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Russian market hammers Carlsberg

The Russian market continued to hammer Carlsberg as the brewer reported a 20 per cent slump in organic operating profits to DKr3.3bn ($604m) in the third quarter.

The drop, flagged in an August profit warning, comes as Russian efforts to tackle alcoholism led to a 30 per cent jump in the price drinkers pay for their beer over 18 months. That, combined with soaring input prices and intense competition, has created a toxic cocktail for the industry.

While this year saw a bigger Russian barley harvest, the quality was poor. Consumer sentiment in the region, meanwhile, remains weak. Russia contributes 40 per cent of group profits.

J?rgen Buhl Rasmussen, chief executive officer, anticipates a rebound in volume growth at some point next year, although he said it was “too early” to make any forecasts on any improvements in margin.

Overall, the Denmark-based brewer is sticking by its full-year guidance for a slight dip in reported operating profit to DKr10bn and 5-10 per cent growth in net profits.

Net revenue fell 2 per cent year-on-year in the third quarter to DKr17.4bn and the underlying growth was flat. Net sales in Asia, the smaller part of Carlsberg’s portfolio, were up 20 per cent in the quarter, while organic operating profit was up 18 per cent.

China, the biggest Asian markets in volume terms, is one of the world’s less profitable beer markets. In Northern and Western Europe, net revenues were down 2 per cent.

Michael Steib, analyst at Morgan Stanley, reckoned Russian margins would bounce back somewhat – not least due to the arithmetic of improving off a lower base – but expects most of this to be invested back in sales and marketing activity to revive growth.

Carlsberg is also losing market share in Russia, from over 40 per cent in 2009 to under 37 per cent this year. “That’s obviously a worrying trend and to a degree challenges the view that Baltika [Carlsberg’s Russian arm] is an unassailable fortress in Russia,” said Mr Steib.

Last month Carlsberg replaced Anton Artemiev as its head for eastern Europe with Isaac Sheps, who heads up the UK business for Carlsberg. The switch will take place on December 1.

Carlsberg, which has invested more than $12bn in Russia since the 1990s, has had a bruising year so far. In August it issued a profit warning that sent its shares tumbling 17 per cent on the day.

14 Nov. 2011

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