The Carlsberg Path to Asia

It is two years since Carlsberg sealed its place in the brewing big league when it teamed up with Heineken to buy Scottish & Newcastle, gaining assets in Russia, France, China and Vietnam. Further acquisitions followed in Asia, most recently a $379m deal in June to lift its stake in China’s Chongqing Brewery, but Mr Rasmussen says the priority is now integration and execution.


 


Much of the focus has been on reducing costs, with an operating profit margin up from 11 per cent when he took over to nearly 16 per cent in the first quarter this year.


 


These efforts paid off during last year’s downturn, when operating profits rose 18 per cent in spite of a 4 per cent drop in comparable beer volume.


 


Analysts are looking for further margin gains when Carlsberg reveals second-quarter results on August 17. Barclays Capital estimates the company’s profitability per 100 litres of beer in western Europe is still 30 per cent lower than Heineken and AB-Inbev – highlighting the upside potential.


 


Carlsberg, whose other brands include Kronenbourg, Tuborg and Baltika, has warned that volumes will be down again in western Europe and Russia this year, the latter due largely to a beer tax raise as part of a Kremlin clampdown on alcoholism.


 


Analysts say volatility in Russia explains why Carlsberg’s stock trades at a discount to peers.


 


Still, Carlsberg is aiming to reduce dependence on Russia by developing another growth engine in Asia – particularly China, Vietnam and India. Asia accounted for just 13 per cent of Carlsberg’s volume last year, compared with 43 per cent in western Europe and 44 per cent in eastern Europe, but it is expanding quickly.


 


Some analysts question whether the company can translate its strength in western China into a broader presence.


 


Mr Rasmussen says there is room for “four or five” big brewers in China and insists Carlsberg will be among them. “We would love to replicate what we’ve done in Russia. But it won’t be easy.”


 

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