Russian Downturn Hits Europe's Beer Makers

Russian Downturn Hits Europe's Beer Makers

REUTERS – Russia’s drift towards recession has slashed Carlsberg’s sales in the country, while fellow brewer Heineken escaped the worst thanks to its smaller exposure to eastern Europe.

Carlsberg’s dependence on Russia, where its Baltika label is the most popular beer brand by far, makes it a test case for how European companies are coping with the chill in Moscow’s relations with the European Union caused by the conflict in Ukraine.

Sanctions have dented confidence in an already slowing economy and taken a toll on the rouble currency – a blow for European companies that invested heavily to tap Russia’s emerging middle class.

One brokerage said last week that Carlsberg was becoming “uninvestable” because the sanctions had tarnished its status as a stable consumer-goods investment play.

On Wednesday, the company cut its 2014 profit guidance and said its Russian beer sales tumbled by one fifth in the second quarter. The 167-year-old Danish brewer relies on Russia for more than a third of its operating profits.

Finance chief Jorn Jensen said the Russian downturn had been even worse than expected. Carlsberg cut its guidance for the second time this year and now sees annual operating profit going into reverse. It may even close breweries in eastern Europe.

Carlsberg shares fell as much as 6 percent.

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