Russians still have an appetite for beer as tax rises fail to hit Carlsberg

Danish brewing giant Carlsberg unexpectedly boosted its second-quarter profits and its 2010 forecast yesterday, as the rate of decline slowed in its key Russian market and a strong rouble drove earnings.

• Emerging markets, such as Thailand, are a key target for Carlsberg as its traditional heartland becomes saturated

The maker of Carlsberg, San Miguel, Kronenbourg and some 300 other brands said that while beer drinking in Russia continued to drop in the quarter following a big tax hike in January, the slowdown was less steep than in the first three months.

The group sharply increased its business in Russia in 2008 with the joint 7.8 billion takeover and carve-up with Heineken of Holland of Scottish & Newcastle.

That gave Carlsberg the 50 per cent share of Baltic Beverages Holding it did not already own.

Carlsberg forecast a high single-digit percentage decline for the Russian market in 2010 due to an improving economy and slightly better consumer sentiment. This was better than the low double-digit percentage drop the brewer had previously forecast.

Unveiling a rise in quarterly operating profit to 4.25 billion crowns (471 million) from 3.66bn crowns a year earlier, the company also bumped up its full-year operating profit forecast to about ten billion crowns.Carlsberg had guided in February for a profit in line with 2009 when it was 9.39 billion crowns.

Jorgen Buhl Rasmussen, Carlsberg's chief executive, said he still intended to increase market share in Russia this year after it shrank by 7 per cent in the second quarter as brewers raised prices following a tripling in excise tax to combat alcoholism.

The company said its flagship Russian drink Baltika raised its market share to 40.1 per cent from 39.1 per cent in the first quarter.

Carlsberg said it was too early to assess the full impact of the recent Russian drought, forest fires and temporary grain export ban, which lifted world grain prices and hit brewers' shares this month.

Anton Artemiev, head of the Russian division, said that the heat from the fires boosted beer drinking, but that smog may have offset this.

"Nothing at the moment makes us believe the (market outlook] will be changed by the weather," he said. Higher grain prices have little effect on Carlsberg as grains account for a small part of its costs, Rasmussen said.

Carlsberg gets more than half its revenue in western Europe.But, as those markets are saturated, it sees mid-term growth in Russia and longer-term in Asia.

Rasmussen added: "The group's performance was strong for the first six months in spite of challenging consumer dynamics." He said he believed consumer demand would improve overall throughout 2010 in all regions.

The company said the result was helped by currency effects, mainly a strengthening of the Russian rouble against the crown.

Rasmussen said significant investments in new products and marketing, efficiency measures and lower input costs for raw materials also contributed to the improvement.