LETTER FROM THE CHAIRMAN & THE CEO

“Our strong performance in 2018 will result in a considerable cash return to shareholders, with the aggregated value of dividends and share buy-back for the year totalling DKK 7.2bn.” Flemming Besenbacher Chairman of the Supervisory Board Chairman Flemming Besenbacher (left) and CEO Cees ’t Hart in front of a showcase of our DraughtMaster™ system. This patented one-way 20-litre PET keg system with no added CO2 and a 31-day shelf life enhances the freshness and beer experience for consumers and allows outlets to have greater on-tap variety and a more user-friendly draught beer installation.

SHIFTING GEARS
TO GROWTH

2018 was a good year for the Carlsberg Group, with strong net revenue, operating profit and cash flow. The benefits from Funding the Journey were partly reinvested to support our strategic priorities.

As a result, we are pleased to report improved financial, strategic and organisational health of our business.

FINANCIAL HEALTH: A YEAR OF STRONG DELIVERY

With respect to our financial health, the first results of the SAIL’22 growth priorities manifested themselves in organic net revenue growth of 6.5%, driven by solid price/mix of +2% and volume growth of 4.8%, although the latter was helped by the warm summer in several European markets and the timing of the festive season in Asia.

Funding the Journey, which was a three-year profit improvement programme initiated in November 2015, came to an end in 2018. It has been very successful, delivering significantly more benefits than initially anticipated, and allowing us to invest more than DKK 1bn in our SAIL’22 priorities. Going forward, the mindset of the programme will prevail. Now embedded in operations across the Group, the focus on efficiency, costs and cash will remain an important driver of future value creation.

During the year, we adjusted our earnings expectations twice. In August, we increased the full-year guidance from mid- to high-single-digit percentage organic growth, and in October we further increased expectations to 10-11% organic growth in operating profit.

Thanks to the higher benefits from Funding the Journey, good growth of our SAIL’22 priorities and higher volumes due to the aforementioned warm weather, operating profit grew organically by 11% and the operating margin improved by 30bp to 14.9%.

Net profit was DKK 5,309m and adjusted EPS was DKK 35.2, up 9% on 2017.

The earnings delivery was an important driver of the ROIC improvement of 120bp and the free cash flow of DKK 6.2bn. The free cash flow was also supported by a solid contribution from trade working capital of DKK 1.9bn.

During the year, we engaged in several M&A transactions, increasing our stakes in the Cambodian and Greek businesses to 75% and 100% respectively, and acquiring a stake in the controlling shareholder of the Portuguese business, bringing our total direct and indirect holding in Super Bock Group to 60%. Despite these investments, the net interest-bearing debt/EBITDA ratio at year-end was 1.29x, still well below our target of below 2.0x.

On the back of the strong results, the Supervisory Board will propose to the Annual General Meeting that the payout ratio of around 50% be maintained, resulting in a 13% increase in the ordinary dividend to DKK 18.0 per share. In addition, the Board has initiated a DKK 4.5bn share buy-back programme, leading to cash returns to shareholders of DKK 7.2bn for the year. You can read more about this on page 34 (Annual report 2018).


STRATEGIC HEALTH: PROGRESS ON SAIL’22

Our strategic health also improved during 2018. Our strategy, SAIL’22, which was launched in March 2016, is now well established and understood across the Group. Among a number of positive achievements, we would like to highlight the growth rates of our craft & speciality portfolio (+26%) and alcohol-free brews in Western Europe (+33%).

Our international brands and local power brands had a very good year, and in Asia we grew further in India and China, the latter supported by our “big city” approach.

You can read about our SAIL’22 initiatives in 2018 on pages 25-34 (Annual report 2018).

Part of our strategy is our ambitious sustainability programme Together Towards ZERO, based on our purpose of brewing for a better today and tomorrow. We are working hard to meet the programme’s targets within carbon, water, responsible drinking and health & safety, and our actions and achievements in 2018 are outlined on pages 31-33 (Annual report 2018) and discussed in more detail in our Sustainability Report.

In September, we were excited to launch a series of ground-breaking sustainability innovations for the Carlsberg brand, including the new Snap Pack, which, when fully rolled out, will reduce plastic usage by up to 76%, equivalent to 1,200 tonnes of plastic – or 60 million plastic bags – per year. Less plastic means less reliance on fossil fuel-based packaging, thereby reducing carbon emissions.


ORGANISATIONAL HEALTH: A WINNING ORGANISATION

During the past three years, there have been several changes in the top-200 management team. Today, we have a strong group of leaders across the Group’s functions and markets. In 2018, we also welcomed our head of Group Commercial, Jessica Spence, to the Executive Committee.

In many areas, such as commercial, finance, supply chain, digital and data we further professionalised our ways of working. In digital, we accelerated our digital agenda with the establishment of a digital transformation team.

We also changed the incentive structure to achieve better alignment with our objectives, Overall, our winning culture has become much deeper embedded across the Group, and our people are characterised by a winning spirit.


CHANGES TO THE SUPERVISORY BOARD

Lars Rebien Sørensen, Donna Cordner and Nina Smith have notified the Supervisory Board that they are not standing for re-election at the Annual General Meeting in 2019. In addition, Nancy Cruickshank stepped down from the Board in May to join the Group as Senior Vice President Digital Business Transformation. The Supervisory Board will propose the election of Lars Fruergaard Jørgensen, Domitille Doat-Le Bigot, Lilian Fossum Biner and Majken Schultz as new members.


THANK YOU

We would like to thank our shareholders for their support. We would also like to express our appreciation to everyone in the Carlsberg Group for their cooperation, dedication and enthusiasm in bringing SAIL’22 to life and securing the successful delivery of Funding the Journey. Finally, we would like to acknowledge the excellent relationships that we have with our customers and suppliers, and to state our gratitude to our consumers around the world.

Flemming Besenbacher	Cees ’t Hart
Chairman	CEO