Cees 't Hart - CEO Heine Dalsgaard - CFO Peter Kondrup - VP, IR

Simon Hales - Barclays Capital Trevor Stirling - Bernstein Jonas Hansen - Carnegie Sanjeet Aujla - Credit Suisse Andrew Holland - Societe Generale Hans Gregersen - Nordea Tristan van Strien - Deutsche Bank Soren Samsoe - SEB Olivier Nicolai - Morgan Stanley Ed Mundy - Jefferies Alicia Forry - Liberum Capital Anthony Bucalo - HSBC Cees 't Hart: Good morning everybody and welcome to Carlsberg's Full Year 2016 Results Conference Call. My name is Cees 't Hart and I have with me our CFO, Heine Dalsgaard, and Vice President Investor Relations, Peter Kondrup. 2016 was a good year for Carlsberg. We are satisfied with our financial performance and we took significant steps to become a more successful company. An important milestone in the year was our new strategy, SAIL'22. Our new strategic priorities are now well integrated in the plans for 2017. Funding the Journey is an important element of SAIL, and we are of course pleased to deliver the first benefits of the program which were realized faster than originally anticipated. Please turn to Slide 3 and the golden triangle which are the key KPIs we use to measure our performance, market share, gross profit after logistics margin and operating profit. We continuously aim to strike the optimal balance between these KPIs, as we believe this is the key to drive sustainable value growth. For 2016, achieving the balance meant that volumes declined organically by 2%, partly due to some deliberate decisions to go out of margin dilutive volumes. On the other hand, we delivered a very solid depot margin improvement of 140 basis points, which was mainly driven by favorable price mix. In organic operating profit growth we also saw a solid delivery of 5%. This was actually higher than anticipated at the beginning of the year, for which reason we upgraded our guidance in November. Please turn to Slide 4 and a few comments on the status of SAIL'22. Overall SAIL'22 got off to a good start. Execution of Funding the Journey was the main priority for 2016. It is progressing very well and we are on track to deliver the full benefits of DKK1.5 billion to DKK2 billion. We are determined to achieve a substantial proportion of the remaining Funding the Journey benefits in 2017 as this will allow us to grow earnings organically and invest in SAIL'22 related activities to support the future growth of the Company. With respect to the other elements of the strategy, we are well on track, and we will see the priorities come alive in 2017. Let me give you some more color on this. Please turn to Slide 5 and Strengthen the Core. Leverage our strongholds is about successfully leveraging our strong brands and market positions. We want to improve our performance in the 24 markets where our international and local power brands give us a number one or two position. To do so, we will focus our resources on fewer activities step up our commercial capabilities drive a cost and efficiency agenda across our business and dispose of non-core assets. In 2016 we began the development of a new commercial approach to identify new sources of value growth and make the right portfolio and channel choices. This new approach is now being implemented across the Group. We also evaluated and redirected spending on fewer brands and activities to make these more impactful. In this connection, I would like to highlight some of our local power brands, such as Zatecky Gus in Russia which grew 2% and [indiscernible] which grew 3%. For the international brands, Tuborg grew 9% and Carlsberg grew 5%. In 2016 Russia accounted for 16% of Group operating profit. It thus remains our largest market and becoming more successful in Russia will be impactful on Group profits. In 2016 we executed on our well-defined and much sharper commercial agenda with clearly defined priorities, including the repositioning of the Carlsberg brand, and an intensified focus on the growing segments and channels, not least the modern trade. In the years to come we will build further on this commercial agenda. Excel in execution covers a wide range of areas, such as embedding high quality point of sale capabilities as standard and step changing within digital. In 2016 we implemented our internally developed point of sale excellence program in all our Western European markets, and carried out an assessment in a number of markets to determine areas for improvement. By the end of the year, we had also initiated the implementation in India, and more Asian markets will follow in 2017. Within digital, we focused on building capabilities. The first task was to hire a head of digital, and she is now busy defining our future digital strategy. With respect to Funding the Journey, Heine will come back to this in a moment. Please turn to Slide 6 and our growth priorities where we in 2016 but even more so in 2017 are investing in the long-term growth opportunities for Carlsberg. Within craft and specialty, our ambition is to deliver great brands for the money. In 2016 we further strengthened our long-standing cooperation with Brooklyn, opening the E C Dahls Brewery in Norway. From 2017, January onwards, we took over the distribution of Brooklyn in the UK. With respect to our international specialty brands, we are increasing the availability of Grimbergen and 1664 Blanc. In 2016 Grimbergen continued its strong performance both in existing and in new markets, and the brand grew 11%, reaching the 1 million hectoliter milestone. Revenue of 1664 Blanc grew 15%, mainly as a result of strong growth in Asia. Within non-alcohol beverages, we believe that our strong R&D capabilities, which includes the largest world-leading yeast library, give us a competitive edge. In the coming years, we will continue to develop our non-alcoholic beer portfolio. In 2016 we already saw solid growth of some of our existing powerful NAB brands, such as Carlsberg Nordic, Baltika 0 and Tourtel Twist. On big cities, the team became operational in August 2016. Since then it has concentrated on carrying out analysis to determine the relevant cities for pilot entry in 2017. In Asia, Tuborg had another year of success. We launched the brand in Vietnam, Cambodia and Laos, to tap into the growing premium category in these markets. In India, we saw another year of good growth and we are building a new brewery to support our positive momentum. In China, we achieved value growth on the back of the ongoing premiumization. Please turn to Slide 7. A critical enabler for the long-term success of our strategy is to develop a winning culture which will foster the right team and performance driven way of working. To develop a team and performance based culture, we rolled out our Triple A concept, alignment, accountability and action. By living this concept, we will create a strong sense of ownership and accountability for delivering results, and this will be further supported by a close connection between incentive schemes and financial objectives. Our incentive schemes now include targets which are clearly aligned with our key priorities and foster a team orientation on results. Across our markets, we introduced rigorous tracking and monitoring. Another visible action has been the change in the top leadership team. Heine joined us as CFO, Michiel Herkemij joined us as EVP for Western Europe, Chris Warmoth was appointed as EVP of Group Strategy, Graham Fewkes took over Chris' role as EVP Asia, and most recently, Philip Hodges joined us as EVP Supply Chain. In addition, there has been a number of changes in some of our larger markets and in central functions such as IT and sales and marketing. These changes have been a healthy mix of international promotions and external hires. We believe these changes will drive us to deliver better performance and improved results. I will now hand over to Heine who will comment on the Funding the Journey progress, the 2016 financials and the outlook for 2017. Heine, over to you.

Thank you Cees and good morning everybody. Please turn to slide 8 and Funding the Journey. First of all, the program is well on track. In 2016 we delivered slightly more than expected at the beginning of the year. Approximately DKK0.5 billion was achieved out of the full DKK1.5 billion to DKK2 billion to be realized by 2018. Let me give you a few comments on each of the four areas within Funding the Journey. On value management, the concept is rolled out in all markets. It is based on the golden triangle that you know, and we track progress rigorously and fine tune when and where necessary. It is working well and the price mix of plus 3% is proof of this. On supply chain efficiency, savings are coming through in several areas, including procurement, production and logistics. We're working on improving our processes to ensure that we capitalize on the BSP1 system and the BSP1 investments in prior years. On SKU reduction, we have reduced the number of SKUs by 1200 net. In 2017 we will continue to work on further complexity reduction. Within operating expense efficiency, more than 2200 white collar people have left the Company and that marks the end of this part of the program. Operating cost management delivered substantial savings in Asia and in Eastern Europe. In Western Europe, we're still in the process of implementation. Consequently, the execution of OCM in Western Europe will be high on our agenda in 2017. The outsourcing of shared services in Poland and China is progressing and about 300 people were transferred to Genpact, which is our external service provider. We are now doing more intense work on addressing our indirect spend where we also see opportunities for further savings. In terms of right-sizing, we concluded a number of initiatives. In 2016 we divested the Danish Malting Group, Carlsberg Malawi and the Vung Tau Brewery in Vietnam, the Sejet Plant Breeding company in Denmark, and we completed the asset swap in Xinjiang. In addition, in the first one and a half months of 2017 we have divested Carlsberg Uzbekistan and United Romanian Breweries. We are still working on divesting a small handful of activities. Please turn to slide 9 and the final pillar of SAIL'22, which basically measures the outcome of the strategy. We have defined three key measures for delivering value for shareholders, organic operating profit growth, ROIC and capital allocation. As already mentioned, we delivered 5% organic operating profit growth. Return on invested capital developed very positively, being up 110 basis points to 9.2%. If adjusting for the impairment done in 2015, ROIC would have been improved by 60 basis points. The improvement was the result of lower capital employed, which was impacted by disposals, impairments, currencies and the fact that CapEx was below depreciation. Net interest bearing debt was reduced by 5.4 billion in 2016 to 25.5 billion. This has led to a net debt to EBITDA ratio or financial leverage of 1.96 compared to 2.34 at the end of 2015. Based on the solid results, the strong cash flow and the leverage, the Board will propose an increase in dividend per share of 11% to DKK10 per share. This equals a payout ratio of 39%. When the SAIL'22 strategy was announced, we promised to start increasing dividends towards the 50% payout target when leverage came below two times net debt to EBITDA. As we want to see leverage come further down, the increase in the payout ratio is done gradually. Please turn to Slide 11 and a few comments on the P&L. Net revenue grew organically by 2%, driven by the positive price mix of 3% and as the result of a positive development across all three regions. In reported terms, net revenue was adversely affected by currencies and disposals and ended the year down 4% versus previous year. Reported gross margin improved by 140 basis points. This was the result of both the positive price mix and efficiency improvements in the supply chain. OpEx was up organically 3%. This was due to a number of factors, with the most important ones being sales and marketing investments, investments in SAIL'22 priorities, such as the launch of Tuborg in several Asian markets, and the establishment of central teams for big cities, non-alcoholic and digital. On top of this, we saw higher costs of the short term and long term incentive programs and higher IT amortization costs. Central costs, or what in the accounts are called not allocated, were 1.7 billion, representing an increase of 265 million. This was due to investments in SAIL, the EURO sponsorship and cost of incentive programs. All in all, we delivered a solid 5% organic growth in operating profit. Currency headwind of minus 6% and minus 2% from disposals meant that reported operating profit was down 3%. The currency impact was broad-based with a particularly strong impact from the Eastern European, Chinese, British and Norwegian currencies. The disposal impact was mainly due to the divestment of the Danish Malting Group and Carlsberg Malawi. Slide 12 please. Further down the P&L, net special items amounted to net 251 million plus. There was a significant positive impact from the disposal of non-core assets, but there were also offsetting items, many of which were related to Funding the Journey, in addition to further brand impairments in Xinjiang and in Russia. Net financials were positively impacted by the reduction of net debt and lower interest rates. Other financial items were down to FX gains, partly offset though by write-offs and interest related to the Finnish tax case that we launched earlier in 2016. Our tax rate was also impacted by the Finnish tax case and was therefore somewhat higher than in previous years, but in line with our revised guidance. It is worth noting that the tax case was a one-off expense and had no cash impact in 2016. Minorities or non-controlling interests were DKK371 million, largely at the level of 2015. Both years were impacted by brand impairments in Xinjiang, which is a 60% owned company. All in all, this has led to a net profit of DKK4.5 billion and a reported EPS of DKK29.4. Adjusted for special items, net profit was DKK3.9 billion and adjusted EPS was DKK25.4. The decline in adjusted EPS was the result of organic growth in operating profit and lower financial expenses which however was offset by currencies and the higher tax rate. And now, some comments on the cash flow on Slide 13 please. Free cash flow was DKK8.6 billion, corresponding to DKK57 per share. Free cash flow was positively impacted by disposals of non-core assets, a good trade working capital development and CapEx below depreciations. The change in trade working capital was DKK1 billion plus. We continued last year's strong performance and as a percentage of net revenue trade working capital reached an all-time low at 9.5% minus. We're very satisfied with our trade working capital performance. Other working capital was impacted by an extraordinary payment to the UK pension fund of £100 million, and consequently the change in other working capital was minus DKK1.1 billion. Net interest paid was positively impacted by the lower net interest bearing debt. 2015 net interest was impacted by the settlement of financial instruments of around minus DKK0.5 billion. Tax paid in 2016 was DKK1.752 billion, which was DKK388 million lower than last year. The decrease was mainly explained by phasing of tax payments between 2015 and 2016. Net CapEx was DKK3.6 billion, gross CapEx was DKK3.8 billion, well below depreciation of DKK4.8 billion. We will continue to drive a strict focus on CapEx also going forward. The positive contribution from financial and other investments was mainly due to the aforementioned disposals of non-core assets. Please turn to Slide 14 and outlook. 2017 will be another important year for the Group, as we will focus on the delivery and execution of majority of the benefits from Funding the Journey, and we will invest in SAIL'22 priorities to drive the long-term growth of this Company. We maintain our assumption that approximately 50% of the benefits will improve EBIT, while the other 50% will be reinvested into our business to strengthen brands, portfolios and capabilities to ensure that we drive long-term value for shareholders. When looking at the market dynamics in 2017 versus 2016, we don't see significant changes. We are assuming a relatively flat Western European market, declining markets in Eastern Europe as a result of the PET restrictions in Russia, and a general challenging macro economy, and in Asia, a slight decline in Chinese markets in volume terms but growing in value terms, due to continued premiumization and volume growth in the non-Chinese markets in Asia. Our key priorities by region are as follows. In Western Europe it's margin and operating profit improvement, in Asia revenue and profit growth, and in Eastern Europe organic operating profit growth. Based on this, we expect to deliver a mid single-digit percentage organic growth in operating profit in 2017. In addition, we will continue to reduce our financial leverage. A couple of other assumptions for the year which are worth mentioning here are that we assume a positive FX translation impact on operating profit of around DKK350 million, based on the spot exchange rate as of February 6. For the ruble-euro, this implies an exchange rate of RUB63.2. Net financial costs, excluding potential currency losses or gains, are expected to be around minus DKK1.0 billion through minus DKK1.1 billion. The tax rate is expected to decline to just below 30%, and we expect to keep CapEx at around DKK4 billion. We are making smaller changes to our reporting, as you can see in the appendix to the announcement. We will move the cost for our central supply chain function from the not allocated part to Western Europe. This is around DKK500 million in 2016 and impacts to the margin in the region, so Western Europe, by minus 130 basis points to 12.9% for 2016. There is of course no impact on the Group numbers. Cees 't, back to you. Cees 't Hart: Thanks Heine. And now to the regions. Please turn to slide 15 and Western Europe. We estimate that the overall beer market in our Western European region grew by around 1% for the year. Our regional market share declined, mainly due to the reduction of margin dilutive volumes in the UK, Finland and Poland. We delivered a solid 2% price mix, largely driven by value management and less low price volumes. We are pleased with the value management efforts in Western Europe and how the golden triangle is being adopted across our markets. Our volumes declined by 2%, mainly as a result of the aforementioned contracts. Excluding these, volumes would have been flat. In quarter 4 volumes declined by 4%, which we are not pleased with. We will monitor the volume development closely to ensure the right balance of the golden triangle. However, to be clear, volumes are important, but we don't want to hunt for volumes and market share at the expense of unhealthy development in earnings and margins. For the year, we delivered a solid 3% organic operating profit growth and 50 basis points operating margin improvement. Slide 16 please and a look at key businesses in Western Europe. The Nordic markets grew 2% to 3%. We grew volumes in Norway, Denmark and Sweden, but our total Nordic volumes declined by 3% due to the withdrawal from the margin dilutive supply contract in Finland. All markets delivered very solid price mix improvements following growth of craft and specialty and value management efforts. All four markets delivered operating profit improvement with particularly strong improvement achieved in Norway and Finland. In France, our volumes grew by 1% while the market grew approximately 3%. We gained market share in the on-trade, while we lost share in the off-trade. Our volume growth was driven by Carlsberg, Tourtel and Skol, and by craft and specialty brands such as Grimbergen and Brooklyn. Our share loss was mainly attributed to the mainstream Kronenbourg brand and 1664, as we did not engage in steep discount activities during the summer to the same extent as the competition. The Polish market grew by an estimated 2%. The market remained highly competitive. Our volumes declined by approximately 12%, mainly as a result of the decision to pull out of certain low price volumes at the beginning of 2016. In the UK, the turnaround is progressing well. We are strengthening our portfolio with more premium offerings. With respect to the outsourcing of the porterage and secondary logistic business, this is on track. Switzerland delivered another set of very solid results. Most other markets in the region delivered top and bottom line growth for the year. We saw particularly good market share and profit development in markets such as Bulgaria, Germany and Greece. Slide 18 please and Eastern Europe, the Eastern European beer markets remain under pressure because of the ongoing macroeconomic challenges. Our volumes were flat for the year as a result of easy comparables with 2015, especially in the beginning of the year, and very favorable weather in Q3. Price mix was solid at 7%, mainly driven by price increases across the region. Operating profit grew organically by 12% and operating profit margin increased by 60 basis points. The strong earnings growth was driven by a number of factors, including easy comparables, an improved commercial agenda in Russia and Funding the Journey benefits. Slide 19 and a few comments on our major markets in Eastern Europe, the Russian beer market declined by an estimated 1% to 2% for the full year and an estimated 5% in Q4. The market development during the second half of the year was helped by very warm weather in Q3, although some macro indicators have started to show improvement throughout 2016, the market remains negatively impacted by the macroeconomic challenges in the country. Our Russian shipments grew by 1% for the year, due to easy comparables, warm weather in Q3 and market share gains in the second half of the year. For the year, our market share declined by 30 basis points to 34.5%. As mentioned earlier, we sharpened our commercial agenda in 2016. Part of this was to strengthen our position in the modern trade channel, which we achieved, while our market share was down in the declining traditional trade channel. We saw good performance of Carlsberg, Zhigulevskoe and Baltika 0, while Baltika 7 and Baltika Cooler declined. In Q4 we reduced our PET bottles to comply with the 1.5 liter ban that came into effect on January 1, 2017. Our best estimate of the negative market impact in 2017 from the size ban remains around 5%. The Ukraine market continued to be difficult, declining by an estimated 6% to 7%, impacted by the challenging macroeconomic environment, our business performed strongly with only a modest 2% volume decline, gaining market share and improving margin. Our market share growth was driven by our local power brand, Lvivske, and by Carlsberg. Slide 20 please and Asia, we delivered 4% organic revenue growth in Asia, driven by a solid 6% price mix as our premiumization efforts were successful. This included both premiumization of local power brands and growth of international brands with Tuborg being the key driver. In addition, 1664 Blanc is becoming an increasingly important part of the portfolio. Although the brand delivers small volumes, its super premium pricing makes it a very attractive part of our portfolio. Volumes declined by 2%, mainly as a result of the Chinese brewery closures and the Chinese market decline. Our non-Chinese beer volumes grew by 2%. In addition, we had an impact from the disposal of Carlsberg Malawi that happened in August. The earnings growth continued. Operating profit grew by 6% organically and operating margin improved by 90 basis points. In addition to premiumization, Funding the Journey benefits came through nicely. Moreover, our business in India started to deliver meaningful profits. Slide 21 and some market specific highlights from Asia. Our Chinese volumes declined organically by 6% while the market declined by an estimated 4%. We gained market share in most of our key provinces, while the restructuring of our Chinese business and subsequent brewery closures resulted in substantial volume decline in the affected provinces. During 2015 and 2016 our Chinese organization has been through a comprehensive restructuring and cost savings program, resulting in the closures and disposals of a total of 17 sites by the end of 2016. Approximately two-thirds of the volume decline related to brewery closures. Our premium portfolio grew by 8% with particularly strong growth of Tuborg and 1664 Blanc. The positive development of our premium brands and the reduction of low price products in Eastern assets led to a positive price mix of 5%. Operating margin in China improved by more than 300 basis points, due to premiumization, tight cost control and the closure of sites. In Indochina, Laos delivered solid top and bottom line growth in 2016. Growth of our water and soft drinks business in Cambodia was offset by share loss in the increasingly competitive beer market. In continuation of the success of Tuborg in recent years, we launched the brand in Cambodia, Vietnam and Laos. Early results are very encouraging in all three markets. The brand has quickly established a leadership position in the international premium segment in Cambodia and enjoys a strong position in Northern Vietnam. Our Indian business continues to grow, delivering volume growth of 16% in spite of the alcohol ban in the state of Bihar as of April. The Indian beer market grew by an estimated 2% and we strengthened our market position further, reaching a 16% market share for the year. Carlsberg Elephant grew significantly and Tuborg continued its strong growth trajectory. Profitability improved considerably as a result of volume growth and tight cost control. 2017 could be a volatile year for India as it is still expected that GST will be implemented, and in addition, there may come a ban on liquor sales near highways as well. That was all for today, but before opening up for Q&A, a few concluding remarks on Slide 22. 2016 was a good year for Carlsberg with earnings growth on track and strong cash flow. We delivered well on all our key priorities for 2016. Funding the Journey is slightly ahead of plan in timing, delivering a quarter of the expected benefits. SAIL'22 has been well received by our people and the implementation is going well. And we delivered on our regional priorities for the year. Our delivery against the financial priorities of SAIL'22 was satisfactory, with 5% organic growth in operating profit, and a 10 basis point ROIC improvement and a further decline in leverage to 1.96 times. For 2017 we are determined to achieve a substantial proportion of the remaining Funding the Journey benefits, allowing us to grow earnings organically and invest in SAIL'22 related activities to support the future growth of the Company. And with this, we are now ready to take questions.

[Operator Instructions] The first question comes from the line of Simon Hales from Barclays. Please go ahead, your line is now open.

Thank you. Morning everybody. A couple of questions first on the Funding the Journey program please. You just talked then about the substantial savings you're expecting in 2017 to continue to come through. In the past, you've indicated I think around 50% of the gross savings should really be coming in 2017. Is that what you mean by substantial or could it be above that now, given the momentum you've seen this year? And then related to that, in terms of reinvestment of savings, how should we think about that building in 2017? And I wonder if you could give us any idea as to how much of the DKK0.5 billion of savings in 2016 were reinvested back into the business? And then just secondly, if I can, just on Western Europe. Could you give us the Q4 volume number excluding the -- or the decline excluding the contract impact, and perhaps give us a bit more of the detail as to perhaps what you struggled with in Q4, what went wrong to drive that weakness in Q4 from your view?

Good morning Simon. If we start with the Funding the Journey part, then you're absolutely right that we have said that a substantial part of the benefits will come through in 2017. Our view is still approximately 25% in 2016 and approximately 50% plus in 2017 and then 25% in 2018. Reinvestment into the business in 2017 is going to be higher than 2016, for the simple logic that we have not initiated that much in 2016 but have started a lot of initiatives that will roll out and also incur costs throughout 2017. Cees 't Hart: Simon, with regard to Western Europe, overall the market was a bit weak but it's a combination of a few aspects, first of all, the continuation of the withdrawal of some contracts. If you would exclude these, the minus in Q4 would be between minus 2% to 3%. We had as well some market share loss in Poland and we were suffering from delivery issues in the UK as a consequence of an incident in the UK. We had an ammonia leakage and for that the brewery was closed for almost three weeks and we couldn't deliver from there. So that's a combination of factors, but very specifically without the contracts it would be minus 2% to 3%.

The next question comes from the line of Trevor Stirling from Bernstein. Please go ahead, your line is now open.

Good morning Heine and Cees. Two questions from my side please, one for Cees I guess. As you look forward to 2017 and you're looking at the brand developments that are underway Cees, where are you most excited? Which brands and countries do you think you're going to see the biggest uplift? And second more technical question for Heine. Heine, you mentioned that the minorities interest is slightly flattered because the Xinjiang minorities have basically picked up 40% of the impairment cost. If you looked at the underlying minorities charge without those impairments, what do you think that would be? Cees 't Hart: Good morning Trevor. Thanks for your questions. With regard to brand development, well the good news in my view is that we have a broad portfolio with some exciting developments. First of all of course Tuborg in Asia, which is doing pretty well, as I said in the call. We started in Vietnam for example and Cambodia, Laos, and there we see a good start of Tuborg as such. Further, we have in Europe for example Grimbergen and Brooklyn that we're going to push further, and the commercial agenda in Russia is picking up very nicely, and especially Carlsberg after the repositioning is doing very well. So in that respect we are comfortable with our current portfolio, the focus on some of these brands and the support levels behind these brands.

Good morning Trevor, On the question on minorities, you're right that 2015 actually also, as well as 2016, are impacted by impairment on brands in Xinjiang that we own 60% i.e. then minorities are 40%. The impairment in 2016 was around 800 million. That means 40% of that is around 300 million, so that means then our normal run rate is 600 million to 650 million on the minorities.

The next question comes from the line of Jonas Guldborg from Carnegie. Please go ahead, your line is now open.

First of all I would like to try and understand your Russian comments a bit better. You're saying that you still expect the minus 5% from the PET ban, and then you're talking about a negative impact from macroeconomic development. So should we expect the market to decline more than 5% in 2017 compared to 2016? Then India profitability you say has increased substantially in 2016. Are we at double-digit margins now or still single-digit? And then lastly, if you could put words on why the OCM program has not impacted Western Europe significantly yet and then of course when we should expect it to do so. Thank you. Cees 't Hart: With regard to Russia, the PET ban will in our view have an impact of 5% minus in the market. And what we tried to say in there in the call that on top of that will be the impact of the further market development, and that's what we don't know at this moment of time. If you put this, as you know in historical perspective, two or three years ago it was a double-digit decline. That moved slightly more positively in single-digit decline, and last year was basically only minus 1%, minus 2%. So we see that, so far, the Russian decline in the market is bottoming out, but it's difficult of course to predict 2017. As you know, 2016 has been a bit more favorable because of a very good summer in quarter three, which is helping the volumes there. So it's minus 5% and then plus or minus the impact of the further development of the market.

Okay.

Good morning, Jonas. With respect to your question on India, you're absolutely right, we have increased our profitability quite a lot in India. And at the same time, as you can see, we have also been able to grow the business even though we have the ban in Bihar. Profitability in India is up significantly compared to last year, but still single-digit. Cees 't Hart: The OCM and the Western Europe?

In terms of OCM in Western Europe, it's progressing well. We are planning for it. But in terms of maturity, it is still behind Eastern Europe and Asia in particular, for good reasons, because that it's only starting up right now. So we have, it's a high focus area for us for 2016 and we have relatively high expectations for ourselves and for our Western European colleagues.

So we should see effects in 2017 from this?

Yes.

The next question comes from the line of Sanjeet Aujla from Credit Suisse. Please go ahead. Your line is now open.

Hi. A couple of questions, please, on Russia. Firstly, can you just help us break down the volume performance in Q4 in Eastern Europe? It seems like volumes were down 10%. You talk about the Russian market being down around 4%. We know there was a bit of destocking in the quarter as well, but can you just help us break that down in the various components? And also, perhaps a comment on market share development in the quarter there as well. And then just coming back to the outlook, again, can you just give us a bit more granularity on why you remain cautious on the underlying market development despite the improving macro indicators? Thanks. Cees 't Hart: Thanks, Sanjeet, and good morning. Well, let me focus mainly on Russia because Eastern Europe of course is bigger, but Russia is the highest percentage of share of Eastern Europe, as you know. We had a good quarter 3. The volume in quarter 3 was up by 15%, and that was partly as well because we finished our production of the 1.5-liter-plus PET bottles and, if you like, moved it into the market. Then that was followed by a relatively poor quarter 4, with minus 8.2%. And we started there the production of the 1.42 liter, so the new PET bottle size. The market as such was down by 4%. And with regard to our market share, we were up in quarter 3 and we were down in quarter 4. But in total in Russia, we grew volumes for the second half of the year by 4.3%.

Got it. And then just on the outlook there, on? Cees 't Hart: Then with regard to the outlook, yes, with regard to the outlook, basically we are close to the market. We see that the macro indicators are improving a bit, but at the end of the day, we are depending on the consumer confidence and we do not see these kind of figures changing at this moment of time. So we are depending on, let's say, the confidence of the consumer in the near future and therefore we are not , I would say, yes, we are cautious. Not pessimistic, not optimistic, but I think just realistic. Again, double-digit decline in the past; single-digit, bottoming out last year. So the question is now what the market is going to do, so we want to refrain from a precise estimation on that one.

Just a final one on Russia there. Can you just comment on the pricing developments in the market more recently and the outlook there for 2017? As I understand, you'll have some mix benefits from that PET transition. And again, just trying to understand if you're now focusing on perhaps improving affordability in that market or how you see pricing playing out. Cees 't Hart: Well, we had a small price increase in quarter 4. We will have a different portfolio of course because the 1.5 liter plus is out. That is replaced by 1.42 liters. That SKU will have a slightly higher margin, so the price per hectoliter for the smaller bottle is higher than the price for -- sorry, the price per liter is lower for the PET bottle 1.5 liter plus and, consequently, higher for the 1.42 liters. The margin is slightly higher on the smaller bottle as well, so as a consequence of that we should have a slightly better mix impact. With regard to pricing for next year, we will follow, more or less, the consumer inflation. And we take it from there.

The next question comes from the line of Andrew Holland from Societe Generale. Please go ahead. Your line is now open.

Yes. A couple from me, please. Firstly, your unallocated cost spiked up, and you refer to EURO 2016. Can you give us an idea of where that might be in 2017? Is that going to actually come down or are there other factors that will keep it at that level? And secondly, can you just give us a bit of an update on alcohol regulation in Russia? I think there was talk earlier in the year of possibly removing beer from the same legislation that covers vodka, but also maybe an update of the implementation of the alcohol reporting regime which came in last year.

So good morning. So if we start with the unallocated costs, you're absolutely right, they're going up from DKK1.426 million in 2015 to DKK1.961 in 2016, so up DKK265 million, as mentioned. The increase is due to a combination of the EURO sponsorship and incentive programs, and that's actually both short term and long term and also SAIL investment. And this has more than offset the savings. We expect approximately the same level in 2017, so savings will be coming through from Funding the Journey, but we do also see, as mentioned, some quite heavy investments into SAIL'22 initiatives, fully as planned. So approximately the same level. Cees 't Hart: Andrew, good morning. Thanks for your question. With regard to regulation, we see no other changes in regulations to be discussed at this moment of time. In general, we have a better dialogue with the regulators than some years ago and we are now seeing discussions about rolling back some of the rules put in place some years back. However, there's nothing concrete. And as you know, discussion with Russia can take a long time and sometimes predicting the outcome is difficult. A personal observation is that everything is anticipating 2018 soccer championship, and in that respect I think nothing concrete will happen in the coming 18 months. But again, this is Russia.

Okay, but in terms of sentiment, would you say that the approach is more conciliatory towards the brewing industry than it has been in the last five years? Cees 't Hart: That's what I would like to feel, but you can be surprised at the moment that you become a bit more optimistic on this one. The discussions are good. The discussions are at a very high level. There is a feel that the Western industry needs or basically the investors' climate needs to be positive towards the Western industry as well. So in total, at this moment of time, we are slightly more optimistic. But again, this -- that can change every minute almost in Russia.

The next question comes from the line of Hans Gregersen from Nordea. Please go ahead. Your line is now open.

Good morning. Three questions. Administration cost as an admin-to-sales ratio picked up quite significantly in H2 compared to H1. Are there any specific reasons for that? That's the first question. The second question, in terms of net debt outlook and capital allocation, at what time will you start to address that? And in that regard, you mentioned your [indiscernible] with Romania and Uzbekistan. How much cash is coming in from those two divestments? And then thirdly, Heine, you mentioned, before, SAIL'22 initiatives. What are you specifically targeting in 2017, perhaps not country by country but more overall and what will the cost spend be? Thank you.

So if we start with the administration cost, it's basically more or less the same reason as mentioned beforehand. It's -- the reason why administration costs are going up is SAIL investments. There are SAIL investments also in administration cost and building up some of the central teams. And then it is the further cost to the incentive programs, both the short-term incentive programs and the long-term incentive programs. In terms of the net debt to EBITDA, where are we taking that? Yes, we closed 2015 with 2.34 times. We're closing 2016 with 1.96 times. We have a target to go below 2 times. We have always, Hans, that we are not targeting 1.9 times something, but something probably between 1.5 times and 2 times. So expect something approximately in the middle, so 1.7 times to 1.8 times. In terms of the divestments, you're right, we have, just in 2017, announced the divestment of Uzbekistan and of Romania. Cash is not something we're commenting on, but the net effect in cash from these two is not very significant. Cees 't Hart: So less than 0.5 billion.

Yes.

And will there be any major EBIT impact?

No. Cees 't Hart: Yes. With regard to our SAIL'22 program for 2017 and our investment in that, we continue to have good support of our strongholds and we'll focus more on less rent. We will have the rollout of some of our craft and specialty brands. As you remember, some of these very strong brands were only in a small number of countries. We're now going to roll these out to more countries. As well, we will have an emphasis on non-alcoholic beer. Then we have launched our Tuborg brands in Asia, which we, after a very good start, obviously want to continue. We will do some investments in further development of some of the teams and we will develop our plan on big cities. The big city plan is more or less ready and we are going to start mid this year in some cities.

How many? Three to five cities or… Cees 't Hart: Closer to three than five.

The next question comes from the line of Tristan van Strien from Deutsche Bank. Please go ahead. Your line is now open.

Three questions if I may. Just on the first one, as you balance out that golden triangle in Europe, what proportions of the volumes you have purposely lost this year do you expect to come back, particularly in Poland, UK and Finland? Then the second question, in India, just how many outlets right now in your distribution footprint, how many outlets do you serve in India and what proportion of those outlets sit within that 500 meters of highways and will potentially be impacted by the ban coming in April? And then third, maybe just a follow up on Uzbekistan. I'm just wondering who you sold that to, and also the Romanian ones. And actually, from an ([indiscernible] standpoint, what went wrong in that market? Because you used to be market leader. You used to do 1 million hectoliter and today you seem to be doing about a fifth of that, so what went wrong in the last five years in that particular market? Thank you. Cees 't Hart: Sorry, which market you mentioned? I lost that one.

Uzbekistan, Romania.

Uzbekistan, yes. Cees 't Hart: With regard to the volume within the golden triangle, we think, it's difficult to say, of course, but we think between 1% and 3% we lost in Western Europe. As you know, it was in the combination of the UK, Finland and Biedronka. We are happy to report that we will be back on better terms in Biedronka, so that will help us for the volume development in 2017. Maybe not so much on the price mix, but for sure on the volume development. With regards to India, the outlets in India, as you know, it's a very regulated market, I think 66,000 outlets. Most of them we serve. The issue is that if the interpretation of the Supreme Court there'll be, that in the national and the state highways it's not possible to sell beer closer to 500 meters, that involves half of the outlets. So that really would be an issue in India. That would reduce of course the number of points. That would reduce as well maybe the sales volume, but for sure as well then the income for the state. So we, as said earlier, India for this year has two big issues. That is this outcome of the, or regulation of the Supreme Court, ruling of the Supreme Court, and as well the possible introduction of GST. With regard to Uzbekistan, Heine?

Just a few comments on Uzbekistan and Romania. So the buyer of both is CBC from Israel. What went wrong? First of all, in Uzbekistan, that is an extremely difficult market from a macro point of view. And we have simply decided to focus our efforts somewhere else. For Romania, remember that we have a 23% stake that we have sold to the other owner of the rest of it, which is then CBC.

The next question comes from the line of Soren Samsoe from SEB. Please go ahead. Your line is now open.

Yes. Hello, gentlemen. Two questions from my side, first of all on the Funding the Journey program, where you say you are ahead in terms of value management. But maybe you could elaborate on where you are behind. Of course, besides the OCM and Western Europe, where else are you behind in Funding the Journey? Second question is regarding your CapEx guidance of DKK4 billion. Could you tell us what you have assumed in that guidance? Is that pure maintenance guidance or have you assumed building of any new breweries or major investments in new coolers or in any markets or something like that? Thank you.

So in terms of, good morning, Soren. You're absolutely right, we said that we are slightly ahead on value management. Where are we behind? I wouldn't, we're talking slightly here. Where we are behind is perhaps in the progress on OCM benefits coming through in Western Europe. Now we are, we have the plans in place, we have the organization in place, we have the focus in place in Western Europe also to drive OCM. So we remain confident that we will catch up in 2017. In terms of CapEx, this is basically in line with previous years. We are building a new brewery in India in Karnataka.

Okay, so no new cooler investments or something like that? Cees 't Hart: There's always a lot of new cooler investments, and also this year. But not significantly more than normal.

The next question comes from the line of Olivier Nicolai from Morgan Stanley. Please go ahead. Your line is now open.

Hi. Good morning. I've got three questions, please. For Russia, you made a comment saying that you were expecting to grow in line with the market in 2017. Could you perhaps make the same comment for Western Europe? What are the market dynamics into 2017 and is your target to just maintain share in the mid-term or to actually gain share? Second question is still on Western Europe. Your price mix was up 2% in 2016. Now, how much of that positive price mix growth was actually driven by the withdrawal from the contracts in the UK, Finland and Poland? Essentially, what is the underlying price mix in your business exiting those one-off? And just a follow up on the CapEx guidance. I think that's been the third or the fourth year in a row that your CapEx is below 100% [as to the positions]. At what point do you think this becomes unsustainable and should we expect an increase in CapEx in the mid-term? Thank you very much. Cees 't Hart: Okay. Thank you very much. With regard to Western Europe, we think that, going forward, we would expect very low single-digit price mix in Western Europe, between 1% and 2%. That, frankly, would be more or less a continuation of last year if we would -- that's your second question, if we would correct that for the stop of the dilutive marginal volumes. So in that respect, going forward, we don't expect that many changes in what we have started in 2016. It will remain to be a balance of what we call the golden triangle between value -- volume, margin and the profit. With regard to CapEx?

Yes. Good morning. So you're right, CapEx is below depreciation, but if you go back three/four years it was the other way around. So the logic basically is that this is a timing matter. Within a few years' time there will be a better balance. We are certain -- it has to do with the historic investment level, and we are certainly not, in any way shape or form, underinvesting in our breweries and in our future.

The next question comes from the line of Ed Mundy from Jefferies. Please go ahead. Your line is now open.

Morning, everyone. Three questions, please, first of all on input cost. Could you perhaps confirm what your input cost guidance is for 2017? Secondly, again on input costs, you had a negative transaction impact from hard-currency denominated input costs in Eastern Europe. Assuming the ruble stays where it is, could you quantify what the potential margin tailwind for Eastern Europe could be for 2017? And then the third one, in Vietnam I think there was some Bloomberg headlines to say that you expect development in the Sabeco sales process in Q2. Are you able to quantify what you mean by that?

So if we start with the COGS, we expect that, for 2017, to be approximately flattish. With respect to the FX impact, in general, you are right that there is a positive impact coming from the fact that Baltika does buy approximately 30% of its COGS in U.S. dollar. That is included in our guidance for the year. Cees 't Hart: With regards to Vietnam and the remark on Bloomberg, basically the process as you know, is going on. And in that respect, we know that the next steps will be taken in the process of privatization there. If everything goes according to the current planning and schedule the next step will be in the end of Q1, beginning of Q2, so that's where we are, and we don't have more news than that you and I read in the newspapers on that.

Thank you. And, Heine, just a follow up, are you able to provide a bit of color on margin progression by division, given you're going to get more OCM benefits in Western Europe, probably more investment in Asia? Are you able to provide a little bit more color as to see where you think the most margin impact is going to be for your businesses for 2017?

The short answer is no. The longer answer is that we only comment on the Group. There are really a lot of moving parts here, so we don't comment on guidance for specific regions.

The next question comes from the line of Alicia Forry from Liberum Capital. Please go ahead. Your line is now open.

Just a couple of questions from me. Firstly on China, can you talk about the expected trajectory of that Chinese business over the near to medium term, when you expect it to stop losing share, etcetera? And then elsewhere in Asia, you mentioned volume weakness across a couple of markets, an increasingly competitive beer market in Cambodia. How long do you expect those weaker trends to continue over 2017? And then on Western Europe, will there be any lingering impact in Q1 from that UK factory being offline in Q4? And the Brooklyn Brewery distribution in the UK, are there opportunities to take that brand to other markets in Europe where you're not yet distributing it? As that seems to be a craft brand that resonates pretty well in Europe. Cees 't Hart: Okay. Thank you very much, Alicia. With regard to China, what we feel is that there will be a continuation maybe of the decline of the market in the coming year. However, the premiumization of that market is playing in our favor. There are only two big players in the market that have international brands. We are one of them. And we see a substantial growth in our international brand portfolio in China. So the game is not volume, but value, premiumization. And we are very well placed for that and, in that respect, optimistic for China. As you know, we are very much focused on the west and that's where we drive our market share as well. And so far so good and we continue that in 2017. With regard to volume weakness, well, weakness, it's lower growth in some of the Asian countries than we had in the past. But still, nice volume growth in many of these markets. Indeed, some of the competition is heating up, but that's the name of the game. We were very happy, we are very happy with Tuborg. We have been very successful in the three countries that we mentioned earlier with the launch of Tuborg, and we intend to continue that. And giving the proof points in other countries, we are optimistic on the impact of Tuborg in Asia. With regard to the UK, no, we will not have any impact of the incident we had in December in the UK. And with regard to, in January or further. And with regard to Brooklyn, yes, we have that as part of our portfolio, the craft portfolio. We have further strengthened our relationship with, and partnership with Brooklyn. We start in the UK and indeed we will use that brand in other markets where appropriate.

The next question comes from the line of Anthony Bucalo from HSBC. Please go ahead. Your line is now open.

Good morning, everyone. Just a quick question or two quick questions on India. One is that I didn't really hear any discussion about the impact of demonetization, whether or not that's having any impact on your business right now or possibly will in the upcoming quarter. Second is the GST increase or the assumed GST increase, do you have the capacity, the legal capacity to raise prices to offset that impact without talking to local governments or would you need to petition a local government in order to take that increase? Cees 't Hart: Okay, Tony. Thank you very much. Good morning. With regards to the GST first, we will not have, autonomously, the possibility to raise prices. So in that respect, we are subject to a price control. And we think that there will be some pressure on the margins, especially because there's always a timing, time lag between the increase of the raw material prices and, later on, the increase of the consumer prices or list prices. With regard to demonetization, we have not seen any impact now. Obviously, as you know, the situation is a bit unstable in consumer market and confidence because of that. There has been a bit of a shock in the market, but frankly, we have not seen any impact for now.

Okay. Cees 't Hart: Can we have the last question, please?

The next question is from Richard Withagen from Kepler Cheuvreux. Please go ahead. Your line is now open.

Yes. Good morning. Thanks for the question. First of all, on your push into Asia, what else is there than Tuborg? Will there be further channel development in Asia? What other brands emphasized? And do you see any changes in sales practices? And the second question I have is on France. I think you were a little bit caught by surprise in France in the first half of 2016, but I think, yes, you did better in the second half of the year. So what actions have you taken in the second half to stem your market share losses in France? Cees 't Hart: Okay. Thank you, Richard. With regard to Asia, well, we have a robust portfolio of local brands, which served us well in the past and continue to serve us well in the future. And we can spell it out per country, but we have a good mix of international brands, including Carlsberg. We have 1664 Blanc. So it's not only Tuborg in that respect, but we have a good mix. However, we saw as well that we could gain from the excellent positioning of Tuborg. That's what we started last year and that will be an add-on. And therefore, we are confident about the further growth of our business in Asia, with a multiple of brands and then now including Tuborg. With regard to France, I think what we can say is that it was a very heated summer in that respect in terms of competition, with very steep discounts in the market, which we did not participate in. Now the market in the second half of the year is back in a more balanced way, including more, if you like, normal promotions. And participating in that setting, we have been able to gain some market share back in the second half of the year. So we have strong brands. We have strong people on the ground. But indeed, we were caught by surprise by very steep discount action at the moment of the EURO Cup. Thank you very much, Tony, for your question. And that's, if you don't mind, the last question for today. Many of you we see in the coming days and weeks. Thank you for listening in and thank you for your questions. We are really looking forward to meeting some of you during the coming weeks, and we wish you a very good continuation of the day. Thanks.