Carlsberg scraps targets after sales slide in Russia

DANISH brewer Carlsberg has scrapped its profit margin target for eastern Europe, blaming volatile markets and raw material costs, and damping hopes the region can offset sluggish demand in western Europe.

The world's fourth-biggest brewer said sales growth had stalled in its key Russian market and the cost of an efficiency drive in western Europe would cap earnings growth this year, sending its shares down as much as 7pc.

“The change in long-term financial targets is probably the most disappointing element in the report,” said Sydbank analyst Morten Imsgaard.

“It helps paint a picture of a brewery which is not entirely in control of factors which are decisive for earnings,” he added.

Carlsberg, like bigger rivals AB Inbev, SABMiller and Heineken, is relying on emerging markets to offset weak beer sales in recession-hit western Europe and help it cope with volatile prices for raw materials like barley, energy and packaging.

The group has built up a market-leading position in Russia in the hope its burgeoning middle classes will drive growth and reduce its reliance on western Europe, which currently accounts for just over 60pc of sales.

However, growth rates in Russia have been hurt by a government drive aimed at curbing alcohol abuse, with measures taken including excise tax increases and a ban on advertising in all media, including the internet.

“Several events, both within and beyond our control, have and will continue to impact margins,” Carlsberg said as it scrapped its target for an operating profit margin of 26-29pc for eastern Europe by 2015.

The group made an operating margin in the region of 21.7pc in 2011.

Carlsberg did give a longerterm target for average growth in adjusted underlying earnings per share of more than 10pc per year.

However, it forecast operating earnings this year would reach only around 10 billion Danish crowns (€1.35bn) from 9.8 billion in 2012, lagging an average forecast of 11 billion in a Reuters poll of analysts.

“The guidance they give for 2013 is not particularly aggressive,” said Alm Brand analyst Stig Nymann. “I don't really see anything positive.”

Carlsberg said an efficiency drive in western Europe, which includes centrally managing all procurement, production, planning and logistics, would hurt in the short term.

Carlsberg shares were down 6.9pc at 561 crowns, the biggest fall by a European blue-chip stock. (Reuters)