IR CORPORATE PRESENTATION 2016 CONTENT
• Group overview & history • Strategy & Funding the Journey • Our brands • Financial performance • 2017 Outlook • Our regions • Western Europe • Eastern Europe • Asia • Financial policy & leverage • Sustainability • Share data • Find out more … • Disclaimer GROUP OVERVIEW & HISTORY THE CARLSBERG GROUP
24 Markets with # 1 or 2 positions 74% Volumes sold in # 1 or 2 markets No. 1 in Eastern Europe No. 2 in Western Europe 116.9 m.hl. of beer sold in 2016 8.6bn Free cash flow (DKK) in 2016
4 GROUP OWNERSHIP STRUCTURE
Carlsberg Free Foundation float
30% of capital 70% of capital 75% of votes 25% of votes
Carlsberg A/S Listed on Nasdaq OMX Copenhagen
100%
Carlsberg Breweries A/S
Operating companies
5 FOUNDED IN 1847 ON A PASSION FOR BEER, SCIENCE AND ART
1847 JC Jacobsen founds the Carlsberg Brewery on a hill outside of Copenhagen
1868 Carlsberg has international ambitions from the beginning and exports its first barrel of beer to Scotland JC Jacobsen has great ambitions for his brewery and to make sure his beer is brewed to the highest scientific standards he establishes the in 1868 Carlsberg Laboratory.
1882 JC’s son Carl Jacobsen builds his own brewery next to his father’s and calls it ”New Carlsberg”.
1904 The famous Carlsberg logo is designed by architect Thorvald Bindesbøll. This logo Carl Jacobsen has a great passion for art and architecture and creates is still used today. many spectacular buildings for his brewery. One of these is the impressive Elephant Gate welcoming visitors to his brewery.
6 THREE REGIONS
Western Europe Eastern Europe Asia Group
2016 % of total volume 47 24 29
2016 % of EBIT 54 18 28
7 STRATEGY & FUNDING THE JOURNEY SAIL‘22 - OUR AMBITION GUIDES US
…brewer in our markets
SUCCESSFUL PROFESSIONAL ATTRACTIVE Driving sustainable Excel with our customers in Delivering value for our top- and bottom-line insights, management and shareholders, employees growth service and society KPI KPI KPI Market share Customer satisfaction Operating profit Gross profit after logistics % scores ROIC Operating profit Free cash flow SAIL‘22 - SETTING SAIL WITH OUR FOUR PRIORITIES
STRENGTHEN CORE
POSITION FOR GROWTH
CREATE A WINNING CULTURE
DELIVER VALUE FOR SHAREHOLDERS SAIL‘22 - CLEAR PRIORITIES TO DELIVER SHAREHOLDER VALUE
STRENGTHEN POSITION FOR DELIVER VALUE THE CORE GROWTH FOR SHAREHOLDERS
Leverage Win in growing Organic growth in our strongholds categories operating profit
Excel Target ROIC in execution big cities improvement
Funding Grow Optimal the Journey in Asia capital allocation
CREATE A WINNING CULTURE SAIL’22: STRENGTHEN CORE – Leverage our strongholds REVITALIZE CORE BEER “We will leverage our strong beer brands and market positions to drive growth”
WHY Decline in beer consumption 82% of Carlsberg Group net sales as markets become come from local and international economically mature beer brands (core beer) HOW • Deliver streamlined portfolios of local and international beer brands • Improve and constantly renovate brand fundamentals on core brands (pack, taste, communication) • Increase consumer facing investment behind key brands • Improve OBPPC (occasion, brand, price, pack and channel) processes to drive value creation SAIL’22: STRENGTHEN CORE – Leverage our strongholds TRANSFORM OUR BUSINESS IN RUSSIA “Russia remains an important market and we understand what it takes to succeed”
WHY Eastern Europe has been and remains an important contributor to earnings
HOW • Fully leverage unique national brewery footprint and route-to- market set-up • Optimise efficiency of supply chain • Deliver a full portfolio of national leading brands, supplemented by strong regional offerings • Capitalize on and drive category in growing modern trade SAIL’22: STRENGTHEN CORE EXCEL IN EXECUTION “Strengthening strongholds and going for growth requires superior capabilities that will allow us to excel in execution” WHY In the beer category, quality, impact and efficiency of execution are key to success
HOW • Change our portfolio approach to be more consumer occasion and benefit driven • Manage complexity smartly • Excel in execution at the point of purchase • Step change our digital agenda to connect with consumers and customers more efficiently • Foster consumer-driven R&D SAIL’22: STRENGTHEN CORE FUNDING THE JOURNEY “Funding the Journey will improve cost and efficiency across our total business and provide funding for our strategy” WHY Bringing together all profit improvement initiatives in one single programme ensures a sharper focus and fast and impactful delivery
HOW • Focus on value management to achieve optimal balance between volume market share, gross profit after logistics margin and operating profit • Focus on supply chain efficiency to reduce material, production and logistics costs • Focus on operating expense efficiency to achieve more efficient marketing and reduce sales and administration costs • Net benefits by 2018 of DKK 1.5-2.0bn of which 50%. As generated, ~50% to be reinvested in our strategic choices and 50% to improve earnings SAIL’22: POSITION FOR GROWTH – Win in growing categories BUILD CRAFT AND SPECIALITY “We will actively shape the Craft and Speciality category, offering portfolios that win with consumers and customers” WHY 15% higher annual Craft beer share Gross profit/hl for craft volume growth increasing in Western craft exceeding beer vs. non-craft Europe average
HOW • A global portfolio of craft and speciality • Speciality brands such as Grimbergen • Authentic brands such as Jacobsen and Nya Carnegie • Accessible “crafty” line extensions on core brands such as Brewmasters Collection • Develop relevant capabilities in R&D, brewing and commercial • Support customers to grow the category • Already proven successes in Scandinavia SAIL’22: POSITION FOR GROWTH – Win in growing categories ACTIVELY SHAPE NAB “We will leverage growing health and wellness trends and our R&D capabilities to drive growth in non- alcohol” WHY 68% of consumers 3x higher growth of Gross profit/hl for aged 24-45 make non-alcoholic NAB exceeding beer conscious attempts to beverages vs average average consume healthily beer market
HOW • Drive non-alcoholic beer (NAB) as a category through both line extensions and stand-alone brands • Invest heavily in technological advantages to overcome taste barriers and offer healthier alternatives to consumers • Building on successes such as Tourtel and Carlsberg Nordic SAIL’22: POSITION FOR GROWTH TARGET BIG CITIES “Urbanisation trends provide new opportunities for us to generate incremental premium business”
WHY 70% live in cities by 2050 vs. 30 out of top 50 cities in 55% today; 30% higher urban the world without Carlsberg beer consumption compared to presence today avg. market HOW • Penetrating cities in existing geographies where no presence today • Enter attractive cities in new geographies • Asset-light model • Build positions in high margin categories and segments • Proven business model through our Export & License unit with Toronto as an example SAIL’22: POSITION FOR GROWTH GROW IN ASIA “We are well-placed to capture the premium category growth in Asia and will invest accordingly”
WHY Asia accounts for almost 40% of Asia accounts for 28% of Group profits the world beer consumption. but only 8% of operating profit generated in China, India and Vietnam, partly due to subscale positions
HOW • Strengthen current # 1 and 2 positions • Portfolio development to accelerate premiumisation • In the growth markets of Laos, Cambodia, Nepal • In the mature markets of Malaysia, Singapore, Hong Kong • Further build our position in China, India and Vietnam • Delivering a portfolio of brands • Increasing focus on international premium brands • Expansion in channels and geographies SAIL’22: CREATE A WINNING CULTURE CREATE A WINNING CULTURE “We will create a winning culture based on a team- based and high-performance approach and accountability” WHY To deliver on our choices we will build an engaging and winning culture with clear roles and accountability
HOW • Foster a strong team-based performance culture based on the principle of Alignment, Accountability, Action • Rigorous monthly reviews on business performance, realisation of Funding the Journey benefits and SAIL’22 priorities • Encourage and incentivise high-performance behaviour • Short-term and long-term incentive schemes clearly linked to financial targets and delivery of Funding the Journey benefits SAIL’22: DELIVER VALUE FOR SHAREHOLDERS ORGANIC GROWTH IN OPERATING PROFIT “Consistent profit growth is an important priority and will be achieved by the right balance of top- line and margin focus” WHY Improving organic operating profit is a confirmation of our ability to deliver growth and margin improvement
HOW Operating profit • Driving top-line growth • Applying the right balance between volume market share, gross profit after logistics margin and operating profit • Full delivery of Funding the Journey benefits '11 '12 '13 '14 '15 '22
Graph for illustrative purposes only SAIL’22: DELIVER VALUE FOR SHAREHOLDERS IMPROVEMENT IN ROIC “We will improve ROIC consistently, not only by improving earnings but also by reducing invested capital” WHY To drive a positive development in shareholder returns, we must improve the return on invested capital
HOW • Sweating fixed assets and financial Return on invested capital discipline when investing • Continuing the strong trajectory of optimising working capital • Delivering high cash conversion '11 '12 '13 '14 '15 '22
Graph for illustrative purposes only SAIL’22: DELIVER VALUE FOR SHAREHOLDERS OPTIMISING CAPITAL ALLOCATION “We will invest in profitable growth, and then reduce leverage and return more cash to shareholders”
WHY Our first priority is to invest in to our business to drive profitable growth.
HOW • Investing in initiatives that • Capital allocation targets1 drive profitable growth 1. NIBD/EBITDA < 2.0x • Initiatives to strengthen 2. Dividend pay-out ratio of 50% core • Excess cash to be redistributed • Growth opportunities through buy-backs and/or • Capabilities extraordinary dividends • Deviating from the above only if value-enhancing acquisition opportunities arise
1 In prioritised order SAIL’22 – PROGRESS IN 2016
STRENGTHEN POSITION FOR DELIVER VALUE THE CORE GROWTH FOR SHAREHOLDERS
Leverage Win in growing Organic growth in our strongholds categories operating profit
Excel Target ROIC in execution big cities improvement
Funding Grow Optimal the Journey in Asia capital allocation
CREATE A WINNING CULTURE STRENGTHEN CORE – GOOD MOMENTUM IN 2016
STRENGTHEN THE CORE • Development of new commercial LEVERAGE approach to strengthen portfolio and OUR STRONGHOLDS channel choices • Russia – sharpened commercial agenda EXCEL • Implementation of point-of-sale IN EXECUTION excellence tools • Hiring digital capabilities FUNDING THE JOURNEY • FtJ: approx. DKK 0.5bn of DKK 1.5-2.0bn benefits delivered in 2016
25 POSITION FOR GROWTH – MAJOR INVESMENTS IN 2016 AND 2017
POSITION FOR GROWTH • Good growth momentum behind craft & WIN IN GROWING speciality CATEGORIES • Growing existing NAB brands and developing new liquids TARGET BIG CITIES • Big city team in place with plans and concepts being finalised
GROW IN ASIA • Continued expansion of Tuborg in Asia
26 CREATE A WINNING CULTURE – SIGNIFICANT STEPS TAKEN IN 2016
CREATE A WINNING CULTURE
• Instilling a stronger team- and performance-based culture • Implementation of the 3As – Alignment, Accountability and Action • Changing incentive schemes to reflect new culture and 3A • Strengthening of top-leadership team – CFO joined in June – Change of leadership in Western Europe, Asia, and supply chain – Change of country MDs – Change of head of central functions
27 FUNDING THE JOURNEY – DELIVERING APPROX. DKK 0.5BN IN 2016
STRENGTHEN VALUE • Golden Triangle embedded THE CORE MANAGEMENT • 3% price/mix
SUPPLY CHAIN • Supply chain savings executed LEVERAGE OUR STRONGHOLDS EFFICIENCY • 1,200 SKUs removed • Further work on complexity reduction initiated
EXCEL OPERATING • Headcount reduction of 2,280 IN EXECUTION EXPENSE • Substantial OCM savings in Asia and Eastern EFFICIENCY Europe FUNDING • Outsourcing of share services THE JOURNEY • Intensified focus on indirect spend
RIGHT-SIZING OF • China: 17 sites closed or sold BUSINESSES • UK: Outsourcing of porterage and secondary logistics • Disposals in 2016: Danish Malting Group, Xinjiang Wusu asset swap, Carlsberg Malawi, VungTau, Sejet Disposals in 2017: Carlsberg Uzbekistan, United Romanian Breweries
28 DELIVER VALUE FOR SHAREHOLDERS – ON-TRACK IN 2016
DELIVER VALUE FOR SHAREHOLDERS
ORGANIC GROWTH IN OPERATING PROFIT • 5% organic operating profit growth
ROIC IMPROVEMENT • 110bp ROIC improvement
OPTIMAL • Net interest-bearing debt reduction of DKK 5.4bn CAPITAL ALLOCATION • Financial leverage reduced to 1.96x (2015: 2.34x) • Proposed 11% increase in dividend to DKK 10 – Increase in payout rate to 39%
29 OUR BRANDS A STRONG PORTFOLIO OF COREA STRONG BEER PORTFOLIO BRANDS … OF BRANDS
31 … CRAFT & SPECIALITY AND OURNON -INTERNATIONALALCOHOLIC BRANDS BRANDS
32 FINANCIAL PERFORMANCE NET REVENUE AND OPERATING PROFIT
DKK bn Net revenue DKK bn Operating profit 70 12 66.5 66.6 64.5 65.4 63.6 62.6 59.9 59.4 60.1 10.249 60 9.844 10 9.816 9.793 9.390 9.230
8.457 50 8.245 7.978 44.8 8 41.1 40
6 5.262 30
4.046 4 20
2 10
0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
34 OPERATING PROFIT AND EBITDA MARGINS
EBIT margin EBITDA margin
30% 40%
35% 25%
30%
20% 25%
15% 20%
15% 10%
10%
5% 5%
0% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Carlsberg Group Western Europe Carlsberg Group Western Europe Eastern Europe Asia Eastern Europe Asia
35 ADJUSTED EPS
DKK Adjusted EPS
40 37.8 35.6 36.1 36.0 35 34.1
29.9 30 27.3 25.4 25
20
15
10
5
0 2009 2010 2011 2012 2013 2014 2015 2016
36 AVERAGE TRADE WORKING CAPITAL AND FREE CASH FLOW
ATWC/net revenue DKK bn Free operating cash flow 5.0% 16
14 13.6 2.5%
12 11.0
0.0% 10.1 9.9 10 9.3 8.8 8.1 7.8 -2.5% 8 7.4
6 -5.0% 4.8 4.5
4
-7.5% 2
-10.0% 0 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
37 DIVIDEND PER SHARE AND PAY-OUT RATIO
Pay-out DKK ratio 12 42%
10.0 10 35% 9.0 9.0
8.0 8 28%
6.0 6 5.5 21% 5.0 4.8 4.8
4 3.5 3.5 14%
2 7%
0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
38 2017 OUTLOOK 2017 OUTLOOK
KEY FOCUS • Executing Funding the Journey and SAIL’22 priorities • Regional priorities
2017 FINANCIAL EXPECTATIONS – Mid single-digit percentage organic operating profit growth – Financial leverage reduction
OTHER ASSUMPTIONS • A translation impact on operating profit of around DKK +300m based on the spot rates as of 2 May
• Net financial costs, excluding currency gains or losses, at DKK 1.0-1.1bn
• Tax rate of just below 30%
• Capital expenditures of around DKK 4bn
40 OUR REGIONS – WESTERN EUROPE WESTERN EUROPE
NORWAY Ringnes • No. 1 SWEDEN • Market share: 55% FRANCE Carlsberg Sverige • Breweries: 2 Kronenbourg • No. 1 • No. 1 • Market share: 35% FINLAND • Market share: 28% • Breweries: 1 Sinebrychoff • Breweries: 1 • No. 1 Market share: 31% • POLAND • Breweries: 1 Carlsberg Polska • No. 3 • Market share: 17% • Breweries: 3 UK Carlsberg UK • No. 4 • Market share: 12% • Breweries: 1 SWITZERLAND Feldschlösschen BALTIC STATES • No. 1 Saku • Market share: 41% Aldaris • Breweries: 1 Svyturys-Utenos Alus • No. 1-2 • Market share: 26-41% • Breweries: 3
DENMARK Carlsberg Danmark GERMANY SOUTH EAST EUROPE ITALY • No. 1 Carlsberg Serbia (Northern) Carlsberg Italia • Market share: 54% Carlsberg Croatia Carlsberg Deutschland • No. 4 • Breweries: 1 Carlsberg Bulgaria • No. 1 • Market share: 7% Carlsberg Greece PORTUGAL • Market share: 17% • Breweries: 1 Unicer • Breweries: 2 • No. 2-3 • No. 1 • Market share: 16-27% • Market share: 47% • Breweries: 5 • Breweries: 1 42 WESTERN EUROPE – REGION CHARACTERISTICS
• Mature markets with strong tradition of beer consumption in many markets • Well-established retail structures – Shift from on-trade to off-trade • Flat to slightly declining markets. However, in recent years, beer category dynamics have improved slightly driven by – Innovations – Specialty/craft beers – Improved category perception • Market value growth • Front-end initiatives include – Value management – In-store execution – Driving craft, speciality and non-alcoholic brands • Efficiency initiatives include – On-going SKU rationalisation – Operating cost management – Optimising the centralised supply chain set-up
43 WESTERN EUROPE – 2016 HEADLINES
• ~1% market growth m.Hl / DKKbn 2015 Org. ∆ Acq. net FX 2016 • Market share decline Beer volume 50.2 -4% 0% 48.4 Other bev. volume 16.2 2% 0% 16.3 • Revenue down 1% organically Total bev. volume 66.4 -2% 0% 64.7
– Solid price/mix of 2% driven by value Net revenue 38.8 -1% 0% -2% 37.6 management focus Operating profit 5.3 3% 0% -2% 5.4 – Volume decline of 2% mainly due to Operating margin 13.7% 14.2% withdrawal from margin-dilutive contracts • 3% organic operating profit growth • 50bp operating margin improvement
44 WESTERN EUROPE – 2016 MARKET COMMENTS
THE NORDICS FRANCE POLAND • Market growth • 1% volume growth in a • Increased competition, • 3% volume decline due to market growing by 3% promotional pressure and Finland • Positive performance by negative channel mix • Solid price/mix from C&S, Carlsberg, Tourtel and C&S • Market share loss from value management and less • Mixed market share withdrawal from certain low-priced volumes performance customers • Good profit development
OTHER MARKETS • Turnaround in the UK progressing well ROIC • Solid profit development in Switzerland • Bulgaria, Greece and Italy +50bp delivering particularly good performance
45 WESTERN EUROPE – KEY FACTS
• 48m hl beer Pro rata beer volumes • 23 breweries
Poland Others, incl. Export & Licence
UK
Organic DKK bn 2016 2015 growth
Beer volumes (m hl) 48.4 50.2 -4% France
Other beverages (m hl) 16.3 16.2 +2%
Total volumes (m hl) 64.7 66.4 -2%
South East Net revenue 37.6 39.0 -1% Europe Nordic Germany EBITDA 7.1 7.0 +3% countries
EBIT 5.4 5.3 +3%
46 WESTERN EUROPE – PROFITABILITY AND RETURNS
EBIT and EBIT margin (rhs) Invested capital and ROIC (rhs) DKK bn DKK bn 6 18% 40 21%
35 18% 5 15%
30 15% 4 12% 25 12%
3 9% 20
9% 15 2 6% 6% 10
1 3% 3% 5
0 0% 0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Note: The calculation of invested capital was changed in 2014 (2013 numbers restated), after which goodwill and trademarks related to the acquisition in 2004 of Orkla’s 40% in Carlsberg Breweries have been allocated to the 47 relevant beverage segments (previously in non-bev. segment) DENMARK & SWEDEN
Carlsberg Danmark • Market position: No. 1 • Market share: 54% • 1 brewery • Key brands: Tuborg, Carlsberg, Jacobsen, Nordic
• Per capita consumption: 89 litres • On-trade share of total market, approx.: 26%
Carlsberg Sverige • Market position: No. 1 • Market share: 35% • 1 brewery • Key brands: Falcon, Pripps, Carlsberg, Nya Carnegie
• Per capita consumption: 47 litres (excl. border trade) • On-trade share of total market, approx.: 19%
48 NORWAY & FINLAND
Ringnes (Norway) • Market position: No. 1 • Market share: 55% • 2 breweries • Key brands: Ringnes, Tuborg, Carlsberg, E.C. Dahls, Brooklyn
• Per capita consumption: 58 litres • On-trade share of total market, approx.: 21%
Sinebrychoff (Finland) • Market position: No. 1 • Market share: 31% • 1 brewery • Key brands: Karhu, Koff, Nikolai, Carlsberg
• Per capita consumption: 83 litres • On-trade share of total market, approx.: 14%
49 GERMANY & POLAND
Carlsberg Polska • Market position: No. 3 • Market share: 17% • 3 breweries • Key brands: Okocim, Kasztelan, Harnas, Carlsberg, Somersby
• Per capita consumption: 102 litres • On-trade share of total market, approx.: 9%
Carlsberg Deutschland • Market position: No. 1 (Northern Germany) • Market share: 17% (Northern Germany) • 2 breweries • Key brands: Holsten, Astra, Dückstein, Carlsberg
• Per capita consumption: 105 litres • On-trade share of total market, approx.: 20%
50 UK & FRANCE
Carlsberg UK • Market position: No. 4 • Market share: 12% • 1 brewery • Key brands: Carlsberg, Tetley, Tuborg, Brooklyn
• Per capita consumption: 69 litres • On-trade share of total market, approx.: 46%
Kronenbourg (France) • Market position: No. 2 • Market share: 28% • 1 brewery • Key brands: 1664, Grimbergen, Carlsberg, Tuborg Skøll, Tourtel, Kronenbourg
• Per capita consumption: 31 litres • On-trade share of total market: 27%
51 SWITZERLAND & ITALY
Feldschlösschen (Switzerland) • Market position: No. 1 • Market share: 41% • 1 breweries • Key brands: Feldschlösschen, Cardinal, Carlsberg
• Per capita consumption: 54 litres • On-trade share of total market: 40%
Carlsberg Italia • Market position: No. 4 • Market share: 7% • 1 breweries • Key brands: Poretti, Bock, Carlsberg, Tuborg
• Per capita consumption: 27 litres • On-trade share of total market: 39%
52 BALTICS & SOUTH EAST EUROPE
Baltics (Estonia, Latvia, Lithuania) • Market position: No. 1-2 • Market share: 26-41% • 3 breweries • Key brands: Aldaris, Svyturys, Utenos, Saku, Carlsberg
• Per capita consumption: 59-87 litres • On-trade share of total market, approx.: 4-8%
South East Europe (Bulgaria, Croatia, Serbia, Greece) • Market position: No. 2-3 • Market share: 16-27% • 5 breweries • Key brands: Pan, Pirinsko, Shumensko, Lav, Mythos, Carlsberg, Tuborg, Somersby
• Per capita consumption: 35-78 litres • On-trade share of total market, approx.: 14-54%
53 PORTUGAL
Unicer (Portugal) • Market position: No. 1 • Market share: 47% • 1 breweries • Ownership share: 44% • Key brands: Super Bock, Carlsberg
• Per capita consumption: 46 litres • On-trade share of total market, approx.: 56%
54 OUR REGIONS – EASTERN EUROPE EASTERN EUROPE
RUSSIA Baltika • No. 1 • Market share: 35% • Breweries: 8
KAZAKHSTAN Derbes • No. 2 • Market share: 37% • Breweries: 1
UKRAINE Carlsberg Ukraine • No. 2 • Market share: 31% • Breweries: 3
AZERBAIJAN Baltika-Baku BELARUS • No. 1 Olivaria • Market share: 75% • No. 1 • Breweries: 1 • Market share: 29% • Breweries: 1
56 EASTERN EUROPE – REGION CHARACTERISTICS
• Russia - the main market in the region • Regional beer market value growth • Beer market decline in recent years driven by – Challenged macroeconomy – Unavoidable, significant price increases due to excise tax and FX-driven COGS increases – Changed regulation in Russia • Retail landscape in developing phase – Modern trade growing at a fast pace – Traditional trade still largest sales channel • Main focus – Stabilising our Russian business – Secure value growth through – Value management – Win in the growing sales channels – Driving our local, regional, national and international brands – Innovation – Superior commercial execution
57 EASTERN EUROPE – 2016 HEADLINES
• Beer markets impacted by challenging macro m.Hl / DKKbn 2015 Org. ∆ Acq. net FX 2016
environment Beer volume 32.3 0% 0% 32.4 • Flat organic beer volumes Other bev. volume 1.7 15% 0% 2.0 Total bev. volume 34.0 1% 0% 34.4 • Solid 7% price/mix mainly driven by price Net revenue 10.9 8% 0% -14% 10.2 increases Operating profit 1.9 12% 0% -16% 1.8
• Earnings growth and margin improvement Operating margin 17.4% 18.0% – 12% organic operating profit growth – 60bp operating margin improvement • Significant currency impact
58 EASTERN EUROPE – 2016 MARKET COMMENTS
RUSSIA • Market down ~1-2% due to continued challenging macro environment and consumer sentiment, partly offset by warm weather in Q3 • Market share of 34.5%1, with y/y improvement in H2 – Good performance of Carlsberg, Baltika 0 and 16% Zhigulevskoe • Strengthened position in Modern Trade Russia share of Group operating profit in 2016 • Volume growth of 1%, helped by easy comps (destocking) • Packaging formats changed to comply with PET restrictions
UKRAINE • Market decline of estimated 6-7% • Excise duty increase of 100% as per 1 January 2016 • Positive market share performance driven by Carlsberg and Lvivske • Solid margin improvements
1 Source: Nielsen Retail Audit, Urban & Rural Russia 59 EASTERN EUROPE – KEY FACTS
• 32m hl of beer Pro rata beer volumes • 14 breweries
Others
Russia
Ukraine
Organic DKK bn 2016 2015 growth
Beer volumes (m hl) 32.4 32.2 0%
Other beverages (m hl) 2.0 1.7 +15%
Total volumes (m hl) 34.4 34.0 +1%
Net revenue 10.2 11.0 +8%
EBITDA 2.6 1.9 +6%
EBIT 1.8 2.8 +12%
60 EASTERN EUROPE – PROFITABILITY AND RETURNS
EBIT and EBIT margin (rhs) Invested capital and ROIC (rhs) DKK bn DKK bn 6 30% 72 30%
5 25% 60 25%
4 20% 48 20%
3 15% 36 15%
2 10% 24 10%
1 5% 12 5%
0 0% 0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Note: The calculation of invested capital was changed in 2014 (2013 numbers restated), after which goodwill and trademarks related to the acquisition in 2004 of Orkla’s 40% in Carlsberg Breweries have been allocated to the 61 relevant beverage segments (previously in non-bev. segment) RUSSIA
Baltika • Market position: No. 1 • Market share: 35% • 8 breweries • Key brands: Baltika 3, Baltika 7, Bolshaya Kruzhka, Baltika Cooler, Zatecky Gus, Tuborg, Carlsberg, Holsten
• Per capita consumption: 47 litres • On-trade share of total market: 11%
Carlsberg Ukraine • Market position: No. 2 • Market share: 31% • 3 breweries • Key brands: Lvivske, Slavutich, Carlsberg, Baltika
• Per capita consumption: 40 litres • On-trade share of total market: 12%
62 RUSSIAN BEER MARKET DYNAMICS
Russian beer market Russian beer market, est. consumer value
m hl RUB bn 119 700
102 600
85 500
68 400
51 300
34 200
17 100
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
63 BELARUS & KAZAKHSTAN
Olivaria (Belarus) • Market position: No. 1 • Market share: 29% • 1 brewery • Key brands: Alivaria, Carlsberg, Holsten
• Per capita consumption: 45 litres • On-trade share of total market: 4%
Carlsberg Kazakhstan • Market position: No. 2 • Market share: 27% • 1 brewery • Key brands: Derbes, Irbis, Carlsberg, Tuborg
• Per capita consumption: 28 litres • On-trade share of total market: 11%
64 OUR REGIONS – ASIA ASIA
HONG KONG Carlsberg Hong Kong Ltd VIETNAM • No. 2 SEAB • Market share: 27% Hue Brewery Habeco • No. 4 LAOS • Market share: 10% • Breweries1: 2 Lao Brewery Co. CHINA • No. 1 (Western) • Market share: 96% • No. 1 • Breweries: 2 • Market share: 58% • Breweries: 27
NEPAL CAMBODIA Gorkha Brewery Cambrew • No. 1 • No. 1 • Market share: 70% • Market share: 45% • Breweries: 1 INDIA • Breweries: 1 Carlsberg India • No. 3 • Market share: 17% • Breweries: 7
SRI LANKA Lion Brewery Ceylon • No. 1 • Breweries: 1
MALAYSIA Carlsberg Brewery Malaysia Berhad • No. 2 • Market share: 37% • Breweries: 1
MYANMAR Carlsberg Myanmar • No. 4 SINGAPORE • Market share: 3% Carlsberg Singapore 1Excl. Habeco • Breweries: 1 • No. 2 • Market share: 21% 66 ASIA – REGION CHARACTERISTICS
• Portfolio of mature and growing beer markets • Beer market growth driven by – Expanding populations – Urbanisation – Rising disposable income levels – Growing economies – Relatively low per capita consumption • Varying competitive intensity contested by local as well as major international brewers • International presence mostly through joint ventures with local partners or equity stakes
67 ASIA
• 4% organic revenue growth m.Hl / DKKbn 2015 Org. ∆ Acq. net FX 2016 – 2% organic volume decline impacted by brewery Beer volume 37.8 -3% -2% 36.1 closures and market decline in China Other bev. volume 3.6 9% -10% 3.6 Total bev. volume 41.4 -2% -2% 39.7 – Solid 6% price/mix with strong mix improvement Net revenue 15.3 4% -3% -5% 14.7 from premium category growth Operating profit 2.8 6% -2% -4% 2.8
• Continued earnings growth Operating margin 18.2% 19.1% – +6% organic operating profit growth – Operating margin improvement of 90bp
68 ASIA – MARKET COMMENTS
CHINA INDIA • Market decline of an estimated 4% • Volumes up 16% • Volumes down by 6% due to market decline and brewery • Market growth of ~3% closures • Estimated 16% market • Positive mix supported by continued strong performance of share Tuborg and 1664 Blanc • Strong margin improvement from premium growth and network optimization
INDOCHINA • Tuborg launched in Vietnam, Laos and TUBORG Cambodia • Continued strong performance in Laos +15% • Market share loss in Cambodia Growth in Asia
69 ASIA – KEY FACTS
• 38m hl of beer Pro rata beer volumes • 42 breweries Others Malaysia & Singapore China
India
Organic DKK bn 2016 2015 growth
Beer volumes (m hl) 36.1 37.8 -3%
Other beverages (m hl) 3.6 3.6 +9%
Total volumes (m hl) 41.4 -2%
Net revenue 14.7 15.3 +4% Indochina
EBITDA 4.2 4.2 +6%
EBIT 2.8 2.8 +6%
70 ASIA – PROFITABILITY AND RETURNS
EBIT and EBIT margin (rhs) Invested capital and ROIC (rhs) DKK bn DKK bn 3.0 24% 28 14%
24 12% 2.5 20%
20 10% 2.0 16%
16 8%
1.5 12%
12 6%
1.0 8% 8 4%
0.5 4% 4 2%
0.0 0% 0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
71 CHINA AND HONG KONG
China • Market position, western China: No. 1 (national: no. 5) • Market share, western China: 58% (national: ~5%) • 27 breweries through fully or partly owned businesses • Ownership share: 50-100% • Key brands: Tuborg, 1664, Carlsberg, Shancheng, Chongqing, Wusu, Dali, Huang He, Xixia
• Per capita consumption: 27 litres • On-trade share of total market: 49%
Carlsberg Hong Kong • Market position: No. 2 • Market share: 27% • 0 breweries • Ownership share: 100% • Key brands: Carlsberg
• Per capita consumption: 24 litres • On-trade share of total market: 29%
72 CHINA
Wusu Xinjiang Beer Group Lanzhou Group Ningxia Group Ownership share 100% Ownership share 50% Ownership share 70%
Xinjiang
Gansu Lhasa Brewery Ownership share 50% Ningxia Qinghai
Tibet
Sichuan Chong- qing
Hunan Guiyang
Qinghai Huang He Brewery Yunnan Guangdong Guangxi Ownership share 50% Guangdong Ownership share 99%
Yunnan Group Chongqing Brewery Company Ownership share 100% Ownership share 60%
73 MALAYSIA AND SINGAPORE
Carlsberg Malaysia • Market position: No. 2 • Market share: 37% • 1 brewery • Ownership share: 51% • Key brands: Carlsberg
• Per capita consumption: 6 litres • On-trade share of total market: 70%
Carlsberg Singapore • Market position: No. 2 • Market share: 21% • 0 brewery • Ownership share: 51% • Key brands: Carlsberg
• Per capita consumption: 22 litres • On-trade share of total market: 49%
74 VIETNAM AND LAOS
Vietnam • Market position: No. 4 • Market share: 10% • 2 breweries (excl. Habeco) • Ownership share: 17-100% • Key brands: Huda, Huda Gold, Huda Cool and Halida, Carlsberg, Tuborg
• Per capita consumption: 34 litres • On-trade share of total market: 43%
Lao Brewery (Laos) • Market position: No. 1 • Market share: 96% • 2 breweries • Ownership share: 61% • Key brands: Beer Lao, Carlsberg, Tuborg
• Per capita consumption: 45 litres • On-trade share of total market: 57%
75 CAMBODIA
Cambrew (Cambodia) • Market position: No. 1 • Market share: 45% • 1 brewery • Ownership share: 50% • Key brands: Angkor Beer, Carlsberg, Tuborg
• Per capita consumption: 41 litres • On-trade share of total market: 12%
Myanmar (brewery opened in May 2015) • Market position: No. 4 • Market share: 3% • 1 brewery • Ownership share: 51% • Key brands: Yoma, Tuborg
• Per capita consumption: 8 litres • On-trade share of total market: 55%
76 INDIA AND NEPAL
Carlsberg India • Market position: No. 3 • Market share: 17% • 7 breweries (incl.Bihar which is currently shut down due to imposed alcohol ban) • Ownership share: 100% • Key brands: Tuborg, Carlsberg
• Per capita consumption: 2 litres • On-trade share of total market: 16%
Gorkha Brewery (Nepal) • Market position: No. 1 • Market share: 70% • 1 brewery • Ownership share: 90% • Key brands: Gorkha, Tuborg
• Per capita consumption: 3 litres • On-trade share of total market: 76%
77 FINANCIAL POLICY & LEVERAGE COMMITMENT TO INVESTMENT GRADE
• Rated by Fitch and Moody’s since January 2006
• Long Term Issuer Rating: BBB • Rating: Baa2 • Outlook: Stable • Outlook: Stable • Date: 21-02-2011 • Date: 16-11-2016 “Fitch Ratings expects that Carlsberg Breweries A/S’s profile will “Carlsberg's Baa2 long-term ratings are supported by the remain stable and commensurate with a 'BBB' rating, despite ongoing macro-economic and geopolitical issues in eastern company's (1) large scale as the world's third-largest brewer, Europe. Carlsberg’s tight credit metrics for 2014 do not fully align with leading positions in some of its key European and Asian with its IDR, but Fitch believes Carlsberg will be able to reduce markets, including Russia; (2) increasing geographic leverage in 2015 whilst still investing in supporting the long-term diversification; and (3) solid cash flow generation supporting sustainability of its business” (26-05-2015) gross debt reduction. The ratings also factor in Carlsberg's (1) significant exposure to Eastern Europe and Russia in particular, where trading conditions remain challenging; (2) weaker margins compared to rated global peers, reflecting a higher exposure to competitive beer markets in Western Europe as well as to different local distribution models; and (3) credit metrics that are currently weak for the rating but are expected to improve over the next 6 to 12 months (i.e. by mid late 2017).” (16-11-2016)
79 CARLSBERG GROUP FINANCING
• Committed to maintaining investment grade • EUR 1,000m Bond maturing in Oct 2017 and credit rating EUR 750m Bond maturing in 2019 • Centralised funding and risk management at the • EUR 750m Bond maturing in 2022 level of Carlsberg Breweries A/S • EUR 1,000m Bond maturing in 2024 • Diversified sources of funding and smooth maturity profile • EUR 2,510m credit facility committed until 2021 • Ample capital resources available at all times
Time to maturity Committed non-current credit facilities non-current borrowings and net financial debt DKK DKK 14 60
12 48 10
8 36
6 24 EUR 1 bn 2,5% 4
EUR 750 m EUR 750 m 12 2 2,625% 2,625%
0 1-2 years 2-3 years 3-4 years 4-5 years > 5 years 0 2016 2017 2018 2019 2020-> 80 CONTINUED FOCUS ON CASH GENERATION AND DELEVERAGING
Target net interest bearing debt (SAIL’22) Gross financial debt at 31 December 2016 of DKK 30,204m • Net interest bearing debt/Operating profit before depreciation and amortisation < 2.0x • 70% of gross financial debt is long term • NIBD/EBITDA at 31 December 2016: 1.96 • 76% of net financial debt at fixed rates • NIDB at 31 December 2016: DKK 25,503m • 61% of gross financial debt is non-current bonds
NIBD / EBITDA Gross Financial Debt – Allocation (%)
5x
4x 29%
3x 2.71 2.74 2.55 2.30 2.39 2.35 2.34 1.96 2x 5% 61% 1% 4%
1x
Non-current issued bonds x Non-current bank borrowings 2009 2010 2011 2012 2013 2014 2015 2016 Non-current mortgages Current bank borrowings Other current- and non-current borrowings 81 FUNDING PORTFOLIO TO MEET CARLSBERG’S STRATEGY
Committed credit facilities Utilisation of funding sources • Committed credit facilities at 31 December 2016 Funding portfolio requires rebalancing due to high of DKK 49,592m bond ratio and little flexible debt: • Credit resources available at 31 December 2016 of DKK 13,464m • No immediate refinancing need • Credit resources available is defined as • Reduce bond ratio to achieve flexibility unutilised non-current credit facilities and cash & cash equivalent less utilised current credit facilities
Committed credit facilities Utilisation of funding sources 2% 9% 4% 1%
45% 52%
86% 1% Bonds Mortgages Bonds Mortgages Bank borrowings Other credit facilities Bank borrowings Other credit facilities 82 FUNDING STRATEGY
Maturity Profile
DKK bn Bonds Other borrowings 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2017 2018 2019 2020 2021 2022 2023 2024
• Smoothening of maturity profile • Looking for maturities in gaps • Increase flexibility and ability to match liquidity • Keep part of the funding portfolio short-term • Will be open to PPs and reverse inquiries • Looking broadly and opportunistically at markets and funding sources • Smaller issues (than previously) • EUR 1bn bond maturing in Oct 2017 • Planning has started • Volume need not yet clear • Not open for pre-funding yet for carry reasons 83 SUSTAINABILITY OUR SUSTAINABILITY STRATEGY CONTINUES TO BE FOCUSED AROUND THREE KEY THEMES
FOCUSING ON THREE KEY THEMES
OPDATERES!! THEMES
RESOURCES & HEALTH & PEOPLE & ENVIRONMENT WELL-BEING POLICIES
FOR IMPLEMENTATION IN OUR VALUE CHAIN
85 Learn more at www.carlsberggroup.com/sustainability SUSTAINABILITY PERFORMANCE 2015 - SELECTED HIGHLIGHTS
OPDATERES!!
86 RESOURCES & ENVIRONMENT - OPTIMISING RESOURCE EFFICIENCY
Building a circular mindset Increasing brewing efficiency
OPDATERES!!
• 5-10% reduction in relative consumption for energy, water and CO2 • 17 partners in the Carlsberg Circular Community 2017 • 3 Cradle-to-Cradle® product certifications TARGETS • Annual consumer-facing sustainable packaging activity by all Group companies • Improve returnable packaging performance in production and in trade in markets where returnable packaging is part of the long-term packaging strategy 87 RESOURCES & ENVIRONMENT - HIGHLIGHTS
OPDATERES!!
88 HEALTH & WELL-BEING - CREATING A CULTURE OF RESPONSIBLE DRINKING
Promoting moderate Preventing underage Marketing our consumption drinking and drink driving products responsibly
OPDATERES!!
• All print communication above A4 and digital and TV commercials to carry responsible drinking messages • All Group companies to implement at least one responsible drinking programme 2017 • 100% of consumer-facing primary packaging to carry responsible drinking symbols to discourage TARGETS harmful drinking • 80% of consumer-facing primary packaging in Western Europe to carry information on ingredients and nutritional values 89 • Annually reach at least 20 million consumers through responsible drinking messaging and campaigns PEOPLE AND POLICES
Health & Business Labour & Community Responsible Safety Ethics Human Rights Engagement sourcing
SETTING STANDARDS OUR SUPPLIERS MUST CREATING A SAFE AND OUR POSITION ON ENGAGING AND TO CREATE ADHERE TO MINIMUM HEALTHY WORKING AMONG OTHERS ANTI- CONTRIBUTING TO THE WORKPLACES WHERE CSR STANDARDS IN ENVIRONMENT FOR CORRUPTION AND OPDATERES!!COMMUNITIES WHERE EMPLOYEES CAN FULFILL THEIR DAY-TO-DAY YOUR EMPLOYEES BRIBERY WE OPERATE THEIR POTENTIAL BUSINESS
• Increase diversity and female representation at senior leadership level 2017 • Reduce the Group lost-time accident rate by 40% TARGETS • Read more in the 2015 Sustainability report at www.carlsberggroup.com/sustainability
90 PARTNERING WITH STAKEHOLDERS
• Signatory of the UN Global Compact – The UN Global Compact promotes organisational integration of environmental, social and governance issues. • Signatory of the CEO Water Mandate OPDATERES!! – Taking part in the CEO water mandate helps us identify new ways to use our water resources more efficiently. • Caring for Climate platform – The Caring for Climate initiative provides us with a framework to advance solutions for climate change. • Partnering with UNIDO – In partnership with UNIDO, Carlsberg Group and Baltika Breweries have committed to invest RUB 1bn in environmental projects over the next five years. • CEO commitment to reduce harmful use of alcohol – Collective commitment among 13 CEOs of wine, beer and spirits producers to 10 targeted actions in support of WHO strategy to reduce harmful use of alcohol. • BIER – Beverage Industry Environmental Roundtable (BIER) consists of leading beverage companies working together on a variety of environmental stewardship initiatives.
91 SHARE DATA CARLSBERG SHARES AND OWNERSHIP END 2016
Key share data Major shareholders
Carlsberg A Carlsberg B Company Ownership 30% of capital No. of shares 33,699,252 118,857,554 The Carlsberg Foundation 75% of votes Currency DKK DKK Massachusetts Financial > 5% of capital Services Company NASDAQ OMX NASDAQ OMX Stock market Copenhagen Copenhagen
ISIN DK001018167-6 DK001018175-9 Geographical break-down of shareholders, free float1 Symbol CARL A CARL B Geography Ownership Reuters CARLa.CO CARLb.CO Denmark 18% Bloomberg CARLA DC CARLB DC USA 43% Votes per share 20 2 UK 18% Par value 20 20 Other 21%
1 Excluding The Carlsberg Foundation
93 CARLSBERG ADR PROGRAM (SPONSORED LEVEL 1)
ADR
Symbol CABGY
CUSIP 142795202
Exchange OTC
Ratio 5 ADRs: 1 ORD
Depositary JPMorgan
Effective Date 26 February 2010
U.S. ISIN US1427952023
Underlying SEDOL 4169219
Underlying ISIN DK0010181759
94 FIND OUT MORE … FIND OUT MORE …
• … about our heritage … • … about our corporate governance ... • … about our brands … • … about our sustainability efforts …
• … about the Carlsberg share and ADRs … • … download our 2016 annual report …
• … download quarterly financial data in excel … • … about the Carlsberg Foundation …
96 DISCLAIMER DISCLAIMER
Forward-looking statements This presentation contains forward-looking statements, including statements about the Group’s sales, revenues, earnings, spending, margins, cash flow, inventory, products, actions, plans, strategies, objectives and guidance with respect to the Group's future operating results. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words "believe", "anticipate", "expect", "estimate", "intend", "plan", "project", "will be", "will continue", "will result", "could", "may", "might", or any variations of such words or other words with similar meanings. Any such statements are subject to risks and uncertainties that could cause the Group's actual results to differ materially from the results discussed in such forward-looking statements. Prospective information is based on management’s then current expectations or forecasts. Such information is subject to the risk that such expectations or forecasts, or the assumptions underlying such expectations or forecasts, may change. The Group assumes no obligation to update any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. Some important risk factors that could cause the Group's actual results to differ materially from those expressed in its forward-looking statements include, but are not limited to: economic and political uncertainty (including interest rates and exchange rates), financial and regulatory developments, demand for the Group's products, increasing industry consolidation, competition from other breweries, the availability and pricing of raw materials and packaging materials, cost of energy, production and distribution related issues, information technology failures, breach or unexpected termination of contracts, price reductions resulting from market driven price reductions, market acceptance of new products, changes in consumer preferences, launches of rival products, stipulation of market value in the opening balance sheet of acquired entities, litigation, environmental issues and other unforeseen factors. New risk factors can arise, and it may not be possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on the Group's business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Accordingly, forward-looking statements should not be relied on as a prediction of actual results.
98