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Declining Russian Beer Market Undermines Carlsberg’s Profits

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Declining Russian Beer Market Undermines Carlsberg’s Profits

Declining Russian Beer Market Undermines Carlsberg’s Profits
August 17
14:19 2011

The continuing decline in beer consumption in Russia, Carlsberg’s largest market, has impacted the Danish brewer’s financial performance in the first half ended June 30th 2011 and forced a review of its full year projections. Although Carlsberg achieved beer volume growth  of 5% and increased net revenue by 8% to DKr31.3b (Eur4.2b) during the period, operating profit declined by 5% to DKr4.7b.

 

Despite an improved Russian macro economic environment, the beer market in Russia declined by approximately 1% for the first six months and by 2% in the second quarter. Over the past 18 months, consumer prices on beer have been increased by an average of 30% reflecting the duty increase. Russian consumers have not yet fully adjusted to these substantially higher price levels resulting in an extended period of declining consumption delaying the overall recovery of the Russian beer market. Furthermore, unfavourable weather conditions during the second quarter also impacted consumption negatively.

 

Jorgen Buhl Rasmussen, chief executive of Carlsberg.

Overall, Carlsberg’s group beer volumes grew by 5% to 58.3m hl with 4% organic growth but with large variations between regions. Northern & Western European volumes grew organically by 1% and Eastern Europe by 5%. Asia continued its strong expansion and delivered 10% organic beer volume growth.

 

As expected, operating profit was impacted by higher input costs and sales and marketing investments across the group. Eastern European operating profits were further impacted by higher logistics costs and the Russian market development being below expectations. The Asian and Northern & Western European regions delivered good organic operating profit growth in both the first and second quarters. Group net profit was DKr 2.2b compared to DKr2.7b in the corresponding period in 2010.

 

Carlsberg is now forecasting a low single-digit decline in the Russian market for 2011 (against previous growth expectation of 2-4%). As a result of this, the brewing group has revised its 2011 earnings expectations. Group operating profit before special items is now expected to be around DKr10.0b compared to DKr10.25bn in 2010 and against previous expectation of high single digit percentage growth. Similarly, adjusted net profit growth is now expected to be 5-10% against previous expectation of more than 20%.

 

“With the adjustments we’re making to our local portfolio, channel approach and forward pricing strategy, I’m confident that our Russian business will return to growth,” says Jorgen Buhl Rasmussen, chief executive of Carlsberg. “At the same time, I’m pleased with the performance of the rest of the group. In the first six months we have continued our relentless focus on driving efficiencies as well as long-term sales value growth.”

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