Carlsberg A/S : Breweries Annual Report 2022

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Carlsberg Breweries Group

Annual Report 2022

CARLSBERG BREWERIES

ANNUAL REPORT 2022

MANAGEMENT FINANCIAL

REVIEWSTATEMENTS

TO OUR SHAREHOLDERS

CONSOLIDATED FINANCIAL STATEMENTS

Letter from the Chair & the CEO	3
5-year summary	5
2022 REVIEW AND 2023 EXPECTATIONS
Navigating 2022	6
Group	8
Capital allocation	12
2023 earnings expectations	13

Statements	31
Notes	35
PARENT COMPANY FINANCIAL
STATEMENTS
Statements	102
Notes	105
REPORTS

OUR STRATEGY
Our purpose	14
Business model	15
Our strategy: SAIL'27	16
GOVERNANCE
Corporate governance	23
Risk management	25
Supervisory Board	28
Forward-looking statements	29

OUR ANNUAL REPORTING

Management statement	117
Auditor's report	118

Please refer to the annual reporting suite of the Carlsberg Group, comprising the Environmental, Social & Governance Report and Remuneration Report, available at: www.carlsberggroup.com/investor-relations/investor-home/reports-downloads/The Carlsberg Group Annual Report includes the Group's voluntary report on its EU Taxonomy eligibility. It can be downloaded at: www.carlsberggroup.com/reports-downloads/carlsberg-group-2022-annual-report/The Environmental, Social & Governance Report serves as our statutory statement on corporate social responsibility in accordance with sections 99a, 99b and 99d of the Danish Financial Statements Act. It also forms the basis for our 2022 Communication on Progress to the UN Global Compact, which will be submitted in March 2023 in line with new requirements. It can be downloaded at: www.carlsberggroup.com/reports-downloads/carlsberg-group-2022-esg-report/

Unless otherwise stated, comments and figures in this report refer to the continuing operations. From 1 January 2022, the Russian business is presented as held for sale. 2021 figures have been restated according to IFRS.

To our shareholders

CARLSBERG BREWERIES GROUP ANNUAL REPORT 2022 TO OUR SHAREHOLDERS

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LETTER FROM THE CHAIR & THE CEO

STRONG RESULTS

IN A CHALLENGING YEAR

2022 was a year of great contrasts. Despite significant challenges, Carlsberg delivered strong results and increased cash returns to shareholders.

During the year, our business was impacted by the horrible war in Ukraine. We remain deeply disturbed by the human tragedy unfolding there. Throughout the year, our first priority was the safety and wellbeing of our Ukrainian colleagues, whose resilience, courage and strength continue to make a profound impression on everyone at Carlsberg.

The war led us to take the very difficult decision to seek a full disposal of our business in Russia. We deeply regret the consequences of this decision for our more than 8,000 employees in Russia, many of whom have been loyal and valued members of the Carlsberg family for many years.

ACTIVITIES OF THE GROUP

The Carlsberg Breweries Group comprise the beverage activities in the Carlsberg Group. Carlsberg Breweries' activities are focused on the markets where the Group has the expertise and the right products to secure a leading position. Due to the variation of the markets, the contribution to growth, earnings and development within the Group differs, both at present and in the longer-term projections.

The Parent Company's main activities are investments in national and international breweries as well as license and export business. The Parent Company has retail bonds listed at the Luxembourg Stock Exchange.

FINANCIAL HEALTH

Despite the immense challenges faced by our business in the past three years, the financial health of the Group remains very strong.

Organic revenue growth in 2022 was 15.6%. This was supported by a diminishing impact of COVID-19 in most markets, and subsequently very good recovery of the on-trade and price increases during the year.

Operating profit grew organically by 10.6% despite the increase in commodity prices and energy costs, and our decision to increase marketing investments. Reported operating profit amounted to DKK 11.3bn. Free cash flow was DKK 9.4bn and ROIC improved by 300bp to 18%.

Continuous uncertainty and volatility were a fact of life for our business in 2022. In early March, we had to suspend our earnings guidance for the year due to the considerable uncertainty posed by the war in Ukraine. Six weeks later, we reinstated guidance and, thanks to early reopening of breweries in Ukraine and better-than-expected

performance in many markets across our regions, we were able to increase our earnings guidance twice - in August and October.

Read more about the Group's financial results on pages 8-11.

STRATEGIC HEALTH

2022 marked the year when our SAIL'22 strategy came to an end, having successfully guided our journey since 2016. Setting sail for the next five years, we launched our new strategy, SAIL'27, in early February.

As its name suggests, SAIL'27 builds on the very strong foundation of SAIL'22. Going forward towards 2027, we are sharpening our focus, making distinct choices for our portfolio, markets, execution and winning culture, and raising our financial ambitions.

Within a month of the launch of SAIL'27, the world and our business changed dramatically due to the Russian invasion of Ukraine. Despite the consequences of this, our business fundamentals remain strong, and our ambitions and priorities for SAIL'27 are unchanged. We also remain confident in our ability to deliver on our top- and bottom-line growth ambitions.

Read more about SAIL'27 on pages 16-22.

SOCIETAL HEALTH

In August, we launched our enhanced ESG programme, Together Towards ZERO and Beyond (TTZAB), addressing the environmental, social and governance (ESG) topics that impact our stakeholders and our business most significantly, with milestones set for 2030 and 2040.

With TTZAB, we aspire to achieve net zero carbon emissions across

CARLSBERG BREWERIES GROUP ANNUAL REPORT 2022 TO OUR SHAREHOLDERS

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the entire value chain by 2040 - supported by new ambitions and targets within agriculture and packaging - and we also raise our ambition levels and sharpen our targets for other topics, such as water, responsible drinking, diversity, equity & inclusion (DE&I), human rights and community engagement.

TTZAB is embedded in SAIL'27 as a key mechanism for mitigating risks, accomplishing strategic objectives and demonstrating our company's purpose through concrete targets, actions and results.

Read more about TTZAB on pages 21-22, and in detail in the ESG Report.

ORGANISATIONAL HEALTH

On 10 November, we celebrated Carlsberg's 175th anniversary, which symbolically coincided with International Quality Day. We can reflect on 175 years of pursuing better - with a pioneering spirit, curiosity and a quenchless thirst for progress.

We have always looked to brew beers that exceed consumer expectations each time - and we will continue to do so. This can only be achieved by excellent people, and we are proud to pay tribute to our excellent colleagues in all markets and functions for their great work

and outstanding efforts in living the spirit of our founder and our purpose of brewing for a better today and tomorrow every day.

In 2022, we further intensified our DE&I efforts. Diversity is in our DNA. Our employees cover demographics far and wide - across nationalities, cultures, religions, sexuality, ability and beliefs.

We believe that nurturing a diverse, equitable and inclusive workforce will support our company performance and help us achieve our financial ambitions. We have therefore set time-bound targets for 2024 and 2027, which will be included in

the variable remuneration for management. Long term, our ambition is to have at least 40% of the under-represented gender

• currently women - in senior leadership roles.

Read more about our DE&I efforts on page 20 and in detail in the ESG Report.

CHANGES TO EXECUTIVE BOARD

At the end of 2022, we said farewell to our CFO, Heine Dalsgaard. We want to thank Heine for his significant contribution to the Carlsberg Group during his time with us, not least his relentless efforts to embed our Funding the Journey

culture with its focus on cost and cash.

We were very pleased to welcome Ulrica Fearn as our new CFO from 1 January 2023. Ulrica brings strong international financial experience from multiple senior positions in global companies and industries, most recently as CFO of Equinor in Norway. Prior to that, she had 19 years of experience in the beverage industry.

LOOKING AHEAD

2023 will be another challenging year. We will need to increase our prices to offset continued increases in our costs. While beer historically has been a resilient consumer category, the higher prices in combination with the general high inflation may have a negative impact on beer consumption in some of our markets, particularly in Europe.

In addition, the development of the war in Ukraine and the impact on our business and the COVID-19 recovery in China remain highly uncertain.

We will address these challenges by leveraging our strong commercial programmes and well-embedded performance management systems, tools and capabilities, while maintaining investments in our SAIL'27 priorities and ambitions to drive long-term profitable growth. In

addition, we will benefit from our diversified geographical footprint, including our exposure to growth markets in Asia.

THANK YOU

Once again this past year, we were impressed by the high level of engagement and commitment from the Group's employees, and we would like to say thank you to each and every one of them. In particular, we want to acknowledge our long- suffering colleagues in Ukraine.

We greatly appreciate the continued support and trust shown to us by our shareholders. We also extend our thanks to all suppliers and customers for their cooperation during 2022, and express our gratitude to our consumers around the world.

Henrik	Cees
Poulsen	't Hart
Chair	CEO

5-YEAR SUMMARY

KEY

FIGURES

Key figures and financial ratios in 2022 are presented for continuing activities unless otherwise stated. 2021 figures have been restated accordingly

		2022	2021	2020	2019	2018¹
Volumes (million hl)
Beer	102.4	98.8	110.1	113	112.3
Other beverages	23.0	20.4	20.0	21.9	20.8
DKK million
Income statement
Revenue	70,265	60,097	58,541	65,902	62,503
Gross profit	32,067	28,569	28,361	32,638	31,220
EBITDA	15,485	14,367	14,094	15,058	13,449
Operating profit before special items	11,313	10,137	9,718	10,524	9,368
Special items, net	-94	623	-244	568	-88
Financial items, net	-714	-385	-403	-728	-718
Profit before tax	10,505	10,375	9,071	10,364	8,562
Income tax	-1,844	-2,115	-2,240	-2,766	-2,395
Profit for the period, continuing operations²	8,661	8,260	6,831	7,598	6,167
Net result from Russian operations held for sale	-6,490	-284	-	-	-
Profit for the period	2,171	7,976	6,831	7,598	6,167
Attributable to
Non-controlling interests	1,171	1,163	778	908	824
Shareholder in Carlsberg Breweries A/S (net
profit)	1,000	6,813	6,053	6,690	5,343
Statement of financial position
Total assets	105,798	114,738	108,100	112,092	107,178
Invested capital	50,463	52,846	69,555	73,403	70,418
Invested capital excl. goodwill	17,931	19,575	27,269	28,479	27,695
Net interest-bearing debt (NIBD)³	19,696	18,843	20,092	17,840	15,901
Equity, shareholder in Carlsberg Breweries A/S		22,481		34,079		28,815		32,124		34,848

1 Comparative figures for 2018 have not been restated to reflect IFRS 16. 2 Comparative figures for 2018-2020 include profit from the Russian operations. 3 Comparative figures for 2021 have not been restated.

CARLSBERG BREWERIES GROUP ANNUAL REPORT 2022 TO OUR SHAREHOLDERS

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				2022	2021	2020	2019			2018¹
Statement of cash flows
Cash flow from operating activities				12,794	11,818	10,866	12,285			12,103
Cash flow from investing activities				-3,403	-3,965	-5,867	-2,462			-5,875
Free cash flow				9,391	7,853	4,999	9,823			6,228
Investments
Acquisition of property, plant and
equipment and intangible assets, net				-4,225	-3,897	-4,386	-4,571			-4,006
Acquisition and disposal of
subsidiaries, net				-	-621	-2,409	-9			-974
Financial ratios
Gross margin	%		45.6	47.5	48.4	49.5			50.0
EBITDA margin	%		22.0	23.9	24.1	22.8			21.5
Operating margin	%		16.1	16.9	16.6	16.0			15.0
Effective tax rate	%		17.5	20.4	24.7	26.7			28.0
Return on invested capital (ROIC)	%		18.0	15.0	10.5	10.3			9.5
ROIC excl. goodwill	%		49.9	39.9	27.1	25.4			23.7
NIBD/EBITDA		x	1.27	1.34	1.43	1.18			1.18
Dividend per share (proposed)		DKK	7,420	6,986	6,520	6,395			5,470
Payout ratio		%		370		51		54		48			51

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.