Carlsberg improves profit margin as drinkers opt for pricier beers

[COPENHAGEN] Carlsberg beat first-half profit forecasts on Wednesday as drinkers opted for pricier beers, with the Danish brewer on track with cost cuts and balancing falling volumes and higher margins.

Chief Executive Cees't Hart said Carlsberg was confident of delivering on cost saving targets which would mean it could begin investing in premium brands two quarters earlier than forecast under its seven-year transformation programme.

The group's price mix, which indicates that the company sold more of its expensive beers, improved by 4 per cent, driven by Asia and Eastern Europe in the first six months, helping its profit margins improve by 2 per centage-points to 13 per cent. "The real juice was in the EBIT margin, which... was 95 basis points ahead of expectations with each region meaningfully over-achieving," RBC analysts said in a research note.

The Russian beer market fell by 5 per cent in the period, hit by a sales ban on beer in so-called PET bottles, popular plastic bottles larger than 1.5 litres, as well as a challenging consumer environment and cold weather, Carlsberg said.

Earlier this month, Carlsberg's rivals Anheuser-Busch InBev and Anadolu Efes said it have agreed to merge their operations in Russia and Ukraine in an attempt to strengthen their position in the declining market.

Carlsberg said it had lost market share in Russia due to intense price competition in the market for smaller PET bottles, where it has hiked prices on its 1.42 litre bottles which was introduced to comply with the 1.5 litres ban.

"In that segment we see that we took a value approach and our competitors took a volume approach, by that the price premium is much higher than we thought and hence we lost some volume in the season," Mr Hart said.

He added that the firm had lost around 5 per cent market share in the key segment for large bottles because Carlsberg's products now sells at a premium of 30 to 40 per cent. "It is of course not sustainable in the long run," he said.

Half-year operating profit before special items rose almost 20 per cent on the year to 4.13 billion Danish crowns (S$890.8 million), above a forecast of a 3.92 billion crowns seen in a Reuters poll.

The company maintained its 2017 outlook of mid-single-digit organic growth in operating profit, and said it now expects a positive impact from currency exchange of 50 million crowns versus a previous guidance for 300 million.

REUTERS