Carlsberg seeks to cut costs amid tough conditions

Carlsberg seeks to cut costs amid tough conditions

Carlsberg may cut jobs at its global headquarters in Denmark as part of a plan to cut costs.

The brewer is under pressure amid a weaker-than-expected performance so far in 2011, higher raw materials prices and a downturn in the general economic outlook for Western Europe. Subsequently, a spokesperson for the brewer told just-drinks today (29 November), the group is seeking to cut further costs in its business.

He said that "there might be redundancies in the Copenhagen headquarters" in Denmark. "According to Danish Law," the spokesperson said, "a negotiation committee has been established between management and employees. While these negotiations continue, we have no further comments to make."

For the nine months to the end of September, Russia's weak beer market was primarily responsible for Carlsberg reporting a 15.5% drop in group net profits, to DKK4.7bn (US$871.6m). Net sales, however, rose by 4.4% on the same period of 2010.

The brewer also experienced tough times in Western Europe. In the third quarter, higher raw materials costs sent Carlsberg's operating profits in the region down by 8%, to DKK1.79bn, with net sales down by 2%. Over the nine months, operating profits in Western Europe were flat against the previous year.

Moving into 2012, the impact of the eurozone crisis and higher barley costs are expected to continue to squeeze Europe-centric brewers, such as Carlsberg and Heineken. Analyst group Sanford Bernstein said last week that malting barley prices are still 30% above levels at the same point of 2010, despite falling prices in recent months.

Meanwhile, Russia is expected to have to import malting barley in 2012, which will maintain pressure on brewers' input costs in the country. In Western Europe, Bernstein said, brewers will likely need to raise beer selling prices by 3% in 2012, just to offset higher grain costs.

In terms of cost-cutting, Carlsberg may get some respite if it can agree a redevelopment deal for its old brewery site in Copenhagen. 

In its nine-month statement, the brewer said: "Monetising the value of redundant assets which are no longer used in operations, including the Copenhagen brewery site, remains an important opportunity to provide additional capital to the Group and enhance return on invested capital."

For the Copenhagen site, the brewer said that it has two large Danish investors on-board, who will hold 25% and 20% of the redeveloped site. Carlsberg envisages that it will own 25% of the new site, but plans cannot go ahead until investors are found for the remaining 30% of the redevelopment project.