Carlsberg's exposure to Russia caps profits When a Malaysia Airlines plane was shot down in July over territory in Ukraine controlled by pro-Russian separatists, Jørgen Buhl Rasmussen's heart sank. The Carlsberg chief executive says: "You think: how much more can happen? It just seemed to come from somewhere else completely, and outside anything that is at all linked to business, or certainly with our category. That is where you can sometimes be sitting there thinking: what more can happen? IN Emerging Markets The Danish brewer is one of the western companies most exposed to Russia. In the first nine months of this year, 40 per cent of its profits came from what it calls eastern Europe - a region in which Russia dominates. Carlsberg's Baltika brewery range is the most consumed brand both in Russia and all of Europe. But the Danish company has suffered a difficult time in recent years as a regulatory crackdown, tax cuts and falling consumer demand have hurt its big bet on one single developing market. Russia has loomed large for Mr Rasmussen since he became chief executive in 2007 and had to deal with the full acquisition of Baltika from its joint-venture partner that his predecessor had initiated. Is he frustrated by the attention on Russia? "I know in media language they'd say I'm frustrated - and, of course, sometimes, yes, it's a pity, it's a shame that we have seen this market now being in decline for four, five years and it's 30 per cent smaller today in volume than it used to be," he says. For all the bad news, Russia still remains profitable for Carlsberg - just nowhere near the levels foreseen seven years ago. Mr Rasmussen continues to be committed, believing the country must come good, eventually. Pulling out is not on our agenda at all. This is a very important contributor to Carlsberg . . . Even Ukraine is contributing quite nicely to Carlsberg's business and profitability, and I think in any developing market you have to expect, sometimes, some ups and downs. You take a little more risk . . . but the opportunities are a lot bigger," he adds. In the first nine months of this year, eastern Europe's operating profits amounted to DKr3bn on revenues of DKr13.7bn. In the equivalent period five years ago it made DKr4.2bn in operating profits on sales of Dkr14.4bn, representing more than half of Carlsberg's profits. Pulling out [of Russia] is not on our agenda at all. Even Ukraine is contributing quite nicely. Jørgen Buhl Rasmussen, Carlsberg chief executive But Mr Rasmussen says he is starting to see the first bright spots in the regulatory environment after years in which advertising has been restricted and beer sales banned from kiosks. He says there are proposals to allow beer to be advertised on TV and sold in kiosks as well as a likely duty freeze. Will it all happen? Probably not, but it's still a very positive signal," he says, adding there is now recognition "that this industry has really, really been hit hard." Mr Rasmussen still believes Russians will drink more beer, as their consumption of 55 litres per capita a year lags behind both the European average and their former consumption rate of 80 litres just a few years ago. "In any market, the more a country becomes developed, more informed, more educated and gets a more natural alcohol consumption, strong spirits come down and wine and beer gain in terms of share of throat," he says. Investors remain focused on Russia with Carlsberg trading at a discount of about one-third to the average earnings multiple for brewers. But Mr Rasmussen is keen to talk about some of the world's fourth-largest brewer's achievements elsewhere. "Some time I would like to also discuss a little more some of our regions because in fact we are doing, I would say, very well," he says. Top of the list is western Europe where despite a weak consumer outlook Carlsberg has managed to boost its market share and earnings. Making cost savings through more centralised procurement and supply chain is one element in the improvement. Innovation is another: the Danish group now sells a beer with a vodka flavour and a hard lemonade as well as its traditional Tuborg, Kronenbourg and Carlsberg brands. Craft beer is also a growing category for Carlsberg through its Jacobsen and Brewmaster lines. Asia is Carlsberg's smallest region but one where it has expansion hopes. Declines in China - where it took control of Chongqing Brewery - have cast a pall over this year, but Mr Rasmussen says they are temporary and without them volume growth in the rest of the region was close to 10 per cent. Organic growth is the priority, but an acquisition, most probably in Asia, is a possibility. Mr Rasmussen says that investors worried that Carlsberg could pay too much "because of dependence on Russia" should not be worried. If it's attractive, nothing is cheap. But in the end if we cannot build a business case where you create shareholder value, we will not do it.