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## Foreign exchange risk related to earnings 

A significant part of the Group’s activities takes place outside Denmark and in currencies other than DKK. Foreign exchange risk is therefore a principal financial risk for the Group and, as such, exchange rate fluctuations can have a significant impact on the income statement. 

## TRANSACTION RISKS ON PURCHASES AND SALES 

The Group is exposed to transaction risks on purchases and sales in currencies other than the functional currency of the local  entities. It is therefore Group policy to hedge future cash flows in currencies other than the functional currency of the entities for a one-year period. This policy applies to Western Europe, excluding some of the Baltic and Balkan states. Hedging is carried out when plans for the following year are being prepared, effectively hedging the enti- ties’ operating profit in local currency. Since a major part of the purchases in foreign currency is in EUR, this will not constitute a risk at Group level. However, at Group level these hedges are effectively an economic hedge of (parts of) the net revenue in the relevant currency, and they are accounted for as cash flow hedges. 

## IMPACT FROM EASTERN EUROPE 

The foreign exchange risk in the entities in Eastern Europe is managed differently from Carlsberg’s operations in the main parts of the rest of the Group. The reason is the excessive cost of hedging these currencies over a longer period of time. With regard to transaction risk, Baltika Breweries has expenses in both USD and EUR. This split is likely to reduce the transaction risk. However, appreciation and depreciation of RUB have affected and will continue to affect operating profit measured in both DKK and RUB. 

## TRANSLATION RISK 

The Group is exposed to risk from translation of foreign entities into the Group’s functional currency, DKK. The Group is primarily exposed to RUB and secondarily to other currencies as stated in the graph to the right, which distrib- utes revenue by major currencies. There is also some exposure to a number of Asian curren- cies, which in total represent approximately 20% (2012: 15%) of the Group’s operating prof- it. The exposure to fluctuations in EUR/DKK is considered insignificant due to Denmark’s fixed exchange rate policy towards EUR. 

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The Group has chosen not to hedge the exposure arising from translation of revenue or earnings in foreign currencies but does in certain cases hedge specific cash flows such as dividends to be received in foreign currencies. 

## IMPACT ON OPERATING PROFIT 

Developments in exchange rates between DKK and the functional currencies of foreign entities 

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had a negative impact on the Group’s operat- ing profit measured in DKK. Operating profit was reduced as a result of a decrease in the average rates for CHF/DKK (-1.9%), NOK/DKK (-4.4%), GBP/DKK (-4.4%), MYR/DKK (-4.4%), RUB/DKK (-5.6%) and UAH/DKK (-3.6%). 

