Carlsberg faces "rollercoaster" year

Carlsberg faces "rollercoaster" year

Russian consumers, not to mention legislators, are holding the chips for Carlsberg in 2011, just as they did in 2010.

Unless you've been living under a rock, you'll know that Russia's beer market has endured a couple of torrid years, initially hampered by the country's economic plight and, then, knackered by a three-fold increase in beer excise duty.

Unsurprising, then, that nearly all observers honed in on Russia as the maker or breaker of Carlsberg's year in 2010. A plethora of headlines have appeared following Carlsberg's full-year results this week, largely pointing the finger at Russia for causing a 3% drop in the brewer's like-for-like sales. The group itself said that a 5% drop in volume sales for the year was entirely due to Russia.

It's true that demand for beer declined in Western Europe, too, but that's a given these days. Meanwhile, Asia motored for the Denmark-based brewer, but it only accounts for 16% of group volumes and 9% of profits.

Eastern Europe, by contrast, accounted for around 45% of Carlsberg's profits in 2010, largely due to its ownership of Baltika Breweries, which leads the Russian beer market with a 40% volume share.

As such, all eyes are again on Russia in 2011. Carlsberg expects the market to return to volume growth for the year, of between 2% and 4%. But, there are a large number of variables.

Analyst group Sanford Bernstein believes that Carlsberg is in for a "rollercoaster year", due to the topsy-turvy nature of Russia's beer market. Bernstein predicted Carlsberg's Russian volumes will rise by 20% in the first quarter of the year, predominantly due to very low comparative sales at the start of 2010, when the tax hike was introduced. 

From there, things should settle a little. Bernstein forecast volumes to grow by 4% in the second quarter, although it predicted a 1% decline in the second half of the year. However, it remains unclear how the Russian Government's move to redefine beer as an alcoholic drink will restrict sales in the country.

On the flip-side, is it possible that rising oil prices will boost the Russian economy and, therefore, consumption in the country?

At the same time, though, Carlsberg is one of the most exposed of the major global brewers to raw materials price rises and this is expected to hit operating margins as the year progresses. In August 2010, Russia banned grain exports due to a poor domestic harvest, which has played into a general trend for rising raw materials prices around the world. The UN's global food price index reached a record high last month. 

"We expect 2011 to be a rollercoaster of contrasting quarterly comps, but model profits slightly ahead of guidance," said Bernstein of Carlsberg's 2011. More positively, it added: "There may be light at the end of the tunnel in 2012, assuming a close-to-normal grain harvest in Russia."     

Carlsberg is all set for an eventful, if unpredictable, year.