November 13, 2013 / 1:31 PM / 6 years ago

Carlsberg still confident of Russia growth after third-quarter downturn

COPENHAGEN (Reuters) - Danish brewer Carlsberg A/S (CARLb.CO) is confident of a return to growth in key market Russia after regulations to curb alcohol abuse dented third-quarter results, although western European markets may not pick up for a year or two.

Carlsberg's company logo is pictured on a coaster in the bar in Riga, May 6, 2013. REUTERS/Ints Kalnins

Posting a 4.7 percent drop in quarterly operating profit on Wednesday, the world’s fourth-biggest brewer whose brands include Baltika, Tuborg and Kronenbourg said there was no reason yet to expect a return to growth in western Europe.

“There is nothing for us that indicates that consumers and the macro economies (in western Europe) will be much better in the short term, or in the next year or two,” Chief Executive Jorgen Buhl Rasmussen told Reuters.

But he said he was certain there would be growth again in Russia. “It is a question of when. This market certainly has growth potential,” Rasmussen said by phone, adding he expected Russians to continue replacing their consumption of strong alcohol with beer and wine.

Like its rivals, Carlsberg has expanded into emerging markets to counter slow growth in western Europe, but Russia, once the main growth driver, has been hit by government measures to curb alcohol abuse.

The group said it expected the Russian beer market - hampered by restrictions on the amount of beer which can be sold by stalls and kiosks 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.

“The kiosk closures are having a much worse effect than we had expected,” said Rasmussen. “Russia has definitely been more challenging than we had anticipated.”

Its shares traded up 2.3 percent by 1213 GMT as the brewer stuck to its 2013 financial guidance, which some investors had expected could be cut, a trader said.

“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.”


As the Russian market is squeezed, Carlsberg and peers such as Anheuser-Busch InBev (ABI.BR), SABMiller SAB.L and Heineken (HEIN.AS) have relied on Asia to provide growth.

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

Rasmussen has said growth rates in Asia will see a degree of slowdown but would still be good. Stripping out negative currency impacts, the group said organic net revenue grew by 8 percent in Asia in the quarter.

Carlsberg had on Tuesday appointed former Heinz executive Christopher Warmoth as head of its Asia unit, his main task being to spearhead growth by continuing to get consumers in Asia to drink more premium brands such as Carlsberg and Tuborg, as well as to make 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 25 percent of the company, a move that could help open the door for further Asian buys.

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 SAB.L, while Heineken (HEIN.AS) is 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 ($1.8 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 quarter, in line with average forecasts in a Reuters poll.

Group revenue fell 4.5 percent to 17.97 billion, missing forecasts.

($1 = 5.5507 Danish crowns)

Additional reporting by Stine Jacobsen; Editing by Elizabeth Piper and David Holmes

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