Comment - First Half Sets the Scene for Carlsberg's 2010
It's great when you're Carlsberg, yeah? Well...
At first sight, Carlsberg would appear to have enjoyed a bumper first half of 2010. Upon delivering a whopping 57% leap in net profits for the period, the Denmark-based company went on to double its earnings guidance for the full-year. It would appear, then, that there is currently nothing rotten in the state of Denmark. But, is the future really as bright as Carlsberg suggests?
Staff at Carlsberg will no doubt be in high spirits today (17 August), following the brewer's results announcement this morning. And, who would blame them? If earnings for this year are now expected to come in at twice as much as they were before the announcement, only the most pessimistic of Copenhagenites would not be pleased.
Amongst the back-slapping, however, there are some home-truths from the set of numbers that Carlsberg would do well to consider.
In keeping with many other brewers, Carlsberg did not benefit from the World Cup effect in the first half of 2010. The football tournament is historically a boom-time for beer companies, but this time round, any sales spikes for brewers have been few and far between. Organic volumes for Carlsberg in H1 slid by 3% year-on-year. Granted, the tournament only affected the last two weeks of the six-month period, but that fortnight saw more games than the second two weeks of the World Cup.
Also, as we have highlighted before, large televised sporting events in developed markets like Western Europe tend to be followed by a hangover period, as consumers admonish themselves for having been out so much more than usual. The rest of the Summer, then, may well be quiet in the French, German and UK on-trades.
Russia, meanwhile, has reverted to type in 2010, becoming once again the epitome of volatility. The Government's moves to curb alcohol consumption, coupled with its decision earlier this month to ban grain exports – hell, even the forest fires and subsequent smog encircling and engulfing Moscow – show clearly that Russia is still not a risk-free proposition.
Looking forward in the country, there are some tricky comparatives to navigate before 2010 is out. As retailers looked to bulk up on stock at the end of 2009, ahead of the tax rise, brewers saw Q4 volumes last year leap markedly. There will be no such fillip this Christmas, however.
Also, Carlsberg's Baltika unit in Russia is “largely unhedged” on malting barley, according to analysts at Sanford Bernstein. Rising raw material costs would seem a given for the division, then. Throw in increased A&P spend in the country – a must if Carlsberg is to maintain its momentum – and Russia will continue to provide headaches throughout 2010.
Giving the glass-is-half-empty schtick a rest for a moment, Carlsberg is well aware of which regions offer the brighter future.
Back in June, Carlsberg entered into a conditional agreement to increase its shareholding in Chongqing Brewery Co from its current 17.46% to 29.71%. The company is clearly looking east for the future. One can hardly blame Carlsberg: a 48% leap in operating profits from the region suggests that the brewer's executive team will be racking up the air miles to Beijing, Hanoi and Kuala Lumpur in the coming months.
While there can be little argument with Carlsberg's state of the union after the first half of 2010, the rest of this year still has more than its fair share of hurdles and rewards. The brewer may have got itself into a strong position, but the home straight will decide its final placing for 2010.
One of the first signs of madness, I was always told, is talking to yourself. If that's the case, then Larry Nelson may have finally lost it. Before we cart him off, though, let's listen in on his and...
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