Insight - Carlsberg calms fears of Russia tax rise

By | 5 August 2009

Carlsberg has sought to calm concerns that Russia's Government is planning to plug a budget deficit by tripling excise tax on beer.

A draft proposal recommending that tax on beer is raised by up to three times its current level is one of several proposals that have been put before the Russia Government for its 2010 Budget.     

Speaking at the Carlsberg first half results conference today (5 August), the brewer's Eastern Europe head, Anton Artemiev, attempted to calm fears of a rise.

Carlsberg has large exposure to the Russian beer market, via its ownership of Baltika, which is the country's leading brewer.

"It remains to be seen what will happen," said Artemiev, adding: "In the past, there has been every year a different number of proposals and, so far, the extreme one never went through."

Commenting on the proposal to triple excise tax on beer but leave tax on vodka level, Artemiev said: "This is so illogical that it certainly requires a discussion and I'm sure that this discussion will take place." He added: "It would be a very negative decision for the industry as a whole. I think we will raise our voices to communicate that in the best possible way to the decision makers."

Carlsberg today cut its forecast for the Russian beer market in 2009, following a worse-than-expected first six months of the year. Full-year beer market decline is likely to be 5-6%, compared to a previously expected 2% fall, the brewer said.

Despite this, Carlsberg said that it remains confident of margin expansion in Eastern Europe and the group reaffirmed its full-year earnings and cash flow guidance.

Higher prices, efficiency savings, lower capital investment and synergies from the acquisition of Scottish & Newcastle's business boosted Carlsberg's earnings and finances in the first half of 2009.

"Our whole thought process has been to mitigate market challenges by implementing efficiency improvement measures," said Jørn Jensen, group chief financial officer. The brewer did not offer specific examples of cost savings measures.

Capital expenditure for the full-year is expected to be DKK3.75bn (US$726m), down from DKK5.2bn in 2008.

The group said that "we see no need" for refinancing measures in the medium term, even should the firm fail in its plan to further reduce debt.

In its markets, as well as decline in Russia, Carlsberg said it expects markets in Western and Northern Europe to continue to shrink in the second half. It added that a shift from on- to off-trade is prevalent in nearly all markets in which it operates.

In the first half, the relaunch of Kronenbourg 1664 in France helped the firm to boost market share in the country. The brewer also said that it gained market share in the UK, as well as all Nordic markets, apart from Norway. Poland, the group added, presents "short-term challenges", while the Baltic countries continue to suffer some of the worst effects of the global economic downturn.

Sectors: Beer & cider

Companies: Carlsberg, Baltika

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