Carlsberg hit by rocky Russian market and rising costs

Mon Feb 18, 2013 8:31am EST
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By Mette Fraende

COPENHAGEN (Reuters) - Danish brewer Carlsberg (CARLb.CO: Quote) has scrapped its profit margin target for eastern Europe, blaming volatile markets and raw material costs, and damping hopes the region can offset sluggish demand in western Europe.

The world's fourth-biggest brewer said on Monday sales growth had stalled in its key Russian market and the cost of an efficiency drive in western Europe would cap earnings growth this year, sending its shares down as much as 7 percent.

"The change in long-term financial targets is probably the most disappointing element in the report," said Sydbank analyst Morten Imsgaard.

"It helps paint a picture of a brewery which is not entirely in control of factors which are decisive for earnings," he said.

Carlsberg, like bigger rivals AB Inbev (ABI.BR: Quote), SABMiller SAB.L and Heineken (HEIN.AS: Quote), is relying on emerging markets to offset weak beer sales in recession-hit western Europe and help it cope with volatile prices for raw materials like barley, energy and packaging.

The group has built up a market-leading position in Russia in the hope its burgeoning middle classes will drive growth and reduce its reliance on western Europe, which currently accounts for just over 60 percent of sales.

However, growth rates in Russia have been has been hurt by a government drive aimed at curbing alcohol abuse, with measures taken including excise tax increases and a ban on advertising in all media, including the internet.

"Several events, both within and beyond our control, have and will continue to impact margins," Carlsberg said as it scrapped its target for an operating profit margin of 26-29 percent for eastern Europe by 2015. The group made an operating margin in the region of 21.7 percent in 2011.   Continued...

A bartender serves a glass of Carlsberg beer at a bar in Kuala Lumpur, July 4, 2012. REUTERS/David Loh