Royal Unibrew A/S Annual report for 2016 CVR no. 41 95 67 12 ROYAL UNIBREW ANNUAL REPORT 2016 CONTENTS MANAGEMENT REPORT 2 Contents Royal Unibrew at a Glance Governance Parent Company Financial Statements Royal Unibrew in Brief ................................................... 4 Shareholder Information ............................................... 34 Income Statement ......................................................... 100 Results for 2016 and Outlook for 2017 ......................... 5 Corporate Governance .................................................. 37 Statement of Comprehensive Income .......................... 100 Financial Highlights and Ratios .................................... 6 Risk Management ......................................................... 40 Balance Sheet................................................................ 101 Letter from the Chairman and the CEO ....................... 7 Remuneration ................................................................ 44 Cash Flow Statement .................................................... 102 Board of Directors and Executive Board ...................... 46 Statement of Changes in Equity ................................... 103 Contents of Notes .......................................................... 105 Strategy and targets Notes .............................................................................. 106 Strategy .......................................................................... 11 Corporate Social Responsibility Market outlook............................................................... 12 Corporate Social Responsibility .................................... 50 Royal Unibrew and Consumers .................................... 13 Other Information Royal Unibrew and Innovation ....................................... 14 Quarterly Financial Highlights and Ratios ................... 116 Royal Unibrew and Efficiency ........................................ 15 Management's Statement and Definitions of Financial Highlights and Ratios ............. 117 Local base ...................................................................... 16 Auditor's Report Group Structure ............................................................. 118 Financial targets, capital structure Management's Statement on the Annual Report ........ 61 Disclaimer ..................................................................... 119 and distribution policy ................................................... 17 Independent Auditor's Report ....................................... 62 Outlook for 2017 ............................................................ 18 Craft Beer at Royal Unibrew ......................................... 20 Consolidated Financial Statements Income Statement ......................................................... 66 Performance Statement of Comprehensive Income .......................... 66 Financial Review ............................................................ 22 Balance Sheet................................................................ 67 Western Europe ............................................................. 25 Cash Flow Statement .................................................... 68 Baltic Sea ....................................................................... 28 Statement of Changes in Equity ................................... 69 Malt Beverages and Exports ......................................... 31 Contents of Notes .......................................................... 71 Notes .............................................................................. 72 The Annual Report has been prepared in Danish and English. In case of discrepancy the Danish version shall prevail Royal Unibrew in Brief ROYAL UNIBREW ANNUAL REPORT 2016 Royal UNIBREW IN BRIEF MANAGEMENT REPORT 4 Royal Unibrew in Brief Malt Beverages Royal Unibrew is a leading beverage provider in a and Exports number of markets – primarily in Northern Europe, Italy and in the international malt beverage markets. 7% We produce, market, sell and distribute quality beverages with focus on branded products within beer, malt beverages and soft drinks as well as cider and long drinks. Western Our sales Europe 2,350 Our main markets are Denmark, Finland, Italy and Germany by segment 39% Number of as well as Latvia, Lithuania and Estonia. To these should be employees added the international markets comprising a number of established markets in the Americas region and major cities in Europe and North America as well as emerging markets Baltic Sea in for example Africa. 54% Craft beer In our multi-beverage markets, we offer our customers strong brands and locally based brands. Based on continuous development 1% Non-alcoholic and innovation, it is our objective to meet customer demand Premium/ beverages for quality beverages. super premium brands 43% In addition to our own brands, we offer licence-based inter- Net 30% Net Beer national brands of the PepsiCo and Heineken Groups. revenue 6,340 mDKK revenue 44% per brand Net revenue per product category for 2016 category Mainstream brands Other alcoholic 69% beverages 13% ROYAL UNIBREW ANNUAL REPORT 2016 RESULTS FOR 2016 AND OUTlooK FOR 2017 MANAGEMENT REPORT 5 Results for 2016 and Outlook for 2017 Best performance ever in 2016 Developments in 2016 • Considerably higher earnings despite challenging market conditions 5% 7% • Positive development in net revenue and earnings Net revenue increase for 2016 EBITDA increase for 2016 in all segments to DKK 6,340 million to DKK 1,306 million • Market shares generally maintained • EBITDA margin and EBIT margin increases • ROIC excluding goodwill up from 23% to 28% • Expected distribution in 2017 to shareholders of DKK 1 billion (2016: DKK 829 million) comprising • dividend of DKK 8.15 per share (2016: DKK 7.20), a total of DKK 440 million • new share buy-back programme of DKK 560 million (2016: DKK 450 million) 9% 15,8% EBIT increase for 2016 EBIT margin for 2016, Outlook for 2017 to DKK 1,001 million an increase of 0.6 percentage point Outlook Actual Actual (mDKK) 2017 2016 2015 Net revenue 6,250-6,450 6,340 6,032 EBITDA 1,285-1,385 1,306 1,225 EBIT 980-1,080 1,001 917 NET REVENUE EBITDA EBIT EBIT MARGIN (mDKK) (mDKK) (mDKK) (%) 6500 1400 1150 16 5900 1200 975 15 5300 1000 800 14 4700 800 625 13 4100 600 450 12 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 2013 2014 2015 2016 ROYAL UNIBREW ANNUAL REPORT 2016 FINANCIAL HIGHLIGHTS AND RATIOS MANAGEMENT REPORT 6 Financial Highlights and Ratios 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 Sales (million hectolitres) 9.7 9.1 7.0 5.4 5.7 EMPLOYEES Average number of employees 2,350 2,314 2,374 1,935 1,635 INCOME STATEMENT (MDKK) Net revenue 6,340 6,032 6,056 4,481 3,430 FINANCIAL RATIOS (%) EBITDA 1,306 1,225 1,130 732 611 Return on invested capital including goodwill (ROIC) 18 16 13 13 21 EBITDA margin (%) 20.6 20.3 18.7 16.3 17.8 Return on invested capital excluding goodwill (ROIC) 28 23 19 18 24 Earnings before interest and tax (EBIT) 1,001 917 826 560 485 Free cash flow as a percentage of net revenue 16 17 14 13 14 EBIT margin (%) 15.8 15.2 13.6 12.5 14.1 Cash conversion 130 145 132 125 128 Income after tax from investments in associates 28 31 35 34 34 Net interest-bearing debt/EBITDA (times) 0.8 1.0 1.4 2,3* 0.5 Other financial income and expenses, net -31 -46 -60 -46 -38 Equity ratio 48 43 40 31 47 Profit before tax 998 902 801 548 481 Return on equity (ROE) 27 25 25 28 28 Net profit for the year 784 711 624 480 373 Dividend payout ratio (DPR) 56 56 60 0 68 * calculated proforma with Hartwall's realised full-year EBITDA BALANCE SHEET (MDKK) Non-current assets 5,180 5,505 5,664 5,810 1,992 Ratios comprised by the “Recommendations and Financial Ratios 2015” issued by the Danish Society Total assets 6,076 6,748 7,024 6,925 2,848 of Financial Analysts have been calculated according to the recommendations. Equity 2,911 2,935 2,818 2,133 1,348 Net interest-bearing debt 991 1,184 1,553 2,379 321 Definitions of financial highlights and ratios are provided on page 117. Net working capital -881 -990 -814 -834 -179 Invested capital 4,111 4,347 4,650 4,813 1,671 CASH FLOWS (MDKK) Operating activities 985 1,160 895 653 497 Investing activities 38 -123 -69 -2,837 192 Free cash flow 1,022 1,032 824 598 476 SHARE RATIOS (DKK) Earnings per share (EPS) 14.7 13.0 11.3 9.2 7.1 Diluted earnings per share 14.6 12.9 11.2 9.2 7.1 Free cash flow per share 19.2 18.9 14.9 11.7 9.1 Dividend per share 8.15 7.2 6.8 0.0 4.8 Year-end price per share 272.6 280.1 217.4 147.2 98.4 ROYAL UNIBREW ANNUAL REPORT 2016 CEO LETTer MANAGEMENT REPORT 7 CEO letter Strategy delivers progress once again based on entrepreneurship, commercial focus and high efficiency 2016 was yet another good year for Royal Unibrew. Despite challenging market conditions in several of our markets, our earnings continued to increase, which should be viewed in light of, not least, many innovative measures across our organisation and our local presence with our consumers and customers. As a result of the earnings improvement combined with our outlook for the years ahead, we are increas- ing our medium-term EBIT target from 15% to 16%. At the same time, we are increasing distributions to DKK 1 billion as a combination of a higher dividend and the most extensive share buy-back programme in our history, ROYAL UNIBREW ANNUAL REPORT 2016 CEO LETTer MANAGEMENT REPORT 8 2016 was a satisfactory year for Royal Unibrew; we reinforced non-bureaucratic and value-adding business