The spread of the coronavirus in China and the resultant extension of the shutdown of some of the breweries in the country have forced Carlsberg A/S to forecast slower earnings growth. The company predicts a slump in beer consumption in Asia.
Chinese authorities have extended the Lunar New Year holiday by varying lengths in multiple regions of the country while also calling on companies to close down production units to prevent the spreading of the virus. At least 425 confirmed cases of death due to the virus have been reported from China so far.
“It’s a very sad situation for China and its people, and the virus will affect our business negatively,” Chief Executive Officer Cees ‘t Hart of the Danish brewer said on a call with reporters.
He said that in the cities in China where the company has a presence, the local authorities have closed own the late-night entertainment venues and about fifty per cent of the dining establishments.
The forecast for the next quarter as announced by Carlsberg is the first one by a major European brewer that disclosed earnings for the last quarters. The subdued announcement made by the company is expected to be followed by its rivals Anheuser-Busch InBev NV and Heineken NV because both of the companies have in recent years laid focus on business in Asia for growth. Last year, about one fourth of the total sale revenue of Carlsberg’s was accounted for by its Asian business while increasing its earnings by about 23 per cent.
The Danish brewer said that there is likely to be an increase of a mid-single-digit percentage year on an organic basis in its operating profits this year. In comparison, the company had reported a growth of 11 per cent in its earnings in each of the previous two years. It also reported its highest operating for the last decade in 2019.
Carlsberg’s CEO said in an interview that during the first quarter of the current year, the company expects its revenue from China to be “impacted severely”. He added that the top 60 managers of the company have been asked to increase cost curtailing measures so hat the company is bale to offset the impact on its earnings. He also added that the company will for the time being put a halt in some advertising initiatives in China.
Traditionally, conservative forecast is generally distributed by the owner of the Tuborg brand early in the year and is known to later course correct its forecast upwardly later in the year. The company also noted that it was facing tough competition in Russia and new drunken-driving laws in Vietnam are also serving as headwinds for beer consumption in addition to the threat from the outbreak of the coronavirus in China and elsewhere.
The company however noted that over the last quarter, there has been a growth in demand in for its more expensive craft and low-alcohol brews such as Grimbergen and Carlsberg Nordic which has been beneficial for it.
(Adapted from Bloomberg.com)