Eastern Europe setback for brewer Carlsberg

Danish brewer Carlsberg has scrapped its profit margin target for eastern Europe, blaming volatile markets and rising costs, and damping hopes the region can offset sluggish demand in western Europe.

Shares in the world’s fourth-biggest brewer fell as much as 7 per cent yesterday after it said growth had stalled in its key Russian market and the cost of an efficiency drive in western Europe would hold back earnings growth this year.

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

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

Like bigger rivals AB Inbev, SABMiller and Heineken, Carlsberg is relying on emerging markets to offset weak beer sales in recession-hit western European markets as well as rising costs of energy and ingredients like barley.

The group, which makes just over 60 per cent of its sales in western Europe, has built up a market leading position in Russia. But its business there has been hampered 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.

Carlsberg, whose brands include Baltika and Tuborg, said its sales growth in Russia stalled in the fourth quarter. That was better than a broader market decline of 2-3 per cent, it said, but down from growth of about 2 per cent in the third quarter.

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“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 per cent for eastern Europe by 2015.

The group made an operating margin in the region of 21.7 per cent in 2011.

Carlsberg did give a longer-term target for average growth in adjusted underlying earnings per share of more than 10 per cent per year. However, it forecast operating earnings this year would reach only around 10 billion Danish crowns ($1.79bn) from 9.8 billion in 2012, lagging an average forecast of 11 billion in a Reuters poll of analysts.