COPENHAGEN (Reuters) - Attempts by Russia to curb alcohol abuse, including limiting the size of plastic beer bottles, hit sales of Danish brewer Carlsberg (CARLb.CO) and pushed its 2017 profit well below analysts’ expectations.
Carlsberg has struggled in Russia, its main Eastern European market, since it took control of the country’s largest beer brand Baltika in 2008 due to a weak economy as well as advertising restrictions and tax hikes designed to curb drinking.
Russia provides around a fifth of Carlsberg’s sales. The new law limiting bottle sizes to no more than 1.5 liters was introduced in mid-2016 and the company had already warned investors last February of the likely impact on beer sales.
“Our Russian volumes and market share were severely impacted by the (..) downsizing,” Carlsberg Chief Executive Cees ‘t Hart told journalists on Wednesday.
Carlsberg’s shares were trading 4.7 percent lower at 707.20 crowns each at 1124 GMT, the lowest level since mid-October and on track for the worst performing trading day in 18 months.
Carlsberg, the world’s third-largest brewer behind Anheuser Busch InBev (ABI.BR) and Heineken (HEIN.AS), said beer volumes grew in all markets last year except Russia, where volumes declined by 14 percent and its market share fell to 31.9 percent from 34.6 percent between January and November.
Russians are among the biggest drinkers of alcohol in the world but government measures that include restrictions on alcohol sales and tougher penalties for drunk-driving are nudging them toward healthier lifestyles.
Analysts said that the soccer World Cup, which will be hosted by Russia in June and July, could help the brewer. Russian Deputy Prime Minister Vitaly Mutko said last month that the sale of beer would be allowed at stadiums and fan zones.
“While the market remains competitive due to local brewers taking share, Carlsberg should - in theory - benefit from the FIFA World Cup in 2018,” said analysts at Liberum in a note.
Carlsberg’s ‘t Hart said he expects “flattish” growth in an unpredictable Russian beer market and did not want to speculate on the impact of the World Cup.
While competitors have cut prices in Russia, Carlsberg has, as part of its strategy to focus on premium beers, increased prices in 2016 and 2017. ‘t Hart said he did not want to engage in a price war in Russia but that he intended to halt the decline in market share.
The company said it expected operating profit to grow by a mid-single-figure percentage this year while recommending a dividend payout for 2017 of 16 crowns per share, up from 10 crowns the year before.
Carlsberg also said it expects to harvest savings of around 2.3 billion crowns from ongoing cost-cutting, compared with 1.5-2 billion savings expected previously.
Net profit for the year — hit by a 4.8 billion crown impairment of the Baltika brand in Russia — dropped to 1.26 billion Danish crowns ($210 million), down from 4.49 billion a year earlier, and falling short of the 4.86 billion crowns expected by analysts.
($1=6.0116 Danish crowns)
Reporting by Jacob Gronholt-Pedersen, Editing by Louise Heavens and Kirsten Donovan