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Carlsberg Reports Lower Profit, Forecasts No Improvement

Carlsberg Annual Profit Drops as Russia Sales Weaken
Carlsberg’s Baltika unit is the biggest brewer in Russia, where increased levies on beer and more stringent regulation around alcohol sales is weighing on revenue. Photographer: Alexander Zemlianichenko Jr/Bloomberg

Feb. 20 (Bloomberg) -- Carlsberg AS, the world’s fourth-largest brewer, said full-year profit declined 4.2 percent 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 ($1.74 billion) last year, the Copenhagen-based company said today, 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 ($781 million).

Carlsberg rose as much as 3.7 percent in Copenhagen trading after “it took the market some time to realize 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 percent of Baltika, Russia’s biggest brewer, which has struggled with increased levies on beer and more stringent regulation of alcohol sales in Russia.

Carlsberg was up 3.5 percent at 444.1 kroner as of 12:16 p.m., reversing a decline of as much as 3 percent.

Russian Contraction

The brewer said 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.

Russia’s beer market contracted by about 3 percent last year, Carlsberg estimated. The brewer’s market share in the country slid to 37.4 percent in 2011 from 39.2 percent in 2010, it said, citing data from Nielsen Holdings NV. Market-share losses were due to increasing prices earlier than competitors, which engaged in high levels of discounting, Carlsberg said.

“We see the greatest risk for Carlsberg into 2012 that it continues to lose volume share in Russia,” Melissa Earlam, an analyst at UBS AG in London, wrote in a note published before the results were released.

‘Not Satisfactory’

Chief Executive Officer Joergen Buhl Rasmussen said today 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 percent from a year earlier, then slid 17.7 percent in January, according to the Federal Service of State Statistics of Russia. Carlsberg’s fourth-quarter organic revenue rose 11 percent.

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,” Carlsberg said.

Operating profit last year was in line with the 9.78 billion-kroner median estimate of eight analysts surveyed by Bloomberg, though less than the company’s forecast for profit on that basis of about 10 billion kroner.

Cost of Production

Net revenue at Carlsberg was 63.6 billion kroner, a so-called organic increase of 6 percent. That beat the average estimate for growth of 5.4 percent. Organic revenue excludes acquisitions, disposals and currency fluctuations.

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.”

To contact the reporter on this story: Clementine Fletcher in London at

To contact the editor responsible for this story: Sara Marley at

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