This article is more than 6 years old

This article is more than 6 years old

Carlsberg has warned that problems in Russia will harm its profits more severely than previously thought.

The Danish brewer, which earns around one-third of its profits from Russia's bestselling Baltika brand, said Russian sales were likely to fall in the second half of the year, as distributors cut back their orders.

"Unfortunately, we believe the eastern European beer markets will be impacted further as consumers are facing increased challenges and this will impact the group's profits negatively this year," said Carlsberg chief executive, Jørgen Buhl Rasmussen.

The brewer is expecting a low to mid single-digit percentage decline in reported operating profits, compared to an earlier forecast of low growth.

The announcement sent Carlsberg's share price tumbling 5%, although the stock had recouped some of its losses by mid-morning.

While Carlsberg will be seen as a litmus test for how sanctions will hit western companies, not all the brewer's problems are the result of geopolitics.

The Russian government has been tightening regulation of beer and spirits to curb alcoholism and binge drinking. In June, the Russian parliament voted to limit the size of plastic beer bottles, a measure that will come into force on 1 January. Politicians have already banned the sale of beer in street kiosks, banished beer advertising from newspapers, TV and outdoor billboards, and reclassified beer as an alcoholic drink.

The Russian beer market has fallen by 25% since 2008, while Carlsberg said in May it had underestimated the impact of the ban on selling beer from street kiosks.

Carlsberg's flat performance contrasts with its rival Heineken, which reported a better-than-expected 10% increase in operating profits to €1.5bn (£1.26bn) for the first half of the year.

Heineken has a much smaller presence in Russia, which makes up only a small part of its central and east European division, in turn around 15% of revenues.

The company said total beer sales in Russia had fallen because of weaker economic growth and consumer confidence, although it some premium beers were making gains in the country.

Heineken, which employs 3,000 people in Russia, making its best-known brands and two dozen local varieties, said it was concerned that geopolitics could damage consumer confidence.