Carlsberg profits decline over Russian weakness

Carlsberg, the world’s fourth-largest brewer, says full-year profit declined 4.2% because of a weaker Russian market and forecast no improvement this year as sales fall in northern and western Europe.

Operating profit, excluding some items, fell to 9.8 billion kroner (€1.32bn) last year, the Copenhagen-based company said yesterday, adding that earnings on that basis this year will be “at the level of 2011”. Carlsberg also said it plans to acquire the minority shares in its Russian Baltika unit at a maximum cost of 4.4 billion kroner (€594m).

Carlsberg rose as much as 3.7% in Copenhagen trading after “it took the market some time to realise that guidance was just cautious and that there was nothing nasty lurking in the background”, said Trevor Stirling, an analyst at Sanford C Bernstein in London.

Buying the rest of Baltika will be “immediately earnings-enhancing” and provide “greater operational flexibility”, the company said. Carlsberg owns 85% of Baltika, Russia’s biggest brewer, which has struggled with increased levies on beer and more stringent regulation of alcohol sales in Russia.

The brewer said that it expects “modest growth” in the Russian market this year, while northern and western Europe will show low single-digit declines, and Asian markets will probably grow.

Economic turmoil across Europe and Russian regulation have weighed on sales at Carlsberg, which cut its full-year profit forecast in August after bad weather in the region and high commodity prices reduced profitability.

Chief executive Joergen Buhl Rasmussen said yesterday that Carlsberg is in a better position to reverse Russian share losses. Speaking in a Bloomberg television interview, the CEO described last year’s decline as “not satisfactory”.

Sales in Russia got a temporary boost in the fourth quarter as suppliers and drinkers stocked up on beer in advance of a Jan 1 tax increase. Beer production in December rose 17.6% from a year earlier, then slid 17.7% in January, according to the Federal Service of State Statistics of Russia. Carlsberg’s fourth-quarter organic revenue rose 11%.

The Danish brewer said it will make a voluntary offer for the remaining outstanding shares of Baltika and will delist the unit from trading “as soon as possible”.

The cost of increasing ownership will be as much as 6.5 billion kroner, with the maximum net cost being less “due to a positive impact from financial arrangements”, said Carlsberg.

The brewer expects “low single-digit” increases in the cost of goods used to produce beer, Rasmussen said on a call with analysts. Prices of commodities including malting barley, a key beer ingredient, have risen, especially in eastern Europe because of disappointing harvests last year.

Carlsberg, which increased its interests in companies in China, India, Vietnam and Laos last year, said it will “explore acquisition opportunities in growth markets.”