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Carlsberg Group Annual Report 2018 Letter from the Chairman & the Ceo 2 Management Financial Review Statements

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Carlsberg Group Annual Report 2018 Letter from the Chairman & the Ceo 2 Management Financial Review Statements ANNUAL REPORT 2018 CARLSBERG GROUP ANNUAL REPORT 2018 LETTER FROM THE CHAIRMAN & THE CEO 2 MANAGEMENT FINANCIAL REVIEW STATEMENTS Letter from the Chairman CONSOLIDATED FINANCIAL STATEMENTS & the CEO ..................................................... 3 Statements ...........................................57 2019 earnings expectations ................... 5 Notes ......................................................61 PARENT COMPANY FINANCIAL 2018 HIGHLIGHTS STATEMENTS Strategic priorities ...................................... 6 Statements ........................................ 125 Our brands .................................................... 8 Notes ................................................... 128 Regional priorities ...................................... 9 Golden triangle ......................................... 10 REPORTS Financial highlights ................................. 11 Management statement ................ 135 Key figures ................................................. 13 Auditor’s report ................................ 136 REGIONAL REVIEW Western Europe ....................................... 14 Asia ............................................................... 17 Eastern Europe ......................................... 20 OUR STRATEGY Beer trends ................................................ 23 Business model ........................................ 24 SAIL’22 ......................................................... 25 GOVERNANCE Risk management ................................... 35 GROW IN ASIA Corporate governance ........................... 37 Remuneration ........................................... 43 Front page: A strategic growth priority is to Supervisory Board................................... 49 continue to grow in Asia, where a key growth Executive Committee ............................. 52 driver is continued premiumisation in China Share information ................................... 54 through growing sales of our international brands Tuborg, Carlsberg and 1664 Blanc. carlsberggroup.com @carlsberggroup Forward-looking statements ............. 55 Supported by our targeted expansion into big cities outside our core western China provinces, our international brand portfolio in @carlsberggroup Carlsberg Group China grew by 13% in 2018. Letter from the Chairman & the CEO CARLSBERG GROUP ANNUAL REPORT 2018 LETTER FROM THE CHAIRMAN & THE CEO 3 LETTER FROM THE CHAIRMAN & THE CEO “Our strong performance in 2018 SHIFTING GEARS will result in a considerable cash return to shareholders, with the TO GROWTH aggregated value of dividends and share buy-back for the year totalling DKK 7.2bn.” Flemming Besenbacher Chairman of the Supervisory Board 2018 was a good year for the November 2015, came to an end in 2018. It The earnings delivery was an important driver STRATEGIC HEALTH: PROGRESS ON Carlsberg Group, with strong net has been very successful, delivering significantly of the ROIC improvement of 120bp and the SAIL’22 revenue, operating profit and more benefits than initially anticipated, and free cash flow of DKK 6.2bn. The free cash Our strategic health also improved during allowing us to invest more than DKK 1bn in our flow was also supported by a solid contribution 2018. Our strategy, SAIL’22, which was cash flow. The benefits from SAIL’22 priorities. Going forward, the mindset from trade working capital of DKK 1.9bn. launched in March 2016, is now well Funding the Journey were of the programme will prevail. Now embedded established and understood across the Group. partly reinvested to support in operations across the Group, the focus on During the year, we engaged in several M&A Among a number of positive achievements, we our strategic priorities. efficiency, costs and cash will remain an transactions, increasing our stakes in the would like to highlight the growth rates of our important driver of future value creation. Cambodian and Greek businesses to 75% and craft & speciality portfolio (+26%) and alcohol- 100% respectively, and acquiring a stake in the free brews in Western Europe (+33%). As a result, we are pleased to report improved During the year, we adjusted our earnings controlling shareholder of the Portuguese financial, strategic and organisational health of expectations twice. In August, we increased the business, bringing our total direct and indirect Our international brands and local power our business. full-year guidance from mid- to high-single- holding in Super Bock Group to 60%. Despite brands had a very good year, and in Asia we digit percentage organic growth, and in these investments, the net interest-bearing grew further in India and China, the latter FINANCIAL HEALTH: A YEAR OF STRONG October we further increased expectations to debt/EBITDA ratio at year-end was 1.29x, still supported by our “big city” approach. DELIVERY 10-11% organic growth in operating profit. well below our target of below 2.0x. With respect to our financial health, the first You can read about our SAIL’22 initiatives in results of the SAIL’22 growth priorities Thanks to the higher benefits from Funding the On the back of the strong results, the 2018 on pages 25-34. manifested themselves in organic net revenue Journey, good growth of our SAIL’22 priorities Supervisory Board will propose to the Annual growth of 6.5%, driven by solid price/mix of and higher volumes due to the aforementioned General Meeting that the payout ratio of Part of our strategy is our ambitious +2% and volume growth of 4.8%, although the warm weather, operating profit grew around 50% be maintained, resulting in a 13% sustainability programme Together Towards latter was helped by the warm summer in organically by 11% and the operating margin increase in the ordinary dividend to DKK 18.0 ZERO, based on our purpose of brewing for a several European markets and the timing of improved by 30bp to 14.9%. per share. In addition, the Board has initiated a better today and tomorrow. We are working the festive season in Asia. DKK 4.5bn share buy-back programme, hard to meet the programme’s targets within Net profit was DKK 5,309m and adjusted EPS leading to cash returns to shareholders of DKK carbon, water, responsible drinking and health Funding the Journey, which was a three-year was DKK 35.2, up 9% on 2017. 7.2bn for the year. You can read more about & safety, and our actions and achievements in profit improvement programme initiated in this on page 34. 2018 are outlined on pages 31-33 and CARLSBERG GROUP ANNUAL REPORT 2018 LETTER FROM THE CHAIRMAN & THE CEO 4 discussed in more detail in our Sustainability EXCEL IN EXECUTION Report. Chairman Flemming Besenbacher (left) and In September, we were excited to launch a CEO Cees ’t Hart in front of a showcase of our series of ground-breaking sustainability DraughtMaster™ system. This patented one- innovations for the Carlsberg brand, including way 20-litre PET keg system with no added CO2 the new Snap Pack, which, when fully rolled and a 31-day shelf life enhances the freshness out, will reduce plastic usage by up to 76%, and beer experience for consumers and allows equivalent to 1,200 tonnes of plastic – or 60 outlets to have greater on-tap variety and a million plastic bags – per year. Less plastic more user-friendly draught beer installation. means less reliance on fossil fuel-based packaging, thereby reducing carbon emissions. ORGANISATIONAL HEALTH: A WINNING ORGANISATION the Annual General Meeting in 2019. In During the past three years, there have been addition, Nancy Cruickshank stepped down several changes in the top-200 management from the Board in May to join the Group as team. Today, we have a strong group of Senior Vice President Digital Business leaders across the Group’s functions and Transformation. The Supervisory Board will markets. In 2018, we also welcomed our head propose the election of Lars Fruergaard of Group Commercial, Jessica Spence, to the Jørgensen, Domitille Doat-Le Bigot, Lilian Executive Committee. Fossum Biner and Majken Schultz as new members. In many areas, such as commercial, finance, supply chain, digital and data we further THANK YOU professionalised our ways of working. In digital, We would like to thank our shareholders for we accelerated our digital agenda with the their support. We would also like to express our establishment of a digital transformation team. appreciation to everyone in the Carlsberg Group for their cooperation, dedication and We also changed the incentive structure to enthusiasm in bringing SAIL’22 to life and achieve better alignment with our objectives, securing the successful delivery of Funding the Overall, our winning culture has become much Journey. Finally, we would like to acknowledge deeper embedded across the Group, and our the excellent relationships that we have with people are characterised by a winning spirit. our customers and suppliers, and to state our gratitude to our consumers around the world. CHANGES TO THE SUPERVISORY BOARD Lars Rebien Sørensen, Donna Cordner and Flemming Besenbacher Cees ’t Hart Nina Smith have notified the Supervisory Board Chairman CEO that they are not standing for re-election at 2019 Earnings expectations CARLSBERG GROUP ANNUAL REPORT 2018 2019 EARNINGS EXPECTATIONS 5 EXPECTATIONS 2019 EARNINGS EXPECTATIONS In 2019, we will continue to Our regional priorities will be to increase net FORWARD-LOOKING STATEMENTS execute on our SAIL’22 strategic revenue and the operating margin in Western This Annual Report contains forward-looking priorities in support of top- and Europe,
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