov 2008
Drop
Lowest point in the market, due to a combination of the
points mentioned above. The declining value of the ruble
negatively affected the sale revenue of Carlsberg in Russia
Nov 2008-May 2008
Steady increase
Partnership with Laos government (Rauhala, 2009)
2nd quarter 2009
Steady around 350 DKK
Stabilized global economy
Table 12: Stock price performance development
7.2 Competitor analysis
As shown in figure 9, the stock performances of beer companies are quite volatile. The market leader, InBev's stock price changed significantly over the past 9 years. Heineken appears to have quite a stable stock performance comparing to its peers in the industry. The acquisition of S&N increased Carlsberg's share price by 40%, whereas, Heineken's stayed the same. At the end of 2008 and early 2009, the beer industry's stock prices have dropped significantly which was mainly due to the financial crisis. However, the declines of Heineken and Harboes Byggeri are less compared to Carlsberg. Harboes Byggeri'share price remained low until 2003. From 2005 onwards, Harboes Byggeri share price increased and became stable due to Carlsberg 29.1% divest holding (Carlsberg A/S divests 29.07% holding in Harboes Bryggeri A/S., 2004)
Figure 9: Carlsberg Stock Price Performance over the last nine years (Carlsberg A/S, 2009)
Figure 9 shows a competitor analysis between Carlsberg, Scottish Newcastle, Heineken, Royal Unibrew, Anheuser Busch Brewery and Harboes Bryggri.
7.3 Analysis comment
The analytical views of Carlsberg's stock price performance can be brought together in a compelling SWOT analysis. The analytical point of view can be found in appendix 6. The SWOT analysis provides an overview of the analytic comments.
Strengths
The acquisition of S&N improved Carlsberg's market share (Bloomberg)
Due to the economical recession the cost cutting strategy as shown in appendix 5 has been implemented. Carlsberg has reviewed their spending behaviour this has led to lower spending. The strength of this strategy is that more money stay's in the company
Good performance during the economic crisis (Cleary, 2009)
Weaknesses
Carlsberg's stock price performed badly compared to competitors during the economic crisis
Carlsberg Group's main focus is on the Russian market according to research done by Danske Markets, analysts Mr. Kristian Borbos and Mr. Jakob Magnussen only focusing on the Russian market can be dangerous because this will lead too much dependency on one market. (Borbos & Magnussen, 2008)
Russian Ruble depreciated 20% compared to the US Dollar since the end of 2008. (Katsenelson, 2008)
Fluctuation of the stock price performance, due to internal and external factors.
Opportunities
Acquisitions will give Carlsberg more perspective to grow, as shown with the acquisition of S&N
Russian inhabitants consume more beer and liquor during crisis. (Leslova, 2009)
Threats
Russian beer taxes will rise from 2010 until 2012 by 50 percent a year as stated by Minister of Finance, Mr. Alexei Kudrin. (Silberstein, 2009)
Loose market leadership in Russia
Table 13: SWOT Analysis
8. CONCLUSION AND RECOMMENDATIONS
8.1 Conclusion
The objective of analyzing and evaluating Carlsberg's performance is fulfilled. Based on our analysis, Carlsberg is financially unstable. Carlsberg has low liquidity which indicates that the company cannot settle its short-term obligations. In addition, the interest cover ratio tends to decrease as a result of increasing long-term liabilities. As affected by high interest payments, there will be lower dividend payout and retained profits with Carlsberg's average profitability. Carlsberg also confronts difficulties in attracting investors with their low and infrequent dividend payout, P/E and EPS ratios, as these are main criteria for investment. However, Carlsberg proves to have less dependency on long-term liabilities compared to SABMiller and Heineken. This may indicate less risk concern in Carlsberg's business compared to the others. In addition, Carlsberg has efficient funds and stock management which also contributes to future profit maximization.
Despite the solid position in Europe, Carlsberg is not strong in worldwide markets. Due to S&N acquisition Carlsberg has more opportunity to enhance their global position, by optimizing the high potential of China, Vietnam and Russia market.
8.2 Recommendation
Based on facts above Carlsberg currently may not be a good investment option, because of the unstable financial position. However, in the upcoming years when the acquired entities are fully merged with Carlsberg and the company's financial situation becomes stable, Carlsberg may be a good investment. Further analysis on Carlsberg's financial statement and market performance in the next years should also be considered, to make a precise investment decision.
8.3 Work allocation statement
This work allocation statement will represent who contributed what portion of the paper. All the literature is studied by both students. Some parts of this paper are made individual, but all the information is discussed and analyzed by both of us.
Literature study
Tjeerd & Valerie
Introduction
Valerie
Company overview
Tjeerd
Annual report overview
Tjeerd (Valerie)
Accounting policies
Valerie (Tjeerd)
Ratios
Tjeerd & Valerie
Market performance
Valerie (Tjeerd)
Market perception
Tjeerd (Valerie)
Conclusion & Recommendation
Tjeerd & Valerie
