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Not all is gloomy in alcohol's 'dark markets'

WE are in the midst of a very interesting debate in this country about the wisdom of allowing sports sponsorship by the makers of alcoholic beverages. As usual we tend to think that the issue is entirely a domestic one, but of course it is not.

A parallel issue is the question of whether liquor firms should be allowed to advertise freely or at all and much of the rest of the world is discussing this subject at the moment. It has even become a challenge for the marketing academies, who have invented a description for the world of alcohol promotion without the benefit of the traditionally large marketing spend. They call it the 'dark market'. This 'dark market' is one of the principal current preoccupations of our subject company this week, the Danish brewery giant Carlsberg, Europe's No 2 producer of beer.

I must admit there are adverts which live in the imagination. I remember a number of successful Carlsberg ads that have appeared over the years in this country, the most memorable being, I think, the 2002 advert which showed an imaginary Irish football team winning the World Cup and the immortal Jason McAteer waking up to the slogan, "Carlsberg don't do dreams, but if they we did, they would probably be the best dreams in the world."

You could easily get sentimental about certain types of advertising, but sentiment is being sent to the back of the stands at the moment in Russia, which happens to be a favourite market for Carlsberg since it bought out a leading St Petersburg brewery, Baltika, in 2008. The Danish corporation now has a 40pc share of the Russian beer market, along with significant market share in the former Soviet satellite states of the Baltic as well as Ukraine and Kazakhstan.

The Russian authorities are concerned by excessive and underage drinking and have imposed a ban on TV and internet advertising this year, and print advertising by early 2014.

One would think the outlook for Carlsberg would be grim, but apparently all is not lost in the 'dark market' if you are a dominant player. Norway has had a 'dark market' for some time, and it has been shown that margins are better in the 'dark market' than those with a more liberal policy, particularly if you are a dominant player.

Carlsberg was founded in 1847 by JC Jacobsen who named the company after his son, Carl. Today it has 41,000 employees, and is the fourth largest brewer in the world with premium brands like Carlsberg, Tuborg, Holsten, Kronenbourg, Baltika and Carlsberg Special (named in honour of Winston Churchill). I don't know what Churchill would have thought about the company's logo: a swastika (an Egyptian symbol of peace), which was quietly dropped in the '30s for obvious reasons.

Carlsberg is principally focused on western Europe, eastern Europe and Asia and, as I mentioned earlier, it made a big bet on Russia some five or six years ago. However, western Europe is the core market for the company and while it is the second largest brewer in Europe, the market is mature and declining. The Danes have to fight hard for market share. With revenue of DKK38bn (€5bn), it is reporting good gains in the Nordic countries, Poland, Portugal, Greece and Serbia. Elsewhere it is 'challenging'. The company also holds a dominant position in Eastern Europe with sales of DKK20bn. I mentioned already the market leadership in Russia and it also has strong positions in other markets, particularly the Ukraine. In Asia, the Carlsberg portfolio consists of mature and growing markets. Sales in 2012 were DKK9bn showing strong growth particularly in India, Cambodia, Vietnam, Nepal and Malaysia. Sales were driven not only by premium brands, but by local brands. Indeed, future growth and acquisitions will be in Asia.

Company sales in 2012 were DKK67bn with operating profits of DKK10bn, half from western Europe, two-fifths from eastern Europe, and Asia making up the remainder. The half-year results were mixed. Western Europe volumes were weaker than expected, Asia volumes slowed and the Russian story is mixed. Some analysts are of the opinion that the beer business is stodgy and needs innovation. Personally, I like the dividends.

Dr John Lynch is a former chairman of CIE. Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares.

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