Carlsberg reduced its price on its namesake lager in Russia last year

Carlsberg reduced its price on its namesake lager in Russia last year

"So far, so good," was the verdict from Bernstein analyst Trevor Stirling yesterday after Carlsberg posted its first-half results this week.

Indeed, the Danish brewer's performance won widespread praise from analysts keen to highlight the group's encouraging margin expansion across all of its regions. With operating profits up 20% on a 2% sales increase, it seems Carlsberg's cost-cutting initiatives and premium focus is paying off.

But, as Stirling's comment suggests, there's still a way to go before Carlsberg can erase the memory of a difficult few years that led to widespread cuts across its European network. One solid six-month performance won't reverse brewery closures or workforce redundancies, especially - as Stirling points out - when a far more difficult six months loom ahead.

That Carlsberg has retained its full-year outlook of 4% to 7% organic operating profits growth despite a 15% jump in H1 shows that management are also wary of the future. Much of that caution, says Stirling, is down to A&P costs for H1 that were much smaller than for the same period last year, when Carlsberg sponsored the Euro 2016 football tournament. According to Stirling, that phasing was worth "a few hundred million" Danish Krona in the six months.

There are also ongoing issues in Russia, compounded at the start of this year by a ban on PET beer bottles bigger than 1.5 litres. The ban forced brewers - already struggling with a declining market - to overhaul their packaging sizes, with many, including Carlsberg reverting to a 1.42 litre bottle. In a way, however, the change added to Carlsberg's impressive margin expansion in Eastern Europe (3.2 percentage points). In a call with analysts yesterday, CEO Cees 't Hart said the PET ban caused an estimated 5% drop in volumes. But Carlsberg raised its prices on the 1.42-litre bottle, giving it a price premium of as much as 40% against some competitors.

This premium, however, is "of course, not sustainable", 't Hart admits, and Carlsberg is set to monitor the market over the coming months. This is likely to mean price cuts for the 1.42-litre bottles. Add to that a price decrease for Carlsberg last year, and margins to the end of the year could well be under pressure. Stirling predicts a two-percentage-point contraction in H2 for Eastern European operating margins, plus a volumes fall of as much as 20%, far outstripping the 9% drop in H1. 

Yesterday's first-half results may have relieved the pressure on Carlsberg, then, but the group is not out of the woods yet.

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