Carlsberg Breweries Group Annual Report 2019 As approved on the Company’s Annual General Meeting on 17 / 03 2020 Carlsberg Breweries A/S ________________________________________ J.C. Jacobsens Gade 1 1799 Copenhagen V Ulrik Andersen Denmark Chairperson of the meeting CVR no. 25508343 CARLSBERG BREWERIES GROUP ANNUAL REPORT 2019 MANAGEMENT REVIEW 2 MANAGEMENT FINANCIAL REVIEW STATEMENTS 2019 at a glance ....................................... 3 CONSOLIDATED FINANCIAL STATEMENTS Key figures .................................................. 4 Statements .......................................... 22 Financial Highlights .................................. 5 Notes ..................................................... 26 2020 earnings expectations .................. 7 Purpose and ambition ............................. 8 PARENT COMPANY FINANCIAL STATEMENTS Business model .......................................... 9 Statements .......................................... 88 SAIL’22 in action .................................... 10 Notes ..................................................... 91 SAIL’22 KPIs ............................................ 13 Capital allocation ................................... 14 REPORTS Risk management.................................. 15 Management statement ................ 103 Corporate governance .......................... 17 Auditor’s report ................................ 104 Supervisory Board ................................. 19 Forward-looking statements ............ 20 Management Review CARLSBERG BREWERIES GROUP ANNUAL REPORT 2019 MANAGEMENT REVIEW 3 2019 AT A GLANCE A YEAR OF GOOD PERFORMANCE 2019 was a year of good FINANCIAL HEALTH operating margin. ROIC improved carried out by Carlsberg A/S over a profit by 23.4%. We contributed performance, with organic Since the launch of SAIL’22 in early from 9.5% to 10.3%. The organic 12 month period from 6 February positively towards the SAIL’22 revenue growth, margin 2016, we have seen improved growth in operating profit was higher 2019. financial KPIs of organic operating expansion and strong cash financial performance, as evidenced than expected in last year’s Annual profit growth, improved ROIC and flow. by organic top- and bottom-line Report. STRATEGIC HEALTH optimal capital allocation. growth, strong cash flow and a SAIL’22 continues to define our ACTIVITIES OF THE GROUP healthy balance sheet. This has Our financial results are discussed on strategic agenda, and we saw good As part of our sustainability The Carlsberg Breweries Group enabled us to significantly increase pages 5-6. execution of our strategic priorities in programme, Together Towards comprise the beverage activities in the cash returns to the shareholder. 2019. Enabled by the Funding the ZERO, we have set clear targets for the Carlsberg Group. Carlsberg In 2019, we acquired the remaining Journey benefits, since 2016 we carbon, water, responsible drinking Breweries’ activities are focused on Organic revenue grew by 3.2%, the 25% of Cambrew in Cambodia and have strengthened our core beer and health & safety. During the year, the markets where the Group has the result of 3% price/mix and 0.1% the remaining 1.2% of Carlsberg business, increased the attractiveness we made progress on all of these. expertise and the right products to volume growth. These figures point Ukraine, giving us full ownership of of our portfolio with stronger craft & We are particularly pleased to report secure a leading position. Due to the to our ability to premiumise our both these businesses. In addition, speciality brands and alcohol-free that since 2015, we have reduced variation of the markets, the portfolio by offering attractive and we acquired a minority stake in the brews, and improved internal carbon emissions at our breweries by contribution to growth, earnings and desirable consumer propositions. The Chinese craft brewery Jing-A capabilities, for example within 30%, with five of our sites now development within the Group top-line growth was achieved Brewing Co. supply chain, the commercial area, carbon-neutral. differs, both at present and in the despite lapping a very hot 2018 innovation and digital. longer-term projections. summer in Western Europe and In line with our capital allocation Our Sustainability Report contains a facing a difficult competitive situation principles, we have invested in our As shown on page 13, performance wealth of data and a qualitative The Parent Company's main in Russia. business and maintained a leverage in 2019 against our SAIL’22 KPIs overview of our achievements to activities are investments in national of well below 2x net interest-bearing was positive. We saw volume growth date and our future plans. In the and international breweries as well The positive top line, combined with debt/EBITDA. In November 2019, of 16% in craft & speciality and 7% in 2019 report, we put special focus on as license and export business. The our continued focus on efficiencies the share capital was reduced alcohol-free brews. Gross brand our many partnerships, which are Parent Company has retail bonds and costs, led to organic operating through a cash distribution to contribution from core beer was up crucial for achieving our ambitious listed at the Luxembourg Stock profit growth of 10.7% and an Carlsberg A/S of DKK 4.5bn which 3%, and in Asia revenue grew targets. You can find highlights of Exchange. improvement of 100bp in our reflects the share buy-back that was organically by 12.3% and operating Together Towards ZERO on page 12. CARLSBERG BREWERIES GROUP ANNUAL REPORT 2019 MANAGEMENT REVIEW 4 KEY FIGURES FIVE-YEAR SUMMARY 2019 20181 20171 20161 20151 2019 20181 20171 20161 20151 Volumes (million hl) Statement of cash flows Beer 112.5 112.3 107.1 116.9 120.3 Cash flow from operating activities 12,285 12,103 11,855 9,601 9,943 Non-beer 22.4 20.8 19.2 21.9 21.5 Cash flow from investing activities -2,462 -5,875 -2,974 -796 -3,200 Free cash flow 9,823 6,228 8,881 8,805 6,743 DKK million Income statement Investments Revenue 65,902 62,503 60,655 62,614 65,354 Acquisition of property, plant and Gross profit 32,638 31,220 30,208 31,419 31,925 equipment and intangible assets, net -4,571 -4,006 -3,848 -3,814 -4,061 EBITDA 15,058 13,449 13,657 13,054 13,354 Acquisition and disposal of subsidiaries, net -9 -974 268 1,969 -33 Operating profit before special items 10,524 9,368 8,962 8,301 8,606 Special items, net 568 -88 -4,615 263 -8,455 Financial items, net -728 -718 -774 -1,237 -1,513 Financial ratios Profit before tax 10,364 8,562 3,573 7,327 -1,362 Gross margin % 49.5 50.0 50.0 49.8 50.2 Income tax -2,766 -2,395 -1,485 -2,402 -917 EBITDA margin % 22.8 21.5 22.5 20.8 20.4 Consolidated profit 7,598 6,167 2,088 4,925 -2,279 Operating margin % 16.0 15.0 14.8 13.3 13.2 Effective tax rate % 26.7 28.0 41.6 32.8 67.4 Attributable to Return on invested capital (ROIC) % 10.3 9.5 7.9 6.7 6.4 Non-controlling interests 908 824 806 371 344 ROIC excl. goodwill % 25.2 23.7 17.3 13.8 12.2 Shareholder in Carlsberg Breweries A/S (net Equity ratio % 34.6 32.5 35.5 35.0 29.2 profit) 6,690 5,343 1,282 4,554 -2,623 NIBD/equity ratio x 0.40 0.42 0.47 0.57 0.82 NIBD/EBITDA x 1.18 1.18 1.34 1.88 2.27 Statement of financial position Interest cover x 14.46 13.05 11.58 6.71 5.69 Total assets 112,149 107,178 103,361 115,913 113,501 Dividend per share (proposed) DKK 6,395 5,470 4,872 3,045 2,741 Invested capital 73,460 70,418 72,464 84,410 83,465 Payout ratio % 48 51 190 33 nm Invested capital excl. goodwill 28,758 27,695 30,173 39,752 41,401 Net interest-bearing debt (NIBD) 17,840 15,901 18,347 24,569 30,272 Employees Equity, shareholder in Carlsberg Breweries A/S 32,123 34,848 32,672 40,580 33,145 Full-time employees (average) 41,151 40,757 41,349 41,985 47,382 1 Comparative figures for 2015-2018 and 2015-2016 have not been restated to include IFRS 16 and IFRS 15 respectively. Please refer to section 9.2 General Accounting Policies in the consolidated financial statements for a definition and calculation of key figures and financial ratios. Management Review CARLSBERG BREWERIES GROUP ANNUAL REPORT 2019 MANAGEMENT REVIEW 5 FINANCIAL HIGHLIGHTS A STRONG SET OF RESULTS 2019 was a good year for the 1.4%, positively impacted by the our continued focus on driving Operating profit increased by the gain from the sales of Carlsberg Breweries Group. increased ownership in Cambrew efficiencies and maintaining tight organically by 10.7%, driven by former brewery sites in Norway Continued execution of our from August 2018. cost control. Excluding the higher strong growth in Asia and Western and Germany. strategic priorities supported marketing expenses, operating Europe, which more than offset the top- and bottom-line growth INCOME STATEMENT expenses declined organically by 2%. decline in Eastern Europe. Reported The brewery site in Hamburg, and margin expansion. Revenue was DKK 65.9bn. Organic Depreciation and amortisation operating profit was DKK 10.5bn, Germany, was sold in 2016 in growth was 3.2%, due to the positive increased by DKK 0.5bn to DKK corresponding to 12.3% growth. The connection with the commencement For 2019, the Group defined three 3% price/mix. Price/mix was 4.5bn, primarily related to the reported operating margin improved of a new greenfield brewery outside overall financial priorities: drive supported by the growth of premium implementation of IFRS 16 “Leases”. by 100bp to 16.0%. the city. The brewery site was organic revenue growth, maintain products and our value management transferred to the buyer in November tight cost control and continue to initiatives, including price increases. Operating profit before depreciation, Section 1 in the consolidated 2019, when the new brewery began exercise strict cash discipline.