Sonntag, 20. März 2016

Financial Times: Carlsberg crafts a recovery beyond Russia. Chief executive Cees 't Hart hopes a focus on speciality beers, Asis and big cities will help the brewer fend off AB InBev-SABMiller

Right outside Carlsber's Copenhagen headquarters, there is a huge building site. Diggers and cranes are preparing the way for an entirely new district in Denmark's capital, and the tower currently housing the Danish brwer's top executives will soon be torn down.

It is a useful visual metaphor to pondet for Cees 't Hart, the Dutch-born, former dairy manager charged with lifting the world's fourth-largest brewer out of a long funk. Chif executive since June, Mr 't Hart this week presented his plan for putting the fizz back into a brewer that has long been seen as flat by investors.

Carlsberg offers a cautionary tale on why betting big on a single emerging market is risky. It chose Russia, which in 2010 contributed almost half of its DKr5.4bn net profit, but has been pummelled ever since by a barrage of regulation and taxation.

Today, with Russis pulling in just 16 per cent of Carlsberg's DKr4.6bn ($700m) net profit, the brewer's shares - at DKr589 - are still just below their peaks from 2007 and 2011. By contrast, the behemoth that is Anheuser-Busch InBev, the world's largest brewer and soon get larger with the purchase of SABMiller, has seen its shares triple in the past five years.

It is little wonder that Mr 't Hart, in an interwiew with the Financial Times, describes Carlsberg's plight as “the glass is both half-empty and half-full.“

He suggests the “half-full“ part is being ranked number one or two by sales in 22 of the countries it operates in, deriving four-fifths of group profit from them, and even growing its market shares in some. But this concentration tells its own tale: Carlsberg is still absent from much of the world - the US, the rest of the Americas and Africa.

Mr 't Hart also acknowledges this “half-empty“ side. “We have a footprint that is limited to some of the more difficult parts of the world, like Russia. We have not been able for the past five or six years to get the enthusiasm of investors. We have been behind some competitors in margins or return on invested capital. We had a surprise profit warning.“

So, after eight months in the job, Mr 't Hart - former head of FrieslandCampina, a Dutch diary co-operative, has laid out his strategy for the next seven years. It rests on three big pushes - on craft beer, Asia and big cities - as well as a big change in the company culture and an attempt to turn Russia round.

To help fund this, he announced a cost-cutting and job-slashing programme last year that should deliver DKr1.5bn-DKr2bn in savings in 2018 and reduce staff numbers by 15 per cent.

Investors were initially disappointed by the lack of concrete targets: there was no specific goal for returns, only for dividend payouts and the ratio of net debt to earnings. Still, most analysts believe Mr 't Hart is doing the best he can with the cards he has been dealt.

“He's doing the right things - simplifying the business model, focusing on the bits that count“, says Ian Shackleton, analyst at Nomura.

But he worries about the pressure from the forthcoming AB InBev-SAB-Miller tie-up that will generate half of global beer profits. “Carlsberg is potentially the biggest restructering story in the consumer world“, Mr Shackleton says. “On the other hand, you're in an industry where the competitive dynamic is moving against you.“

Mr 't Hart acknowledges that an “immense competitor“ is emerging. Still, he notes that, apart from Italy and potentially China, AB InBev and SABMiller are not so active in countries where Carlsberg is.

One problem he does acknowledge is in sports sponsorship, a crucial area for brewers' marketing. “They will always be able to outbid us“, he concedes.

Instwad, Carlsberg is trying to focus on new sales opportunities. On the side of the building site lies its original brewery from 1847. There, the cellars are filled with history. Some were used by resistance fighters in the secondd world war for shooting practice, another  as a cold war military room to monotor Russian planes over part of Denmark. But now they are home to one of Carlsberg's craft beers: Jacobsen.

Like almost all brewers, Carlsberg is heavily pushing crafts beer, due to its faster growth rates and fatter margins.

 “I have the most exciting job in Carlsberg“, says Paul Davies, head of craf and speciality beer. The aim is to introduce craft beer into new countries; Jacobsen, hitherto centered on Denmark, was recently launched in Italy.

Asia is the big growth market for Carlsberg. It now represents 28 per cent of profits, up from 9 per cent five years ago, and Mr 't Hart is keen to invest in China, India and Vietnam. But the Chinese beer market contracted last year after more than a decade of growth, and Carlsberg broke even in India 2015 - a profit is expected this year. “It gives us the opportunity for growth without being in Africa or South America. I don't want to be critical on the hand I have“, says Mr 't Hart.

His final focus arwa is big cities. Carlsberg is not present in 30 of the world's biggest cities and Mr 't Hart hints that could be a way to enter countries where the Danish brewer is not present. He notes that Shanghai alone has more residents than Carlsberg's Nordic stronhold.

Mr 't Hart is also trying to shake up Carlsberg's culture. Its new strategy was devised in conjunction with its top 60 managers and Mr 't Hart is keen to shift the focus from a country-based organisation to one centered more around teams. He points to the head of France, 80 per cent of whose bonus used to depend on French results. Now thete will be a 40-40-20 split between France, Europe and the group.

But Mr Shackleton frets that  Carlsberg my be becoming too introspective just as AB InBev-SABMiller shakes up the industry. The brewer's chairman quashed speculation this year that it would be the ideal bidder for Peroni in Italy and Grolsch in the Netherlands. “At a time when there are opportunities, they are so inward-focusd that they can't participate“, Mr Shackloton adds.

Carlsberg's profits are about one-tenth of a combined AB InBev-SABMiller's. There is, perhaps, more than just a little truth in Mr 't Hart's remark - “tongue in cheek“, he later adds - that “They are so big; we are just a craft brewer!“

Fazit: Neues Bier in alten Keseln.