Carlsberg the latest to suffer water backlash

Jenny Wiggins, May 8, 2008, Financial Times - Carlsberg, which owns the water brands, Ramlosa and Arkina, yesterday underscored the growing environmental backlash against bottled water by warning of falling sales in Europe as people switch to tap water.

The decline in water sales hurt the Danish brewer's first-quarter western European profits. Operating profits in the region dropped 34 per cent on the previous year to DKr129m (Dollars 27m) with both soft drink and beer sales lower.

Jorgen Buhl Rasmussen, Carlsberg's chief executive, said: "Volumes have been impacted by the environmental debate on bottled water versus tap water."

The warning comes just weeks after Nestle, the owner of water brands such as Vittel and Perrier, said its sales in Italy, France and the US were dropping as environmentalists encouraged people to use less plastic and drink tap water.

Profits were also lower in Russia, where Carlsberg recently completed its acquisition of Baltic Beverages Holdings, the country's largest brewer. Although the brewer's sales volumes rose 7 per cent, investment in a new brewery in Siberia caused profits to fall by 11 per cent to DKr295m.

The new brewery in Novosibirsk, the 11th for the Russian group, has cost about Euros 65m (Dollars 106m) to build.

But BBH, which owns the Baltika brand and also brews Carlsberg's Tuborg brand, gained market share in the first quarter. It now has 38.1 per cent of the Russian market, up from 37.5 per cent a year earlier.

Carlsberg also said the overall Russian beer market was improving after a weak start to the year, with sales growth of 8 per cent in March.

Overall, Carlsberg's earnings were below analysts' expectations, with the group reporting a net loss of DKr129m compared with a profit of DKr45m a year earlier. The group attributed the loss to higher interest rates, higher debt levels and the costs of hedging exposure to the sterling during its acquisition of the UK-based brewer, Scottish & Newcastle.

Carlsberg's executives said they could not give profit or sales guidance for the full year because the brewer had not completed a rights issue of about DKr30bn to finance the S&N deal.

However, analysts were optimistic about the Danish group's prospects after the company said it had managed to put through price increases to compensate for rising raw material costs. Matthew Webb, analyst at Cazenove, said: "The outlook for the full year is upbeat."