Bachelor)thesis,)May)2014) ) ) ) ) ) Author:))Rikke)Skrydstrup)Schmidt)

HA)(English))6.)semester) ) ) ) ) ) (300432))) ) ) ) ) ) )Characters:)109.931) ) ) ) ) ) ) Academic)supervisor:))

Cristina)Scherrer))

) ) ) ) ) ) )))

Corporate)valuation)of)Carlsberg)A/S))))

)

)

))

))

Department)of)Economics)and)Business)Business)and)Social)Sciences))

Aarhus)University)

! Page%1%of%76%

Abstract(%The%purpose%of%this%thesis%is%to%determine%the%value%of%the%world’s%fourth%largest%brewer;%Carlsberg%

A/S.% Carlsberg% has% a% vision% of% being% the% world’s% fastest% growing% brewer,% a% vision% that% is% to% be%

accomplished%within%its%three%regions;%Western%Europe,%Eastern%Europe%and%Asia.%These%markets%are%

however%facing%different%opportunities%and%threats,%which%makes%it%interesting%to%examine%the%value%

of%Carlsberg%and%whether%it%is%an%attractive%investment.%

%

First,% a% strategic% analysis% determines% the% main% externalI% and% internal% factors% that% influence%

Carlsberg’s% operations.% The% PESTELIframework% and% Porters% five% forces% are% used% to% analyze% the%

external% environment.% The% analyses% show% that%macroeconomic% issues,% commodity% prices,% political%

regulations,% and% competition% influence% the% brewing% industry.% The% internal% analysis% shows% that%

Carlsberg’s% vision% can% be% identified% throughout% the% value% chain% and% that% its% growth% strategies% are%

adjusted%to%accommodate%the%three%markets.%

%

A% financial% analysis% then% provides% a% thorough% analysis% of% Carlsberg’s% past% performance.% First% a%

restructuring% of% the% financial% statements% is% performed% to% categorize% operating,% nonIoperating% and%

financial% items,% hereby% identifying% permanent% profit% from% value% drivers.% ROIC% and% NOPLAT% are%

identified%as%the%most% important%valueIdrivers.%The%underlying% factors%of% these%are%thus%examined.%

The% analysis% showed% a% slight% increase% in% IC% during% the% period,% caused% by% acquisitions% and% the%

implementation% of% an% efficiency% project.% NOPLAT% showed% some% fluctuations% during% the% period,%

causing% fluctuations% in% ROIC% and% organic% growth% as% well.% Next,% future% performance% is% forecasted%

based%on%the%outcome%of%the%strategicI%and%financial%analysis.%These%forecasts%are%the%basis%for%the%

valuation.%

%

Koller% et% al.% (2010)% is% the%main% literature% upon%which% the% valuation% is% performed.% The% discounted%

cashIflow%model%is%the%primary%valuation%model%applied,%supported%by%an%Economic%Profit%valuation%

model.%Both%models%estimate%an%average%share%price%of%Carlsberg’s%A%and%B%shares%on%April%1st%2014%

to%574%DKK.%A%scenario%analysis%is%then%applied%to%adjust%for%the%probability%of%a%bestIcase%and%worstI

case% scenario.% The%outcome%of% this% analysis% is% an% adjusted% share%price%of% 560%DKK.% Furthermore% a%

sensitivityIanalysis%is%performed%to%examine%the%impact%of%changes%in%main%inputs%to%the%value.%This%

analysis%showed%that%changes% in%WACC%and%the%adj.%EBITA%margin%have%the% largest% impact.%Finally,%

the%thesis%is%completed%with%a%Multiples%valuation%to%confirm%the%outcome%of%the%DCFIvaluation.%The%

multiples%showed%that%the%market%undervalues%Carlsberg.%

! Page%2%of%76%

%

It%is%concluded%that%Carlsberg%is%an%attractive%investment%because%all%valuation%models%show%that%it%is%

undervalued%compared%to%its%closing%price%on%April%1st%2014.%However%conflicts%in%Eastern%Europe%are%

causing% uncertainty% to% rise,% which%might% cause% estimations,% and% hence% the% value,% to% change.% The%

conclusion%is%therefore%marked%by%some%degree%of%uncertainty.%%

%

( (

! Page%3%of%76%

Table(of(Contents(

1.(Introduction(...................................................................................................................(5%1.1(Problem(Statement(..............................................................................................................(5%

2.(Methodology(.................................................................................................................(6%2.1(Empirical(data(......................................................................................................................(6%2.2(Structure(of(the(thesis(..........................................................................................................(6%2.3(Delimitations(........................................................................................................................(7%2.4(Theory(..................................................................................................................................(7%2.5(Choice(of(valuation(models(...................................................................................................(7%

2.5.1%Discounted%cash%flow%based%valuation%models%.....................................................................%8%2.5.2%Alternatives%to%discounted%cash%flow%models%.....................................................................%10%

3.(Company(profile(..........................................................................................................(11%3.1(Historical(overview(.............................................................................................................(11%3.2(Carlsberg(today(..................................................................................................................(12%3.3(Vision(and(strategy(.............................................................................................................(12%3.4(Markets(..............................................................................................................................(14%

3.4.1%Western%Europe%..................................................................................................................%14%3.4.2%Eastern%Europe%...................................................................................................................%14%3.4.3%Asia%.....................................................................................................................................%15%

3.5(Peer(Group(.........................................................................................................................(15%

4.(Business(strategy(analysis(............................................................................................(16%4.1(The(external(environment(..................................................................................................(17%

4.1.1%The%macroIenvironment%.....................................................................................................%17%4.1.2%The%Industry%........................................................................................................................%20%

4.2(The(internal(environment(...................................................................................................(22%4.2.1%Carlsberg’s%value%chain%.......................................................................................................%22%4.2.2%Carlsberg’s%growth%strategy%................................................................................................%24%4.3%SWOT%.....................................................................................................................................%25%

5.(Financial(analysis(.........................................................................................................(27%5.1(Reorganizing(financial(statements(......................................................................................(27%5.2(Historical(performance(.......................................................................................................(29%

5.2.1%Revenue%growth%..................................................................................................................%29%5.2.2%Invested%capital%...................................................................................................................%32%5.2.3%NOPLAT%...............................................................................................................................%33%5.2.4%ROIC%....................................................................................................................................%34%5.2.5%Free%Cash%Flow%....................................................................................................................%37%5.2.6%Liquidity%..............................................................................................................................%38%5.2.7%Solvency%..............................................................................................................................%39%

6.(Calculating(WACC(.........................................................................................................(40%6.1(Estimating(components(of(WACC(........................................................................................(40%6.2(Estimating(WACC(................................................................................................................(43%

! Page%4%of%76%

7.(Forecasting(performance(.............................................................................................(43%7.1(Length(and(detail(of(the(forecast(........................................................................................(43%7.2(Estimating(the(budget(........................................................................................................(43%

7.2.1%Revenue%..............................................................................................................................%44%7.2.2%Operating%expenses%............................................................................................................%45%7.2.3%EBITA%...................................................................................................................................%46%7.2.4%Property%Plant%and%Equipment%...........................................................................................%46%7.2.5%Capital%Expenditure%............................................................................................................%46%7.2.6%Net%working%capital%.............................................................................................................%47%

8.(Valuation(.....................................................................................................................(48%8.1(The(DCFVmodel(...................................................................................................................(48%8.2(The(EPVmodel(.....................................................................................................................(48%8.3(Scenario(Analysis(................................................................................................................(49%

8.3.1%Base%case%............................................................................................................................%50%8.3.2%Best%case%.............................................................................................................................%50%8.3.3%Worst%case%..........................................................................................................................%51%

8.3.4(Value(adjusted(by(scenario(analysis(.................................................................................(54%8.4(Sensitivity(analysis(..............................................................................................................(54%8.5(Valuation(by(multiples(........................................................................................................(57%8.6(Summary(of(the(valuation(..................................................................................................(58%

9.(Conclusion(...................................................................................................................(59%

10.(Bibliography(...............................................................................................................(61%

11.(Appendix(...................................................................................................................(64%

( (

! Page%5%of%76%

1.(Introduction(Since%2008,%Carlsberg%A/S%has%defined% itself% as% a% global% competitor% in% the%brewing% industry%with%a%

vision%of%being%the%fastest%growing%global%brewer%(Carlsberg%Group%b).%The%global%brewing%industry%is%

however% marked% by% harsh% competition% and% declining% beer% consumption% in% Carlsberg’s% largest%

market,%Western%Europe.%%

Carlsberg%operates%in%three%overall%markets:%Western%Europe,%Eastern%Europe%and%Asia.%Each%

market% is% facing% different% opportunities% and% challenges.% The% Western% European% market,% which%

currently% counts% for% the% majority% of% Carlsberg’s% turnover,% is% maturing% and% struggles% with%

macroeconomic%issues.%Asia%is%experiencing%an%impressive%growth%and%changing%consumer%spending%

whereas% Eastern% Europe% is% rather% volatile% to% political% regulations% regarding% alcohol% and% political%

conflicts%between%Russia% and%Ukraine.% Since% these%are% the% current% situations% in% the% regions%where%

Carlsberg%operates,%it%would%be%interesting%to%estimate%Carlsberg’s%future%value%prospect.%In%order%to%

do%so,%a%corporate%valuation%of%Carlsberg%will%be%the%focus%of%this%thesis.%

%

On%April% 1st% 2014% the% closing%price% for%Carlsberg’s%A% share%was%579%DKK%and%538,50%DKK% for% the%B%

share%–%providing%an%average%share%price%of%558,75%DKK.%It%is%traded%at%NORDAX%OMX%Copenhagen.%%

1.1(Problem(Statement(By%applying%relevant%models%for%corporate%valuation,%this%thesis%seeks%to%find%a%valueIinterval%for%the%

brewing%company%Carlsberg.%

!

From!a!going*concern!assumption,!what!is!the!value!of!Carlsberg!at!April!1st!2014!and!is!Carlsberg!

an!attractive!investment?!

%

To% answer% the% above% mainIquestions% of% the% thesis,% the% following% eight% subIquestions% will% be%

answered%in%order%secure%that%the%thesis%continue%to%move%in%the%right%direction%and%that%the%mainI

question%is%answered%satisfactorily.%%

• Which%nonIfinancial%internal%and%external%valueIdrivers%affect%the%value%of%Carlsberg?%%

• How%can%Carlsberg%use%its%opportunities%to%limit%its%weaknesses?%%

• How%has%Carlsberg%performed%historically?%%

• What%are%the%expectations%for%the%future?%%

• What%is%Carlsberg’s%cost%of%capital?%%

• Which%key%numbers%affect%the%value%of%Carlsberg?%%

• What%is%Carlsberg’s%valueIinterval%at%April%1st%2014?%%%

• How%sensitive%are%the%estimates?%%

! Page%6%of%76%

2.(Methodology(

2.1(Empirical(data(The%empirical%data%upon%which% the%valuation% is%performed% is%Carlsberg’s%parent% company’s%annual%

reports.% This% type% of% data% is% known% as% secondary% data% because% the% author% of% the% thesis% has% not%

collected% it% (Bryman% &% Bell% 2011).% When% applying% secondary% data% one% has% to% make% some%

considerations%regarding%the%credibility%of%the%data.%Since%the%annual%reports%have%been%prepared%in%

accordance%with% the% International% Financial%Reporting% Standards%and%audited%as%prescribed%by% the%

International%Standards%of%Auditing%by%KPMG%the%annual%reports%are%assumed%to%be%credible.%%

% The%empirical%data%used%for%the%analysis%of%Carlsberg’s%business%strategy,%its%markets%and%its%

peer%group%in%sections%3%and%4%is%primarily%from%company%web%sites%and%news%articles.%These%sources%

might%not%be%entirely%objective%and% therefore%a%critical%view%will%be%employed%when%assessing% this%

information.%%

%

2.2(Structure(of(the(thesis((As%shown%in%the%table%of%content,%the%thesis%is%divided%into%nine%overall%sections%in%order%to%provide%a%

structured%and%clear%presentation%of%the%relevant%analyses%and%the%findings.%

The% first% section% provides% an% introduction% to% the% theme% of% the% thesis% and% the% problem%

statement%that%the%thesis%evolves%around.%The%second%section%provides%the%methodology%in%order%to%

set%the%framework%for%the%thesis.%The%third%section%contains%a%company%profile.%The%purpose%of%the%

company% profile% is% to% give% an% introduction% to% relevant% aspects% of% Carlsberg% as% a% company,% the%

markets%it%operates%within,%and%the%peer%group%that%will%be%at%the%center%of%the%multiples%valuation%in%

section% 8.5.% The% fourth% section% contains% a% strategic% analysis% of% Carlsberg’s% external% and% internal%

environment.% The%purpose%of% the% strategic% analysis% is% to% evaluate%whether% Carlsberg% is% capable% of%

creating% value% to% its% investors.% The% fifth% section% holds% a% financial% analysis,% which% provides% the%

foundation% for% the% valuation% together%with% the% strategic% analysis.% In% the% fifth% section% the% financial%

statements%are%reorganized%and%growth,%ROIC%and%liquidity%will%be%explored.%In%the%sixth%section%the%

cost%of%capital%(WACC)%is%estimated%before%future%performance%is%forecasted%in%section%seven.%Section%

eight%presents%the%valuation%of%Carlsberg%as%well%as%a%sensitivity%analysis%to%examine%the%sensitivity%of%

the%estimates.%Finally,%section%nine%sums%up%the%thesis%in%a%conclusion.%A%bibliography%and%enclosures%

are% placed% at% the% end% of% the% thesis% and% a% CD% with% an% excel% sheet% containing% all% calculations% is%

enclosed%as%well.(

%

! Page%7%of%76%

2.3(Delimitations(A%number%of%delimitations%have%been%made%in%order%to%focus%on%the%aspects%that%are%most%relevant%

and%possible%to%accomplish%within%the%extent%of%the%thesis.%Only%the%consolidated%annual%reports%of%

Carlsberg% A/S% will% be% analyzed,% leaving% out% the% annual% reports% of% subsidiaries.% Moreover,% the%

valuation% date% is% set% to% 01I04I2014% in% order% to% have% time% to% finish% the% thesis.% Therefore% no% new%

information%will%be%taken%into%consideration%after%this%date.%%

The% empirical% data% is% delimited% to% solely% include% publicly% available% information.% This%

information% includes% annual% reports,% websites,% articles,% and% reports.% Carlsberg% will% thus% not% be%

contacted%for%interviews%or%the%like.%%

Carlsberg%has%more%than%500%brands%in%its%portfolio%and%hence%produces%a%range%of%products%

within%beer,%cider,%readyItoIdrink,%wine,%water%and%soft%drinks.%This%thesis%will%focus%on%beer%because%

it%is%the%main%product%and%it%will%be%beyond%the%scope%of%the%thesis%to%include%developments%within%

all%categories.%

As% recommended% by% Koller% et% al.% (2010)% the% historical% accounting% data% applied% in% the%

analyses% include% data% from% the% past% five% years.% The% period% that% will% be% analyzed% throughout% the%

thesis%will%hence%be%2009I2013.%The%peer%group’s%annual%reports%will%not%be%restructured%since%it% is%

assessed% to% be% beyond% the% scope% and% primary% objective% of% this% thesis.% If% necessary,% further%

delimitations%will%be%taken%throughout%the%thesis.%

%

2.4(Theory(The%theoretical%foundation%of%the%thesis% is%Koller%et%al.’s%”Valuation!–!measuring!and!managing!the!

value! of! companies”! (2010)! because% it% offers% a% thorough% theoretical% approach% to% valuation.%%

Furthermore,% this% literature% offers% a% method% to% reorganize% financial% statements,% formulas% for%

calculating% the% relevant% ratios%et% cetera.%The%business% strategy%analysis,%which% includes%an% internal%

and%external%analysis%of%Carlsberg%will%be%based%upon%theories%from%“Exploring!Strategy”%by%Johnson%

et% al.% For% the% external% analysis% the% PESTELIframework% will% be% used% to% analyze% the% environment%

surrounding%Carlsberg%and%Porter’s%Five%Forced%will%be%used%to%analyze%the%industry.%For%the%internal%

analysis%Porter’s%Value%Chain%will%be%used.%Besides%the%primary%literature,%relevant%scientific%articles%

and%books%are%applied.%All%theory%will%be%described%in%further%detail,%when%applied%in%the%thesis.%%

%

2.5(Choice(of(valuation(models(Valuation% is%about%estimating%the%value%of%a%company.%Company%value%consists%of%equity%value%and%

debt.%According%to%Koller%et%al.%(2010)%value%is%driven%by%the%company’s%ability%to%earn%a%satisfactory%

return%on%its%invested%capital%(ROIC)%and%by%its%ability%to%grow.%Accomplishing%both%leads%to%high%cash%

! Page%8%of%76%

flows,%which% then% leads% to% value% (Koller%et% al.% 2010).% In% the% following,%discounted% cash% flow%based%

valuation%models,%multiples%models,% and% real% options%models%will% be% accounted% for,% before% a% final%

choice%is%made.%%

%

2.5.1(Discounted(cash(flow(based(valuation(models(There%are%two%overall%methods%to%discounted%cash%flow%valuation:%a%direct%method%and%an% indirect%

method.% Both%methods% calculate% the% equity% value.% The% direct%method% calculates% the% equity% value%

directly%whereas%the% indirect%method%calculates%the%company%value%and%then%subtracts%the%debt% in%

order%to%find%the%equity%value.%The%EquityIcashIflow%model%is%one%of%the%direct%methods.%It%mixes%the%

operating% performance% and% the% capital% structure% in% the% cash% flow% and% therefore% leads% to% more%

mistakes%than%the%indirect%models%(Koller%et%al.%2010).%The%indirect%method%on%the%other%hand,%does%

not%include%the%capital%structure%in%the%cash%flow.%Because%of%the%difficulties%and%risks%that%come%with%

the% direct% method,% Koller% et% al.% recommends% the% indirect% method% and% therefore% this% will% be% the%

method%applied%for%the%valuation%of%Carlsberg.%The%indirect%method%has%the%advantage%of%being%able%

to%value%different%business%units%and% the%entire% company%using% the% same%method.%This% lowers% the%

risk%of%mistakes.%%

A%number%of%models%exist%within%the%indirect%method%and%the%different%models%will%thus%be%

accounted%for,%before%a%choice%is%made.%

%

The(enterprise(discounted(cash(flow((DCF)(model:((

This%model%relies%solely%on%the%company’s%inIgoing%and%outIgoing%cash%flows,%instead%of%accountingI

based% earnings.% According% to% Koller% et% al.% (2010)% this% makes% the% model% a% favorite% to% both%

practitioners% and% academics.% The% DCF% model% discounts% the% free% cash% flow% (FCF)% at% the% weighted%

average% cost% of% capital% (WACC).% Before% the% future% cash% flows% can% be% discounted% they% must% be%

estimated.%The%precision%of%these%estimations%is%hence%very%important%for%the%precision%of%the%final%

valuation.%The%DCF%model%finds%the%value%of%the%future%cash%flows%in%time%0%by%using%this%formula:%

Formula(1:(

V =FCFt

(1+WACC)tt=1

∞

∑ %

%

The%FCF% is% the%cash% flow%available% to%all% investors,%both%equity%holders%and%debt%holders,%once% the%

new% investments% have% been% deducted.% It% is% found% by% deducting% net% investments% from%NOPLAT% as%

shown%in%formula%2.%%

%

! Page%9%of%76%

Formula(2:(

FCF = NOPLAT − NetInv. %%

NOPLAT% is% the% net% operating% profit% less% adjusted% taxes.% It% expresses% the% total% after% tax% operating%

profit%that% is%available%to%the% investors.%The%net% investment% is%the% increase% in% invested%capital% from%

one%year%to%the%next%year.%%

%

The%WACC% is%a%mix%of% the%rates%of% return%required%by%the%debt%holders% (kd)%and%the%equity%holders%

(ke):%

Formula(3:(

WACC = DD+E

kd (1−Tm )+E

D+Eke %

%

The%DCF%model%works%as%a%fourIpart%process:%

1. The%company’s%operations%are%valued%by%discounting%the%FCF%using%WACC%

2. NonIoperating% assets% are% identified% and% valued.% The% joined% value% of% operating% and% nonI

operating%assets%gives%the%enterprise%value.%%

3. All%debt%and%other%nonIequity%claims%are%identified%and%valued%against%the%enterprise%value.%%

4. To% determine% the% value% of% common% equity% the% value% of% nonIequity% financial% claims% are%

subtracted%from%the%enterprise%value.%Then%the%price%per%share%can%be%estimated%by%dividing%

the%equity%value%by%the%number%of%current%shares%outstanding%(Koller%et%al.,%2010).%

%

The(economicVprofit((EP)(valuation(model:(

This% model% is% also% known% as% the% EVAImodel% and% is% characterized% by% having% a% close% link% to% a%

company’s%competitive%strategy.%Unlike%the%DCF%model,% it%shows%whether%a%company% is%earning% its%

cost%of%capital%and%how%the%company’s%financial%performance%is%expected%to%develop%over%time.%This%

model%hence%shows%how%and%when%the%company%creates%value,%while%at%the%same%time%leading%to%a%

valuation% that% is% identical% to% that% of% the% DCF% model,% as% long% as% the% applied% budgeting% and%

assumptions%are%the%same%(Koller%et%al.,%2010).%A%company%earns%profit%if%ROIC%is%larger%than%WACC.%

In% such% a% situation% the% investors% are% better% off% placing% their% investment% in% this% company% than% in%

another%investment%with%the%same%risk.%%

%

Formula(4:(

Economicprofit = IC ⋅ (ROIC −WACC) %

! Page%10%of%76%

The%value%is%found%as%the%sum%of%the%invested%capital%and%the%present%value%of%economic%profit:%

%

Formula(5:(

Value = IC0 +EPt

(1+WACC)tt=1

∞

∑ %

%

The(adjusted(present(value((APV)(model:(

This%model% can% be% used% as% an% alternative% to% the%DCFImodel% if% a% company% does% not% hold% a% steady%

capital%structure.%Carlsberg% is%making%some%acquisitions,%as%part%of% its%growth%strategy%these%years,%

which%can%affect%its%capital%structure%and%therefore%this%model%could%be%relevant.%%

% The% APVImodel% determines% the% levered% value% by% first% calculating% the% unlevered% value% and%

then%adding%the%value%of%the%tax%shield.%The%main%difference%between%the%DCF%and%APV% is%that%the%

APV%incorporates%the%tax%shield%directly%whereas%the%DCF%adjusts%the%discount%rate%(WACC)%(Berk%&%

DeMarzo,%2014).%When%deciding%on%whether%to%use%the%DCF%or%APV%it%is%thus%necessary%to%examine%

whether%Carlsberg%holds%its%debt%level%or%debt%ratio%stable.%If%the%debt%level%is%held%steady,%the%APV%is%

preferable;%otherwise%the%DCF%will%be%used.%

%

The(capital(cash(flow(model:(

This%model%discounts%the%capital%cash%flow%(CCF)%instead%of%the%free%cash%flow%(FCF).%This%means%that%

the%tax%shield%is%not%separated%from%the%free%cash%flow%because%they%are%discounted%by%the%same%cost%

of%capital.%The%result%of%this%method%is%identical%to%the%one%of%the%WACCIbased%DCF%model.%

%

Although%the%DCF%model%and%the%CCF%model%leads%to%the%same%result%Koller%et%al.%argues%that%the%DCF%

model%is%superior.%It%keeps%NOPLAT%and%FCF%independent%of%leverage%and%thereby%makes%it%possible%

to% evaluate% a% company’s% operating% performance% over% time.% Such% clean% measure% of% historical%

performance%leads%to%better%forecasts%(Koller%et%al.,%2010).%%

%

2.5.2(Alternatives(to(discounted(cash(flow(models(Besides%the%discounted%cash%flow%models%two%different%valuation%techniques%exists.%

Multiples:(

This%method%builds%upon%comparison%between%the%company%that%is%being%valuated%and%comparable%

companies%from%the%industry.%It%can%be%used%on%its%own,%or%it%can%be%used%to%check%the%precision%of%

the%forecasts%made%in%the%DCF%model,%by%using%the%P/E%or%EV/EBITA%multiple.%This%model%has%three%

steps:%

! Page%11%of%76%

1. A%relevant%multiple%must%be%chosen%

2. A%peer%group%must%be%chosen%

3. The% calculated%multiple% from% the% valuated% company% is% compared% to% the%multiple% from% the%

peer%group%(Petersen%&%Plenborg,%2003)%

The%outcome%of%this%model%will%thus%give%a%rough%view%of%how%the%company%is%doing,%compared%

to%the%industry%(Koller%et%al.,%2010).%In%this%thesis%the%peer%group%that%is%accounted%for%in%section%

3.5%will%be%used%for%comparison.%%%

%

Real(options:(

This%model%is%based%on%a%method%that%does%not%estimate%cash%flows%or%the%cost%of%capital.%Instead%the%

real% options% model% focuses% on% replicating% portfolios.% It% can% be% difficult% to% replicate% portfolios% for%

companies%and%their%projects%though,%and%therefore%this%model%will%not%be%used%in%the%valuation%of%

Carlsberg%(ibid).%%

%

As%will% become% clearer% in% section% 5.2% of% the% financial% analysis% Carlsberg% holds% a% steady% debt% ratio%

(target%D/V)%and%therefore%the%DCF%model%will%be%used%as%the%primary%valuation%model.%The%EP%model%

will% be% used% to% supplement% the% DCFIvaluation,% since% these% have% complementary% advantages.% The%

second%model%furthermore%works%as%a%verification%of%the%first%model’s%results,%since%the%two%models%

should%lead%to%identical%results.%In%order%to%check%the%precision%of%the%forecasts,%the%Multiples%model%

will%be%applied%as%a%third%model.%Altogether%these%three%models%provide%a%solid%theoretical%ground%for%

valuating%Carlsberg.%%

3.(Company(profile(

3.1(Historical(overview(JC% Jacobsen% founded% Carlsberg% in% 1847.% Originally% the% production% consisted% solely% of% lager% beer,%

which% was% brewed% at% Jacobsen’s% brewery% in% Valby,% just% outside% Copenhagen,% Denmark.% Today%

Carlsberg%has%a%product%line%consisting%of%a%number%of%beverages%such%as%beer,%soft%drinks,%ciders%and%

water.% Throughout% his% lifetime% JC% Jacobson% focused% on% improving% his% beer% and% hence% became% an%

internationally% recognized% brewing% pioneer.% This% focus% on% product% development% and% innovation% is%

still%at%the%heart%of%Carlsberg’s%business%today.%%

In%1876%the%Carlsberg%Foundation%was%established,%a%foundation%that%still%exists%and%must%at%

all% times%hold%at% least%51%%of%the%votes%and%25%%of%the%share%capital% in%Carlsberg%A/S.% In%1904%the%

Pilsner%Beer%was%introduced%and%it%soon%became%the%number%one%export%brand.%Export%increased%in%

! Page%12%of%76%

the%following%years,%which%led%to%the%introduction%of%license%production%in%1966,%due%to%the%growing%

foreign%demand.%%Soon%after,%in%1968,%the%first%overseas%brewery%was%opened%in%Malawi.%%

In%1970%Carlsberg%and%Tuborg%was%merged,% in%order% to%create%a%company%that%was%greater%

than% the% sum% of% its% parts.% At% the% same% time% the% company% was% listed% at% the% Copenhagen% Stock%

Exchange% under% the% name% “the% United% Breweries% A/S,% the% Carlsberg% Breweries% and% the% Tuborg%

Breweries”.% In%1987%the%name%was%changed%to%“Carlsberg%A/S”.%Throughout%the%remaining%years%of%

the%1900s%Carlsberg%continued%to%establish%breweries%abroad%in%Malaysia,%the%UK%and%Hong%Kong.%%

In% 2001% Carlsberg% merged% with% the% Norwegian% brewing% company% Orkla,% to% become% the%

leading%brewer% in% the%Nordic% area.% In% 2004%Carlsberg% acquired%Orkla’s% 40%% shares% and%once% again%

became% the% sole% owner% of% its% brewing% activities.% In% 2008% Carlsberg% made% a% historically% large%

acquisition% of% Scottish% &% Newcastle,% together% with% Heineken.% This% acquisition%was%made% to%make%

Carlsberg%stronger%in%all%of%its%regions%%(Carlsberg%Group%a).%%

%

3.2(Carlsberg(today(Today%Carlsberg%is%the%world’s%fourth%largest%brewery%and%operate%within%27%countries,%divided%into%

three% regions% (Carlsberg% 2013).% Overall% Carlsberg’s% beverages% are% sold% across% 150% markets%

worldwide,% when% export% and% franchise% are% included.% Carlsberg% has% been% led% by% CEO% Jørgen% Buhl%

Rasmussen% since% 2007% and% currently% employs% 41,000% people% and%manage%more% than% 500% brands.%

Despite%a%challenging%year%in%2013%a%net%revenue%of%66,552%million%DKK%was%achieved,%which%was%a%

slight% increase%compared%to%the%previous%year.%58%%came%from%the%Western%European%region,%27%%

from%the%Eastern%European%region%and%the%remaining%15%%came%from%the%Asian%region.%%

Carlsberg%A/S% has% both%AIshares% and%BIshares.% AIshares% give% the% shareholder% 10% votes% for%

each%10%DKK%of%shares,%whereas% the%BIshares%only%give%1%vote% for%each%10%DKK%of%shares.%The%two%

shares% prices% follow% each% other% rather% closely1%and% the% dividend% paid% to% shareholders% of% A% and% B%

shares%is%identical,%in%2013%it%was%8%DKK%per%share.%This%thesis%will%thus%focus%on%an%average%price%of%

the%two%shares%when%valuating%Carlsberg.%

%

3.3(Vision(and(strategy(In%2008%Carlsberg%established%a%vision:%to!be!the!fastest!growing!global!brewer.%%This%is%still%the%longI

term%goal%Carlsberg%wishes%to%accomplish,%but%the%strategic%path%that%shall%lead%the%company%to%this%

ambitious%goal%was%updated%in%2012%(Carlsberg%Group%b).%Due%to%the%changes%brought%about%by%the%

financial% crisis% in%2008,%Carlsberg%decided% to%make% its% strategy%more%actionIorientated,% in%order% to%

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!1!Shown%in%appendix%2!2!Estonia,%Latvia,%and%Lithuania%3%Bulgaria,%Croatia,%Serbia,%and%Greece!

! Page%13%of%76%

manage% the%challenges% it%was% facing%and% still%move% toward% its% longIterm%goal.%Carlsberg’s% strategy%

therefore% now% evolves% around% five% core% strategic% areas.% The% following% paragraphs% offer% a% short%

description%of%each%of%the%five%areas.%

(

Consumers,(brands(and( innovation:(These%three%areas%are%closely%linked%and%have%great%impact%on%

Carlsberg’s%ability% to%excel%within% the%brewing% industry.%Carlsberg%seeks% to%develop% its% innovations,%

set%its%brands,%and%communicate%with%the%consumers%in%a%way%that%sets%it%apart%from%its%competitors%

and%allows%it%to%earn%market%share%(Carlsberg%2013).%%

(

Customers:(Carlsberg%believes%that%many%shopper%decisions%are%made%at%the%point%of%sale%and%hence%

that%the%point%of%sale%is%becoming%increasingly%important.%Therefore%Carlsberg%has%a%strategic%goal%of%

excelling% at% the%point%of% sale.%Understanding% customer%needs% is% at% the% core%of% achieving% this% goal.%

Hence% Carlsberg% focuses% on% collaborating% with% customers% to% understand% customer% motives% and%

shopping%patterns%to%excel%on%the%point%of%sale%(Ibid).(

(

People:(In%order%to%achieve%the%overall%goal%of%becoming%the%fastest%growing%global%brewer%Carlsberg%

needs% highly% skilled% employees.% The% goal%within% this% area% is% hence% to% have% high% standards% and% to%

create% a% highIperformance% culture.% To% accomplish% this,% Carlsberg% seeks% to% develop,% retain,% and%

attract%the%bestIinIclass%people.%Carlsberg%is%also%very%aware%of%the%workIenvironment%and%seeks%to%

create%an%environment%where%employees%are%engaged,%empowered,%and%motivated%to%do%their%best%

(Ibid).%

(

Effectiveness(and(efficiency:%In%order%to%obtain%a%competitive%advantage%within%the%brewing%industry%

it%is%crucial%to%produce%high%quality%products%at%the%right%price.%The%effectiveness%and%efficiency%area%

therefore%has%three%goals:%%

• To%be%an%efficient%consumerI%and%customerIfocused%organization%

• Maximize%return%on%investments%(ROIC)%

• To%exploit%best%practices%across%its%business%units%(Ibid).%

(

Society( and( reputation:( To% ensure% the% longIterm% growth% of% the% company,% Carlsberg% focuses% on%

improving% the% image% of% the% beer% industry% and% integrate% corporate% social% responsibility% (CSR)%

throughout%the%value%chain.%There%are%three%goals%that%evolve%around%society%and%reputation:%

• To%be%a%responsible%global%brewer%

• To%improve%the%image%of%beer%

! Page%14%of%76%

• To%integrate%CSR%throughout%the%value%chain%(Ibid).%

%

Each%of%these%core%areas%has%specific%goals%and%key%performance%indicators%(KPI).%The%KPIs%help%the%

employees%move%toward%the%overall%goal%on%a%dayItoIday%basis%and%allow%for%measurement.%The%KPIs%

consists%of%financial%and%nonIfinancial%measures.%The%financial%KPIs%include%operating%profit,%free%cash%

flow% (FCF),% ROIC,% and% earnings% per% share.% The% nonIfinancial% KPIs% include% market% share,% growth,%

employee%engagement%and%a%number%of%CSR%measurements%(Ibid).%%

%

3.4(Markets(Carlsberg% operates% in% three% overall% markets/regions% that% cover% 27% individual% markets.% The% three%

markets%are%Western%Europe,%Eastern%Europe%and%Asia.%A%fourth%group%is%‘Export,%License,%and%Duty%

Free’.%This%group%is%responsible%for%the%export%and%license%to%the%markets%where%Carlsberg%does%not%

have% its%own%breweries.%The%group% is%quite%diverse%and%therefore% this% thesis%will%only% focus%on%the%

three%overall%markets%in%Section%4’s%strategic%business%analysis.%In%the%following%paragraphs%the%three%

markets%are%described.%%

%

3.4.1(Western(Europe(Western% Europe% is% Carlsberg’s% main% market,% both% in% terms% of% volume% and% operating% profit.% The%

Western% European% market% mainly% consists% of% mature% markets% and% is% characterized% by% wellI

established%retail%structures.%The%countries%that%make%up%this%overall%market%are%Denmark,%Norway,%

Sweden,% Finland,% Poland,% Germany,% the% Baltic% States2,% the% United% Kingdom,% France,% Switzerland,%

Italy,%Portugal%and%South%Eastern%Europe3.%Carlsberg%is%the%second%largest%brewer%in%Western%Europe.%

The% beer% consumption% is% due% to% the% mature% markets% rather% flat% and% since% the% macroeconomic%

downturn% in% 2008% it% has% even% been% slightly% declining.% This% market% is% therefore% both% affected% by%

negative% consumer% and%macroeconomic% environments% these% years.% Although%Western% Europe% is% a%

mature% market,% Carlsberg% has% been% able% to% grow% its% market% share% for% the% third% year% in% a% row%

(Carlsberg,%2013).%%

%

3.4.2(Eastern(Europe(The% Eastern% European% market% consist% of% six% countries:% Russia,% Ukraine,% Kazakhstan,% Belarus,%

Uzbekistan,% and% Azerbaijan.% It% is% Carlsberg’s% second% largest%market,% both% in% terms% of% volume% and%

operating%profit.%Carlsberg%holds%strong%positions%within%the%Eastern%European%market%and%is%market%

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!2!Estonia,%Latvia,%and%Lithuania%3%Bulgaria,%Croatia,%Serbia,%and%Greece!

! Page%15%of%76%

leader% in% Russia,% the% largest% of% the% markets.% The% Eastern% European% market% has% been% marked% by%

government%regulations,%increased%excise%on%beer%and%macroeconomic%slowdown%in%2013,%which%has%

caused%beer%volumes%to%decline%by%5%%(Ibid).%The%Eastern%European%market% is%currently%marked%by%

political%conflicts%between%Russia%and%Ukraine.%%%

(

3.4.3(Asia(The%Asian%market% consists%of%a%number%of% individual%markets:%Cambodia,%China,%Hong%Kong,% India,%

Laos,%Malawi,%Malaysia,% Nepal,% Singapore,% Sri% Lanka,% and% Vietnam.% It% is% a% combination% of% mature%

markets% and% growing% beer% markets.% Factors% such% as% expanding% population,% increasing% disposable%

income,% growing% demand,% and% growing% economies% makes% the% developing% markets% offer% great%

prospect% of% growth% (Carlsberg% Group% e).% Carlsberg% experienced% strong% growth% in% both% volume,%

revenue%and%profit%in%2013%and%will%continue%to%focus%on%both%organicI%and%M&A%growth%within%the%

Asian%region%in%the%following%years%(Carlsberg,%2013).%%

(

3.5(Peer(Group(According% to% Petersen% and% Plenborg% (2003),% there% are% four% prerequisites% that% should% be% fulfilled%

regarding%the%peer%group,%to%make%sure%that%the%companies%are%valuated%at%the%same%multiples.%The%

companies% that% are% compared% must% have% (1)% the% same% accounting% principles% (2)% the% same%

profitability% (3)% approximately% the% same%expected%growth% in% revenues% and% (4)% belong% to% the% same%

risk% class.%They%also%argue,% that% in% reality% it%will%be%extremely%difficult% to% find%even% two%companies%

that% fulfill%all%of% the%above.%Therefore% it% is%almost% inevitable%not% to%violate% the%prerequisites%of% the%

multiples% valuation%model.% For% this% reason,% they% recommend% only% to% use% the%model% to% check% the%

results%from%the%DCF%model%(Petersen%&%Plenborg,%2003).%When%choosing%the%peer%group,%weight%was%

put%on%relevant%markets%for%Carlsberg%and%Carlsberg’s%competitors%within%these%markets.%The%chosen%

peer%group%consists%of%the%world’s%three%leading%companies%within%brewing.%Carlsberg%is%the%world’s%

fourth%largest%brewer%and%is%hence%smaller%than%the%peer%group.%%

%

AnheuserVBusch(InBev((AB(InBev):(AB%InBev%became%the%global%market%leader%within%brewing%when%

AnheuserIBusch%and% InBev%was%merged% in%2008.% It%holds%a% strong%position%with%17,8%%of% the% total%

volume% shares.% Its% headquarters% is% located% in% Belgium% and% AB% InBev’s% overall% markets% are% North%

America,%Latin%America,%Asia%Pacific,%Eastern%Europe%and%Western%Europe.%Hence%some%of%its%primary%

markets% correlate% with% Carlsberg’s% primary% markets% and% AB% InBev% is% thus% a% direct% competitor%

(Euromonitor%b,%2013).%%%

! Page%16%of%76%

%

SABMiller(PLC:(SABMiller%is%the%second%largest%brewer%worldwide%and%holds%9,7%%of%the%total%volume%

shares%(Euromonitor%c,%2013).%Although%SABMiller’s%origins%go%back%to%South%Africa%its%headquarters%

is% located%in%London%and%its%operations%span%worldwide.%Its%markets%include%Latin%America,%Europe,%

North%America,%Africa,%Asia%Pacific,%and%South%Africa.%Latin%America%is%the%largest%of%the%six.%SABMiller%

focuses% on% doing% business% locally% and% has% been% successful% within% emergent% markets% (SABMiller%

2013).%%%

(

Heineken:(Heineken% is% the%world’s% third% largest%brewer%with%9,2%%of% the% total% volume%shares.%The%

distance% between% the% world’s% no.2% and% no.3% is% hence% limited% (Euromonitor% d,% 2013).% Heineken’s%

headquarters% is% placed% in% the%Netherlands%and%operate% in%178% countries,% its%overall%markets%being%

Western%Europe,%Africa%and%the%Middle%East,%Central%and%Eastern%Europe,%Americas,%and%Asia%Pacific.%

Heineken%is%market%leader%in%Western%Europe,%Carlsberg’s%largest%market%(Heineken%2013).%(

(

Since% Western% Europe% is% Carlsberg% largest% market% Heineken% is% perceived% to% be% the% most% direct%

competitor.%Heineken%holds%11,4%%of%the%Western%European%market%compared%to%Carlsberg’s%6,3%%

and%AIB%InBev’s%6,1%.%SABMiller%is%not%perceived%as%high%a%threat%on%the%Western%European%market%

because%its%market%share%is%1,8%.%Since%Carlsberg’s%second%largest%market,%Eastern%Europe,%seems%to%

be%defined%differently%among%brewers,%a%comparison%on%the%competition%within%Carlsberg’s% largest%

Eastern%European%market,%Russia,%has%been%made.%Carlsberg%is%market%leader%in%Russia%with%27,2%%of%

the% market,% but% faces% competition% from% both% AB% InBev% and% Heineken.% Especially% AIB% InBev% is%

expected% to% provide% a% threat% within% the% Russian% market% and% challenge% Carlsberg’s% position%

(Berlingske% Business% a,% 2013).% SABMiller% is% represented% in% a% lot% of% the% same%markets% as% Carlsberg%

worldwide% and% is% perceived% to% have% its% strength% within% emergent% markets.% Hence% it% is% primarily%

perceived%a%competitor%in%Eastern%Europe%and%Asia%(Euromonitor%e,%2013).%%

%

4.(Business(strategy(analysis(When% valuating% a% company,% both% a% financial% analysis% and% a% strategic% analysis% of% the% company% are%

necessary,%before%the%forecasting%and%valuation%can%be%performed.%This%section%contains%a%strategic%

analysis%of%Carlsberg.%The%purpose%of%the%analysis%is%to%determine%whether%the%company%is%capable%of%

creating% value% for% its% shareholders.% Hence% Carlsberg’s% strengths% and% weaknesses% as% well% as% the%

markets’%opportunities%and%threats%must%be%determined%(Petersen%&%Plenborg,%2003).%

! Page%17%of%76%

When%analyzing%a%company’s%business%strategy%it%is%important%to%look%at%the%externalI%as%well%

as% the% internal% environment.% The% external% environment% surrounds% the% company% and% presents%

opportunities% and% threats% that% influence% the% company’s% success.% The% company’s% internal%

environment% consists% of% different% activities,% which% altogether% creates% a% product% (Johnson% et% al.,%

2011).% In%order% to%understand%Carlsberg’s% strategic%position%and% strategy% the%external%and% internal%

environment%will%be%analyzed%in%the%following%paragraphs.%

4.1(The(external(environment(The%external%environment%consists%of%three%layers.%Overall%is%the%macroIenvironment,%which%contains%

factors% that% influence% almost% all% companies% to% some% extent.% The% next% layer% is% the% industry.% The%

industry% is% made% up% of% all% the% breweries% with% which% Carlsberg% competes,% both% local% and% global%

breweries.%The% third% layer%consists%of% competitors.%The%closest%competitors%AnheuserIBusch% InBev,%

SABMiller,%and%Heineken%have%already%been%described%in%relation%to%the%peer%group%and%hence%will%

not% be% described% again.% To% provide% a% fulfilling% analysis% of% Carlsberg’s% external% environment% the%

PESTEL% framework%will% be% used% to% analyze% the%macroIenvironment% and% Porters% five% forces%will% be%

used%to%analyze%the%industry.%%

%

4.1.1(The(macroVenvironment(The% PESTEL% framework% is% used% to% identify% future% issues% in% the% political,% economic,% social,%

technological,% environmental,% and% legal% environments% that% surround% the% company.% Only% the%most%

significant%factors%will%be%analyzed,%meaning%that%there%might%be%other%factors%that%also%influence%the%

macroIenvironment%aside%from%the%ones%mentioned%below.%

%

Political( factors:% Carlsberg% operates% in% a% large% number% of% countries% and% is% therefore% subject% to% a%

variety%of%local%and%international%political%factors.%In%Russia,%the%major%market%in%Eastern%Europe,%the%

government%has%tightened%the%legislation%regarding%beer%in%2013.%From%January%1st%2013%beer%could%

no%longer%be%sold%in%street%kiosks%and%gas%stations.%The%marketing%rules%have%been%tightened%as%well%

and% therefore% beer% commercials% are% no% longer% allowed% (NBC%News% 2012).% An% increase% in% Russian%

vodka%prices%has%been%announced%as%well,%providing%an%opportunity%for%Carlsberg,%since%consumers%

might% choose% to% substitute% vodka% with% beer% (Berlingske% Business% c,% 3013).% This% sort% of% macroI

environmental%change%will%propose%both%opportunities%and%threats%to%the%brewing%industry%in%Russia.%

Similar%threats%exist%in%Malaysia%where%tax%increases%on%beer%will%have%a%negative%impact%on%the%beer%

consumption%as%well%(Berlingske%Business%d,%3013).%%

! Page%18%of%76%

% Political%unrest,%such%as%the%current%situation%between%Russia%and%Ukraine,%might%also%affect%

the%brewing%industry.%The%companies’%operations%within%the%countries%are%affected%and%uncertainty%

arises%and%influence%investors’%view%on%the%attractiveness%of%the%companies.%%

%

Economic( factors:(An%expected%development% in%economic%growth% rates%provides%opportunities% for%

the% brewing% industry.%Whereas% the%Western% European%market% is% relatively% stagnated,% the% Eastern%

EuropeanI%and%Asian%markets%are%expected%to%experience%growth.%Growth%gives%rise%to%an%increase%in%

the% citizens’% disposable% income.% This% provides% an% opportunity% for% the% industry% to% expand% and%

increase% the% sales% volume.% According% to% Euromonitor,% the% beer% consumption% is% furthermore%

expected% to% increase% in% the% region% ‘Asia%Pacific’% thereby%providing%an%opportunity% for% the% industry%

and%for%the%individual%companies%to%increase%their%market%shares%(Euromonitor%a,%2013).%(

% Another%economic%factor%that%can%provide%opportunities%as%well%as%threats%is%exchange%rates.%

Being%a%global%company%means%that%currency%exchanges%affects%business.%For%instance,%Carlsberg%had%

currency% conversion% difficulties% in% Uzbekistan% in% 2012% and% such% difficulties% can% arise% again% in% the%

future%(Carlsberg,%2012).%

% A%third%economic%factor%that%could%influence%the%brewing%industry%is%changes%in%commodity%

prices.% If% prices% go% up,% the% breweries% might% have% to% increase% their% prices% or% accept% a% lower%

contribution%margin.%Some%of%the%commodities%that%are%used%in%brewing%are%for%instance%wheat%and%

barley%for%beer%production%and%aluminum%for%beerIcans.%Appendix%3%shows%the%development%in%these%

commodity% prices% from% 2009I2013% and% it% is% clear% that% there% are% some% fluctuations.% Significant%

increases%occurred%in%2011,%but%since%then%the%prices%have%generally%decreased%the%past%two%years,%

which%improves%the%contribution%margin%and%provides%a%possibility%for%lowering%prices%(Royal%Bank%of%

Canada,%2014).%%

% The% last% economic% factor% that% will% be% highlighted% in% this% thesis% is% macroeconomic% issues.%

Downturns%such%as%the%financial%crisis%back%in%2008%and%its%afterIeffects%still%provides%a%threat%within%

some%markets%such%as%the%stagnated%Western%European%market.%In%Western%Europe%this%has%brought%

about%decreasing%sales%(Euromonitor%a,%2013).%%

%

Social( factors:% Social% factors%generally% include%changing%cultures%and%demographics% (Johnson%et%al.%

2011).%As%disposable% income% increase,% it%can%be%assumed%that%buying%behavior%will%change%as%well.%

This%is%for%instance%seen%in%China,%where%more%and%more%people%move%to%the%metropolises%and%climb%

the% income% ladder.%The%middle%class% is%hence%growing,%which%brings%about%a%change% in%culture%and%

buying%behavior%(China%Business%Review,%2009)%(Dansk%Industri,%2014).%%%

! Page%19%of%76%

% Also,%increased%health%concerns%might%affect%consumers%view%and%consumption%of%beer%and%

alcoholic%drinks%in%general%(Berlingske%Livsstil,%2012).%%

%

Technological(factors:%According%to%Euromonitor,%innovation%and%experimentation%will%be%important%

for% the% brewing% industry% in% the% upcoming% years% (Euromonitor% a,% 2013).% Increasing% effectiveness% is%

hence% important% in% order% to% obtain% competitive% advantage% within% the% industry.% Making% the%

production% processes%more% efficient% will% hence% lead% to% lower% costs% and% an% improved% competitive%

position.%As%mentioned%in%section%3.3%part%of%Carlsberg’s%strategy%is%to%be%effective%and%efficient.%This%

implies% that%Carlsberg% is% aware%of% this%possibility/threat%brought%about%by% the%macroIenvironment%

and%seeks%to%explore%innovations%to%its%advantage.%

%

Environmental( factors:( Environmental% factors% are% concerned%with% ‘green’% issues% such% as% pollution%

and% waste.% The% environmental% awareness% has% risen% in% recent% years% and% companies% hence% pay%

attention% to% environmental% factors,% partly% due% to% legal% requirements% and% partly% due% to% consumer%

concerns.%Corporate%Social%Responsibility% (CSR)%has%arisen%from%this%growing%concern.%CSR% is%a%way%

for%companies%to%behave%ethically%and%contribute%to%economic%development%while%at%the%same%time%

taking%better% care%of% its% stakeholders% than% specified% through% legislation% (Johnson%et% al.% 2011).% CSR%

can%be%an%opportunity,%especially%for%companies%that%are%ahead%of%their%industry,%but%it%can%also%be%a%

threat%to%those%who%are%not%because%changing% legal%requirements%may%force%a%company%to%change%

and%thereby%trigger%higher%costs.%%

%

Legal(factors:%Regulations%regarding%alcohol%consumption,%marketing,%and%distribution%differs%among%

countries% and%affects% the%brewing% industry%within% the% affected% countries.% Restrictions,% such% as% the%

ones% seen% in% Russia,% affect% the% entire% industry% and% might% force% the% companies% to% change% their%

strategy%on%the%market.%%

% Changes% in% legislation% regarding% mergers% and% acquisitions% (M&A)% could% also% have% a% large%

impact% on% the% brewing% industry’s% growth% strategies.% Carlsberg% is% among% the% companies% that% use%

M&A%as%part%of%its%growth%strategy%and%could%hence%experience%either%opportunities%or%threats%due%

to%such%changes.%The% telecom% industry%experienced%such%changes% in% India% in%2013,%which%provided%

opportunity%for%an%increase%in%mergers%(The%Economic%Times,%2013).%

%

To%sum%up%the%PESTEL%analysis,%the%macroIenvironment%contains%a%number%of%different%factors%that%

have% the% potential% to% influence% the% brewing% industry.% All% of% the% above% is% relevant% for% Carlsberg’s%

future%success%and%it%is%thus%important%to%clarify%the%opportunities%and%threats%in%order%to%prepare%for%

! Page%20%of%76%

them.% Some%of% the% clearest% threats% are% the%political% regulations% and%unrest% in% Eastern%Europe%and%

macroeconomic% downturns.% Carlsberg% therefore% has% to% prepare% itself% against% these% threats.% The%

major% opportunities% lies%within% the% growth% prospect% of% Eastern% Europe% and%Asia% and% so% Carlsberg%

must%prepare%how%to%exploit%these%opportunities%the%most.%%

%

4.1.2(The(Industry(Michael% Porter’s% five% forces%model% is% used% to% determine% the% attractiveness% of% an% industry% and% its%

longIterm%profitability%(Schack,%2009).%The%five%competitive%forces%are:%the%threat%of%entry,%the%threat%

of% substitutes,% the% power% of% buyers,% the% power% of% suppliers% and% the% extent% of% rivalry% among% the%

competitors.%In%order%to%analyze%the%global%brewing%industry,%each%of%these%barriers%will%be%analyzed%

below%and%valued%on%a%scale%from%1%to%5.%Once%the%five%forces%have%been%analyzed%the%outcome%of%

the%analysis%will%be%summed%up%in%a%figure,%to%provide%an%overview.%%

%

The( threat( of( entry:( Some%of% the%entry%barriers% that%mark% the%brewing% industry%and%make% it%both%

difficult% and% costly% for% new%entrants% to% enter% are% experience,% economies% of% scale,% and% investment%

requirements.%%

% Brewing% requires%both%experience%and%knowledge,%which% the%established%breweries%posses%

and%benefits%from.%Cf.%section%3.1%Carlsberg%was%founded%in%1847%and%has%hence%has%had%many%years%

to% develop% its% knowledge% and% brewing% techniques.% Furthermore,% the% wellIestablished% global%

breweries%benefit% from%economies%of% scale,%which%makes% it% hard% for% new%entrants% to% compete%on%

price.%The%third%barrier%is%the%investment%requirements%that%are%necessary%to%establish%an%industrial%

production%facility%and%recipe%development.%Raising%such%capital%pose%a%barrier%as%well.%The%exception%

to%the%above%is%microbreweries.%Within%recent%years%microbreweries%have%blossomed,%which%shows%

that%new%entrants%are%not%too%afraid%of% the%start%up%costs.%Because%microbreweries%operate%within%

limited%geographic%areas,%and%distribute%limited%volumes%they%are%considered%a%niche.%Therefore%the%

microbreweries%are%not%considered%direct%competitors%to%the%global%brewing%industry%and%will%not%be%

discussed%further.%The%threat%of%entry%is%overall%estimated%to%be%a%bit%below%moderate%(value:%2).%

% %

The( threat( of( substitutes:(Substitute%products%would%primarily%be%other%alcoholic%or%nonIalcoholic%

drinks% that% satisfy% the% same% need% as% beer.% In% Russia,% vodka% is% the% number% one% alcoholic% drink,% it%

accounts%for%50%%of%sales%whereas%beer%counts%for%32%.%The%regulations%mentioned%in%the%political%

factors% of% the% PESTEL% analysis% could% cause% Russians% to% substitute% beer% with% vodka,% since% the%

distribution%of%beer%has%been%limited%to%the%same%channels%as%vodka%(NBC%News%2012).%It%all%depends%

on%how%the% regulations% regarding%beer%and%vodka%are%met%by%Russian%consumers.%According% to%an%

! Page%21%of%76%

analysis%performed%by%Euromonitor%the%mature%Western%European%market%is%substituting%beer%with%

wine%and%spirits.%The%opposite% trend%has%been%observed% in%Eastern%Europe%where%consumers%have%

begun%to%substitute%spirits%with%beer%(Euromonitor%a,%2013).%The%threat%of%substitutes%is%estimated%to%

be%above%moderate%(value:%3,5).(

(

The( power( of( buyers:( Buyers% are% not% necessarily% the% same% as% consumers.% The% breweries’% direct%

customers% are% found% within% a% businessItoIbusiness% relation.% The% customers% are% hence% bars,%

nightclubs%and%restaurants%(onItrade)%and%supermarkets,%kiosks,%and%gas%stations%(offItrade).%On%one%

hand,%the%number%of%buyers% is% large%and%consumer%preferences%are%assumed%to% influence%the%b2bI

buyers’% demand,% which% lowers% the% buyers’% power.% On% the% other% hand,% supermarkets% are% often%

compiled%in%large%retail%chains%and%the%switching%costs%are%assumed%to%be%low,%since%it%is%rather%easy%

to% swift% supplier.% These% factors% heighten% the% buyers’% power.% Altogether% the% power% of% buyers% is%

estimated%to%be%relatively%neutral%(value:%3).%%%

%

The(power(of(suppliers:%The%brewing%industry%depends%on%a%number%of%commodities%for%production%

and% glass% bottles% and% aluminum% cans% for% packaging.% This% means% that% a% number% of% suppliers% are%

needed.% Traditionally,% global% brewers% used% a% large%number%of% suppliers% but% in% recent% years% a% shift%

towards% increased% vertical% integration% has% occurred.% This% shift% has% weakened% supplier% power.%

Furthermore,%many%commodity%producers%are%rather%small,%which%also%weakens%supplier%power.%One%

of%the%primary%suppliers,%barley%growers,%have%alternative%markets%and%are%hence%not%as%dependent%

on%the%beer%industry.%This%heightens%their%bargaining%power%(MarketLine,%2013).%Overall%the%power%of%

suppliers%is%estimated%to%be%moderate%to%low,%since%there%are%many%suppliers%and%a%change%in%supply%

chains%are%taking%place%among%global%brewers%(value:%2).%

%

The( extent( of( rivalry( among( the( competitors:( Some% predominating% global% companies% and%many%

small% companies%make%up% the%brewing% industry.%The% four% largest%brewers%have%almost%50%%of% the%

global%market%share%(MarketLine,%2013).%Rivalry%within%the%markets%differs%according%to%the%markets%

growth%potential.%As%mentioned%previously,%Western%Europe%is%a%mature%market,%which%means%that%

in% order% to% obtain% market% share% the% breweries% must% gain% it% from% each% other.% This% causes% harsh%

competition.%The%Eastern%European%and%Asian%markets%are%expected%to%experience%growth%and%hence%

it%will%be%possible%to%grow%with%the%market%instead%of%gaining%market%share%from%ones%competitors.%

This% ought% to% imply% low% rivalry,% but% the% global% breweries% all%want% to%dominate% these%markets% and%

become% the% consumers%preferred% choice,%which% leads% to% strong% competition.% The%extent%of% rivalry%

within%the%brewing%industry%is%overall%estimated%to%be%high%(value:%4).%%

! Page%22%of%76%

%

The%outcome%of%the%above%analysis%is%illustrated%in%the%figure%below.%

(

Fig.(1(–(Porter’s(five(forces:(the(global(brewing(industry(

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

%

Overall,% the% global% brewing% industry% is% estimated% to% be% an% industry% with% moderate% to% harsh%

competition,%but%also%an% industry%with%potential% for%profit% if%one% can%establish%a% strong%brand%and%

exploit%growth%opportunities.%

%

4.2(The(internal(environment((To% explore% the% nonIfinancial% value% drivers%within% Carlsberg,% its% value% chain%will% be% analyzed% using%

Michael% Porter’s% Value% Chain% model.% Once% the% value% drivers% have% been% analyzed% an% analysis% of%

Carlsberg’s% growth% strategy% is% performed% to% show%how%Carlsberg% expects% to% grow%within% its% three%

main%markets.%

%

4.2.1(Carlsberg’s(value(chain(To%achieve%competitive%advantages%a% company%must%deliver% value% to% its% customers.%Porter’s%Value%

Chain%model% describes% the% activities% within% a% company% that% together% create% a% product% and% show%

which% activities% are% especially% important% in% creating% value.% The% value% chain% can% be% divided% into%

! Page%23%of%76%

primaryI% and% support% activities.% Primary% activities% are% directly% concerned% with% the% creation% of% a%

product.% SupportIactivities% help% improve% the% effectiveness% or% efficiency% of% the% primary% activities4%

(Johnson%et%al,%2011).% %

The%primary%activities%in%Carlsberg’s%value%chain%starts%with%inbound%logistics,%followed%by%the%

production% of% beer% and% outbound% logistics.% The% inbound% logistics% have% experienced% a% change% in%

recent% years% since% a% vertical% integration% of% the% supply% chain% has% taken% place% at% Carlsberg% cf.% the%

analysis%of%supplier%power% in%the% industry%analysis% (Carlsberg%2012).% In%this%phase% it% is% important%to%

retrieve%commodities%at%the%right%price%and%the%right%quality.%Operations%contain%the%production%of%

beer.%Innovations%that%improve%production%facilities%help%create%value%as%beer%is%effectively%produced%

in% a% sustainable% way.% Outbound% logistics% can% be% divided% into% onItrade% and% offItrade% sales% cf.% the%

analysis%of%buyer%power%in%section%4.1.2.%Logistics%have%been%optimized%in%2012%in%order%to%cut%costs%

and%increase%efficiency%(Ibid).%The%fourth%phase%of%the%primary%activities%are%marketing%and%sales.%One%

of% Carlsberg’s% five% value% areas% is% to% create% a% strong% brand% and% become% the% consumers% preferred%

brewer%cf.% section%3.3.%To%accomplish% this,%marketing%and%sales%must%be%exploited%and%much%value%

hence%lies%within%this%phase.%The%last%primary%activity%is%service.%Maintaining%a%high%service%level%gives%

rise%to%a%close%relationship%with%customers%who%are%the%direct%link%to%consumers.%Overall,%Carlsberg%

strive%to%optimize%the%primary%activities%to%minimize%costs,%produce%quality%beer,%and%become%a%more%

sustainable%company.%This%can%be%considered%necessary%in%order%to%be%a%competitive%global%brewer.%

The%major%value%is%created%through%marketing%because%this%is%the%activity%that%creates%a%relationship%

between% Carlsberg% and% consumers.% The% brand% value% is% strong% and% composes% an% important% value%

driver%for%the%company.%%%%

% The% support% activities% include% Company% infrastructure,% HR% management,% Technology%

development,% and% Procurement% and% they% all% play% a% significant% role% in% optimizing% the% primary%

activities.%Carlsberg’s%infrastructure%is%changing%since%CSR%is%being%incorporated%into%the%entire%value%

chain%to%uphold%the%license%to%operate,%address%risks%and%increase%efficiency%(Ibid).%This%incorporation%

of%CSR%affects%quality% control,% the% standards% the%company%has% to% live%up% to%as%well% as% the%ways% in%

which%business% is%done.% Since% ‘People’% is%one%of%Carlsberg’s% valueIareas,%HR%management%plays%an%

essential%role%within%the%value%chain.%To%succeed%in%achieving%the%goal%regarding%a%highIperformance%

culture%with%the%bestIinIclass%people%cf.%section%3.3,%the%HR%department%has%to%recruit,%train,%develop,%

and%reward%the%employees%accordingly.%The%HR%activity%hence%has%great%influence%of%the%success%of%

this% strategic% area.% Technology% development% both% covers% research% and% development% (R&D)% and%

process% development.% Carlsberg% has% high% focus% on% R&D% to% improve% its% environmental% impact,% by%

developing%its%processes%and%products%and%by%finding%alternative%commodities.%For%example,%in%2012%

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!4!Carlsberg’s%value%chain%is%shown%in%appendix%4!

! Page%24%of%76%

the%barley%production%was%improved,%resulting%in%less%food%waste%and%energy%savings.%The%focus%on%

improving%commodities% to%use% them%to% the% full%will% continue%during% the% following%years% (Ibid).%The%

last% support% activity% is% procurement.% The% procurement% department% handles% the% contact% with%

suppliers% and% has% the% ability% to% obtain% scale% advantages.% Since% CSR% is% at% the% heart% of% Carlsberg’s%

business,%focus%is%placed%on%ensuring%that%suppliers%live%up%to%the%CSR%standards.%To%do%so,%Carlsberg%

has%a%‘Supplier%and%License%Code%of%Conduct’%in%its%contracts.%Altogether%the%support%activities%can%be%

said% to% play% an% important% role% regarding% the% company’s% CSRIpolicy% and% assuring% that% the% primary%

activities%are%both%effective%and%efficient.%%

There% is%a% clear% link%between% the%value%chain%and% the% five% strategic%areas% from%section%3.3%

that%make%up%the%strategy,%which%ultimately%shall% lead%to%accomplishing%Carlsberg’s%vision%of%being%

the%fastest%growing%global%brewer.%The%value%chain%furthermore%appears%dynamic%since%the%effects%of%

the%support%activities%are%evident%in%the%primary%activities%and%an%effort%is%made%to%incorporate%CSR%

throughout%the%value%chain.%

%

4.2.2(Carlsberg’s(growth(strategy(According%to%H.%I.%Ansoff%there%are%four%possible%corporate%strategies.%The%strategies%evolve%from%the%

company’s%composition%of%products%and%markets.%‘Market%penetration’%is%the%strategy%used%when%a%

company% focuses%on%offering%existing%products% to%existing%markets.% ‘New%products%and% services’% is%

the%strategy%of%introducing%new%products%to%existing%markets.%When%introducing%existing%products%to%

new%markets,% the% ‘Market% development’% strategy% is% applied.% Finally,% when% a% company% introduces%

new%products%to%new%markets%it%follows%a%strategy%called%‘Conglomerate%diversification’%(Johnson%et%

al.,%2011).%

% Carlsberg’s%main%market% is% the%mature%Western%European%market% cf.% section%3.4.1.%Within%

this% market% brewers% have% to% fight% for% market% shares% and% consumer% preferences.% To% gain% market%

share%within%this%market%Carlsberg%has%focused%on%its%commercial%agenda%to%promote%its%global%and%

local%brands%and%managed%to%improve%it%market%share%the%past%three%years%(Carlsberg%2013).%This%use%

of% marketing% to% increase% the% sales% volume% of% its% existing% products% falls% within% the% ‘Market%

penetration’%strategy.%Carlsberg%hence%seek%to%obtain%consumer%preferences% in%Western%Europe%by%

creating%a%strong%brand%for%its%beers.%

% Since%the%Western%European%market%is%considered%mature%Carlsberg%needs%a%supplementary%

strategy% to% continue% its% growth.% Therefore% a% ‘Market% development’% strategy% is% seen% in% Eastern%

Europe% as% well% as% Asia.% Carlsberg% thus% seeks% to% expand% to% new% geographies% by% offering% its% beer%

(existing%product)%to%new%markets.%

! Page%25%of%76%

% In%2008%Carlsberg%and%Heineken%acquired% the%British%brewery%Scottish%&%Newcastle,%which%

caused% Carlsberg% to%wholly% own% the% Russian% brewery% Baltic% Beverages%Holding% (Berlingske,% 2007).%

This% acquisition%made% Carlsberg%market% leader% in% Russia% and% gave% it% an% overall% strong% position% in%

Eastern% Europe.% As% the% analysis% of% the% external% environment% showed,% the% Russian% market% is%

struggling%and% therefore% it% is%estimated% that%Carlsberg%will% focus%on%organic%growth%within%Eastern%

Europe%and%place%its%M&A%investments%in%Asia%instead.%%%

In% Asia,% the% world’s% largest% market% for% beer,% Carlsberg% both% exploits% organic% growth% and%

M&A.% In% 2013% Carlsberg% acquired% the% Chinese% brewery% Chongqing% Jianiang%while% also% building% an%

international% brewery% in%Myanmar.% Carlsberg% is% furthermore% exploiting% its% opportunities% regarding%

further%acquisitions%within%Asia%and%a%combination%of%M&A%and%organic%growth%is%hence%expected%to%

continue%(Berlingske%Business%e,%2013).%

% Overall,% the% ‘Market% penetration’% strategy% is% expected% to% be% the% predominant% one% in% the%

upcoming% years,% since% Asia% is% currently% the% fastest% growing% market% and% hence% a% very% attractive%

market%for%Carlsberg%to%grow%within.%It%is%estimated%that%Carlsberg%will%seek%to%secure%market%share%

within% its%new%markets%by%combining%M&A%and%organic%growth.%Furthermore%Carlsberg% is%expected%

to%apply%a%marketing%strategy%to%position%a%strong%brand%and%thereby%win%consumer%preferences.%%%

!

4.3(SWOT((The%outcome%of%above%analyses%of%the%externalI%and%internal%environment%will%be%summed%up%with%a%

SWOT% model% to% show% the% strengths% and% weaknesses% that% Carlsberg% posses% as% well% as% the%

opportunities%and%threats%its%environment%holds.%

%

( (

! Page%26%of%76%

Fig.2(V(SWOT(

Strengths( Weaknesses(

• Vertical%integration%of%the%supply%

chain%

• Knowledge%within%brewing%recipes%

and%procedures%

• A%strong%brand%

• Focus%on%R&D%%improved%

effectiveness%and%efficiency%

• Implementing%CSR%throughout%the%

organization%

• Scale%advantages%

• Carlsberg%holds%a%strong%position%

within%its%three%main%markets%

• Market%leader%in%Russia%

• Decrease%in%revenue%from%the%

Russian%market%

• %Carlsberg’s%main%market,%Western%

Europe,%is%mature/stagnated%

%

Opportunities( Threats(

• Increasing%vodka%prices%in%Russia%

• Increase%in%growth%rates%in%Eastern%

Europe%and%Asia%%increased%

disposable%income%

• Changes%is%commodity%prices%

• Changes%in%exchange%rates%

• An%increase%in%beer%consumption%in%

Eastern%Europe%and%Asia%

• High%entry%barriers%%

• Increased%interest%in%beer%in%Asia%

%

• Russian%restrictions%concerning%the%

brewing%industry%

• Tax%increases%on%beer%

• Changes%in%commodity%prices%

• Changes%in%exchange%rates%

• Macroeconomic%downturn%

• Harsh%competition%

• Increased%healthIfocus%

• Unrest%in%Eastern%Europe%

!

!

( (

! Page%27%of%76%

5.(Financial(analysis(The% purpose% of% performing% a% financial% analysis% is% to% evaluate% Carlsberg’s% historical% performance.%

Carlsberg% has% followed% the% International% Financial% Reporting% Standards% (IFRS)% since% 2005% and% the%

financial%statements%that%are%used%for%the%analysis%are%hence%in%agreement%with%these.%The%following%

sections%begin%with%a%restructuring%of%Carlsberg’s%financial%statements%from%2009I2013,%followed%by%

an%analysis%of%its%historical%performance%and%key%numbers.%%

5.1(Reorganizing(financial(statements(In% order% to% estimate% Carlsberg’s% future% profitability% it% is% essential% to% locate% its% permanent% profit%

because%it%is%the%permanent%profit%that%has%growth%potential.%The%items%from%the%financial%statement%

are% therefore% categorized% into%operatingI,% nonIoperatingI% and% financeIactivities.% This% causes% gains,%

losses,% depreciations% etc.% to% have% to% be% restructured% from% its% original% appearance% in% the% financial%

statement% to% the% appropriate% category% (Sørensen,% 2012).% Sørensen% (2012)% and% Koller% et% al.% (2010)%

recommend%that%financial%statements%from%the%past%five%years%be%restructured.%Therefore%the%period%

2009I2013%has%been%chosen%for%the%historical%analysis.%The%main%impacts%are%described%below%and%a%

short%explanation%of%how%the%each%of%the%individual%items%has%been%restructured%is%found%in%appendix%

65.%%

%

Costs(included(in(EBITA(

NOPLAT% is% the% net% operating% profit% after% tax% and% is% essential% for% the% calculation% of% the% FCF.% To%

calculate% NOPLAT,% Earnings% before% interest,% taxes% and% amortizations% (EBITA)% is% required.% EBITA%

should%only%entail%items%that%can%be%categorized%as%operating%activities%and%therefore%a%restructuring%

of% the% income% statement% was% necessary% (Koller% et% al.% 2010).% When% calculating% ‘other% operating%

revenue’%gains%on%disposal%of%real%estate,%properties%and%other%assets%was%removed%since%these%items%

cannot% be% categorized% as% operating% activities.% Furthermore% depreciation% and% amortization% was%

transferred%from%‘cost%of%sold%goods’%to%‘depreciation%expenses’.%Regarding%‘Selling,%Gen.%and%Admin.%

expenses’%amortizations%was%moved%from%this%account%to%‘amortization%of%intangibles’%and%therefore%

no%longer%affect%the%calculation%of%EBITA.%As%with%the%gains%removed%from%‘other%operating%revenue’%

the% losses% encountered% in% ‘other% operating% expenses’% have% been% removed% as%well.% This% leaves% an%

EBITA%that%is%only%affected%by%core%operating%activities.%%

(

Comprehensive(Income(

Beside%the%income%statement%Carlsberg’s%financial%statements%also%contains%a%comprehensive%income%

statement.%This%has%to%be%incorporated%into%the%income%statement%in%order%to%achieve%cleanIsurplusI!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!5!The%excel%file%used%for%the%restructuring%is%found%at%the%enclosed%CD.%%

! Page%28%of%76%

accounting.%This% incorporation% is%essential% for%the%precision%of%the%historical%profitability%(Sørensen,%

2012).%The% items%from%the%comprehensive% income%statement%have%thus%been% incorporated%as%nonI

operating%income.%%

%

Restructuring(expenses(

Carlsberg% is%currently% implementing% its%new%operating%model:%BSP1.% It% is%a%supply%chain% integration%

and%business%standardization%project% in%Western%Europe.%The%purpose%of% the%project% is% to% improve%

capabilities,% customer% service% and% efficiency,% and% increase% speed% and% asset% utilization.% It% hence%

consist%of%one% integrated% supply% chain,%one% common%business%process%model% and%one% common% IT%

platform% (Carlsberg% 2013).% The% project% brings% along% high% restructuring% costs% while% being%

implemented%from%2013I2015.%These%costs%have%been% incorporated%as%restructuring%charges% in%the%

income%statement%and%will%affect%earnings%before%taxes,%but%not%EBITA.%%

(

Operating(leases(

When%a%company%buys%an%asset%the%asset%and%the%debt%is%recorded%in%the%balance%sheet.%This%is%not%

the% case%with% leasing% though.%When% a% company% leases% its% assets% only% the% periodic% rental% expense%

associated%with% the% lease% is% recorded% in% the% income% statement.% Therefore% the% company%will% have%

artificially% low% operating% profits% and% artificially% high% capital% productivity,% because% the% asset% is% not%

recorded%on%the%balance%sheet.%This%affects%ROIC.%It%typically%makes%ROIC%look%artificially%high,%since%

the% reduction% in% invested% capital% is% typically% higher% than% the% rental% expense’s% effect% on% operating%

profit%(Koller%et%al.%2010).%This%effect%has%the%largest%impact%when%the%operating%leases%account%for%a%

large% percentage% of% the% total% assets,% which% is% not% the% case% with% Carlsberg.% The% operating% leases%

account%for%less%than%2%%of%the%total%assets%each%of%the%years%2009I2013.%In%order%to%get%as%precise%an%

estimation%of%ROIC%as%possible%the%adjustment%will%be%performed%anyway.%%%

% Koller%et%al.%works%with%three%steps%when%capitalizing%the%operating%leases;%first%the%value%of%

the% leased% assets% is% capitalized% on% the% balance% sheet% and% a% corresponding% adjustment% is%made% to%

longIterm%debt.%Then%EBIT%is%adjusted%upward%by%removing%the%implicit%interest%expense.%The%second%

step%is%to%find%a%WACC%that%reflects%the%adjusted%D/V%ratio.%The%final%step%is%to%value%the%company%by%

the%DCFImodel%at%the%adjusted%cost%of%capital.%The%second%and%the%third%step%will%be%dealt%with%later%

in%the%thesis%in%sections%6%and%8.%

% The% capitalized% leasing% costs% have% been% found% by% locating% the% total% leasing% costs% in%

Carlsberg’s%annual%reports%and%then%calculated%the%capitalized%leasing%costs%as%shown%in%appendix%5.%

The%leased%assets%are%estimated%to%carry%a%lower%risk%than%other%assets%and%therefore%a%lower%interest%

rate%has%been%applied.%Koller%et%al.%(2010)%recommends%that%an%AAIrated%interest%rate%be%used.%This%

! Page%29%of%76%

has%therefore%been%added%to%the%risk%free%rate%from%each%year,%to%make%up%a%lower%cost%of%debt%than%

for%the%average%assets.%The%value%of%the%leased%assets%has%then%been%calculated%as%the%total% leasing%

engagements%less%interest%costs.%%

Regarding% the% financial% statement,% the% interest% expenses% have% been% deducted% from% the%

income%statement.%The%value%of%the%capitalized%operating%leases%has%been%added%to%the%assets%on%the%

balance%sheet%and%a%corresponding%adjustment%has%been%made%on%longIterm%debt.%

5.2(Historical(performance(“The!mix!of!growth!and!return!on!invested!capital!(ROIC)!relative!to!the!cost!of!capital!is!what!drives!

the!creation!of!value”%(Koller%et%al.%2010,%p.15).%%Since%growth%and%ROIC%are%Carlsberg’s%value%drivers%

the% following% sections% will% examine% the% historical% development% within% growth% and% ROIC% and% the%

factors% that% underlie% these% two% concepts.% First,% growth% is% analyzed% followed% by% an% analysis% of% the%

invested%capital% (IC).%At% the%end%of% section%5.2%NOPLAT,%ROIC%and%FCF%are%calculated%based%on% the%

performed%analysis%of%the%development%within%growth%and%IC.%

%

5.2.1(Revenue(growth(The% purpose% of% analyzing% Carlsberg’s% revenue% growth% is% to% apply% the% outcome% of% the% analysis% to%

assess% the%potential% for% future% growth.% The%outcome%will% hence%be% applied% to% perform%a% forecast,%

which% is% the% foundation% of% the% valuation.% There% is% more% than% one% way% to% measure% growth.% For%

instance%the%development%in%sales%could%be%applied%as%a%growth%measure,%but%since%sales%is%affected%

by% changing% prices% this% measure% was% deselected.% In% this% thesis% growth% is% measured% by% the%

development%in%net%revenue%since%this%measure%takes%both%priceIlevel%and%the%amount%of%goods%sold%

into% account,% which% makes% it% a% more% valid% growth% indicator% than% sales.% Appendix% 7% shows% the%

development%in%net%revenue%from%2009I2013.%%

The% three% primary% factors% that% influence% revenue% growth% are% changes% in% currency% values,%

mergers% and% acquisitions% (M&A),% and% changes% in% accounting% policies% (Koller% et% al.,% 2010).% As%

mentioned% in% the% introduction% to% section% 5% Carlsberg% has% applied% the% same% accounting% standards%

(IFRS)%within%the%period%of% interest%and%therefore%only%changes% in%exchange%rates%and%M&A%will%be%

analyzed.%Before%these%two%elements%are%analyzed%an%overview%of%each%year%is%presented%below.%In%

the% following% the% revenue% generation% has% been% split% into% regions% because% it% is% found% relevant% to%

examine%where%the%growth%comes%from%instead%of%just%examining%the%overall%development.(

%

( (

! Page%30%of%76%

Table(1(–(Development(in(net(revenue(per(region,(2009V2013(

%

%

2009:(This%was%a%challenging%year%for%Carlsberg.%The%overall%net%revenue%declined%0,94%%due%to%the%

weakened% macro% environment% in% WesternI% and% Eastern% Europe.% The% troubled% global% economy%

caused%consumer%behaviors%to%change,%resulting%in%a%decline%in%beer%volumes.%As%Table%1%shows,%Asia%

was%less%affected%by%the%financial%crisis%and%ended%up%with%a%positive%growth%in%net%revenue%of%1,12%.%

Due%to%efficiency% improvements%the%Norwegian%Arendal%brewery%was%sold,% the%Finish%Pori%brewery%

was%closed,%and% the%German%Braunsweig%brewery%was%divested.%Overall,%during%2009% the%currency%

impact%had%a%negative%effect%(I7%)%whereas%acquisitions%impacted%positively%(+6%)%(Carlsberg,%2009).%%

(

2010:( In% 2010% the% net% revenue% in% WesternI% and% Eastern% Europe% continued% to% decline% due% to%

prolonged%effects%of%the%financial%crisis.%The%Asian%market%experienced%a%strong%growth%of%2,34%%and%

therefore%the%overall%net%revenue%grew%by%1,13%.%One%of%the%major%negative%effects%from%the%Eastern%

European%market%was%a%200%%duty%increase%in%Russia.%The%effect%from%currency%changes%was%positive%

in%2010%(+8%)%whereas%the%effect%from%acquisitions%was%neutral%(Carlsberg,%2010).%(

(

2011:( This% year%offered%Carlsberg%higher% input% costs% and% a% challenging%Russian%market.%Despite%of%

these% facts% all% regions% experienced% growth% in% net% revenues,% which% resulted% in% 5,84%% growth%

compared% to% 2010.% The% positive% result% in% Western% Europe% was% primarily% driven% by% efficiency%

improvements.% The% effect% from% currencies% and% acquisitions% equaled% out% (I1%% versus% +1%).% The%

positive%effect% from%acquisitions%originates% from% increased%ownership% in%breweries% in%Vietnam%and%

Laos%(Carlsberg,%2011).%

(

2012:( The% positive% growth% experienced% in% 2011% continued% in% 2012% and% the% overall% growth% in% net%

revenues%was%5,73%.%Western%Europe%contributed%with%1,33%,%Eastern%Europe%0,81%%and%once%again%

the%Asian%market% topped%with% 3,58%% growth% in% net% revenues.% A% change% in% currencies% contributed%

! Page%31%of%76%

positively%with%2%%and%1%%growth%was%obtained%by%an%ownership%increase%in%Asian%breweries%and%in%

the%Russian%brewery%Baltic%Breweries,%which%Carlsberg%now%holds%100%%(Carlsberg,%2012).(

(

2013:( In% 2013% the% overall% net% revenue% fell% by% 0,97%% compared% to% 2012.% The% reason% for% this%

development% was% a% negative% development% of% I3,76%% in% Eastern% Europe.% The% Eastern% European%

market%experienced%this%decline%due%to%changes%in%the%Russian%legal%restrictions%analyzed%in%section%

4.1.1.% Hence% outlet% restrictions% and% interest% taxes% had% a% large% impact% on% Carlsberg’s% net% revenue.%

Both%Western%Europe%and%Asia%continued%to%grow%but% the%Asian%growth%was%more%modest% than% in%

the%pervious%years%due%to%slower%economic%growth%and%bad%weather.%Overall%changes%in%currencies%

resulted% in% a% negative% impact% of% I3%% while% M&A% contributed% by% 2%.% The% negative% effect% from%

currencies%was%primarily%incurred%in%the%Russian%currency%RUB.%The%RUB/DKK%rate%depreciated%10,5%%

during%the%year%(Carlsberg,%2013).%(

%

5.2.1.1(Currency(effects(Carlsberg% is%a%multinational%company%and%thus%conduct%business% in%many%currencies.%At%the%end%of%

each% reporting% period,% the% foreign% revenues% have% to% be% converted% into%DKK,% the% currency% used% in%

Carlsberg’s%annual%reports.%The%revenue%is%affected%positively%by%changes%in%currencies%if%the%foreign%

currency% has% risen% in% value% compared% to% DKK% and% vice% versa% if% the% foreign% currency% has% fallen.%

Volatility%in%exchange%rates%can%hence%have%a%large%impact%on%Carlsberg’s%income%statement%and%can%

lead%to%misunderstandings%regarding%a%company’s%ability%to%grow%organically%(Koller%et%al.,%2010).%For%

instance% in%2012%currency%effects%affected%Carlsberg’s% income%statement%positively%with%1.994%DKK%

million% whereas% a% negative% effect% of% I1.837% DKK%million% occurred% in% 2011.% The% effect% of% currency%

changes% is% hence% not% a% value% driver% because% it% changes% easily% and% does% not% represent% Carlsberg’s%

core%operations.%%

%

5.2.1.2(Merger(and(acquisitions(During%the%period%analyzed%in%this%thesis,%Carlsberg%has%made%a%number%of%acquisitions.%The%growth%

that%arises%from%M&A%affects%ROIC%differently%than%the%growth%achieved%internally%(organic%growth)%

and% therefore% it% is% important% to% strip% the% growth% created%by%M&A% from%organic% growth%when% the%

value%of%growth%is%evaluated.%According%to%Koller%et%al.%(2010)%it%might%be%difficult%to%strip%the%growth%

achieved% by% M&A% because% of% the% accounting% standards.% They% recommend% that% the% acquired%

companies’% financial% statements%be%used%to%calculate% the%revenue%of% the% target%company,%which% is%

then%deducted% it% from%the%buyer’s% total% revenue.% It%has%not%been%possible% to%gather% the%necessary%

information%and%therefore%the%acquisition%impact%has%not%been%calculated%but%applied%directly%from%

Carlsberg’s%annual%reports%instead.%

! Page%32%of%76%

5.2.1.4(Organic(growth(Organic%growth% is% the% internal% growth% that%originates% from%Carlsberg’s% core%activities%and% is%hence%

the%true%value%driver%needed%for%future%forecasts.%To%create%an%overview%of%the%organic%growth%the%

effects% from% M&A% and% currencies% have% been% deducted% from% the% change% in% total% net% revenues%

calculated%and%described%in%section%5.2.1.%Numbers%measuring%effects%from%M&A%and%currencies%are%

applied%directly%from%Carlsberg’s%annual%reports%and%are%hence%rounded.%Despite%the%inaccuracy%this%

might%incur,%it%is%estimated%that%the%organic%growth%calculated%in%Table%2%is%the%best%bet%of%Carlsberg’s%

organic%growth%and%these%calculations%will%hence%be%applied%throughout%the%thesis.%

%

Table(2(–(Calculation(of(Carlsberg’s(organic(growth,(2009V2013(

%

%

5.2.2(Invested(capital(Invested%capital%(IC)%is%the%cumulative%amount%Carlsberg%has%invested%in%its%core%activity,%brewing.%It%

represents% the% total% investor% capital% required% to% fund% Carlsberg’s% operations,% but% does% not% take%

financing% of% the% capital% into% consideration.% The% operations% included% in% IC% primarily% include% assets%

such% as% property,% plant% and% equipment% (Koller% et% al,% 2010).% IC% can% be% calculated% by% using% the%

operating%method%or%the%financing%method.%Both%of%these%methods%are%shown%in%the%formula%below.%

%

Formula(6:(

InvestedCapital =OperatingAssets−OperatingLiabilities = Debt +Equity%

According% to% Koller% et% all% (2010)% Formula% 6% is% often% too% simple% because% companies% do% not% solely%

invest% in%core%operating%assets%but%also% in%nonIoperating%assets%such%as%prepaid%pensions%and% long%

term% investments.%Therefore%they%recommend%that%Total%Funds% Invested% (TFI)%be%calculated%as% the%

sum%of%IC%and%Non%Operating%Assets.%This%approach%is%relevant%for%Carlsberg%because%it%will%provide%a%

more%accurate%picture%and%so%the%extended%approach%is%shown%in%the%formula%below6.%

(

Formula(7:(

TFI =OperatingAssets−OperatingLiabilities+ NonOperatingAssets %

%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!6!The%TFI%is%called%Invested%Capital%(IC)%throughout%the%thesis!

! Page%33%of%76%

Fig.3(V(Development(in(IC,(2009V2013(

%%

The% above% chart% shows% the% development% of% Carlsberg’s% IC%which% has% a% slightly% upward% trend7.% All%

things%being%equal%an% increase% in% IC% causes%ROIC% to%decrease.%The%development% is%however% rather%

steady.% Carlsberg’s% acquisitions% in% Asia% and% its% new% operating%model% BSP1% are% some% of% the%major%

investments%that%influence%IC%these%years%(Carlsberg,%2013).%%

%

5.2.3(NOPLAT(As%previously%defined,%NOPLAT% is% the%after% tax%operating%profit% from%a% company’s% core%operations%

available%to%both%debt%and%equity%holders%(Koller%et%al.,%2010).%Together%with%IC,%NOPLAT%makes%up%

the%calculation%of%ROIC%and%the%larger%the%size%of%NOPLAT%the%larger%ROIC%will%be.%NOPLAT%must%only%

contain% core% operating% activities% and% cannot% be% affected% by% the% company’s% capital% structure.%

Therefore%EBITA%was%adjusted%for%amortizations%on%intangible%assets%when%the%financial%reports%were%

restructured% since% these% do% not% relate% to% the% core% activities.% These% adjustments% to% EBITA% are%

necessary%to%make%sure%that%the%accounts%used%to%calculate%NOPLAT%and%IC%are%consistent;%otherwise%

the%calculation%of%ROIC%will%be%inaccurate.%%

(

(

(

(

(

(

(

(

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!7!Calculations%are%enclosed%in%Appendix%8!

%I%%%%

%20.000%%

%40.000%%

%60.000%%

%80.000%%

%100.000%%

%120.000%%

%140.000%%

2009% 2010% 2011% 2012% 2013%

Invested%capital%incl.%Goodwill%in%DKK%million%

Invested%capital%excl.%Goodwill%in%DKK%million%

! Page%34%of%76%

Fig.4(V(Development(in(NOPLAT,(2009V2013(

%

%

From%2009%to%2010%a%remarkable%increase%in%NOPLAT%of%40%%is%observed.%This%increase%is%caused%by%a%

combination%of%an% increase%in%EBITA%and%changes% in%taxes%on%EBITA%and%deferred%taxes.%Altogether%

these%changes%have%caused%NOPLAT%to%increase.%In%2011%Carlsberg%experienced%a%rise%in%commodity%

prices%that%caused%EBITA%to%decrease.%Although%net%revenue%increased%by%5,5%%this%increase%was%not%

enough%to%make%up%for%the%rising%expenses%and%this%caused%NOPLAT%to%decrease.%In%2013%the%Russian%

regulations%affected%EBITA%and%hence%NOPLAT%and%ROIC%negatively.%Overall%NOPLAT%has% increased%

when%comparing%2009%and%2013,%which%has%affected%ROIC%positively.%%

%

5.2.4(ROIC(Return% on% invested% capital% (ROIC)% is% calculated% by% dividing% NOPLAT% with% IC.% ROIC% is% the% return%

Carlsberg%earns%on%every%1%DKK%invested%in%the%company.%%Profit%is%measured%over%an%entire%year,%but%

IC%is%only%measured%at%yearIend%and%therefore%the%recommendations%by%Koller%et%al.%(2010)%to%apply%

an% average% IC% when% calculating% ROIC% has% been% followed.% The% formula% used% to% calculate% ROIC% is%

showed%below.%

%

Formula(8:(

ROIC = NOPLATIC %

%

Alternatively,% return% on% equity% (ROE)% or% return% on% assets% (ROA)% could% have% been% used% to% analyze%

Carlsberg’s%performance%but%ROIC%is%found%more%relevant%due%to%the%fact%that%ROIC%solely%focuses%on%

the%company’s%operations.%ROE%has%the%disadvantage%of%mixing%the%operating%performance%with%the%

%5.601%%

%9.337%%

%6.555%%%7.321%%

%6.520%%

%I%%%%%1.000%%%2.000%%%3.000%%%4.000%%%5.000%%%6.000%%%7.000%%%8.000%%%9.000%%%10.000%%

2009% 2010% 2011% 2012% 2013%

NOPLAT%

! Page%35%of%76%

capital% structure% and% ROA% is% an% inaccurate%measure% because% it% includes% nonIoperating% assets% and%

ignores%the%benefits%of%other%items%such%as%‘other%operating%liabilities’,%thereby%reducing%the%required%

amount%of%capital% (Koller%et%al.,%2010).%ROIC%is%computed%both%with%and%without%goodwill%since%the%

two% ratios% show% different% things.% ROIC%with% goodwill% measures% Carlsberg’s% ability% to% create% value%

whereas% ROIC% without% goodwill% is% a% better% measure% of% its% performance% compared% to% its% peers’%

performance%(Ibid).%%

%

Fig.5(–(Development(in(ROIC(with(and(without(goodwill,(2009V2013(

%

%

As% explained% above,% there% is% a% remarkable% difference% between% ROIC% with% and% without% goodwill.%

Upward% and% downward% trends% are% visible% in% both% ratios% and% e.g.% both%measures% clearly% show% the%

impact%from%the%high%NOPLAT%in%2010.%%The%developments%analyzed%in%the%above%sections%showed%a%

slight%increase%in%IC%and%changing%NOPLAT,%which%shows%in%the%above%illustration%of%ROIC.%%

% The% above% calculation% of% ROIC% is% a% suitable% post% measure% of% financial% performance% but% it%

cannot%be%used%to%make%entry%and%exit%decisions.%To%understand%which%parts%of%Carlsberg%that%drives%

its%ROIC,%it%is%divided%according%to%the%formula%below.%

%

Formula(9:(

ROIC = (1−OpearatingCashTaxRate) ⋅ EBITARevenues

⋅Revenues

IC%

%

The% formula% shows% whether% ROIC% is% driven% by% Carlsberg’s% ability% to% maximize% profitability%

(EBITA/Revenues)% or% optimize% capital% turnover% (Revenues/IC)% or% minimize% operating% taxes.% These%

5,29%%8,41%%

5,81%% 6,36%% 5,50%%

22,77%%

38,46%%

26,31%%29,04%%

24,35%%

0,00%%

5,00%%

10,00%%

15,00%%

20,00%%

25,00%%

30,00%%

35,00%%

40,00%%

45,00%%

2009% 2010% 2011% 2012% 2013%

ROIC%incl.%Goodwill%

ROIC%excl.%Goodwill%

! Page%36%of%76%

parts% can% be% split% further% by% the% use% of% a% ROIC% Tree.% The% ROIC% Tree% allows% for% further% analysis%

because% each% expense% and% capital% item% can% be% analyzed.% The% ROIC% Tree% contains% the% operational%

financial% ratios,%which% can%be% controlled%by%management,% on% the% right.% Reading% from% right% to% left,%

each%box%is%a%function%of%the%boxes%to%its%right.%The%outcome%of%this%analysis%should%then%be%weighted%

against%the%strategic%analyses%performed%in%section%4%when%valuating%Carlsberg%(Ibid).%

(

Fig.(6(–(ROIC(Tree(

%

Since%the%numbers%in%the%ROIC%Tree%might%be%difficult%to%read,%they%have%been%specified%in%appendix%

9.%As%mentioned%above%the%ROIC%Tree%should%be%read%from%right%to%left%and%therefore%it%will%also%be%

commented% this% way.% Gross% margin,% SG&A/Revenue% and% Depreciation/Revenue% all% influence% the%

operating%margin.% There%has%been% some%deviation% in% the% gross%margin;% primarily% due% to% the% rising%

! Page%37%of%76%

commodity%prices%experienced% in%2011%cf.% the%analysis%of% the%macro%environment% in% section%4.1.1.%

The% SG&A%expenses% fluctuates% a% bit% but% generally% shows% an% increase% of% about% 2%% throughout% the%

analyzed%period.%This%increase%can%be%traced%back%to%an%increase%in%marketing%expenses%such%as%the%

UEFA% EURO% 2012% sponsorship.% Finally% the% Depreciation/Revenue% has% been% steady% throughout% the%

period.%These%three%key%ratios%determine%the%development%in%operating%margin%and%it%can%hence%be%

concluded%that%particularly%the%development%in%gross%margin%has%influenced%the%operating%margin.%%

% Operating% Working% Capital% (WC)/Revenue% and% Fixed% assets/Revenue% determines% the%

development% in% Revenue/IC.%WC% has% been% negative% throughout% the% period.% Carlsberg% has% held% its%

assets%rather%stable%throughout%the%period%while%the%revenue%has%gone%up,%which%results%in%a%positive%

development%of% the%Fixed%assets/Revenue%ratio.%This%development%has% transferred%to% the%turnover%

rate%(Revenue/IC),%which%has%improved%throughout%the%period,%except%for%a%slight%decrease%in%2013.%

This% decrease% is% connected% to% the% loss% of% revenue% caused% by% the% Russian% regulations% analyzed% in%

section%4.1.1.%

% Pretax% ROIC% is% made% up% of% Revenue/IC% times% Operating% margin% and% together% with% the%

OperatingIcash%tax%rate% it%makes%up%ROIC%without%goodwill.%The%operatingIcash%tax%rate%shows%the%

difference%between%preI%and%postItax%ROIC%and%has%been%unsteady%during% the%period.%Pretax%ROIC%

has% also% experienced%minor% fluctuations.% The% ROIC% Tree% clearly% shows% that% the% fluctuations% in% the%

operatingIcash%tax%rate%have%an%impact%on%ROIC%excl.%goodwill.%When%the%tax%rate%is% low%ROIC%excl.%

goodwill%goes%up%and%vice%versa.%The%fluctuating%development%is%caused%by%the%development%in%the%

WesternI%and%Eastern%European%macro%environment.%%

% ROIC% incl.%goodwill% is%affected%by%both%ROIC%excl.%goodwill%and%Premium%over%book%capital.%

Premium%over% book% capital% shows% how%much% of% the% total% assets% goodwill% accounts% for.% ROIC% incl.%

goodwill% and% ROIC% excl.% goodwill% shows% the% same% development,% but% the% impact% of% goodwill% also%

shows%clearly%between%the%two%ratios.%%

%

5.2.5(Free(Cash(Flow(The%free%cash%flow%is%the%after%tax%cash%flow%Carlsberg%generates%through%its%core%operations,%which%is%

available%to%its%investors.%The%free%cash%flow%depends%on%NOPLAT,%nonIcash%operating%expenses,%and%

investments% in% IC% (Koller% et% al.,% 2010).% Below% the% development% in% Carlsberg’s% FCF% excl.% goodwill% is%

showed%because%nonIoperating%assets%should%not%be%included%in%FCF%(Ibid).%

%%

%

%

(

! Page%38%of%76%

Fig.7(–(Development(in(Carlsberg’s(FCF(excl.(goodwill,(2009V2013(

%

%

Carlsberg’s%FCF%is%positive%throughout%the%analyzed%period%which%means%that%more%money%has%gone%

into%the%company%than%out.%As%the%above%chart%shows%the%overall%tendency%is%a%decrease%in%FCF.%2012%

is%an%exception%from%this,%due%to%the%sale%of%the%Copenhagen%brewery%site%and%an% improvement% in%

working%capital.% FCF% is%high% in%2009%because%of% the% improvement% in%working%capital,% shown% in% the%

ROIC% Tree.% Furthermore% Carlsberg% focused% on% debt% reduction% after% the% acquisition% of% Scottish% &%

Newcastle%in%2008%and%hence%did%not%make%any%large%investments%this%year.%In%2010%Carlsberg%made%

acquisitions% in% Asia% that% caused% FCF% to% decrease.% 2011%was%marked% by% an% increase% in% commodity%

prices% in% all% markets,% which% caused% NOPLAT% to% decrease% as% shown% in% fig.4,% hence% lowering% FCF.%

Overall% the% development% in% FCF% is% consistent% with% the% analyzed% macroeconomic% situation% and%

Carlsberg’s%vision% to%be% the% fastest%growing%global%brewer,%hereby% focusing%on%both%efficiency%and%

acquisitions%that%impact%FCF.%%

%

5.2.6(Liquidity(A%company’s% liquidity% shows% its% ability% to%accommodate% the%demand%of%payments%as% they% fall% due%

(Schack,% 2009).% In% order% to% analyze% Carlsberg’s% liquidity% the% Acid% test% ratio% and% current% ratio% is%

calculated.%These%ratios%show%the%relationship%between%the%assets%that%now%or%in%the%near%future%will%

affect%Carlsberg’s% liquidity%positively%and%the% liabilities% that%will%affect% its% liquidity%negatively%within%

the%same%period%(Ibid).%The%difference%between%the%two%is%the%fact%that%the%Acid%test%does%not%include%

inventory,%which%is%included%in%the%current%ratio.%Furthermore%the%Operating%cash%flow%ratio%has%been%

calculated%as%the%operating%cash%flow%divided%by%total%current%liabilities.%The%calculations%are%shown%

in%table%3%at%the%end%of%this%section.%%

The% Acid% test% shows% Carlsberg’s% ability% to% pay% shortIterm% liabilities% without% selling% its%

inventory.% Table%3% shows% some% fluctuations%and%after%a% few%years%with%a% ratio%higher% than%50%% in%

%I%%%%

%2.000%%

%4.000%%

%6.000%%

%8.000%%

%10.000%%

%12.000%%

%14.000%%

2009% 2010% 2011% 2012% 2013%

FCF%excl.%Goodwill%

! Page%39%of%76%

2011% and% 2012% the% ratio% decreases% to% 33,7%% in% 2013.% This% means% that% the% most% liquid% assets%

determined%33,7%%of%the%total%liabilities.%The%reason%for%this%decrease%from%2012%to%2013%is%primarily%

caused%by%a%65%%increase%in%short%term%debt8.%The%opposite%development%in%short%term%debt%caused%

the%positive%development%between%2010%and%2011.%

% The%current%ratio%has%been%calculated%as%the%total%current%assets%divided%by%the%total%current%

liabilities%and%hence%shows%Carlsberg’s%ability%to%pay%its%shortIterm%liabilities%(Ibid).%

% The%operating%cash%flow%(OCF)%ratio%shows%whether%the%capital%from%Carlsberg’s%operations%

can%cover%the%following%year’s%liabilities.%This%ratio%is%positive%throughout%the%analyzed%period,%except%

2012.%Hence%Carlsberg%was%not%able%to%generate%enough%capital%to%meet% its%obligations%the%coming%

year.% The% current% liabilities%were%higher% in% 2013% than% in% any%other%of% the% analyzed% years,%which% is%

likely%to%explain%why%the%OCF%was%not%sufficient%in%2012.%%%

% The%liquidity%ratios%and%OCF%ratio%calculated%above%are%static%calculations%based%on%historical%

data%that%provide%a%snapshot%of%Carlsberg’s%liquid%situation.%Therefore%they%should%be%used%with%care%

in%the%following%analyses.%Overall,%the%three%ratios%are%rather%low%which%can%be%explained%by%the%fact%

that%Carlsberg%uses%a%rather%high%degree%of%current%liabilities.%Trade%payables%make%up%a%large%part%of%

the% current% liabilities% (43%% in% 2013)% and% if% Carlsberg%wants% to% improve% its% liquidity% ratios% it% could%

hence% lower% its%period%of%credit.%On%the%other%hand,%this%can%be%seen%as%cheap%way%of% finance%and%

therefore%it%might%be%preferable%not%to%lower%it.%

%

5.2.7(Solvency(The% solvency% ratio% shows% to% what% degree% a% company’s% assets% are% financed% with% equity.% A% high%

solvency% ratio% indicates%a% solid% company% that%has%goingIconcern%potential%due% to% low% risk% (Schack,%

2009).%Carlsberg’s% solvency%ratio% is% shown% in% the% table%below.%Carlsberg’s%solvency%ratio%starts%at%a%

rather%low%level%in%2009%and%then%develops%positively%during%the%analyzed%period.%In%2013%Carlsberg’s%

solvency%ratio%was%55%,%which%means%that%55%%of%its%assets%were%equity%financed%and%the%remaining%

45%%were% loan%capital% financed.%This%development% is% consistent%with%Carlsberg’s% focus%on%bringing%

down% debt% after% the% Scottish% &% Newcastle% acquisition% in% 2008% cf.% section.% 5.2.5.% The% positive%

development%and%current%level%of%solvency%implies%that%Carlsberg%can%be%perceived%a%solid%company.%%

Overall,%based%on%the% liquidityI%and%solvency%analyses,%the%going%concern%perspective% is%considered%

trustworthy%although%the%liquidity%ratios%calculated%in%section%5.2.6%were%low.((

(

( (

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!8!(9525I3352)/9525=0,65%

! Page%40%of%76%

Table(3(–(Development(in(liquidity,(cash(flow(ratios(and(solvency,(2009V2013(

%

(

6.(Calculating(WACC(The%DCFImodel%uses% the%WACC%to%discount% the%FCF%and%thereby% find% the%value%of%a%company.%The%

WACC%represents%the%opportunity%cost%an%investor%will%demand%for%an%equally%risky%investment.%The%

WACC%is%a%weighted%average%of%Carlsberg’s%capital%structure%and%hence%both%takes%the%rates%of%return%

required%by%the%debt%holders%and%equity%holders%into%consideration.%%

Formula(10:(

WACC = DVkd (1−Tm )+

EVke%

%

Since%Carlsberg%uses%leasing%agreements%the%WACC%has%to%be%adjusted.%By%adding%the%extra%element%

in%Formula%11%the%capitalized%operating%leases%described%in%section%5.1%are%included.%

Formula(11:(

WACC = DVkd (1−Tm )+

EVke +

lVkl (1−Tm )

%%

In%order%to%calculate%WACC%estimations%regarding%Carlsberg’s%target%capital%structure,%cost%of%equity,%

and%after%tax%cost%of%debt%must%be%made.%Furthermore%the%different%components%of%the%WACC%need%

to% be% calculated.% Section% 6.1% contains% a% brief% survey% of% the% components% before% the% WACC% is%

calculated%in%section%6.2.%%

6.1(Estimating(components(of(WACC(!Capital(structure(The%capital%structure%is%the%relationship%between%debt%and%company%value.%To%determine%Carlsberg’s%

target% capital% structure% an% evaluation% of% its% historical% and% current% capital% structure% as% well% as% its%

peer’s%capital%structures%has%been%performed.%%

%

%

! Page%41%of%76%

Table(4(–(Development(in(D/V(for(Carlsberg(and(Peers,(2008V2013((

Source:!Calculations!based!on!data!from!the!companies’!annual!reports!

%

The% calculations%enclosed% in%appendix%8% show% that%Carlsberg,%AB% InBev%and%Heineken’s% amount%of%

debt%was%high% in%2008%compared% to% the%other%years.% In% the%case%with%Carlsberg%and%Heineken% this%

high%percentage%was%due%to%the%large%acquisition%of%Scottish%&%Newcastle%while%AB%InBev’s%increase%

was% due% to% a%merger% cf.% section% 3.5.%When% estimating% the% target% D/V% level% 2008%was% seen% as% an%

unusual%year%and%therefore%an%average%without%2008%was%calculated.%Taking% into%consideration%the%

average% D/V% for% both% Carlsberg% and% the% industry,% Carlsberg’s% vision% of% being% the% fastest% growing%

global% brewer% cf.% section% 3.3,% and% its% focus% on% maintaining% a% stable% D/V% ratio% (Carlsberg,% 2013),%

Carlsberg’s%target%D/V%is%estimated%to%be%33%.%

%

Cost(of(equity(Carlsberg’s%cost%of%equity%is%estimated%with%the%CAPMImodel.%The%CAPM%defines%a%stocks%risk%as%its%

sensitivity%to%the%stock%market.%Within%this%model%the%riskIfree%rate%and%the%market%risk%premium%are%

common%to%all%companies%whereas%Beta%varies%across%companies%(Koller%et%al.,%2010).%

Formula(12:(

E(Ri ) = fr +βi E(Rm )− rf"# $% %

%

The% components% of% the% CAPMImodel% are% estimated% below% and% the% final% calculation% is% shown% in%

section%6.2.%

%

Risk(free(rate(According%to%Koller%et%al.%(2010)%the%estimation%of%the%risk%free%rate%(rf)%should%be%based%on%longIterm%

government%bonds.%When%estimating%rf%10Iyear%Danish%Government%bonds%were%used%because%Koller%

et%al.%stresses%that%the%same%currency%as%were%used%to%calculate%the%FCF%should%be%used.%Before%the%

financial%crisis%hit%in%2008%the%rf%was%4,31%,%since%then%it%has%fallen9.%The%average%rf%from%2004I2014%is%

3,10%.% This% average% rf%will% be% used% as% an% indicator% for% the% future% rf.% As% the% macro% environment%

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!9%A%graph%of%the%development%in%rf%is%found%in%Appendix%10%

! Page%42%of%76%

stabilizes%and%consumer%behavior%returns%to%preIcrisis%levels%the%rf%is%estimated%to%rise%a%bit%above%the%

2004I2014%average.%A%rf%of%3,25%%will%hence%be%applied%in%the%following%calculations.%%

%

Market(risk(premium(

The%market% risk%premium% (MRP)% can%be%defined%as% the%difference%between% the%market’s%expected%

return%and%rf%(Koller%et%al.,%2010).% It% is%thus%the%extra%return%an% investor%demands%when%taking%on%a%

risk% instead% of% investing% in% risk% free% bonds.% There% are% several%methods% to% estimate% the%MRP,% but%

according%to%Koller%et%al.%these%are%not%precise%and%they%thus%recommend%applying%an%MRP%between%

4.5%%and%5.5%.%As%argued%above,%rf%has%been%low%since%the%financial%crisis%in%2008,%which%causes%MRP%

to%rise.%Furthermore%the%financial%crisis%makes%the%assumption%that%investors%have%become%more%risk%

averse%probable.%Hence%MRP%is%estimated%to%be%5,2%.%%

%

Beta(

Beta% shows% how%much% the% stock% and% the% entire%market%move% together.% Beta% is% an% unobservable%

factor%and%therefore%its%value%must%be%estimated.%Regression%can%be%used%to%estimate%a%raw%beta%and%

then%this%estimate%is%improved%by%the%use%of%industry%comparables.%Koller%et%al.%(2010)%recommend%a%

fourIstep% process% to% estimate% an% industryIadjusted% company% beta.% First% raw% beta% is% estimated% by%

regressing%each%company’s%stock%returns%against%a%market%index.%Next%the%unlevered%beta%is%found.%

Third% the% industry%unlevered%beta% is% calculated.%Finally,% in% step% four% the%unlevered% industry%beta% is%

relevered% to% Carlsberg’s% target%D/EIratio.% The% estimated% beta% that%will% be% used% in% the% valuation% is%

1,3610.%%

% Now%that%the%above%estimations%have%been%performed%the%cost%of%equity%can%be%calculated%

by%using%formula%12.%Carlsberg’s%cost%of%equity%is%estimated%to%be%10,31%.%

%

Cost(of(debt(

Carlsberg’s%cost%of%debt%can%be%estimated%by%use%of%the%formula%below.% It%takes%the%risk%free%rates,%

adds%a%company%specific%risk%and%deducts%the%tax%shield%(Koller%et%al.,%2010).%

%

Formula(13(

kd = (rf + rs ) ⋅ (1− t) %

%

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!10!The%calculations%and%further%explanation%of%beta%are%shown%in%Appendix%11!

! Page%43%of%76%

The%risk%free%rate%was%estimated%to%3,25%%at%the%beginning%of%this%section.%Carlsberg’s%credit%rating%is%

BBB,%which%according%to%Koller%et%al.%gives%a%company%specific%risk%of%2,92%.%Carlsberg’s%cost%of%debt%

can%now%be%calculated.%

kd = (3, 25%+ 2,92%) ⋅ (1− 24,1%) = 6,03% %

%%

6.2(Estimating(WACC(Now% that% the% above% components% of%WACC% have% been% estimated,% an% estimation% of%WACC% can% be%

performed.%The% formula%specified% in%section%6%as%Formula%11% is%used% to%calculate%WACC% instead%of%

the% general% formula% specified% in% section% 2.5.1,% because% it% takes% leasing% agreements% into%

consideration:%

%

WACC = DVkd (1−Tm )+

EVke +

lVkl (1−Tm )

%

%

The%components%used%to%calculate%WACC%is%shown%in%appendix%12.%A%WACC%of%8,45%%will%be%used%in%

the%valuation%of%Carlsberg.%%

%

7.(Forecasting(performance(

7.1(Length(and(detail(of(the(forecast(The%process%of%forecasting%performance%involves%calculating%pro%forma%financial%statements%for%the%

years%to%come.%The%purpose%of%the%forecast%is%to%estimate%the%numbers%needed%for%the%valuation%in%

Section%8.%As%clarified% in%the%problem%statement%a%goingIconcern%approach% is%applied,%meaning%the%

budgeting% ought% to% be% endless.% This% is% not% realistic% and% therefore% a% detailed% period% of% 5% years’%

forecast%and%a%simplified%10Iyear%key%driver%forecast%period%is%applied.%The%period%is%set%to%five%plus%

ten% years% because% it% should% be% long% enough% for% Carlsberg% to% reach% its% steady% state% (Koller% et% al.,%

2010).%%

%

7.2(Estimating(the(budget(A%baseI,%bestI% and%worstIcase%approach%will% be%used% in% the% final% valuation%and%hence% is% should%be%

mentioned% that% the% forecasts% are% for% the%base% case.%Argumentation% for% the% forecasts% is% presented%

below%and%summarized%in%table%5%at%the%end%of%the%section%while%further%calculations%are%shown%in%

appendix%13%and%at%the%enclosed%excel%sheet.%%

! Page%44%of%76%

7.2.1(Revenue(Koller%et%al.%(2010)%suggest%two%different%approaches%to%forecasting%revenue,%the%topIdown%and%the%

bottomIup% approach.% When% using% the% topIdown% approach% revenues% are% forecasted% by% sizing% the%

total%market,%determining%market%share%and%forecasting%prices.%The%bottomIup%approach%focuses%on%

customer%demands,% customer% turnover% and%potential% for% new% customers.% The% topIdown%approach%

was% applied,% but% due% to% high% uncertainties% regarding% the% priceIestimation% the% precision% of% the%

forecasts% was% not% satisfactory11.% Therefore% estimations% have% been% forecasted% based% on% historical%

development,%the%strategic%analysis,%and%trends%forecasted%by%Euromonitor.%Since%it%is%not%possible%to%

estimate%the%future%effect%of%exchange%rates%these%are%assumed%to%be%neutral.%Changes% in%revenue%

are% affected% by% changes% in% volume,% price,% currency,% and% acquisitions.% These% factors% differ% among%

Carlsberg’s%three%markets%and%therefore%they%are%analyzed%separately%below.%%

%

Western(Europe:%The%organic%changes%in%net%revenue%has%been%about%1%%at%the%Western%European%

market%the%past%few%years,%which%reconciles%with%the%market%description%from%section%3.4.1%where%it%

was% characterized% as% a% mature% market% marked% by% negative% consumerI% and% macroeconomic%

environment.%The%strategic%analysis%showed%that%Carlsberg%applies%a%‘market%penetration’%strategy%to%

achieve% consumer% preferences,% increase% its% sales% volume% and% market% share.% It% also% showed% that%

Carlsberg%has%had%success%with%its%marketing%campaigns%in%this%market.%This%explains%why%Carlsberg%

still% experiences% a% positive% development% in% net% revenue% despite%Western% Europe% being% a% mature%

market.%Based%on% the% factors% characterizing% this%market,% the% strategic% analysis% and% the%past% years’%

development,% net% revenue% is% estimated% to% grow% by% 1,5%% in% 2014,% followed% by% an% increase% of% 0,1%

percentage%points%each%year%until%2018%because%consumption%patterns%are%expected%to%normalize.%As%

these%patterns% normalize% consumer% spending% are% expected% to% increase% and% cause% a% slight% positive%

development% in% Carlsberg’s% revenue% although% Western% Europe% maintains% a% mature% market.%

Altogether,% the% development% in% consumption% patterns% and% the% effect% of% Carlsberg’s% strategy% shall%

drive%the%positive%revenue%development%in%Western%Europe.%

(Eastern(Europe:%In%2013%27%%of%Carlsberg’s%net%revenue%was%earned%in%the%Eastern%European%market.%

Carlsberg’s% performance% in% Eastern% Europe% is% heavily% marked% by% its% performance% in% the% largest%

market,%Russia.%The%negative%effect%from%government%regulations%and%increased%excise%on%beer%have%

influenced%Carlsberg’s%revenue% in%the%past%few%years%and%heightened%uncertainty.%Furthermore%the%

currently%tense%situation%between%Russia%and%Ukraine%might%give%rise%to%problems%for%Carlsberg%and%

hence%causes%further%uncertainty%at%the%moment%(Berlingske%Business%g,%2014).%%On%the%other%hand,%

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!11!The%initial%approach%is%also%found%in%appendix%13!

! Page%45%of%76%

regulations%regarding%vodka%and%the%population’s%increased%disposable%income%are%factors%that%imply%

a% positive% development.% Due% to% the% current% uncertainty% another% rough% year% is% expected% on% the%

Eastern%European%market%and%the%outcome%of%political%negotiations%regarding%the%situation%between%

Russia%and%Ukraine% is%expected% to%have%great% influence.%Due% to% the% impact%of%external% factors% it% is%

difficult% to%make%precise% estimations% of% future% revenue% in% Eastern% Europe.% Because%of% the% current%

uncertainty%growth%is%expected%to%be%neutral%in%2014,%followed%by%a%cautious%positive%development%

the% following% years.% The% estimation% is% shown% in% Table% 9% below.% The% estimations% are% based% on% the%

assumption%that%the%tense%situation%between%Russia%and%Ukraine% is% resolved%without%major% impact%

for% Carlsberg% and% that% Carlsberg%will% start% returning% to% normal% conditions% in% Eastern% Europe% from%

2015.%%

(Asia:%The%historical%analysis,% illustrated%in%table%2,%showed%that%organic%as%well%as%M&A%growth%has%

caused% Carlsberg’s% net% revenue% in% Asia% to% develop% positively% throughout% the% period.% The% market%

description% in% section% 3.4.3% furthermore% showed% that% there% are% several% factors% such% as% increasing%

disposable% income,% growing% demand,% and% growing% economies% that% provides% further% growth%

potential.%A%combination%of%organicI%and%M&A%growth%is%hence%also%expected%for%the%years%to%come.%

Combined% with% a% focused% marketing% strategy% and% further% strengthening% of% its% position% in% the%

international%premium%segment,%Carlsberg% is%expected% to%maintain%a% solid%growth% rate% in%Asia.%For%

instance%Carlsberg% is% the%official%beer% for% the%Chinese%Super%League%Football%during% the%next% three%

years% (Carlsberg,% 2013).% This% is% expected% to% strengthen% its% position% in% the% international% premium%

segment% and% is% perceived% to% be% a% good% marketing% initiative,% based% on% the% outcome% of% the%

sponsorship% of% UEFA% Euro% 2012.% Due% to% these% factors% the% net% revenue% from% the% Asian% region% is%

expected%to%grow%by%6,5%%for%the%years%to%come.%%

%

7.2.2(Operating(expenses(Koller%et%al.%(2010)%recommend%generating%forecasts%for%operating%expenses%based%on%revenue%since%

these% expenses% are% driven% by% revenue.% Cost% of% goods% sold% (COGS)% has%maintained% a% rather% stable%

level%during%the%period%with%a%slight%decrease.%The%average%ratio%is%45,8%%from%2009I2013.%As%a%result%

of% the%BSP1% efficiency% and% supply% chain% integration%project% that% is% being% implemented% in%Western%

Europe%during%2013I2015%the%operating%expenses% is%expected%to%decrease.%On%the%other%hand,% the%

development%in%commodity%prices%has%the%potential%to%cause%operating%expenses%to%rise,%as%seen%in%

2011% e.g.% Taking% these% conflicting% factors% into% consideration,% operating% expenses% is% estimated% to%

remain%stable%around%44%%in%the%years%to%come.%%

! Page%46%of%76%

% Selling,% General% and% Administrative% (SG&A)% expenses% have% also% remained% rather% stable%

throughout% analyzed% period% with% an% average% of% 34,7%.% The% BSP1% project% is% expected% to% have% a%

positive% influence% on% these% expenses% as% well,% due% to% the% business% standardization% enabled% by% a%

common%IT%platform%(Carlsberg,%2013).%Therefore%a%ratio%of%33%%is%applied%for%the%detailed%forecast%

period.%%

%

7.2.3(EBITA(The%development%in%Carlsberg’s%EBITA%margin%is%forecasted%on%the%basis%of%the%revenueI%and%expense%

estimations% above.% Overall% revenue% is% expected% to% increase,% although% slowly% in% 2014% due% to% the%

Eastern%European%market.%The%efficiency%improvements%of%the%BSP1%project%will% furthermore%cause%

both% COGS% and% SG&A% expenses% to% decline.% Both% of% these% factors% will% affect% EBITA% positively.%

Therefore%EBITA%is%estimated%to%11.921%million%DKK%in%2014%producing%an%EBITA%margin%of%18,7%.%As%

the%Eastern%European%market%normalizes,%the%EBITA%margin% is%expected%to%grow%to%19%%during%the%

detailed%forecast%period%before%is%stabilizes%at%17,5%%during%the%key%driver%forecast%period.%

%

7.2.4(Property(Plant(and(Equipment(Property%Plant%and%Equipment%(PPE)%has%decreased%in%relation%to%revenue%throughout%the%analyzed%

historical% period.% % This% development% is% expected% to% continue% during% the% upcoming% years% and% then%

stabilize% around% 44%% at% the% end% of% the% detailed% forecast% period.% The% reason% for% the% continued%

downward%development% in%PPE%as%a%percentage%of% revenues% is% the%efficiency% improvements%of% the%

supply% chain% and% production% plants% carried% out% these% years% (Carlsberg,% 2013).% Furthermore%

depreciations%goes%with%PPE%and% is%expected%to%maintain%a%steady% level%of%9,5%,%which%reflects%the%

level%of%the%historical%analysis.%

%

7.2.5(Capital(Expenditure(As% shown% in% table% 6% below,% Capital% Expenditures% and% Depreciations% follow% each% other% closely.% In%

general%the%capital%expenditures%are%a%bit%higher%than%the%depreciation%during%the%detailed%forecast%

period.%The%reason%for%this%is%the%forecasted%growth%in%revenues%explained%above.%The%growth%offsets%

a%need%for%investments%and%hence%increases%assets.%In%the%long%run,%once%the%steady%state%is%reached,%

capital%expenditures%and%depreciations%are%expected%to%be%close%to%equal.%

%

( (

! Page%47%of%76%

7.2.6(Net(working(capital(Aspects%of%the%historical%development%in%working%capital%(WC)%were%analyzed%in%sections%5.4%to%5.7.%

The%analysis% showed% that%Carlsberg’s% liquidity%was% low%but%held%against% the%solvency% ratio%and% the%

underlying% reasons% for% high% current% liabilities% it% was% concluded% that% the% liquidity% level% was% not%

problematic.%The%historical%tendencies%analyzed%are%similar%at%the%beginning%of%the%detailed%forecast%

period.%From%2015%the%net%working%capital%rise%above%1,%which%shows%that%Carlsberg’s%current%assets%

exceed%its%current%liabilities.%The%overall%tendency%of%the%detailed%forecast%period%is%an%improvement%

of%net%working%capital.%%

%

Table(6(–(Detailed(forecasts,(2014V2018%

%

( (

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8.(Valuation(Now% that% the% strategicI% and% financial% analyses% have% been% completed% and% Carlsberg’s% future%

performance% has% been% forecasted,% it% is% possible% to% valuate% Carlsberg.% In% the% following% sections,%

Carlsberg%will%be%valuated%by%the%DCFImodel%and%the%EPImodel.%Afterwards%a%scenario%analysis%will%

present%the%baseI,%bestI%and%worstIcase%followed%by%a%sensitivity%analysis.%The%final%element%of%this%

section%is%a%multiples%analysis,%applied%to%confirm%the%result%from%the%DCF%valuation.%%

%

8.1(The(DCFVmodel(The%DCF% valuation% of% Carlsberg% is% summed%up% in% the% figure% below.% It% provides% an% overview%of% the%

calculations.%Additional%calculations%are%shown%in%the%enclosed%excel%sheet.%%

%

Fig.(8(–(DCF(valuation(of(Carlsberg(

%

The%above%calculations%valuate%an%average%of%Carlsberg’s%A%and%B%shares%at%574%DKK%on%April%1st%2014.%

The%actual%closing%prices%on%April%1st%were%538,5%DKK%for%the%B%share%and%579%DKK%for%the%A%share,%

which%gives%an%average%of%558,75%DKK.%

%

8.2(The(EPVmodel(The% EP% valuation% of% Carlsberg% is% summed% up% in% the% figure% below.% It% provides% an% overview% of% the%

calculations.%Additional%calculations%are%shown%in%the%enclosed%excel%sheet.%As%mentioned%in%section%

2.5%the%primary%reason%for%using%a%second%valuation%model%is%to%verify%the%results%of%the%DCF%model.%%

%

( (

! Page%49%of%76%

Fig.9(–(EP(valuation(of(Carlsberg(

%The% EP% valuation% confirms% the% share% price% found% by% use% of% the%DCF% valuation%model.% The% price% is%

hence%assumed%to%be%correct.%

%

Both%models%show%a%slightly%higher%share%price%(2%)%than%the%average%closing%price%on%April%1st%2014.%

The%value%found%by%both%the%DCF%and%EP%model%depends%on%the%forecasts%they%are%based%upon.%The%

forecasts% are% future% expectations% that% can% be%marked% by% subjective% assessments% of% nonIfinancial%

externalI% and% internal% factors% that% might% affect% the% future.% Due% to% the% uncertainty% attached% to%

forecasts%a%scenario%analysis%is%performed%below.%

%

8.3(Scenario(Analysis(Because%of% the%subjective%estimations% included% in% the% forecasts%performed% in% section%7%Carlsberg’s%

value%is%calculated%based%on%three%different%scenarios%–%base,%best%and%worst%case.%The%base%case%is%

the%most%likely%scenario%and%the%one%that%has%been%focused%on%in%the%thesis%up%till%now.%The%best%case%

has% a% positive% view% on% future% revenue%whereas% the% effects% of% external% risks%mark% the%worst% case.%%

Each%of% the%scenarios%has%been%assigned%a%probability.%The%base%case% is%appointed%80%%probability%

and%both%the%bestI%and%worst%case%scenario% is%assigned%a%10%%probability.%Each%scenario% illustrates%

how% changes% in% the% initial% conditions% might% affect% Carlsberg’s% value% and% hence% provide% valuable%

information%to%investors.%The%outcome%of%the%analyses%is%shown%in%figure%10%at%the%end%of%the%section%

and%calculations%are%shown%in%appendix%14.%%

%%

! Page%50%of%76%

8.3.1(Base(case(The%base%case%has%been%the%scenario%used%for%the%forecasts%and%valuation%performed%in%the%thesis%so%

far%and%therefore%it%will%not%be%elaborated%further.%%

%

Figure%10%at%the%end%of%the%section%shows%the%development%in%FCF%in%relation%to%ROIC%incl.%goodwill%

and%the%adj.%EBITA%margin.%The%FCF%decreases%from%11.313%DKK%m.%in%2014%to%8.290%DKK%m.%in%2019%

before%a%steady%improvement%begins%and%lasts%for%the%rest%of%the%forecasted%period.%The%decrease%is%

partly%due%to%a%slow%development%in%revenue%because%of%the%Eastern%European%market%the%first%few%

years% and% partly% due% to% increased% capital% expenditure% for% investments% as% shown% in% Table% 9% in% the%

previous% section% about% base% case% forecasts.% The% drop% in% FCF% in% 2019% is% caused% by% the% fact% that%

working% capital% is% not% included% in% the% key% driver% forecast.% ROIC% shows% a% steady% improvement%

throughout%the%period%from%7,6%%in%2014%to%10,4%%in%2028.%This%development% in%mainly%caused%by%

the% efficiency% improvements% from% the%BSP1%project% described%previously% and% is% seen% as% a% realistic%

improvement% when% compared% to% the% historical% level% analyzed.% The% adj.% EBITA% margin% maintains%

steady% throughout% the% forecast%period,%developing% from%18,7%% in%2014% to%17,5%% in%2019%where% it%

finds%its%steady%state.%%

%

8.3.2(Best(case(The%BestIcase%scenario%has%a%very%positive%outlook%on%the%future%and%hence%assumes%that%Carlsberg%

will% benefit% from% the% opportunities% identified% in% the% strategic% analysis% in% Section% 4% and% is% able% to%

increase% its% revenue% further% than% in% the% base% case% scenario.% The% factors% differ% among% the% three%

markets%and%therefore%they%are%analyzed%separately.%An%overall%assumption%is%that%commodity%prices%

drop%and%thereby%increase%Carlsberg’s%EBITA%margin.%

%

Western(Europe:%The%effect%of%the%macroeconomic%downturn%releases% its%bond%on%the%market%and%

allows% for% consumer% habits% to% normalize% and% hence% increase% the% beer% consumption.% A% continued%

focus%on%marketing%and%brand%management%causes%consumers%to%prefer%Carlsberg’s%beer%and%hence%

Carlsberg’s%market%share%continues%to%grow.%The%efficiency%effects%of%the%BSP1%project%together%with%

the%lower%commodity%prices%cause%operating%expenses%to%decrease%and%EBITA%to%improve.%

%

Eastern( Europe:% The% macro% economic% issues% affecting% the% market% are% resolved% quickly% and% the%

uncertainty% mentioned% in% the% forecast% of% the% baseIcase% scenario% wears% off,% causing% investors% to%

regain%faith%in%Carlsberg.%The%regulations%regarding%vodka%in%Russia%causes%consumers%to%substitute%

to%beer,%which,% together%with%an% increase% in%disposable% income,% increases%sales.%The%effects%of% the%

! Page%51%of%76%

macroeconomic% downturn% also% end% in% Eastern% Europe,% making% it% a% prominent% growth% factor% for%

Carlsberg.%

(

Asia:%The%Asian%consumers%also%experience%an%increase%in%their%disposable%income%and%more%people%

enter% the% international% premium% segment,% which% causes% Carlsberg’s% sales% to% rise.% Furthermore%

effective%marketing% strategies% such%as% the%Chinese% Super% League% Football,%mentioned% in% the%baseI

case% forecasts% in% section% 7.2.1.3,% will% cause% consumers% to% establish% preference% for% Carlsberg.%

Successful% M&A% strategies% together% with% the% organic% growth% make% Carlsberg% experience% strong%

growth%in%Asia.%%

%

As%described%above%a%number%of% factors% in%the%three%markets%affect%revenue%positively%and%reduce%

costs.%The%result%is%a%FCF%at%a%higher%level%than%the%base%case%and%a%faster%growing%ROIC,%as%shown%in%

figure%10%at%the%end%of%this%section.%ROIC%develops%from%8,8%%in%2014%to%11,8%%in%2018.%The%EBITA%

margin% develops% from% 21,7%% to% 22%% during% the% detailed% forecast% period% before% finding% its% steady%

state%at%19%%during%the%key%driver%forecast.%Overall%the%bestIcase%scenario%produces%an%equity%value%

of%105.043%DKK%m.%and%an%average%share%price%of%689%DKK.%%

%

8.3.3(Worst(case(The%worstIcase%scenario%has%a%negative%outlook%on%the%future%and%hence%assumes%that%Carlsberg%will%

suffer% from% negative% macroeconomic% effects% and% increasing% commodity% prices.% This% will% cause%

revenue%to%grow%slower%than%estimated%in%the%base%case%and%operating%expenses%to%increase.%Once%

again%the%three%markets%are%analyzed%separately.%

%

Western( Europe:( The% macroeconomic% downturn% continues% to% affect% the% market% and% consumer%

patterns.%Furthermore%an% increased% focus%on%health%causes%consumers% to%downgrade%their%alcohol%

consumption,% including% beer.% Carlsberg’s% competitors% are% more% successful% with% their% marketing%

strategies% and% hence% obtain% consumer% preferences,% which% affects% Carlsberg’s% market% share%

negatively.%The%overall%effect%of%these%changes%is%a%drop%in%revenue%and%hence%a%lower%FCF%and%EBITA%

margin.%

(

Eastern(Europe:%The%conflict%between%Russia%and%Ukraine%is%not%resolved%as%fast%as%assumed%under%

the% baseIcase% scenario% and% thus% affects% Carlsberg’s% business% in% Eastern% Europe% longer% than%

anticipated.%Further%Russian%restrictions%on%beer%would%additionally%cause%prices%to%rise%and%have%a%

negative%influence%on%the%profit%earned.%Consequences%of%further%macroeconomic%downturn%would%

! Page%52%of%76%

prevent%the%disposable%income%from%increasing%and%hence%affect%both%the%volume%of%beer%sold%and%

the%revenue.%

(

Asia:%The%Asian%growth%rate%starts%to%slow%down%and%causes%the%population’s%disposable%income%to%

slow%down%as%well.%This%triggers%the% international%premium%segment%to%shrink%as%people%substitute%

premium% beer% with% cheaper% alternatives.% The% slower% growth% also% affects% competition% among% the%

global% brewers% as% the% international% premium% segments% has% become% smaller.% The% increased%

competition%causes%revenue%to%drop%as%sales%are%affected.%

%

As%figure%10%below%shows,%the%outcome%of%the%worstIcase%scenario%is%a%drop%in%both%FCF,%ROIC%and%

the% EBITA%margin.% The% drop% in% FCF% is% caused% by% the% lower% demand% in% all% three%markets% and% the%

increased%operating%costs.%The%effects%described%above%also%causes%the%EBITA%margin%to%drop.%ROIC%

maintains% rather% steady% throughout% the%period,%but% is%at%all% times% lower% than% the%WACC%of%8,45%.%

When%ROIC%is% lower%than%WACC%Carlsberg%does%not%earn%any%profit.%The%estimated%outcome%of%the%

worstIcase%scenario%is%an%equity%value%of%48.593%DKK%million%and%a%share%price%of%319%DKK.%This%is%a%

significantly%lower%outcome%than%the%baseIcase%scenario.%%

%

( (

! Page%53%of%76%

Fig.10( –( BaseV,( bestV,( and( worstVcase( development( in( FCF,( ROIC( incl.( goodwill( and( adj.( EBITA(

margin(2014fV2028f(

%

! Page%54%of%76%

8.3.4(Value(adjusted(by(scenario(analysis(At%the%beginning%of%section%8.3%each%of%the%scenarios%analyzed%above%was%assigned%a%probability.%On%

the% basis% of% those% probabilities% a% value% adjusted% for% the% probability% of% each% scenario% can% be%

calculated.%%

%

Table(7(–(Adjusted(share(price(

%%

When% taking% both% the% worstIcase% and% bestIcase% scenario% into% consideration,% Carlsberg’s% average%

share% price% on% April% 1st% 2014% is% estimated% to% 560% DKK.% This% is% 14% DKK% lower% than% the% share% price%

calculated%with%the%baseIcase%alone.%The%scenario%analysis%thus%shows%the%importance%of%changes%in%

the% forecasts%and%macro%environment% to% the% final%valuation.%Throughout% the% rest%of% the% thesis% the%

baseIcase%scenario%and%a%share%price%of%574%DKK%will%be%used%as%the%point%of%reference.%%

%

8.4(Sensitivity(analysis(The%purpose%of%the%sensitivity%analysis%is%to%test%how%Carlsberg’s%value%changes%when%key%inputs%are%

changed.%The%insight%gained%by%testing%one%input%at%a%time%is%limited.%First%of%all,%inputs%rarely%change%

alone% and% second,% when% two% inputs% change% at% the% same% time,% the% combined% effect% might% be%

different%from%the%sum%of%the%individual%effects%(Koller%et%al.,%2010).%To%circumvent%these%limitations%

a% tradeIoff% analysis% is% performed,% changing% two% inputs% at% a% time.% The% individual% influence% of% the%

inputs% was% first% tested% to% see% what% impact% they% had% on% Carlsberg’s% share% price.% This% is% shown% in%

appendix%15.%It%shows%that%WACC,%adj.%EBITA%margin,%MRP,%Beta,%growth%in%revenues%and%D/VIlevel%

affects%the%share%price.%TradeIoff%analyses%of%these%inputs%are%shown%in%tables%8%below.%

%

( (

! Page%55%of%76%

Table(8(–(Sensitivity(analysis(

(

%

The%first%table%shows%that%the%WACC%has%direct%influence%on%the%valuation%and%changes%in%WACC%are%

thus% interesting% to% analyze.% The% adj.% EBITA%margin% is% also% interesting% in% this% connection,% because%

changes%in%Carlsberg’s%operating%profitability%will%have%a%significant%effect%on%its%value.%Table%8%shows%

a% value% interval% that%develops% from%a% share%price%of% 1442%DKK%when%WACC% is% 4,45%% to%278%when%

WACC%is%12,45%.%This%stresses%the%importance%of%calculating%WACC%with%great%precision.%%

A%change%of%+4%Ipoints%in%the%adj.%EBITA%margin%gives%a%share%price%of%713%DKK%whereas%I4%I

points%reduces%the%share%price%to%435%DKK.%This%interval%is%smaller%than%the%one%caused%by%changes%in%

WACC% but% it% is% still% significant.% Changes% in% EBITA% are% caused% by% changes% in% revenue% or% changes% in%

COGS,% SG&A,% and%depreciations% as%described%when% forecasting% EBITA% in% section%7.2.3.% If% Carlsberg%

succeeds% with% its% efficiency% improvements% in% the% following% years,% operating% expenses%make% up% a%

smaller%percentage%of%revenue%and%EBITA%increases,%which%hence%causes%the%share%price%to%increase.%

! Page%56%of%76%

When%the%effects%of%WACC%and%EBITA%are%combined,%a%I1%Ipoint%change%in%WACC%and%I1%I

point% change% in% the%EBITA%margin% causes% the% share%price% to% rise% to%659%DKK.%This%effect% is% smaller%

than%the%individual%change%in%WACC%though.%%

%

The%second%table%shows%that%the%market%risk%premium%value%interval%ranges%from%296%DKK%at%a%MRP%

of% 9,2%% to% 1303%DKK% at% a%MRP% of% 1,2%.% The%MRP% for% the% baseIcase%was% estimated% in% section% 6.1%

based% on% recommendations% from% Koller% et% al.% and% tendencies%within% the% current% stock%market.% A%

MRP%between%4,5%%and%5,5%%was% recommended%and%5,2%%was%chosen.%A% lower%MRP%would%have%

given%a%higher%share%price.%

% %The% sensitivity% analysis%of%Beta% shows%an% interval% that% ranges% from%442%DKK%when%Beta% is%

1,76% to% 761% DKK%when% Beta% is% 0,96.% Beta% was% estimated% by% regression% and% then% improved% by% an%

industry%adjustment%based%on%the%peer%group.%As%explained%in%appendix%6%the%value%of%the%estimated%

industry%average%unlevered%beta%was%unrealistically%low%and%therefore%Damodaran’s%‘beta%by%sector’%

for%the%beer%industry%was%applied%instead12%to%broaden%the%estimation%beyond%the%three%companies%

chosen%as%peer%group.%This%provided%a%beta%of%1,36%which%was%estimated%to%be%more%realistic%and%a%

beta%value%of%0,76.%

% Both%MRP%and%Beta%is%a%part%of%ke%and%hence%influence%WACC.%The%combination%of%the%effects%

shows%that%when%both%inputs%drop%at%the%same%time%the%share%price%is%improved%and%vice%versa.%%

%

The% third% table% shows% that% the%value% interval% for% revenue%growth% ranges% from%505%DKK% if% revenue%

only%grows%by%0,8%%to%662%DKK%if%it%grows%by%4,8%.%The%revenue%forecast%in%section%7.2.1%was%based%

on% summed% expectations% as% to% how% the% factors% that% influence% revenue% would% develop% within%

Carlsberg’s%three%overall%markets.%%

% Changes%in%Carlsberg’s%capital%structure%would%also%affect%its%share%price,%although%the%above%

table%shows%that%a%+2%Ipoints%increase%to%a%D/V%of%35%%would%only%cause%the%share%price%to%drop%by%

3%DKK%and%vice%versa.%

% If% the%effects%of%revenue%growth%and%changes% in%the%capital%structure%are%combined,%a% I1%I

point% in% revenue%and%a% I1%Ipoint% in%D/V%cause% the%price% to%drop% to%538%DKK.%The%effect%of%a% I1%I

point%in%revenue%would%have%been%worse%though%if%D/V%had%increased%by%+1%Ipoint%instead%since%this%

gives%a%share%price%of%535%DKK.%

%

Overall%the%sensitivity%analysis%shows%that%different%parameters%have%different%effects%on%Carlsberg’s%

share%price.%The%most%significant%effects%were%caused%by%changes% in%WACC%and%the%adjusted%EBITA%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!12!Estimated%industry%average%unlevered%Beta:%0,51.%%%%%%Damodaran’s%beta%by%sector:%0,91!

! Page%57%of%76%

margin.%It%also%shows%that%the%estimated%value%of%Carlsberg%on%April%1st%2014%is%marked%by%a%number%

of%uncertainties%that%might%either%lower%or%increase%the%value%of%Carlsberg’s%share.%%

%

8.5(Valuation(by(multiples(The% purpose% of% the% multiples% valuation% is% to% examine% whether% Carlsberg% is% undervalued% or%

overvalued%by%the%market.%It%will%hence%be%applied%as%confirmation%of%the%DCF%valuation.%A%multiples%

analysis%compares%a%company’s%multiples%with%those%of%its%peer%group.%The%peer%group%described%in%

section%3.5%is%used%for%the%valuation.%%

% Koller%et%al.%(2010)%recommend%using%a%forward%multiples%analysis,%because%forward%looking%

multiples%are%more%accurate%predictors%of%value.%This%thesis%is%delimited%only%to%include%forecasts%for%

2014,%since%these%are%available%in%the%Bloomberg%database.%It%would%have%been%possible%to%forecast%

the%peer%groups%multiples%by%conducting%the%same%valuation%as%the%one%carried%out%about%Carlsberg%

throughout% this% thesis.% This% is% however% beyond% the% scope% of% this% thesis% and% hence% will% not% be%

performed%cf.%delimitations%in%section%2.3.%%

% It%is%argued%by%Koller%et%al.%that%the%EV/EBITA%multiple%is%the%best%multiple%to%apply%because%

it,% unlike% other% multiples,% only% concerns% operating% performance.% This% multiple% is% however% not%

available%on%either%Bloomberg%or%Datastream%and%therefore%the%P/E,%EV/EBITDA%and%EV/EBIT%ratios%

are%used%instead%since%they%are%the%best%alternatives%available.%%

%

Table(9:(P/E,(EV/EBITDA(and(EV/EBIT(for(Carlsberg(and(peer(group,(2014f(and(calculation(of(share(

price(based(on(multiples(

%

Source:!Multiples!collected!from!Bloomberg!

%

! Page%58%of%76%

The% P/E% ratio% indicates% how% investors% perceive% the% peer% group’s% earning% power.% The% P/E% ratio% is%

affected%by%a%company’s%capital%structure%and%nonIoperating%items,%which%is%why%Koller%et%al.%(2010)%

recommends%enterprise%value% (EV)%based% ratios% instead.%Table%9% shows% that%Carlsberg%has%a% lower%

P/E% ratio% than% its% peers.% This%means% that% investors% have% lower% expectations% to% Carlsberg’s% future%

earnings%than%its%peers’.%%

% The%EV/EBITDA%ratio%might%be%affected%by%outsourced%production%which%influences%the%price%

paid% for% raw%materials.% This% is% why% Koller% et% al.% (2010)% argue% to% use% EBITA% instead.% EBIT% includes%

amortizations%and%since% this% concerns%past% rather% than% future%cash% flows% it%distorts%an%EV%multiple%

(ibid).%%

Overall,% Table% 9% shows% that% Carlsberg% has% lower% multiples% than% its% peers.% The% reason% for%

Carlsberg’s%lower%multiples%is%assed%to%be%investors%current%lack%of%believe%in%Carlsberg’s%operations%

in%Russia%and%Eastern%Europe%in%general.%Carlsberg%is%market%leader%in%Russia%and%is%more%involved%in%

the% market% than% its% peers.% Therefore% the% hard% times% in% 2013% and% 2014% has% a% larger% impact% on%

Carlsberg’s%earnings%than%on%the%peer%group’s%earnings.%%

The%lower%half%of%the%table%shows%how%Carlsberg’s%share%price%deviates%from%the%share%price%

calculated% with% the% DCF% valuation.% All% three% multiples% gives% a% higher% share% price% than% the% DCFI

method,% which% implies% that% Carlsberg’s% share% price% is% undervalued% compared% to% the%market.% The%

share%prices%calculated%in%Table%9%deviates%more%than%expected%from%the%DCF%share%price.%The%peer%

group% applied% might% explain% some% of% the% unusually% high% difference% among% the% two% valuation%

methods.%As%described%at%the%beginning%of%the%thesis,%Carlsberg%is%the%fourth%largest%brewery%in%the%

world,%which%means%that%all%members%of%the%peer%group%are%larger%than%Carlsberg.%If%a%larger%range%of%

breweries% were% included% in% the% multiples% analysis% a% more% representative% picture% of% the% industry%

would%have%showed.%%

%

8.6(Summary(of(the(valuation((The% DCF% and% EP% valuation% models% both% estimated% the% baseIcase% scenario% of% Carlsberg’s% average%

share% price% to% 574%DKK.% Afterwards% a% scenario% analysis% including% probabilities% of% baseI,% bestI,% and%

worstIcase% scenarios% was% applied.% This% analysis% adjusted% the% share% price% by% 14% DKK% to% 560% DKK.%

Finally%the%multiples%analysis%came%up%with%three%share%prices%that%were%all%above%the%share%prices%

calculated% in% the%other%models.%The%overall% conclusion%on% the%multiples%analysis% is% that%Carlsberg’s%

share%price%is%undervalued,%which%confirms%the%outcome%of%the%DCF%and%EP%valuations.%It%is%not%likely%

to% be% as% undervalued% as% implied% by% the% multiples% analysis% though.% The% results% of% the% multiples%

analysis%are%hence%not%considered%accurate%for%Carlsberg’s%value.%It%should%therefore%only%be%seen%as%

a%supplement%to%confirm%the%underIvalue%estimated%in%the%DCF%valuation.%%

! Page%59%of%76%

9.(Conclusion(The%purpose%of%this%thesis%was%to%valuate%Carlsberg%A/S%from%a%goingIconcern%assumption%per%April%

1st%2014%and%thereby%assess%whether%Carlsberg%is%an%attractive%investment.%%

%

To%establish%basis%for%the%DCF%valuation%both%strategic%and%financial%analyses%of%Carlsberg%was%carried%

out.%The%strategic%analysis%showed%that%external%macroeconomic%factors%influence%sales%in%WesternI%

and%Eastern%Europe%and%that%political%regulation%of%excise%and%marketing%affect%the%brewing%industry.%

It%also%showed%growth%prospect%in%Eastern%Europe%and%Asia%as%people’s%disposable%income%rise.%The%

internal% analysis% showed% that% Carlsberg% prepares% itself% for% future% challenges% by% improving% its%

efficiency%and%create% strong%brands% through%marketing.%Overall% the% internal%analysis% conclude% that%

Carlsberg%holds%a%strong%position%as%the%world’s%fourth%largest%brewer%and%its%vision%of%becoming%the%

world’s%fastest%growing%brewer%is%identifiable%in%all%aspects%of%its%strategy%and%value%chain.%%

% A% financial% analysis% of% the% past% five% years’% financial% statements% was% carried% out% to% locate%

Carlsberg’s%primary%value%drivers.%First%a%restructuring%was%performed%to%categorize%operating,%nonI

operating%and%financial% items,%hereby% identifying%permanent%profit% from%value%drivers.%The%analysis%

showed%a%slight%increase%in%IC%during%the%period,%caused%by%acquisitions%and%the%implementation%of%

the% BSP1% efficiency% project.% NOPLAT% showed% some% fluctuations% during% the% period,% causing%

fluctuations%in%ROIC%and%organic%growth%as%well.%Once%the%Eastern%European%market%normalizes%and%

the%results%of%BSP1%become%effective%NOPLAT%and%ROIC%are%expected%to%become%steadier.%

%

The% cost% of% capital% was% calculated% carefully% based% on% estimations% of% ke,% kd,% rf,% beta,% MRP% and%

Carlsberg’s% capital% structure.%The%estimation%of%each% item%was%based%upon%both% the% strategicI%and%

financial%analysis.%WACC%was%calculated%to%8,45%.%

%

It% was% determined% that% a% forecast% of% future% performance% was% essential% for% the% valuation% and%

therefore%a%fiveIyear%detailed%forecast%followed%by%10Iyear%key%driver%forecast%was%performed.%The%

forecast%was%based%upon%estimations%performed%on%the%basis%of%the%historical%performance%and%the%

strategic%analysis,%to%create%a%realistic%forecast%for%Carlsberg’s%future%performance.%%

%

The%DCFImodel%was%used%for%the%valuation%and%an%average%share%price%of%574%DKK%was%estimated%on%

April% 1st% 2014.% The% EPImodel% was% then% used% to% verify% the% outcome% of% the% DCF% valuation.% Next% a%

scenarioIanalysis%was%performed%to%adjust%for%possible%bestI%and%worstIcase%scenarios.%Each%scenario%

held%a%probability,%which%resulted% in%an%adjusted%average%value%of%560%DKK%per%share.%A%sensitivity%

analysis%was% furthermore%performed%to%examine%the%value’s%sensitivity% to%changes% in%key% inputs.% It%

showed% that% changes% in% WACC% had% the% most% significant% effect% on% the% value.% Finally% a% multiples%

! Page%60%of%76%

valuation%was%performed%and%despite% large%deviations% from%the%DCF%valuation%all% ratios% concluded%

that%Carlsberg’s%shares%are%undervalued.%%%

%

Overall%Carlsberg% is% considered%an%attractive% investment%because%all% valuation%models%have% shown%

that% it% is% undervalued% compared% to% its% closing% price% on% April% 1st% 2014.% However,% the% situation% in%

Eastern%Europe%causes%uncertainty%to%rise%and%therefore%the%key% inputs%might%change.%As%shown%in%

the% sensitivity% analysis,% if% key% inputs% change% the% value% change.% The% conclusion% is% thus%marked% by%

some%uncertainty%since%future%expectations%can%affect%the%estimations%and%hence%the%value.%%

%

( (

! Page%61%of%76%

10.(Bibliography(!AnheuserIBusch%InBev%(2009):%annual%report%2008%AnheuserIBusch%InBev%(2010):%annual%report%2009%AnheuserIBusch%InBev%(2011):%annual%report%2010%AnheuserIBusch%InBev%(2012):%annual%report%2011%AnheuserIBusch%InBev%(2013):%annual%report%2012%AnheuserIBusch%InBev%(2014):%annual%report%2013%%Berk,%Jonathan;%DeMarzo%Peter%(2014):%Corporate!Finance,%3rd%edition,%Pearson%Education%Limited,%Harlow.%%%Berlingske%Business%a%(2013):%Carlsberg*konkurrent!vil!tage!kampen!op!på!svagt!russisk!marked,%viewed%04I02I2013%http://www.business.dk/global/carlsbergIkonkurrentIvilItageIkampenIopIpaaIsvagtIrussiskImarked%%Berlingske%business%b%(2013):%Carlsbergs!nedtur!i!Rusland!fortsætter!i!2014,%viewed%04I02I2013%http://www.business.dk/foedevarer/analyseIcarlsbergsInedturIiIruslandIfortsaetterIiI2014%%Berlingske%business%c%(2013):%Carlsbergs!har!gavn!af!højere!vodka!prisesr!i!Rusland,%viewed%10I02I2014%http://www.business.dk/foedevarer/carlsbergIharIgavnIafIhoejereIvodkapriserIiIrusland%%Berlingske%business%d%(2013):%Carlsbergs!frygter!afgiftsstigning!i!Malaysia,%viewed%04I02I2013%http://www.business.dk/foedevarer/carlsbergIfrygterIafgiftsstigningIiImalaysia%%Berlingske%business%e%(2013):%Carlsberg!tørster!efter!vækst!i!Asien,!viewed!10I02I2014%http://www.business.dk/foedevarer/carlsbergItoersterIefterIvaekstIiIasien%%Berlingske%business%f%(2014):%Carlsberg%holder%vejret%efter%Ruslands%trusler,%viewed%28I03I2014%http://www.business.dk/foedevarer/carlsbergIholderIvejretIefterIruslandsItrusler%%Berlingske%business%g%(2014):%Se%grafikkerne:%Carlsberg,%valutakurser%og%aktier%ramt%af%UkraineIuro,%viewed%28I03I2014%http://www.business.dk/investor/seIgrafikkerneIcarlsbergIvalutakurserIogIaktierIramtIafIukraineIuro%%Berlingske%(2007):%Carlsberg%klar%til%russisk%opkøb,%viewed%10I02I2014%http://www.b.dk/danmark/carlsbergIklarItilIrussiskIopkoeb%%Berlingske%Livsstil%(2012):%Flere!danskere!bekymrer!sig!om!deres!helbred,%viewed%10I02I2014%http://www.b.dk/sundhed/flereIdanskereIbekymrerIsigIomIderesIhelbred%%Bryman,%Allan;%Bell,%Emma%(2011):%Business!Research!Methods,%3rd%edition,%Oxford%University%Press,%Oxford.%%

! Page%62%of%76%

Carlsberg%(2009):%annual%report%2008%Carlsberg%(2010):%annual%report%2009%Carlsberg%(2011):%annual%report%2010%Carlsberg%(2012):%annual%report%2011%Carlsberg%(2013):%annual%report%2012%Carlsberg%(2014):%annual%report%2013%%Carlsberg%Group%a%–%Company%Heritage,%viewed%31/10%2013%http://www.carlsberggroup.com/Company/heritage/Pages/GlobalBrewer.aspx%%Carlsberg%Group%b%–%Company%strategy,%viewed%31/10%2013%http://www.carlsberggroup.com/Company/Strategy/Pages/Facts.aspx%%Carlsberg%Group%c%–%Western%Europe,%viewed%29/01%2014%http://www.carlsberggroup.com/MARKETS/WE/Pages/default.aspx%%Carlsberg%Group%d%–%Eastern%Europe,%viewed%29/01%2014%http://www.carlsberggroup.com/Markets/ee/Pages/default.aspx%%Carlsberg%Group%e%–%Asia,%viewed%29/01%2014%http://www.carlsberggroup.com/Markets/asia/Pages/default.aspx%%China%Business%Review%(2009):%Understanding!China’s!Middle!Class,%viewed%05I02I2014%http://www.chinabusinessreview.com/understandingIchinasImiddleIclass/%%Damodaran,%A.,%2014.%Betas!by!Sector.!Viewed%24/03I2014%http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/Betas.html%%Dansk%Industri%(2014):%Kinesernes!disponible!indkomst!vokser,!viewed!05I02I2014%http://di.dk/Marked/faaoverblik/Kina/Pages/Kinesernesdisponibleindkomstvokser.aspx%%Euromonitor%International%a%%(2013):%Alcoholic!drinks:!Beer!–!a!new!dawn!brewing%%%Euromonitor%International%b%(2013):%%Alcoholic!drinks:%Anheuser*Busch!Inbev!NV!in!beer!(world)!%Euromonitor%International%c%(2013):%%Alcoholic!drinks:%SABMiller!PLC!!in!beer!(world)!

%Euromonitor%International%d%(2013):%%Alcoholic!drinks:%Heineken!NV!in!beer!(world)!%Euromonitor%International%e%–%Statistics%of%Western%European%market%shares,%viewed%30I01I2014%http://www.portal.euromonitor.com.ez.statsbiblioteket.dk:2048/Portal/Pages/Search/SearchResultsList.aspx%%Heineken%(2009):%annual%report%2008%Heineken%(2010):%annual%report%2009%

! Page%63%of%76%

Heineken%(2011):%annual%report%2010%Heineken%(2012):%annual%report%2011%Heineken%(2013):%annual%report%2012%Heineken%(2014):%annual%report%2013%%Johnson,%Gerry;%Whittington,%Richard;%Scholes,%Kevan%(2011):%Exploring!Strategy,%9th%edition,%Pearson%Education%Limited,%Harlow.%%Koller,%Tim;%Goedhart,%Marc;%Wessels,%David%(2010):%Valuation!–!measuring!and!managing!the!value!

of!companies,%5th%edition,%John%Wiley%&%Sons%Inc,%New%Jersey.%%MarketLine%Industry%Profile%(2013)%Global%Beer,%viewed%07I02I2014%http://360.datamonitor.com.ez.statsbiblioteket.dk:2048/Product?pid=MLIP1074I0014%%Nasdaq%OMX%Nordic,%viewed%23I01I2014%http://www.nasdaqomxnordic.com/aktier/microsite?Instrument=CSE1596%%NBC%News%(2012):%Beer!now!considered!alcohol,!not!food,!in!Russia!after!new!restrictions!take!hold,!viewed%04I02I2013%http://worldnews.nbcnews.com/_news/2012/12/31/16268313IbeerInowIconsideredIalcoholInotIfoodIinIrussiaIasInewIrestrictionsItakeIhold?lite%%Petersen,%Christian%V.%(2003):!Værdiansættelse.%Revision%og%regnskabsvæsen%s.24I34%Årg.72%no.9%%Royal%Bank%of%Canada:%Commodity%Price%Monitor%January%2014,%viewed%05I02I2014%http://www.rbc.com/economics/economicIreports/pdf/otherIreports/cpm.pdf%%SABMiller%2008%annual%report%SABMiller%2009%annual%report%SABMiller%2010%annual%report%SABMiller%2011%annual%report%SABMiller%2012%annual%report%SABMiller%2013%annual%report%%Schack,%Bent%(2009):%Regnskabsanalyse!og!virksomhedsbedømmelse,%4th%edition,%Jurist%og%økonomforbundets%forlag.%%Sørensen,%Ole%(2012):%Regnskabsanalyse!og!værdiansættelse,%4th%edition,%Gjellerup/Gads%forlag.%%The%Economic%Times%(2013):%EGoM!okays!telecom!M&A!rules,!spectum!quantum!worth!Rs!48K!crore,!

viewed%05I02I2014%http://articles.economictimes.indiatimes.com/2013I12I03/news/44710681_1_rajanImatthewsIspectrumIcapIbwa%

! Page%64%of%76%

11.(Appendix(!

Appendix(1:(Carlsberg’s(historical(development(!

(

(

Appendix(2:(The(development(in(Carlsberg’s(A(and(B(shares,(2013(

Source:!Nasdaq!OMX!Nordic!

!

! Page%65%of%76%

Appendix(3:(Development(in(commodity(prices(!!

!!!!!!!!!!!!!!!!!!!!!

!

! Page%66%of%76%

!!Source:!Royal!Bank!of!Canada:!Commodity!Price!Monitor!January!2014!(05C02C2014)!http://www.rbc.com/economics/economicCreports/pdf/otherCreports/cpm.pdf!!!!

Appendix(4:(Calsberg’s(value(chain(!!

!

( (

! Page%67%of%76%

Appendix(5:(Calculated(capitalized(operating(leases,(2009V2013(!

!!!

Appendix(6:(Description(of(items((%Net(revenues:%has%been%stated%directly%as%in%the%income%statement%%Other(operating(revenues:%has%been%adjusted%for%gains%and%losses%of%immaterial%and%material%longIterm%assets%as%recommended%by%Sørensen%(2012).%%Cost(of(goods(sold:(has%been%adjusted%for%depreciations%and%amortization.%These%have%been%moved%to%‘Depreciation%Expenses’.%%%Selling,(Gen.(and(Admin.(Expenses:(has%been%adjusted%for%amortizations.%These%have%been%moved%to%‘Amortization%of%intangibles’%and%will%hence%no%longer%affect%the%calculation%of%EBITA.%%(Depreciation(Expense:(Contains%the%depreciations%moved%from%‘Cost%of%sold%goods’.%(Other(operating(Expense:(is%adjusted%for%special%items%such%as%loss%on%disposal%of%property,%onItrade%loans%and%loans%to%the%restaurant%industry.%These%have%all%been%deferred%to%‘Special%items’.%Furthermore%the%interest%expenses%from%capitalized%leases%are%deducted%(described%in%section%5.1).%%(Amortization(of(Goodwill:(Goodwill%can%no%longer%be%amortized.%Instead%it%is%evaluated%each%year%and%any%upI%or%downIwritings%are%placed%under%‘Goodwill%written%off’.((Amortization(of(intangibles:(consists%of%intangible%amortizations%and%depreciations.%%NonVoperating(income:(holds%financial%income%added%financial%expenses%less%interest%income%and%interest%expenses,%which%have%been%moved%to%‘Interest%income’%and%‘Interest%expense’.%%Interest(Income:(stated%directly%as%in%the%annual%report%(Interest(expense:(stated%directly%as%in%the%annual%report%(Restructuring(Charges:(Carlsberg’s%new%operating%model%BSP1%is%being%implemented%in%different%countries%these%years%and%therefore%Note%7%from%the%annual%report%contains%quite%some%restructuring%costs.%These%have%been%stated%here.%%(Special(Items:(The%restructuring%costs%above%have%been%withdrawn%from%special%items.%(Income(taxes:(Has%been%stated%as%reported%in%the%income%statement.%

! Page%68%of%76%

(Minority(interest:(Has%been%stated%as%reported%in%the%comprehensive%income%statement.%(Common(dividends:(Has%been%calculated%at%the%total%number%of%shares%times%the%dividend%in%the%specific%year.%(Foreign(Exchange(Rate(Changes:(Has%been%stated%directly%from%the%annual%report’s%statement%of%changes%in%equity.%%(Issue(of(new(shares/buy(back:(Has%been%stated%directly%from%the%annual%report’s%note%on%intangible%assets.((Goodwill(Written(Off:(Changes%(both%+/I)%reported%in%the%annual%statement%is%stated%here.%(Operating(Cash:(Koller%et%al.%(2010)%recommends%to%hold%2%%of%net%revenue%as%operating%cash.%Hence%this%calculation%has%been%performed%and%stated%as%operating%cash.%(Excess(marketable(securities:%Contains%excess%cash%and%equivalents%less%the%operating%cash%calculated%above.%(Accounts(Receivable:%Current%receivables%from%the%annual%reports%note%on%receivables%are%stated%here.%(Inventories:(Has%been%stated%directly%from%the%annual%report%(Other(current(Assets:(Current(prepayments,%tax%receivables%and%securities%have%been%stated%here%directly%from%the%annual%report.%The%value%of%the%capitalized%leases%have%been%stated%here%as%well.%((Net(Property(Plant(and(Equipment:(Has%been%stated%directly%from%the%annual%report%(Goodwill:(Has%been%stated%directly%from%the%annual%report%(Other(intangible(Asses:(Trademarks%and%other%intangible%assets%are%stated%here.%(Investments(and(Advances:(Investments%in%associates%and%long%term%securities%are%stated%here.((Deferred(Tax(Assets:(Deferred%taxes%are%stated%directly%from%the%annual%report.((Other(NonVoperating(Assets:(Contains%assets%held%for%sale%and%receivables.((Retirement(Related(Assets((nonVoperating):(stated%directly%from%the%annual%report.((Short(Term(Debt:(stated%directly%from%liabilities%in%the%annual%report.%(Accounts(Payable:%stated%directly%from%liabilities%in%the%annual%report.%(Tax(Payable:(stated%directly%from%liabilities%in%the%annual%report.%(Other(Current(Liabilities:%This%account%consists%of%deposits%on%returnable%packaging,%provisions%and%other%liabilities.%%

! Page%69%of%76%

Balancing(Debt:(Liabilities%associated%with%assets%held%for%sale%are%stated%here.%%Long(Term(Debt:(Stated%directly%from%liabilities%in%the%annual%report.%The%value%of%the%leased%debt%has%been%deducted%afterwards.%((Deferred(tax(liabilities:(Stated%directly%from%liabilities%in%the%annual%report.((Other(Operating(Liabilities:(Stated%directly%from%liabilities%in%the%annual%report.((Restructuring(Provisions:(Restructuring%provisions%from%the%nonIcurrent%liabilities%in%the%annual%report%have%been%stated%here.%%(LongVterm(Operating(Provisions:%Provisions%less%the%above%restructuring%provisions%have%been%stated%directly%from%nonIcurrent%liabilities%in%the%annual%report.%(Retirement(Related(Liabilities:(Stated%directly%from%nonIcurrent%liabilities.%(Minority(Interest:(Stated%directly%from%the%equity%statement.%(Marginal(Tax(Rate:(The%Danish%corporate%tax%is%stated%here.%(Capital(Expenditure:(Calculated%as%net%PPE(t)Inet%PPE(tI1)Imaterial%depreciations.(((Market(Value(of(Common(Equity:(The%Market%value%of%common%equity%was%calculated%by%multiplying%the%closing%value%on%the%3rd%of%March%each%year%(except%2012:%March%2nd%because%the%3rd%was%a%Saturday)%by%the%number%of%shares.%A%distinction%was%made%between%A%and%B%shares.%%%%The%closing%prices%were%found%here:%http://www.carlsberggroup.com/investor/shares/Pages/Lookup.aspx%(%!

Appendix(7:(Development(in(net(revenue,(2009V2013(!

!!!!

Appendix(8:(Invested(capital(!

! Page%70%of%76%

Appendix(9(–(ROIC(Tree(!!

!!!!

( (

! Page%71%of%76%

Appendix(10:(Development(in(the(risk(free(rate(!

!!!!

Appendix(11:(Estimating(Beta(%Beta%is%an%unobservable%factor%and%therefore%its%value%must%be%estimated.%Regression%can%be%used%to%

estimate%a%raw%beta%and%then%this%estimate%is%improved%by%the%use%of%industry%comparables.%To%do%

so,%the%fourIstep%approach%described%in%section%6.1%is%used.%Carlsberg’s%raw%Beta%is%estimated%by%use%

of%this%equation:%

%

Ri =α +β ⋅Rm +ε %

%

In%this%formula%the%stock’s%return%is%regressed%against%the%market’s%return.%

The%measurement%period%for%the%raw%regressions%is%5%years%and%includes%60%data%points.%It%is%based%

on%monthly%returns%to%avoid%systematic%bias%(Koller%et%al.,%2010).%Furthermore%the%stock%returns%are%

regressed%against%a%wellIdiversified%market%portfolio,%the%S&P%Europe%350.%This%index%was%chosen%

because%it,%unlike%the%MISC%world%index,%provided%enough%data%points%for%the%comparison.%%

%

! Page%72%of%76%

%%An%industry%average%unlevered%beta%of%0,51%does%not%seem%very%likely%and%it%is%therefore%estimated%

that%this%value%is%too%low.%Instead%Damodaran’s%‘Betas%by%sector’%is%applied%because%it%is%estimated%

that%an%industry%average%unlevered%beta%of%0,91%is%more%likely.%When%the%D/EIratio%is%applied%to%this%

beta,%a%relevered%beta%of%1,36%is%estimated.%%

%

!

Appendix(12:(Components(used(to(estimate(WACC((

(

!

( (

! Page%73%of%76%

Appendix(13(–(Forecasting(revenue(

!

(((The%level%of%the%above%revenue%forecast%clearly%deviates%from%the%past%few%years’%revenue.%This%is%

most%likely%due%to%poor%data%for%the%priceIforecast.%PriceIinformation%was%not%available%and%was%

hence%calculated%as%total%revenue%divided%by%total%amount%of%beer.%%

! Page%74%of%76%

%

Instead%of%using%the%above%forecast%the%forecast%shown%below%is%used%for%the%valuation.%These%

estimations%are%described%in%section%7.2.1%and%its%subsections.%

%

%

% %

! Page%75%of%76%

Appendix(14(–(Scenario(analysis(!Base%case% % % % Best%case% % % Worst%case%

%

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

! Page%76%of%76%

(

Appendix(15(–(Sensitivity(analysis(%

%!!