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What's your tipple? One of the oldest corporate games of compare-and-contrast concerns Heineken NV and Carlsberg. The Dutch and Danish brewing groups, respectively, can look strikingly similar from some angles. But their differences are equally important – including their respective positions in, and the importance of, their core European market.
Both companies reported first-half results on Wednesday – and weak European sales were a feature for each (despite the hot summer). This matters more to Carlsberg than to Heineken. The Dutch brewer, which is twice as big in terms of revenues as its Danish peer, derives just a quarter of its operating profits from Western Europe with emerging markets making up for much of the rest. For Carlsberg, Western Europe makes up half of operating profits, while Russia makes up for two-fifths, though tax rises and advertising and sales restrictions are hurting sales in that market too.
Geographical spread has helped Heineken's revenues to rise an average 6 per cent each year over the past five – twice as fast as Carlsberg. But so far this year, even Heineken's emerging markets, such as Nigeria, have not been enough to offset a weak Europe. Its group revenues still fell 3 per cent organically in its first half. Although Heineken's operating margins expanded by 30 basis points over that period, much of this came from one-offs such as asset sales in Europe and the consolidation of Asia Pacific Breweries.
Heineken's shares trade on 18 times expected earnings, while Carlsberg trades on 15 times. The Danish group's discount is fair, and justified further by the fact that its Dutch rival has been successful in cutting costs. But in spite of their regional difference, both brewers have their own set of challenges that geography alone cannot solve.