Autumn 2008

Carlsberg Leadership Development Programme for theTop Management Teamsin Eastern Europe and Baltics

PILOT

Russia: a translucent employer market

Nadja Minde

International HR Director, Eastern Europe

Carlsberg Group

30 November 2010

Content

History: great success in post Soviet Russia

Russia today: rising from the crisis

Building common corporate culture and new identity

War for Talent and other HR challenges

Carlsberg today

No. 1in Northern & Eastern Europe and

fourth largest brewer in the world

43,000employees on three continents

150markets around the world

500different beer brands

12,000,000,000litres of beer sold in 2009

NORTHERN AND WESTERN EUROPE

EASTERN EUROPE ASIA1 2 3

Baltika is as big as Russia

No. 1In Russia and Azerbaijan

10,000Employees

60Export markets around

the world

30different beer brands

4,270,000,000litres of beer sold in 2009

Krasnoyarsk

2.0

St. Petersburg

12.3

Yaroslavl

6.3

Voronezh

2.0

Tula

6.3

Rostov-on-Don

4.5

Chelyabinsk

4.5

Khabarovsk

2.0

Novosibirsk

4.5

Samara

6.5

Why has it been so attractive for Carlsbergto invest in Russia and the CIS countries?

• First investment in Russia was in 1992 made by BBH – Baltic Beverages Holding AB (JV between Swedish Pripps and Finish Hartwall)

• Growth markets to balance more mature market exposure in Western Europe

• Low beer consumption indicated good long term growth prospects

• We could bring value to local businesses

• Low degree of market segmentation

• Up trading

• Focus on investing in local companies with local

leading brands and strong management

• Still solid future growth potential in Russia

0

5

10

15

20

25

30

35

40

45

50

55

60

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Belarus

Uzbekistan

Kazakhstan

Baltics

Ukraine

Russia

Within BBH, volume has grown continuously since 1991, with all markets contributing

0.10.3

12 2

36

913

18

24

2932

MHL

37

42

46

56

2008 - Carlsberg acquired remaining 50% in BBH

However Russia is also about….

• Currency fluctuations

• Inflation

• Declining population

• Low predictability e.g. excise duty increases/restrictions

on selling and promoting beer and alcoholic beverages

• Short lead time on fundamental legislative changes

• Cultural differences

Why have we been so successful?

• Early mover advantage

• High level of investment

• Strong focus on brands, innovation and commercial

execution

• Strong Russian management

• Can do attitude

• Innovative mindset

• Ability to implement

• Speed and action orientation

• Highly experienced in market and culture

Content

History: great success in post Soviet Russia

Russia today: rising from the crisis

Building common corporate culture and new identity

War for Talent and other HR challenges

Russia today in summary…

• Strong market

• Growing economy with growing middle class

• Open and accessible commercial environment

• No major issues from a general business perspective

• Relatively low income tax and corporate tax rates

• Large and skilled labour force

Russia is and will continue to be a cornerstone in the future development and performance of the Carlsberg Group

The Carlsberg Group is fully committed to further developing business in and with Russia

Content

History: great success in post Soviet Russia

Russia today: rising from the crisis

Building common corporate culture and new identity

War for Talent and other HR challenges

Carlsberg Group Strategy

“The Carlsberg Winning Behaviours hold one of the keys

to the success of our Group. I believe that the Winning

Behaviours will be the foundation for the way we want to

do things and how we develop a shared culture across the

Group.

The Winning Behaviours differentiate us from our

competitors, are the people- and organisational “glue” and

are critical for our success and growth ”

Jørgen Buhl Rasmussen, CEO

Winning Behaviours replacing values globally

Together we are stronger We want to win Our customers and consumers are at the heart of every decision we make

We are each empowered to make a difference

We are engaged with society

Creation of Empowered organization

• Biggest management challenge

• Hierarchical model and centralized decision making process

• Employees are reluctant to take decisions due to severe punishment for mistakes and non-traditional behaviours

• Tolerance of mistakes and refusal to take decisions for the empowered employees are crucial for success

We are each empowered to make a difference

Empowerment in Russia is a long process which requites change of mind set

’Thirst for Great’: Defining what we believe in

and who we are

Content

History: great success in post Soviet Russia

Russia today: rising from the crisis

Building common corporate culture and new identity

War for Talent and other HR challenges

”Human resources are the greatest positive factor for western companies operating in Russia; human resources are the greatest operational challenge to business in Russia”

The Economist

HR trends 2011 ”Mad market is coming back”

During crisis Russian staff was more flexible than Western:

• Responding to new challenges and finding new ways of working

• Flat or cut salaries and benefits

In 2011 Labor market is heating up

• 75% of companies will adjust salaries for 7% inflation + 1-10%

• In same cases salary demands will grow by 20-30%

Focus areas for Carlsberg HR going forward shall be:

• Rather corporate culture than salaries

• Stretch Russian staff, give them more challenges,

promotions every 2-3 years

• Make sure managers let people grow, implement global performance and Talent Management processes (70% internal promotions)

• Provide training and experience outside of Russia and CIS

• Work cross border

2008-nowCrisis and Post Crisis

2005-2008Market of Employee

Russian Labour Market - Background

19

1999-2004Market of Employer

1990-1998Under developed

market

• First private businesses

• Big internatuional companies enter Russian Market

• High level of unemployment

• ”Grey” salary schemes

• Simple salary structures

• Development of local businesses

• Regional expansion

• More complex salary and benefits structure

• Legal salary schemes

• Labor costs are approaching European levels

• Fringe benefits

• Talent shortage

• Optimization of headcount and personnel costs

• 2010 recovery from the crisis

• War for talent re-starts

Russian Labor Market Context

• Significant changes during last 20 years (market economy, downturn with further upturn)

• Demographic recession during last years

• Development of regional markets

• Rigid requirements of the labor legislation

• Income tax (employee) - 13 %

• Payroll tax paid by the company -26 % (34% - from 2011)

• High level of bureaucracy

20

Russian staff

• Russian staff – well educated and cultured

• Personal and professional development are the key motivational drivers

• Sales and Marketing are the weakest areas

• The most difficult positions to fill in:

• Sales and Marketing

• Finance

• Supply Chain

• Logistics

• HR

• “New Russian jobs” are rapidly developing (HR, logistics, communication, risk, CSR, environmental management)

• Highest ROI on training in the world

• Deteriorating quality

• Leadership gaps, ambitious employees, promotions are expected every 2-3 years

• Changing role of women in the leadership positions

Heated salary market • Competition is the main driver of salaries

• Base salary – number one key driver in recruiting an retaining staff

• Unreliable market salary data, specially for the top management positions

• Salary inflation 25-100% above the market for the critical positions

• Salaries are paid now in Roubles (previously pegged to EUR or USD)

• Local companies’ aggressive salary proposition vs multinationals

• Short term incentives are widely used

• Long term incentives and corporate pensions are getting more attractive

• Culture of sharing salary information among employees

• Russian salaries are under control now

JanFeb

Mar

Apr

MayJun Jul

Aug

Sep

Oct

NovDec

CSRReport

Bonus payout process (STI & LTI)

Salary Regulation

Estimation

Salary Surveys:participation & analysis Budget

Processes

PCL Review KPI setting

Retaining the talent

• Still relatively low turnover rates comparing to the other emerging markets (Baltika 10% in 2010, 7,8% in 2009)

• Retention methods used:

• Golden handcuffs

• Differentiated remuneration

• Share options

• Mortgages

• Low interest loans

• Career development (int’l) and training

• Travel abroad

• Recruitment from within, increased role of mentoring

”There is no more talent in the market place now – the pool is the same”

Locals or expats?

• Russian beer, local management

• Market game is different now – larger scale and more complex

• Different skills and competences are needed

• Demographic trends are negative

• Expatriates are less costly than before

• Russian repatriates are the most attractive (western management techniques, deep knowledge of loal market and language) but also very costly

Russian Expat packages

Typical expat package

•Base pay•Stock options•Bonus•Company car•Mobile phone

•Medical insurance

Disappearing benefits

•Housing allowance

•Hardship bonuses

•Educational allowance

•Health club fees

•Personal driver

Mercer data COL QOL

Copenhagen - Moscow 102 53

Copenhagen – St Petersbourg

88 53

Quality of living CHP (100) - Moscow

Political and social environment – 32

Economic environment – 57

Social cultural environment 50

Medical and health 44

Schoold andx educations – 78

Natural enviroment 41

Main HR Challenges for Baltika

25

• English is a big barrier for cooperation

• Lack of qualified staff in regions (10 breweries in Russia)

• Alternative industry sectors (e.g. Energy) in some regions - draw away potential workforce

• Main HQ positions located in Moscow (challenge to attract talent to ST Petersburg)

• Low mobility of potential employees in Russia and outside of Russia

• Work-life balance becomes more important issue

• Leadership skills and cross cultural competences become more and more important

East-West-East integration project

• Turn cultural friction into a source of synergy. Cultural diversity is not an obstacle, it is an advantage - Together we are stronger!

• Improve understanding of what qualities both East and West bring to the group

• Increase cross border talent exchange

• Result: We stand as one-attitude

“Personally I would be glad to see more employees from Russia and Eastern European markets in Western Europe, Asia and HQ andat the same time more Carlsberg people Russia/Eastern Europe. We can all learn from each other and from experiences outside our home country and therefore become stronger as individuals, leaders, teams and businesses. The group can clearly benefit from some of the prevailing traits I often see when coming to Baltika like speed and action orientation. On the other hand for you to get more exposure to different market environments in i.e. the west can only be a beneficial experience which all in all will help the Group in achieving our strategic ambition from the West and Asia getting an experience in - to be the fastest growing global beer company.” CEO JBR

Few things to keep in mind...

• Talent development = Talent Retention: Soft values of multinational companies against direct cash offers from local players

• Expertise is still a core value: Locals have to break away from their cultural heritage in order to grow into leadership roles

• Strong-handed leadership is expected: Leaders have to balance personal authority with empowerment of local teams

• “Style of curiosity” about local environment is more important than knowledge. Subtle differences in cross cultural communication are likely to create major clashes

• Be present in the market, don’t manage only out of HQ!