ANNUAL REPORT 2017 CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF 2 MANAGEMENT FINANCIAL REVIEW STATEMENTS Letter from the CONSOLIDATED FINANCIAL STATEMENTS Chairman & the CEO ................................ 3 Statements ...........................................52 Notes ......................................................57 IN BRIEF Our 2017 priorities ..................................... 5 PARENT COMPANY Golden triangle ............................................ 6 Statements ........................................ 125 Financial highlights .................................... 7 Notes ................................................... 129 Our markets.................................................. 8 Our brands .................................................... 9 REPORTS Management statement ................ 138 OUR RESULTS Auditor’s report ................................ 139 Financial review ....................................... 11 Five-year summary ............................... 14 Regional review........................................ 15 Earnings expectations ........................... 24 OUR STRATEGY Business model ........................................ 25 SAIL’22 ........................................................ 26 GOVERNANCE Risk management ................................... 32 GROW CRAFT & SPECIALITY Corporate governance ........................... 34 Remuneration ........................................... 40 Growing our craft & speciality portfolio is a Supervisory Board................................... 46 key priority of our SAIL’22 strategy. Our Executive Committee ............................. 49 craft & speciality portfolio approach focuses Shareholder information ...................... 50 on three segments: accessible crafty line extensions of our strong local power brands, such as Feldschlösschen Weizen, Hopfen and Dunkel; speciality beer brands such as Grimbergen and 1664 Blanc; and authentic craft champions, such as Brooklyn, Nya Carnegie in Sweden and Jacobsen in Denmark. CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF 3 LETTER FROM THE CHAIRMAN & THE CEO “The strong results in 2017 and A GOOD YEAR FOR the good progress of SAIL’22 give us confidence in the Group’s THE CARLSBERG GROUP ability to generate consistent top- and bottom-line growth.” Flemming Besenbacher Chairman of the Supervisory Board 2017, the second year of Funding the Journey as a specific programme margin improvement and investment in the Within capabilities, we introduced a new Funding the Journey and will reach its conclusion by the end of 2018. business, as well as achieving our financial segmentation methodology, which is now However, the focus on efficiency and costs is leverage and payout ratio targets. being embedded across our markets, and SAIL’22, delivered strong here to stay and is being embedded as a way increased our professionalism within value organic operating profit of living across the Group. PROGRESS ON SAIL’22 management. growth and cash flow. SAIL’22 is progressing according to plan. The DELIVERING ON OUR PROMISES strategy was designed to get the Carlsberg We are making good progress in developing Our overriding priorities for 2017 were the Thanks to the strong delivery of Funding the Group back to growth by taking action in a performance-driven culture, supported by execution of Funding the Journey and our Journey, the Group’s results were above our relation to our portfolio, capabilities and the implementation of systematic and critical SAIL’22 strategy. In particular, delivering on initial expectations for the year, with organic culture. The strategy has been well embraced management reviews, aligning Company Funding the Journey was very important for operating profit growth of 8.4% despite market by everyone in the Group, and during the year targets with incentives across the Group and enabling investments in our strategic priorities, challenges in Russia and a very bad summer in many activities were carried out in support of improving our management development. thereby fuelling the future growth of the parts of Europe. our well-defined strategic priorities. Carlsberg Group. We are now two years into our journey and our The earnings delivery was an important driver Examples of action in relation to our portfolio results so far make us confident that SAIL’22 We are pleased to announce that, as a result of the improvement in ROIC of 100bp and the include the further support of our craft & will generate organic top- and bottom-line of the good progress of the programme, strong free cash flow of DKK 8.7bn. The net speciality portfolio, which achieved overall growth going forward. we have been able to upwardly adjust the debt/EBITDA ratio at year-end was 1.45x, volume growth of 29%. A key enabler for our expected net benefits to around DKK 2.3bn. and as a result the Supervisory Board will premiumisation efforts in Western Europe is For more information on SAIL’22 initiatives in propose to the Annual General Meeting our proprietary draught system Draught- 2017, please read pages 26-31. This level of benefits means that more than that the ordinary dividend be increased by Master™, and during the year we accelerated half of the benefits is expected to improve 60% to DKK 16.0. This corresponds to an the roll-out of the system. In Asia, we A PURPOSE-DRIVEN COMPANY operating profit by the end of 2018, while the adjusted payout ratio of 50%, in line with our continued the support of Tuborg, which once In 2017, Carlsberg turned 170. Celebrating remainder is being invested in supporting the target stated in SAIL’22. again proved its popularity with consumers, our anniversary brought to the fore the strong SAIL’22 priorities. In 2017, Funding the Journey delivering 6% volume growth in the region in history of the Group, including our founders’ enabled SAIL’22 investments of around DKK The Board is content that, in just the second spite of a highly challenging Indian market. unwavering belief in quality, perfection and 500m. year of SAIL’22, the Group is able to deliver CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF 4 the importance of science for continuously THANK YOU »[Quote]« perfecting the art of brewing. We extend our thanks to our shareholders for their support and trust they have shown in the Their pioneering spirit, passion for brewing Group during 2017. and contributions to society have made us who we are. We focus on our brands and the We appreciate the cooperation, dedication and art of brewing, excite our consumers with enthusiasm of everyone in the Carlsberg Group quality brews and take pride in continuously in bringing SAIL’22 to life and delivering on striving to improve at everything we do. Funding the Journey. In a few words, our purpose is about Finally, we value the relationships we have brewing for a better today and tomorrow. with our customers and suppliers, and appreciate our many consumers around the Our strong results testify to our ability to brew world. for a better today, while our objective to brew for a better tomorrow will be supported by our new sustainability programme – Together Flemming Besenbacher Cees ’t Hart Towards ZERO – with major ambitions within Chairman CEO carbon footprint, water waste, responsible drinking and health & safety. CHANGES IN THE SUPERVISORY BOARD At the Annual General Meeting in March 2017, we said goodbye to independent Supervisory Board member Elisabeth Fleuriot, who did not stand for re-election. She was replaced by Nancy Cruickshank, who brings to the Board strong digital knowledge and substantial insight into the opportunities offered by new technology. Kees van der Graaf has notified the Supervisory Board that he is not standing for re-election at the Annual General Meeting in March 2018. The Board will propose the election of Magdi Batato, Head of Operations at Nestlé, who has a strong background in supply chain. From left: CEO Cees ’t Hart and Chairman Flemming Besenbacher 2017 PRIORITIES DELIVERING ON OUR PRIORITIES In 2017, we delivered organic WESTERN EUROPE operating profit growth of 8.4%. Operating margin ASIA improved by Top- and bottom-line This was driven by strong delivery EASTERN EUROPE growth; price/mix of Funding the Journey, which 130bp Organic operating profit growth of +5% also enabled investments in our strategic priorities to +12.2% drive future growth. 1.45x NET DEBT/EBITDA Financial leverage was significantly reduced to 1.45x as a result of the growth in operating profit and the strong free cash flow. Consequently, the Supervisory Board will propose a 60% increase in the dividend to DKK 16.0 per share, equal to an adjusted payout ratio of 50%. DKK 2.3bn OPTIMAL CAPITAL ALLOCATION THE JOURNEY IS FUNDED Funding the Journey showed good progress, delivering benefits faster than expected when it SUSTAINABILITY was launched in November 2015. We now anticipate STRONG RESULTS FOR OUR CRAFT that the programme will deliver benefits of around NEW AMBITIOUS TARGETS & SPECIALITY BRANDS 2.3bn by 2018. More than half of that will go towards We launched ambitious sustainability Our craft & speciality brands delivered very improving operating profit, still leaving sufficient for targets under our new programme Together strong results, growing volumes by 29%. investment in our SAIL'22 growth priorities. In 2017, Towards ZERO. Read more about this in our Our speciality brands Grimbergen and 1664 investment in SAIL'22 was around DKK 500m. Sustainability Report on carlsberggroup.com Blanc grew by 15% and 46% respectively. FUNDING THE JOURNEY