CARNIVAL PLC

CARNIVAL PLC Annual Report: A Clear View for Investors

Carnival PLC, a global leader in the cruise industry, has released its latest annual report, offering crucial insights into its performance, strategic direction, and financial health. This summary distills the key takeaways for retail investors, highlighting what drives the company and what to watch for.

1. Business Overview Carnival operates a vast fleet of cruise ships under multiple renowned brands. It earns revenue primarily from passenger ticket sales and significant onboard spending (such as drinks, excursions, and retail). The company's strength comes from its diverse brand portfolio, which caters to various market segments, and its extensive global reach. North America leads as its largest market, with Europe and Australia following. Carnival maintains its position as one of the world's largest cruise operators, competing globally with major players like Royal Caribbean Group and Norwegian Cruise Line Holdings, as well as smaller, niche operators.

2. Financial Performance: Revenue, Profit, and Growth Carnival achieved a strong financial recovery this year. Revenue soared to approximately $21.6 billion, a substantial 22% increase over the previous year, driven by robust demand and improved pricing. Passenger capacity, measured by Available Lower Berth Days (ALBDs), increased modestly by 3%. Meanwhile, occupancy rates rebounded to an impressive 98%, nearing pre-pandemic levels. Net yields (revenue per passenger per day) also grew by a healthy 8%.

The company's financial turnaround is clear. Carnival reported a net income of $1.8 billion for the year, a significant improvement from a net loss of $500 million in the prior year. This resulted in Diluted Earnings Per Share (EPS) of $1.45, a positive shift from a loss per share previously. The "Cruise Passenger Tickets" segment contributed approximately 70% of total revenue, with "Cruise Onboard and Other" contributing the remaining 30%.

3. Strategic Moves & Operational Achievements This year, Carnival focused on streamlining operations and concentrating on its core cruise assets. The company classified its interests in FloatingDocksSDeRL and GrandBahamaShipyardLtd. as "discontinued operations," with full disposal expected by June 30, 2025. This move aims to enhance capital efficiency and sharpen Carnival's focus on its primary cruise business.

In addition to asset sales, Carnival successfully launched two new ships, the Sun Princess and Sun Princess II. These additions modernize its fleet and expand capacity in key markets. The company also significantly improved cost management, achieving $150 million in annualized savings through operational efficiencies.

4. Financial Health: Cash, Debt, and Liquidity Carnival's balance sheet reflects significant debt management alongside improved liquidity. As of year-end, the company held $3.5 billion in cash and cash equivalents. Total debt remains substantial at approximately $32 billion, a slight reduction from $34 billion last year, reflecting ongoing deleveraging efforts. Its diverse debt structure includes secured and unsecured notes, fixed-rate bonds, and floating-rate bank loans (tied to SOFR/Eurodollar).

Carnival also maintains $2.5 billion in undrawn revolving credit facilities, boosting its liquidity. Approximately $6 billion in key debt matures in 2025, primarily convertible notes due in December. The company generated $4.2 billion in cash flow from operations, largely funding $2.8 billion in capital expenditures for fleet enhancements and new builds.

5. Key Risks for Investors Even with a strong recovery, investors should consider several key risks:

• High Debt Load: Despite deleveraging, the substantial $32 billion debt, particularly the $6 billion due in 2025, requires careful management. Refinancing risks persist if high interest rates or deteriorating market conditions continue.
• Geopolitical and Health Events: The cruise industry remains highly sensitive to global events like geopolitical tensions, economic downturns, and potential health crises, which can rapidly impact booking volumes and operating costs.
• Fuel Price Volatility: Fuel is a major operating expense. Significant fluctuations in oil prices could impact profitability.
• Regulatory and Environmental Compliance: Increasing environmental regulations (e.g., decarbonization targets, waste management) could lead to higher compliance costs and capital expenditures for fleet upgrades.
• Consumer Discretionary Spending: As a discretionary leisure activity, cruise demand is sensitive to consumer confidence and broader economic conditions.

6. Competitive Position Carnival holds its position as one of the world's largest cruise operators, competing globally with major players like Royal Caribbean Group and Norwegian Cruise Line Holdings, alongside smaller, niche operators. Its competitive strength stems from a diverse brand portfolio that serves various market segments and its extensive global reach. Carnival continues to invest in fleet modernization and guest experience to differentiate itself in this competitive market.

7. Future Outlook and Strategic Vision Carnival commits to long-term growth and sustainability. Management projects 5-7% continued revenue growth and an increase in adjusted EBITDA for the upcoming fiscal year, driven by strong booking trends and new capacity. The company has secured export credit facilities totaling $3.5 billion to finance future newbuilds, including additional vessels beyond the Sun Princess series, with financing terms extending as far as 2037. This highlights a strategy of measured capacity growth and fleet renewal.

Management's strategic priorities include maximizing revenue yields, controlling costs, and continuing to reduce debt. They also heavily focus on sustainability initiatives, aiming for significant carbon emission reductions and improved waste management across the fleet. Strong booking trends for the upcoming year suggest continued positive momentum.

8. Market Trends & Regulatory Environment The cruise industry benefits from a strong rebound in travel demand, especially for experiential vacations. However, it faces headwinds from persistent inflation impacting operating costs and consumer purchasing power, alongside higher interest rates affecting financing costs. Regulatory scrutiny, particularly regarding environmental impact and passenger safety, continues to intensify, demanding ongoing investment in compliance and sustainable technologies. Carnival actively monitors and adapts to these evolving market and regulatory dynamics.