By Clemens Bomsdorf
COPENHAGEN--The political strife in Ukraine pushed Carlsberg
A/S, one of the world's biggest beer makers, to issue a profit
warning after it swung to a net loss on Wednesday, citing a weak
ruble and uncertainty in Russia.
The Danish brewer has built up a significant exposure to Russia
in recent years, driven by beer brands such as Baltika and Tuborg,
amid a wider bet it has placed on Eastern Europe. Russia is now its
largest single market.
The world's No. 4 brewer downgraded its full-year outlook for
net performance to reflect Russia's fragile economic situation,
saying it now expects net profit to grow by a low-single-digit
percentage in 2014, instead of the mid-single-digit percentage it
previously expected. The ruble's weakness against the euro, along
with currency headwinds in some other markets, is a key reason
behind the downgrade.
Carlsberg was also hit by poor weather conditions in China and a
weak economy in Vietnam. It said organic growth conditions,
excluding the impact of foreign exchange, remains strong and the
performance of its premium labels is strengthening.
"Included in the outlook is a more uncertain macro situation in
Russia and Ukraine," the company said. Interruptions in Ukraine
were very limited through March 31, but the brewer has had to stop
production at times in recent months and the government at the
beginning of May boosted beer excise duties by 43%, leading to
price increases of 5% to 6% for Carlsberg products.
The company reported a 14% net revenue decline in Eastern Europe
in the first quarter compared with a year earlier, and its overall
operating profit fell by about a third.
Even before the crisis in Ukraine, which has affected many
European companies with a presence in Russia, brewers were
struggling due to regulatory changes and other factors that pulled
the overall Russian beer market down. Last month, Dutch brewer
Heineken NV, one of Carlsberg's main rivals, reported a 37% fall in
first quarter net profit, citing "challenging beer market
conditions in Russia."
The evolving political crisis underscores the risk that
multinational companies have often feared when plowing into Russia.
Carlsberg shares fell nearly 1% early Wednesday in Copenhagen,
exchanging hands at 530.50 Danish kroner ($98.99), rebounding from
a deeper decline earlier in the session.
Carlsberg has been working for several years to offset its
dependence on a stagnant Russian market by expanding into other
emerging markets, including Asia, where volumes can be robust.
Western European demand, meanwhile, remained strong, according to
the company.
The company posted a net loss of 50 million kroner ($9.21
million), down from a profit of 95 million kroner a year earlier.
Operating profit fell 32% to 453 million kroner during the period,
falling well below expectations of 749 million kroner, according to
a Reuters poll of analysts.
Overall sales edged up 1.5% during the period to 12.9 billion
kroner.
Group beer volumes for Carlsberg declined 3% during the first
quarter, as organic growth in Western Europe was offset by declines
in Eastern Europe and Asia. In addition to unfavorable weather
conditions in Asia, Carlsberg also pulled back from unprofitable
volumes during the quarter.
Overall net revenue in Asia, however, was boosted significantly
due to recent acquisitions. Carlsberg consolidated Chongqing
Brewery Co. of China in the first quarter. China is particularly
important to the industry's biggest competitors because it is the
world's largest regional beer market and one of the
fastest-growing.
Write to Clemens Bomsdorf at clemens.bomsdorf@wsj.com
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