Copenhagen Business School MSc Accounting, Strategy and Control Master Thesis Valuation of Carlsberg A/S A strategic and financial analysis of Carlsberg considering the effect of the operational restructuring program SAIL’22 on the company’s operating performance and share price Supervisor: Svend Peter Malmkjær by Theresa Haffer - 106062 Annika Kunz - 107931 Pages: 118 Characters: 269.435 Date of Submission: May 15th, 2018 Abstract The thesis answers the research question: What is the estimated value per share of Carlsberg as of 31st December 2017 considering the restructuring initiative SAIL’22? To answer the question, first a strategic analysis of the macro- and micro environment is conducted followed by a profitability analysis based on Carlsberg’s historical performance. The analysis help to identify value drivers which are then taken into account when forecasting Carlsberg’s future performance. Finally, this input is used to calculate the enterprise value applying the Discounted Cash Flow model as well as the Economic Value Added approach. During the course of the thesis a special focus is put on the company-wide operational restructuring program SAIL’22 that Carlsberg currently conducts. On the one hand, we consider the potential effects of SAIL’22 when assessing the business environment and when forecasting future performance. Measures within SAIL’22 aim to make the company more successful by driving sustainable growth and more efficient through streamlining processes throughout the value chain. By taking a closer look at the specific activities we derive the expectation that SAIL’22 will enhance an increase in revenue and a reduction in costs. On the other hand, we calculate the effect of the restructuring initiative on the shareholder value. A literature review about corporate restructuring identifies reasons restructurings are conducted and factors supporting a successful implementation and execution. The research further reveals different opinions on the effect of restructurings on the shareholder value. Expectations often deviate from concrete evidence regarding the success of restructuring activities. Main goal within SAIL’22 is to enhance shareholder value and therefore increase operating performance. We thus calculate the effect of SAIL’22 on the return on equity. To isolate the restructuring effect from uncontrollable macro-economic events that influence the company as well as from an increased performance that was expected before the introduction of SAIL’22, we apply a formula developed by Smart and Waldfogel (1994). Excluding all effects not related to SAIL’22, we receive a positive influence of the restructuring activities on Carlsberg’s operating performance. Increased shareholder value is mostly reflected in the share price. Therefore, we analyze the development on and after the day of the announcement of SAIL’22. The decline of the share price on the day of the announcement reflects a rather negative perception of shareholders towards the restructuring initiative. This supports the result of our valuation: The DCF- and EVA-models estimate an enterprise value of DKK 173.442 million and a value per share of DKK 942,99. We thus conclude that the share price is currently undervalued. The underestimation is in line with the reluctant reaction of the share price and supports the assumption that the share price will increase with the preceding of SAIL’22 and the successful implementation of activities. An increase of the share price can already be seen: Since the day of the announcement the share price has increased from DKK 592 to DKK 745 per share in December 2017. II Table of Content Abstract ................................................................................................................................ II I Abbreviations .................................................................................................................... VI II List of Tables.................................................................................................................. VIII III List of Figures ............................................................................................................... VIII 1 Introduction ....................................................................................................................... 1 1.1 Research Aim and Research Question ................................................................................. 1 1.2 Structure of the Thesis .......................................................................................................... 3 2 Methodology ..................................................................................................................... 5 2.1 Research Design .................................................................................................................. 5 2.1.1 Research Paradigm........................................................................................................ 5 2.1.2 Research Approach........................................................................................................ 6 2.2 Research Methods ................................................................................................................ 6 2.2.1 Data Collection Techniques ............................................................................................ 6 2.2.2 Credibility of Research Findings ..................................................................................... 7 2.3 Choice of Models .................................................................................................................. 7 3 Operational Restructuring .............................................................................................. 12 3.1 Corporate Restructuring ...................................................................................................... 12 3.2 Operational Restructuring ................................................................................................... 13 3.2.1 Defining the Term Operational Restructuring................................................................ 13 3.2.2 Reasons for Operational Restructuring......................................................................... 14 3.2.3 Factors Influencing Successful Operational Restructuring ............................................ 16 3.3 Operational Performance Measures .................................................................................... 18 3.3.1 Accounting Performance Measures .............................................................................. 18 3.3.2 Market-Based Performance Measures ......................................................................... 21 4 The Case Company Carlsberg A/S ................................................................................ 24 4.1 The History of Carlsberg ..................................................................................................... 24 4.2 Corporate Governance ........................................................................................................ 26 4.2.1 Ownership Structure ..................................................................................................... 26 4.2.2 Governance Structure .................................................................................................. 27 4.3 Markets ............................................................................................................................... 28 4.3.1 Western Europe ........................................................................................................... 29 4.3.2 Eastern Europe ............................................................................................................ 29 4.3.3 Asia .............................................................................................................................. 30 4.4 Products .............................................................................................................................. 30 4.4.1 Core Beer ..................................................................................................................... 31 4.4.2 Craft, Specialty and Alcohol-Free Beer......................................................................... 31 4.4.3 Others .......................................................................................................................... 32 III 4.5 Business Model ................................................................................................................... 32 5 Strategic Analysis ........................................................................................................... 34 5.1. External Analysis: PEST .................................................................................................... 34 5.1.1 Political and Legal Factors ........................................................................................... 35 5.1.2 Economic Factors......................................................................................................... 39 5.1.3 Sociocultural Factors .................................................................................................... 42 5.1.4 Technological Factors .................................................................................................. 45 5.2 Industry Analysis: Porter’s Five Force ................................................................................. 45 5.2.1 Threat of New Entrants ...............................................................................................