Carlsberg prepared for a protracted decline of the beer market in Russia

Moscow. November 11. The continuing decline of the beer market in Russia and severe macroeconomic conditions in the country forced the Danish Carlsberg Group to reassess the Russian business.

Carlsberg, the largest beer producer in Russia, believes that market conditions will remain unfavourable for the next few years, thus, sales of beer continue to fall, and this has a negative impact on profit in Russia. In this regard, the company will require further restructuring of the production chain.

Carlsberg predicts that by the end of 2015 the share of Russian business in operating profit will have less than 20% (by the end of 2014, the contribution of Russian business in the operating profit of the group decreased to 25% due to the devaluation of the ruble, while earlier this indicator reached 40%).

The carrying value of the company’s brands in Russia no longer correspond to their current market value. The total effect of the impairment of tangible and intangible assets and brands in Russia taking into account restructuring costs, Carlsberg was estimated at 5 billion Danish kroner (about $0.7 billion at current exchange rates). Some impairments have been reflected in the report for the third quarter.

In particular, the impairment of the brand “Baltika” is estimated at 4 billion crowns. The total impairment losses in Russia amounted to 4,075 billion kroons and were reflected in the article “special article”.

Because of losses on special items in the amount of CZK 7.7 bn, reflecting mainly the depreciation of the Russian brands and assets in China, Carlsberg’s net loss in the third quarter 2015 $ 4,499 billion kroons. Adjusted net income increased 2% compared to the previous year, up to 2.22 billion korunas.

Due to the decline in the beer market in Russia and Ukraine, Carlsberg has reduced global beer sales by 4% for the 9 months and 3% in the third quarter (organically, excluding acquisitions of assets).

The Russian beer market for the first 9 months fell by 10% in the third quarter by 11%, noted the company. While Carlsberg has reduced the shipment of beer by 18% for 9 months due to the reduction in inventories at distributors, as well as loss of market share, especially during the summer months. The declining market share (35,1% versus 36.1% for the second quarter) the company explained the price leadership (despite the fact that during the year Carlsberg was several times increased the price). In value terms Russian beer market grew, said the company, considering the growth in percentage (low single-digit usually means the dynamics within 1-3%).

The Carlsberg’s revenue in the first 9 months 2015 $ 50,698 billion kroner net loss – 3,004 billion kroons.

To increase profits and cash flows, the company launched a special program in which will write-off and restructuring of assets to 10 billion CZK in the years 2015-2017 (including 8.5 billion kroner in 2015). The positive effect of its implementation in 2018 will amount to 1.5-2 billion kroner, which will be partially reinvested in business development. Carlsberg continues the revision of the strategy until 2022 and plans to present an updated strategy by the end of the first quarter of 2016.

Carlsberg is one of the largest brewing companies in the world. In the portfolio of its brands to more than 500 brands including Carlsberg, Tuborg, Kronenbourg 1664, “Baltika” and others. On the Russian market, the group operates through the LLC “brewing company “Baltika”.

In Russia, Baltika owns eight factories. In January, the company closed two plants, which accounted for 15% of production capacity in the country.