Copenhagen — Strong growth in China for Carlsberg helped dilute the negative effects of currencies and lower volumes in the Russian market, allowing the Danish brewer to stick to its annual profit forecast.
Sales in the first quarter fell 5% to 12.70-billion Danish krone ($2.06bn), below the 12.89-billion krone forecast in a Reuters poll of analysts.
However, it still expects mid single-digit organic growth in operating profit in 2018.
Carlsberg, the world’s third-largest brewer behind Anheuser Busch InBev and Heineken, continued to lose market share in Russia, where its Baltika brand accounts for about a fifth of sales.
Russian initiatives to discourage drinking have included banning the sale of beer in PET bottles, popular plastic bottles larger than 1.5 litres, which has hurt sales in Carlsberg’s biggest market.
"Our volumes grew in all markets except for Russia," CE Cees t’Hart said.
Losing ground to rivals
The decline in volumes in Russia reflected an overall market decline of about 4%-5%, he said, although Carlsberg was also losing ground to rivals. "Our market share decline in Russia accelerated during the year."
Carlsberg, which did not disclose earnings figures, said revenue was hit by a negative currency impact of 5%. Sales fell in both western and eastern Europe, with Asia accounting for the only region with sales growth. The Chinese market was a positive surprise, with sales up 16% and volumes increasing 9%, well ahead of analysts’ expectations. China in 2017 became Carlsberg’s largest single market in volume terms.
"We seem to have a momentum in China," Hart said.
The Chinese market is driven by international premium beer brands, which sell at two to three times the price of mainstream brands.
Closure of 19 breweries in western China and a push into big cities in the east had helped Carlsberg lift operating margins there to 14% -15% from about 6% two years ago, Hart said.
In 2015, the CE launched a cost-cutting programme and a strategy to revive growth, which has been subdued since the firm took over Baltika in 2008.
"We are supportive of management and cost cutting delivery, but for the equity story to push on the company now needs to demonstrate improvement in topline," Jefferies analyst Edward Mundy said.