Carlsberg Sets Out Strategy to Counter Weak Earnings

Carlsberg A/S plans to try to turn around its Russia business and return cash to shareholders, as part of a broad business strategy the world's fourth largest brewer laid out on Wednesday.

The Danish brewer said it would work to improve its sales in Russia, where it sells beer brands such as Baltika, Nevskoe and Zatecky Gus.

Carlsberg has struggled for years with declining profits in Eastern Europe, especially in Russia, as law changes intended to curb alcohol consumption, Western sanctions and a generally deteriorating economic climate have put pressure on sales.

Russia is one of the world's largest beer markets and Carlsberg says its market share in the country is 38%.

Carlsberg also set a dividend payout ratio of 50%, once it reaches a certain debt to earnings ratio. The company plans to distribute any excess cash to shareholders via buybacks or special dividends, but cautioned that it could choose to use the money for an acquisition should a suitable one arise. Chief Executive Cees't Hart, who took the helm in June, indicated last year that Carlsberg was unlikely to bid for major assets soon.

But shares fell 2.5% in morning trading in Copenhagen as investors appeared disappointed by parts of the strategy, which didn't include firm targets on margins or return on invested capital.

"It sounds sensible but hardly revolutionary," said RBC analyst James Edwardes Jones. Still, he said the company's commitment to returning cash to shareholders "marks a real shift in tone."

Carlsberg plans to streamline its brand portfolio in its core markets, hinting at possible divestitures or phasing out of certain beer brands.

Mr. Hart announced cost-cutting measures in November, targeting annual savings on between 1.5 billion and 2 billion kroner ($223 million-$297 million) by 2018. On Wednesday, the company said half of those savings would be used to fund the initiatives outlined in its 2022 plan and the other half would be used to grow earnings, particularly in Western Europe.

As part of an overarching strategy it plans to deliver by 2022, Carlsberg said it will focus on growing in China, Vietnam and India where it plans to launch new product and expand its footprint. The company plans to push its line of non-alcoholic beer, in both existing and new markets. It will focus on big cities and push harder in craft beer, a relative growth area for the beer industry. Carlsberg also said it would put muscle behind growing in China, Vietnam and India, where it plans to launch new products and expand its footprint.

"We now have a set of clear strategic and financial priorities," said Mr. Hart.

Exane BNP Paribas analyst Eamonn Ferry said he liked the fact that two of the three financial metrics Carlsberg said it would aim to find a balance between—market share, gross profit after logistics margin and operating profit—are profit focused, adding that he expects "a significant ramp in the dividend very soon and then cash returns thereafter."

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

March 16, 2016 07:25 ET (11:25 GMT)

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