Russia used to be Carlsberg’s biggest market. Then the Kremlin opted to invade Ukraine in February 2022, with the Danish brewing group scrambling to adjust to the resultant geopolitical fault lines. 

The sale of Baltika Breweries, its Russian subsidiary that employed 8300 people in eight breweries across the country, ended up costing the group close to €2.3bn ($2.5bn), as the Kremlin seized control of Baltika in July 2023. 

The picture in Ukraine contrasts far more positively. Breweries in Lviv, Kyiv and Zaporizhzhya were restarted by June 2022 after initial production halts. The company then earmarked $44m to upgrade its Ukrainian facilities and operations during 2023, which is being followed up by a $73.4m investment in 2024.

With the Russian market upended by geopolitics, the group is now looking east to drive new growth and expansion.

“We are investing heavily [in Vietnam] and plan to reinvest all profits back into the business [there],” says Jacob Aarup-Andersen, the recently-installed CEO of Carlsberg, with India also a major focus country. Asian markets currently make up 40% of the company’s business, twice as much as before the Ukraine war.

Mr Aarup-Andersen, along with Oleh Khaidakin, managing director of Carlsberg Ukraine, spoke to fDi about operations in Ukraine, the Baltika seizure and Asian expansion. 

Q: What are some of your key objectives and focus areas as the newly-installed CEO?

J A-A: My mandate is to start the next level of the journey of Carlsberg and move the company more into growth mode. That means strong, sustainable, profitable organic growth. So not growth for growth’s sake but growth that is profitable, and to where we can enhance and drive the scalability of our business. If the right opportunities are there, we will also look at inorganic growth, but it’s mainly an organic growth journey. The starting point is the footprint and it’s significantly changed. If I go back just five years, our biggest business was Russia. Asia was 20% to 25% of the business. Today, Asia is 40%-plus of the business and we don’t have a Russian business anymore.

Q: How did the invasion of Ukraine initially affect local Carlsberg operations and what measures were taken to ensure business continuity there?

OK: We immediately stopped our business. Safety for people was our first priority, and not only our people, but also communities around our breweries. With the support of our group, we felt that we were not alone. Me personally too, because every day I was supported by the CEO and my boss, Lars Lehmann, the executive vice-president for central and eastern Europe. In the middle of March, our western brewery in Lviv restarted. Then the Kyiv region was liberated and in the middle of April we restarted the brewery there. And finally, at the end of June, we also restarted our Zaporizhzhya brewery. We were faced with many issues, starting from our supply chain. Most of our suppliers had their sites damaged and destroyed. So we dramatically reduced our portfolio but still managed to satisfy demand. Despite the negative situation, we finished 2022 with quite strong and solid results.

Q: Is there any symbolism to the Kyiv brewery expansion announced in June 2023 or were you simply responding to a market opportunity?

J A-A: From our perspective, it’s not a symbolic gesture. We see a market opportunity and … we have such a strong fundamental belief in the Ukrainian business. It’s an investment that goes into our production facilities to make sure that we can supply to the Ukrainian market but also the canning line at the Kyiv brewery increases our capacity by 80% in Ukraine. This means we are also likely to export to neighbouring countries. The expansion is part of an investment plan in 2023 and in 2024 we are investing DKr500m ($73.4m) in capital expenditure. The next wave of investments for us will be in sales equipment, draft equipment and technical staff to make sure that we can support the business output at the end customer sites. It shows the commitment to Ukraine and the importance Ukraine holds for the business. Sitting here as the new CEO, Ukraine is now my biggest business in central and eastern Europe. And therefore, it’s very important for us.

Q: What is Carlsberg’s strategy for dealing with the seizure of Baltika Breweries by the Russian government? Did you have any clear indications it was going to happen?

J A-A: Only a couple of weeks into the war, we made the decision to leave Russia and sell our business. It took a decent amount of time disentangling the business from the rest of the group. Then it was a very difficult sales process because we were following the official announced rules of the Russian government. In June 2023, we were awaiting final authority approval, but we saw that as a formality given we had the go-ahead informally from the Russian authorities. It was a significant shock to us in July when, out of the blue, a press release said for undefined reasons that the asset had been put under external management. Since that day, we have only retained the rights to our shares but we don’t have any sort of control. We are talking about a major Russian business that at the outbreak of the war was valued at close to €3bn [DKK16.9bn, or current €2.3bn] in our accounts. The result was written down to zero in the third quarter and the full loss will be detailed in the full year report. So it’s a loss of DKK16.9bn. We have tried to have a dialogue with the external management but recognise that after all of these conversations there is no way that we can get to a point where we can sign an agreement or do a deal with Mr Putin or his proxies. Therefore, we decided to terminate all licence agreements in Russia, terminating the right for them to produce any of our brands. And therefore, we are also saying very clearly that we are cutting all ties to the business from a brand perspective. It is an incredibly unfortunate and mind-boggling situation we find ourselves in. But it’s also clear that we are part of a bigger political game in Russia that is beyond our understanding.

Q: How is the business dealing with the loss of $3bn?

J A-A: We took that significant hit last year when we put the business up for sale. We already found more than half of the value in 2022 because we recognised we were not going to get a fair price for the asset. In 2023, we’ve taken the rest of the hit. It is a big amount of money. On the other hand, thankfully, Carlsberg is a very big and diversified business. So we are still lined up this year to deliver a very strong set of results.

Q: What countries in Asia do you consider to be growth markets?

J A-A: Two significant growth markets for us outside China are Vietnam and India. In Vietnam, we plan to double our market share over a relatively short timeframe. We are investing heavily and plan to reinvest all profits back into the business in Vietnam. It’s a big expansion and the same has been going on for the past 18 months. In the next three to five years we will be carrying out a further significant expansion in Vietnam, one of the most exciting growth markets that we see globally. The other major growth expansion for Carlsberg is in India. We are currently finalising the process for buying out the minority partner of our Indian and Nepalese business. And once that is finalised, we will power up our investments quite significantly in India and make it our next big growth space.

This article first appeared in the December 2023/January 2024 print edition of fDi Intelligence

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