Five years after the release of its global business strategy, SAIL’22, Carlsberg has now unveiled a new five-year plan, titled SAIL’27. As the company explained, SAIL’27 is “an evolution of SAIL’22” and “is built around our purpose of brewing for a better today and tomorrow, and our ambition of being the most successful, professional and attractive brewer in our markets.”
Carlsberg says that “the execution of SAIL’22 has been a success, delivering significant improvement in the group’s strategic, organizational and financial health.” While providing a clear overall direction for the business, SAIL’22 has been a ‘living’ strategy. “Since its launch in March 2016, we have continuously adjusted the application of the strategy to reflect learnings and the market environment, which has significantly changed, especially with COVID-19,” the company said.
“Since 2016, we have delivered very well against our SAIL’22 financial metrics: organic operating profit, ROIC and capital allocation, including a very strong financial position with a leverage comfortably below 2x. We have significantly increased dividends from DKK 10 in 2016 to DKK 22 per share in 2021, and carried out share buy-backs amounting to DKK 11bn. In total, the cash return to shareholders in fiscal 2016 to 2021 was DKK 25.0bn. This is more than a four-fold increase compared with the previous six-year period. We have also made strong progress towards our sustainability targets. Compared with our 2015 baseline, we have reduced our brewery emissions per hl of beer produced by almost 40% and improved the water efficiency at our breweries by almost 20%,” the statement reads
Deputy Chair Henrik Poulsen, who is going to replace Carlsberg’s retiring Chairman Flemming Besenbacher after the Annual General Meeting in March 2022 (inside.beer, 16.12.2021),says: “The Supervisory Board is very satisfied with the strong execution of SAIL’22 by the leadership team and all our colleagues around the world. As the incoming Chair, I believe SAIL’27 sets the right direction for Carlsberg. It’s based on the Group’s strong heritage and purpose, and the Board is confident that Carlsberg will continue to create long-term value for all stakeholders.”
CEO Cees ’t Hart says: “SAIL’27 is the exciting next step in the evolution of Carlsberg. Co-created by a large group of employees and leaders, and built around our purpose, SAIL’27 has clear choices for brands, categories, markets and capabilities, and steps up our ambitions for top- and bottom-line growth. In April, we will launch our new Together Towards ZERO and Beyond sustainability programme with a broader scope and an increased ambition level.”
SAIL’27 was developed as a collaborative, company-wide effort, co-created by over 200 Carlsberg employees from more than 30 different markets and functions to ensure that the learnings from SAIL’22 and that SAIL’27 were incorporated and will be strongly embedded in the local markets and central functions from the very beginning., according to Carlsberg.
SAIL’27 includes the following five main goals:
• Organic revenue growth of 3-5% CAGR
• Organic operating profit growth above revenue growth
• Continued ROIC focus
• Ambitious sustainability targets.
Carlsberg will continue with a disciplined approach to capital allocation, with unchanged principles from SAIL’22:
1. Invest in the business to drive long-term value creation.
2. Maintain a conservative balance sheet with NIDB/EBITDA below 2x.
3. Maintain a payout ratio of approx. 50%.
4. Distribute excess cash to shareholders through share buy-backs and/or extraordinary dividends.
5. If value-enhancing acquisition opportunities arise, the company may deviate temporarily from the above. In addition, a strong focus on trade working capital and capital expenditure will be maintained. Consequently, operating cash generation is expected to remain very strong.
According to Carlsberg, the beer category continues to offer attractive long-term volume and value growth opportunities, though with different growth dynamics between categories and markets. Carlsberg believes that its portfolio target s these growth opportunities. In addition, the company sees further attractive growth opportunities for selected categories beyond beer.
In detail, Carlsberg explains the growths opportunities as follows:
1) Premium Category
“Across our regions, the premium category is growing three to four times faster than mainstream beer. In SAIL’27, we will achieve value growth by more forcefully expanding into the premium segment, pursuing three distinct growth opportunities:
1. Our super premium portfolio, consisting of local craft & speciality offerings and our international super premium brands 1664 Blanc, Grimbergen and Brooklyn. 1664 Blanc in particular, our largest and most important super premium brand, has significant growth potential, and we want to grow brand volumes both in existing markets and by launching it in markets where it is currently not present. We will ensure continued growth for strong local offerings, not least our craft & speciality brands in Western Europe, and selectively scale Grimbergen and Brooklyn.
2. Our premium international lager brands Carlsberg and Tuborg. Notwithstanding the different value propositions of these two brands in many markets, both brands continue to have significant premium growth potential, particularly in Asia.
3. In addition, we will explore other brands with an appealing and more premium international lager opportunity. Our premium local brands, particularly in Western Europe, where we already have a strong position with distinctive local brands, such as Frydenlund in Norway, Jacobsen in Denmark and Valaisanne in Switzerland. Across our markets, we will drive growth and scale for our local premium brands.
2) Core mainstream beer
Core mainstream beer accounts for around 60% of the total beer category value. Mainstream core beer includes the local power brands, which will remain an important category in our beer portfolio. These brands have strong local roots and histories, and meet the continued consumer demand for local and authentic brands. Mainstream core beer brands remain important for the perception of the overall beer category and for recruiting new consumers. “We will safeguard the healthy foundation of our core mainstream brands to provide scale and a solid backbone for our local businesses. We also aim to capture growth opportunities, including expanding proven innovations and leveraging repeatable commercial models across markets and brands,” Carlsbergs says. In addition, core beer brands offer opportunities for premium line extensions and entrance points for other categories, such as alcohol-free beer.
3) Alcohol-free brews (AFB)
Alcohol-free brews (AFB) account for 4% of the beer market in our markets and is one of the fastest growing beer segments. SAIL’22 has delivered strong growth for our AFB brands, which include alcohol-free beer, beer mixes, such as radlers, Somersby 0.0 and flavoured non-alcoholic beers, and non-fermented malt beverages. In many markets across Western Europe and Central & Eastern Europe, Carlsberg has achieved a strong no. 1 market position in the category. Its ambition is to significantly grow the AFB volumes. The company will do this by accelerating the AFB volume growth in Western Europe, further scaling the AFB portfolio in Central & Eastern Europe and seeding AFB in Asia, and also by leveraging its strong local power brands, its international premium brands and stand-alone alcohol-free brands.
4) Beyond beer
In SAIL’27, Carlsberg will extend its focus to other beverages beyond beer. Consumers are increasingly looking for beverages outside the beer category, such as cider, hard lemonade, hard seltzers and RTD cocktails. The brewer sees attractive growth opportunities in several of these categories, leveraging brands such as Somersby and Garage.
Initially, Carlsberg’s key focus will be on Somersby and Garage. For Somersby, the company sees opportunities to expand the core cider proposition and leverage the brand in other categories. Garage has delivered strong growth in Russia and successfully expanded into neighboring markets. Garage offers attractive further growth opportunities, including in other categories. Both Somersby and Garage have proven scalable across markets, and Carlsberg aims to expand them in new markets, applying repeatable business models. In addition, the company will apply repeatable proven models and develop new propositions for other existing well-known and trusted brands.
Today, the Carlsberg group has attractive widespread geographical presence and no. 1 or 2 positions in 22 markets across Western Europe, Asia and Central & Eastern Europe. While market dynamics are different in the three regions, they all offer appealing long-term revenue and earnings growth opportunities.
1) Western Europe
Across all markets in the region, Carlsberg will rigorously implement its portfolio choices and strengthen its execution capabilities. All markets are expected to grow revenue and profits. In certain markets, such as France, Switzerland and the UK, the company sees particular growth opportunities. In addition, it will continue to drive further operational improvements in order to increase flexibility, improve efficiency and reduce costs.
Across the region, Carlsberg will continue to grow share in its key Asian markets, further expand its premium portfolio and capture growth opportunities in adjacent categories, particularly utilizing the Somersby brand asset. The comapny will maintain special focus on China, where it will sustain the momentum by accelerating its successful big-city approach and strengthening in new and growing retail channels, such as e-commerce and modern off-trade, leveraging its local and international premium brands and launching brands beyond beer. In addition, Carlsberg will strengthen its local no. 2 positions in India through continued expansion in the mainstream category and accelerated investments in the premium and super premium categories. And in Vietnam, Carlsberg will focus on growing outside its core region in central Vietnam and step up in the affordable and premium segments.
3) Central & Eastern Europe
The Central & Eastern European region includes a large number of diverse markets with very different market dynamics. Across markets, Carlsberg will strengthen its premium portfolios and in-store execution capabilities, and pursue growth opportunities in categories beyond beer, particularly leveraging Somersby, Garage and local brands.
4) Export & License
In Carlsberg’s sizeable Export & License business, the brewer aims to accelerate growth in key markets and pursue selected growth opportunities in markets with attractive large profit pools.
Excel in execution remains a key priority in SAIL’27. Carlsberg will support its portfolio and geographical priorities by stepping up and continuously improving its execution capabilities, particularly aiming at:
1) Excel at point of purchase by more deeply embedding its well-proven sales execution and value management tools and technologies, and offering winning portfolios.
2) Master digital, data and processes by ensuring competitiveness in rapidly developing areas, such as digital marketing, e-commerce and data & analytics, and developing processes and leveraging technology to improve efficiency and effectiveness in its ways of working.
3) Drive supply chain excellence by improving efficiency and effectiveness in its ways of working and developing common tools, processes and capabilities across markets. Particular focus will be on further improving our end-to-end demand, material and supply planning expertise.
To deliver on its ambition of being the most successful, professional and attractive brewer in the markets where it operates, Carlsberg’s culture is key.The company’s winning culture focuses on its people, its behaviours and its contribution to societies at large.
According to Carlsberg, the company is proud of its purpose “Brewing for a better today and tomorrow”. Current and prospective employees look for companies with a clear purpose, a high sense of social responsibility, and work that has meaning and gives them a sense of belonging. In SAIL’27, Carlsberg will build on its strong foundation, maintaining its triple A (Alignment, Accountability, Action) behaviors, sharpening leadership expectations, strengthening the talent pipeline and management, and accelerating its diversity, equity and inclusion journey.
As part of its sustainability program Together Towards ZERO, Carlsberg was one of the first companies to introduce science-based climate targets and set ambitious targets for carbon, water, health & safety and responsible drinking. The company has made strong progress and will continue to focus on delivering against its targets. In SAIL’27, Carlsberg will build on this existing momentum and performance, while expanding the scope and raising its ambitions, launching an expanded ESG program that is caledl Together Towards ZERO and Beyond. Together Towards ZERO and Beyond focuses Carslberg’s four existing priorities: ZERO carbon footprint, ZERO water waste, ZERO irresponsible drinking and a ZERO accidents culture. In addition, the brewer will introduce sustainable agriculture and packaging as focus areas, including specific and measurable targets in line with the existing program. Carlsberg will provide more details on the expanded program, including updated targets and ambition levels for carbon and water and a comprehensive introduction to its new focus areas – sustainable agriculture and packaging – in April.
3) Ethical values
Carlsberg aims to mitigate risks and to protect its reputation as a responsible brewer by living by its ethical values – the so called Compass –. The comapny will continue to embed a culture of compliance and integrity to drive consistent ethical behavior in the way the company does business within Carlsberg and beyond.
The Funding our Journey program builds on Carlsberg’s successful Funding the Journey culture, which has become integrated in the company’s ways of working since the successful conclusion of the Funding the Journey programme in 2018. Funding our Journey will be important to free up resources, enabling Carlsberg to invest more in its brands, allocate significantly higher investments to certain markets, step up investment in capability building and Together Towards ZERO and Beyond, and offset inflationary pressures. Funding our Journey is organised around specific workstreams where the company sees scope for further efficiencies and cost reductions, not least within supply chain and operating costs, and capital efficiency, including areas such as trade working capital and capital expenditure. Carlsberg will continue its rigorous performance management discipline, applying its Golden Triangle concept and Operating Cost Management (OCM) tool to track progress and manage pacing and phasing of individual efficiency initiatives.