Putin hints beer tax may rise further

Reuters report revealing that Russian President Vladimir Putin continues the fight against excessive drinking and may also further raise beer taxes weighed heavily on the stock of Carlsberg (OMX: CARL B) on Tuesday. Russia is the number 1 market for the firm by far and the decline in consumption from the 20% tax increase last year that naturally also resulted in a slide in profits. Just as it was looking like the markets were finding a new equilibrium, it now seems further increases of similar magnitude may be in store in the next two years on top of bans on advertising.

Carlsberg happily notes increasing beer sales at Euro 2012 football venues

Beer sales across eight stadiums used in the Euro 2012 championships in Ukraine and Poland are up almost 50% per spectator from 2008 event in Austria and Switzerland. Much of that comes from fan parks outside the arenas. TV audiences in Europe have also been strong and Carlsberg (OMX: CARL B) feels it is well on its way of iconizing its brand and the new tagline 'That calls for a Carlsberg'. In addition to Peter Schmeichel, Carlsberg also had Gareth Southgate of England hosting UK Carlsberg Pub Cup competition and Shay Given shaking things up in Ireland.

Hu Jintao to Denmark, Carlsberg plans a massive investment in Yunnan

Chinese President Hu Jintao is set to come to visit Denmark on Thursday. It is expected that contracts totalling billions in Danish kroner are to be signed, with the majority of them in green energy and healthcare. Danish media writes that over a dozen companies might get individual large contracts. From Denmark the Chinese leader will head to G20 summit in Mexico

As a major player in both drug development and medical devices, these high tech solutions are certainly of interest. Additionally, while the healthcare sector property and care centre development is also a major focus area for the Chinese under the current plan, attaining financing for such projects from Nordic countries has typically proven impossible given the reluctance of public financiers to take on risk and the lacklustre private capital markets for such capital insentive projects; thus the Chinese side being more active in such might do wonders for such projects as well.

The investments are certainly not a one-way traffic. Danish brewer Carlsberg (OMX: CARL B), which is already heavily investment in Western China, is planning a massive investment in Yunnan province. The company is set to announce the framework for the plan in what is supposed to be its largest brewery to date to be built in Dali Innovation Industrial Park to replace a current facility in the city that makes beer under Dali brand. The municipal government announced a deal on the matter a couple weeks ago, placing Carlsberg’s investment around 3.5 billion RMB or over 3 billion DKK, and the final number might topple even that. Carlsberg has been involved in beer making in Yunnan for nearly a decade, with another facility in provincial capital Kunming.

Euro 2012 kicks off, Carlsberg in big

The UEFA Euro 2012 championship hosted in Poland and Ukraine is a major event and Calrlsberg (OMX: CARL B) is betting big as one of the 12 global sponsors. The event is very prominently featured on the company website and it has big hopes, in particularly in Ukraine, regarding raising brand recognition even further. As I can attest to at the moment, the tournament is well visible in Asia as well, even if the hour is more than a little challenging, and the sponsors see it as a global opportunity.

The company has other features going on, such as a mobile app and has brought in former players like the great goalie Peter Schmeichel working as representatives. He will be presenting the Carlsberg Man of the Match Award at the final on the first of July. Carlsberg has been actively involved in Danish football for a number of decades and its support has certainly helped many local prospects. With Denmark surprising the Netherlands in the first round, things are off to a jolly start for the brewery.

Carlsberg keeps guidance despite Q1 weakness

It was already known that Carlsberg’s (OMX: CARL B) numbers in Russia have suffered in the past year amidst officials efforts to tame alcohol consumption in the country. As more marketing restrictions are coming to force for the second half of the year, the company has been investing more in marketing at the start of the year.

Destocking by the distributors in the country affected Carlsberg’s group-wide revenue by 2%. Market share in Russia improved to 37% and the company is still guiding for the Russian beer market to return to growth in 2012. There has also been some migration to more expensive brands. Furthermore following a full Carlsberg’s takeover, the largest brewer of the country Baltika Breweries has applied for de-listing from Russian stock exchange.

Carlsberg is rejuvenating Tuborg brand, not only in Russia with another new bottle, but has also launched it in China and India. The premium brands of the company are doing well in Asia. Carlsberg-brand also grew fast in the region during Q1. The company is pushing Carlsberg-brand heavily ahead of EURO 2012 in Ukraine and Poland. Carlsberg is an official sponsor of the European Football Championship co-hosted by Poland and Ukraine that is to be held this June.

Adjusted for the Russian destocking, organic beer volume growth was 2%. Net revenue was flat year-on-year at 12.9 billion DKK. Operating profit grew nicely in Northern & Western Europe and Asia but challenges in Eastern Europe meant a near halving of the reported number in the already typically slow quarter to 574 million. Consolidated profit was a mere 44 million DKK. Despite this the brewery maintains 2012 guidance of operating profit on par with 2011 and slightly higher adjusted net profit. The stock market seems to be siding with the company so far in believing that the challenges are temporary and investors have bid up the share price by a few percentages in morning trading.

Carlsberg’s Fredericia Brewery criticized for safety problems

Trade union magazine Fagbladet 3F writes that Carlsberg (OMX: CARL A, OMX: CARL B) has scored a dubious record in Danish history, with the highest number of security violations (12) that required immediate actions as noted by the local Labour Inspectorate Arbejdstilsynet. These are cases where there is serious problem with the working environment that has increased accident risk.

Carlsberg admits that there have been problems. The company is glad that Arbejdstilsynet has pointed these issues out and said it has been making the necessary corrections, with nearly all of the issues now being resolved. The company said that it managed to cut work related injuries substantially last year.

Carlsberg Byen plans nudge forward

A consortium of Danish investors involving non-profit social enterprise Realdania (25%), Carlsberg (OMX: CARL B 25%) and three pension & insurance companies PFA Pension (20%), PenSam (15%), and Topdanmark (OMX: TOP, 15%) acquired former Carlsberg brewery site in central Copenhagen in a 2.5 billion DKK transaction the Danish brewing company said in a release. Carlsberg will book a 1.7 billion DKK pre-tax capital gain in Q2 2012 accounts. The proceeds will be used to deleverage the Group.

Carlsberg decided to stop producing beer at the Valby Brewery site in 2006. The site is the location of the original Carlsberg brewery and beer had been produced there for over 160 years. The area is now known as Carlsberg district or Carlsberg City and it spans more than 300,000 square metres. The company has been looking at ways to develop the place into a new city quarter of international allure where industrial history and modern city interact.

The transaction covers an area of more than 250,000m2, thus excluding some historical areas that will remain under Carlsberg’s exclusive ownership. Some old buildings in the covered area will be refurnished and new buildings with over 500,000 m2 of floor space will be erected. There will be commercial, residential and cultural areas. The tallest high rises will reach 120 metres. The development plan is based on an award winning design from a local architectural firm Entasis. The project is expected to take some 15 years.

The development transaction is the largest in Danish history and is a major undertaking also in European scale. The companies feel that it can generate attractive returns. There is obviously a higher than normal risk involved too. Carlsberg’s share reacted positively with over 1.5% gain on Thursday.

Carlsberg in 2011

Carlsberg (OMX: CARL A, OMX: CARL B) has opened with a one percent decline after presenting quarterly numbers this morning. The Danish brewing company said the year was characterized by solid Western European and strong Asian operations but the year was challenging in Eastern Europe particularly in Russia. The market share in Russia was down from 39,2% to 37,4%, something which was attributed to promotions and price competition. Carlsberg has not actively entered such a competition. Overall the market share was up 1% in a year of flat beer market as Carlsberg sold nearly 140 million hectolitres.

Carlsberg will be promoting in Euro 2012 as it seeks to reposition the brand with international premium and strong local brands. An efficiency improvement plan has been ongoing but higher input and logistics costs as well as increased marketing activities meant higher costs overall. Nearly 200-year old Tetley's brewery in Leeds, England and even older Cardinal brewery in Fribourg, Switzerland were closed during the year.

Net revenues in 2011 were 63.5 billion, up 6% from 60 billion last year. Full-year operating profit is 9.8 billion as operating margin was down to 15.4%. Unadjusted net profit was 5.15 billion (diluted EPS of 33.7, down from 35 in 2010) The Board proposes a dividend increase of 10% to 5.50 DKK. Fourth quarter revenues were 14.9 billion, operating profit 1.86 billion and net profit 912 million.

Carlsberg plans to make an offer for the remaining shares of its Russian subsidiary Baltika this May and plans to delist the company. Currently Carlsberg has around 85% of the shares. Carlsberg says that maximum offer price is RUB 1550 per share. At this price net cost in 2012 would be up to 4.4 billion DKK.

Destocking by distributors in Q1 2012 in Russia will have a negative year-on-year impact for the numbers in the ongoing quarter. For 2012 the company expects operating profit on par with the 2011 (higher at 2011 average EUR/RUB rate) and slightly improved adjusted net profit. The impact of the Baltika offer is not included in these numbers. The outlook is based on the assumption of low single-digit decline in Northern & Western Europe sales, continued growth in Asia and Russian market returning to growth at a modest pace.

Carlsberg gaining as CEO predicts a turnaround in Russian beer market

Carlsberg’s (OMX: CARL A, OMX: CARL B) stock market price was negatively affected this summer as more regulations on selling beer and excise taxes were hitting consumer demand for the company’s products. Now the situation appears to be stabilizing and Carlsberg’s CEO Jorgen Buhl Rasmussen told newspaper Jyllands-Posten last week that the mood on the field in Russia is turning very positive.

Reuters also interviewed CEO Rasmussen recently and he said that Carlsberg now foresees growth in Russian beer market and an increased market share for Carlsberg in 2012. Other Eastern European markets are expected to show growth as well whereas mature Western European and Nordic markets might prove challenging. Russia accounts for around 1/3th of Carlsberg’s sales and the stock has gained around 10% in the last few trading days.

The stock market value of Carlsberg's Chinese investment plummets

Chongqing Brewery’s foray outside of its traditional expertise into the realm of biomedicine has (many would say unsurprisingly) lost shareholders a lot of money. Chongqing Brewery’s stock market price in Shanghai Stock exchange had gained nearly 60% since the start of the year and appeared to go exponential right before it all came to a screeching halt on December 5th. Since then the stock has been halted on 10 out of 11 trading days after the stock lost the maximum allowed 10 percent. Danish brewing giant Carlsberg (OMX: CARL A, OMX: CARL B) owns nearly 30% of Chongqing brewery.

Chongqing Brewery acquired a local start-up biotechnology company in 1997 and has since injected money into the development of Hepatitis B vaccine. On December 5th Chongqing Brewery announced that there isn’t much of a difference between the vaccine and placebo, effectively rendering the net present value of the project close to zero (clinical testing is apparently still ongoing). While you can certainly argue that it is a noble cause to try to tackle hepatitis B, a major problem in China, it is mindboggling to say the least to organize such research under the wings of an alcohol maker. However, In Shanghai Stock Exchange, Chongqing Brewery has mainly been valued based on that.

Carlsberg made no mention of the biotechnology business when it acquired shares in Chongqing Brewery in 2008, nor when further joint development was announced. Company officials did however subsequently comment that Carlsberg placed considerable value on the vaccine program in investment calculations.

Technically Carlsberg’s share in Chongqing Brewery has plummeted from over 10 billion DKK to under 4 billion, and Carlsberg’s share has also underperformed, losing more than 5% in that period. As of now Chongqing Brewery is already trading nearly 30% below Carlsberg's purchase price, and it is rather likely that an argument that Carlsberg overpaid can most likely be made once Chongqing brewery's share finds its bottom in the next few weeks. Another big shareholder in Chongqing Brewery, Dacheng Fund Management Co., has reportedly asked for a shareholder meeting to suggest dismissing Chongqing Brewery’s CEO on the basis of poor disclosure of information.

A downward revision from Carlsberg as beer consumption in Russia falls

Out of the three major interim reports from Denmark today, The Carlsberg Group’s was the sole disappointment, and what a disappointment it was: the share closed down by 17.5%. Second quarter net revenue grew by 4% to 187 billion DKK. Before tax profit was down 25% to under 3 billion and net net profit fell from 2.7 billion to 2.2 billion.

The main story is the negative development in Russia. What was supposed to be a growth engine printed a negative sales growth number (-2% on Q2). Carlsberg says that Russian consumer has not accepted higher prices resulting from a large duty increase. Market share in Russia was up to 38.4%. The recently announced beer sales restrictions are expected to have a ’marginal impact’ from H2.

Carlsberg revised Russian growth expectations from 2-4% growth to ”a low single digit decline” for 2011. Stemming from this, the group’s 2011 earnings expectations were also lowered. Carlsberg now expects ~10 billion DKK operating profit before special items (10.25) and adjusted net profit growth of 5-10% (>20%). CEO Jørgen Buhl Rasmussen admitted that second quarter performance in Russia was below expectations but he was pleased with the performance from the rest of the group.

Carlsberg plans further etablation in Southwest-China via a new joint venture.

Carlsberg will establish a joint venture in China with Chongqing Brewery Co. Ltd and Chongqing Light Textile Holdings (Group) Co., Ltd. On 27.12.2010 Carlsberg announced it had bought more shares in Chongqing Brewery Co. and said then that it is interested in furthering the cooperation. Chongqing Light Textile Holdings is another major shareholder in Chongqing Brewery Co.

The new joint venture will be called Chongqing Xinghui Investment Co., Ltd. Carlsberg will own 30% of it directly. The new company will operate 12 breweries in Chongqing and in Sichuan, Guangxi, Guizhou and Hunan provinces. Carlsberg will make a cash contribution of 200 million Renmimbi (~160 million DKK) into the JV, while the local contribution will be in form of breweries. There is still a host of regulatory and minority shareholder related hurdles to overcome before final approval is reached.

Russian beer sales restrictions signed into law

The Kremlin said that Russian President Dmitri Medvedev signed the bill to restrict beer sales starting from January 1st 2013. Sales will be restricted from 23.00 to 08.00. Sidewalk kiosks and trains stations can no longer sell beer at all after the law takes effect. Much of beer sales have been coming from such places as of late as beverages containing more alcohol were banned from being on sale in the aforementioned places earlier on.

European breweries took a small dent from this expected development, much of the recent damage to breweries shares has already been done in anticipation of the move. The market leader Carlsberg A/S (OMX: CARL A, OMX: CARL B) naturally has been taking the biggest hit and was down around 1% today.

Carlsberg hit by expected tightening of alcohol sales regulations in Russia

Carlsberg (OMX: CARL A, OMX: CARL B) fell to a four month low on Wednesday as investors are expecting that Russian State Duma will approve tighter alcohol regulations. Preliminary agreement to ban sales of drinks containing more than 0.5% of alcohol at night is in place. A ban of the sale of alcohol from kiosks is also being discussed.

Carlsberg has invested heavily into Russia and there will clearly be a slight dent into profits forthcoming should this law pass, but today’s advance of around 1% would seem to suggest that the majority of bad news for the company has already been priced in. Here is Moscow Times’ take on the issue.