Comment - Carlsberg looks East to its third pillar
Tuborg has rolled out across Asia
It is the end of a long 12 months for Carlsberg.
This time last year, poor H1 results saw the Danish brewer's share price plunge 18% because of falling volumes and a poor outlook in Russia. By January, the group's market share in the country had fallen to 36.8% prompting CEO Jørgen Buhl Rasmussen to promise it would improve by the end of the year.
In H1 results released yesterday (15 August), that share is up to 37.3%. That's still some way off the 39.3% at the beginning of last year, but it is at least heading in the right direction. Investors agree. Carlsberg's shares climbed 2% before the end of trading yesterday.
But where will Carlsberg grow from here?
Speaking during a conference call yesterday, Rasmussen said the company has a clear plan to increase market share but admitted the increase has come earlier than expected. Many of the problems anticipated for Russia last year are still present – rises in excise duty an alcohol advertising ban, a potential barring of PET bottles and a ban on selling beer from kiosks.
Carlsberg admitted last year that Russian drinkers had been trading down to cheaper beers since the introduction of higher taxes. However, a focus on premium beers has helped negate the problem with increased margins. In the most recent results, value share in Russia grew at twice the rate of volume share.
The advertising ban, which came into effect last month, may even play into Carlsberg's hands. Bans of this type often end up favouring stronger brands as they already have prominence on shelves and in consumers' minds. Anyway, Rasmussen said Carlsberg's marketing spend is unlikley to change much as funds will be directed into other channels, such as events and in-store activities.
The kiosk ban is similar, in that sales lost would simply filter through to other channels such as supermarkets. And Rasmussen dismissed talk of a PET bottle ban, saying he'd be surprised if it came into effect because it would touch so many industries, not just alcohol.
In the end, though, what Carlsberg needs is less reliance on the vagaries of Russian politicians to ensure market growth. It is the same in Europe, where the ever-unreliable weather has sunk hopes of recovery for all the major brewers.
Which is why Carlsberg's results in Asia have been of so much interest to investors looking for a third pillar to stablise the ship.
Three recent acquisitions in Vietnam, Laos and India doubled beer volumes in the region and both net sales and operating profit in the year's first-half jumped by 41%. Asia accounts for about 10% of Carlsberg's EBIT, but the company's announcement in June that it was building its second-biggest brewery in the south of China shows where it is looking for the future.
Dali prefecture, where the brewery will be, is way out in the mountains and far from China's biggest population centres. However, it is close to Myanmar and its trade routes to India. And with the Chinese government pouring cash into building roads through the previously impenetrable Laos, the markets of South-East Asia are now within trucking distance.
Back in February, Rasmussen said his company was on the hunt for acquisitions in Asia. Expect a lot more news from the region in the near future.
In the fourth part of Euromonitor's preview of 2013, alcoholic drinks analysts Spiros Malandrakis and Zsuzsa Szilagyi consider what the future holds for the world's brewers....
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