Thursday 26 April 2018

Carlsberg Q3 profit hurt as Russia, Asia revenue weaken

Danish brewer Carlsberg
Danish brewer Carlsberg

Mette Fraende

Danish brewer Carlsberg reported falling operating profit in the third quarter, with eastern European sales hurt by falling consumption in Russia and much-needed Asian revenue stalled due to currency movements.

The world's fourth biggest brewer, like its rivals, has expanded into emerging markets to counter slow growth in western Europe, but the Russian market, once the main growth driver, has been hit by government measures to curb alcohol abuse.

Carlsberg said eastern Europe revenue fell by 21pc, much higher than a 9.6pc forecast, while Asia sales, which were expected to rise by 10pc, were flat.

It cut its forecast for the Russian beer market, hampered by restrictions on the amount of beer stalls and kiosks can sell and a ban on alcohol sales after 11:00 p.m., to decline by a high-single digit percentage this year, against a previous forecast for a mid-single-digit percentage decline.

As the Russian market declines, Carlsberg and its rivals such as Anheuser-Busch InBev, SABMiller and Heineken, have relied on Asia to provide growth.

"It is still looking grim for Carlsberg," said Alm Brand analyst Michael Jorgensen. "It is looking grim in eastern Europe and we saw a little weakness in Asia which is their only growth driver."

Companies ranging from brewers to carmakers and luxury fashion labels have pinned their hopes on Asia's growing middle classes to offset weak demand in Europe and the United States.

But with the world's second largest economy, China, slowing, investors question how long demand will hold up.

Carlsberg chief executive Jorgen Buhl Rasmussen has said that growth rates in Asia will see a level of slow down.

Sydbank analyst Morten Imsgard said, however, that Carlsberg had been successful in attempts to get Asian consumers to switch to more expensive premium brands as opposed to the cheaper local brands in its portfolio.

"But there is no way out if the markets slow down," he said.

Carlsberg said organic net revenue grew by 8pc in Asia in the quarter, but it was hurt by negative currency impacts.


On Tuesday, Carlsberg appointed former Heinz executive Christopher Warmoth as head of its Asia unit.

His main task will be to spearhead growth by continuing to get consumers in Asia to drink more premium brands such as Carlsberg and Tuborg, as well as to carry out acquisitions.

Last month, the brewer's main owner, the Carlsberg Foundation, said it wanted to drop a rule in its charter that it must own at least 25pc, a move that could open the door for further acquisitions in Asia.

Recent high deal multiples would most probably make any acquisitions expensive. Last year, Heineken paid a mammoth 35 times trailing earnings for control of Asia Pacific Breweries.

While Carlsberg has the leading market share in the smaller Asian markets of Nepal, Laos and Sri Lanka, its presence in larger markets is dwarfed by that of its bigger rivals.

China, the world's largest beer market by volume, is dominated by SABMiller, while Heineken s the leader in India, Malaysia and Indonesia.

Carlsberg kept unchanged its full-year financial guidance for a flat operating profit of around 10 billion Danish crowns ($1.80 billion) and mid-single-digit percentage growth in adjusted net profit from last year's 5.60 billion.

Operating profit (EBIT) before special items fell to 3.43 billion crowns in the July to September quarter, in line with an average forecast for 3.47 billion in a Reuters poll of analysts. Group revenue fell 4.5 percent to 17.97 billion, missing forecasts in the poll.

Carlsberg shares rose 2.8pc at 0838 GMT, against a 0.2 percent rise in the Copenhagen stock exchange's benchmark index .OMXC20CAP.

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