Carlsberg says its big bet on Russia will still pay off in the long run even after issuing a profit warning that sent shares tumbling by 17 per cent.

Carlsberg Q2 results 2011
SalesNet profitEarnings per shareDividend
DKr18.74bnDKr2.05bnDKr13.4
↑4%↑22%↓22%

Russia accounts for about 40 per cent of Carlsberg’s beer sales after investing more than $12bn in the country since the 1990s.

The Danish brewer has been struggling there since a tripling in tax on beer last year as part of a Kremlin clampdown on alcoholism.

Jørgen Buhl Rasmussen, chief executive, admitted Carlsberg had been too optimistic over consumers’ ability to absorb higher prices but insisted Russia remained a long-term growth market.

“In other countries that have been through this process, beer and wine have gained much higher share when overall alcohol consumption goes down,” he told the Financial Times.

He said the Russian government was right to tackle excessive drinking but complained that too much focus was being put on beer rather than vodka.

“If they don’t reduce spirit consumption they won’t be successful in reducing alcohol consumption,” he added.

President Dmitry Medvedev last month approved a law that would prohibit beer sales from kiosks by 2013 and restrict advertising.

Carlsberg said the Russian market declined by 2 per cent in the second quarter and forecast a low-single digit decline for the full-year, cancelling its previous guidance for 2-4 per cent growth.

As a result, the world’s fourth-largest brewer by volume said it now expected net profits to grow by 5-10 per cent this year, down from a previous estimate of 20 per cent.

“Management’s credibility has been hurt because it was too optimistic about input costs last year and too optimistic about Russia this year,” said Trevor Stirling, analyst at Bernstein.

Carlsberg held 38.4 per cent of the Russian market in the second quarter, mainly through its Baltika brand. This was down slightly from a year ago, reflecting the group’s efforts to push through price increases and focus on high-value products.

Mr Rasmussen said Carlsberg would continue to seek a balance between volume and value in Russia but acknowledged the group must increase emphasis on the economy segment to defend market share.

Overall, Carlsberg reported a 5 per cent increase in beer volumes in the first half of 2011, with northern and western Europe up 1 per cent and Asia up 10 per cent.

Mr Rasmussen said the company, whose other brands include Tuborg and Kronenbourg, remained on the look out for acquisitions in Asia in a bid for fresh growth.

Second-quarter net revenues rose 4 per cent from last year to DKr18.7bn ($3.62bn), while net profit fell more than a fifth to DKr2.05bn.

“These were a bad set of numbers and the guidance downgrade was worse than anyone expected,” said Mr Stirling.

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