Carlsberg has warned its profits are likely to take a tumble this year due to increasing tensions between the Ukraine, Russia and the West.
Carlsberg Group CEO, Jorgan Buhl Rasmussen
Announcing its interim results today, the brewer warned sales in Russia will be affected by a slowdown in the economy as President Putin continues to place trade restrictions on food and drink from the West.
More than a third of its profits are generated in Russia with the brewer describing the outlook for its markets in Russia and Eastern Europe as “increasingly challenging and uncertain”.
It said the Russian beer market had declined “more than previously expected” and that as such there would be “considerably less stocking” of its products in Russia.
Carlsberg said its Russia beer volumes declined by between 6% and 7% in the second quarter due to the “uncertain macroenvironment” and “weak economic development”, while Ukrainian beer consumption dropped 10% amid the crisis in Eastern Europe.
In a video conference call broadcast today, Jørgen Buhl Rasmussen, the company’s chief executive, said: “We will continue to do what is right for our business long-term, and this includes investing in our brands, keeping commercial activities at a high level and at the same time balancing value and volume.
“But we will also make tough decisions and adapt the cost structure to ensure that we maintain a strong and very profitable Eastern European business.”
The company had initially forecast a small growth for this financial year, however it has since adjusted its net profit prediction expecting them to decline by “mid- to high-single-digit percentages” owing to continued tensions in Russia.
Speaking to the drinks business, Joshua Raymond, chief market strategist of cityindex.co.uk, said: “Russia is crucial to Carlsberg. Its where 35% of the firms profits originate from and the deteriorating economic conditions in the country, alongside the progressively stricter sanctions being placed on it by the west, and Russians own food import restrictions has sapped demand.
“The headlines may state that sanctions hurts Carlsberg but in reality it’s the worsening Russian economy that’s hurt demand for Carlsberg products and this is the crux of where the profit warning has come from.”
Looking to the second half of the year, Carlsberg predicted a “flat to slightly declining” beer market in Western Europe and a “high single digit” percentage decline to its Russian beer market.
Overall Carlsberg reported an overall rise to its net revenue of 4% to DKK 32.1bn (£3.5bn), while its net profits were flat at DKK 2.2bn.