Carlsberg has seen volumes in Eastern Europe fall

Carlsberg has seen volumes in Eastern Europe fall

It was more of the same for Carlsberg in its YTD results release yesterday as weakness in Eastern Europe continued to damage the bottom line.

Volumes in the region dropped 10% in the first nine months of the year compared to last year while shipments to Russia - the focus of Western sanctions implemented because of tensions over Ukraine - fell 11%.

Analysts, however, were slightly more upbeat about Carlsberg's short-term future in Russia than they were after first-half results, when the sanctions had not long been implemented.  

The reason for this is a perceived mellowing in the Russian government's thus-far firm intentions to crack down on the alcohol industry. In the past few years, legislators have increased duty tax and restricted advertising and retail channels, however Carlsberg CEO Jørgen Buhl Rasmussen told analysts on a conference call yesterday that he was aware of “more positive statements” on the regulations and that legislators will “maybe turn back” some of the laws.

Bernstein analyst, Trevor Stirling, offers more details today in a note, saying there was “slightly better news on the horizon for 2015” in Russia. 

He says a bill to freeze excise duty had already been read in Russia's parliament and a second reading is due in the next few weeks. Stirling expects the outcome of this to be “at worst a lower tax rise than last year and possibly none”.

But Carlsberg is still a long way from returning to an even keel in Russia. UBS analyst Jason DeRise says that “there remain more questions than answers” in what is Carlsberg's largest market” and although any easing of regulatory pressure would be positive, the country still faces big macroeconomic headwinds.

Lower global prices for oil, Russia's key export, and higher food prices could combine next year to damage beer sales in 2015, DeRise says. Carlsberg is “trading one headwind for another”, he adds as he likens the company to a ship steering though the fog.

Management, which can only deal with problems under its control, must hope that global currents ease Carlsberg safely through the gloom and away from the treacherous Russian reef.