Carlsberg’s new CEO debuts with profit warning
Not exactly the premiere he must have hoped for. Carlsberg’s CEO Cees ’t Hart, the former head of the Dutch dairy company Royal FrieslandCampina who took over at Carlsberg in June, had to break the bad news on 19 August 2015 that the world’s number four brewer was expecting a slight fall in profit for the full year after reporting first half organic volume declines of -1 percent in Western Europe and a drop of -18 percent in Eastern Europe, which were not offset by volume sales in Asia (+5 percent).
The second quarter was particularly tough. In Eastern Europe, volumes fell 19 percent compared with a year earlier while operating profit dropped 35 percent. In Western Europe – which until recently had held up relatively well but was facing tough comparisons from the football World Cup last year – volumes dropped 4 percent while operating profit was down 18 percent.
All in all, Carlsberg’s second-quarter net profit dropped 28 percent to DKK 1.59 billion (USD 236 million), while revenue fell 2 percent to DKK 18.9 billion.
Media commented that profit warnings by new CEOs are not uncommon, but Carlsberg’s investors already had to stomach two in 2014. Moreover, shareholders have been inundated with negative news about the Danish brewer’s position in Russia.
Carlsberg’s Russian misadventure serves as a reminder that you should never put all your eggs into one basket, in this case into a single emerging market.
At its peak in 2009, Russia accounted for nearly half of Carlsberg’s sales and over 50 percent of profits but in recent years it has suffered from a mix of tougher regulation, higher taxes and a weakening economy.
In Russia, generally, things don’t look too bright at the moment. The economy shrank by 4.6 percent in the second quarter compared with the same quarter last year, after contracting by 2.2 percent in the first quarter. The rout in oil prices and other commodities plus a fall in the rouble have left Russia battered. Retail spending slumped by 9.4 percent in June, reports say. GDP is forecast to decline by 3.6 percent this year after it shrunk by 4.6 percent last year.
