Carlsberg A/S (CARLB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Carlsberg H1 2026 Interim Financial Statement. I'm at the Chorus Call operator. [Operator Inructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jacob Aarup-Andersen, CEO. Please go ahead.

Thank you very much, operator. So good morning, everyone, and welcome to Carlsberg's Half year 2026 Conference Call. As said, my name is Jacob Aarup-Andersen, and I have with me our CFO, Ulrica Fearn; and Vice President, Investor Relations, Peter Kondrup. Before we get into it, let me just begin by summarizing the key headlines for the half year. First of all, we delivered solid top line and solid earnings growth. We are delivering the Britvics Synergies faster than expected. We're making strong progress on leverage reduction and we're expanding our Pepsi partnership to many more markets. And we're narrowing our full year guidance for organic operating profit growth towards the upper end of our previous guidance range. Before I cover the key headlines for the group and regions and before Ulrica takes you through the financials and the full year outlook, I will her explain the exciting reporting changes following the implementation of IFRS 18. So over to you, Ulrika.

Thank you very much, Jacob. And please, everyone turn to Slide 3 for that. So as we told you in February, we have implemented IFRS 18 this year, and this is ahead of the mandatory adoption in 2027. And this is a highly complex change, but we have been able to do this, thanks to the robustness and the quality and the depth of our data and systems. And for those of you who are not aware, IFRS 18 concerns the presentation of figures in the income and cash flow statements and to a much lesser extent, the balance sheet. And it is important to note upfront that at the bottom line, i.e., net profit, net cash flow and total asset is unchanged. And for us and for most other companies, IFRS 18 does not correspond with our internally defined financial performance measures and KPIs. And therefore, we're introducing Carlsberg Performance Measures or CPMs which reflect our internal reporting and performance management. And this is in line with the requirements of the IFRS 18. But I do want to emphasize that the CPMs basically, with a few exceptions reflects the way we've always looked at the business. So we took the first step at this already in our full year 2025 reporting in February when we provided restated management defined performance measures or APMs. However, under IFRS 18, MPMs can only be used for P&L subtotals and total and not for line items such as cost of sales or marketing or ratios such as return on invested capital. And therefore, we're choosing to call our adjusted figures, CPM. Last week, we sent out restated 2025 figures under IFRS 18 for full year and half year. And we also included the corresponding CPM figures for both periods. So we hope that, that helped you preparing for our half 1 announcement now. So going forward, all P&L commentary on group and regional performance in announcements and presentations will be on CPM, where these differ from IFRS 18 figures. And likewise, organic growth figures will be presented for CPMs only. In today's announcement, CPM Bridges are presented in Note 1, and those bridges will be included in all half and full year announcements going forward as per IFRS 18. We and details on the restatement of the 2025 figures reported in February to IFRS 18 are shown in Note 8. So let me first briefly explain the major changes following the adoption of IFRS 18, illustrated in the second and third column in the table on this slide, which showed 2025 reported in February, and the IFRS 18 restated figures. First of all, the structures and subtotals in the P&L have changed as the P&L is now split into operating, investing and financing sections. Secondly, there are some significant movements between the lines in the P&L with the main ones being share of profit of associates, which has moved from above operating profit below operating profit. And special items and other operating activities net they no longer exist, but are instead recognized in the relevant cost lines, mainly above operating profit. And trade loans have moved from other operating activities to other investing income and expenses, which is below operating profit. And FX gains and losses on operating assets, liabilities and transactions, bank fees and other financial fees have moved from net financial items to admin costs. And as a result of the IFRS 18 mandatory recertification, 2025 operating profit has been restated from DKK 13.36 billion to DKK 10.2 billion, and the reclassifications have no impact on net results, which is unchanged at DKK 7 billion, as you can see here in the table. We've also included a few lines from the cash flow statement. As with the P&L, there are a number of movements between the lines, but the most significant one is the change of interest paid on external financing. This used to be included in cash flow from operating activities, but it's now tended in the cash flow from financing activities. And this means that free cash flow under IFRS 18 improved by DKK 1.7 billion, but this amount is offset in cash flow from financing activities and net cash flow is therefore unchanged. Now tuning in on the CPM adjustments, and these are shown in the last two columns in the table. And the main adjustments related to share of profit in associates we just moved back into operating profit. Integration restructuring cost and impairment losses, which used to be accounted for in special items are eliminated in CPM as is the amortization of intangible assets recognized in the Britvic PPA. The CPM operating profit and net financial items differs slightly from the MPMs reported in February. And the reason for this is that we have decided to align our internal reporting regarding trade loans, bank fees and other financial fees with IFRS 18 to avoid unnecessary complexity between our internal reporting and external reporting. And the net impact of these are approximately DKK 250 million, but had no impact on net results or EPS. Then the small difference between 2025 adjusted net result and adjusted EPS MPM reported in February and the restated net profit and EPS CPM and is due to certain special items such as war-related costs in Ukraine and donations, which has been reclassified to operating costs and some smaller tax adjustments related to one-offs. So now on Slide 4, where we've included the detailed bridge for Half 1, 2026, from Note 1 in today's announcement, explaining the movement from IFRS 18 to CPM. Hopefully, this bridge will enable you to understand the moving parts. And if not, I will be more than happy to help after this call. As I've emphasized a couple of times already, the CPM figures are in accordance with our internally defined management performance measures and KPIs. And with all of that, back to you, Jacob.

Thank you very much, Ulrica. And I know a lot of people will regret this, but let's move away from the exciting world of accounting rules. And let's talk about our CPM headline figures for the first 6 months. So let's go to Slide #5. Now total volumes were up organically by 1.7%, driven by the very solid 6% growth for our growth categories. Revenue per hectoliter developed positively in all three regions resulting in revenue per hectoliter growth for the group of 1%. The organic volume and the revenue per hectoliter growth led to revenue being up organically by 2.7% and us delivering revenue growth in all three regions. Operating profit was up organically by 5.9%, and the operating margin expanded by 30 basis points to 15.8%, positively impacted by the synergies in Britvic. Slide 6 and a quick reminder on the composition of our portfolio following the Britvic acquisition. Carlsberg is today a multi-beverage company with about 2/3 of volume coming from Beer products and 1/3 from Soft Drinks and other Non-beer beverages. Looking at it from an alcohol versus alcohol-free perspective, the ratio is 1/3 nonalcohol, 2/3 with alcohol. Not surprisingly, Western Europe has the largest share of soft drinks, with 54% of total volumes coming from this category. Including AFP, the alcohol-free portfolio accounts for almost 60% of volumes in Western Europe and mainstream beer in Western Europe only accounts for 30%. The split is a little different in the other two regions where beer still accounts for the majority of volumes. Slide 7 and an update on growth categories and international brands. All of which delivered positive growth in the first half, except for one brand 1664 Blanc. Soft drinks delivered strong organic growth of 9% and 13% in reported terms, with growth in Western Europe and Asia being supported by the Pepsi portfolio. Very strong growth in C&I was also positively impacted by Pepsi and the volumes coming on board in Kazakhstan. Since we are taking over the license back in Q4 last year. Excluding Kazakhstan, organic soft drinks volume growth was 4%. Our Premium Beer portfolio grew by 1%, as mid-single-digit growth in Western Europe and C&I was partly offset by lower volumes of local premium brands in China in Q2. We saw a particularly strong growth for local premium brands such as Poretti in the U.K., [indiscernible] Sweden and Pirinsko in Bulgaria. Premium Carlsberg volumes grew by 16%, with strong growth seen in many markets, including China and India, And premium Tuborg volumes grew by 2%, supported by growth in China. Alcohol-free brews grew by 11%, thanks to strong growth in Western Europe of 15% and 6% in C&I. It's really encouraging to see the AFP volumes grew in almost all markets in these 2 regions, albeit still a small category in Asia, we also saw strong growth in them. Calling out a few brands that did particularly well was Okocim in Poland, Tourtel in France and Fix in Greece. The growth was supported by a high level of innovations, broadening consumer choice on occasions. Like, for instance, the Okocim, Triple Serin Poland, the Summer Speed [indiscernible] in Germany and [indiscernible] relax our first functional AFP in the Swiss market. Beyond beer volumes grew by 1%, mainly due to strong growth of garage, particularly in Poland. Innovations have been a key driver behind the growth of the Garage brand with new flavor types for Garage hardcore in Poland and Kazakhstan. Looking at the international brands, Pepsi volumes grew organically by 17%, supported by very good resource in the U.K. where the brand outperformed the market and in markets such as Ireland, Sweden, Norway and Cambodia. The strong volume growth was also supported by the volume ramp-up in Kazakhstan. Carlsberg volumes grew by 6% and thanks to the aforementioned mid-teens premium volume growth. Mainstream volumes were flat. Tuborg volumes grew by 3% with positive contribution from both the premium and mainstream portfolio. The latter was primarily due to double-digit growth in India. 1664 Blanc volumes grew in C&I were flat in Western Europe, but this was offset by a decline in Asia and the total brand volumes were minus 1%. So please turn to Slide #8. We're expanding our business, strengthening our portfolio in growth categories and growth markets. Before going into details of the new PPS agreements, I want to highlight the strong performance of Britvic. In line with our expectations, Britvic is positively adding to the group's revenue and profit growth. And thanks to top line growth and synergy delivery margins and ROIC are improving. Britvic has truly been a brilliant is to the Carlsberg Group. And we advanced our PepsiCo partnership further. In April, we announced the takeover of the Pepsi license in Denmark, including the German border trade, Finland and the three Baltic states from the 1st of Jan 2029. We're very excited about the long-term benefits of handling the Pepsi business across all Nordic and Baltic markets, where we have a very strong route to market and we can create a Nordic Pepsi cluster. In July, we announced the takeover of the Pepsi license in Azerbaijan from the 1st of Jan 2027, so in only 4.5 months when the agreement with the current [indiscernible]. The takeover is expected to double our volumes in the market, and we're seeing appealing growth opportunities for the Pepsi portfolio when combining the beer and soft drinks portfolio. Also in July, we announced a new strategic joint venture with Sapporo in Southeast Asia and Hong Kong. The partnership builds on our successful cooperation with Sapporo since 2024 in Malaysia, Singapore and Hong Kong where this premium brand has been growing very fast, supported by the strong provenance of Japanese brands in Asia, combined with our very strong route to market. With the agreement, we extended partnerships with Vietnam, Lars and Cambodia securing a support brand in perpetuity in all of these markets covered by the JV. We've also been granted a long-term brand license for Sapporo in the U.K., strengthening our portfolio in the growing premium World Beer segment. Gross cash proceeds to Carlsberg will be USD 643 million that we will use for debt and leverage reduction. Now Slide 9 and Western Europe, where we saw a 4% organic growth for our growth categories. Soft drinks and other bridges were up organically by 3.2%, while Beer volumes declined by 3.9%, mainly due to lower mainstream Beer volumes in Poland and Germany. Excluding these two markets, Beer volumes grew slight and total volumes were flat organically. Revenue per actual improved organically by 1%, supported by price increases and positive mix within Beer from the continued growth of premium and alcohol-free brews. Channel mix was negative due to the continued soft on-trade. Organic revenue growth was 0.9%, while total revenue growth was 2.7% due to the impact in general from the Britvic acquisition. Organic operating profit growth was a solid 8.7%, supported by the synergies from Britvic, tight cost control and good results in Super Bock, our associate in Portugal. The operating profit contribution from acquisitions was flat as this impact related to the first two weeks of January prior to Britvic being consolidated from January 16, 2025. We're very pleased with the 80% margin progression, supported by strong synergy delivery in Britvic, which has driven a significant improvement in our U.K. margins. So let me give a bit of color on the markets. And starting with the U.K. we saw a mid-single-digit volume growth for soft drinks. The Pepsi portfolio did very well, particularly Pepsi and Pepsi Max, which outperformed the market both in off-trade and in on-trade and in volume and in value. We also saw exciting first results for Poppi, which was launched in March. Beer volumes grew by low single digits, driven by Poretti, 1664 and the introduction of the Greek brand, Mythos. Carlsberg brand volumes declined due to the competitors refolding their recipes to enable their products to enter the lower ABV mainstream segment. Our Nordic business has delivered a solid set of numbers with growth in all markets except Finland. Very positively, the growth categories delivered good progress. Total volumes in the Nordics grew by low single digit as the positive development for the growth categories offset the lower mainstream volumes. The Pepsi portfolio grew in Norway and Sweden. Total Beer volumes in France and Switzerland were up driven by Premium and Alcohol-free brews, partly offset by slightly lower mainstream volumes. In Poland, Alcohol-free brews continued to grow. We saw strong growth for Garage in beyond beer and premium volumes. Total volumes in Poland were impacted by the soft market and some market share loss in the lower mainstream segment. Please go to Slide #10 in Asia, where our volumes were flat for the first half, reflecting Beer volume development of minus 0.9% and soft drinks and other beverages growth of 6.8%. The latter costs have been impacted by the growth -- that impacted the growth for our growth categories of 1%. Beer volumes were impacted by a soft beer mark and severe weather conditions in China specifically. Revenue per actuator increased organically by 2% and consequently, organic revenue development was or 1.7% positive. The positive revenue per liter development was supported by brand mix and by price increases. The depreciation of the Chinese currency in particular meant that the total revenue growth was flat. Operating profit grew organically by 3.0%, thanks to flat cost of sales supported by funding our journey savings and prudent SG&A management. Adverse currency movements meant that operating profit CPM growth was 1.7%. Our operating margin in Asia improved by 40 basis points to 26.3%. Let's look at a couple of the market share. In China, the beer market remains soft. In addition, our volumes in Q2, particularly in June, were severely impacted by very bad weather, including heavy rainfalls and floodings across the central and southern parts of the country. This naturally affected consumer uptake in our strongholds, especially Chongqing and several of our big cities. We continue to see very strong growth for Carlsberg, which grew by more than 20% and we also saw increasing Tuborg volumes. Due to lower volumes for the Chongqing brand, our local mainstream volumes declined. In Lars, our volumes increased by mid-single digit, benefiting from improved macroeconomic conditions and the beverage market returning to growth. Our business in Vietnam continued the positive trajectory from Q1 and delivered volume growth of more than 20% for the half year. The strong growth was on the back of e-com market growth and an increase in export volumes. Our market share has stabilized, driven by Huda, which is our large mainstream brand in the central part of the country. Slide 11 and Central and Eastern Europe and India, where we continue to see very good performance and even an acceleration of volume growth in Q2 compared with Q1. The region delivered organic volume growth of 6.2%, mainly driven by soft drinks, which grew strongly by 34%, positively impacted by the ramp of the Pepsi business in Kazakhstan. Beer volumes grew by 1.1%, thanks to strong growth in India and Nepal, partly offset by weak volumes in Ukraine. Revenue [indiscernible] Grew organically by 3%, thanks to price increases and a positive product mix resulting in organic revenue growth of 9.2%. Total revenue was up by 5.7% due to adverse currency movements, mainly in India and Ukraine. The region delivered good organic operating profit growth of 7.8%, thanks to the strong top line and easy comps at the first half of '25 was impacted by certain one-off events. Operating margin declined by 40 basis points due to the margin dilution from the large Pepsi business in Kazakhstan, which, as you know, is not profitable in 2026. Let's also here look at a couple of the markets. In India, the very positive trajectory continued. Our business delivered mid-teens percentage volume growth in the first half with an acceleration in Q2 compared to Q1. Growth was driven by both Carlsberg and Tuborg. 1664 Blanc grew strongly from a low base as we continue to expand distribution. The work on the IPO continues and, as you may have seen, Carlsberg, India in July filed a so-called prefiled draft red herring prospectus with the Indian authorities. And before you ask additional questions, we cannot provide further comments to the India performance or the process following the filing. We also saw a good growth in Nepal, where volumes were up in the mid-teens. This was due to good progress for both the local Goker brand and for [indiscernible] Carlsberg. We're very excited by the Pepsi expansion in Kazakhstan. The construction of the new soft drinks plant is on track, and we expect to start up production by the end of Q3. Total volume growth in the first half was 70%, that is 70% driven by soft drinks as peer volumes were flattish. In Ukraine, the market remains severely impacted by the war and our volumes were down mid-single digits as growth for premium and AFP were offset by lower mainstream volumes. Volumes in our export and license business returned to growth in Q2, led by solid growth for Carlsberg in license markets. And with that, over to you, Ulrica.

Thank you, Jacob. And now please go to Slide 12 for some more details on the P&L. And for the sake of good order, please do note that my comments will be on CPM figures. So revenue amounted to DKK 47.1 billion, which was up 2.7% organically, driven by both volume and revenue per hectoliter. And the impact from acquisitions was plus 1.2% and related to Britvic, which was consolidated from January 16, 2025. And the acquisition impact was offset by FX, which was minus 1.3% and mainly driven by the Polish, Chinese and Ukrainian currencies. Cost of sales increased slightly. Gross profit grew organically by 1.8% and gross margin was 45.7% and was impacted by the Pepsi business in Kazakhstan and acquisition of Britvic. Operating profit grew organically by 5.9%, and operating margin increased by 30 basis points to 15.8%. And as part of IFRS 18, net financials are now presented as investing income and expenses and financing and expenses, respectively. And in Note 5 in the half year statement, we provide the reconciliation of these two lines and the net amount, excluding FX which was minus DKK 990 million. The effective tax rate was 22.7%, while the IFRS reported tax rate was 23%. And net profit was up 6% to DKK 4.3 billion, and earnings per share were up 6% to DKK 32.4. Now to Slide 13, please. So here you see free operating cash flow amounted to DKK 3.7 billion, and this was an increase of DKK 776 million, positively impacted by the higher EBITDA and a smaller working capital outflow than in Half 1 2025, partly offset by higher CapEx. And the change in total working capital was minus DKK 859 million, which was almost DKK 900 million better than in 2025. And looking at the 12-month average trade working capital to revenue, this was minus 15.6%, which was at the same level as the end of year 2025. CapEx amounted to DKK 3.6 billion and included capacity expansion and sales investment linked to the Pepsi business in Kazakhstan and also capacity expansions in India and Laos. Net interest-bearing debt-to-EBITDA was reduced significantly from 3.9x to 3x, supported by solid operating free cash flow and the issuance of EUR 1.8 billion of hybrid bonds in early May. And the policy, we used to repurchase outstanding bonds under our EMTN program maturing in October 2026 and February and June in 2027. And accounting-wise, the hybrid bonds are accounted for as equity and presented in a separate line above noncontrolling interest in the statement of financial position. However, the credit rating agencies treat only 50% of this equity and the remainder as interest-bearing debt. And consequently, we used the same methodology when calculating net interest-bearing debt and financial leverage. So lastly, the 12-month rolling return on invested capital improved by 20 basis points versus year-end 2025 to 10.8%. And compared with Half 1 2025, the development was impacted by Britvic and capacity expansion in Kazakhstan. So now please go to Slide 14 and the earnings outlook for the year, which we are narrowing towards the other end of the previous expectation. In Half 1, we delivered solid top line and earnings growth despite the challenging and volatile environment. And for the remainder of the year, we're not assuming any material changes to the external environment or consumer sentiment. But despite this, we expect to continue our earnings growth trajectory in Half 2. So let me provide some color on what we have seen so far in Q3 and our assumptions per region for half 2. In Western Europe, we are lapping a good July last year, but the warm weather in multiple markets again this year supported volumes during the summer. In Asia, we don't expect the soft beer -- we do not expect the soft beer market, particularly in China to improve and the bad weather at the end of Q2 continued in the first part of Q3. In C&I, the positive trends from half 1 has continued into the beginning of Q3. So we're not assuming any major changes in COGS per hectoliter outlook for the year despite the higher spot prices on some inputs, including aluminum and energy. And as always, there will be significant variations between markets. The Britvic integration is progressing well, and we are very pleased that we now expect to achieve approximately 80% of total synergies by the end of this year. And this is well ahead of our initial expectations and even at a higher speed than anticipated at the beginning of the year. And based on this, we're updating our earnings guidance range for 2026 and now expecting organic growth in operating profit CPM of 4% to 6% compared to the previous guidance of 2% to 6%. Please note that the 2025 operating profit CPM differs slightly from the MTM figure that was used in our guidance in late April. And the difference relates to the reclassification of bank fees and trade loans that reduced operating profit but improved net financials, resulting in 0 impact on net profit. Based on yesterday's spot rates, we assume no currency impacts on operating profit, and this is the same as our previous assumption. And we are lowering our expectation on net finance costs, excluding FX, to around DKK 1.8 billion. And the reduction compared to our previous expectation of DKK 2.2 billion is due to the redemption of EMTN bonds following the hybrid bond issuance in Q2 and the reclassification of bank fees and trade loans. And note that interest on the hybrid bonds do not show up in the P&L, but are presented separately in the allocation of net profit in the line called interest payment to hybrid bondholders. Interest on hybrid bonds are not accrued, but recognized at the time of payment, and there is only one payment on one of the hybrid bonds in 2026, and that's in August. Our assumption for CapEx remains at DKK 6 billion to DKK 7 billion and our assumption for tax rate is unchanged at 23%. And with that, back to you, Jacob.

Thank you very much, Ulrica, and it's time for Q&A. But just before opening up for that, let me summarize the key messages. First and foremost, we delivered solid top line and solid earnings growth. We are, as Ulrica just said, delivering the Britvic synergies faster than expected. And we're making strong progress on leverage reduction. We've also been expanding our Pepsi partnerships to more markets and we're narrowing our full year guidance for organic operating profit growth towards the upper end of our previous guidance range. And now to Q&A. As always, please note that we will limit the number of questions to two per person, to ensure that as many of you get a chance to get through. You're always welcome to rejoin the queue. With that, over to you, operator, and the Q&A.

[Operator Inructions] And today's first question comes from Andrea Pistacchi from Bank of America.

So my two questions are the following. So I start with China. So hoping that you could unpack a bit more the Q2 performance in China. You have possibly a sense of what the severe weather impact may have been. Could you give us -- you normally give us a split big cities versus stronghold performance. And then the inventory situation, given the likely or sellout in China, how has this left sort of distributor stock levels? And you already told us how sort of trading has started for Q3, which sounds still a bit soft. And my second question probably for Ulrica, is on the guidance. So you delivered close to 6% organic EBIT in H1. And you narrowed the guidance, which implies, I think, around 2% to 6% for the second half. Could you talk, please, through some of the key drivers that are likely to shape the H2 relative to H1? And I'm thinking on the positive side, you'll be annualizing the higher marketing spend in China. Kazakhstan profitability probably should start to improve once you go live with with the factory. I think you said that the COGS inflation won't be higher in H2 versus H1. So all of this would seem to support another solid EBIT delivery in H2. But against this, are there any meaningful headwinds we should be aware of that could explain why profit growth would moderate in the second half?

Thank you, Andrea. Let me start on China, and then Ulrica can speak to the guidance element. Yes, I can give you a bit more color, of course. And it's -- unfortunately, it's impossible to separate hot and cold water in terms of what's weather impact and what's weak consumer, et cetera. But no doubt, if we look at the Q2, when we look at the already soft consumer, which we've seen for quite a while, as you know, we didn't have that significant impact from weather. And I have to say it's pretty dramatic also if you've been following the pictures of the events as they unfolded in June in China and into early July. And of course, that has an impact. You can say we're seeing a hit to some of our strongholds. But it's also very clear that this is not a Carlsberg thing. This is quite clearly, it's a market thing. We're seeing everyone being hit by this. We can't separate it. But if you look at our strongholds versus big cities, which is also what you were asking around. So strongholds are down a bit less than mid-single digit, while the big cities are flat. And it tells you something around the fact that some of our strongholds were hit harder, which is also what we were pointing to. Big cities, in general, we have an underlying good growth rate. So the weather impact takes that underlying good growth rate down. And therefore, overall, you end up with a number you ended up with. We're not seeing this as any sort of step change. It's, of course, unfortunate that we have significant adverse weather across China going into a summer season where people have been building a building up stock for a strong summer season. This also happened a couple of years ago and it's -- this is life, we deal with it. We don't see that as creating any longer-term structural drama. But of course, it's a short-term headwind we have to deal with, just like the rest of the players in the industry have. It's also why I have to say I'm very pleased to see the performance of the overall group because it also shows despite this weak weak impact in China. We still deliver good results across the group, and this says something around resilience and diversification we built up over the recent years. You asked about the start to the to Q3. Yes, there's no doubt that, of course, on your question on inventories with distributors, et cetera. Of course, like it's a given that distributors will have more inventory than initially expected because of the lack of demand, especially in on-trade because especially on-trade was hit very hard. So that will have an impact in Q3 for the whole industry. So, you have to expect that Q3 will be soft in China. I think that's a given. I think that's also expected by now. So -- and then the system will have worked through those inventories and then we can get back to a more normal environment again, of course, assuming no other weather impacts. Just to underline this, strategically and financially, our Chinese business is in a great shape. We're delivering very good profitability, very good cash flow. And we have the highest EBIT margins in the market, strong brands, and you know the commercial track record. So as set back on one or two quarters due to heavy weather hitting us, I think that's, for us, no drama. And we think that we will return to the previous structural position post these impacts. But of course, we'll have a softer Q3 as this has worked through the system. Ulrica, over to you on the guidance side?

Yes. Thank you, Andrea. So on the guidance, as you said, yes, there are some -- we now have visibility into the big summer months and the start of Q3, and that's allowed us to increase the guidance range up to 4% to 6%. And it is the good start in Q3 in Western Europe. It is the good start in the rest of Asia, in Laos and Vietnam and then C&A continuing -- C&I continuing the similar trends as in Half 1, that's that's allowed us to do that, but also the visibility into Half 2, which does not include anything that you probably have missed, which was your question. I will say commenting on the two factors you brought forward, one was Kazakhstan. Yes, we will start ramping up production in second half in Kazakhstan, but it will just be ramped up from the end of Q3. So I wouldn't expect any big profitability coming from that in this year. And you mentioned also COGS, they will be pretty much in line with Half 1. So flattish, but there is a little a little bit up. So we won't get a big support from that in Half 2. We have, however, there are -- you said Half 1 and Half 2, there are some movements between the two halves, which might be worthwhile pointing out. We do have a couple of insurance payments in Half 2 that we need to lap, which makes it a little bit more difficult. And Western Europe and C&I actually had easy comps in Half 1, because they had some supply chain disruptions last year like the Italy flooding that we talked about. And then, of course, Jacob talked about the China softness as well. So those are the big moving parts in why we're moving forward to the 4% to 6%.

Then the next question comes from Celine Pannuti from JPMorgan.

My two questions. First on Europe. Thank you for giving us a bit of a steer on the beginning of the quarter. Could you go into a bit more details in terms of the underlying demand on beer in the key regions as well as the overall competitive performance in your key market? And my second question, maybe following on what you just said on COGS inflation. Obviously, for this year, you have been hedged. How do you see the COGS inflation in 2027, and the ability to pass this on and given the consumer environment and thinking about Europe, the pricing ability?

Celine, thank you so much. You said underlying demand of beer in different regions, but your question was specifically on Europe. Is that correct?

On Europe. Yes, yes.

Okay, in fine. So yes, like if you look at Western Europe, the region for us, we've had, as you also alluded to, a good start to Q3, supported by favorable weather in several markets. It's very much the similar trends we've seen in the first half across Western Europe. So there are some markets that remain tough, especially Poland, it remains tough which is not a surprise. On the other hand, we continue to see good strength in the Nordic region and good strength in the U.K. And you're asking Europe and beer markets. I would just underline that 55% of our Western European business is now soft drinks. And there, we're seeing continued good growth. So we're very happy with that. On the Beer side of things, which is now, as you know, the minority of the business in Western Europe, Poland remains challenged, no doubt about it. Nordic region remains constructive, especially Premium, Beer, Alcohol-free beer continues well mainstream beer. I think we're constructive around that being stable. I think the market where you're seeing the beer market continuing to be highly competitive, is especially the U.K. Here, we see the mainstream market is highly competitive while we are seeing good growth in the World Beer segment with some of the launches we've had recently. So I think it's a mixed picture. And also you have the French beer market is growing. The Portuguese beer market is growing as well. So we have two beer markets there, two important beer markets for us that are growing and where we also are happy with the overall performance. You also asked about competitive and i.e., therefore, you say, relative market share, et cetera. We're quite happy with the performance. The markets where we have slipped a bit on market share. If you look at the statistics, like like Poland, that's a market where we have decided not to fully participate in everything that goes on in lower mainstream. Our focus has been on driving a significant mix improvement, and we now have the highest net revenue per hectoliter of any player in the Polish market, which is a strong development by the team. So where we -- there are certain markets where we decide to do that. Overall, very happy with the performance of the teams, we're not losing any share that we're not deliberately doing. And I think it's a constructive outlook for Beer. Overall, of course, the mainstream Beer segment and especially lower mainstream Beer segment, is the segment where we see the lease growth. That's not a price as some of those consumers are moving more towards premium or Alcohol-free Beer or even moving into nonalcoholic categories like Soft Drinks. So I think we have a constructive perspective on Beer in Europe, but especially within the growth categories of premium and alcohol free. Ulrica, do you want to answer on the COGS side of things?

Sure. Celine, you talked about COGS for 2027, specifically. And here, we do, of course, have some hedges in place already for 2027. But as you also can well see volatility in many of the commodities are very high. And so it's very hard to say anything directly about 2027 at this point in time. We do, however, I can say, try to pick up when price business is out there to increase those hedges for 2027. And I can also say that it continues to be aluminum and energy. There are the ones that we see the biggest cost push on. And there are still some tailwinds on commodities like barley and sugar. So -- and of course, commodities that we're not hedging as well. So we're clearly monitoring the situation closely, and we take the necessary action. We'll continue to do that into 2027, whether that's efficiencies to offset this or supply chain actions and commercial initiatives. And as per company policy, we will also have to take price increases to cover any of those cost increases should they arise. But I cannot say specifically where we are for 2027 now, but I will say that it will be an increase on 2026. But I can also say that the cost push will be significantly less than was back in 2020 to 2023.

Then the next question comes from Edward Mundy from Jefferies.

So two questions, please. Just first on Britvic, where you've brought forward your the pace of synergy realization from 30% to 40% to 50% this year. The question is, is that potentially more? I know you've already upgraded it once, but as you do the work, is there potentially more to go for on Britvic? And then the second is really around the fact the business shape hasn't changed quite a bit over the last couple of years. You've had obviously Britvic, Kazakhstan, Azerbaijan, but Sapporo, we've got 5 new markets coming in 2029. When we think about the end game here, especially on that Slide 6, are we largely done Jacob? Or if there are further opportunities, can you reshape this business without putting a lot more capital to work, do you take on new pet franchises or you are a smart deal with Sapporo?

Thank you so much, Ed. Quickly, well, we'll start with Britvic. So your agreement we've just upgraded the synergy realization today and you already want more. It's amazing. But it, of course. Last year, as you know, we took the overall guidance from DKK 100 million to DKK 110 million. This year, we are increasing the realization rate of that DKK 110 million. So there's no doubt that you are pointing to the right topic, which is the synergy realization momentum is, of course, very strong. And therefore, the momentum is also on the upside and not on the downside. I'm not going to sit here and speculate whether we're going to increase synergies further. If we were going to do that, we would have said that today, but it's, of course, more likely that we do that compared to downgrading it. So the momentum is good. It's very strong. And we have to say that the teams are doing a phenomenal job, the Britvic acquisition has been a strong success, not just in terms of the impact it's having, specifically on our overall new combined U.K. business, but also the ripple effects it's having throughout the business in terms of capabilities, innovation power and in terms of, you can say, the momentum it's giving us in terms of our overall Pepsi relationship. So I think it's having significant ripple effects that go way beyond just the cost synergies, but on the question of cost synergies, of course, we are very pleased with the upgrade today of that. And of course, the momentum is on the upside. Then on the end game, I think you can see from the level of activity coming out of us we're not standing still. We are -- with high intensity constantly driving forward to create value for our shareholders. And we're super excited about the opportunities in front of us. We're super excited about the portfolio we have today. We think we have a great mix of amazing Beer portfolios, amazing Soft Drinks portfolios and a lot of emerging innovations and within other categories, such as Beyond Beer. When you look at that, we don't sit here with an end goal of a certain mix. I think that will be naive, what we are looking at is we see continued opportunities to expand within our growth categories. Part of that opportunity is potentially to do more Pepsi partnerships. And we're not going to rule that out because we think that there -- I have to say I would probably be disappointed if we, over the next couple of years, do not add further Pepsi franchises. But it is, for us, always the key litmus test is, are we creating value for our shareholders or not. We're not doing this because we think it's nice to do. We do this because we are here to create value for our shareholders, both in the short term and the long term. You can already today see when you look at this first half, you can see the positive power of the changes we've done over the last couple of years. It has improved the shape of our business, the shape of our P&L, the shape of our portfolio. So as long as we can do that, we will continue to do it. We don't have a fixed target around what the portfolio should look like. But the key for us is to have a strong diversified portfolio mix, multi-beverage mix where we create value for shareholders. And don't forget at that this is not just about adding soft drinks. This is about creating a portfolio mix that benefits all of categories. As we add Soft Drinks into our Beer markets, we see an immediate uplift of the performance of our Beer portfolio as well, as you have seen in the U.K. Last comment, I know it's a long answer, but it's an important topic. You said capital allocation and capital usage. We are very disciplined around how we use capital. And so if we are deploying any capital in these partnerships, we do that with a strong return in mind. But we've also said very clearly that we do not have anything on the horizon, the size of Britvic or anything like that. We're very disciplined about the use of capital. If any of these partnerships, as an example, Pepsi, if they involve capital, it's purely as a replacement for the organic CapEx we would have to do anyway ourselves. So we look at that in a very disciplined fashion around creating returns for our shareholders.

Then the next question comes from Simon Hales from Citi.

My first one, can I just come back to China and just sort of help me understand exactly what you're building into the guidance for the second half of the year. I think, Ulrica, on your closing comments, you said you didn't expect to see any improvement in the second half. And you've talked about the heavy destock we should see in Q3. Is the assumption that we continue to see a sort of minus 6% volume for the second half, obviously skewed to H2? Or is it a minus 3% volume for the second half, i.e., in line performance you saw. So just a bit of color on how we think about modeling that. And then my second question was going back to the Western European performance. Could you talk a little bit about sort of the volume momentum as we exited the quarter came into July? I'm just trying to understand how much of a weather benefit we've perhaps seen in both the Soft Drinks and the Beer business, given that the whole of Q2 was also impacted by things like Poland and the Easter unwind effect? And just associated with that, can you actually quantify -- I may have missed this, can you quantify how big the Britvic synergies were in H1 itself? You've given us the full year guide, but I'm not sure you've given us what you actually delivered in H1.