Carlsberg Group Annual Report 2017

FY2017 Annual Report · Carlsberg Group

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ANNUAL
REPORT 2017

MANAGEMENT
REVIEW

FINANCIAL
STATEMENTS

CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF 2

CONSOLIDATED FINANCIAL STATEMENTS
Statements ...........................................52
Notes ......................................................57

PARENT COMPANY
Statements ........................................ 125
Notes ................................................... 129

REPORTS
Management statement ................ 138
Auditor’s report ................................ 139

Letter from the
Chairman & the CEO ................................ 3

IN BRIEF
Our 2017 priorities ..................................... 5
Golden triangle ............................................ 6
Financial highlights .................................... 7
Our markets.................................................. 8
Our brands .................................................... 9

OUR RESULTS
Financial review ....................................... 11
Five-year summary ............................... 14
Regional review........................................ 15
Earnings expectations ........................... 24

OUR STRATEGY
Business model ........................................ 25
SAIL’22 ........................................................ 26

GOVERNANCE
Risk management ................................... 32
Corporate governance ........................... 34
Remuneration ........................................... 40
Supervisory Board................................... 46
Executive Committee ............................. 49
Shareholder information ...................... 50

GROW CRAFT & SPECIALITY

Growing our craft & speciality portfolio is a
key priority of our SAIL’22 strategy. Our
craft & speciality portfolio approach focuses
on three segments: accessible crafty line
extensions of our strong local power brands,
such as Feldschlösschen Weizen, Hopfen
and Dunkel; speciality beer brands such as
Grimbergen and 1664 Blanc; and authentic
craft champions, such as Brooklyn, Nya
Carnegie in Sweden and Jacobsen in Denmark.

LETTER FROM THE CHAIRMAN & THE CEO

A GOOD YEAR FOR
THE CARLSBERG GROUP

CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF 3

“The strong results in 2017 and
the good progress of SAIL’22
give us confidence in the Group’s
ability to generate consistent
top- and bottom-line growth.”

Flemming Besenbacher
Chairman of the Supervisory Board

2017, the second year of
Funding the Journey and
SAIL’22, delivered strong
organic operating profit
growth and cash flow.

Our overriding priorities for 2017 were the
execution of Funding the Journey and our
SAIL’22 strategy. In particular, delivering on
Funding the Journey was very important for
enabling investments in our strategic priorities,
thereby fuelling the future growth of the
Carlsberg Group.

We are pleased to announce that, as a result
of the good progress of the programme,
we have been able to upwardly adjust the
expected net benefits to around DKK 2.3bn.

This level of benefits means that more than
half of the benefits is expected to improve
operating profit by the end of 2018, while the
remainder is being invested in supporting the
SAIL’22 priorities. In 2017, Funding the Journey
enabled SAIL’22 investments of around DKK
500m.

Funding the Journey as a specific programme
will reach its conclusion by the end of 2018.
However, the focus on efficiency and costs is
here to stay and is being embedded as a way
of living across the Group.

DELIVERING ON OUR PROMISES
Thanks to the strong delivery of Funding the
Journey, the Group’s results were above our
initial expectations for the year, with organic
operating profit growth of 8.4% despite market
challenges in Russia and a very bad summer in
parts of Europe.

The earnings delivery was an important driver
of the improvement in ROIC of 100bp and the
strong free cash flow of DKK 8.7bn. The net
debt/EBITDA ratio at year-end was 1.45x,
and as a result the Supervisory Board will
propose to the Annual General Meeting
that the ordinary dividend be increased by
60% to DKK 16.0. This corresponds to an
adjusted payout ratio of 50%, in line with our
target stated in SAIL’22.

The Board is content that, in just the second
year of SAIL’22, the Group is able to deliver

margin improvement and investment in the
business, as well as achieving our financial
leverage and payout ratio targets.

PROGRESS ON SAIL’22
SAIL’22 is progressing according to plan. The
strategy was designed to get the Carlsberg
Group back to growth by taking action in
relation to our portfolio, capabilities and
culture. The strategy has been well embraced
by everyone in the Group, and during the year
many activities were carried out in support of
our well-defined strategic priorities.

Examples of action in relation to our portfolio
include the further support of our craft &
speciality portfolio, which achieved overall
volume growth of 29%. A key enabler for our
premiumisation efforts in Western Europe is
our proprietary draught system Draught-
Master™, and during the year we accelerated
the roll-out of the system. In Asia, we
continued the support of Tuborg, which once
again proved its popularity with consumers,
delivering 6% volume growth in the region in
spite of a highly challenging Indian market.

Within capabilities, we introduced a new
segmentation methodology, which is now
being embedded across our markets, and
increased our professionalism within value
management.

We are making good progress in developing
a performance-driven culture, supported by
the implementation of systematic and critical
management reviews, aligning Company
targets with incentives across the Group and
improving our management development.

We are now two years into our journey and our
results so far make us confident that SAIL’22
will generate organic top- and bottom-line
growth going forward.

For more information on SAIL’22 initiatives in
2017, please read pages 26-31.

A PURPOSE-DRIVEN COMPANY
In 2017, Carlsberg turned 170. Celebrating
our anniversary brought to the fore the strong
history of the Group, including our founders’
unwavering belief in quality, perfection and

the importance of science for continuously
perfecting the art of brewing.

Their pioneering spirit, passion for brewing
and contributions to society have made us
who we are. We focus on our brands and the
art of brewing, excite our consumers with
quality brews and take pride in continuously
striving to improve at everything we do.

THANK YOU
We extend our thanks to our shareholders for
their support and trust they have shown in the
Group during 2017.

We appreciate the cooperation, dedication and
enthusiasm of everyone in the Carlsberg Group
in bringing SAIL’22 to life and delivering on
Funding the Journey.

Finally, we value the relationships we have
with our customers and suppliers, and
appreciate our many consumers around the
world.

Flemming Besenbacher
Chairman

Cees ’t Hart
CEO

In a few words, our purpose is about
brewing for a better today and tomorrow.

Our strong results testify to our ability to brew
for a better today, while our objective to brew
for a better tomorrow will be supported by our
new sustainability programme – Together
Towards ZERO – with major ambitions within
carbon footprint, water waste, responsible
drinking and health & safety.

CHANGES IN THE SUPERVISORY BOARD
At the Annual General Meeting in March 2017,
we said goodbye to independent Supervisory
Board member Elisabeth Fleuriot, who did not
stand for re-election. She was replaced by
Nancy Cruickshank, who brings to the Board
strong digital knowledge and substantial
insight into the opportunities offered by new
technology.

Kees van der Graaf has notified the Supervisory
Board that he is not standing for re-election at
the Annual General Meeting in March 2018.
The Board will propose the election of Magdi
Batato, Head of Operations at Nestlé, who has
a strong background in supply chain.

CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF 4

»[Quote]«

From left: CEO Cees ’t Hart and Chairman Flemming Besenbacher

2017 PRIORITIES

DELIVERING
ON OUR
PRIORITIES

In 2017, we delivered organic
operating profit growth of 8.4%.
This was driven by strong delivery
of Funding the Journey, which
also enabled investments in
our strategic priorities to
drive future growth.

DKK 2.3bn

THE JOURNEY IS FUNDED

Funding the Journey showed good progress,
delivering benefits faster than expected when it
was launched in November 2015. We now anticipate
that the programme will deliver benefits of around
2.3bn by 2018. More than half of that will go towards
improving operating profit, still leaving sufficient for
investment in our SAIL'22 growth priorities. In 2017,
investment in SAIL'22 was around DKK 500m.

WESTERN EUROPE
Operating margin
improved by
130bp

EASTERN EUROPE
Organic operating
profit growth of
+12.2%

1.45x

NET DEBT/EBITDA

Financial leverage was significantly reduced to
1.45x as a result of the growth in operating profit
and the strong free cash flow. Consequently, the
Supervisory Board will propose a 60% increase
in the dividend to DKK 16.0 per share, equal to
an adjusted payout ratio of 50%.

OPTIMAL CAPITAL ALLOCATION

SUSTAINABILITY

NEW AMBITIOUS TARGETS

We launched ambitious sustainability
targets under our new programme Together
Towards ZERO. Read more about this in our
Sustainability Report on carlsberggroup.com

ASIA
Top- and bottom-line
growth; price/mix
+5%

STRONG RESULTS FOR OUR CRAFT
& SPECIALITY BRANDS

Our craft & speciality brands delivered very
strong results, growing volumes by 29%.
Our speciality brands Grimbergen and 1664
Blanc grew by 15% and 46% respectively.

FUNDING THE JOURNEY

CONTRIBUTE TO A BETTER SOCIETY

GROW CRAFT & SPECIALITY

CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF 6

PERFORMANCE MANAGEMENT

BALANCING OUR
GOLDEN TRIANGLE

Our Golden Triangle is a pivotal KPI in our performance
management. In applying the Golden Triangle, we
continuously seek to optimise the balance between market
share/volumes, gross profit after logistics (GPaL) margin,
operating profit and cash generation. Balancing all decisions
against these four indicators supports sustainable value
growth.

VOLUMES
Organic volume development during the
year was impacted by the PET downsizing in
Russia and bad weather in parts of Western
Europe. In Asia, volumes were flat, with the
positive impact of the strong performance of
our international brand portfolio offset by a
volatile market in India and declining
volumes in Vietnam.

GROSS PROFIT AFTER LOGISTICS
MARGIN
Gross profit after logistics (GPaL) margin
developed favourably in 2017, growing
organically by 40bp. This was the result of
the solid price/mix of 3% and efficiencies
achieved in the supply chain as part of
Funding the Journey.

OPERATING PROFIT
Operating profit grew organically by 8.4%,
driven by the strong delivery of Funding
the Journey, including positive price/mix
from successful value management and
premiumisation, supply chain efficiencies
and reduced operating costs.

FREE CASH FLOW
The free cash flow of DKK 8.7bn was driven
by strong operating cash flow of DKK 11.8bn,
up DKK 2.5bn on 2016. The main drivers of
the strong free operating cash flow were the
higher operating profit before depreciation,
amortisation and impairment losses and the
positive contribution from working capital.

FINANCIAL HIGHLIGHTS

SIGNIFICANT DELEVERAGING
AND DIVIDEND INCREASE

CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF 7

-3

-6

2015

2016

2017

2.5

2.0

1.5

1.0

0.5

0.0

2015

2016

2017

2015

2016

2017

2015

2016

2017

Incl. goodwill Excl. goodwill

2015

2016

2017

2015

2016

2017

61.8bn

8.9bn

1.3bn

6.9

NET REVENUE
DKK

OPERATING PROFIT
DKK

NET PROFIT
DKK

ROIC
%

Net revenue grew organically
by 1% as a result of strong
price/mix of 3%, driven by
strong performance in Asia
and Eastern Europe.

Operating profit grew
organically by 8.4%. All
three regions contributed
positively to the growth.

In reported terms, net revenue
declined by 1%, impacted by
disposals.

The strong price/mix offset
the organic volume decline of
2%, which was impacted by
lower volumes in Russia due
to the PET downsizing.

The growth was driven by
the strong price/mix and
good progress of Funding
the Journey, including value
management.

In reported terms, operating
profit was up 7.7%. The small
positive currency impact was
offset by the negative impact
from disposals.

Net profit was mainly
impacted by the impairment
of the Baltika brand due to
changed market dynamics
following the PET downsizing,
our increased focus on local
and regional brands and
updated assumptions on
interest rates. Net financials
were positively impacted by
the lower net debt and foreign
exchange gains.

Adjusted for special items
after tax, net profit was
DKK 4.9bn, up 27% on 2016.

Return on invested capital
(ROIC) increased by 100bp.
ROIC excluding goodwill was
15.7%, up 300bp.

The improvement in ROIC
was mainly a result of the
strong operating profit after
tax.

All three regions delivered
ROIC improvement, with
particular strong growth in
Asia.

1.45x

16.0

NET DEBT/EBITDA

Net interest-bearing debt
amounted to DKK 19.6bn,
a decline of DKK 5.9bn
compared with the end of
2016.

The significant reduction in
net debt was driven by the
strong free cash flow of
8.7bn.

Consequently, financial
leverage, measured as net
debt/EBITDA, declined to
1.45x.

DIVIDEND/SHARE,
PROPOSED, DKK

As a result of the financial
leverage being well below
2.0x, as targeted in SAIL’22,
the Supervisory Board will
propose to the AGM a
dividend of DKK 16.0, equal
to an increase of 60%.

The proposed dividend equals
an adjusted payout ratio of
50%, reaching the SAIL’22
target in just two years.

OUR MARKETS

STRONG MARKET
POSITIONS

The Carlsberg Group has strong market
positions in 25 markets across Europe and Asia.
75% of volumes are sold in these markets.

WESTERN EUROPE
• #1-2 position in 13 markets
• Strong portfolio of brands
• Price/mix and margin

opportunities

EASTERN EUROPE
• #1-2 position in 5 markets
• Local, regional and

national brands

• Well placed for market

rebound

ASIA
• #1-2 position in 7 markets
• Attractive foothold in

China, India and Vietnam

• Premiumisation

opportunities

WESTERN EUROPE

EASTERN EUROPE

ASIA

Share of Group volumes

Share of Group net revenue

Share of Group operating profit

47%

59%

50%

Share of Group volumes

Share of Group net revenue

Share of Group operating profit

24%

17%

22%

Share of Group volumes

Share of Group net revenue

Share of Group operating profit

29%

24%

28%

ORGANIC OPERATING
PROFIT GROWTH

7.5%

ORGANIC OPERATING
PROFIT GROWTH

12.2%

ORGANIC OPERATING
PROFIT GROWTH

8.1%

REVITALISE CORE BEER

TRANSFORM OUR BUSINESS IN RUSSIA

GROW IN ASIA

Our core beer portfolio, consisting of Carlsberg, Tuborg and
our strong local power brands, accounts for 92% of beer
volumes. Our core beer brands are a vital part of our business
and a priority of SAIL’22.

Russia delivered solid organic growth in operating profit,
despite volumes being negatively impacted by the PET
downsizing in the country. Russia accounts for approx.
17% of Group operating profit.

Premiumising our portfolio is an important strategic priority
in Asia. Our international premium portfolio delivered strong
results, supporting net revenue growth of 5%, driven by a
strong price/mix of 5%.

OUR BRANDS

A STRONG PORTFOLIO OF
CORE BEER BRANDS...

Mainstream lager beer is among the alcohol categories with
the highest penetration and frequency in most markets and
represents our largest volume and profit pool. A priority of
SAIL’22 is the revitalisation of our core beer business.

CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF

CARLSBERG

TUBORG

VOLUME
GROWTH

INTERNATIONAL
BRANDS

With its popular tagline “Open for Fun” and
its unique pull-off cap, Tuborg has delivered
CAGR of 12% over the past five years. The
driver of the strong growth has been Asia,
where Tuborg is the popular choice of young
consumers. In 2017, we rolled out a new
high-impact look & feel campaign to
further strengthen the brand.

LOCAL POWER
BRANDS

Ringnes unfiltered organic pilsner
was launched in Norway in February
2017. This line extension of our strong
local power brand Ringnes is priced at a
premium to the mainstream lager. In its
first year on the market, the unfiltered
organic Ringnes has set the standard
for organic beers in Norway.

REVITALISE CORE BEER

+1%+3%OUR BRANDS

... CRAFT & SPECIALITY AND
ALCOHOL-FREE BRANDS

Craft & speciality and alcohol-free brews (AFB) are growing rapidly in
many of our markets. Craft & speciality is driven by consumer desire for
premium brands with varied tastes and styles, while the growth in AFB is
attributable to rising interest in healthier choices.

CARLSBERG GROUP ANNUAL REPORT 2017 IN BRIEF

CRAFT &
SPECIALITY

AFB IN
WESTERN EUROPE

VOLUME
GROWTH

CRAFT &
SPECIALITY

The E.C. Dahls Brewery opened in August
2016 as our second local craft brewery in
our cooperation with Brooklyn Brewery.
The craft beers combine the best of our
Norwegian brewing traditions with Brooklyn’s
innovative ideas and have quickly become
popular with consumers.

ALCOHOL-FREE
BREWS

FIX ANEY was launched in 2017 as an alcohol-
free line extension of the popular FIX brand
in Greece. In line with the latest trends, its
innovative approach disrupted the alcohol-free
beer category in Greece. In its first year of
launch, FIX ANEY gained an approx. 27% share
of the alcohol-free category.

GROW CRAFT & SPECIALITY

ACTIVELY SHAPE ALCOHOL-FREE BEER

+29%+15%Our results

FINANCIAL REVIEW

STRONG SET
OF RESULTS

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 11

INCOME STATEMENT
Reported net revenue was DKK 61,808m
(2016: DKK 62,614m), a decline of 1% due
to the net acquisition impact, mainly related
to the divestment of the German wholesaler
Nordic Getränke in 2017, the divestment of
Carlsberg Malawi in 2016 and divestments of
entities in China in both years. In organic terms,
net revenue grew by 1%, driven by a positive
price/mix of 3%.

Cost of sales amounted to DKK 30,325m
(2016: DKK 31,195m). Cost of sales per hl
increased by 1%. In organic terms, cost of
sales per hl increased by approximately. 3%,
mainly due to overall cost inflation, product
mix and the volume decline in Eastern Europe.
Reported gross profit was DKK 31,483m
(2016: DKK 31,419m). The reported gross
margin improved by 70bp to 50.9% as a result
of the positive price/mix and efficiency
improvements.

administrative expenses amounted to DKK
4,877m (2016: DKK 5,220m). In total,
operating expenses declined by 3%, driven
by good progress of Funding the Journey
initiatives.

Other operating activities, net, were DKK
113m, a decline of DKK 85m compared with
2016. Share of profit after tax in associates
and joint ventures was DKK 262m, a decline
of DKK 62m compared with 2016. The decline
was mainly due to lower income in our
business in Cambodia.

Operating profit before special items was
DKK 8,876m (2016: DKK 8,245m). The 7.7%
growth was driven by organic growth of 8.4%
and a positive currency impact of 0.7%. The
negative impact from disposals was -1.4%.
All three regions delivered positive organic
operating growth. The reported operating
margin was up 120bp to 14.4% (2016: 13.2%).

Marketing expenses as a percentage of net
revenue were 9.7%, broadly in line with 2016.
Total sales and distribution expenses amounted
to DKK 18,105m (2016: DKK 18,476m), and

Net special items (pre-tax) amounted to DKK
-4,565m (2016: DKK +251m). Special items
were significantly impacted by an impairment
of the Baltika brand in Russia of DKK 4.8bn.

15%

GRIMBERGEN VOLUME GROWTH

Award-winning Grimbergen, our legendary abbey
beer from Belgium dating back to 1128, is an
important brand in our international speciality
portfolio. Since our acquisition of Grimbergen in
2008, we have quadrupled the brand’s volume,
reaching the 1 million hl milestone in 2016. In
2017, volume grew by 15%.

GROW CRAFT & SPECIALITY

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 12

The impairment was made as a result of
changed market dynamics following the PET
downsizing, our increased focus in Russia on
local and regional brands and, lastly, changed
interest rate assumptions. More details can be
found in section 2.3 of the consolidated
financial statements. Special items were
positively impacted by gains on disposals. A
specification of special items is included in
section 3.1 of the consolidated financial
statements.

Financial items, net, amounted to DKK -788m
against DKK -1,247m in 2016. Financial
income amounted to DKK 803m (2016: DKK
919m), mainly impacted by foreign exchange
gains, net, of DKK 484m. Financial expenses
amounted to DKK -1,591m (2016: DKK
-2,166m), primarily impacted by interest
expenses of DKK -775m and fair value
adjustments of financial instruments, net,
of DKK -292m. Excluding currency gains and
fair value adjustments, financial expenses, net,
amounted to DKK 980m (2016: DKK 1,663m),

positively impacted by the lower net interest-
bearing debt.
Tax totalled DKK -1,458m against DKK
-2,392m in 2016. The effective tax rate was
41%. Adjusted for the brand impairment, the
effective tax would have been 29%.

STATEMENT OF FINANCIAL POSITION

ASSETS
Total assets amounted to DKK 114.3bn at
31 December 2017 (DKK 126.9bn at 31
December 2016), a decrease of DKK 12.6bn.

Non-controlling interests were DKK 806m
(2016: DKK 371m). The significant increase
versus 2016 was mainly due to Chongqing
Brewery, which grew earnings and in 2016
was impacted by impairment and restructuring.

The Carlsberg Group’s share of consolidated
profit was DKK 1,259m against DKK 4,486m
in 2016. The significant decline was due to the
impairment of the Baltika brand. Adjusted net
profit (adjusted for special items after tax) was
DKK 4,925m, compared to DKK 3,881m in
2016. The increase was driven by the strong
operating profit and lower net financial items
and tax.

Intangible assets amounted to DKK 67.8bn at
31 December 2017, compared to DKK 76.7bn
at 31 December 2016. The lower amount was
due to the depreciation of the Russian rouble
and impairment of the Baltika brand in Russia
of DKK 4.8bn.

Property, plant and equipment decreased to
DKK 24.3bn against DKK 25.8bn at 31
December 2016, mainly driven by depreciation
of DKK 3.8bn and foreign exchange losses of
DKK 1.2bn, offset by additions of assets of
DKK 3.8bn.

Current assets declined by DKK 1.6bn to
DKK 15.3bn, mainly impacted by decreases in
inventories and trade receivables of DKK 1.0bn,
due in part to less stocking at distributors in
Russia following the Trade Law implement-
ation as of 1 January 2017 and the disposal of
Nordic Getränke.

2016

116.9

21.9

138.8

Organic

Acq., net

-3%

-2%

-1%

-6%

-2%

Change

2017

112.4

20.9

133.3

Change

Reported

-4%

LIABILITIES
Total equity amounted to DKK 49.5bn (DKK
53.7bn at 31 December 2016). DKK 46.9bn
can be attributed to shareholders in Carlsberg
A/S and DKK 2.6bn to non-controlling
interests.

“The strong organic operating
profit growth was driven by
good progress of Funding the
Journey and faster delivery of
benefits than previously
expected.”

Heine Dalsgaard
CFO

of DKK +1.3bn, offset by foreign exchange
losses of DKK 3.8bn and dividend payments
of DKK 2.3bn.

Liabilities amounted to DKK 64.7bn (DKK
73.3bn at 31 December 2016). The decline
was mainly due to lower borrowings (DKK
-6.0bn) and deferred tax and retirement
benefit obligations (DKK -2.2bn).

Current liabilities decreased to DKK 25.1bn at
31 December 2017 versus DKK 34.1bn at 31
December 2016. The decline of DKK 9.0bn was
predominantly due to lower short-term
borrowings of DKK 8.2bn.

CASH FLOW
Free cash flow amounted to DKK 8,680m
(2016: DKK 8,616m), driven by a strong cash
flow from operating activities of DKK 11,834m
against DKK 9,329m in 2016, an increase of
DKK 2,505m. This increase was due to
stronger earnings and a positive contribution
from working capital.

62,614

8,245

13.2

8.4%

-2%

-1.4%

0.7%

61,808

8,876

14.4

-1%

7.7%

120bp

The change in equity of DKK 4.1bn was
mainly caused by the consolidated profit of
DKK 2.1bn and retirement benefit obligations

Operating profit before depreciation,
amortisation and impairment losses thus

Group

Pro rata (million hl)

Beer

Other beverages

Total volume

DKK million

Net revenue

Operating profit before special items

Operating margin (%)

amounted to DKK 13,583m (2016: DKK
13,006m).

The change in trade working capital was DKK
+848m (2016: DKK +1,021m). Average trade
working capital to net revenue improved further
and was -13.7% for 2017 compared to -12.5%
for 2016. The change in other working capital
was DKK +388m (2016: DKK -1,126m,
impacted by pension obligations and a
reclassification).

Restructuring costs paid amounted to DKK
-364m (2016: DKK -407m). Net interest etc.
paid amounted to DKK -408m (2016: DKK
-1,003m). The significant decline was due to
lower interest-bearing debt, repayment in
November 2016 of the GBP 300m 7.25%
coupon bond and in October 2017 of the
EUR 1bn 3.375% coupon bond, as well as
the settlement of financial instruments.

Corporation tax paid amounted to DKK
-1,934m (2016: DKK -1,752m). The
increase was mainly due to higher earnings
and withholding tax paid.

Cash flow from investing activities was DKK
-3,154m against DKK -713m in 2016.
Operational investments totalled DKK -3,853m
(2016: DKK -3,554m), including capital
expenditures of DKK 4.1bn. Total financial
investments amounted to DKK +674m (2016:
DKK +2,840m). Once again in 2017, financial
investments were positively impacted by the
disposal of non-core assets, although at a
much lower level than in 2016. Total other
activities were DKK +25m against DKK +1m
in 2016.

FINANCING
At 31 December 2017, total borrowings
amounted to DKK 24.2bn and net interest-
bearing debt to DKK 19.6bn. The difference of
DKK 4.6bn comprised other interest-bearing
assets of DKK 1.1bn, and cash and cash
equivalents of DKK 3.5bn.

The net interest-bearing debt to operating
profit before depreciation and amortisation
(EBITDA) ratio declined to 1.45x (1.96x at
year-end 2016).

Of the total borrowings, 96% (DKK 23.3bn)
were long term, i.e. with maturity of more
than one year from 31 December 2017. In
September, we successfully issued a 6-year
EUR 500m bond with a coupon of 0.5%, the
proceeds of which were used for general
corporate purposes, including repayment
of the EUR 1bn bond that matured on 13
October 2017.

Of the net financial debt, 93% was denom-
inated in EUR and DKK (after swaps) and 96%
of the gross debt was at fixed interest (fixed-
interest period exceeding one year). The
interest rate risk is measured by the duration
of the net financial debt, for which our target
is between two and five years. At 31 December
2017, the duration was 4.6 years, which was
0.9 higher than in 2016 (3.7). The increase
was mainly due to the EUR bond issue in
September.

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 13

Segment reporting by half-year

DKK million

H1 2015

H2 2015

H1 2016

H2 2016

H1 2017

H2 2017

Net revenue

Western Europe

Eastern Europe

Asia

Not allocated

Total

Operating profit

Western Europe

Eastern Europe

Asia

Not allocated

Beverages, total

Non-beverage

Total

Special items, net

Financial items, net

Profit before tax

Corporation tax

Consolidated profit

Attributable to

18,780

20,031

18,760

18,837

18,544

17,762

5,497

7,948

177

5,393

7,391

137

4,723

7,639

121

5,482

7,027

5,474

7,716

5,404

6,838

32,402

32,952

31,243

31,371

31,765

30,043

2,155

830

1,331

-673

3,643

-60

3,583

-283

-770

2,530

-714

3,170

1,078

1,468

-753

4,963

-89

4,874

2,042

751

1,328

-608

3,513

-65

3,448

-8,376

-761

-4,263

406

-703

3,151

2,816

1,081

1,474

-583

4,788

4,797

-155

-544

4,098

-135

-1,040

-1,352

1,816

-4,398

2,111

2,746

2,326

1,047

1,494

-705

4,162

-37

4,125

-351

3,812

-1,105

2,707

2,818

1,173

1,411

-602

4,800

-49

4,751

-4,603

-437

-289

-353

-642

Non-controlling interests

321

244

Shareholders in Carlsberg A/S

1,495

-4,421

1,867

127

2,619

403

2,304

-1,045

Expectations and results 2017

Results 2016

08.02.2017
(Financial Statements for 2016)

Operating profit
before special items

DKK 8,245m

Financial leverage
(net debt/EBITDA)

1.96

Expectations
for 2017

08.02.2017
(Financial Statements for 2016)

Mid-single-digit percentage
organic growth

Financial leverage reduction

Expectations
for 2017, restated

02.11.2017
(Q3 2017 Trading Statement)

Organic growth of 7-8%

Financial leverage reduction

Results 2017

07.02.2018
(Financial Statements for 2017)

Reported: DKK 8,876m
Organic growth: 8.4%

1.45

FIVE-YEAR SUMMARY

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 14

2017

2016

2015

2014

2013

2017

2016

2015

2014

2013

112.4

20.9

116.9

21.9

120.3

21.5

122.8

21.0

Investments

119.7

19.7

Acquisition and disposal of property,
plant and equipment and intangible
assets, net

Acquisition and disposal of subsidiaries,
net

-3,868

-3,596

-2,922

-5,647

-5,451

268

1,969

-33

-1,681

-2,314

Sales volumes, pro rata (million hl)

Beer

Other beverages

DKK million

Income statement

Net revenue

Gross profit

Operating profit before amortisation,
depreciation and impairment losses

Operating profit before special items

Special items, net

Financial items, net

Profit before tax

Corporation tax

Consolidated profit

Attributable to

Non-controlling interests

Shareholders in Carlsberg A/S

Shareholders in Carlsberg A/S, adjusted¹

Statement of financial position

Total assets

Invested capital

61,808

31,483

13,583

8,876

-4,565

62,614

65,354

64,506

31,419

31,925

31,781

64,350

32,930

13,006

8,245

251

13,213

8,457

-8,659

-788

-1,247

-1,531

3,523

-1,458

2,065

7,249

-2,392

4,857

-1,733

-849

-1,748

-2,582

4,938

13,338

9,230

-1,353

-1,191

6,686

13,592

9,723

-435

-1,506

7,782

-1,833

5,949

806

1,259

4,925

371

4,486

3,881

344

-2,926

4,292

524

4,414

478

5,471

5,496

5,772

114,251

126,906

124,901

137,458

152,308

84,488

96,089

94,950

108,866

122,243

Invested capital excluding goodwill

Interest-bearing debt, net

33,991

19,638

43,225

44,680

56,319

65,893

25,503

30,945

36,567

Equity, shareholders in Carlsberg A/S

46,930

50,811

43,489

52,437

34,610

67,811

Statement of cash flows

Cash flow from operating activities

Cash flow from investing activities

Free cash flow

11,834

-3,154

8,680

9,329

-713

8,616

10,140

-2,618

7,522

7,405

-6,735

670

8,142

-8,012

130

Financial ratios

Operating margin

Return on invested capital (ROIC)²

ROIC excl. goodwill²

Equity ratio

Debt/equity ratio (financial gearing)

Debt/operating profit before
depreciation, amortisation and
impairment losses

Interest cover

Stock market ratios

Earnings per share (EPS)

Earnings per share, adjusted (EPS-A)¹

Cash flow from operating activities
per share (CFPS)

Free cash flow per share (FCFPS)

Dividend per share (proposed)

Payout ratio

Payout ratio, adjusted¹

Share price (B shares)

Number of shares (year-end, excl.
treasury shares)

Number of shares (average, excl.
treasury shares)

¹ Adjusted for special items after tax.

² 12-month average.

DKK

14.4

6.9

15.7

41.1

0.40

1.45

11.26

8.3

32.3

77.6

56.9

16.0

194

13.2

5.9

12.7

40.0

0.48

1.96

6.61

29.4

25.4

61.2

56.5

10.0

12.9

5.6

11.0

34.8

0.66

2.34

5.53

-19.2

28.1

66.3

49.2

9.0

14.3

5.8

10.7

38.3

0.65

2.74

7.75

15.1

6.0

10.6

45.2

0.48

2.55

6.46

28.9

36.0

35.9

37.8

48.4

53.4

4.4

9.0

0.9

8.0

DKK

745.0

609.5

612.5

478.8

600.0

1,000

152,390

152,552

152,538

152,533

1,000

152,496

152,552

152,542

152,535

152,548

WESTERN EUROPE

SOLID MARGIN
IMPROVEMENT

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 15

REGIONAL PERFORMANCE
Net revenue in Western Europe was flat
organically as a result of flat volumes and
price/mix. Reported net revenue declined by
3% due to the disposal of the German whole-
saler Nordic Getränke in April 2017 and a
negative currency impact.

Price/mix was negatively impacted by country
mix, as we achieved positive price/mix in most
of our Western European markets.

Organic operating growth was 7.5% and the
operating margin improved by 130bp. The
progress in earnings was driven by value
management efforts, improved mix due to
our premiumisation efforts and Funding the
Journey benefits, including good results within
supply chain savings and operating cost
management (OCM). Almost all Western
European markets delivered profit growth.

H2 organic operating profit growth of 2.6% was
impacted by bad weather in parts of the region

during the summer in Q3 and an acceleration
of investments in SAIL’22 priorities.

Beer volumes declined organically by 1%, as
they were negatively impacted by the weather.
Other beverages grew by 2% due to good
performance in the Nordics. Reported volumes
declined by 2% due to the divestment of Nordic
Getränke. Market share development for the
region was largely unchanged compared with
last year.

THE NORDICS
In the Nordic markets, our total volumes
were flat. The summer, especially Q3, was
challenging as a result of the bad weather.
Price/mix continued to develop favourably,
mainly due to growth of our premium
propositions, and we delivered approximately
1% price/mix. Our non-beer businesses in
Sweden, Norway and Finland delivered solid
volume growth, while we lost market share
in Denmark. All four markets improved
profitability due to Funding the Journey
benefits and positive price/mix.

1883

ONE OF A KIND

The launch of Carlsberg 1883 in Denmark marks one
of the major breakthroughs in beer history. 1883 was
the year when the Carlsberg Laboratory cultivated
the world’s first “pure yeast”, which was subsequently
shared with other breweries so that the world was
able to brew beer of the same high quality as
Carlsberg. Carlsberg 1883 is brewed from that pure
yeast, extracted from an original living sample that
survived 133 years in a Carlsberg bottle stored in the
brewery’s old cellars, and based on the same recipe
used by Carlsberg's founder, J.C. Jacobsen, in 1883.

REVITALISE CORE BEER

“Premiumisation and cost
focus are key in Western Europe
for delivering improved results
and margins.”

Chris Warmoth
EVP, Western Europe

FRANCE
Our French business continued its positive
premiumisation efforts, led by our premium
brands – such as 1664, Grimbergen and
Tourtel – and craft brands, while Kronenbourg
in the mainstream segment declined. We
strengthened our market share in the off-
trade, while we lost in the on-trade. Price/
mix was flat in spite of a difficult pricing
environment.

SWITZERLAND
Our Swiss business delivered another year of
very solid performance. Our core mainstream
beer, Feldschlösschen, delivered good results,

and we grew our craft & speciality and
alcohol-free beer offerings well ahead of
the market, resulting in a positive price/mix.

POLAND
In a declining and highly competitive Polish
market, we grew volumes by 5%. Our brands in
the upper-mainstream and premium segments
– Okocim, Kasztelan, Carlsberg and Somersby –
grew, while Harnas in the strong beer seg-
ment declined. As a result of the premium
focus, price/mix grew and profitability
improved.

UK
Our volumes in the UK declined by 6% due to
tough EURO 2016 comparables. We continued
to focus on premiumising our portfolio and
achieved a solid price/mix. A number of
portfolio initiatives were taken, including the
addition of Brooklyn along with other craft
and premium brands such as Poretti, the
rejuvenation of Carlsberg Export at the

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 16

Our results in Western Europe

Pro rata (million hl)

2016

Organic

Acq., net

2017

Reported

Change

48.4

16.3

64.7

-1%

-7%

-2%

47.7

15.5

63.2

Beer

Other beverages

Total volume

DKK million

Net revenue

Operating profit before special items

Operating margin (%)

37,597

4,858
12.9

7.5%

-2%

-0.7%

-1%

-0.9%

36,306

5,144

14.2

130bp

-2%

-5%

-2%

-3%

5.9%

beginning of the year and the recent addition
of the London Fields Brewery portfolio.

OTHER MARKETS
In the rest of the region, we saw particularly
good top-line growth and margin improvement
in markets such as Portugal, Italy and Bulgaria.
Furthermore, the Baltics, Greece and Germany
reported solid earnings improvement.

REGION CHARACTERISTICS
The Carlsberg Group is the second largest
brewer in Western Europe. According to the
independent research company GlobalData,
beer market volumes in the region amounted
to approximately 250m hl in 2017. Our
presence in Western Europe is particularly
strong in the central and northern parts of the
region, where we hold solid no. 1 and 2
positions in several markets.

Total volume, pro rata (m hl)

Net revenue (DKKbn)

Operating profit¹ (DKKbn)

Operating margin¹ (%)

2015

2016

2017

2015

2016

2017

2016

2017

2016

2017

¹ Operating profit was restated in 2017. Comparable figures are only available for 2016.

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 17

Western Europe primarily comprises mature
beer markets. While market volumes have
tended to be flat or slightly declining, we are
now seeing improving beer category dynamics
as a result of innovations, increased interest in
craft & speciality beers and alcohol-free
offerings, all of which contribute positively to
price/mix.

The on-trade channel is changing, with
“dry-led” outlets (restaurants, eating places)
overtaking classic “wet-led” outlets (pubs,
cafés) as prime places for brand building. The
off-trade channel is expected to consolidate
further, leading to pressure on prices and
margins.

EXCEL IN EXECUTION

31 DAYS

SHELF LIFE OF
DRAUGHTMASTER™

DraughtMaster™ is a revolution in draught
beer. Our proprietary one-way 20-litre PET
keg system with no added CO2 enhances the
freshness and beer experience for consumers
and has a shelf life of 31 days. This allows
even small outlets to increase their on-tap
variety and serve consistently fresh draught
beer. The roll-out of the system in several
Western European markets is ongoing.

Our markets in Western Europe

Consumption characteristics

Per capita
beer
consumption
(litres)

On-trade
share
of market,
approx. (%)

Our
position

Our
operations

Market
position (no.)

Market
share (%)

Breweries

102

69-79

34-80

1¹

4-8

13-53

1-2

1-3

17¹

26-40

13-32

Country

Denmark

Sweden

Norway

Finland

France

Switzerland

Poland

Germany

Italy

Portugal

The Baltics

South East Europe

¹ Northern Germany.

Source: GlobalData, Carlsberg estimates.

EASTERN EUROPE

STRONG GROWTH
IN EARNINGS

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 18

REGIONAL PERFORMANCE
Net revenue in Eastern Europe was down
organically by 1% as a result of an 8% volume
decline, partly offset by a strong 8% price/mix.
Reported net revenue grew by 7%, supported
by a positive currency impact driven by the
Russian rouble.

The strong price/mix was a consequence
of price increases and the introduction of
smaller pack sizes in Russia following the PET
restrictions as of 1 January 2017. Price/mix
was less pronounced in H2, as part of the
positive impact from the PET downsizing was
already seen in Q4 2016.

Organic operating profit grew by 12.2%, driven
by the positive price/mix and strong execution
of Funding the Journey. As a result of a
positive currency impact, reported operating
profit grew by 21.2%. Operating margin
strengthened significantly, improving by
240bp to 20.4%.

Impacted by the less strong price/mix in H2
and the tough weather comparables in Q3,
operating profit increased organically by 9.2%.

Our volumes grew in all markets but Russia.

RUSSIA
Our Russian business delivered solid organic
operating profit growth and a significant
margin uplift in spite of the volume decline of
14%. The profit improvement was driven by a
strong price/mix of 7% and tight cost control.

The Russian beer market declined by an
estimated 4-5% for the year, impacted by
the downsizing of PET bottles.

Our Russian volumes and market share were
severely impacted by the PET downsizing. In
response to this significant change in the
Russian marketplace, we adopted a value-
based approach to drive further value in the
market. A few of our competitors chose to
adopt a volume-based approach.

Consequently, our products in the PET segment
were priced at a premium vis-à-vis the average
price points in the market, resulting in market
share loss. Our overall volume market share
declined by an estimated 270bp (YTD
November) to 31.9% (source: Nielsen Retail

53%

OPERATING PROFIT
GROWTH IN KAZAKHSTAN

Carlsberg Kazakhstan delivered very
strong results in 2017, growing volumes by
35% and organic operating profit by 53%.
Volumes and market share were positively
impacted by the stellar performance of our
local power brand Irbis, Baltika, Carlsberg
and 1664 Blanc. In addition, price/mix was
positively impacted by price increases.

LEVERAGE OUR STRONGHOLDS

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 19

Our results in Eastern Europe

Pro rata (million hl)

2016

Organic

Acq., net

2017

Reported

Change

32.4

2.0

34.4

-8%

-3%

-8%

29.8

1.9

31.7

-8%

-3%

-8%

“We pursued a value approach
in Russia in response to the PET
downsizing. This negatively
impacted volumes but
strengthened profitability.”

Jacek Pastuszka
EVP, Eastern Europe

Audit, Urban & Rural Russia). However, our
value approach was a key driver behind our
strong profit improvement.

We saw good progress for some of our key
brands within premium and mainstream, with
brands such as Baltika 3, Carlsberg, Tuborg
and Zatecky Gus gaining market share, while
the aforementioned value approach impacted
brands in the lower-mainstream segments,
where Zhigulevskoe in particular lost share.

As a consequence of the changed market
dynamics following the PET ban, our increased
focus on local and regional brands and updated
assumptions on interest rates in Russia, the
Baltika brand was written down by DKK 4.8bn.

UKRAINE
Our Ukrainian business continued its strong
performance, delivering 3% volume growth and
strong price/mix. The market grew slightly,
and we gained market share, driven by
compelling performance by our local power
brand Lvivske, as well as Carlsberg, 1664 and
Garage. The growth of our premium brands
contributed to a favourable mix improvement.

Beer

Other beverages

Total volume

DKK million

Net revenue

Operating profit before special items

Operating margin (%)

18.0

growth, market share gain and strong
performance of our premium brands.

OTHER MARKETS
Our businesses in Belarus, Kazakhstan and
Azerbaijan all delivered earnings improvements.
Kazakhstan in particular delivered a strong set
of results, driven by significant revenue growth
achieved following high-single-digit market

REGION CHARACTERISTICS
The relative importance of Eastern Europe for
the Group has decreased significantly in recent
years. In 2017, Eastern Europe accounted for
22% of Group operating profit compared with
45% in 2010.

10,205

1,832

-1%

12.2%

-0.5%

9.5%

10,878

2,220

20.4

21.2%

240bp

According to GlobalData, Russia is the sixth
largest beer market in the world, and total beer
market volumes in the region amounted to
approximately 100m hl in 2017.

The Group’s two main markets in the region are
Russia, which accounts for around 67% of
regional beer volumes, and Ukraine, which
accounts for around 20%.

Total volume, pro rata (m hl)

Net revenue (DKKbn)

Operating profit (DKKbn)

Operating margin (%)

2.5

2.0

1.5

1.0

0.5

0.0

2015

2016

2017

2015

2016

2017

2015

2016

2017

2015

2016

2017

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 20

Our markets in Eastern Europe

Country

Russia

Ukraine

Belarus

Kazakhstan

Azerbaijan

Source: GlobalData, Carlsberg estimates.

Consumption characteristics

Per capita
beer
consumption
(litres)

On-trade
share
of market,
approx. (%)

Our
position

Our
operations

Market
position (no.)

Market
share (%)

Breweries

recently due to a challenged macroeconomy
and in 2017 due to a ban on PET bottles above
1.5 litres. In value terms, however, the market
has generally seen positive growth rates.

In recent years, the modern off-trade,
consisting of hypermarkets and supermarkets,
has grown significantly and now accounts for
approximately 65% of the off-trade in Russia.
Another growing channel has been the so-
called DIOT – draught in off-trade – which is
estimated to account for around 10% of the
market.

The Russian beer market has been under
significant pressure in the past decade, more

NO. 1

MARKET LEADER IN UKRAINE

2017 was the year when the Carlsberg Group
became the market leader in Ukraine. Our
market leadership was the result of strong
results for several brands, including our local
power brand Lvivske. During the year, we
updated the brand’s positioning, sponsored
the biggest musical event in Ukraine – the
Eurovision Song Contest – and opened
Lvivarnia, an experience and art centre of
brewing history and the first of its kind in
Ukraine.

LEVERAGE OUR STRONGHOLDS

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 21

ASIA

GROWING TOP
AND BOTTOM LINE

REGIONAL PERFORMANCE
Net revenue in Asia grew organically by 5%,
driven by a very solid 5% price/mix as volumes
were flat organically. Reported net revenue
declined by 1% due to a negative currency
impact, mainly in countries such as China,
Malaysia, Laos and Vietnam, and last year’s
divestments, notably of Carlsberg Malawi in
August 2016 and a number of breweries in
China.

Our international premium brands – Tuborg,
Carlsberg, 1664 Blanc and Somersby – all
delivered strong growth in the region and
were key drivers behind the solid price/mix
improvement. Tuborg remains the main
volume growth engine, supported by continued
popularity in markets such as China and India.

Organic operating profit grew by 8.1% and the
operating margin expanded by 90bp to 20.0%.
The premiumisation efforts and supply chain
savings, especially in China, impacted gross
margin very positively and were key drivers of
the profit improvement.

The region delivered 4.4% organic operating
profit growth in H2, impacted by higher
marketing investments due to a step-up
of spend behind the SAIL’22 priorities.

Total volumes were flat organically.

CHINA
The Chinese market declined by an estimated
1%. Our Chinese net revenue grew organically
by 8%, driven by 5% price/mix and 3% organic
volume growth.

Our growth was mainly driven by continued
good performance of our premium portfolio.
This was supported by the ongoing
premiumisation trend in the market as
consumers trade up into premium categories.
Our international premium portfolio in China,
which includes Tuborg, Carlsberg and 1664
Blanc, grew volumes by 12%. Tuborg remains
our most important premium brand in China.
In addition to our premium portfolio, we saw
growth in all our key local power brands, such
as Chongqing, Wusu, Dali and Xixia. Volumes

44%

GROWTH OF 1664 BLANC

In 2017, China became our largest single market
in volume terms. The country also overtook France
as the largest single market for our sophisticated
French wheat beer 1664 Blanc. Launched in China
in 2009, the brand has since tapped into the
growing wheat beer segment. Despite selling at
an average price point almost six times that of
the local average, 1664 Blanc is becoming
increasingly popular with Chinese consumers,
and in 2017 the brand grew by 44% in China.

GROW IN ASIA

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 22

“Our international brands play a
key role in our premiumisation
efforts in Asia.”

our market position, reaching an estimated 17%
market share for the year. In spite of the
volume decline, our profitability strengthened.

Graham Fewkes
EVP, Asia

in Q4 were impacted by the later sell-in to the
Chinese New Year.

Our profitability in China continued to
strengthen as a result of our cost efficiency
focus and the strong growth of our premium
portfolio and in spite of increasing marketing
spend in support of the wider distribution of
our international premium brands.

INDIA
2017 was a very volatile year for our Indian
business due to the highway ban and the
introduction of GST. Consequently, our
volumes declined by 2%. The decline was less
than the market and we further strengthened

INDOCHINA
In Laos, we continued to deliver solid perform-
ance, with good revenue growth and margin
improvement. We achieved particularly strong
growth in the premium category with Tuborg,
Carlsberg and Somersby.

In Vietnam, we changed the local manage-
ment early in the year. The new management
is continuing to drive changes in order to
strengthen our local commercial organisation.
Flooding and the later sell-in to Têt – the
Lunar New Year – in 2018 compared with
2017 impacted volumes negatively in Q4.

Mainly driven by our local mainstream brand
Yoma, our business in Myanmar grew strongly,
albeit from a small base. In Cambodia, we lost
market share and our volumes declined.

Our results in Asia

Pro rata (million hl)

2016

Organic

Acq., net

2017

Reported

Change

Beer

Other beverages

Total volume

DKK million

Net revenue

Operating profit before special items

Operating margin (%)

36.1

3.6

39.7

-3%

-10%

-3%

34.9

3.5

38.4

14,666

2,802
19.1

8.1%

-3%

-1.6%

-3%

14,554

-2.8%

2,905

20.0

-3%

-2%

-3%

-1%

3.7%

90bp

MALAYSIA, SINGAPORE AND NEPAL
Our businesses in Malaysia and Singapore
delivered another year of solid performance,
driven by good delivery of Funding the Journey
initiatives, growth of our premium portfolio and
continued growth of Carlsberg Smooth
Draught.

REGION CHARACTERISTICS
The importance of Asia for the Group has
increased significantly during the past decade,
in which the Group has expanded its presence
in the region, both organically and through
acquisitions.

Nepal also delivered strong results, driven by
market growth, value management efforts and
tight cost control.

According to GlobalData, total beer market
volumes in our Asian footprint amounted to
approximately 560m hl in 2017, with China by
far the largest beer market. In our Asia region,

Total volume, pro rata (m hl)

Net revenue (DKKbn)

Operating profit (DKKbn)

Operating margin (%)

3.5

3.0

2.5

2.0

1.5

1.0

2015

2016

2017

2015

2016

2017

2015

2016

2017

2015

2016

2017

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 23

China accounts for around 55% of volumes
and 35% of operating profit.

GROW IN ASIA

The Asian markets are very diverse but
offer considerable prospects for value
growth, underpinned by young populations,
urbanisation, rising disposable income levels,
growing economies and, in some markets,
relatively low per capita beer consumption.
However, as many Asian markets are
emerging markets, development can be
subject to volatility.

Both the on-trade and off-trade channels are
characterised by a strong traditional outlet
segment but with the modern outlet segment
growing in most markets.

TUBORG

6% GROWTH IN ASIA

Tuborg plays in the “fuelling fun” demand
space. With its winning proposition, which
is easily visualised, scalable and culturally
adaptable, Tuborg has been a major driver
of the value growth in Asia in recent years.
Fuelled by the Tuborg beat created by Major
Lazer, the new global campaign that engaged
with music stars such as Li Yuchun (also known
as Chris Lee) in China and Badshah in India,
Tuborg volumes in Asia grew by 6% in 2017.

Our markets in Asia

Country

China

Vietnam

Laos

Cambodia

Nepal

India

Myanmar

Malaysia

Singapore

Hong Kong

¹ Western China.

Source: GlobalData, Carlsberg estimates.

Consumption characteristics

Per capita
beer
consumption
(litres)

On-trade
share
of market,
approx. (%)

Our
position

Our
operations

Market
position (no.)

Market
share (%)

1¹

59¹

Breweries

CARLSBERG GROUP ANNUAL REPORT 2017 OUR RESULTS 24

EARNINGS EXPECTATIONS

GUIDING FOR
ORGANIC GROWTH

In 2016 and 2017, the key focus was the
delivery of Funding the Journey to create the
financial flexibility to invest in the business. In
2018, we will strengthen the focus on revenue
growth while maintaining a sharp focus on
costs and delivering on the remaining Funding
the Journey benefits. We will also continue to
exercise strict cash flow discipline.

At regional level, we have the following
priorities for 2018: continued improvement
in margins and operating profit in Western
Europe; accelerating organic growth in Asia
through premiumisation; and rebalancing the
focus towards top-line growth in Eastern
Europe.

Based on these priorities, for 2018 the Group
expects to deliver:

Mid-single-digit percentage organic growth
in operating profit.

Due to the recent strength of DKK against
most currencies, we assume a negative
translation impact of around DKK -450m for
2018 (based on the spot rates at 6 February).

Other relevant assumptions are:

Financial expenses, excluding currency losses
or gains and fair value adjustments, are
expected to be around DKK 800m.

The effective tax rate is expected to be below
29%.

Capital expenditures at constant currencies are
expected to be around DKK 4.5bn.

SEGMENTING

USING DEMAND SPACES

The Global Demand Space model is our new
segmentation approach. The demand spaces are
based on consumer research studies in over 40
countries, gathering data on over 100,000 drinking
moments across summer and winter months. Based
on this data, we determined our opportunities to grow
the beer category as well as our beer brands. Going
forward, the Global Demand Space model will guide
our category and portfolio strategy as well as our
innovation pipeline.

EXCEL IN EXECUTION

BUSINESS MODEL

CARLSBERG GROUP ANNUAL REPORT 2017 OUR STRATEGY

AN EFFICIENT BUSINESS MODEL

Our business model varies slightly between markets. We aim
to have a sustainable and cost-efficient model that supports
the realisation of our strategic priorities in order for us to be
successful, professional and attractive in our markets.

Sourcing
Global sourcing is handled by
our central procurement function
to achieve transparency and
cost-effi ciency.

B r e w i n g & b o t t l i n g
W e h a v e b r e w i n g f a c i l i t i e s i n a l m o s t
a l l m a r k e t s . O v e r a l l r e s p o n s i b i l i t y
l i e s w i t h t h e c e n t r a l s u p p l y
c h a i n f u n c t i o n .

Consumers
We serve consumers in more
than 150 markets worldwide,
offering strong portfolios of
attractive and great-tasting
beer brands.

C u s t o m e r s
O u r c u s t o m e r s r a n g e f r o m o n - t r a d e
t o o f f - t r a d e , f r o m b i g t o s m a l l
W e a i m t o b e c o m e t h e i r
p r e f e r r e d b e e r s u p p l i e r .

REDUCING CARBON
EMISSIONS

FLEXIBILITY AND COST
TRANSPARENCY

WINNING WITH
CRAFT & SPECIALITY

EXECUTING VALUE
MANAGEMENT

SUPPORTING
RESPONSIBLE DRINKING

Our Swedish brewery was the
first to become 100% fuelled
with biogas and green electricity,
thus reducing carbon emissions
from electricity and thermal
energy to zero.

Recognising our increasingly frag-
mented product range due to craft
& speciality and alcohol-free brews,
we aim to develop a new holistic
portfolio management to ensure
flexibility and cost transparency.

Our craft & speciality and alcohol-
free brand portfolios are important
levers for achieving top- and bottom-
line growth and becoming the
preferred supplier of our on- and
off-trade customers.

Value management is an important
lever for driving a positive price/mix
development in many markets. Our
efforts focus on the right balance
of price, assortment, promotion and
trade terms.

100% responsible drinking is
another of our sustainability
ambitions. We promote respon-
sible consumption of our products
through consumer campaigns and
cooperation with retailers.

CONTRIBUTE TO
A BETTER SOCIETY

SUPPLY CHAIN
EFFICIENCIES

WIN IN GROWING
CATEGORIES

EXCEL IN
EXECUTION

CONTRIBUTE TO
A BETTER SOCIETY

DistributionDistribution varies from direct toindirect with the aim of ensuringan effi cient and environmentallyfriendly set-up.SAIL’22

EXECUTION OF
OUR STRATEGY

CARLSBERG GROUP ANNUAL REPORT 2017 OUR STRATEGY 26

2017 was the second year of
SAIL’22. The focus for the year
was to deliver on Funding the
Journey, enabling investments
in our strategic priorities and
improving the capital allocation.

SAIL’22 was launched in 2016 with the
ambition to make the Carlsberg Group a
successful, professional and attractive
brewer in our markets.

The key strategic choices of SAIL’22 are
grouped under the headings “Strengthen the
core”, “Position for growth” and “Create a
winning culture”. Delivering on these choices
will in turn enable us to deliver enhanced value
for our shareholders. A thorough description of
SAIL’22 can be found in the 2016 Annual
Report.

SAIL’22 will evolve during the strategy period,
and actions and initiatives within the strategic
priorities will be taken or developed as they

become relevant. The following are examples
of some of the activities during 2017.

STRENGTHEN THE CORE
In order to strengthen our core business,
actions taken during the year covered areas
such as segmentation, local power brands,
digital and sales execution, as well as the cost
and efficiency actions under the Funding the
Journey programme.

“Achieving strong results within
our key strategic choices will
enable us to deliver top- and
bottom-line growth and value
for our shareholders.”

Cees ’t Hart
CEO

STRENGTHEN
THE CORE

POSITION
FOR GROWTH

DELIVER VALUE

FOR SHAREHOLDERS

Leverage our strongholds
Excel in execution
Funding the Journey

Win in growing categories
Target big cities
Grow in Asia

Organic growth in operating profit
ROIC improvement
Optimal capital allocation

CREATE A
WINNING CULTURE

Team-based performance
Contribute to a better society
Compass (applying our codes and policies)

+8%

GROWING LAV AFTER RELAUNCH

Serbs have many sources of pride in their lives. This insight
matches the 125-year history of the LAV beer brand and
was key in the relaunch of the brand in 2017. LAV means
lion in Serbian, and the new positioning and visual identity
of the brand encourage Serbs to feel pride by inspiring and
celebrating the lion in everyone. The initial results of the
relaunch were positive, with LAV delivering 8% volume
growth since its launch in July 2017.

REVITALISE CORE BEER

GLOBAL DEMAND SPACES
A very important activity was the development
of a new segmentation approach – the Global
Demand Space model – to embrace a
consumer-driven mindset. The new approach
will guide our category and portfolio strategy
as well as our innovation pipeline.

In 2017, we rolled out the Global Demand
Space model across our markets, determining
the portfolio role of our brands and how to
activate the model in our commercial planning
cycle. By the end of 2018, we expect demand
spaces to be fully embedded in all pillars of our
commercial strategies.

LOCAL POWER BRANDS
Our local power brands enjoy a high level
of awareness and a close relationship with
consumers based on their heritage and history.

Our primary focus is on the 40 strongest local
brands, i.e. the largest in terms of volume,
market share and awareness, as we believe
these brands offer the best growth potential.
Consequently, in 2017 we undertook work to
strengthen some of our local power brands.

In Serbia, we sharpened the purpose of our
power brand LAV and developed a new visual
identity in order to strengthen the brand and
improve the connection with Serbian consumers.

In Switzerland, we launched three crafty
line extensions of the Feldschlösschen brand,
providing affordable crafty propositions that
tap into the increased consumer interest for
craft & speciality beers and consumer
willingness to pay a premium for these
products. The consumer response has been
very positive.

TOGETHER

NEW POSITIONING OF FALCON

Falcon is a core local power brand in Sweden,
representing our biggest volume and second
largest profit provider in our Swedish beer
portfolio. In recent years, the brand has suffered
from lack of support and changes in positioning,
leading to decreasing consumer relevance. To turn
this situation around, in 2017 we launched a new
brand positioning, look & feel and communication
concept – Together. The initial results of the
relaunch were positive, with increased market
share in the off-trade.

REVITALISE CORE BEER

CARLSBERG GROUP ANNUAL REPORT 2017 OUR STRATEGY 27

In Sweden, we launched a new look and
communication concept to reposition our local
power brand Falcon in order to improve the
relevance of the brand for consumers. The
initial results of the relaunch are encouraging.

In 2018, we will continue the overall support
of our power brand portfolio and revamp more
local power brands. We continuously collect
and share learnings and best practices across
all markets to identify common areas of growth
potential and create synergies in areas such as
positioning, brand experience, innovation and
activation.

TUBORG
In 2017, we kicked off a new global campaign
to sharpen the focus on Tuborg’s legacy of
inspiring cultural discovery since 1880.

The campaign encompassed a refreshed visual
identity and an exciting cooperation with global
music trio Major Lazer.

As ambassadors of the Tuborg open music
platform promoting global music collaborations
and supporting young upcoming performers,
Major Lazer created a special Tuborg beat
which, at the time of publication of this report,
has been shared with artists in China, Russia,
India, Italy, Serbia, Montenegro, Bosnia and
Iceland.

Global Tuborg volumes grew by 3% in 2017.

DRAUGHTMASTER™
Our proprietary keg system DraughtMaster™ is
a key enabler for our premiumisation effort and

for regaining on-trade momentum in
Western Europe.

The system offers several advantages over
traditional draught systems, including
significantly longer shelf life, simplicity and
ease of handling, and an improved beer
experience for the consumer.

DraughtMaster™ allows outlets to have a
greater variety of beer on tap. Results from
the pilot markets of Italy and Greece show
high customer and consumer satisfaction
with the system.

In 2017, we began the full conversion of on-
trade customers in Denmark. In 2018, we will
continue the roll-out of the system in other
Western European markets, such as Norway,
Sweden, Germany and the UK.

DIGITAL
Our digital journey is just beginning. In 2017,
we took the first steps, developing a compre-
hensive digital vision for the Carlsberg Group.
The vision is not about technology but about
developing the right digital mindset across the
Group and creating a guideline for what we
can and should do with digital.

Our digital vision has four key focus areas
aimed at creating better experiences for
consumers and shoppers, empowering our
customers, driving smarter supply chain
management and having more focus on
digital business impacts and innovations.

Our work on digital will accelerate in 2018 and
beyond.

STRENGTHEN THE CORE
KPIs & RESULTS

+3%

+4%

2.3bn

GROSS CONTRIBUTION
FROM CORE BEER

OPERATING PROFIT

FUNDING THE JOURNEY

IN RUSSIA

Improving gross core beer
brand contribution
We measure our success in
revitalising core beer by our
ability to grow the gross
brand contribution from
core beer.

Gross brand contribution
grew by 3% as a result of
successful value manage-
ment efforts and the launch
of premium line extensions,
positively impacting price/
mix. Growing gross brand
contribution was achieved
despite volumes being
negatively impacted by the
PET downsizing in Russia
and bad summer weather in
parts of Western Europe.

Growing organically

Well on track

In 2017, China became
our largest single market,
measured in volume terms.
Measured in operating
profit, though, Russia
remains our biggest mar-
ket, and transforming our
Russian business is an
explicit priority of SAIL’22.

We measure our success in
Russia by our ability to grow
operating profit organically.
In 2017, we achieved +4%
organic growth in operating
profit due to strong price/
mix and rigid efficiency and
cost control, offsetting the
negative volume impact.

Funding the Journey was a
key focus of the Group in
2016 and 2017. The pro-
gramme progressed very
well, and we now expect it
to deliver around DKK 2.3bn
in net benefits with full
impact in 2018. Less than
half will be reinvested in
support of the SAIL’22
priorities, while more than
half will improve organic
operating profit.

In 2017, the programme
delivered benefits of around
DKK 1.2bn and around DKK
500m was reinvested in the
SAIL’22 priorities.

CARLSBERG GROUP ANNUAL REPORT 2017 OUR STRATEGY 28

FUNDING THE JOURNEY
In 2017, Funding the Journey achieved strong
results and we are able to adjust the expected
net benefits to around DKK 2.3bn (previously
around DKK 2bn).

2018 marks the final year of Funding the
Journey. However, the focus on efficiency and
costs will remain throughout the organisation,
and the processes and methodologies are being
embedded as a way of living across the Group.

POSITION FOR GROWTH
As part of SAIL’22, the Group defined three
distinct priorities that it will pursue to drive top-
and bottom-line growth. Our growth priorities
reflect:
1. The upsurge in the craft & speciality and

alcohol-free beer categories.

2. The global urbanisation megatrend and
the recognition of the high degree of
consolidation in the beer industry in most
markets around the world.

3. The Group’s strong presence in Asia, which
has delivered strong growth rates in recent
years.

CRAFT & SPECIALITY
Our craft & speciality portfolio grew by 29% in
2017, accounting for 8% of beer net revenue.

Our international speciality brands Grimbergen
and 1664 Blanc delivered strong growth of 15%
and 46% respectively.

We launched new 1664 Blanc variants as
well as a new and distinct visual identity
emphasising the brand’s blue colour and
French heritage. Four of the brand’s top

five markets are in Asia, and in 2017 we
experienced particularly strong sales in
China, where the brand grew by 44%.

In 2016, Grimbergen passed the milestone
of annual sales of 1 million hl, representing a
400% increase since 2008, when the Carlsberg
Group acquired the brand. By the end of 2017,
Grimbergen was present in 51 markets.

Brooklyn continued its growth in Carlsberg
Group markets in 2017, delivering 29% volume
growth. We now sell this leading international
craft beer brand in 17 markets, with plans to
launch into more markets in 2018.

During the year, we took steps to strengthen
our position within the local authentic craft
segment in cooperation with our US partner
Brooklyn Brewery by acquiring the London
Fields Brewery portfolio, building a craft
brewery in Lithuania and launching the
innovative craft beer brand HK YAU in Hong
Kong.

ALCOHOL-FREE BREWS
Our alcohol-free brews (AFB) delivered strong
growth of 15% in Western Europe, well ahead
of the estimated category growth of 6-7%
Within alcohol-free brews, our 2017 priorities
included the launch of alcohol-free line
extensions of local power brands, improving
our AFB brand packs and brews, and
continuous development of our innovation
pipeline.

In markets such as Greece and Russia, we
launched alcohol-free line extensions of
existing local power brands with great

CARLSBERG GROUP ANNUAL REPORT 2017 OUR STRATEGY 29

success. Examples include FIX ANEY in
Greece and Baltika 0 Wheat in Russia.

In other markets, we successfully developed
a clear and positive variant communication
and expanded the brew range. In Switzerland,
Feldschlösschen Alkoholfrei was launched with
a new look and feel in lager and wheat
variants. The relaunch was well received by
consumers, with Feldschlösschen Alkoholfrei
growing by 5%. In Lithuania, the relaunch of
Švyturys Go delivered strong growth of 30%,
supporting our market share increase in the
AFB category from 51% to 64%.

In future-proofing our AFB business, we have
driven innovation into a strong pipeline of
alcohol-free brew streams and propositions
to be launched in 2018 and beyond.

BIG CITIES
Our ambition within the big cities growth
priority is to conquer competitive premium
market positions in selected cities outside our
current geographic footprint by 2022.

During the year, we tested different approaches
and set-ups in a couple of test cities. Incorpor-
ating the learnings from these pilot cities, we
will be expanding into more cities in 2018.

GROW IN ASIA
Asia is an important volume and value growth
contributor for the Group, accounting for 28%
of Group operating profit in 2017. This
compares with 9% in 2010.

The increased importance of Asia is the result
of steady growth in recent years. From 2010 to
2017, average annual organic growth in beer
volumes was 5%, while average annual organic
growth in net revenue and operating profit was
11% and 15% respectively.

During the year, we continued to support our
premium portfolio, with particular emphasis on
Tuborg, 1664 Blanc and Carlsberg. In 2017,
Tuborg volumes grew by 6%, 1664 Blanc by
38% and Carlsberg by 3%.

China was an important contributor to these
growth rates, positively impacting the price/
mix of 5% in the country. Our international
premium brands now account for 24% of
volumes and 40% of net revenue in China.

India is another market of particular focus
in Asia. Tuborg is our largest brand in the
country, accounting for 86% of volumes and
81% of net revenue. As expected, the Indian
market was volatile in 2017 due to the high-
way ban and the implementation of GST,
(goods and services tax) but our market share
continued to strengthen. In late 2017, we
finalised the building of our eighth brewery,
located in Karnataka.

For more details on our results in Asia, please
refer to pages 21-23.

POSITION FOR GROWTH
KPIs & RESULTS

+29%

+15%

+8%

WIN IN CRAFT &
SPECIALITY

WIN IN ALCOHOL-FREE

GROW IN ASIA

BREWS

Strong volume growth

Our craft & speciality
portfolio delivered strong
volume growth of 29% and
net revenue growth of 29%.
Our craft & speciality brands
increased their share of
Group beer volumes by 1
percentage point and of beer
net revenue by 2 percentage
points.

Particularly strong volume
growth was achieved by our
international speciality
brands 1664 Blanc and
Grimbergen, but craft brands
such as Brooklyn and E.C.
Dahls also delivered strong
results.

Solid progress in
Western Europe
Alcohol-free brews is
an attractive beverage
category, benefiting from
the growing global health
and wellness trend among
consumers. The category is
growing and offers excellent
margin opportunities.

Our alcohol-free brews
delivered positive results,
growing volumes in Western
Europe by 15%. This was
ahead of the market growth
of 6-7%.

Continued value growth

Our Asian business became
even more important in
2017, accounting for 31%
of Group volumes and 28%
of Group operating profit.

Organic net revenue growth
was 5% and organic growth
in operating profit 8.1%.
Good growth of our inter-
national brands as well as a
positive development in local
power brands contributed to
both top- and bottom-line
growth.

WINNING CULTURE
A critical enabler for being successful and
delivering on our SAIL’22 priorities is to create
a winning culture.

For us, a winning culture is team-based,
performance-driven and characterised by
a high level of integrity. In addition, our
winning culture sets high standards within
sustainability, including health & safety and
responsible drinking.

TEAM-BASED PERFORMANCE CULTURE
Driving a team-based performance culture is
an ongoing journey.

Our triple A concept (alignment, accountability
and action) defines how we collaborate and is

the cornerstone of our team-based One
Carlsberg performance culture.

This framework was rolled out across the
Group and is an integral part of our key people
activities, such as onboarding, performance
assessment, training and development, and
career planning. In addition, the One Carlsberg
performance culture was integrated in our
remuneration policies.

During 2017, the ongoing SAIL’22 communica-
tion improved the engagement and alignment
across the organisation, as shown by improved
scores in the annual employee survey in areas
such as overall employee engagement and
acceptance, and acknowledgement of change
management agenda.

PREMIUM

WHEAT AFB IN FRANCE

1664 Blanc Sans Alcool provides the same
refreshing and fruity experience as our super-
premium French wheat beer 1664 Blanc –
but without the alcohol. With its flavour and
unique blue bottle, 1664 Blanc Sans Alcool
embodies the elegance and taste of France.
1664 Blanc Sans Alcool was launched in
France in March 2017 and has already
achieved a 1% share of the alcohol-free
category in the country.

ACTIVELY SHAPE AFB

CARLSBERG GROUP ANNUAL REPORT 2017 OUR STRATEGY 30

In 2016 and 2017, our people were focused on
delivering on Funding the Journey. The next
step will be to deliver on the SAIL’22 growth
priorities and KPIs, and remuneration will be
changed accordingly to reflect this. See pages
40-45 for more information on executive
remuneration.

CONTRIBUTING TO A BETTER SOCIETY

Together Towards ZERO
In 2017, we launched a new and ambitious
sustainability programme – Together Towards
ZERO. Together Towards ZERO consists of four
major ambitions: a ZERO carbon footprint,
ZERO water waste, ZERO irresponsible drinking
and a ZERO accidents culture. Each ambition is
underpinned by individual and measurable
targets for 2022 and 2030.

The programme will help ensure that we
reduce risks and strengthen our business. The
cost of utilities such as water is set to rise in the
future, while the price of renewable energy is
falling. With this in mind, Together Towards
ZERO investments will help make our business
more resilient in the future, contributing to both
short- and long-term success.

Reporting
Our 2017 Sustainability Report contains more
information on Together Towards ZERO,
including our performance against our
sustainability KPIs. The report carries an
assurance statement by PwC on selected
indicators.

The report serves as our annual Commu-
nication on Progress to the United Nations

The Carlsberg Group Sustainability

Report is available at
www.carlsberggroup.com/sustainability/
download

Global Compact and enables us to live up
to our legal responsibility for CSR disclosure
under section 99a of the Danish Financial
Statements Act.

LIVE BY OUR COMPASS
Our winning culture demands a high degree of
integrity, honesty and ethical business conduct,
and these are core values of the Carlsberg
Group.

In 2017, we embedded our Code of Ethics
and Conduct through eLearning training
offered to all employees. We also revised our
policy framework, which now encompasses 28
policies supported by detailed manuals. The
framework aims to both mitigate company risk
and drive ethical business conduct by focusing
on individual employee behaviour. Our policy
framework has been designed first and fore-
most to guide our employees in what the
Carlsberg Group considers to be the right
direction.

In 2017, we also introduced and improved
our Speak Up programme, which enables
employees to report misconduct. In addition
to a more user-friendly Speak Up web and
phone system, in January we established an

Integrity Committee to oversee the follow-up
of material Speak Up investigations.

We measure our ability to increase value for
shareholders by focusing on two key metrics:
organic growth in operating profit and ROIC.

Looking ahead, we will further strengthen the
compliance governance structure, improve our
monitoring and reporting, support a safe and
protected environment for people to speak up,
and develop a new platform that provides all
employees with easy access to our codes,
policies and manuals.

DELIVER VALUE FOR SHAREHOLDERS
Achieving strong results within the strategic
choices of SAIL’22 will enable us to deliver
enhanced value for our shareholders.

In addition, when launching SAIL’22 in March
2016, we also communicated a clear target of
reducing leverage and increasing the dividend
payout ratio.

Our results against these key metrics and
targets were strong in 2017, with 8.4% organic
growth in operating profit, 100bp improvement
in ROIC, significant reduction in financial
leverage to 1.45x (net debt/EBITDA) and a
recommended 60% increase in the dividend to
DKK 16.0 per share, equal to an adjusted
payout ratio of 50%. Please also see the box to
the right.

TOGETHER

TOWARDS ZERO

In June 2017, we set industry-leading
targets when launching our new sustainability
programme Together Towards ZERO, which
focuses on carbon footprint, water waste,
irresponsible drinking and health & safety.
Together Towards ZERO expresses our vision
for a better tomorrow and our firm belief that
our business can thrive while at the same time
contributing to a better society. Read more in
the 2017 Sustainability Report.

CONTRIBUTE TO A BETTER SOCIETY

CARLSBERG GROUP ANNUAL REPORT 2017 OUR STRATEGY 31

DELIVER VALUE FOR SHAREHOLDERS
KPIs & RESULTS

-5

-10

3.0

2.5

2.0

1.5

1.0

0.5

2015

2016

2017

2015

2016

2017

2015

2016

2017

Net debt/EBITDA
Payout ratio (%, rhs)

ORGANIC GROWTH IN
OPERATING PROFIT (%)

ROIC
IMPROVEMENT (%)

OPTIMAL CAPITAL
ALLOCATION

Consistent organic growth in
operating profit is testament
to our ability to deliver top-
line growth and margin
improvement.

In 2016 and 2017, Funding
the Journey was the driver
of organic operating profit
growth.

Due to excellent and rapid
progress of Funding the
Journey, organic operating
profit growth in 2017 was
8.4%.

In order to drive a positive
development in shareholder
returns, we want to grow
the return on invested
capital by improving
earnings and reducing
invested capital.

In 2017, ROIC was 6.9%
(+100bp). The improve-
ment was the result of
lower capital employed
and improved profitability.

Investing in profitable
growth will remain our
first priority. Other key
financial priorities for the
Group are growing ROIC,
ensuring a leverage well
below 2.0x and increasing
the adjusted payout ratio.

In 2017, we succeeded in
our efforts to grow all three
metrics. The financial
leverage of 1.45x has
prompted the Supervisory
Board to recommend to the
Annual General Meeting a
60% increase in the dividend
to DKK 16.0, equal to an
adjusted payout ratio of
50%.

Governance

RISK MANAGEMENT

MANAGING RISKS TO
REDUCE UNCERTAINTIES

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 32

We seek to manage risks in such
a way that we minimise their
threats while making the best use
of their potential.

Risks are assessed according to a two-
dimensional heat map rating system that
estimates the impact of the risk on operating
profit or brand/image and the likelihood of the
risk materialising.

Risk reporting is incorporated in regular
business reviews and Group Risk Management
is responsible for facilitating and following up
on risk action plans for the most significant
risks in the Carlsberg Group.

GOVERNANCE STRUCTURE
The Supervisory Board is ultimately responsible
for risk management, but it has appointed the
Audit Committee to act on its behalf in
monitoring the effectiveness of the Group’s
risk management.

Monitoring is mainly performed in connection
with the half-year reviews, although recurring
financial risks are evaluated on a quarterly
basis.

The Audit Committee adopts guidelines for
key areas of risk, monitors developments
and ensures that plans are in place for the
management of individual risks, including
commercial and financial risks.

The Executive Committee (ExCom) is
responsible for reviewing the overall
risk exposure associated with the Group’s
activities.

Based on this assessment, ExCom identifies
the high-risk issues for the coming year.
ExCom assigns risk owners, who are then
responsible for mitigating the risks through
a programme of risk management activities.

Local entities and Group functions are
responsible for the identification, evaluation,
qualification, recording and reporting to
management of business risks at local level.
Local and functional risk assessment follows
the same principles and methodology as
Group-level risk assessment.

The responsibility for the local review lies
with the risk officer, typically the local head
of Finance, to ensure that risk management
is incorporated into management meetings,
business reviews and key decision-making.

Following the risk identification, local risk
owners are appointed and given responsibility
for mitigating the risks through a programme
of risk management activities.

HIGH RISKS IDENTIFIED FOR 2018
The identified risks for 2018 are shown in
the box to the right. The high-impact risks
are described in the following.

COMMODITY AND FOREIGN EXCHANGE
IMPACT
Description
Adverse foreign exchange movements and
increasing commodity prices negatively affect
the prices of raw materials and other inputs,
thereby affecting the competitiveness of the
business and the delivery of results.

Competition in most markets is generally fierce
and trade term pressure from our customers
remains strong, leading to a challenging pricing
environment.

Foreign exchange risk and commodity risk are
described in more detail in section 1.4 in the
notes to the consolidated financial statements.

IDENTIFIED RISKS
FOR 2018

RISKS WITH HIGHEST POTENTIAL
IMPACT AND PROBABILITY
• Commodity & foreign exchange

impact

• Industry consolidation
• Partnerships
• Political & economic instability

OTHER IDENTIFIED RISKS
• Talent management
• Regulatory changes, incl. duties
• Pensions
• Cyber & IT security
• Legal & regulatory compliance
• Strategy execution
• Corporate tax risk
• Financial flexibility
• Funding the Journey
• Quality design & execution

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 33

Mitigation
Nevertheless, we will further embed our value-
based approach across all markets, driving a
positive price/mix while applying the Golden
Triangle to ensure a balanced approach to
market share, gross profit margin after logistics
and operating profit.

INDUSTRY CONSOLIDATION
Description
Industry consolidation was a high risk for
2017 and is expected to remain so for 2018.
Consolidation within the beer industry
continues, creating bigger players with
increased scale. In addition, consolidation is
also taking place among our customers and
suppliers.

Although strong local market positions are
key to creating value, consolidation creates
stronger competitors with increased financial
strength and bargaining power, potentially
impacting on the Carlsberg Group's ability to
compete. Consolidation among customers and
suppliers also leads to increased dependency,
pricing pressure and the risk of margin
pressure.

Mitigation
The priorities and initiatives of SAIL’22 seek to
position the Group in such a way that we are
able to act upon and mitigate the impact of
industry consolidation. This includes improving
our core beer business and driving craft &
speciality and alcohol-free brews, becoming a
valued partner of our customers and offering
the preferred beer of our consumers.

In addition, we will seek to further develop
our partnerships with suppliers and create
alternative sourcing solutions.

PARTNERSHIPS
Description
The Carlsberg Group cooperates with partners
in a number of markets, particularly the global
soft drinks manufacturers in the Nordic
countries and some Asian markets as well as
local partners in some Asian and European
markets.

Political and economic instability may lead to
adverse exchange rate fluctuations, increased
credit risk, insolvency of suppliers, goodwill
impairment, operational restrictions and
possibly nationalisation of assets.

Mitigation
We closely monitor our markets in order to
be able to respond in a timely manner to any
adverse developments. Mitigating activities also
include hedging and maintaining variability in
the cost base.

The strength of the relationship with our
different partners may affect our ability to
manage the growth of our business.

Mitigation
In order to minimise the potential risk of
partnerships, we seek to have an ongoing
dialogue with our partners to identify any
issues at an early stage.

The relevant members of ExCom are actively
involved in partner relationships, participating
in the ongoing dialogues to ensure constructive
negotiations and proper and fast resolutions of
potential issues.

POLITICAL AND ECONOMIC INSTABILITY
Description
The risk of political and economic instability
was also a high risk for 2017. Adverse
economic conditions may result in reduced
consumer demand and a higher degree of
price sensitivity on the part of consumers,
while major social or political changes may
disrupt sales and operations.

SAIL’22 also provides mitigation by further
strengthening our core business in mature,
stable markets, premiumising our portfolio
and expanding our geographic footprint.

HIGH RISKS FOR 2017
In addition to industry consolidation and
political and economic instability, Funding
the Journey and talent management were
deemed high risks for 2017.

As 2018 is the third and final year of the
programme, delivering on the ambitions of
Funding the Journey is no longer considered
a high risk. The programme is expected to
deliver around DKK 2.3bn by the end of 2018
compared with initial expectations in November
2015 of DKK 1.5-2.0bn.

Talent management continues to be considered
a risk, although slightly less compared with
2016. During the year, we strengthened our
development centres and took further action to
build a succession pipeline and talent pool for
key positions across the Group.

CORPORATE GOVERNANCE

SUPPORTING GOOD
CORPORATE GOVERNANCE

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 34

Our governance framework aims
to ensure active and accountable
business management across the
Group.

The Carlsberg Group seeks to develop and
maintain a positive and constructive relation-
ship with all of its stakeholders. For this
reason, and also in order to reduce risk and
promote good governance in the Carlsberg
Group, the Group has formulated policies for a
number of key areas, such as communications,
human resources, environment, business ethics,
competition law, marketing communication,
and responsibility to customers and society in
general. One of the Supervisory Board’s tasks
is to oversee compliance with and regular
adjustment of the policies to reflect
developments both inside and outside the
Group.

The basis of the Company’s corporate
governance includes the Danish Companies
Act, the Danish Financial Statements Act, IFRS,
the EU Market Abuse Regulation, Nasdaq
Copenhagen A/S' rules for issuers of shares,
the Company's Articles of Association and
other rules. A comprehensive description of

the Group’s corporate governance position is
available on www.carlsberggroup.com.

RECOMMENDATIONS ON CORPORATE
GOVERNANCE
The recommendations of the Danish
Committee on Corporate Governance form part
of Nasdaq Copenhagen A/S’ rules for issuers of
shares. The Company complies with all but two
of the recommendations, as explained below.

With respect to the recommendation that the
Articles of Association should stipulate a
retirement age for members of the Supervisory
Board, Carlsberg A/S’ Supervisory Board finds
that Board members should be assessed based
on their competences rather than their age.
Consequently, the Articles of Association do
not stipulate a retirement age. The age of each
Supervisory Board member is disclosed on
pages 46-48.

With respect to the recommendation to publish
quarterly reports, the Supervisory Board finds
that half-year reporting is more appropriate
due to the seasonality of the Group’s business
and the fact that the Group historically has
seen high volatility in quarterly earnings and
margins as a result of phasing of costs. The
Supervisory Board considers the high volatility

as potentially misleading for the understanding
of the underlying Group performance. The
Company issues Q1 and Q3 trading
statements, which include volume and net
revenue data, along with comments on sales
performance in the quarter.

The Company’s statutory report on corporate
governance includes a full list of the
recommendations, with comments on the
Group’s position on each recommendation.

THE ANNUAL GENERAL MEETING
The 2017 Annual General Meeting (AGM) took
place on 30 March. The minutes of the meeting
are available on www.carlsberggroup.com.

The AGM adopted two changes to the Articles
of Association in 2017: 1. The Company will
prepare company announcements in English
only; and 2. The Articles of Association were
changed so that general meetings will be
convened and announced only through the
Company’s web page, and thus no longer

Download our statutory report

on corporate governance
www.carlsberggroup.com/who-we-
are/corporate-governance/#Statutory Reports

through the Danish Business Authority’s IT
system.

Rules and deadlines applying to the AGM and
other General Meetings are stipulated in the
Articles of Association, which are available on
www.carlsberggroup.com.

GOVERNANCE STRUCTURE
The Supervisory Board has established three
board committees: an Audit Committee, a
Nomination Committee and a Remuneration
Committee. For the time being, the Supervisory
Board considers these committees to be
sufficient; however, each year the Supervisory
Board considers whether the number and scope
of the committees are appropriate. The board
committees prepare and facilitate Supervisory
Board decisions.

The Supervisory Board hires and supervises the
Executive Board, which consists of the CEO and
CFO, who are not members of the Supervisory
Board. The Group also has a wider Executive
Committee (ExCom), which, in addition to the
two Executive Board members, consists of a
wider group of Executive Vice Presidents,
portrayed on page 49. While the Executive
Board members are formally registered as
executive directors of the Company, ExCom

collectively prepares and implements the
Company’s strategic plans.

THE COMPOSITION OF THE
SUPERVISORY BOARD
The Supervisory Board has 10 members
elected by the General Meeting and, in
accordance with the Danish Companies Act,
five members elected by the employees.

The members elected by the General Meeting
are elected individually and for a term of one
year. Re-election is possible.

Five of the 10 members elected by the
General Meeting are independent and have an
international business background in addition
to competences related to the beverage
industry, FMCG, finance, digital, emerging
markets and Russia. The other five members
are affiliated to the Carlsberg Foundation, the
Company’s principal shareholder, and have an
academic background. These members are
bearers of the Carlsberg culture, and the
heritage and values stemming from founder
J.C. Jacobsen, and the Supervisory Board sees
these members as patrons of the same.

Chairmanship
meetings attended

Board
meetings attended

Supervisory Board meetings

Board member

Flemming Besenbacher (Chairman)1

Lars Rebien Sørensen (Deputy Chairman)1,2

Hans Andersen3

Carl Bache1

Richard Burrows1,2

Donna Cordner1,2

Nancy Cruickshank 1,2

Eva Vilstrup Decker3

Elisabeth Fleuriot 1,2

Kees van der Graaf1,2

Finn Lok3

Erik Lund3

Søren-Peter Fuchs Olesen1

Peter Petersen3

Nina Smith1

Lars Stemmerik1

1 Elected by the General Meeting. 2 Independent. 3 Employee-elected.

Attended meeting.

Did not attend meeting.

Not a Board member at the time.

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 35

The employee representatives are elected for
a term of four years. They hold the same rights
and obligations as the members elected by the
General Meeting. The current employee
representatives were elected in 2014 and the
next election will take place in Q1 2018.

The Supervisory Board believes that the
composition of the Board ensures an
appropriate level of diversity and breadth
in the members’ approach to their duties,
thereby helping to ensure that decisions are
well considered and that the long-term
perspective is duly taken into account.

Each year, the Supervisory Board considers
the skills that should be represented on the
Supervisory Board on the basis of a
recommendation from the Nomination
Committee.

These skills are described in the
Specification of Competences, available on
www.carlsberggroup.com. The Nomination
Committee and the Supervisory Board take
the description of the required skills into
consideration when recommending new
candidates for the Supervisory Board. None
of the members of the Supervisory Board
are or have been involved in the executive
management of the Group.

Information on the Supervisory Board members
is given on pages 46-48. Detailed CVs can be
found on www.carlsberggroup.com.

DIVERSITY
The Supervisory Board believes that its
members should be chosen for their

competences, but recognises the benefits of
diversity in respect of experience, culture,
international experience and gender, and has
laid down the following specific objectives in
relation to international experience and gender:
• With regard to international experience,
the objective is that 50% or more of the
Supervisory Board members elected by the
General Meeting should have substantial
international experience from managing
large corporations or institutions. The current
composition of the Supervisory Board fulfils
this objective. Furthermore, with a represent-
ation of more than 20 nationalities, the
international experience of the Carlsberg
top-60 leadership team is significant.
• The proportion of the underrepresented

gender (currently women) on the Supervisory
Board should reach at least 40% of the
members elected by the General Meeting no
later than 2021. This is a prolongation of the
previous target, which aimed at reaching 40%
by 2017. In 2017, three out of ten members
elected by the General Meeting were women.
Diversity is a high priority for the Supervisory
Board. However, ensuring the right skills and
competences in the Supervisory Board always
takes precedence. The target applies to the
boards of all Danish Carlsberg Group
companies that are required to lay down such
objectives. This is currently Carlsberg A/S,
Carlsberg Breweries A/S, Carlsberg Global
Business Services A/S, Carlsberg Danmark
A/S and Carlsberg Supply Company Denmark
A/S. As of 2017, three Supervisory Board
members in Carlsberg A/S elected by the
General Meeting are women, i.e. 30%.
Accordingly, the objective with regard to
gender diversity on the Supervisory Board is

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 36

not yet met. In Carlsberg Breweries A/S, all
four Supervisory Board members elected by
the General Meeting are men. The Board
consists of the members of the Chairmanship
and of the Executive Board in Carlsberg A/S,
and it was not considered appropriate to
change this approach in 2017. In Carlsberg
Global Business Solutions A/S and Carlsberg
Supply Company Denmark A/S, the three
members of each board are all men, which
means that the target is not met in either
company. In Carlsberg Danmark A/S, one
of the three Supervisory Board members is
a woman, which means that the objective
with regard to gender diversity is considered
fulfilled.

Whilst the Supervisory Board is of the opinion
that competences must always come first,
it will consider candidates with a view to
increasing the underrepresented gender on
the Supervisory Board.

Currently, women are also underrepresented
in senior management positions. To increase
the proportion of women, the Supervisory
Board has drawn up a policy and set out
specific action points for the Executive Board
to implement.

In 2017, these actions included the following:
• As part of the Group Recruitment Policy,

recruitment companies and executive search
companies were asked to prepare a shortlist
with at least one qualified female candidate
when the Group recruits for senior manage-
ment positions.

• At least one third of the participants in the
Group's leadership programme should be

women. This target was met in 2017, as 30%
of the leadership programme nominees were
women.

• Our leadership development centres support

individual development towards senior
leadership positions. In 2017, one third of the
participants in our Development Centres Level
2 were women.

THE WORK OF THE SUPERVISORY
BOARD
The Supervisory Board monitors that the
Executive Board observes the goals, strategies
and business procedures established by the
Board.

The Chairman and Deputy Chairman of the
Supervisory Board constitute the Chairmanship.
The specific duties of the Chairman – and in
his absence the Deputy Chairman – are set
out in the Rules of Procedure. In 2017, the
Chairmanship and the Executive Board held
eight meetings. The Supervisory Board of
Carlsberg A/S held eight meetings as well as
a full-day strategy seminar.

The Executive Board always attends the
Supervisory Board meetings and, in order to
improve transparency, the members of ExCom
are also invited to attend when it makes sense.
This gives the Supervisory Board better insight
into the business.

In addition, the Supervisory Board and ExCom
have evening meetings prior to each Super-
visory Board meeting at which key people from
the Group present a market or other relevant
topics. In 2017, these included various topics
relating to SAIL’22 and to the Carlsberg

SUPERVISORY
BOARD WORK IN
2017

MAIN TOPICS OF DISCUSSIONS

Strategy
• Ongoing execution and implementation

of SAIL'22.

• Review of and debate on R&D,
innovation, branding and other
strategic projects.

• Continued roll-out and tracking of

the Funding the Journey programme.

• Review and approval of the Group's

capital structure and funding.

Organisation, people, succession planning
and talent management
• Recommended Nancy Cruickshank as

Supervisory Board candidate for election
at the AGM 2017 and subsequently
welcomed her as new Supervisory
Board member.

• Identified Magdi Batato as a candidate

for the Supervisory Board to replace Kees
van der Graaf, who is not standing for re-
election at the AGM in 2018.

• Succession planning for the Supervisory
Board and the executive management,
and discussion of general talent
management.

• The Carlsberg Group employee

engagement survey and its outcome.
• Discussion and approval of the bonus
structures in the Group’s incentive
programme to ensure that it supports
and is aligned with SAIL’22.

Compliance and core values
• Discussion and review of the

Compass initiative, which is part
of SAIL’22 and aims to clarify and
reinforce the Carlsberg Group’s
identity and culture, ensuring the
proper positive behaviours and high
integrity that the Group wishes to
promote.

• Review and approval of the Group’s
new sustainability programme,
Together Towards ZERO.

Governance and risk management
• Review of the outcome of the Board
evaluation process 2016, including
follow-up on all suggestions.

• Review and discussion of the Group

Internal Audit reports, working
processes and organisation.

• Discussion of relevant specific issues

and ways of working with the external
auditor.

• Approval of the recommendation
by the Audit Committee of a new
external auditor for election at the
2017 AGM, where Pricewaterhouse-
Coopers (PwC) was appointed as new
auditor for the Carlsberg Group.

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 37

organisation, such as the strategy on craft &
speciality and alcohol-free brews, consumer
insights, DraughtMaster™, employee
engagement, quality and our business in China.

SUPERVISORY BOARD EVALUATION
PROCESS
Each year, the Chairman of the Supervisory
Board heads a structured evaluation of the
Board’s work, accomplishments and
composition. In addition, the Supervisory
Board considers whether its members’
expertise should be updated or strengthened
with respect to their duties, based on input
from the Nomination Committee as well as
the Board evaluation process.

During the evaluation process in 2017,
the Supervisory Board members generally
expressed that they find the pre-read material
and presentations of a high quality, that the
topics and agendas cover relevant matters
adequately, that meetings are well planned,
and that they appreciate the open discussions
at the Supervisory Board meetings with the
Executive Board and other management
members.

Nomination Committee meetings

Committee member

Flemming Besenbacher (Chairman)

Kees van der Graaf

Lars Rebien Sørensen

The Supervisory Board also expressed
satisfaction with the focus on risk evaluation,
strategy and direction-setting during Board
discussions. The evaluation process led to a
short catalogue of ideas for minor changes to
the way the Supervisory Board works. These
ideas were considered and, where relevant,
implemented by the Supervisory Board.

In 2017, the Committee had particular focus
on:
• Planning the Board’s evaluation process.
• Reviewing the Specification of Competences
for Board members to ensure that they
reflect the skills and experiences needed to
best support the execution of SAIL’22.
• Succession planning at Board and ExCom

BOARD COMMITTEES

• Evaluating the composition, structure and

level.

THE NOMINATION COMMITTEE
In 2017, the Nomination Committee consisted
of three members. The Nomination Committee
is appointed for one year at a time. The
Chairman of the Committee does not qualify
as being independent, while the other two
members do.

The Nomination Committee works according
to Terms of Reference, which are reviewed and
approved annually by the Supervisory Board.
The Terms of Reference are available on the
Company’s website.

size of the Board.

THE REMUNERATION COMMITTEE
The work of the Remuneration Committee is
described in the Remuneration report on pages
40-45.

THE AUDIT COMMITTEE
In 2017, the Audit Committee consisted of
three members. The Audit Committee is
appointed for one year at a time. All members
of the Committee qualify as being independent
of the Company and all possess the relevant
financial expertise.

The Audit Committee works according to Terms
of Reference and a detailed annual meeting
plan, which are reviewed and approved by the

Committee meetings attended

Audit Committee meetings

Committee member

Donna Cordner (Chairman)

Richard Burrows

Lars Rebien Sørensen

Flemming Besenbacher1

Supervisory Board prior to the beginning of
each financial year. The Supervisory Board
approved the Audit Committee meeting plan
for 2018 and the current Terms of Reference
at the Supervisory Board meeting in December
2017. The Terms of Reference are available on
the Company’s website.

In 2017, the Audit Committee had, in addition
to its statutory duties, particular focus on a
number of other areas such as:

• Heading the tender process of audit services

and making a recommendation to the
Supervisory Board to propose to the AGM
the appointment of PricewaterhouseCoopers
(PwC) as auditor for the Carlsberg Group.
• Monitoring the effectiveness of the control

environment and overseeing the progress on
developing a new reporting system on the
effectiveness of the controls over financial
reporting.

• Overseeing the target measurement of the

Funding the Journey programme.

• Reviewing that an adequate Group Internal

Audit function is in place.
• Financial risk management.
• Reviewing the risk management process.

Committee meetings attended

Attended meeting.

Did not attend meeting.

1 Not a member of the Committee; attends meetings in his capacity as Chairman of the Supervisory Board.

Attended meeting.

Did not attend meeting.

AUDITING
To safeguard the interests of shareholders
and the general public, an independent auditor
is appointed at the Annual General Meeting
following a proposal from the Supervisory
Board, which is based on a recommendation
from the Audit Committee.

In 2017, the Supervisory Board completed an
audit tender process and a new external audit
firm (PwC) was appointed at the 2017 AGM.

INTERNAL CONTROL AND RISK
MANAGEMENT RELATED TO THE
FINANCIAL REPORTING PROCESS

OVERALL CONTROL ENVIRONMENT
The Supervisory Board and the Executive
Board have overall responsibility for the
Carlsberg Group’s control environment. The
Audit Committee is responsible for monitoring
the effectiveness of the internal control and risk
management systems related to the financial
reporting process on an ongoing basis.

The Group has a number of policies and
procedures in key areas of financial reporting,
including the Finance Policy, the Finance
Manual, the Use of Auditors Policy, the
Controller Manual, the Chart of Authority,
the Risk Management Policy, the Financial
Risk Management Policy, the Information
Security and Acceptable Use Policy, and the
Code of Ethics and Conduct. The policies and
procedures apply to all subsidiaries, and similar
requirements are set out in collaboration with
the partners in joint ventures.

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 38

EXCEL IN EXECUTION

>1,700

EMPLOYEES ARE NOW BEER
EXPERTS

In late 2016, we launched a Group-wide beer
ambassador and beer sommelier programme
originally developed in Norway that aims to turn
local sales and marketing teams into beer experts.
The programme gives our people a more in-depth
understanding of different beer styles, beer and
food pairing, and how our beer is made. By the
end of 2017, more than 1,700 employees in nine
markets had been trained in the art of beer, and
many more will follow in 2018.

The internal control and risk management
systems are designed to mitigate rather than
eliminate the risks identified in the financial
reporting process. Internal controls related to
the financial reporting process are established
to detect, mitigate and correct material
misstatements in the consolidated financial
statements.

The monitoring of risk and internal controls
in relation to the financial reporting process
are anchored by the reporting of the maturity
level of the control environment using the
Company’s financial control framework.

financial risks identified and ensure reliable
internal and external financial reporting, and it
will focus on implementing more preventative
automated controls instead of compensating
detective manual controls. Additionally, the
project will drive control standardisation
wherever possible. The new framework will
be implemented in all entities controlled by
Carlsberg A/S.

RISK ASSESSMENT
The risk assessment process in relation to the
financial reporting process is assessed annually
and approved by the Audit Committee.

In 2018, a new financial control framework
will be implemented across the Group. The
new framework will be designed to mitigate

The risk related to each accounting process
and line item in the consolidated financial
statements is assessed based on quantitative

and qualitative factors. The associated
financial reporting risks are identified based
on the evaluation of the likelihood of them
materialising and their potential impact.

The identified areas are divided into areas with
high, medium or low risk. High-risk areas are
line items that include significant accounting
estimates, including goodwill and special items,
and the sales and purchase processes.

CONTROL ACTIVITIES
The Group has implemented a formalised
financial reporting process for the strategy
process, budget process, estimates and
monthly reporting on actual performance.
The accounting information reported by all
Group companies is reviewed both by

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 39

In 2017, a sophisticated and more user-
friendly Speak Up system went live. Further-
more, an Integrity Committee, chaired by the
CFO, was established to oversee the follow-
up of major Speak Up investigations.

Since the establishment of the Speak Up
programme in April 2010, some reports
and their subsequent investigation have led
to various disciplinary sanctions, including
dismissal on the basis of violation of Group
policies and, in some cases, relevant criminal
laws. Most of these matters related to isolated
incidents of fraud carried out by individual
employees in the Group. The incidents have
not had any material impact on the financial
results of the Group or the Group company in
question.

controllers with regional or functional
in-depth knowledge of the individual
companies/functions and by technical
accounting specialists.

In addition, significant Group companies
have controllers with extensive commercial
and/or supply chain knowledge and insight.

The entities in the Group are dependent on
IT systems. Any weaknesses in the system
controls or IT environment are compensated
for by manual controls in order to mitigate
any significant risk relating to the financial
reporting.

The outsourcing of key processes was
initiated in 2016, and the first part of the
implementation took place in 2017. During
the implementation period, the Group had
compensating procedures and controls in
place to ensure timely reporting of the
required quality for internal and external
reporting purposes.

INFORMATION AND COMMUNICATION
The Group has established information and
communication systems to ensure that
accounting and internal control compliance
is established.

meetings at ExCom level, periodic review of
control documentation, controller visits and
audits performed by Group Internal Audit.

GROUP INTERNAL AUDIT
The Internal Audit department ensures
objective and independent assessment of
the adequacy, effectiveness and quality of
the Group’s internal controls.

Group Internal Audit works in accordance with
a charter, which was updated in 2016 and
approved by the Audit Committee. A new
internal audit strategy, including an audit
methodology and an audit planning process,
was developed during 2017.

Taking into account the annual review of
business risks (cf. pages 32-33), an internal
audit plan is drawn up for the year. The plan
is reviewed and approved by the Audit
Committee.

SPEAK UP
The Carlsberg Group has a Speak Up
programme that enables employees to
report misconduct. Reports typically relate
to suspected violations of the Carlsberg
Group’s policies and manuals or activities
that may involve criminal conduct.

MONITORING
The Audit Committee’s monitoring covers both
the internal control environment and business
risk. Monitoring of the internal control environ-
ment is covered by the Group’s financial control
framework. The business risk is assessed and
reviewed at multiple levels in the Group,
including monthly performance review

The Speak Up system is facilitated by an
external provider and allows concerns to be
brought to the attention of Group Compliance
anonymously and via multiple channels. The
Compliance Officer is responsible for reviewing
all reported Speak Up matters and the
reporting thereof to the Audit Committee at
least every quarter.

REMUNERATION

EXECUTIVES’
REMUNERATION

We want our executives to share
our shareholders’ interests, and
the remuneration of executive
directors should support this
alignment.

The current Remuneration Policy was
developed four years ago, and minor changes
were implemented in 2016 and in 2017. The
Remuneration Committee has not proposed
any change to the structure of pay, and will
propose to the shareholders at the 2018
Annual General Meeting that the Remuneration
Policy remain unchanged in 2018.

REMUNERATION OF THE EXECUTIVE
BOARD

takes into account levels of remuneration for
similar roles at comparable companies in both
the beverage and fast moving consumer goods
sectors, as well as companies based in the
Nordic region across all industry sectors.

The Committee and the Supervisory Board has
decided to increase the executive directors’
fixed salaries in 2018 by 2.5%.

Annual bonus
The annual bonus is structured to incentivise
the executive directors to deliver on the Group’s
short-term strategic objectives.

For 2018, the potential maximum bonus
will remain at 100% of fixed salary, with
60% of fixed salary payable for on-target
performance.

REMUNERATION POLICY
The main elements of the executive directors’
remuneration arrangements are summarised in
the table on page 42 and explained in more
detail in the following paragraphs.

Determination of the final bonus is subject
to the discretion of the Committee and the
Supervisory Board, taking into account the
overall performance of the business.

Fixed salary
The Committee reviews fixed salaries annually,
taking into account a number of relevant
factors, including the individual’s performance,
role and responsibilities. The Committee also

For 2018, the annual bonus comprises two
elements. The first element, accounting for
80% of the bonus, is based on three measures:
organic operating profit, organic net revenue
growth and addressable cash flow.

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 40

OUR APPROACH TO
REMUNERATION

The Carlsberg Group's remuneration is
designed to enable us to recruit and retain
individuals with the expertise and ability
required to run a growing international
company, and to do so in a way that
drives our business success and rewards
executives when shareholders are rewarded.
Levels of fixed remuneration are set based
on individuals' experience and contribution,
and in the context of the external market.

While we do not seek to adhere rigidly to
market benchmarks, we monitor and take
into account pay levels and incentive
opportunities in the principal markets from
which we recruit: our European brewing and
spirits peers and the global consumer goods
sector, as well as companies across industry
sectors in the Nordic region.

Many of our investors – including our
main shareholder – are long-term holders
of our shares. We want our executives to
share their perspective and believe that
remuneration should align their interests
accordingly. The balance between the
short-term remuneration package and long-
term share-based pay and shareholding
requirements strengthens this alignment.

The Company's full Remuneration Policy for
the Supervisory Board and Executive Board,
and guidelines for incentive programmes as
approved at the Annual General Meeting on
30 March 2017, are available on the
Company's website.

Main activities in 2017
During 2017, the main activities of
the Remuneration Committee were:
• Determining levels of long-term

incentive awards.

• Considering shareholders' feedback
from the 2017 Annual General
Meeting.

• Reviewing the Remuneration Policy

for the Executive Board and agreeing
to have no changes to the policy.

• Considering the achievement of

performance criteria for the annual
bonus plan for 2016.

• Reviewing fixed salary levels, bonus
targets and levels of long-term
incentive awards for 2018.

• Evaluating the remuneration of the

Supervisory Board.

2018 objectives
• Monitoring the workings and out-

comes of the revised remuneration
structure for 2018 to support the
Group's strategy.

• Reviewing the performance share
programme for 2019 and beyond.

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 41

The second element, accounting for 20%,
will be linked to the executives’ performance
against measures that reflect the Group’s
strategic priorities.

Long-term incentive arrangements
In 2018, the long-term incentive arrangements
for the executive directors will consist of
performance shares only.

Performance shares vest three years after the
grant date, subject to performance conditions.
The maximum value of awards that can be
made in any single financial year, based on
face value, is 300% of fixed salary.

Each year, the Committee determines the
total level of the long-term incentive award
to be made to each executive. All long-term
incentive awards are made at the discretion
of the Committee.

The vesting of any performance shares is
subject to achievement of performance

conditions determined by the Committee prior
to the grant date.

unexercised or unvested long-term incentive
awards made to the executive directors.

The performance share award will be subject
to four performance conditions measured over
three years: total shareholder return (TSR),
earnings per share (EPS), organic net revenue
growth and return on invested capital (ROIC).

The performance conditions further increase
and support alignment of the executive
directors’ reward with the long-term Group
strategy and shareholder value. In order for
any award (or part of an award) to vest, the
Committee must be satisfied that underlying
Group performance is at a satisfactory level.

Reclaiming variable pay
In the event of serious misconduct, or if an
annual bonus or long-term incentive award is
made on the basis of accounts that prove to
be materially misstated, the Company may
reclaim, in full or in part, any overpayment
from the annual bonus, or cancel or withdraw

Share ownership guidelines
In order to strengthen the alignment between
executive directors and shareholders, the
executive directors are required to retain shares
on the vesting of long-term incentive awards
(subject to disposals required to meet any tax
and other associated obligations).

The CEO is expected to build up a holding of
shares equivalent to 150% of fixed salary, and
the CFO a holding equivalent to 120% of fixed
salary.

Executive directors’ service contracts
Service contracts for executive directors
contain terms and conditions that are
considered common to executive board
members in Danish listed companies.

Remuneration Committee meetings

Committee member

Richard Burrows (Chairman)

Nancy Cruickshank

Kees van der Graaf

Lars Rebien Sørensen

Elisabeth Fleuriot

Flemming Besenbacher1

Committee meetings attended

1 Not a member of the Committee; attends meetings in his capacity as Chairman of the Supervisory Board.

Attended meeting.

Did not attend meeting.

Not a Board member at the time.

THE
COMMITTEE’S
RESPONSIBILITIES

The Carlsberg Group’s Remuneration
Committee is responsible for the
Remuneration Policy (including the
general guidelines for incentive
programmes) for all members of the
Supervisory Board and the Executive
Board, for making proposals on
changes to the Remuneration Policy,
and for obtaining the approval of the
Supervisory Board prior to seeking
shareholders’ approval at the Annual
General Meeting.

The Committee is responsible for
making proposals to the Supervisory
Board on the actual structure and
content of the remuneration packages
of members of the Supervisory
Board and the Executive Board, in
accordance with the policy approved
by the shareholders.

The Committee monitors and advises
the Supervisory Board on any major
changes to the policy on senior
employee remuneration structures for
the Group, including for ExCom. The
Committee’s Terms of Reference,
which govern how it operates, are
approved by the Supervisory Board
and are available on the Company’s
website.

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 42

Remuneration Policy

Element of pay

Fixed salary

Objective

Award level

Performance criteria

Attract and retain high-performing individuals by reflecting
market value of role and executive’s skills and experience.
Reward day-to-day performance. Set at a level to prevent
over-reliance on variable pay.

Takes into account the market rate for similar roles in
international comparator companies as well as executive’s
skills and experience.

No performance criteria per se, but the performance of the
individual is taken into account when fixed salary levels are
reviewed.

Benefits

Pension

Operate a competitive benefits suite to aid recruitment and
retention.

Perquisites and other benefits corresponding to market
practices.

Executives make their own provision for retirement.

N/A

Annual bonus plan

Drive and reward delivery of short-term business objectives. Maximum bonus opportunity is 100% of fixed salary.

Bonus opportunity at target is 60% of fixed salary.

N/A

• Organic operating profit.
• Organic net revenue growth.
• Addressable cash flow.
• Strategic measures.

Performance period

Fiscal year.

N/A

Fiscal year.

Long-term incentive plan

Drive and reward delivery of longer-term business objectives.
Maximise alignment with shareholder value.

The maximum level of long-term incentive awards is 300% of
fixed salary based on the face value of the award at the
grant date.

• Relative total shareholder return (TSR).
• Growth in adjusted EPS at constant currencies.
• Organic net revenue growth.
• ROIC in 2020 at constant currencies.

3 years with 3-year
vesting.

Performance share awards – performance criteria for 2018

Measure

Description

Performance condition measured over the three financial years 2018-2020

Relative total shareholder
return (TSR)

TSR measures the total return to investors. The Group's TSR
performance will be measured relative to a comparator
group of 16 companies¹.

• 25% of TSR element vests if the Group's TSR performance is at median of peer group’s¹.
• 100% vests for upper-quartile performance.
• Straight-line vesting between median and upper quartile.

Adjusted EPS growth

Adjusted EPS growth targets measure the Group’s underlying
financial success.

• 25% of the adjusted EPS at constant currencies element vests for 4% p.a. growth.
• 100% vests for 9% p.a. growth.
• Straight-line vesting between 4% p.a. and 9% p.a.

Organic net revenue growth Organic net revenue growth is a measure of the Group’s ability

to deliver on our SAIL’22 priorities.

Growth in ROIC

Growing ROIC is a key financial metric reflecting our ability to
drive a positive development in shareholder returns.

• 25% of the organic net revenue element vests for 1.5% p.a. growth.
• 100% vests for 4.5% p.a. growth.
• Straight-line vesting between 1.5% p.a. and 4.5% p.a.

• 25% of the ROIC in constant currencies element vests at 8.5% in 2020.
• 100% vests for 9.5% in 2020.
• Straight-line vesting between 8.5% and 9.5% in 2020.

Weighting

25%

¹ TSR comparator group: Kirin Holdings, Britvic, Davide Campari-Milano, Rémy Cointreau, Asahi Group Holdings, Compañía Cervecerías Unidas, Diageo, Heineken, Ambev, Brown-Forman, Pernod-Ricard, Sapporo
Holdings, Dr Pepper Snapple Group, Tsingtao Brewery, Anheuser-Busch Inbev and Molson Coors Brewing.

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 43

REMUNERATION OF THE EXECUTIVE BOARD
IN 2017
Fixed salary
The annual fixed salary paid to Cees ’t Hart
in 2017 was DKK 12.0m. The annual fixed
salary for Heine Dalsgaard was DKK 7.3m.

Annual bonus
For the financial year 2017, 78% of the
maximum bonus, being 100% of fixed salary,
was payable for performance in 2017 for the
CEO. The bonus payable amounts to DKK
9.3m for Cees ’t Hart.

For the CFO, 78% of the maximum bonus
payable for performance in 2017. The bonus
payable amounts to DKK 5.6m for Heine
Dalsgaard.

Payments for remuneration forfeited on leaving
previous employer
The CFO was paid an amount of DKK 15m
to compensate him for remuneration forfeited
on leaving his previous employer. Half of the
amount, DKK 7.5m, was paid in 2016. The
second half of the payment, DKK 7.5m, was
paid in 2017.

Long-term incentive awards
Granted in 2017
In the financial year 2017, the CEO and CFO
were granted long-term incentive awards that,
at the time of award, had a face value of 255%
and 210% of fixed full-year salary respectively.
The composition of these awards is shown in
the table on page 44.

Shareholdings
The number of shares and share options in
Carlsberg A/S held by Cees ’t Hart and Heine

REVITALISE CORE BEER

12%

SHARE OF CARLSBERG VOLUME

In 2016, Carlsberg Malaysia launched Carlsberg
Smooth Draught to deliver the smoothness of draught
beer in a bottle. Carlsberg Smooth Draught, available
in Malaysia and Singapore, has been received very
positively by consumers, driving incremental share
gains in both markets. Positioned at a premium price
point relative to Carlsberg Green Label, Carlsberg
Smooth Draught also delivers improved earnings
contribution. In 2017, Carlsberg Smooth Draught
accounted for approximately 12% of Carlsberg
volumes in Malaysia.

Dalsgaard and the movements during 2017
are shown in the table on page 44. The table
includes the holdings of the related parties of
the CEO and CFO.

None of the executive directors own shares
in any of the subsidiaries or associates of
Carlsberg A/S.

MANAGEMENT’S SHARE TRANSACTIONS
From 2018, share transactions by the Carlsberg
Group management will, upon notification from
Carlsberg, be published only by the Danish
Financial Supervisory Authority and no longer as
company announcements on Nasdaq
Copenhagen.

Remuneration of executive directors

Executive directors’ holdings of Carlsberg A/S shares

Cees ’t Hart

Heine Dalsgaard

Number DKK million

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 44

Exercise
year

1 Jan.
2017

Granted

31 Dec.
2017

For exercise
31 Dec.

Fair value
31 Dec.

DKK million

Fixed salary

Cash bonus

Special bonus¹

Non-monetary benefits

Share-based payments

Total

2017

12.0

9.3

1.3

20.6

43.2

2016

12.0

10.0

1.3

12.8

36.1

2017

7.3

5.6

3.1

0.3

9.0

25.3

2016

4.2

7.3

11.9

0.2

1.9

25.5

Grant year

SHARE OPTIONS

Cees ’t Hart

2015

2016

Total

¹ Special bonus covering remuneration waived from previous employer, in total DKK 15m, which was paid out equally
over the two years. In 2016, a provision of DKK 4.4m was made.

PERFORMANCE SHARES

Share ownership guidelines

Cees ’t Hart

Heine Dalsgaard

Share ownership
guideline as % of
fixed salary

150%

120%

Actual % held
at 31 Dec. 2017

45%

77%

Executive directors’ holdings of Carlsberg A/S shares

Cees ’t Hart

2016-2018

2017-2019

Total

Fair value of unvested options
and performance shares as %
of fixed salary (prior to
deduction for tax and
incidental costs)

Heine Dalsgaard

2016-2018

2017-2019

Total

693%

452%

FUNDING THE JOURNEY
PERFORMANCE SHARES

Cees ’t Hart

2016-2018

Total

Heine Dalsgaard

2016-2018

Number

DKK million

1 Jan. 2017

Additions

Sold

31 Dec. 2017 Market value

Total

2018-2023

2019-2024

97,334

17,650

114,984

2019

2020

2019

2020

2019

14,709

10,370

23,415

13,827

50,000

24,877

97,334

17,650

114,984

14,709

50,000

64,709

10,370

24,877

35,247

23,415

13,827

Cees ’t Hart

B shares

Heine Dalsgaard

B shares

4,000

7,515

3,200

7,200

7,515

5.36

5.60

Executive directors, total

177,305

74,877

252,182

116

REMUNERATION OF THE SUPERVISORY
BOARD

REMUNERATION POLICY
The remuneration of the Supervisory Board for
2017 was approved by the Annual General
Meeting in March 2017.

The remuneration of the Supervisory Board
consists of a fixed annual base fee. The
Chairman receives a single fee of four-and-
a-half times the base fee and no additional
fee for any committee work. The additional
fee for committee work for other members of
the Supervisory Board is shown in the table.

REMUNERATION OF THE SUPERVISORY
BOARD IN 2017
The fees for members of the Supervisory Board
for the financial year 2017 are set out in the
table below. The number of shares in Carlsberg
A/S held by Supervisory Board members,
including holdings of related parties, at the

beginning of the financial year and movements
to 31 December 2017 are also shown below.

No member of the Supervisory Board owns
shares or bonds in any of the subsidiaries or
associates of Carlsberg A/S.

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 45

The members of the Supervisory Board of
Carlsberg A/S are remunerated for duties
performed in the Company. The fees are
reviewed, but not necessarily increased, each
year, taking into account market practice with
reference to an international comparator group
as well as the need to attract and retain high-
calibre individuals.

Members of the Supervisory Board are not
included in share incentive programmes,
retirement benefit plans or other schemes.
No agreements have been entered into
concerning termination benefits, and no
such payments were made in 2017.

Remuneration of the Supervisory Board

DKK million

2017

2016

Supervisory Board remuneration principles in 2017

All Supervisory Board members

Chairman of the Supervisory Board¹

Deputy Chairman of the Supervisory Board

Chairman of the Audit Committee

Chairman of the Remuneration Committee and of the Nomination Committee

Member of Board committee (per committee)

¹ The Chairman does not receive any additional fees for committee work.

Supervisory Board members’ holdings of Carlsberg A/S shares

Base fee
(DKK thousand)

Additional fee
(as % of base fee)

412

350%

50%

113%

50%

38%

Flemming Besenbacher (Chairman of the Supervisory Board and of
the Nomination Committee)

Lars Rebien Sørensen (Deputy Chairman)

Hans Andersen

Carl Bache

Richard Burrows (Chairman of the Remuneration Committee)

Donna Cordner (Chairman of the Audit Committee)

Nancy Cruickshank

Eva Vilstrup Decker

Elisabeth Fleuriot

Kees van der Graaf

Finn Lok

Erik Lund

Søren-Peter Fuchs Olesen

Peter Petersen

Nina Smith

Lars Stemmerik

Total

1.85

1.09

0.41

0.77

0.88

0.43

0.41

0.14

0.73

0.41

9.58

1.40

1.06

0.40

0.75

0.85

0.40

0.55

0.70

0.40

8.91

Flemming Besenbacher

Lars Rebien Sørensen

Hans Andersen

Carl Bache

Richard Burrows

Donna Cordner

Nancy Cruickshank

Eva Vilstrup Decker

Kees van der Graaf

Finn Lok

Erik Lund

B shares

Søren-Peter Fuchs Olesen

B shares

Peter Petersen

Nina Smith

Lars Stemmerik

Total

B shares

1 Jan. 2017

Additions

Sold

31 Dec. 2017 Market value

Number

DKK million

1,850

100

2,040

950

652

392

6,107

1,850

100

2,040

950

652

392

6,107

1.38

0.07

1.52

0.05

0.71

0.04

0.49

0.29

4.55

SUPERVISORY BOARD

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 46

FLEMMING BESENBACHER
CHAIRMAN (SINCE 2012)

LARS REBIEN SØRENSEN
DEPUTY CHAIRMAN (SINCE 2015)

HANS ANDERSEN

CARL BACHE

RICHARD BURROWS

Nationality:
Year of birth:
Appointed (until): 2005 (2018)

Danish
1952

Nationality:

Danish
1954

Danish
1955

Year of birth:
Appointed (until): 2015 (2018)

Year of birth:
Appointed (until): 1998 (2018)

Year of birth:
Appointed (until): 2014 (2018)

Year of birth:
Appointed (until): 2009 (2018)

Danish
1953

Irish
1946

BOARD FUNCTION
Non-executive, non-independent
director.

BOARD FUNCTION
Non-executive, independent
director.

BOARD COMMITTEES
Nomination Committee (Chairman).

PROFESSION
Professor, D.Sc., h.c. mult, FRSC;
Chairman of the Board of Directors
of the Carlsberg Foundation.

NON-EXECUTIVE FUNCTIONS
Chairman of the Tuborg Foundation,
Aarhus Vand A/S and UNLEASH.
Member of the Board of CfL.

BOARD COMMITTEES
Audit Committee, Remuneration
Committee, Nomination Committee.

PROFESSION
Non-executive board director.

NON-EXECUTIVE FUNCTIONS
Member of the Board of Directors of
Jungbunzlauer Suisse AG, Novo
Nordisk Foundation, Novo Holdings
A/S and Thermo Fisher Scientific Inc.

BOARD FUNCTION
Employee representative.

BOARD COMMITTEES
None.

PROFESSION
Brewery worker, Carlsberg Supply
Company Danmark A/S.

NON-EXECUTIVE FUNCTIONS
None.

BOARD FUNCTION
Non-executive, non-independent
director.

BOARD FUNCTION
Non-executive, independent
director.

BOARD COMMITTEES
None.

PROFESSION
Professor, Ph.D., Dr.Phil.; head of
the Doctoral School of the Human-
ities at the University of Southern
Denmark.

NON-EXECUTIVE FUNCTIONS
Member of the Board of Directors of
the Carlsberg Foundation and of the
board of a publishing firm.

BOARD COMMITTEES
Audit Committee, Remuneration
Committee (Chairman).

PROFESSION
Non-executive board director.

NON-EXECUTIVE FUNCTIONS
Chairman of the Board of Directors
of British American Tobacco and
Craven House Capital. Member of
the Board of Directors and Chairman
of the Remuneration Committee of
Rentokil Initial plc.

The Supervisory Board members’ full CVs, including skills and competences, are available on www.carlsberggroup.com/who-we-are/about-the-carlsberg-group/supervisory-board/

SUPERVISORY BOARD

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 47

DONNA CORDNER

NANCY CRUICKSHANK

EVA VILSTRUP DECKER

KEES VAN DER GRAAF

FINN LOK

Nationality:

Danish
1964

Dutch
1950

Year of birth:
Appointed (until): 2017 (2018)

Year of birth:
Appointed (until): 2014 (2018)

Year of birth:
Appointed (until): 2009 (2018)

Year of birth:
Appointed (until): 2014 (2018)

Danish
1958

British
1970

Nationality:
Year of birth:
Appointed (until): 2012 (2018)

American
1956

BOARD FUNCTION
Non-executive, independent
director.

BOARD COMMITTEES
Audit Committee (Chairwoman).

BOARD COMMITTEES
Remuneration Committee.

PROFESSION
Managing partner of OKM Capital.

PROFESSION
Founder and CEO of MyShowcase.

NON-EXECUTIVE FUNCTIONS
Member of the Board of Directors of
Lia Diagnostics.

NON-EXECUTIVE FUNCTIONS
Member of the Board of Directors of
OnMobile.Global.

BOARD FUNCTION
Employee representative.

BOARD COMMITTEES
None.

PROFESSION
Director, Carlsberg Breweries A/S.

NON-EXECUTIVE FUNCTIONS
None.

BOARD FUNCTION
Non-executive, independent
director.

BOARD COMMITTEES
Remuneration Committee,
Nomination Committee.

PROFESSION
Non-executive board director.

BOARD FUNCTION
Employee representative.

BOARD COMMITTEES
None.

PROFESSION
Ph.D., Senior Scientist, Carlsberg A/S.

NON-EXECUTIVE FUNCTIONS
None.

NON-EXECUTIVE FUNCTIONS
Chairman of the Board of Directors of
GrandVision NV, FSHD Unlimited and
Basic-Fit NV. Member of the Board
of Directors of EnPro Industries Inc.

Kees van der Graaf is not standing for re-
election at the AGM in 2018.

The Supervisory Board members’ full CVs, including skills and competences, are available on www.carlsberggroup.com/who-we-are/about-the-carlsberg-group/supervisory-board/

SUPERVISORY BOARD

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 48

ERIK LUND

SØREN-PETER FUCHS OLESEN

PETER PETERSEN

NINA SMITH

LARS STEMMERIK

Nationality:
Year of birth:
Appointed (until): 2015 (2018)

Danish
1964

BOARD FUNCTION
Employee representative.

BOARD COMMITTEES
None.

PROFESSION
Head Brewer, Carlsberg A/S.

NON-EXECUTIVE FUNCTIONS
None.

Nationality:

Danish
1955

Danish
1969

Year of birth:
Appointed (until): 2012 (2018)

Year of birth:
Appointed (until): 2010 (2018)

Year of birth:
Appointed (until): 2013 (2018)

Year of birth:
Appointed (until): 2010 (2018)

Danish
1955

Danish
1956

BOARD FUNCTION
Non-executive, non-independent
director.

BOARD COMMITTEES
None.

PROFESSION
Professor, D.M.Sc; Director of the
Danish National Research
Foundation.

NON-EXECUTIVE FUNCTIONS
Member of the Board of Directors
of the Carlsberg Foundation.

BOARD FUNCTION
Employee representative.

BOARD COMMITTEES
None.

PROFESSION
President of the Staff Association;
Process Lead, Carlsberg Supply
Company Danmark A/S.

NON-EXECUTIVE FUNCTIONS
None.

BOARD FUNCTION
Non-executive, non-independent
director.

BOARD COMMITTEES
None.

PROFESSION
Professor, M.Sc. (Econ); non-
executive director.

PROFESSION
Professor, D.Sc; non-executive
director.

NON-EXECUTIVE FUNCTIONS
Member of the Board of Directors
of the Carlsberg Foundation. Chairman
of the Board of Directors of Forenet
Kredit. Deputy Chairman of the Board
of Directors of Nykredit Realkredit A/S
and Nykredit Holding A/S.

NON-EXECUTIVE FUNCTIONS
Member of the Board of Directors
of the Carlsberg Foundation.

The Supervisory Board members’ full CVs, including skills and competences, are available on www.carlsberggroup.com/who-we-are/about-the-carlsberg-group/supervisory-board/

OUR MANAGEMENT TEAM

EXECUTIVE COMMITTEE

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 49

CEES ’T HART
PRESIDENT AND
CEO SINCE 2015.

HEINE DALSGAARD
CFO SINCE 2016.

Nationality: Dutch
Year of birth: 1958

Nationality: Danish
Year of birth: 1971

CHRIS WARMOTH
EXECUTIVE VICE PRESIDENT,
WESTERN EUROPE SINCE
2018.
Nationality: British
Year of birth: 1959

JACEK PASTUSZKA
EXECUTIVE VICE PRESIDENT,
EASTERN EUROPE SINCE
2015.
Nationality: Polish
Year of birth: 1963

GRAHAM FEWKES

EXECUTIVE VICE PRESIDENT,
ASIA SINCE 2015.

Prior to joining Carlsberg,
Cees was CEO of the Dutch
dairy company Royal Fries-
landCampina, a position he
had held since 2008. Prior
to FrieslandCampina, Cees
spent 25 years with Unilever,
holding management posi-
tions across Eastern Europe,
Western Europe and Asia. His
last position at Unilever was
as a member of the Europe
Executive Board. Cees is a
member of the Supervisory
Board of KLM.

Heine joined Carlsberg in
2016 from ISS, one of the
world’s largest facility
services companies. He went
to ISS in 2013, prior to the
company’s IPO in 2014.
Before ISS, he was Group
CFO at Grundfos, a leading
global pump manufacturer.
Heine’s previous experience
includes various senior
management and financial
positions at companies such
as Carpetland, Hewlett
Packard and Arthur
Andersen.

Chris first joined Carlsberg as
Senior Vice President, Asia in
2014. During his tenure, he
has been heading up Funding
the Journey and, most
recently, he was head of
Group Strategy. Before
Carlsberg, Chris worked for
H.J. Heinz, where he held
various senior management
positions in Continental and
Eastern Europe and the Far
East, with his last position
being Executive VP for Asia
Pacific, Middle East and
Africa. Prior to joining Heinz,
Chris worked for The Coca-
Cola Company and P&G.

Jacek joined Carlsberg in
2009 and has been
Managing Director of our
businesses in Poland, Norway
and, since 2015, Russia. Prior
to joining Carlsberg, Jacek
was with P&G, where he held
various sales positions in
multiple markets, including
customer team assignments
with Wal-Mart in the USA
and with Tesco in Central
Europe and Asia. Jacek has
also been Commercial VP for
Danone in Poland and the
Baltics, and General Manager
for AIG operations in Poland.

Michiel Herkemij, EVP, Western Europe, will take a sabbatical starting from 28 February, 2018.
Jessica Spence has been appointed Chief Commercial Officer and member of ExCom with effect from 1 March 2018.

PHIL HODGES
EXECUTIVE VICE PRESIDENT,
GROUP SUPPLY CHAIN SINCE
2017.
Nationality: Swiss/British
Year of birth: 1966

Philip joined Carlsberg in
February 2017. His most
recent position was at
Mondelēz, where he was
Senior Vice President,
heading up the integrated
supply chain in Europe for
Mondelēz International. His
previous experience includes
managerial positions with
Kraft Foods in Europe, Asia
and the USA within supply
chain and finance.

Nationality: British
Year of birth: 1968

Graham joined Carlsberg as
Commercial Vice President,
Asia in 2008, before
becoming Senior Vice
President of Group Sales,
Marketing & Innovation in
2014. Graham has strong
experience in the global
drinks business, having served
in a wide range of
international sales and
marketing roles for Grand
Metropolitan plc, Foster's
Brewing Group and S&N plc.

SHAREHOLDER INFORMATION

SHAREHOLDER
INFORMATION

Carlsberg A/S is listed on Nasdaq
Copenhagen. The Company has
around 39,000 registered
shareholders.

accordance with section 29 of the Danish
Securities Trading Act, Massachusetts Financial
Services Company has notified Carlsberg that it
too owns more than 5% of the share capital.

The Company has two share classes: Carlsberg
A and Carlsberg B. Each A share carries 20
votes, while each B share carries two votes and
is entitled to a preferential dividend. The B
share is included in the Nasdaq OMX Nordic
Large Cap and OMXC20 blue-chip indices.

In 2017, the Carlsberg B share price increased
by 22%, reaching the all-time highest share
price of DKK 754.50 on 14 November 2017.

As a supplement to its Copenhagen listing,
the Company has established a sponsored
level 1 ADR (American Depository Receipt)
programme with J.P. Morgan. The ADRs
trade over-the-counter in the USA under
the symbol CABGY. More information on
the ADR programme is available on our
investor website.

INVESTOR RELATIONS
The Carlsberg Group aims to give shareholders
and the market the best possible insight into
factors considered relevant for ensuring
market-efficient and fair pricing of the
Company’s shares.

This is achieved through the quality, consist-
ency and continuity of the information provided
to the market, which is handled by the Group’s
Investor Relations department. We observe a
four-week silent period prior to the publication

Shareholder geographic split
(% of free float)

Other 18%

MAJOR SHAREHOLDERS
At 31 December 2017, the Company’s largest
shareholder was the Carlsberg Foundation with
30% of the capital and 75% of the votes. In

DK 16%

UK 17%

CARLSBERG GROUP ANNUAL REPORT 2017 GOVERNANCE 50

Carlsberg B share price 2017 (DKK)

800

750

700

650

600

550

500

n
a
J

b
e
F

r
a
M

r
p
A

y
a
M

n
u
J

u
J

g
u
A

p
e
S

t
c
O

v
o
N

c
e
D

of the annual and half-year reports, and a
two-week silent period prior to the Q1 and
Q3 trading statements.

COMPANY WEBSITE
www.carlsberggroup.com provides com-
prehensive information about the Group
and its shares and bonds, including company
announcements, annual and quarterly reports,
share prices and financial data, investor
presentations, webcasts and transcripts, and
a financial and events calendar. In addition,
the Group maintains an Investor Relations
iPad app featuring share data, announcements,
quarterly statements, and annual reports and
presentations.

At the end of 2017, a total of 36 analysts
had coverage of the Company. Their names,
recommendations and consensus estimates
can be found on the website.

US 49%

Share information
Share class

Number of shares

Carlsberg Foundation

Votes per share

Par value

Share price, year-end

Proposed dividend per share

Total

33,699,252

118,857,554

152,556,806

33,020,540

13,243,432

46,263,972

DKK 20

DKK 703.00

DKK 745.00

DKK 16.0

Consolidated financial statements

CONSOLIDATED
FINANCIAL STATEMENTS

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 51

CONSOLIDATED FINANCIAL
STATEMENTS

Income statement ................................... 52

Statement of comprehensive
income ......................................................... 52

Statement of financial position ......... 53

Statement of changes in equity ........ 54

Statement of cash flows ...................... 56

Notes ............................................................ 57

PARENT COMPANY

Statements ......................................... 125

Notes................................................... 129

REPORTS

Management statement ................ 138

Auditor’s report ..................................... 139

SECTION 1
OPERATING ACTIVITIES
1.1 Business developments ...........................58
1.2 Revenue and segmentation of

operations ....................................................59

1.3 Operating expenses, inventories

and deposit liabilities ................................60

1.4 Foreign exchange risk related to

earnings ........................................................63

1.5 Cash flow from operating

activities ........................................................64

1.6 Trade receivables and on-trade

loans ..............................................................65

SECTION 4
FINANCING COSTS, CAPITAL
STRUCTURE AND EQUITY
4.1 Financial income and expenses ............85
4.2 Net interest-bearing debt .......................86
4.3 Capital structure ........................................86
4.4 Borrowings and cash................................88
4.5 Foreign exchange risk related to

net investments and financing
activities ........................................................89
4.6
Interest rate risk .........................................91
4.7 Liquidity risk ................................................92
4.8 Derivative financial instruments............93

SECTION 2
ASSET BASE AND RETURNS
2.1 Return on invested capital ......................68
2.2 Segmentation of assets ...........................69
Impairment ..................................................70
2.3
Intangible assets and property,
2.4
plant and equipment ................................77

SECTION 3
SPECIAL ITEMS AND PROVISIONS
3.1 Special items ...............................................81
3.2 Provisions .....................................................83
3.3 Contingent liabilities .................................83

SECTION 5
ACQUISITIONS, DISPOSALS,
ASSOCIATES AND JOINT VENTURES
5.1
Investment model and risks ...................95
5.2 Acquisitions and disposals ......................96
5.3 Cash flow effect from

acquisitions and disposals ......................97
5.4 Non-controlling interests .......................97
5.5 Associates and joint ventures ................98
5.6 Assets and liabilities held for

sale .................................................................99

SECTION 7
STAFF COSTS AND REMUNERATION
7.1 Staff costs ................................................. 103
7.2 Remuneration .......................................... 104
7.3 Share-based payments ........................ 105
7.4 Retirement benefit obligations

and similar obligations ......................... 108

SECTION 8
OTHER DISCLOSURE REQUIREMENTS
8.1 Earnings per share ................................. 111
8.2 Related parties ........................................ 112
8.3 Fees to auditors ...................................... 112
8.4 Events after the reporting period ...... 112

SECTION 9
BASIS FOR PREPARATION
9.1 Significant accounting estimates

and judgements ...................................... 113
9.2 General accounting policies ................ 113
9.3 Changes in accounting policies .......... 117
9.4 New legislation ....................................... 118
9.5

Impact from changes in
accounting policies and
classification ............................................. 119

SECTION 6
TAX
6.1 Corporation tax ....................................... 100
6.2 Deferred tax ............................................. 101

SECTION 10
GROUP COMPANIES
10 Group Companies ................................... 121

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 52

INCOME STATEMENT

STATEMENT OF COMPREHENSIVE INCOME

DKK million

Revenue

Excise duties on beer and soft drinks etc.

Net revenue

Cost of sales

Gross profit

Sales and distribution expenses

Administrative expenses

Other operating activities, net

Share of profit after tax of associates and joint ventures

Operating profit before special items

Special items, net

Financial income

Financial expenses

Profit before tax

Corporation tax

Consolidated profit

Attributable to

Non-controlling interests

Shareholders in Carlsberg A/S

DKK

Earnings per share

Basic earnings per share of DKK 20

Diluted earnings per share of DKK 20

Section

2017

2016

DKK million

1.2

1.3.1

1.3.3

1.3.4

5.5

3.1

4.1

6.1

5.4

8.1

86,942

-25,134

61,808

-30,325

31,483

-18,105

-4,877

113

262

8,876

-4,565

803

-1,591

3,523

-1,458

2,065

86,957

Consolidated profit

-24,343

62,614

Other comprehensive income

-31,195

Retirement benefit obligations

31,419

Share of other comprehensive income in associates and joint ventures

-18,476

Corporation tax

-5,220

Items that will not be reclassified to the income statement

198

324

Foreign exchange adjustments of foreign entities

Value adjustments of hedging instruments

8,245

Corporation tax

251

919

-2,166

7,249

-2,392

4,857

Items that may be reclassified to the income statement

Other comprehensive income

Total comprehensive income

Attributable to

Non-controlling interests

Shareholders in Carlsberg A/S

806

1,259

371

4,486

8.3

8.2

29.4

Section

2017

2,065

2016

4,857

7.4

5.5

6.1

4.1

6.1

1,266

-12

-141

1,113

-3,842

-305

-4,122

-3,009

-944

-957

-899

5,843

141

-34

5,950

5,051

9,908

499

-1,443

393

9,515

STATEMENT OF FINANCIAL POSITION

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 53

DKK million

ASSETS

Non-current assets

Intangible assets

Property, plant and equipment

Investments in associates and joint ventures

Receivables

Deferred tax assets

Total non-current assets

Current assets

Inventories

Trade receivables

Tax receivables

Other receivables

Prepayments

Cash and cash equivalents

Total current assets

Assets held for sale

Total assets

Section 31 Dec. 2017

31 Dec. 2016

DKK million

Section 31 Dec. 2017

31 Dec. 2016

EQUITY AND LIABILITIES

2.3, 2.4

5.5

1.6

6.2

67,793

24,325

4,266

952

1,663

Equity

76,736

Share capital

25,810

Reserves

4,701

Retained earnings

1,071

1,610

Equity, shareholders in Carlsberg A/S

Non-controlling interests

98,999

109,928

Total equity

1.3.1

1.6

4.4.2

3,834

4,611

181

2,138

1,026

3,462

15,252

3,963

5,485

Non-current liabilities

Borrowings

Retirement benefit obligations and similar obligations

278

Deferred tax liabilities

2,488

1,137

3,502

16,853

Provisions

Other liabilities

Total non-current liabilities

125

Current liabilities

114,251

126,906

Borrowings

Trade payables

Deposits on returnable packaging

Provisions

Corporation tax

Other liabilities etc.

Total current liabilities

Liabilities associated with assets held for sale

Total liabilities

Total equity and liabilities

4.3.2

3,051

-33,485

-29,501

77,364

46,930

2,595

49,525

77,261

50,811

2,839

53,650

4.2, 4.4

23,340

21,137

7.4

6.2

3.2

4.2, 4.4

1.3.2

3.2

3,351

5,601

3,611

3,757

39,660

849

13,474

1,576

591

931

7,645

25,066

64,726

114,251

4,878

6,250

3,642

3,199

39,106

9,067

13,497

1,681

722

935

8,233

34,135

73,256

126,906

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 54

STATEMENT OF CHANGES IN EQUITY

DKK million

Shareholders in Carlsberg A/S

2017

Equity at 1 January

Consolidated profit

Other comprehensive income

Foreign exchange adjustments of foreign entities

Value adjustments of hedging instruments

Retirement benefit obligations

Share of other comprehensive income in
associates and joint ventures

Corporation tax

Other comprehensive income

Total comprehensive income for the year

Acquisition/disposal of treasury shares

Settlement of share-based payments

Share-based payments

Dividends paid to shareholders

Non-controlling interests

Disposal of entities

Total changes in equity

Equity at 31 December

Share
capital

3,051

Currency
translation

-29,080

Hedging
reserves

Total
reserves

-611

-29,691

Retained
earnings

77,451

1,259

-3,511

-352

-3,822

-16

-3,511

-306

-3,792

-3,822

-3,792

1,243

-12

-141

1,090

2,349

-118

-38

-1,525

-790

-89

3,051

-32,902

-581

-33,483

77,362

Equity,
shareholders
in Carlsberg
A/S

50,811

1,259

Non-
controlling
interests

2,839

806

-3,511

-331

-306

1,243

-12

-116

-2,702

-1,443

-118

-38

-1,525

-790

-3,881

46,930

-307

499

-738

-2

-3

-244

2,595

Total
equity

53,650

2,065

-3,842

-305

1,266

-12

-116

-3,009

-944

-118

-38

-2,263

-792

-3

-4,125

49,525

Foreign exchange adjustments of foreign entities are
further described in section 4.1, retirement benefit
obligations in section 7.4, corporation tax in section 6.1
and non-controlling interests in section 5.4.

The proposed dividend of DKK 16.00 per share, in
total DKK 2,441m (2016: DKK 10.00 per share, in
total DKK 1,526m), is included in retained earnings at 31
December 2017.

Dividends paid out in 2017 for 2016 amount to DKK
1,525m (paid out in 2016 for 2015: DKK 1,373m).
Dividends paid out to shareholders of Carlsberg A/S do
not impact taxable income in Carlsberg A/S.

STATEMENT OF CHANGES IN EQUITY

DKK million

Shareholders in Carlsberg A/S

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 55

2016

Equity at 1 January

Consolidated profit

Other comprehensive income

Foreign exchange adjustments of foreign entities

Value adjustments of hedging instruments

Retirement benefit obligations

Share of other comprehensive income in
associates and joint ventures

Corporation tax

Other comprehensive income

Total comprehensive income for the year

Capital increase

Acquisition/disposal of treasury shares

Settlement of share-based payments

Share-based payments

Dividends paid to shareholders

Non-controlling interests

Disposal of entities

Total changes in equity

Equity at 31 December

Share
capital

3,051

Currency
translation

-34,910

Hedging
reserves

Total
reserves

-727

-35,637

Retained
earnings

76,075

4,486

Equity,
shareholders
in Carlsberg
A/S

43,489

4,486

Non-
controlling
interests

3,742

371

5,835

-17

5,830

3,051

-29,080

129

-13

116

5,835

141

-30

5,946

116

-611

5,946

-29,691

-971

-917

3,569

-1

-64

-1,373

-807

1,376

77,451

5,835

141

-971

5,029

9,515

-1

-64

-1,373

-807

7,322

50,811

393

-617

-597

-83

-903

2,839

53,650

Total
equity

47,231

4,857

5,843

141

-957

5,051

9,908

-1

-64

-1,990

-1,404

-83

6,419

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 56

STATEMENT OF CASH FLOWS

DKK million

Operating profit before special items

Adjustment for depreciation and amortisation

Adjustment for impairment losses¹

Operating profit before depreciation, amortisation and impairment losses

Adjustment for other non-cash items

Change in trade working capital

Change in other working capital

Restructuring costs paid

Interest etc. received

Interest etc. paid

Corporation tax paid

Cash flow from operating activities

Acquisition of property, plant and equipment and intangible assets

Disposal of property, plant and equipment and intangible assets

Change in on-trade loans

Total operational investments

Free operating cash flow

Acquisition and disposal of subsidiaries, net

Acquisition and disposal of associates and joint ventures, net

Acquisition and disposal of financial assets, net

Change in financial receivables

Dividends received

Total financial investments

Other investments in property, plant and equipment

Disposal of other property, plant and equipment

Total other activities²

Cash flow from investing activities

Free cash flow

Shareholders in Carlsberg A/S

Non-controlling interests

External financing

Cash flow from financing activities

Net cash flow

Section

1.5

5.3

1.5

4.3.2

4.4.1

Cash and cash equivalents at 1 January³

Foreign exchange adjustment of cash and cash equivalents

Cash and cash equivalents at 31 December³

4.4.2

2017

8,876

4,581

126

13,583

-279

848

388

-364

156

-564

-1,934

11,834

-4,053

160

-3,853

7,981

268

242

-54

208

674

-3,154

8,680

-1,681

-740

-5,239

-7,660

1,020

2,348

-248

3,120

2016

8,245

4,742

13,006

-410

1,021

-1,126

-407

190

-1,193

-1,752

9,329

-3,820

223

-3,554

5,775

1,969

716

-78

228

2,840

-20

-713

8,616

-1,438

-1,015

-6,752

-9,205

-589

3,020

-83

2,348

1 Impairment losses excluding those reported in special items, cf. section 3.1.
2 Other activities cover real estate, separate from beverage activities.
3 Cash and cash equivalents less bank overdrafts.

SECTION 1

OPERATING
ACTIVITIES

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 57

61.8bn

NET REVENUE (DKK)

8.9bn

8.7bn

OPERATING PROFIT (DKK)

FREE CASH FLOW (DKK)

Organic net revenue growth of 1%. Reported
net revenue declined by 1%, impacted by
disposals.

Organic operating profit growth of 8.4%, with
all three regions delivering very solid
performances.

Positively impacted by a significant working
capital improvement and higher operating
profit before amortisation and depreciation.

Operating profit* is a measure
of our ability to enhance
operational performance through
top-line growth while containing
or reducing costs by working
more effectively and efficiently.

A strong free cash flow allows us
to return value to shareholders,
pay down debt and reinvest in
our business.

Net revenue growth (% )

Operating profit growth (%)

Free cash flow (DKKbn)

8.4% -1.4% 0.7%

-2%

* Operating profit is defined in section 9.2.

Free operating cash flow

Free cash flow

SECTION 1.1
BUSINESS
DEVELOPMENTS

Beer volumes declined organically by 3%,
mainly impacted by the lower volumes in
Russia. Other beverages grew organically by
2%, driven by growth in the Nordics and Asia.
Total volumes declined by 2% organically and
4% in reported terms.

Reported net revenue was DKK 61,808m
(2016: DKK 62,614m), a decline of 1% due to
the net acquisition impact, mainly related to
the divestment of the German wholesaler
Nordic Getränke in 2017, the divestment of
Carlsberg Malawi in 2016 and divestments of
entities in China in both years. In organic terms,
net revenue grew by 1%, driven by a positive
price/mix of 3%.

Cost of sales per hl increased organically by
approximately 3%, mainly due to overall cost
inflation and the volume decline in Eastern
Europe.

Reported gross profit was DKK 31,483m
(2016: DKK 31,419m). The solid price/mix and
efficiency improvements meant that the gross
margin improved by 70bp to 50.9%.

Funding the Journey positively impacted
operating expenses, which were down 2%
organically. As a percentage of net revenue,
reported operating expenses declined by 60bp
to 37.2%. Marketing expenses as a percentage
of net revenue were 9.7%, broadly in line with
2016.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 58

Group financial performance

Pro rata (million hl)

Beer

Other beverages

Total volume

DKK million

Net revenue

Operating profit before special items

Operating margin (%)

2016

116.9

21.9

138.8

62,614

8,245

13.2

-3%

-2%

8.4%

Organic

Acq., net

Change

-1%

-6%

-2%

-1.4%

0.7%

2017

112.4

20.9

133.3

61,808

8,876

14.4

Change

Reported

-4%

-1%

7.7%

120bp

Operating profit increased organically by 8.4%,
with all three regions delivering very solid
performance. Reported operating profit was
DKK 8,876m, corresponding to a growth rate
of 7.7%. The minor, positive currency impact
was more than offset by the negative impact
from divestments.

The operating margin improved by 120bp to
14.4% in reported terms.

The Group’s share of reported consolidated
profit was DKK 1,259m (2016: DKK 4,486m)
and earnings per share were DKK 8.3.
Reported net profit was negatively impacted by
special items of DKK -4.6bn, mainly as a result
of the DKK 4.8bn impairment of the Baltika
brand in Russia due to changed market
dynamics following the PET downsizing due to
a ban on individual PET bottles larger than 1.5
litres, our increased focus on local and regional
brands and updated assumptions on interest
rates.

Adjusted net profit (adjusted for special items
after tax) was DKK 4,925m (2016:
DKK 3,881m), and adjusted earnings per share
were DKK 32.3, corresponding to a strong 27%
improvement. The improvement was driven by
the high operating profit growth, lower
financial expenses and a significantly lower tax
rate compared with 2016.

Free operating cash flow improved by 38%,
driven by operating profit before depreciation,
amortisation and impairment losses growth of
4%, a significant working capital improvement
and lower interest payments.

Free cash flow amounted to DKK 8,680m
(2016: DKK 8,616m), driven by the strong cash
flow from operating activities of DKK 11,834m
against DKK 9,329m in 2016, an increase of
DKK 2,505m. This increase was due to
stronger earnings and a positive contribution
from working capital.

ACCOUNTING
POLICIES

Reported figures are analysed by looking at the
impact of: organic growth, net acquisitions and
foreign exchange effects. The net acquisition effect is
calculated as the effect of acquisitions and
divestments, including any share obtained from
increased/decreased ownership of associates and
joint ventures, for a 12-month period from the
acquisition/divestment date. The foreign exchange
effect is the difference between the figures from the
current reporting period translated at the exchange
rates applying to the previous reporting period and
the figures from the current reporting period. Organic
growth is the remaining growth that is not related to
acquisitions, divestments or foreign exchange effects.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 59

SECTION 1.2
REVENUE AND
SEGMENTATION OF
OPERATIONS

The segmentation was changed as of 1
January 2017, as Carlsberg Supply Company
was moved from the Not allocated segment to
the Western Europe segment because the
company is operationally focused on this
region. Central costs not managed by Western
Europe remain in the Not allocated segment.
Comparative figures have been restated
accordingly.

Not allocated net revenue, DKK 70m (2016:
DKK 146m), consisted of DKK 1,438m (2016:
DKK 1,484m) net revenue from other
companies and activities and DKK -1,368m
(2016: DKK -1,338m) from eliminations of
sales between these other companies and the
geographical segments.

Not allocated operating profit before special
items, DKK -1,307m (2016: DKK -1,191m),
consisted of DKK -1,242m (2016: DKK
-981m) from other companies and activities
and DKK -65m (2016: DKK -210m) from
eliminations. The increase was mainly related
to investments in SAIL’22 and one-off costs.

Segmentation of income statement

DKK million

2017

Total net revenue

Total cost

Share of profit after tax of associates and joint ventures

Operating profit before special items

Western
Europe

36,306

-31,344

182

5,144

Not
allocated

Beverages,
total

Non-
beverage

Carlsberg
Group, total

Eastern
Europe

10,878

-8,658

Asia

14,554

-11,698

61,808

-1,377

-53,077

2,220

2,905

-1,307

Special items, net

Financial items, net

Profit before tax

Corporation tax

Consolidated profit

Operating margin

2016

Total net revenue

Total cost

Share of profit after tax of associates and joint ventures

Operating profit before special items

Special items, net

Financial items, net

Profit before tax

Corporation tax

Consolidated profit

Operating margin

14.2%

20.4%

20.0%

Western
Europe

37,597

-32,880

141

4,858

Eastern
Europe

10,205

-8,383

1,832

Asia

14,666

-12,008

-1,321

-54,592

146

62,614

144

2,802

-16

-1,191

Not
allocated

Beverages,
total

Non-
beverage

Carlsberg
Group, total

-117

-86

-14

-50

-23

61,808

-53,194

262

8,876

-4,565

-788

3,523

-1,458

2,065

14.4%

-101

-56

-12

-10

-78

-68

62,614

-54,693

324

8,245

251

-1,247

7,249

-2,392

4,857

13.2%

231

8,962

-4,615

-774

3,573

-1,485

2,088

14.5%

279

8,301

263

-1,237

7,327

-2,402

4,925

13.3%

12.9%

18.0%

19.1%

Geographical allocation of net revenue

Intra-segment revenue

DKK million

Denmark (Carlsberg
A/S’ domicile)

Russia

China

Other countries

Total

2017

2016

DKK million

Western Europe

Eastern Europe

4,400

8,052

7,111

42,245

61,808

4,445

7,755

7,002

43,412

62,614

The DKK value of revenue in Russia was impacted by the
increase in the average RUB/DKK rate in 2017, while the
revenue in China was impacted by the adverse currency
developments.

2017

2016

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 60

SECTION 1.2 (CONTINUED)
REVENUE AND
SEGMENTATION OF
OPERATIONS

ACCOUNTING ESTIMATES
AND JUDGEMENTS

The classification of duties, taxes and fees paid to
local authorities or brewery organisations etc. and of
discounts and marketing-related activities requires
accounting estimates to be made by management.

Locally imposed duties, taxes and fees are typically
based on product type, alcohol content, consumption
of certain raw materials, such as glue, plastic or
metal in caps, and energy consumption. Duties and
fees are classified as either sales-related duties,
which are deducted from revenue, or as taxes and
fees related to the input/use of goods in production,
transportation, distribution etc., which are recognised
as an expense in the relevant line item. The type of
authority or organisation imposing the duty, tax or
fee as well as their objective are a key factor for the
classification.

Customer discounts are recognised in the same period
as the related sales and deducted from revenue.

Customer discounts are based on expected
accumulated sales volumes over a period of time
using historical and year-to-date sales figures and
other current information about trading with the
customer. These calculations are performed by local
management in cooperation with sales managers.

Management assesses the agreements with, services
provided by and payments made to customers and to
their customers to determine the substance and
thereby the classification as either discounts or trade
marketing expenses. Expenses incurred for activities
closely related to volumes sold are classified as
discounts, while costs related to more general market
activities are classified as trade marketing expenses.

ACCOUNTING
POLICIES

Revenue is generated mainly by sales of goods,
royalty income, porterage income, rental income
from non-stationary equipment, service fees and
sales of by-products.

Revenue from the sale of own-produced finished
goods, goods for resale (third-party products) and
by-products is recognised in the income statement
when all significant risks and rewards have been
transferred to the customer and when the income can
be reliably measured and is expected to be received.
For the majority of sales transactions, the risks and
rewards are transferred to the customer on delivery.

Royalty and licence fees are recognised when earned
according to the terms of the licence agreements.

Revenue is measured at the fair value of the
consideration received. Amounts disclosed as revenue
include excise duties on beer and soft drinks and
exclude discounts, VAT and other duties.

Discounts
Sales reductions in the form of discounts and fees are
widely used in the beverage industry. Furthermore,
the Group grants or pays various discounts and fees
depending on the nature of the customer and
business.

Discounts comprise off-invoice discounts, volume-
and activity-related discounts, including specific
promotion prices offered, and other discounts.
Furthermore, discounts include the difference
between the present value and the nominal amount
of on-trade loans to customers and any repayment
of those through discounts, c.f. section 1.6.

Off-invoice discounts arise from sales transactions
where the customer immediately receives a reduction
in the sales price. This also includes cash discounts
and incentives for early payments.

Volume- and activity-related discounts is a broad
term covering incentives for customers to sustain
business with the Group over a longer time and can
be related to a current campaign or a sales target
measured in volumes. Examples include discounts

paid as a lump sum, discounts for meeting all or
certain sales targets or for exceeding targets, or
progressive discounts offered in step with increasing
sales to a customer.

Other discounts include listing fees, i.e. fees for listing
on certain shelves or in certain coolers or payment for
a favourable store location, as such specific
promotions are closely related to the volumes sold.

Discounts are estimated and recognised monthly
based on experience and expectations for sales to an
individual customer or groups of customers.

Segment information
The Group’s beverage activities are segmented
according to the three geographical regions where
production takes place. These regions make up the
Group’s reportable segments. The non-beverage
activities are managed separately and therefore not
segmented geographically but shown separately.

The segmentation reflects the geographical and
strategic management, decision and reporting
structure applied by the Executive Committee for
internal control and monitoring of the Group’s
strategic and financial targets. Segments are
managed based on business performance measured
as operating profit before special items.

Not allocated comprises income and expenses
incurred for ongoing support of the Group’s overall
operations, strategic development and driving
efficiency programmes. The expenses include costs of
running central functions and central marketing,
including global sponsorships.

The geographical allocation is made based on the
selling entities’ domicile and comprises countries
individually accounting for more than 10% of the
Group’s consolidated net revenue as well as the
domicile country.

Decisions on restructurings, acquisition and
divestment of entities included in special items and on
financing (interest income and expenses) and tax
planning (income tax) are made based on information
for the Group as a whole and therefore not
segmented.

SECTION 1.3
OPERATING
EXPENSES,
INVENTORIES AND
DEPOSIT LIABILITIES

1.3.1 COST OF SALES AND INVENTORIES
Cost of sales decreased by 3% due to continued
production efficiency improvements, the
brewery closures in Asia and disposal of Nordic
Getränke as well as the organic decline in sales
volume of 2%. Organically, cost of sales per hl
increased by approximately 3%, mainly due to
overall cost inflation, product mix and the
volume decline in Eastern Europe.

Cost of sales

DKK million

Cost of materials

Direct staff costs

Machinery costs

Amortisation and
depreciation

Indirect production
overheads

Purchased finished goods
and other costs

Total

2017

2016

16,147

16,178

1,357

832

1,364

873

3,263

3,267

3,331

3,448

5,395

30,325

6,065

31,195

SECTION 1.3 (CONTINUED)
OPERATING
EXPENSES,
INVENTORIES AND
DEPOSIT LIABILITIES

Inventories decreased by 3% compared with
2016. Raw materials and consumables
decreased by 5% as an effect of lower purchase
price of grain in 2017 and higher stocks of
packaging materials in Russia in 2016.

Inventories

DKK million

Raw materials and
consumables

Work in progress

Finished goods

Total

2017

2016

1,625

269

1,940

1,716

282

1,965

3,834

3,963

Raw and packaging material risks are
associated in particular with purchasing of cans
(aluminium), malt (barley) and energy. The
management of raw and packaging material
risks is coordinated centrally and aimed at
achieving stable and predictable raw and
packaging material prices in the medium term
and avoiding capital and liquidity being tied up
unnecessarily.

As the underlying markets for the specified
categories of raw and packaging materials
vary, so does the way in which they are
hedged against price increases.

The most common form of hedging is fixed-
price purchase agreements in local currencies
with suppliers.

It is Group policy to fix the prices of at least
70% of malt (barley) purchases for a given year
no later than at the end of the third quarter of
the previous year. The main part of the
exposure for the Group for 2017 was therefore
hedged through fixed-price purchase
agreements entered into during 2016. Likewise,
the majority of the exposure for 2018 was
hedged during 2017. The percentage that is
hedged or price-fixed is higher for Western
Europe and Eastern Europe than for Asia.

To hedge the risk of volatile aluminium prices
associated with the purchase of cans, the
Group’s purchase price in the majority of
purchase agreements is variable and based on
the global market price of aluminium (London
Metal Exchange, LME). The Group is thereby
able to hedge the underlying aluminium price
risk.

In 2017, the majority of the aluminium price
risk was hedged for Western Europe and
Eastern Europe. The same has been done for
2018. The total volume of aluminium
purchased via financial instruments was 66,424
tonnes at the end of 2017 (2016: 66,284
tonnes). Based on this volume, and assuming
100% efficiency, a 10% increase (decrease) in
aluminium prices would impact equity
positively (negatively) by DKK 93m (2016:
DKK 79m). The fair values of the financial
instruments are specified in section 4.8.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 61

ACCOUNTING ESTIMATES
AND JUDGEMENTS

ACCOUNTING
POLICIES

At least once a year, local management assesses
whether the standard cost of inventories is a close
approximation of the actual cost. The standard cost is
revised if, during the year, it deviates by more than
5% from the actual cost of the individual product.

Management also assesses the impact on the
standard cost of government and other grants
received to fund operating activities. This includes
assessing the terms and conditions of grants received
and the risk of any repayment.

Funding and grants are recognised in the income
statement in the same period as the activities to
which they relate.

Indirect production overheads are calculated on the
basis of relevant assumptions as to capacity
utilisation, production time and other factors
pertaining to the individual product.

The calculation of the net realisable value of
inventories is mainly relevant to packaging materials,
point-of-sale materials and spare parts. The net
realisable value is normally not calculated for beer
and soft drinks due to their limited shelf-life means
that slow-moving goods must be scrapped instead.
The individual entities impacted by the current
macroeconomic situation in Eastern Europe have paid
special attention to inventory turnover and the
remaining shelf-life when determining the net
realisable value and scrapping.

Cost of sales comprises mainly cost of materials,
including malt (barley), hops, glass, cans, other
packaging materials, and indirect production costs.
Purchased finished goods include cost of point-of-
sale materials and third-party products sold to
customers.

Own-produced finished goods and work in progress
are measured at standard cost comprising the cost of
raw materials, consumables, direct labour and
indirect production overheads. Indirect production
overheads comprise indirect supplies, wages and
salaries, amortisation of brands and software, as well
as maintenance and depreciation of machinery, plant
and equipment used for production, and costs of
production, administration and management.

The cost of purchased finished goods, raw and
packaging materials and point-of-sale materials
includes any costs that are directly related to bringing
inventories to the relevant place of sale and getting
them ready for sale, for example purchase cost,
insurance, freight, duties and similar costs.

Inventories are measured at the lower of standard
cost (own-produced finished goods) and weighted
average cost (other inventories), or net realisable
value. The net realisable value of inventories is
calculated as the selling price less costs of completion
and costs necessary to make the sale and is
determined taking into account marketability,
obsolescence and developments in expected selling
price.

The cost of scrapped/impaired goods is expensed
within the function (line item) responsible for the loss,
i.e. losses during distribution are included in the cost
of distribution, while the scrapping of products due to
sales not meeting forecasts is included in sales
expenses.

SECTION 1.3 (CONTINUED)
OPERATING
EXPENSES,
INVENTORIES AND
DEPOSIT LIABILITIES

1.3.2 DEPOSIT LIABILITIES
ON RETURNABLE PACKAGING
In a number of countries, the local entities have
a legal or constructive obligation to take back
returnable packaging from the market. When
invoicing customers, the entity adds a deposit
to the sales price and recognises a deposit
liability. The deposit is paid out upon return of
bottles, cans etc.

The deposit liabilities amounted to DKK
1,576m (2016: DKK 1,681m), while the value
of returnable packaging materials amounted to
DKK 1,855m (2016: DKK 2,288m).

The value of returnable packaging materials
declined during 2017 as a consequence of
tighter management of returnable packaging
and write-down of bottles following SKU
reductions.

The capitalised value of returnable packaging
materials exceeds the deposit liability because
each of the returnable packaging items
circulates a number of times in the market and
the deposit value in some markets is legally set
lower than the cost of the returnable
packaging.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 62

ACCOUNTING ESTIMATES
AND JUDGEMENTS

Management assesses the local business model,
contracts and agreements, the level of control over
returnable packaging and the return rate to determine
the accounting treatment of returnable packaging as
either property, plant and equipment or inventories.

The deposit liability is estimated based on
movements in the year in recognised deposit
liabilities, loss of returnable packaging in the market,
planned changes in packaging types and historical
information about return rates.

1.3.3 SALES AND DISTRIBUTION
EXPENSES
Sales and distribution expenses declined by 2%
in reported terms and organically by 1%. The
reported figure was negatively impacted by the
foreign currency translation, a decrease in
logistics costs of approximately 4%, which was
driven by the disposal of entities in 2017, and
lower brand marketing expenses than in 2016,
which included the UEFA EURO sponsorship.

ACCOUNTING
POLICIES

The obligation to refund deposits on returnable
packaging is measured on the basis of deposit price,
an estimate of the number of bottles, kegs, cans and
crates in circulation and expected return rates.

The accounting policy for returnable packaging
capitalised as property, plant and equipment is
described in section 2.4.

Sales and distribution expenses

DKK million

Marketing expenses

Sales expenses

Distribution expenses

Total

2017

5,980

5,645

6,480

18,105

ACCOUNTING
POLICIES

1.3.4 OTHER OPERATING
ACTIVITIES, NET
Other operating activities are secondary to the
principal activities of the Group and include
income and expenses relating to rental
properties, restaurants, on-trade loans,
research activities, and gains and losses on the
disposal of intangible assets and property,
plant and equipment.

Other operating activities, net

DKK million

2017

2016

6,211

5,525

6,740

18,476

Gains and losses on disposal
of property, plant and
equipment and intangible
assets

On-trade loans, net

Real estate, net

-18

-34

-9

Research centres, net

-120

-104

Other, net

Total

194

113

249

198

Marketing expenses consist of expenses for brand
marketing and trade marketing. Brand marketing is
an investment in the Group’s brands and consists of
brand-specific investments in the development of
communication vehicles and the use of these to drive
the sale of branded products and services.

Brand marketing activities comprise sales campaigns,
sponsorships, advertising and in-store displays.

Trade marketing is promotional activities directed
towards customers, such as the supply of point-of-
sale materials, promotional materials and trade
offers.

Sales and distribution expenses comprise costs
relating to general sales activities, write-downs for
bad debt losses, sales staff as well as depreciation
and impairment of sales equipment and costs
incurred in distributing goods sold during the year.

ACCOUNTING
POLICIES

Gains and losses on disposal of intangible assets and
property, plant and equipment are determined as the
sales price less selling costs and the carrying amount
at the disposal date.

On-trade loans, net, comprise the effective interest
on the loans calculated on the basis of amortised cost
less impairment of on-trade loans.

Expenses relating to research activities comprise
research in Denmark and France less funding received
from the Carlsberg Foundation for the operation of
the Carlsberg Research Laboratory and grants
received to fund research. The funding and grants are
recognised in the income statement in the same
period as the activities to which they relate.
Development costs are included in cost of sales.

SECTION 1.4
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 the Group’s intention to hedge 70-
90% of future cash flows in currencies other
than the functional currency of the entities on a
12-month rolling basis.

Western Europe
Hedging of the transaction risk will effectively
eliminate a significant part of the currency risk
on Western European entities’ 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. Therefore,
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, cf. section 4.8.

Eastern Europe
Baltika Breweries and the other markets in
Eastern Europe have expenses in both USD and
EUR, and appreciation of the RUB and other

currencies vis-à-vis EUR and USD has a
positive impact on operating profit, while
depreciation has a negative effect. The Group
has chosen not to systematically hedge the
transaction risk in Eastern Europe to the same
degree as in Western Europe due to the
significant cost of hedging these currencies over
a longer period of time. For 2018 the Group
has chosen to hedge a portion of Baltika
Breweries’ expenses in USD. The volatility of
the Eastern European currencies will continue
to affect operating profit measured in both
DKK and local currency.

Asia
The transaction risk is considered to be less
significant compared with the risk in the other
regions because of the lower sales and
purchases in currencies other than the
functional currencies as well as the high
correlation between USD and most of the
Asian currencies.

TRANSLATION RISK
The Group is exposed to risk from translation
of foreign entities into the Group’s presentation
currency, DKK. Despite a decrease in the net
revenue generated on the Russian market, the
Group’s single largest volatility-weighted
exposure continued to be the exposure to RUB.
However, Asian currencies, such as CNY and
LAK, account for an increasing part of the
Group’s net revenue.

The exposure to fluctuations in EUR/DKK is
considered to be limited due to Denmark’s fixed
exchange rate policy towards EUR.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 63

Net revenue by functional currency (%)

2017

RUB 13%
GBP 6%
SEK 4%

CNY 12%
CHF 6%
LAK 4%

EUR 20%
DKK 10%
NOK 6%
Other 19%

2016

RUB 12%
GBP 7%
SEK 4%

CNY 11%
CHF 6%
LAK 4%

EUR 21%
DKK 11%
NOK 5%
Other 19%

The Group has chosen not to hedge the
exposure arising from translation of revenue or
earnings in foreign currencies, but some of the
Group’s debt is denominated in currencies in
which the Group generates significant earnings
and cash flow.

Impact on operating profit
Developments in exchange rates between DKK
and the functional currencies of foreign entities
had a negative impact on operating profits
from Western Europe and Asia measured in
DKK, while the impact from the increase in the
average RUB/DKK rate had a positive impact
on operating profits measured in DKK. At
Group level, the positive net impact was less
than 1%.

Entities in

Countries in the
eurozone

Russia

China

United Kingdom

Switzerland

Norway

Sweden

Laos

Functional
currency

Change in average FX
rate 2016 to 2017

EUR

RUB

CNY

GBP

CHF

NOK

SEK

LAK

-0.08%

+11.30%

-3.60%

-6.90%

-1.60%

-0.80%

-2.00%

-2.60%

SECTION 1.5
CASH FLOW FROM
OPERATING
ACTIVITIES

Cash flow from operating activities increased
by DKK 2,505m to DKK 11,834m. The
significant change compared with 2016 was
due to improvement in operating profit before
depreciation, amortisation and impairment
losses and trade working capital, lower cash
outflow from financial items as well as the
cash flow in 2016 being affected by an
extraordinary payment into the Group’s pension
fund in the UK.

Average trade working capital as a percentage
of net revenue was -13.7% (12-month
average), an improvement of 120bp compared
with 2016, and was positively impacted by our
continued efforts to optimise trade working
capital.

The Group continues its efforts to improve cash
flow and continually looks into new initiatives.
In some major markets, the Group uses
receivable transfer agreements to sell trade
receivables on a non-recourse basis. The cash
flow relating to trade payables was improved
due to the Group’s ongoing efforts to achieve
better payment terms with suppliers.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 64

ACCOUNTING
POLICIES

Other specifications of cash flow from
operating activities

Free cash flow increased to DKK 8,680m
(2016: DKK 8,616m), driven by the
improvement in operating cash flow, which
was, however, partially offset by lower
divestment activities in 2017 compared with
2016. Please refer to section 5 for a detailed
description of disposal of entities.

Cash flow from operating activities is calculated using
the indirect method as the operating profit before
special items adjusted for non-cash operating items,
changes in working capital, restructuring costs paid,
interest received and paid, and corporation tax paid.

Cash flow from assets held under finance leases is
recognised as payment of interest and repayment
of debt.

DKK million

2017

2016

Other non-cash items

Share of profit after tax of
associates and joint ventures

Gain on disposal of property,
plant and equipment and
intangible assets, net

Other items

Total

Trade working capital

Inventories

Trade receivables

Trade payables, duties
payable and deposit
liabilities

Total

Other working capital

Other receivables

Other payables

Retirement benefit
obligations and other
liabilities related to operating
profit before special items

Adjusted for unrealised
foreign exchange
gains/losses

Total

On-trade loans

Loans provided

Repayments

Amortisation of on-trade
loans

Total

Financial receivables

Loans and other receivables

Other financial receivables

Total

-262

-324

-26

-279

-75

467

456

848

-120

-410

-83

201

903

1,021

375

-70

202

-719

108

-714

-25

388

105

-1,126

-710

460

290

-69

-54

-676

481

238

-95

-78

Average trade working capital
(% of net revenue)

Cash flow from operating activities and free

cash flow (DKKbn)

-5

-10

-15

-20

-25

-30

-35

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

Trade payables incl. deposits and duties
Trade working capital incl. deposits and duties
Inventories
Trade receivables

Cash flow from operating activities
Free cash flow

SECTION 1.6
TRADE RECEIVABLES
AND ON-TRADE
LOANS

Receivables included in the
statement of financial position

DKK million

Trade receivables

Other receivables

Total current
receivables

Non-current
receivables

Total

2017

4,611

2,138

2016

5,485

2,488

6,749

7,973

952

7,701

1,071

9,044

The Group’s non-current receivables consist
mainly of on-trade loans. Non-current
receivables fall due more than one year from
the reporting date, with DKK 188m (2016:
DKK 180m) falling due more than five years
from the reporting date.

ON-TRADE LOANS
Under certain circumstances the Group grants
loans to on-trade customers in France, the UK,
Germany, Switzerland and Sweden. On-trade
loans are spread across a large number of
customers/debtors and consist of several types
of loan, including loans repaid in cash or
through reduced discounts, and prepaid
discounts. The operating entities monitor and
control these loans in accordance with Group
guidelines.

On-trade loans recognised in other operating
activities, net

DKK million

2017

2016

Interest and amortisation of
on-trade loans

Losses and write-downs on
on-trade loans

On-trade loans, net

-33

The average effective interest rate on loans to
the on-trade was 4.1% (2016: 4.8%).

ACCOUNTING ESTIMATES
AND JUDGEMENTS

Receivables by origin

DKK million

Sale of goods
and services

On-trade loans

Other receivables

Total

2017

2016

4,203

1,251

2,247

7,701

5,022

1,370

2,652

9,044

On-trade loan agreements are typically complex and
cover several aspects of the relationship between the
parties. Management assesses the recognition and
classification of income and expenses for each of
these agreements, including the allocation of
payments from the customer between revenue,
discounts, interest on the loan (other operating
activities) and repayment of the loan.

The carrying amount of receivables
approximates their fair value. For on-trade
loans, the fair value is calculated as discounted
cash flows using the interest rate at the
reporting date.

Management also assesses whether developments of
importance to the on-trade could indicate impairment
of on-trade loans in a market in general. Such
developments include changes in local legislation,
which may have an adverse effect on earnings in the
industry as a whole and where the effect cannot be
allocated to individual loans.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 65

1.6.1 CREDIT RISK
Exposure to credit risk on receivables is
managed locally, and credit limits are set as
deemed appropriate for the customer taking
into account the current local market
conditions.

EXPOSURE TO CREDIT RISK
In 2017, 87% (2016: 88%) of the total
receivables were neither impaired nor past due.
To reflect the current economic situation in
Eastern Europe and Asia, an additional write-
down for bad debt losses was made in 2017.

Translated into DKK, the proportionate share
of the Group’s total receivables in Russia
decreased to 12% at year-end 2017 (2016:
14%), mainly due to volumes being flat and
improvements in collection. The share of
receivables in Germany decreased to 8% at
year-end 2017 (2016: 10%), mainly due to the
sale of Nordic Getränke. The share of
receivables in Poland increased to 8% at year-
end 2017 (2016: 5%), due to onboarding of
new customers. The change in the remaining
countries was not significant.

The impairment losses at 31 December 2017
related to several minor customers that have –
in different ways – indicated that they do not
expect to be able to pay their outstanding
balances, mainly due to adverse economic
developments.

It is Group policy to reduce the credit risk
through prepayments or cash payments on
delivery, especially for certain categories of
customers in each country. The local entities
assess the credit risk and whether it is
appropriate and cost-effective to hedge the
credit risk by way of credit or bank guarantees,
credit insurance, conditional sale etc. Such
security is taken into account when assessing
impairment losses. Security is primarily
received from on-trade customers.

On-trade loans are usually repaid through
discounts during the continuing sales
relationship with the individual customer, which
is reflected in the repayment scheme and the
discounting of the loans. Consequently, there
are no significant on-trade loans past due.

The credit risk on on-trade loans is usually
reduced through collateral and pledges of on-
trade movables (equipment in bars, cafés etc.).
The fair value of the pledged on-trade
movables cannot be estimated reliably but is
assessed to be insignificant, as the movables
cannot readily be used again.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 66

SECTION 1.6 (CONTINUED)
TRADE RECEIVABLES
AND ON-TRADE
LOANS

Trade receivables and on-trade loans
(Broken down by country)

2017

(2016)

Russia 12% (14%)
France 7% (6%)
Germany 8% (10%)
Sweden 4% (4%)
Other 40% (41%)

UK 11% (10%)
Switzerland 9% (9%)
Poland 8% (5%)
China 1% (1%)

ACCOUNTING ESTIMATES
AND JUDGEMENTS

In assessing credit risk, management analyses the
need for impairment of trade receivables due to
customers’ inability to pay. The financial uncertainty
associated with impairment of trade receivables is
considered to be limited. However, if the ability to
pay deteriorates in the future, further impairment
may be necessary.

Impairment losses are based on an individual review
of the need for impairment, taking into consideration
the customers’ creditworthiness and expected ability
to pay, customer insolvency or anticipated insolvency,
and past due amounts and collateral received. When
no objective indication of individual impairment exists,
management assesses the need to recognise
impairment for a portfolio of receivables based on
customer segments, historical information on
payment patterns, terms of payment, concentration
maturity, and information about the general
economic situation in the countries. The portfolios are
based on on-trade and off-trade customers, and on-
trade receivables and loans.

With regard to the on-trade loans, the individual
Group entities manage and control these loans as
well as standard trade credits in accordance with
Group guidelines.

Derecognition of groups of receivables, for example in
business combinations or other structured
transactions, is based on management’s judgement of
contractual terms and other factors related to the
transaction.

ACCOUNTING
POLICIES

Receivables are recognised initially at fair value and
subsequently measured at amortised cost less
impairment losses.

Trade receivables comprise sale of invoiced goods
and services as well as short-term on-trade loans to
customers. Other receivables comprise VAT
receivables, loans to partners, associates and joint
ventures, interest receivables and other financial
receivables.

Regarding the on-trade loans, any difference
between the present value and the nominal amount
at the loan date is treated as a prepaid discount to
the customer, which is recognised in the income
statement in accordance with the terms of the
agreement.

The market interest rate is used as the discount rate,
corresponding to the money market rate based on
the maturity of the loan with the addition of a risk
premium. The effective interest on these loans is
recognised in other operating activities, net. The
amortisation of the difference between the discount
rate and the effective interest rate is included as a
discount in revenue.

Impairment losses are calculated as the difference
between the carrying amount and the net realisable
value, including the expected net realisable value of
any collateral provided.

Development in impairment losses on receivables

Ageing of receivables and on-trade loans

DKK million

2017

Impairment at 1 January

Impairment losses recognised

Realised impairment losses

Reversed impairment losses

Disposal of entities/transfers

Impairment at 31 December

Trade
receivables

-734

-266

119

-795

On-trade
loans

-258

-59

Other
receivables

-20

-2

Total

-1,012

-325

160

2016

DKK million

Total

-1,043

2017

-290

Sale of goods and services

108

114

On-trade loans

Other receivables

Total

-237

-11

-1,043

-1,012

Total 2016

Net carrying
amount
at 31 Dec.

Neither
impaired
nor past due

4,203

1,251

2,247

7,701

9,044

3,683

1,189

1,849

6,721

7,980

Past due
less than
30 days

223

238

385

Past due
between 30
and 90 days

Past due
more than
90 days

179

285

340

198

205

457

339

SECTION 2

ASSET BASE
AND RETURNS

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 67

Maximising return on
investments is key in delivering
sustainable value to our
shareholders. Return on invested
capital (ROIC) analyses all
investments throughout the value
chain and is a key measure in
ensuring the proper basis for
decision-making.

The asset base represents the
total investment in intangible
assets and property, plant and
equipment and accounts for the
most significant part of the total
invested capital.

-4.8bn

IMPAIRMENT (DKK)

4.1bn

CAPEX (DKK)

6.9%

ROIC

Further impairment of brands, primarily
Baltika, as consumer trends in Russia are
shifting from national brands to local and
regional brands, leading to increased strategic
focus on other brands in the Baltika Breweries
portfolio.

Increased by DKK 0.2bn, mainly impacted by
the new greenfield brewery in India.

Increased by 100bp and continues to be a key
focus area for the Group.

Asset base (DKKm)

Return on invested capital (ROIC)
(%)

102,546

3,669

-4,769

-4,581

-4,747

92,118

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 68

SECTION 2.1
RETURN ON
INVESTED CAPITAL

The calculation of ROIC uses operating profit
before special items adjusted for tax using the
effective tax rate, and invested capital including
assets held for sale and trade receivables sold,
and excludes contingent considerations and
corporation tax. The calculation changed from
1 January 2017, and the comparative figures
have been restated accordingly.

ROIC increased by 100bp to 6.9% (2016: 5.9%).
ROIC excluding goodwill increased by 300bp to
15.7% (2016: 12.7%). ROIC was impacted by
an increase in operating profit before special
items adjusted for effective tax and the lower
average invested capital, both having a positive
impact.

Invested capital was affected by a decrease in
total assets, primarily attributable to changes
in foreign exchange rates as well as the DKK
4.8bn impairment of the Baltika brand, cf.
section 2.3.

The negative impact on total assets from
foreign exchange rates is attributed to Russia,
DKK 2.6bn, and China, DKK 1.1bn, compared
with the DKK value they would have had if
they had been translated at the exchange rates
applied at year-end 2016.

CapEx increased by DKK 0.2bn, mainly
impacted by the new greenfield brewery in
India. However, the negative effect on ROIC
was partially offset by the increase in
CapEx/amortisation and depreciation to 86%
(2016: 81%).

As the impairment loss on the Baltika brand
was recognised at year-end, it did not have a
full-year impact on the average invested
capital for 2017 but will have full impact on the
average invested capital for 2018. If the
impairment had been recognised at 1 January
2017, ROIC would have been 7.2% and ROIC
excluding goodwill would have been 17.7%.

In 2017, goodwill decreased, primarily due to
foreign exchange impact, cf. section 2.4.

Invested capital

DKK million

Total assets

Less

Deferred tax assets

Interest receivables, fair value of hedging instruments, receivables sold and financial
receivables

Cash and cash equivalents

Assets included

Trade payables

Deposits on returnable packaging

Provisions, excluding restructurings

Deferred income

Other liabilities, excluding deferred income, interest payable and fair value of hedging
instruments

Liabilities offset

Invested capital

Goodwill

Invested capital excluding goodwill

Invested capital, average

CapEx and amortisation/
depreciation (DKKbn)

2017

2016

114,251

126,906

-1,663

-1,610

1,386

-3,462

110,512

-13,474

-1,576

-3,709

-721

-6,544

-26,024

84,488

-50,497

33,991

91,668

1,119

-3,502

122,913

-13,497

-1,681

-3,703

-941

-7,002

-26,824

96,089

-52,864

43,225

94,427

CapEx
Amortisation and depreciation

SECTION 2.2
SEGMENTATION
OF ASSETS

Not allocated comprises entities that are not
business segments and eliminations of
investments in subsidiaries, receivables,
loans etc.

Goodwill and brands with indefinite useful life
allocated by segment are specified in section
2.3.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 69

Non-current segment assets comprise
intangible assets and property, plant and
equipment owned by the segment/country,
even if the income is also earned outside the
segment/country that owns the asset. Non-
current assets also comprise non-current
financial assets other than financial instruments
and deferred tax assets.

Geographical allocation
of non-current assets

DKK million

2017

2016

Denmark
(Carlsberg A/S'
domicile)

Russia

China

Other countries

Total

3,905

24,949

14,466

53,064

96,384

4,461

32,298

15,517

54,971

107,247

The Group’s assets are segmented on the basis
of geographical regions in accordance with the
management reporting for 2017, cf. section
1.2.

Invested capital in Eastern Europe and Asia
was affected by changes in foreign exchange
rates and disposal of Chinese entities. All three
regions delivered ROIC improvement, with
particular strong growth in Asia.

Segmentation of assets etc.

DKK million

2017

Invested capital, cf. section 2.1

Invested capital excluding goodwill, cf. section 2.1

Acquisition of property, plant and equipment and intangible
assets

Amortisation and depreciation

Impairment losses

Return on invested capital (ROIC)

Western
Europe

37,218

16,489

1,837

1,872

107

9.9%

Eastern
Europe

27,376

11,542

716

761

4,820

5.1%

Asia

20,131

6,197

1,212

1,311

-113

9.9%

Return on invested capital excluding goodwill (ROIC excl.
goodwill)

21.9%

10.2%

31.2%

2016

Invested capital, cf. section 2.1

Invested capital excluding goodwill, cf. section 2.1

Acquisition of property, plant and equipment and intangible
assets

Amortisation and depreciation

Impairment losses

Return on invested capital (ROIC)

Return on invested capital excluding goodwill (ROIC excl.
goodwill)

37,749

16,956

35,265

18,284

22,658

7,568

1,920

1,971

9.2%

454

737

4.5%

1,244

1,352

1,162

8.3%

19.8%

8.8%

23.2%

Not
allocated

-1,055

Beverages,
total

83,670

33,173

Non-
beverage

818

Carlsberg
Group,
total

84,488

33,991

625

-55

196

674

3,848

4,569

4,814

7.0%

16.0%

205

4,053

4,581

4,814

6.9%

15.7%

95,617

42,753

472

96,089

43,225

3,814

4,734

1,226

5.9%

12.9%

3,840

4,742

1,226

5.9%

12.7%

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 70

SECTION 2.3
IMPAIRMENT

Intangible assets, property, plant and
equipment, and investments in associates and
joint ventures are tested for impairment if an
event or circumstance indicates that the
carrying amount may not be recoverable.

Tests for impairment of goodwill and brands
with indefinite useful life are performed at least
annually. The impairment tests of goodwill and
brands are based on an assessment of their
value in use.

In connection with impairment testing,
management reassesses the useful life and
residual value of assets with indications of
impairment.

2.3.1 IMPAIRMENT
In 2017, the impairment tests of goodwill and
brands with indefinite useful life were prepared
at the reporting date. Based on the tests
performed, the Group recognised impairment
losses on brands amounting to DKK 4,847m
(2016: DKK 867m).

During the year, impairment losses of DKK
183m relating to property, plant and

Impairment of brands and other non-current assets

DKK million

2017

2016

Brands and other intangible assets

Baltika brand, Baltika Breweries, Russia

Land use rights (reversal of impairment), Eastern Assets, China

Brands and land use rights, Chongqing Brewery Group, China

Other brands

Other intangible assets

Total

Property, plant and equipment

Plant, machinery and equipment, Aldaris, Latvia

Machinery and equipment, Western Europe and Asia

Plant, machinery and equipment (reversal of impairment), Eastern Assets, China

Plant, machinery and equipment, Bihar, India

Plant, machinery and equipment, Chongqing Brewery Group, China

Plant, machinery and equipment, Xinjiang Wusu Group, China

Machinery and equipment, Carlsberg UK

Breweries and brewery equipment , Baltika Breweries, Russia

Total

Total impairment losses

Of which recognised in special items, cf. section 3.1

4,800

-80

4,767

124

-136

4,814

4,688

846

920

160

148

-15

306

1,226

1,207

equipment were recognised as a result of
restructurings and other events.

In addition, the Group recognised reversal of
impairments in Eastern Assets of other
intangible assets amounting to DKK 80m and
of plant and equipment amounting to DKK
136m.

Total impairment losses, net, recognised in
2017 amounted to DKK 4,814m (2016: DKK
1,226m).

BALTIKA BREWERIES (RUSSIA)
In recent years, the Russian beer market has
experienced a continuous decline caused by
very challenging macroeconomic conditions,
duty increases and locally imposed market
restrictions. As expected, in 2017 the market
continued the decline primarily as a result of
the restrictions imposed on the sale of beer in
PET bottles larger than 1.5 litres, which had
previously accounted for more than 20% of
market volumes.

Consumer trends in Russia have indicated a
shift away from national and international
brands towards local and regional brands
resulting in a loss of market share for Baltika
Breweries among others to local and regional
market participants. This trend is expected to
continue in the long term, which has led to an
adjustment of the Baltika Breweries brand
strategy to increase focus on the local and
regional brands within the portfolio. The overall
performance of Baltika Breweries remains
solid, although the Baltika brand’s share of
volumes sold is expected to decrease slightly.

The change in brand strategy along with
adjustments to the long-term expectations for
key macroeconomic assumptions led to a
reassessment of the expected future growth of
the Baltika brand. This resulted in the
recoverable amount being lower than the
carrying amount. The brand was therefore
written down by DKK 4,800m to the lower
recoverable amount.

The recoverable amount of the brand was
determined based on its value in use. A pre-tax
discount rate of 11.2% was used in the
calculation (2016: 9.8%). The brand had a
carrying amount after impairment of DKK
6,425m as at 31 December 2017 (2016:
DKK 12,136m).

The write-down was the second in three years.
The first followed the review of expected future
growth that took place in the autumn of 2015
and resulted in the brand being written down
by DKK 4,000m. However, the recent
development shows a bigger impact on the
Baltika brand from the PET downsizing and
change in consumer trends than was expected
in the growth rate applied in the impairment
test in 2015. The combined effect of these
trends has been incorporated into the recent
impairment test.

Impairment of property, plant and equipment
in Russia in 2017 was a consequence of
restructuring and process optimisations.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 71

that of the carrying amount of land use rights
and plant and equipment had it not been
written down in 2015. As a result, impairments
of DKK 216m were reversed at the end of
2017, equalling the carrying amount of the
assets less subsequent depreciation and
amortisation that would have been recognised,

OTHER IMPAIRMENTS
In 2017, the performance of a local Finnish
brand was significantly below expectations.
The growth expectations were therefore
reassessed, resulting in the remaining carrying
amount of DKK 47m being written down.

Properties on the former brewery site in
Aldaris, Latvia, were impaired by DKK 40m as
a result of a decline in their recoverable
amount.

In 2016, the DKK 160m impairment of
property, plant and equipment in Carlsberg
India was the consequence of the
implementation of a state-wide ban on the
production and sale of alcohol in Bihar.

SIGNIFICANT AMOUNTS OF GOODWILL
AND BRANDS
Goodwill and brands with indefinite useful life
related to Baltika Breweries, Kronenbourg,
Chongqing Brewery Group and the acquisition
of the 40% non-controlling interest in Carlsberg
Breweries A/S each account for 10% or more
of the total carrying amount of goodwill and
brands with an indefinite useful life at the
reporting date.

ACCOUNTING ESTIMATES
AND JUDGEMENTS

Identification of cash-generating units
The Group’s management structure reflects the
geographical segments, cf. section 1.2, and decisions
are made by the regional managements responsible
for performance, operating investments and growth
initiatives in their respective regions.

There is a significant degree of vertical integration of
the production, logistics and sales functions, aimed at
supporting and promoting optimisations across the
Group or within regions. The regional integration
within planning, procurement and sourcing between
countries has increased the volume of intra-group
transactions and impacted the allocation of profits.

Assets, other than goodwill and brands with regional
and global presence, are allocated to individual cash-
generating units (CGUs), being the level at which the
assets generate largely independent cash inflows. As
the Group primarily operates with local sales and
production organisations, the cash inflows are
generated mostly on a national basis, and the CGUs
are therefore usually identified at country level.

In connection with acquisitions and the related
purchase price allocation, cash inflows are assessed
and the determination of CGU allocation is made
within 12 months from the date of acquisition.

Goodwill
Goodwill does not generate largely independent cash
inflows on its own and is therefore allocated to the
level at which it is monitored for internal
management purposes. This would normally be at
regional or sub-regional level, each level consisting of
multiple CGUs.

Goodwill allocated to CGUs that are less integrated in
regions or sub-regions is tested as separate CGUs.
However, these CGUs are not considered significant
compared with the total carrying amount of goodwill.

The following groups of CGUs are considered
significant compared with the total carrying amount
of goodwill:
• Western Europe
• Eastern Europe
• China, Malaysia and Singapore
• Indochina

Brands
Cash flows specific to the international and regional
brands are generated across many CGUs, and these
may not be identical to the groups of CGUs to which
goodwill is allocated. Cash flows for brands are
separately identifiable, and these core assets are
tested individually for impairment. This test is
performed in addition to the test for impairment of
goodwill.

The following brands are considered significant when
comparing their carrying amount with the total
carrying amount of brands with indefinite useful life:
• Baltika brand
• International brands

International brands is a group of brands recognised
in connection with the acquisition of the 40% non-
controlling interest in Carlsberg Breweries A/S and
allocated to Western Europe. The amount is not
allocated to individual brands.

Corporate assets
The Group has identified capitalised software relating
to the Group’s ERP systems as corporate assets, and
as such, these are peripheral to the generation of
cash inflow. The Group’s ERP landscape is closely
linked to the internal management structure, and
therefore the identified assets are tested for
impairment at the CGU level to which goodwill is
allocated.

SECTION 2.3 (CONTINUED)
IMPAIRMENT

CHONGQING BREWERY GROUP (CHINA)
In recent years, Chongqing Brewery Group has
experienced a significant decline in the volumes
from its local mainstream brands. The decline
was primarily the result of a general decline in
Chinese beer volumes, accelerated
premiumisation to the benefit of Tuborg, and
closure and disposal of non-essential
breweries, which led to a write-down of the
brands of DKK 800m in 2016 (2015: DKK
400m).

In 2017, the brands performed slightly better
than projected in 2016 and the expected future
growth also remains slightly better.

In 2016, six breweries were disposed of or
closed, resulting in write-downs of land use
rights as well as plant, machinery and
equipment to their recoverable amounts. In
total, impairment losses of DKK 194m were
recognised in special items.

EASTERN ASSETS (CHINA)
Two breweries that were impaired in prior
years have been redesignated from only
supplying their local markets to primary
producers of the international brands
supporting the “Big Cities” strategic initiative in
China. Investments in new production
equipment have been approved and will
increase the capacity in 2018.

The change in use of the two breweries is
expected to generate future cash flows
resulting in the recoverable amount exceeding

SECTION 2.3 (CONTINUED)
IMPAIRMENT

Property, plant and equipment
Property, plant and equipment are tested for
impairment when indications of impairment exist.
Management performs an annual assessment of the
assets’ future application, for example in relation to
changes in production structure, restructurings or
closing of breweries. The impairment test is based on
the higher of fair value less costs to sell, if such a
value can be established, and value in use. Value in
use is assessed based on budget and target plan cash
flows generated by the CGU. The assessment is
based on the lowest CGU affected by the changes
that indicate impairment. The discount rate is a
WACC that reflects the risk-free interest rate with the
addition of a risk premium associated with the
particular asset.

Associates and joint ventures
Management performs an impairment test of
investments in associates and joint ventures when
indications of impairment exist, for example due to
loss-making activities or major changes in the
business environment. The impairment test is based
on value in use assessed using budget and target plan
cash flows from the associate or joint venture and
related assets that form an integrated CGU. The
discount rate reflects the risk-free interest rate with
the addition of a risk premium associated with the
particular investments.

ACCOUNTING
POLICIES

Goodwill and brands with indefinite useful life are
subject to an annual impairment test, carried out
initially before the end of the year of acquisition.

The carrying amount of goodwill and brands with
indefinite useful life is tested for impairment at the
level where cash flows are considered to be
generated largely independently. This is at either CGU
level or as a group of CGUs. All assets are tested for
impairment if an event or circumstance indicates that
the carrying amount may not be recoverable. If an
asset’s carrying amount exceeds its recoverable

amount, an impairment loss is recognised in the
income statement. The recoverable amount is the
higher of the asset’s fair value less costs of disposal
and its value in use.

Value in use is measured with reference to the future
net cash flows expected to be generated by the CGU
or group of CGUs and discounted by a discount rate
adjusted for any risk specific to the asset, if relevant
to the applied calculation method.

Impairment of goodwill and brands, significant
impairment losses on property, plant and equipment,
associates and joint ventures, and impairment losses
arising on significant restructurings of processes and
fundamental structural adjustments are recognised as
special items. Minor impairment losses are recognised
in the income statement in the relevant line item.

Impairment of goodwill is not reversed. Impairment of
other assets is reversed only to the extent of changes
in the assumptions and estimates underlying the
impairment calculation. Impairment is only reversed
to the extent that the asset’s new carrying amount
does not exceed the carrying amount of the asset
after amortisation/depreciation had the asset not
been impaired.

2.3.2 IMPAIRMENT TEST OF GOODWILL

The carrying amount of goodwill
allocated to groups of CGUs

DKK million

Western Europe

Eastern Europe

China, Malaysia
and Singapore

Indochina

2017

2016

20,729

20,793

China,
Malaysia and
Singapore

15,834

16,981

Indochina

9,424

3,941

10,001

4,482

Significant groups of CGUs

49,928

52,257

Other, Asia

Total

569

607

50,497

52,864

In 2017 and 2016, the significant groups of CGUs
represented 99% of the total carrying amount.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 72

PROJECTIONS OF CASH FLOW
Cash flows are determined for each individual
CGU. When market dynamics and
macroeconomic factors indicate significant
changes, cash flows are assessed and
determined based on factors relevant for the
individual CGU. The estimated cash flows are
aggregated at the level of the group of CGUs
to which goodwill is allocated, observing
eliminations of intra-group cash flows.

The key assumptions for projecting the cash
flows for the groups of CGUs that are
considered significant compared with the total
carrying amount of goodwill are forecast as
stated below. The growth rate for the forecast
period is the compound annual growth rate for
the three-year forecast period.

Key assumptions

2017

Western
Europe

Eastern
Europe

Forecast
period
growth

Terminal
period
growth

Pre-tax
discount
rate

-5%

0.3%

1.2%

-9%

4.0%

8.1%

-4%

-2%

1.0%

0.8%

4.4%

4.3%

WESTERN EUROPE
The region primarily comprises mature beer
markets. While market volumes tend to be flat
or slightly declining, the overall value of the
market has seen a positive, albeit small,
development in recent years. This has been
driven by slightly improving beer category
dynamics because of innovations, increased

interest in craft & speciality beers and alcohol-
free beer offerings, and an overall improved
category perception.

The region is generally characterised by well-
established retail structures and a strong
tradition of beer consumption. The share of
on-trade varies between markets but the weak
macroeconomic environment of recent years
has led to a shift from on-trade to off-trade
consumption.

The Group’s focus for Western Europe is on
improving margins through the initiatives in the
Funding the Journey programme, which are
now embedded in the business, and on
achieving the SAIL’22 strategic priorities,
including value management, supply chain
efficiencies and operating cost management.

The average growth in cash flow of -5% in the
forecast period reflects the significant risk
adjustments included in the forecast to account
for the estimation uncertainty related to the
benefits expected from the strategic initiatives
from SAIL’22.

EASTERN EUROPE
The Group’s two main markets in the region are
Russia, which accounts for around 67% of
regional beer volumes, and Ukraine, which
accounts for around 21%. The Russian beer
market has been under significant pressure in
the past decade, more recently due to
challenging macroeconomic conditions and a
ban on individual PET bottles larger than 1.5
litres.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 73

SECTION 2.3 (CONTINUED)
IMPAIRMENT

In recent years, the modern off-trade,
consisting of hypermarkets and supermarkets,
has grown significantly and now accounts for
approximately 65% of the off-trade in Russia.
Another growing channel is the so-called DIOT
– draught in off-trade – which is estimated to
account for around 10% of the market.

The Group’s share of the beer profit pool in
Russia significantly exceeds our volume market
share of around 35%. The Ukrainian beer
market has also been in decline due to the
severe macroeconomic slowdown.

The focus for Eastern Europe is to mitigate the
negative earnings impact from the weakening
currencies and the continued market decline in
the region. Actions include a number of
changes in our commercial agenda and
priorities as well as a meticulous focus on costs
and efficiencies.

Management expects the current
macroeconomic situation and developments to
continue in the short term with inflation
stabilising at the current level and, in the
medium to long term, interest rates are
expected to decline and then stabilise at a level
lower than currently observed in the market.
This will ease the pressure on profitability from
input costs denominated in foreign currencies.

volatile macroeconomic situation. The growth
is projected in nominal terms and therefore
does not translate into cash flow at the same
growth rate in the Group’s presentation
currency, DKK.

ASIA
The importance of Asia for the Group has
increased significantly over the past decade,
during which the Group has expanded its
presence in the region, both organically and
through acquisitions.

The Asian markets are very diverse but offer
considerable prospects for value growth,
underpinned by young populations,
urbanisation, rising disposable income levels,
growing economies and, in some markets,
relatively low per capita beer consumption.
However, as many Asian markets are emerging
markets, development is subject to volatility.

Both the on-trade and off-trade channels are
characterised by a strong traditional outlet
segment but with the modern outlet segment
growing in most markets.

The Group’s focus for Asia is to continue the
growth trajectory in the region. Activities
include the continued expansion of our
international premium brands, in particular
Tuborg, and the strengthening and
premiumisation of our local power brands in
combination with a continued focus on costs
and efficiencies.

The average growth in cash flow of -9% in the
forecast period reflects the significant risk
adjustments included in the forecast to account
for the estimation uncertainty related to the

The average growth in cash flow of -3% in the
forecast period reflects the significant risk
adjustments included in the projections to

account for the estimation uncertainty related
to the volatility of emerging markets in the
region and the uncertainty related to the
development in beer consumption, in particular
in China. The growth is projected in nominal
terms and therefore does not translate into
cash flow at the same growth rate in the
Group’s presentation currency, DKK.

ACCOUNTING ESTIMATES
AND JUDGEMENTS

Goodwill
The impairment test of goodwill is performed for the
group of CGUs to which goodwill is allocated. The
group of CGUs is determined based on the
management structure for regions or sub-regions at
the level at which goodwill is monitored. The
structure and groups of CGUs are reassessed every
year. The test for impairment of goodwill is based on
the assessment of the recoverable amount calculated
as the value in use. The value in use is the discounted
value of the expected future risk-adjusted cash flows.

Key assumptions
To determine the value in use, the expected cash flow
approach is applied. This involves developing multiple
probability-weighted scenarios to reflect different
outcomes in terms of timing and amount of expected
future cash flow. The expected future cash flow is
based on the budget and target plans for the next
three years. Cash flows beyond the three-year period
are extrapolated using the terminal period growth
rate.

The probability weighting applied is based on past
experience and the uncertainty of the prepared
budget and target plan cash flows.

Potential upsides and downsides identified during the
budget process and in the daily business are reflected
in the future cash flow scenarios for each CGU.

The risk-adjusted cash flows are discounted using a
discount rate reflecting the risk-free interest rate for
each CGU with the addition of a spread.

The risk-free interest rates used in the impairment
tests are based on observed market data. Please refer
to the description of discount rates in section 2.3.3.

The key assumptions on which management bases its
cash flow projections are:
• Volumes
• Sales prices
• Input costs
• Operating investments
• Terminal period growth

The assumptions are determined at CGU level in the
budget and target plan process, and are based on
past experience, external sources of information and
industry-relevant observations for each CGU. Local
conditions, such as expected development in
macroeconomic and market conditions specific to the
individual CGUs, are considered. The assumptions are
challenged and verified by management at the
regional or sub-regional level at which goodwill is
tested for impairment.

The budget and target plan process takes into
account events or circumstances that are relevant in
order to reliably project the short-term performance
of each CGU. Examples include significant campaign
activities (for example UEFA EURO), changes in
excise duties etc., which may each have an
observable short-term impact but are of a non-
recurring nature. Given the short-term nature of such
events and circumstances, they are not taken into
consideration when estimating the terminal period
growth rate.

Volumes
Projections are based partly on past experience and
partly on external market data, and take into
consideration planned commercial initiatives,
including spend on marketing and sponsorships, and
the expected impact of such initiatives on consumer
demand. The projections are, if relevant, adjusted for
the expected changes in the level of premiumisation.
No changes in market shares are assumed in the
medium or long term.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 74

SECTION 2.3 (CONTINUED)
IMPAIRMENT

Demographic expectations general to the industry,
such as the development in population, consumption
levels, generation-shift patterns, rate of urbanisation
as well as macroeconomics etc., are also taken into
consideration for medium- and long-term
projections.

Events and circumstances can have a short-term
impact on the timing of volumes entering circulation.
This can be affected by excessive stocking related to
an increase in excise duties, campaign activities and
the timing of national festivals, for example Chinese
New Year. Such short-term effects are not material
to volume projections and therefore do not impact
the long-term projections.

Sales prices
The level of market premiumisation and the locally
available portfolio are key drivers in identifying price
points. When planning pricing structures, factors
including price elasticity, local competition and
inflation expectations can also impact the projection.

Increases in excise duties are typically passed on to
the customers with a delay of a few months. Since
the increase is a pass-through cost and thereby
compensated for by price increases at the time of
implementation, it does not impact the long-term
sales price growth and is therefore not taken into
consideration in the long-term projections unless
circumstances specifically indicate otherwise. No
changes to duties in the short or medium term are
taken into consideration unless there is a firm plan to
introduce changes.

Input costs
Input costs in the budget and target plans are based
on past experience and on:
• Contracted raw and packaging materials
• Contracted services within sales, marketing,

production and logistics

• Planned commercial investments
• Cost optimisations not related to restructurings
• Expected inflation

In the long term, projections follow the level of
inflation unless long-term contracts are in place.

changes, cash flows are reassessed based on
factors relevant to the individual brand.

the addition of the risk premium associated with the
individual brand.

Operating investments
Projections are based on past experience of the level
of necessary maintenance of existing production
capacity, including replacement of parts. This also
includes planned production line overhauls and
improvements to existing equipment. Non-contracted
capacity increases and new equipment are not
included.

Terminal period growth
Growth rates are projected to be equal to or below
the expected rate of general inflation and assume no
nominal growth. The projected growth rates and the
applied discount rates are compared to ensure a
sensible correlation between the two.

2.3.3 IMPAIRMENT TEST OF BRANDS

Brands with indefinite useful life

DKK million

Baltika brand

International brands

Significant brands

2017

6,425

3,000

9,425

2016

12,136

3,000

15,136

In 2017, significant brands represented 62% (2016: 71%)
of the total carrying amount of brands with indefinite
useful life.

Cash flows for larger individual brands usually
correlate with the overall development in the
regions explained in section 2.3.2 on
impairment of goodwill, but from time to time
consumer trends or a strategic focus on one
brand changes relative to a portfolio of brands,
as is the case in for example Baltika Breweries
and Chongqing Brewery Group.

The assessment of cash flows for individual
brands includes considering expected price
developments, expected developments in
market size and consumption as well as how
each brand is expected to be utilised as part of
a portfolio, including considering in which
demand spaces the brand plays a key role.

ACCOUNTING ESTIMATES
AND JUDGEMENTS

Brands
The test for impairment of brands is performed using
the relief from royalty method and is based on the
expected future cash flows generated from the
royalty payments avoided for the individual brand for
the next 20 years and projections for subsequent
years.

Other brands comprise a total of 17 brands that are not
considered individually material compared with the total
carrying amount.

The risk-free cash flows are discounted using a
discount rate reflecting the risk-free interest rate with

Key assumptions
The key assumptions on which management bases its
cash flow projection include the royalty rate, the
expected useful life, revenue growth and a theoretical
tax amortisation benefit.

Expected useful life
Management has assessed that the value of brands
with indefinite useful life can be maintained for an
indefinite period, as these are well-established brands
in their markets, some of which have existed for
centuries. The beer industry is characterised as being
very stable with consistent consumer demand and a
predictable competitive environment, and is expected
to be profitable for the foreseeable future. Control of
the brands is legally established and is enforceable
indefinitely.

In management’s opinion, the risk of the useful life of
these brands becoming finite is minimal, primarily
because of their individual market positions and
because current and planned marketing initiatives are
expected to sustain the useful life of the brands.

Revenue growth
At the time of acquisition of any individual brand, a
revenue growth curve is forecast based on a long-
term strategic view of the risk and opportunities
relevant to the brand. The curve is forecast for a 20-
year horizon. This horizon reliably reflects the lengthy
process of implementing brand strategies to support a
brand occupying its intended place in the Group’s
portfolio. The forecast period applied is comparable
with the common term of the majority of licence
agreements to which the Group is party.

PROJECTIONS OF CASH FLOW
Brands are tested for impairment as separate
CGUs across regions and sub-regions, and cash
flows are determined for each individual brand
in the budget. When market dynamics or
macroeconomic factors indicate significant

Key assumptions

2017

Baltika brand

International brands

Chongqing Brewery Group brands

Average rev-
enue growth

Terminal
period growth

Pre-tax
discount rate

Post-tax
discount rate

-2%

4.0%

2.0%

11.2%

5.6%

10.4%

9.8%

4.4%

8.1%

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 75

SECTION 2.3 (CONTINUED)
IMPAIRMENT

In the local markets, the product portfolio usually
consists of local power brands and international
premium brands. When projecting revenue growth for
local brands, in addition to its commercial strength –
such as market share and segment position – the
forecast takes into consideration the demographics of
the primary markets, including expected development
in population, consumption levels, generation-shift
patterns, rate of urbanisation, beer market maturity,
level of premiumisation, circumstances generally
limiting the growth opportunities for alcoholic
beverages etc.

For brands with global or regional presence,
enhanced investments in product development and
marketing are expected. The expected growth rate for
these brands is generally higher than for more
localised brands, and is usually highest early in the
20-year period.

Depending on the nominal growth expectations for
the individual brand, the revenue growth in individual
years may be above, equal to or below the forecast
inflation level in the markets where the brand is
present.

When preparing budgets, consideration is given to
events or circumstances that are relevant in order to
reliably project the short-term performance of each
brand. Examples include significant campaign
activities (for example UEFA EURO), changes in
excise duties etc., which may each have an
observable short-term impact but are of a non-
recurring nature that is quickly absorbed by the
business. Since the impact of such events and
circumstances is not material to the long-term
projections, it is not taken into consideration when
estimating the long-term and terminal period growth
rates. Please refer to the description of the impact of
increases in excise duties in section 2.3.2.

Tax benefit
The tax rate and amortisation period applied in the
test are determined based on current legislation. The

impairment test applied tax rates in the range of
15-34% and amortisation periods of 5-10 years.

Royalty rate
Royalties generated by a brand are based on the
Group’s total income from the brand and are earned
globally, i.e. the income is also earned outside the
CGU that owns the brand. If external licence
agreements for the brand already exist, the market
terms of such agreements are taken into
consideration when assessing the royalty rate that
the brand is expected to generate in a transaction
with independent parties. The royalty rate is based on
the actual market position of the individual brand in
the global, regional and local markets and assumes a
20-year horizon. This term is common to the
beverage industry when licensing brands.

For some brands, the share of the total beer market
profit exceeds the volume share to an extent that
creates significant market entry barriers for
competing brands and justifies a higher royalty rate.

Royalty rates

International, premium and
speciality beers

Strong regional and national brands

Local and mainstream brands

3.5-15.0%

3.0-5.0%

2.0-3.5%

Discount rates
The discount rate is a WACC that reflects the risk-
free interest rate with the addition of a risk premium
relevant to each brand.

The risk-free interest rates used in the impairment
tests were based on observed market data. For
countries where long-term risk-free interest rates are
not observable or valid due to specific national or
macroeconomic conditions, the interest rate is
estimated based on observations from other markets
and/or long-term expectations expressed by
international financial institutions considered reliable
by the Group.

The added credit risk premium (spread) for the risk-
free interest rate was fixed at market price or slightly
higher, reflecting the expected long-term market
price. The aggregate interest rate, including spread,
thereby reflected the long-term interest rate
applicable to the Group’s investments in the individual
markets.

In previous years a real interest rate of 1.5% was
applied but recent developments in the Russian
economy and the updated expectations from the
financial institutions have led to an increase of 1
percentage point in the real interest rate applied as
the long-term growth expectation in the impairment
test to 2.5%.

Interest rates applied in Eastern Europe
In recent years, the macroeconomic situation has
deteriorated significantly in Eastern Europe, resulting
in interest rates and inflation increasing to a level
significantly higher than the Group’s long-term
expectations.

The use of expected future interest rates in lieu of
appropriate observable interest rates does not impact
the conclusion of the impairment test because the
relationship between discount rates and growth rates
(the real interest rate) is expected to be constant.
Expectations for the long-term real interest rate
remain a key assumption for the impairment testing
in general, and for CGUs with exposure to the Russian
market in particular.

In the ten-year period until 2012, the average long-
term real interest rate in Russia was negative, as a
result of which inflation exceeded the nominal interest
rate. The rate has since turned positive and is
expected to remain positive in the future. Since 2016,
the Bank of Russia has expressed its expectations for
the short-term real interest rate. It expects a positive
future real interest rate at around 2.5-3.0% in the
short term. Due to the current monetary situation in
Russia, the short-term interest rate is higher than the
long-term interest rate and therefore not directly
comparable with the real interest rate applied by the
Group. It is the expectation that real interest rates in
the future will normalise with short-term interest
rates falling to a level below the long-term interest
rates.

The current economic environment in Russia indicates
that a stable long-term real interest rate lower than
the current level will be reached within a few years. In
addition, the latest published expectations from key
international financial institutions show an increase in
the long-term real interest rate to 2.5%.

The impairment test of the Baltika brand is sensitive
to changes in the real interest rate. Since no expected
future long-term real interest rate can be directly
observed, the estimate of a real interest rate is
subjective and associated with risk.

2.3.4 SENSITIVITY TESTS

GOODWILL
Sensitivity tests have been performed to
determine the lowest forecast and terminal
period growth rates and/or highest discount
rates that can occur in the CGUs, groups of
CGUs and brands with indefinite useful life
without leading to any impairment loss.

The risk-free interest rates observable for
Western Europe remained relatively low at the
end of 2017. The sensitivity tests calculate the
impact of higher interest rates and allow for a
double-digit percentage-point increase in risk-
free interest rates.

Due to a challenging macroeconomic situation
in some CGUs and groups of CGUs, the Group
performed additional sensitivity tests to ensure
that a potential impairment is not overlooked.
These additional sensitivity tests did not
identify any potential impairment.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 76

SECTION 2.3 (CONTINUED)
IMPAIRMENT

The test for impairment of goodwill did not
identify any CGUs or groups of CGUs to which
goodwill is allocated where a reasonably
possible negative change in a key assumption
would cause the carrying amount to exceed the
recoverable amount.

The goodwill allocated to Eastern Europe was
primarily recognised when the Group
completed the step acquisition of the remaining
50% of the Baltic Beverage Holding Group from
Scottish & Newcastle in 2008. However, the
impairment test includes 100% of the cash flow
generated by Eastern Europe, resulting in the
recoverable amount significantly exceeding the
carrying amount.

BRANDS
Following the impairment losses recognised in
2016 and 2017 for the Baltika and Chongqing
Brewery Group brands, a reasonably possible
negative change in a key assumption would
cause the carrying amount to exceed the
recoverable amount. The sensitivity to changes
in the assumptions is shown in the table.

Key assumptions
The key assumptions relevant to the
assessment of the recoverable amount are:
• Volume
• Price
• Discount rate

The assumptions for volume and pricing are
closely linked, which, together with the
presence of multiple sub-brands in different
geographies within each brand, makes
individual sensitivity testing on the basis of
these two assumptions highly impractical.
Instead, sensitivity testing is performed for the
overall revenue growth rate, both in the
forecast period and the terminal period.

be impacted by changes in brand strategy and
other market factors.

The sensitivity calculated also assumes a
straight-line impact despite the fact that
changes in market dynamics and adjustments
to these will in practice have different impacts
in the individual years and might not apply in
the long term.

Baltika brand
The Baltika brand was written down to its
recoverable amount at the end of 2017. As a
result, any negative change in the key
assumptions would lead to further impairment.

The sensitivity test for the maximum decline in
growth rate in the forecast period assumes a
year-on-year decline in the nominal growth
rate, thereby estimating the accumulated effect
of a negative change for the full forecast
period.

Changes in the market dynamics in Russia can
have a significant negative impact on the
recoverable amount. Macroeconomic recovery
could lead to further premiumisation or
localisation, which could drive consumers
towards international brands or local/regional
brands.

The sensitivity tests were completed assuming
all other assumptions were unchanged, as it is
relevant to assess the sensitivity to, for
example, a decline in the growth rate
independently of changes in the discount rate.
This is because the growth rate in itself might

Any increase in the real interest rate from the
current 2.5%, either because of a higher interest
rate or lower inflation, will also significantly
reduce the recoverable amount. Such a change
could, for example, be driven by accelerated
economic growth.

Sensitivity test

DKKbn

∆

Baltika brand

Chongqing Brewery Group brands

Average
forecast
growth rate

Terminal
period
growth rate

Risk-free
interest rate

-1 %-point

+1 %-point

-0.7

-0.1

-0.3

-0.9

-0.1

A 1 percentage point increase in the interest
rate would result in a reduction in the
recoverable amount of DKK 0.9bn, and a 1
percentage point decrease in the terminal
growth rate would result in a reduction in the
recoverable amount of DKK 0.3bn. The
combined effect of a 1 percentage point
negative change in the interest rate, the

terminal growth rate and the average growth
rate in the forecast period (year-on-year)
would result in a reduction in the recoverable
amount of DKK 1.6bn.

Chongqing Brewery Group brands
The Chongqing Brewery Group brands were
written down to their recoverable amount in
2016, and the recoverable amount at the end
of 2017 remained close to the carrying
amount. As a result, a reasonably possible
negative change in the key assumptions would
lead to further impairment.

The brands are sensitive to developments in the
mainstream segment in China, where pressure
from premium and upper-mainstream – in
which the brands are not represented – could
lead to a further drop in market share and
thereby a further reduction of the recoverable
amount.

Similarly, a change in consumer trends towards
the discount segment could have a negative
impact on the recoverable amount.

A 1 percentage point increase in the interest
rate would result in a reduction in the
recoverable amount of DKK 0.1bn, and a
1 percentage point decrease in the terminal
growth rate would result in a reduction in the
recoverable amount of less than DKK 0.1bn.

SECTION 2.4
INTANGIBLE ASSETS
AND PROPERTY,
PLANT AND
EQUIPMENT

DKK million

2017

Cost

Cost at 1 January

Additions

Disposal of entities

Disposals

Transfers

Foreign exchange adjustments etc.

Cost at 31 December

Amortisation, depreciation and impairment losses

Amortisation, depreciation and impairment losses at 1 January

Disposal of entities

Disposals

Amortisation and depreciation

Impairment losses

Transfers

Foreign exchange adjustments etc.

Amortisation, depreciation and impairment losses at 31 December

Carrying amount at 31 December

Carrying amount of assets pledged as security for borrowings

Additions to goodwill are described in section 5.4.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 77

Intangible assets

Property, plant and equipment

Goodwill

Brands

Other
intangible
assets

Total

Land and
buildings

Plant and
machinery

Fixtures and
fittings, other
plant and
equipment

54,647

28,807

5,758

-62

-8

-2,475

52,113

-1,610

27,243

164

-52

-94

-75

5,715

89,212

221

-122

-94

-4,160

85,071

1,783

-62

-105

1,616

50,497

7,161

3,532

12,476

-8

4,847

-471

11,553

15,690

-51

-46

741

-80

4,109

1,606

-121

-46

765

4,767

-563

17,278

67,793

17,281

28,285

250

-259

-135

335

-726

16,746

7,559

-173

-87

490

-30

-291

7,472

9,274

2,166

-235

-333

-607

-1,167

28,109

16,922

-216

-255

1,402

-34

-664

17,181

10,928

14,306

1,419

-110

-1,679

269

-573

13,632

9,581

-82

-1,600

1,924

111

-86

-339

9,509

4,123

Total

59,872

3,835

-604

-2,147

-3

-2,466

58,487

34,062

-471

-1,942

3,816

-56

-1,294

34,162

24,325

SECTION 2.4 (CONTINUED)
INTANGIBLE ASSETS
AND PROPERTY,
PLANT AND
EQUIPMENT

DKK million

2016

Cost

Cost at 1 January

Acquisition of entities

Additions

Disposal of entities

Disposals

Transfers

Foreign exchange adjustments etc.

Cost at 31 December

Amortisation, depreciation and impairment losses

Amortisation, depreciation and impairment losses at 1 January

Disposal of entities

Disposals

Amortisation and depreciation

Impairment losses

Transfers

Foreign exchange adjustments etc.

Amortisation, depreciation and impairment losses at 31 December

Carrying amount at 31 December

Carrying amount of assets pledged as security for borrowings

Additions to goodwill from acquisition of entities are described in sections 5.2 and 5.4.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 78

Intangible assets

Property, plant and equipment

Goodwill

Brands

Other
intangible
assets

Total

Land and
buildings

Plant and
machinery

Fixtures and
fittings, other
plant and
equipment

Total

52,122

25,002

5,994

83,118

17,298

27,811

13,715

58,824

255

-124

355

-3

2,394

3,453

312

-350

-171

-27

54,647

28,807

5,758

1,852

5,300

3,046

-69

1,783

52,864

-3

867

969

7,161

21,646

-258

-121

794

-2

3,532

2,226

610

312

-477

-171

-27

5,847

89,212

10,198

-261

-121

822

920

-2

920

12,476

76,736

215

-441

-248

355

1,840

-608

-899

-430

522

1,473

-270

-1,156

362

177

3,528

-1,319

-2,303

1,054

17,281

28,285

14,306

59,872

7,268

16,116

-325

-202

522

148

138

7,559

9,722

420

-416

-771

1,438

131

-20

444

16,922

11,363

8,762

-161

-1,111

1,960

9,581

4,725

32,146

-902

-2,084

3,920

306

674

34,062

25,810

448

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 79

Lease and service agreements
Management considers the substance of the service
being rendered to classify the agreement as either a
lease or a service contract. Particular importance is
attached to whether fulfilment of the agreement
depends on the use of specific assets. The Group
assesses whether contracts are onerous by
determining only the direct variable costs and not the
costs that relate to the business as a whole.

For leases, an assessment is made as to whether the
lease is a finance or an operating lease. The Group
has mainly entered into operating leases for
standardised assets with a short duration relative to
the life of the assets, and accordingly the leases are
classified as operating leases.

Leases are classified as finance leases if they transfer
substantially all the risks and rewards incident to
ownership to the lessee. All other leases are classified
as operating leases.

Accounting estimates and judgements related to
impairment are described in section 2.3.

SECTION 2.4 (CONTINUED)
INTANGIBLE ASSETS
AND PROPERTY,
PLANT AND
EQUIPMENT

Property, plant and equipment under
construction amounted to DKK 1,435m (2016:
DKK 1,386m) and are included in plant and
machinery.

Fixtures and fittings, other plant and equipment
include transport, office and draught beer
equipment, coolers and returnable packaging.

Other intangible assets include software, land
use rights and beer delivery rights. The carrying

Amortisation, depreciation and impairment losses

DKK million

Cost of sales

Sales and distribution expenses

Administrative expenses

Special items

Total

Gain/loss on disposal of assets

DKK million

amount of software amounted to DKK 811m
(2016: 1,275m).

IT. Costs related to the contracts are
recognised as the services are received.

LEASES
Operating lease liabilities totalled DKK 912m
(2016: DKK 1,334m), with DKK 323m (2016:
DKK 450m) falling due within one year from
the reporting date. Operating leases primarily
relate to properties, IT and transport equipment
and contain no special purchase rights etc.

CAPITAL COMMITMENTS
The Group has entered into various capital
commitments that will not take effect until
after the reporting date and have therefore not
been recognised in the consolidated financial
statements. Capital commitments amounted to
DKK 515m (2016: DKK 166m).

Assets held under finance leases with a
carrying amount of DKK 23m (2016: DKK
28m) have been pledged as security for lease
liabilities of DKK 19m (2016: DKK 26m).

SERVICE AGREEMENTS
The Group has entered into service contracts of
various lengths in respect of sales, logistics and

Intangible assets Property, plant and equipment

2017

296

207

262

4,767

5,532

2016

321

228

280

913

2017

2,967

773

202

-79

2016

2,946

810

176

294

1,742

3,863

4,226

ACCOUNTING ESTIMATES
AND JUDGEMENTS

Useful lives and residual value of intangible
assets with finite useful life and property,
plant and equipment
Useful life and residual value are initially assessed
both in acquisitions and in business combinations, cf.
section 5. The value of the brands acquired and their
expected useful life are assessed based on the brands’
market position and profitability, and expected long-
term developments in the relevant markets.

Management assesses brands and property, plant
and equipment for changes in useful life. If an
indication of a reduction in the value or useful life
exists, the asset is tested for impairment and is
written down if necessary, or the amortisation/
depreciation period is reassessed and if necessary
adjusted in line with the asset’s changed useful life.

Reassessment of the expected future use is made in
connection with changes in production structure,
restructuring and brewery closures. This may result in
the expected future use and residual values not being
realised, which requires reassessment of useful life,
residual value and recognition of impairment losses or
losses on disposal of non-current assets.

When changing the amortisation or depreciation
period due to a change in the useful life, the effect on
amortisation/depreciation is recognised prospectively
as a change in accounting estimates.

Gain on disposal of property, plant and equipment and intangible assets, including
those held for sale, within beverage activities

Loss on disposal of property, plant and equipment and intangible assets within
beverage activities

Total

2017

2016

-36

104

-138

-34

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 80

SECTION 2.4 (CONTINUED)
INTANGIBLE ASSETS
AND PROPERTY,
PLANT AND
EQUIPMENT

ACCOUNTING
POLICIES

Cost
Intangible assets and property, plant and equipment
are initially recognised at cost and subsequently
measured at cost less accumulated amortisation or
depreciation and impairment losses.

Cost comprises the purchase price and costs directly
attributable to the acquisition until the date when the
asset is available for use. The cost of self-constructed
assets comprises direct and indirect costs of
materials, components, sub-suppliers, wages and
salaries, and capitalised borrowing costs on specific or
general borrowing attributable to the construction of
the asset and is included in Plant and machinery.

Research costs are recognised in the income
statement as incurred. Development costs are
recognised under other intangible assets if the costs
are expected to generate future economic benefits.

For assets acquired in business combinations,
including brands and property, plant and equipment,
cost at initial recognition is determined by estimating
the fair value of the individual assets in the purchase
price allocation.

Goodwill is only acquired in business combinations
and is measured in the purchase price allocation.
Goodwill is not amortised.

CO2 emission rights are measured at cost at the date
of allocation (i.e. normally DKK 0), while acquired
rights are measured at cost. A liability is recognised
(at fair value) only if actual emissions of CO2 exceed
allocated levels based on the holding of rights.

The present value of estimated liabilities related
to dismantling and removing an asset and restoring
the site on which the asset is located is added to the
cost of self-constructed assets if the liabilities are
provided for.

Where individual components of an item of property,
plant and equipment have different useful lives, they
are accounted for as separate items.

The cost of assets held under finance leases is stated
at the lower of fair value of the assets and the
present value of the future minimum lease payments.
For the calculation of the net present value, the
interest rate implicit in the lease or an approximation
thereof is used as the discount rate.

Subsequent costs, for example in connection with
replacement of components of property, plant and
equipment, are recognised in the carrying amount of
the asset if it is probable that the costs will result in
future economic benefits for the Group. The replaced
components are derecognised from the statement of
financial position and recognised as an expense in the
income statement. Costs incurred for ordinary repairs
and maintenance are recognised in the income
statement as incurred.

Useful life, amortisation, depreciation and
impairment losses
Useful life and residual value are determined at the
acquisition date and reassessed annually. If the
residual value exceeds the carrying amount,
depreciation is discontinued.

Amortisation and depreciation are recognised on a
straight-line basis over the expected useful life of the
assets, taking into account any residual value. The
expected useful life and residual value are determined
based on past experience and expectations of the
future use of assets.

Depreciation is calculated on the basis of the cost less
the residual value and impairment losses.

Amortisation and depreciation are recognised under
cost of sales, sales and distribution expenses, and
administrative expenses to the extent that they are
not included in the cost of self-constructed assets.

Impairment
Impairment losses of a non-recurring nature are
recognised under special items.

The expected useful life is as follows:

Brands with finite
useful life

Software etc.

Delivery rights

Normally 20 years

Normally 3-5 years. Group-wide
systems developed as an
integrated part of a major
business development
programme: 5-7 years

Depending on contract; if no
contract term has been agreed,
normally not exceeding 5 years

Customer
agreements/
relationships

Depending on contract with the
customer; if no contract exists,
normally not exceeding 20 years

CO2 rights

Depending on production period

Buildings

Technical installations

Brewery equipment

Filling and bottling equipment

Technical installations in warehouses

On-trade and distribution equipment

Fixtures and fittings, other plant and
equipment

Returnable packaging

Hardware

Land

20-40 years

15 years

8-15 years

8 years

5 years

5-8 years

3-10 years

3-5 years

Not depreciated

Operating leases
Operating lease payments are recognised in the
income statement on a straight-line basis over the
lease term.

Government grants and other funding
Grants and funding received for the acquisition of
assets and development projects are recognised in the
statement of financial position by deducting the grant
from the carrying amount of the asset. The grant is
recognised in the income statement over the life of
the asset as a reduced depreciation charge.

SECTION 3

SPECIAL ITEMS
AND PROVISIONS

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 81

0.6bn

SPECIAL ITEMS, INCOME
(DKK)

Impacted by gain on disposal of entities
and reversal of impairment losses.

-5.2bn

SPECIAL ITEMS, EXPENSES
(DKK)

Significantly impacted by impairment losses
on brands.

SECTION 3.1
SPECIAL ITEMS

During 2017, the Group continued the
execution of Funding the Journey, including the
focus on cost and efficiency initiatives, and
disposal of non-core assets.

The Group recognised gains and losses on
the disposal of the subsidiaries Carlsberg
Uzbekistan, Nordic Getränke in Germany and a
number of entities in China. Additionally, the
Group disposed of a number of associates,
including United Romanian Breweries and
Malterie Soufflet. Please refer to section 5 for
a detailed description of disposal of entities.

The year was also impacted by a write-down
of the Baltika brand as a consequence of
changed market dynamics following the PET
downsizing, our increased focus in Russia on
local and regional brands and, lastly, changes
in interest rate assumptions. Furthermore, a
minor Finnish brand was written down,
resulting in total impairments of DKK 4,847m.

Special items

DKK million

Special items, income

Gain on disposal of entities and activities

Reversal of impairment losses

Gain on disposal of property, plant and equipment impaired in prior years

Reversal of provision recognised in a purchase price allocation in prior years

Total

Special items, expenses

Impairment of brands

Restructurings, termination benefits and other impairment losses

Loss on disposal of entities and activities

Disposal of real estate, including adjustments to gains in prior years

Total

Special items, net

If special items had been recognised in operating profit before special items,
they would have been included in the following line items:

Cost of sales

Sales and distribution expenses

Administrative expenses

Other operating income

Other operating expenses

Special items, net

2017

2016

402

216

642

-4,847

-258

-102

-5,207

-4,565

2,078

207

2,391

-867

-1,203

-70

-2,140

251

-4,494

-1,058

-86

-77

522

-430

-4,565

-334

-100

2,078

-335

251

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 82

SECTION 3.1 (CONTINUED)
SPECIAL ITEMS

In 2016, the accelerated premiumisation in
China in combination with the continued
restructuring and disposal of entities in
Chongqing Brewery Group and Eastern Assets
impacted the expectations for the Chongqing
Brewery Group brands and led to further
impairments of DKK 800m. Additionally, a
minor brand in Baltika Breweries was
impaired. Please refer to section 2.3 for a
detailed description of impairment of brands.

In 2017, two breweries in Eastern Assets were
redesignated as primary producers of the
international brands in China. Following the
change in use, the two breweries are expected
to generate higher future cash flows than
forecast when they were written down in 2015.
As a result, impairment losses of DKK 216m
were reversed at the end of 2017. Please refer
to section 2.3 for a detailed description of the
reversal. The reversal of impairments in 2016
related to Carlsberg Uzbekistan, which was
disposed of in January 2017, and other assets

where the estimated recoverable amount
increased due to changes in the expected future
use of the assets.

In 2017 and 2016, the Group recognised
restructuring costs relating to a general
restructuring of the business and impairment
losses related to closure of breweries in Chinese
entities, totalling DKK -13m (2016: DKK
-317m).

In 2017, the Group recognised a gain on
disposal of Chinese entities totalling DKK 153m
(2016: DKK 1,036m).

As part of the outsourcing of secondary
logistics operations, Carlsberg UK closed and
transferred depots to a third party. The logistics
activities will continue until the final cutover
date in early 2018. The comparative figures
include a provision for an onerous contract as
well as a provision related to the brewery
accident in 2016.

In 2017, the Group continued to optimise and
standardise business processes across
Western Europe. The optimisation and
standardisation project is running at a number
of entities, including Kronenbourg and local
supply companies. The cost in 2016 mainly
comprised restructuring and impairment related
to the Group’s logistics activities and back-
office functions, and included the transfer of
over 300 roles from the Group’s captive to an
external service provider.

Retirement of members of the Executive
Committee relates to severance payments to
former Executive Vice President, Group HR,
Claudia Schlossberger. In 2016, the retirement
cost included severance payments and the cost
of share-based payments related to the
retirement of former Senior Vice President,
Western Europe, Jørn Tolstrup Rohde and
former Executive Vice President, Group Supply
Chain, Peter Ernsting. The cost of share-based
payments related to grants made prior to
retirement that vest after the date of
retirement.

Restructurings, termination benefits and other impairment losses

DKK million

Carlsberg UK, including onerous contract

Carlsberg Deutschland

Optimisation and standardisation in Western Europe

Chinese entities

Bihar, India

Retirement of members of the Executive Committee

Other, net

Total

2017

-70

-139

-13

-15

-21

2016

-395

-152

-103

-317

-199

-39

-258

-1,203

ACCOUNTING ESTIMATES
AND JUDGEMENTS

The use of special items entails management
judgement in the separation from other items in the
income statement. Management carefully considers
such items in order to ensure the correct distinction
between operating activities and restructuring of the
Group initiated to enhance the Group’s future earnings
potential and efficiency.

Management reassesses the useful life and residual
value of non-current assets used in an entity
undergoing restructuring. The extent and amount of
onerous contracts as well as employee and other
obligations arising in connection with a restructuring
are also estimated. Management initially assesses the
entire restructuring project and recognises all present
costs of the project, but the project is also assessed
on an ongoing basis with additional costs possibly
occurring during the lifetime of the project.

ACCOUNTING
POLICIES

Special items include significant income and expenses
of a special nature in terms of the Group’s revenue-
generating operating activities that cannot be
attributed directly to the Group’s ordinary operating
activities. Such income and expenses include the cost
of extensive restructuring of processes and
fundamental structural adjustments, as well as any
gains or losses arising from disposal of assets that
have a material effect over a given period.

Special items also include significant non-recurring
items, including termination benefits related to
retirement of members of the Executive Committee,
impairment of goodwill (including goodwill allocated
to associates and joint ventures) and brands, gains
and losses on the disposal of activities and associates,
revaluation of the shareholding in an entity held
immediately before a step acquisition of that entity,
and transaction costs in a business combination.

Special items are shown separately from the Group’s
ordinary operations, as this gives a truer and fairer
view of the Group’s operating profit.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 83

a contract are lower than the unavoidable costs of
meeting its obligations under the contract.

When the Group has a legal obligation to dismantle
or remove an asset or restore the site on which the
asset is located, a provision is recognised
corresponding to the present value of expected future
costs.

infringement of the competition rules in 2007.
Management does not agree with the
conclusions or findings of the Federal Cartel
Office and, accordingly, Carlsberg Deutschland
has appealed the decision to the relevant
German court.

SECTION 3.2
PROVISIONS

Restructuring provisions relate mainly to
termination benefits to employees made
redundant, primarily as a result of the
restructuring projects accounted for as special
items.

In 2017, restructuring provisions of DKK 493m
related primarily to Kronenbourg, Carlsberg
UK, Carlsberg Deutschland and local supply
companies, as described in section 3.1.

Other provisions of DKK 3,258m related
primarily to profit sharing in France, employee
obligations other than retirement benefits, and
ongoing disputes, lawsuits etc.

ACCOUNTING
POLICIES

Provisions, including warranty provisions, are
recognised when, as a result of events arising before
or at the reporting date, the Group has a legal or a
constructive obligation and it is probable that there
may be an outflow of resources embodying economic
benefits to settle the obligation.

Provisions are discounted if the effect is material to
the measurement of the liability. The Group’s average
borrowing rate is used as the discount rate.

Restructuring costs are recognised when a detailed,
formal restructuring plan has been announced to
those affected no later than at the reporting date. On
acquisition of entities, restructuring provisions in the
acquiree are only included in the opening balance
when the acquiree has a restructuring liability at the
acquisition date.

A provision for onerous contracts is recognised when
the benefits expected to be derived by the Group from

SECTION 3.3
CONTINGENT
LIABILITIES

The Group operates in very competitive
markets where consolidation is taking place
within the industry and among our customers
and suppliers, all of which in different ways
influences our business. In 2014, the Federal
Cartel Office in Germany issued a decision and
imposed a fine of EUR 62m for alleged

ACCOUNTING ESTIMATES
AND JUDGEMENTS

Provisions

In connection with large restructurings, management
assesses the timing of the costs to be incurred, which
influences the classification as current or non-current
liabilities. Provision for losses on onerous contracts is
based on agreed terms with the other party and
expected fulfilment of the contract based on the
current estimate of volumes and use of raw materials
etc. Warranty provisions are based on the substance
of the agreements entered into, including the
guarantees issued covering customers in the
on-trade.

Management assesses provisions, contingent assets
and liabilities and the likely outcome of pending or
probable lawsuits etc. on an ongoing basis. The
outcome depends on future events, which are by
nature uncertain. In assessing the likely outcome of
lawsuits and tax disputes etc., management bases its
assessment on external legal assistance and
established precedents.

DKK million

Provisions at 1 January 2017

Additional provisions recognised

Disposal of entities

Used during the year

Reversal of unused provisions

Transfers

Discounting

Foreign exchange adjustments etc.

Provisions at 31 December 2017

Recognised in the statement of
financial position

Non-current provisions

Current provisions

Total

Restructurings

Onerous
contracts

661

131

-3

-283

-10

-22

493

333

160

493

552

-8

-60

-14

-1

-29

451

433

451

Other

3,151

608

-64

-217

-138

-146

3,258

Total

4,364

739

-75

-560

-162

-197

4,202

In the ordinary course of business the Group is
furthermore party to certain lawsuits, disputes
etc. of various scopes. The resolution of these
lawsuits, disputes etc. is associated with
uncertainty, as they depend on legal
proceedings such as negotiations between the
parties affected, governmental actions and
court rulings. It is management and legal
counsel’s opinion that, apart from items
recognised in the statement of financial
position, the outcome of these lawsuits,
disputes etc. cannot be reliably estimated in
terms of amount or timing.

GUARANTEES AND COMMITMENTS
The Group has issued guarantees for loans etc.
raised by third parties (non-consolidated
entities) of DKK 475m (2016: DKK 431m).
Guarantees issued for loans raised by
associates and joint ventures are described in
section 5.5.

Certain guarantees etc. are issued in connection
with disposal of entities and activities etc. Apart
from items recognised in the statement of
financial position or disclosed in the
consolidated financial statements, these
guarantees etc. will not have a material effect
on the Group’s financial position.

2,845

413

3,258

3,611

591

4,202

Contractual commitments, lease liabilities and
service agreements are described in section 2.4.

SECTION 4

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 84

FINANCING COSTS, CAPITAL
STRUCTURE AND EQUITY

Equity and debt are used to
finance investments in assets and
operations.

Access to funding from a variety
of sources secures future
operating income.

Available credit resources are
used as a measure of immediate
access to funding.

Debt refinanced at historically
low rates in 2017, as a EUR 1bn
bond with a coupon of 2.5% was
repaid and partly financed by a
new EUR 500m bond issued with
a coupon of 0.5%.

-788m

19.6bn

21.3bn

NET FINANCIAL ITEMS (DKK)

Improved from DKK -1,247m in 2016.

NET INTEREST-BEARING DEBT
(DKK)

AVAILABLE CREDIT
RESOURCES (DKK)

Decreased by DKK 5.9bn in 2017.

Up from DKK 13.5bn in 2016.

Distribution of gross financial
debt – 2017 – Allocation (%)

Distribution of gross financial
debt – 2016 – Allocation (%)

Non-current bank borrowing 0%

Issued bonds 92%

Non-current mortgages 0%

Current bank borrowing 3%

Non-current bank borrowing 4%

Issued bonds 86%

Non-current mortgages 1%

Current bank borrowing 5%

Other current and non-current borrowing 5%

Other current and non-current borrowing 4%

2.7%

AVERAGE FUNDING COST (%)

Down from 3.0% in 2016.

1.45x

DEBT TO OPERATING PROFIT
BEFORE DEPRECIATION,
AMORTISATION AND
IMPAIRMENT LOSSES

An improvement from 1.96x in 2016.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 85

SECTION 4.1
FINANCIAL INCOME
AND EXPENSES

Financial items, net, improved by DKK 459m,
primarily due to lower net interest expenses
(DKK 251m) mainly because of the GBP 300m
bond expiring in November 2016 and a
reduction in the average net debt, as well as
lower other financial expenses. Other financial
expenses include write-downs of certain
financial receivables and interest related to the
lost tax case in Finland in 2016. This was offset
by a lower gain on foreign exchange and fair
value adjustments (DKK -192m), DKK 224m
lower than last year.

The currency translation of foreign entities in
other comprehensive income at the reporting
date, DKK -3,785m, primarily related to the
depreciation of RUB, which had an impact of
DKK -2,308m, and depreciation of other
Eastern European and Asian currencies.

ACCOUNTING
POLICIES

Realised and unrealised gains and losses on derivative
financial instruments that are not designated as
hedging arrangements and the ineffective portion of
those designated as hedging arrangements are
included in financial income and expenses.

Interest, losses and write-downs relating to on-trade
loans, which are measured at amortised cost, are
included as income and expenses in other operating
activities, cf. section 1.3.4, as such loans are treated
as a prepaid discount to the customer.

Financial items recognised in the income statement

DKK million

Financial income

Interest income

Fair value adjustments of financial instruments, net, cf. section 4.8

Foreign exchange gains, net

Interest on return on plan assets, defined benefit plans

Other financial income

Total

Financial expenses

Interest expenses

Capitalised financial expenses

Fair value adjustments of financial instruments, net, cf. section 4.8

Foreign exchange losses, net

Interest cost on obligations, defined benefit plans

Other financial expenses

Total

Financial items, net, recognised in the income statement

2017

2016

144

484

152

803

-775

-292

-250

-278

-1,591

-788

152

564

173

919

-1,034

-148

-296

-691

-2,166

-1,247

Interest income relates to interest on cash and cash equivalents measured at amortised cost.

Financial items recognised in other comprehensive income

DKK million

2017

2016

Foreign exchange adjustments of foreign entities

Foreign currency translation of foreign entities

Recycling of cumulative translation differences of entities
acquired in step acquisitions or disposed of

Total

Value adjustments of hedging instruments

Change in fair value of effective portion of cash flow hedges

Change in fair value of cash flow hedges transferred to the income statement

Change in fair value of net investment hedges

Total

-3,785

5,580

-57

-3,842

263

5,843

189

-142

-352

-305

141

Financial items, net, recognised in other comprehensive income

-4,147

5,984

Of the net change in fair value of cash flow hedges transferred to the income statement, DKK -146m (2016: DKK
110m) is included in net revenue and cost of sales and DKK 4m (2016: DKK -74m) is included in financial items.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 86

The Group proposes a dividend of DKK 16.00
per share (2016: DKK 10.00 per share),
amounting to DKK 2,441m (2016: DKK
1,526m). The proposed dividend has been
included in retained earnings at 31 December
2017.

The Group is rated by Moody’s Investors
Service and Fitch Ratings. As an element in
strategic decisions on capital structure,
management assesses the risk of changes in
the Group’s investment-grade rating.
Identification and monitoring of risks that could
change the rating were carried out on an
ongoing basis throughout the year.

SECTION 4.2
NET INTEREST-
BEARING DEBT

Net interest-bearing debt to operating profit
before depreciation, amortisation and
impairment losses is the Group’s measure of its
financial leverage.

Of the gross financial debt at year-end, 96%
(DKK 23.3bn) was long term, i.e. with maturity
of more than one year.

Net interest-bearing debt

DKK million

2017

2016

Non-current borrowings

23,340

Current borrowings

Gross financial debt

Cash and cash equivalents

849

24,189

-3,462

21,137

9,067

30,204

-3,502

Net financial debt

20,727

26,702

Loans to associates,
interest-bearing portion

On-trade loans, net

Other receivables, net

-290

-764

-35

-300

-863

-36

Net interest-bearing debt

19,638

25,503

Changes in net interest-bearing debt (DKKm)

25,503

-11,834

3,422

-268

2,263

550

19,638

SECTION 4.3
CAPITAL
STRUCTURE

4.3.1 CAPITAL STRUCTURE
Management regularly assesses whether the
Group’s capital structure is in the interests of
the Group and its shareholders. The overall
objective is to ensure a continued development
and strengthening of the Group’s capital
structure that supports long-term profitable
growth and a solid increase in key earnings
and ratios.

This includes assessment of and decisions on
the split of financing between share capital and
borrowings, which is a long-term strategic
decision to be made in connection with
significant investments and other transactions.

Carlsberg A/S’ share capital is divided into
two classes (A shares and B shares). Combined
with the Carlsberg Foundation’s position as
majority shareholder (in terms of control),
management considers that this division will
remain advantageous for all of its
shareholders, as this structure enables and
supports the long-term development of the
Group.

The Group targets a leverage ratio below 2.0x.
The leverage ratio is measured as net interest-
bearing debt to operating profit before
depreciation, amortisation and impairment
losses. At the end of 2017, the leverage ratio
was 1.45x, and in light of the reduced financial
leverage there will be an increase in payout to
shareholders.

SECTION 4.3 (CONTINUED)
CAPITAL
STRUCTURE

4.3.2 EQUITY
According to the authorisation of the Annual
General Meeting, the Supervisory Board may,
in the period until 19 March 2019, allow the
Company to acquire treasury shares up to a
total holding of 10% of the nominal share
capital at a price quoted on Nasdaq
Copenhagen at the time of acquisition with a
deviation of up to 10%. The Company holds no
class A shares.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 87

Class A shares

Class B shares

Total share capital

Shares of
DKK 20

Nominal
value,
DKK ’000

Shares of
DKK 20

Nominal
value,
DKK ’000

Shares of
DKK 20

Nominal
value,
DKK ’000

Transactions with shareholders
in Carlsberg A/S

Share capital

2017

2016

-1,525

-1,373

DKK million

Dividends paid to
shareholders

Acquisition of treasury
shares

Disposal of treasury
shares

-266

-214

No change in 2016

1 January 2016

33,699,252

673,985

118,857,554

2,377,151

152,556,806

3,051,136

110

149

31 December 2016

33,699,252

673,985

118,857,554

2,377,151

152,556,806

3,051,136

Total

-1,681

-1,438

No change in 2017

Transactions with
non-controlling interests (NCI)

31 December 2017

33,699,252

673,985

118,857,554

2,377,151

152,556,806

3,051,136

A shares carry 20 votes per DKK 20 share. B shares carry two votes per DKK 20 share. A preferential right to an 8%
non-cumulative dividend is attached to B shares. Apart from votes and dividends, all shares rank equally.

DKK million

Dividends paid to NCI

Acquisition of NCI

Capital increase

Total

2017

-738

-2

2016

-617

-399

Treasury shares

-740

-1,015

1 January 2016

Dividends paid to non-controlling interests
primarily related to entities in Asia.

Acquisition of treasury shares

Used to settle share-based payments

31 December 2016

Acquisition of treasury shares

Used to settle share-based payments

31 December 2017

Fair value at
31 December,
DKKm

Shares of
DKK 20

Nominal
value, DKKm

Percentage of
share capital

4,555

335,734

-335,888

4,401

376,888

-214,947

124

166,342

-7

-4

0.0%

0.2%

-0.2%

0.0%

0.2%

-0.1%

0.1%

Equity (DKKm)

To facilitate settlement of share-based incentive programmes in 2017, the Company acquired class B treasury shares
at an average price of DKK 706 (2016: DKK 637).

2,065

-3,842

53,650

1,266

-2,263

-792

-559

49,525

ACCOUNTING
POLICIES

Proposed dividends
Proposed dividends are recognised as a liability at the
date when they are adopted at the Annual General
Meeting (declaration date). The dividend
recommended by the Supervisory Board, and
therefore expected to be paid for the year, is
disclosed in the statement of changes in equity.

Treasury shares
Cost of acquisition, consideration received and
dividends received from treasury shares are
recognised directly in equity as retained earnings.
Capital reductions from the cancellation of treasury
shares are deducted from the share capital at an
amount corresponding to the nominal value of
the shares.

Proceeds from the sale of treasury shares in
connection with the settlement of share-based
payments are recognised directly in equity.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 88

SECTION 4.3 (CONTINUED)
CAPITAL
STRUCTURE

SECTION 4.4
BORROWINGS
AND CASH

Other borrowings include finance lease
liabilities of DKK 19m (2016: DKK 26m).

Change in gross financial debt

4.3.3 FINANCIAL RISK MANAGEMENT
The Group’s activities give rise to exposure to a
variety of financial risks, including market risk
(foreign exchange risk, interest rate risk and
raw material risk), credit risk and liquidity risk.
These risks are described in the following
sections:

• Foreign exchange risk: sections 1.4 and 4.5
• Interest rate risk: section 4.6
• Commodity risk: section 1.3.1
• Credit risk: sections 1.6 and 4.4.2
• Liquidity risk: section 4.7

The Group’s financial risks are managed by
Group Treasury in accordance with the
Financial Risk Management Policy approved by
the Supervisory Board and are an integrated
part of the overall risk management process at
Carlsberg. The risk management governance
structure is described in the Management
review.

To reduce the exposure to these risks, the
Group enters into a variety of financial
instruments and generally seeks to apply
hedge accounting to reduce volatility in the
income statement.

Debt instruments and deposits in foreign
currency reduce the overall risk, but do not
achieve the objective of reducing volatility in
specific items in the income statement.

4.4.1 BORROWINGS
Borrowings decreased in 2017 as a result of
the strong free cash flow generation. A EUR
1bn bond was repaid in October 2017, partly
using proceeds from issuing a EUR 500m bond
maturing in September 2023 and partly using
free cash flow. Bank borrowings also
decreased compared with year-end 2016, and
a mortgage loan on the brewery in Fredericia,
Denmark, was fully repaid.

Gross financial debt

DKK million

2017

2016

DKK million

Gross financial debt at 1 January

Proceeds from issue of bonds

Repayment of bonds

Instalments on and proceeds from
borrowings, long term

Repayment of mortgage

Instalments on and proceeds from
borrowings, short term

Other

External financing

Change in bank overdrafts

Other, including foreign exchange
adjustments and amortisation

Gross financial debt 31 December

2017

30,204

3,684

-7,444

-1,157

-420

147

-49

-5,239

-812

24,189

Non-current

Issued bonds

Mortgages

Bank borrowings

Other borrowings

Total

Current

Issued bonds

Current portion of other
non-current borrowings

Bank borrowings

Other borrowings

Total

Total borrowings

Fair value

22,215

1,104

18,489

420

1,114

23,340

21,137

7,424

773

849

193

1,443

9,067

24,189

30,204

25,840

32,160

An overview of issued bonds (current and non-current) is
provided in section 4.6.

ACCOUNTING
POLICIES

Borrowings mainly comprise bonds, bank borrowings
and finance lease liabilities and are initially
recognised at fair value less transaction costs. In
subsequent periods, borrowings are measured at
amortised cost using the effective interest method.
Accordingly, the difference between the fair value less
transaction costs and the nominal value is recognised
under financial expenses over the term of the loan.

4.4.2 CASH

Cash and cash equivalents include short-term
marketable securities with a term of three
months or less at the acquisition date that are
subject to an insignificant risk of changes in
value. Short-term bank deposits amounted to
DKK 578m (2016: DKK 1,014m). The average
interest rate on these deposits was 6.3%
(2016: 5.9%).

Cash and cash equivalents

DKK million

Cash and
cash equivalents

Bank overdrafts

Cash and cash
equivalents, net

2017

2016

3,462

3,502

-342

-1,154

3,120

2,348

ASSESSMENT OF CREDIT RISK
The Group is exposed to credit risk on cash and
cash equivalents (including fixed deposits),
investments and derivative financial
instruments with a positive fair value due to
uncertainty as to whether the counterparty will
be able to meet its contractual obligations as
they fall due.

The Group has established a credit policy under
which financial transactions may be entered
into only with financial institutions with a solid
credit rating. The credit exposure on financial
institutions is managed by Group Treasury.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 89

SECTION 4.4 (CONTINUED)
BORROWINGS
AND CASH

The Group primarily enters into financial
instruments and transactions with the Group’s
relationship banks, i.e. banks extending loans
to the Group.

Group Treasury monitors the Group’s gross
credit exposure to banks and operates with
individual limits on banks based on rating and
access to netting of assets and liabilities.

EXPOSURE TO CREDIT RISK
The carrying amount of DKK 3,462m (2016:
DKK 3,502m) represents the maximum credit
exposure related to cash and cash equivalents.
Of this amount, DKK 2,131m is cash in Asia.

The credit risk on receivables is described in
section 1.6.

SECTION 4.5
FOREIGN EXCHANGE
RISK RELATED TO
NET INVESTMENTS
AND FINANCING
ACTIVITIES

4.5.1 CURRENCY PROFILE OF
BORROWINGS
The Group is exposed to foreign exchange risk
on borrowings denominated in a currency other
than the functional currency of the group

entities reporting the debt, as well as the risk
that arises when net cash inflow is generated in
one currency and loans are denominated and
have to be repaid in another currency.

Currency profile of borrowings

Before and after derivative financial instruments

arising from operating activities or specific
transactions.

The most significant net risk relates to
foreign exchange adjustment of net
investments in RUB.

DKK million

2017

CHF

DKK

EUR

RUB

USD

Other

Total

Original
principal

Effect
of swap

23,775

306

24,189

914

1,764

-5,749

-1,359

2,056

2,374

Total 2016

30,204

After
swap

999

1,787

18,026

-1,359

2,056

2,680

24,189

30,204

Where the fair value adjustments of forward
exchange contracts do not exceed the fair
value adjustments of the investment, the
adjustments of the financial instruments are
recognised in other comprehensive income. Fair
value adjustments of loans designated as
strategic intra-group loans are also recognised
in other comprehensive income.

The fair value of derivatives used as net
investment hedges recognised at 31 December
2017 amounted to DKK 84m (2016: DKK
–104m).

4.5.3 EXCHANGE RATE RISK ON CASH
AND BORROWINGS
The main principle for funding of subsidiaries is
that cash, loans and borrowings should be in
local currency or hedged to local currency to
avoid foreign exchange risk. However, in some
Group entities debt is denominated in a
currency other than the local entity’s functional
currency without the foreign exchange risk
being hedged. This applies primarily to a few
entities in Eastern Europe that hold cash and
loans in EUR and USD and in this way obtain
proxy hedging of the foreign exchange risk
associated with the purchase of goods in
foreign currency in these markets.

4.5.2 HEDGING OF NET INVESTMENTS
IN FOREIGN SUBSIDIARIES
The Group holds a number of investments in
foreign subsidiaries where the translation of net
assets to DKK is exposed to foreign exchange
risks. The Group hedges part of this foreign
exchange exposure by entering into forward
exchange contracts (net investment hedges).
This applies to net investments in CHF, CNY,
MYR, NOK and PLN, with the hedging of the
two last-mentioned currencies being
established in 2017. The basis for hedging is
reviewed at least once a year, and the two
parameters, risk reduction and cost, are
balanced. In economic terms, having debt in
foreign currency or creating synthetic debt via
forward exchange contracts constitutes
hedging of the DKK value of future cash flows

Net investment hedges

Hedging of investment,
amount in local currency

Intra-group loans,
amount in local currency

Total adjustment to other
comprehensive income (DKK)

DKK million

2017

2016

2017

2016

RUB

CNY

MYR

HKD

CHF

GBP

NOK

SEK

PLN

SGD

Other

Total

-10,000

-1,250

-336

-260

-1,300

-135

-1,250

-336

-330

1,126

3,000

8,810

-67

1,345

3,000

2017

-3

-1

-138

163

-23

-158

-219

-4

-352

2016

-133

-7

-13

-113

127

106

-1

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 90

SECTION 4.5 (CONTINUED)
FOREIGN EXCHANGE
RISK RELATED TO
NET INVESTMENTS
AND FINANCING
ACTIVITIES

4.5.4 IMPACT ON FINANCIAL
STATEMENTS AND SENSITIVITY
ANALYSIS

IMPACT ON OPERATING PROFIT
For a description of the currency impact on
operating profit, please refer to section 1.4.

IMPACT ON FINANCIAL ITEMS, NET
In 2017, the Group had net gains on foreign
exchange and fair value adjustments of
financial instruments of DKK 192m (2016: gain
of DKK 416m), cf. section 4.1.

IMPACT ON STATEMENT OF FINANCIAL
POSITION
Fluctuations in foreign exchange rates will
affect the level of debt, as funding is obtained
in a number of currencies. In 2017, net
interest-bearing debt increased by DKK 360m
(2016: decreased by DKK 46m) due to changes
in foreign exchange rates.

IMPACT ON OTHER COMPREHENSIVE INCOME
For 2017, total losses on net investments,
loans granted to subsidiaries as an addition to
the net investment and net investment hedges
attributable to the shareholders in Carlsberg
A/S amounted to DKK -3,806m (2016: gains

of DKK 5,584m). Losses were primarily
incurred in RUB, and the Asian currencies.

Applied exchange rates

SENSITIVITY ANALYSIS
An adverse development in the exchange rates
would, all other things being unchanged, have
had the hypothetical impact on the
consolidated income statement for 2017
illustrated in the table. The hypothetical impact
ignores the fact that the subsidiaries’ initial
recognition of revenue, cost and debt would be
similarly exposed to the changes in the
exchange rates. The calculation is made on the
basis of items in the statement of financial
position at 31 December.

Other comprehensive income is affected by
changes in the fair value of currency derivatives
designated as cash flow hedges of future
purchases and sales. If the foreign exchange
rates of the currencies hedged had been 5%
higher (RUB: 10% higher) on 31 December

Exchange rate sensitivity

DKK

Swiss franc (CHF)

Chinese yuan (CNY)

Euro (EUR)

Pound sterling (GBP)

Laotian kip (LAK)

Norwegian krone (NOK)

Polish zloty (PLN)

Russian rouble (RUB)

Swedish krona (SEK)

Ukrainian hryvnia (UAH)

Closing rate

Average rate

2017

6.3621

0.9539

7.4449

8.3912

0.0007

0.7566

1.7824

0.1081

0.7563

0.2223

2016

6.9228

1.0156

7.4344

8.6832

0.0009

0.8182

1.6857

0.1165

0.7783

0.2616

2017

6.7091

0.9764

7.4384

8.4933

0.0008

0.7961

1.7500

0.1134

0.7712

0.2488

2016

6.8166

1.0125

7.4442

9.1182

0.0008

0.8028

1.7080

0.1019

0.7866

0.2632

2017, other comprehensive income would have
been DKK 139m lower (2016: DKK 133m
lower).

the consolidated financial statements are
presented above.

APPLIED EXCHANGE RATES
The DKK exchange rates for the most
significant currencies applied when preparing

The average exchange rate for the year was
calculated using the monthly exchange rates
weighted according to the phasing of the net
revenue per currency throughout the year.

DKK million

2017

EUR/GBP

EUR/NOK

EUR/RUB

EUR/UZS

Total

2017

USD/RUB

USD/UAH

Total

EUR
receivable

EUR
payable

EUR
borrowings

1,065

129

-617

-573

-268

USD
receivable

USD
payable

USD
borrowings

-1

-33

EUR
cash

220

-3

363

USD
cash

188

129

Gross
exposure

668

-447

104

Derivative

Net
exposure

668

-447

104

% change

10%

Gross
exposure

188

Derivative

Net
exposure

188

% change

10%

Effect
on P/L

-22

Effect
on P/L

2016

Effect
on P/L

-32

-18

-24

-41

2016

Effect
on P/L

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 91

SECTION 4.6
INTEREST RATE RISK

managed using fixed-rate bonds. No interest
rate swaps were in effect at 31 December
2017.

The most significant interest rate risk in the
Group relates to borrowings. As the Group’s net
debt is primarily in EUR, the interest rate
exposure relates to the development in the
interest rates for EUR.

The interest rate risk is measured by the
duration of the net financial debt. The target is
to have a duration between two and five years.
At 31 December 2017, the duration was 4.6
years (2016: 3.7). Interest rate risks are mainly

The EUR 750m bond maturing on 3 July 2019
consists of two bond issues of EUR 250m and
EUR 500m.

SENSITIVITY ANALYSIS
At the reporting date, 113% of the net financial
debt consisted of fixed-rate borrowings with
interest rates fixed for more than one year
(2016: 76%). The reason for the high
percentage of net debt at fixed rate is that the
amount of cash and cash equivalents exceeds

the amount of borrowing at floating rates. It is
estimated that a 1 percentage point interest
rate increase would lead to a decrease in
annual interest expenses of DKK 27m (2016:
increase of DKK 64m). The analysis assumes a
parallel shift in the relevant yield curves and
100% effective hedging of changes in the yield
curve.

If the market interest rate had been 1
percentage point higher at the reporting
date, it would have led to a financial gain of
DKK 962m (2016: DKK 978m), and a similar
loss had the rate been 1 percentage point
lower. However, since all fixed-rate borrowings

are measured at amortised cost, there is no
impact on other comprehensive income or the
income statement.

The sensitivity analysis is based on the financial
instruments recognised at the reporting date.

The sensitivity analysis assumes a parallel shift
in interest rates and that all other variables
remain constant, in particular foreign exchange
rates and interest rate differentials between the
different currencies. The analysis was
performed on the same basis as for 2016. The
Group did not enter into new interest rate
swaps in 2017.

Net financial debt by currency

Fixed for

Carrying
amount

Interest
rate risk

DKK million

Interest rate risk

DKK million

2017

Issued bonds

EUR 750m maturing 3 July 2019

EUR 750m maturing 15 November 2022

EUR 500m maturing 6 September 2023

EUR 1,000m maturing 28 May 2024

Total issued bonds

Total issued bonds 2016

Mortgages

Floating-rate

Total mortgages

Total mortgages 2016

Interest
rate

Fixed

Floating

Average
effective
interest
rate

2.6%

2.7%

0.7%

2.6%

2.3%

2.9%

0.7%

2017

EUR

DKK

PLN

USD

CHF

RUB

Other

Total

1-2 years

5,587

Fair value

4-5 years

5,559

Fair value

>5 years

3,690

Fair value

7,379

Fair value

22,215

25,913

420

<1 year

Cash flow

2016

Bank borrowings and other borrowings

Floating-rate

Fixed-rate

Total bank borrowings and other borrowings

Total bank borrowings and other borrowings 2016

Floating

Fixed

3.6%

0.6%

<1 year

>1 year

849

Cash flow

1,125

Fair value

1,974

3,871

Fixed¹

Floating² %

Net financial
debt

17,591

1,758

-123

1,606

979

Floating¹

-5,790

1,758

-123

1,604

979

-1,418

334

20,727

336

-2,654

23,381

-2

23,381

Interest rate

Fixed² %

100%

113%

72%

-1%

-22%

76%

100%

-13%

28%

100%

101%

100%

122%

24%

EUR

DKK

PLN

USD

CHF

RUB

Other

Total

18,207

7,313

-172

2,922

1,715

-2,228

-1,055

26,702

-1,740

19,947

7,311

-172

2,920

1,715

-2,228

-1,417

6,389

362

20,313

¹ Net financial debt consists of current and non-current items after currency derivatives less cash and cash equivalents.
² Net financial debt consists of current and non-current items less cash and cash equivalents.

SECTION 4.7
LIQUIDITY RISK

Liquidity risk results from the Group’s potential
inability to meet the obligations associated
with its financial liabilities, for example settle-
ment of financial debt and paying suppliers.
The Group’s liquidity is managed by Group
Treasury. The aim is to ensure effective
liquidity management, which involves
obtaining sufficient committed credit facilities
to ensure adequate financial resources and,
to some extent, tapping a range of funding
sources.

CREDIT RESOURCES AVAILABLE
Carlsberg uses the term credit resources
available to determine the adequacy of access
to credit facilities.

Net financial debt is used internally by
Group Treasury to monitor the Group’s credit
resources available. Net financial debt is the
Group’s net interest-bearing debt, excluding
interest-bearing assets other than cash, as
these assets are not actively managed in
relation to liquidity risk.

Time to maturity for non-current borrowings

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 92

At 31 December 2017, net financial debt was
DKK 20,727m (2016: DKK 26,702m).

At 31 December 2017, the Group had total
unutilised credit facilities of DKK 20,766m
(2016: DKK 19,388m), of which DKK 18,687m
(2016: DKK 19,029m) were non-current credit
facilities. Credit resources available consist of
the unutilised non-current credit facilities and
cash and cash equivalents of DKK 3,462m
(2016: DKK 3,502m) less utilisation of current
facilities of DKK 849m (2016: DKK 9,067m).

The credit resources available and the access
to unused committed credit facilities are
considered reasonable in light of the Group’s
current needs in terms of financial flexibility.

In addition to efficient working capital manage-
ment and credit risk management, the Group
mitigates liquidity risk by arranging borrowing
facilities with solid financial institutions.

The Group uses cash pools in the day-to-day
liquidity management for most of the entities in
Western Europe, as well as intra-group loans
between Group Treasury and subsidiaries.
Eastern Europe and Asia are less integrated in
terms of cash pools, and liquidity is managed
via intra-group loans.

Committed credit facilities and credit resources available

DKK million

2017

<1 year

Total current committed loans and credit
facilities

<1 year

1-2 years

2-3 years

3-4 years

4-5 years

2016

Total
committed
loans and
credit
facilities

Utilised
portion of
credit
facilities

Unutilised
credit
facilities

2,928

849

2,079

359

2,928

849

2,079

359

-849

-9,067

6,694

18,659

5,569

-28

5,569

11,088

18,687

42,027

23,340

17,838

3,462

369

18,660

9,962

3,502

21,300

13,464

DKK million

2017

Issued bonds

Bank borrowings

Other non-current borrowings

Total

Total 2016

1-2 years

2-3 years

3-4 years

4-5 years

>5 years

Total

>5 years

5,587

1,087

6,694

1,078

6,679

-29

-28

5,559

11,069

22,215

1,104

Total non-current committed loans and credit
facilities

Cash and cash equivalents

5,569

11,088

23,340

13,352

21,137

Credit resources available (total non-current
committed loans and credit facilities - net debt)

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 93

SECTION 4.7 (CONTINUED)
LIQUIDITY RISK

The table below lists the contractual maturities
of financial liabilities, including estimated
interest payments and excluding the impact of
netting agreements, and thus summarises the
gross liquidity risk.

The risk implied by the values shown in the
table reflects the one-sided scenario of cash
outflows only. Trade payables and other
financial liabilities mainly originate from the
financing of assets in ongoing operations,
such as property, plant and equipment, and
investments in working capital, for example
inventories and trade receivables.

The nominal amount/contractual cash flow
of the financial debt was DKK 163m higher

Maturity of financial liabilities

(2016: DKK 172m higher) than the carrying
amount. The difference between the nominal
amount and the carrying amount comprises
differences between these amounts at initial
recognition, which are treated as a cost that is
capitalised and amortised over the duration of
the borrowings.

The interest expense is the contractual cash
flows expected on the gross financial debt
existing at 31 December 2017.

The cash flow is estimated based on the
notional amount of the above-mentioned
borrowings and expected interest rates at
year-end 2017 and 2016. Interest on debt
recognised at year-end 2017 and 2016, for
which no contractual obligation exists (current
borrowing and cash pools), has been included
for a two-year period.

SECTION 4.8
DERIVATIVE
FINANCIAL
INSTRUMENTS

Fair value adjustments of fair value hedges,
financial derivatives not designated as hedging
instruments and ineffectiveness regarding
instruments designated in a hedge relationship
are recognised in the income statement. In
2017, fair value adjustments were DKK -292m
(2016: DKK 564m), cf. section 4.1.

The ineffectiveness includes both the ineffective
portion of hedges and technical ineffectiveness
relating to exchange rate instruments and
aluminium swaps designated as cash flow
hedges.

The Group monitors the cash flow hedge
relationships on a quarterly basis to assess
whether the hedge is still effective. If this is not
the case, the accumulated gain/loss on the
portion of the hedge that is no longer effective
is reclassified to the income statement.

Of the total ineffective portion of hedges
for 2017, DKK 1m related to the Group’s
aluminium-hedging scheme (2016: DKK 65m)
and DKK -5m to foreign exchange hedges
(2016: DKK 9m). The ineffective portion
regarding aluminium relates to hedged
transactions that are expected to take place
in 2018.

Fair value hedges and financial derivatives not designated as hedging instruments
(economic hedges)

DKK million

2017

Contractual
cash flows

Maturity
<1 year

Maturity
>1 year
<5 years

Maturity
>5 years

Carrying
amount

DKK million

Derivative financial instruments

2017

Derivative financial instruments, payables

104

113

Exchange rate instruments

Non-derivative financial instruments

Gross financial debt

Interest expenses

Trade payables and other liabilities

Contingent consideration

Non-derivative financial instruments

Financial liabilities

Financial liabilities 2016

12,316

11,187

24,189

Total

Other instruments

Ineffectiveness

24,352

2,287

15,050

3,820

45,509

45,613

849

512

15,050

309

16,720

16,824

1,496

3,511

17,323

279

11,466

51,801

25,236

12,621

13,944

N/A

15,050

3,820

2016

Exchange rate instruments

Other instruments

Ineffectiveness

Total

Fair value adjustment
recognised in the
income statement

-292

-4

-292

486

564

Fair value

285

287

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 94

SECTION 4.8 (CONTINUED)
DERIVATIVE
FINANCIAL
INSTRUMENTS

The fair value of derivatives classified as a cash
flow hedge is presented in the cash flow hedge
section below. Other instruments are primarily
aluminium hedges, which are not classified as
cash flow hedges.

Cash flow hedges comprise aluminium hedges
where the hedged item is aluminium cans that
will be used in a number of Group entities in
2018 and currency forwards entered into to
cover the foreign exchange risk on transactions
expected to take place in 2018 and 2019.

The fair value of cash flow hedges recognised
at 31 December 2017 includes the ineffective
portion of the financial instruments designated
as cash flow hedges.

The impact on other comprehensive income
from exchange rate instruments relates to
hedges of Group entities’ purchases and sales
in currencies other than their functional
currencies. The impact on other comprehensive
income from other instruments relates to
hedges of Group entities’ exposure to changes
in aluminium prices.

DETERMINATION OF FAIR VALUE
The Group has no financial instruments
measured at fair value on the basis of level
1 input (quoted prices) or level 3 input (non-
observable data) other than certain put options
cf. section 5.4.

The methods and assumptions used in
determining the fair values of each category
of financial assets and financial liabilities are
described in their relevant sections.

The carrying amount of financial assets and
liabilities approximates their fair value, except
for borrowings, cf. section 4.4.

Cash flow hedges

DKK million

2017

Interest rate instruments

Exchange rate instruments

Other instruments

Total

2016

Interest rate instruments

Exchange rate instruments

Other instruments

Total

Fair value adjustment
recognised in other
comprehensive income

Fair value

Expected recognition

-18

-11

139

129

-37

N/A

2018-2019

2018

N/A

2017-2018

2017

ACCOUNTING ESTIMATES
AND JUDGEMENTS

When entering into financial instruments,
management assesses whether the instrument is an
effective hedge of recognised assets and liabilities,
expected future cash flows or financial investments.
The effectiveness of recognised hedging instruments
is assessed at least quarterly.

Fair values of derivative financial instruments are
calculated on the basis of current market data and
generally accepted valuation methods. Internally
calculated values are used, and these are compared
with external market quotes on a quarterly basis. For
currency and aluminium derivatives, the calculation is
as follows:
a) the forward market rate is compared with the

agreed rate on the derivatives, and the difference
in cash flow at the future point in time is
calculated

b) the amounts are discounted to present value.

When entering into a contract, management assesses
whether the contract contains embedded derivatives
and whether they meet the criteria for separate
classification and recognition. The Group currently
does not have any embedded derivatives that meet
the criteria for separate classification and recognition.

ACCOUNTING
POLICIES

Derivative financial instruments are initially
recognised at fair value on the trade date and
subsequently remeasured at their fair value at the
reporting date. Attributable transaction costs are
recognised in the income statement.

The accounting for subsequent changes in fair value
depends on whether the derivative is designated as
one of: fair value hedges - hedges of the fair value of
recognised assets or liabilities; cash flow hedges -
hedges of particular risks associated with the cash
flow of recognised assets and liabilities; or net
investment hedges – hedges of currency fluctuations
in subsidiaries, associates or joint ventures.

The fair values of derivative financial instruments are
presented in other receivables or payables, and

positive and negative values are offset only when the
Group has the right and the intention to settle several
financial instruments net.

Changes in the fair value of a fair value hedge are
recognised in the income statement. Changes in the
value of the hedged portion of assets or liabilities are
also recognised. Except for foreign currency hedges,
hedging of future cash flows according to a firm
agreement is treated as a fair value hedge of a
recognised asset or liability.

Changes in the effective portion of the fair value of
derivative financial instruments that are designated
and qualify as a cash flow hedge are recognised in
other comprehensive income and accumulated in a
separate reserve in equity. When the hedged
transaction results in gains or losses, amounts
previously recognised in other comprehensive income
are transferred to the same item as the hedged item
when the hedged risk impacts the income statement.
If the hedged item is a non-financial asset, the
amount recognised in other comprehensive income is
transferred to the carrying amount of the asset when
the non-financial asset is recognised.

Derivatives designated as and qualifying for
recognition as a cash flow hedge of financial
investments are recognised in other comprehensive
income. On complete or partial disposal of the
financial investment, the portion of the hedging
instrument that is recognised in other comprehensive
income and relates to that financial investment is
recognised in the income statement when the gain or
loss on disposal is recognised.

For derivative financial instruments that do not
qualify for hedge accounting, changes in fair value
are recognised in the income statement as financial
income or financial expenses.

Changes in the fair value of derivative financial
instruments that are used to hedge net investments in
foreign subsidiaries, associates and joint ventures and
that effectively hedge currency fluctuations in these
entities are recognised in other comprehensive income
and accumulated in a separate translation reserve
in equity.

SECTION 5

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 95

ACQUISITIONS, DISPOSALS,
ASSOCIATES AND JOINT VENTURES

300m

In gains on disposal of entities recognised in
special items (DKK).

510m

In net cash proceeds from disposal of
entities included in cash flow from
investments (DKK).

SECTION 5.1
INVESTMENT MODEL
AND RISKS

MARKET ACCESS
In the beer industry, access to the local market
is very much dependent on establishing good
relationships, for example with customers in
the on- and off-trade market, national
distributors, local suppliers of raw and
packaging materials and relevant authorities
governing the beverage industry. Often the
most efficient way of establishing such
relations is by engaging with a local partner
that already has the relevant relationships.

Therefore, when the Group expands its
business into new markets, it often does so in
collaboration with a local partner. Such a
partnership can have different legal forms and
impacts the consolidated financial statements
to a varying degree depending on the legal
form.

INVESTMENT MODEL
Entering into a partnership can both reduce the
financial exposure and mitigate the business
risks associated with entering new markets.
The financial exposure, however, varies
depending on the structure of the partnership.

In some markets, the Group enters as a non-
controlling shareholder, provides a degree of
financing and contributes knowledge of the
beer industry, but leaves the controlling
influence with the partner. Other investments
are structured as joint ventures where the
Group and our local partner jointly make the
operational decisions and share strategic and
tactical responsibility.

More commonly, the Group structures its
partnership such that the Group exercises
management control, usually by way of a
majority of the voting rights, whereby the
investment is fully consolidated. Such
partnerships are just as important as other
types of partnership to be successful in the
local markets, but the Group has increased
financial exposure. Investments in businesses
in which the Group exercises management
control often involve put and/or call options
or a similar structure.

IMPACT ON FINANCIAL STATEMENTS
Investments in partnerships where the Group
is the non-controlling shareholder and joint
ventures are consolidated in the financial
statements using the equity method. The
accounting risk associated with these
governance models is limited to the
investment, the proportionate share of the
net result of the business and any specific
additional commitments or loans the Group
provides to the partnership.

In businesses where the Group exercises
management control, the full exposure to
the earnings and other financial risks impacts
the consolidated financials. From an
accounting point of view, the Group treats
any put options held by partners in such
entities as if they had already been exercised
by the partner, i.e. anticipating that the
acquisition will occur. The accounting impact
is that the non-controlling interests are not
recognised, and no part of net profits or equity
is attributed to them. Instead the dividends the
partner receives from the business – for
accounting purposes – are classified as interest
expenses.

SECTION 5.1 (CONTINUED)
INVESTMENT MODEL
AND RISKS

SECTION 5.2
ACQUISITIONS AND
DISPOSALS

Common to all partnerships is the risk of
disagreement and, ultimately, dissolution.

A dissolution will initially impact the accounting
treatment of an investment and depend on
whether the Group or our partner is exiting the
business. In the long term, however, the impact
can be significant to the operation of the local
entity and the collaboration with customers,
distributors, authorities etc. if the partner was
instrumental in managing these relationships.
There is therefore a risk that the dissolution of
a partnership may have a negative impact on
the underlying business and the financial
performance recognised in the consolidated
financial statements.

ACQUISITION OF ENTITIES
The Group did not complete any acquisitions
of entities in 2017.

In 2016, the Group gained control of two
entities that individually and collectively were
not material to the Group. The purchase price
allocation was completed for one of the
entities, while the other was recognised at
provisional values at 31 December 2016. In
2017, the provisional values were finalised
without any changes in goodwill, which
amounted to DKK 205m.

Entities disposed of

DKK million

Non-current assets

Current assets

Assets held for sale

Non-current liabilities

Current liabilities

Net assets of entities disposed of

Non-controlling interests

Net assets of entities disposed of, attributable to shareholders in Carlsberg A/S

Recycling of cumulative exchange differences

Directly attributable expenses

Gain on disposal, net, recognised in special items, cf. section 3.1

Prepayment received in prior period

Cash consideration received, cf. section 5.2

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 96

DISPOSAL OF ENTITIES
In 2017, the Group disposed of the subsidiaries
Carlsberg Uzbekistan (January) and Nordic
Getränke in Germany (March). The Group also
disposed of the associates United Romanian
Breweries (March), Malterie Soufflet in Russia
(April) and Nya Carnegiebryggeriet in Sweden
(March). The last of these was sold to a
subsidiary of Sicera, a joint venture of the
Group.

The restructuring of the Group’s Chinese
activities in Chongqing Brewery Group and
Eastern Assets in 2017 and 2016 resulted in
the disposal of five entities (2016: nine)
comprising brewing and malting activities.
Most of the breweries had been closed before
the disposals.

In 2016, as part of an asset swap, the
associate Xinjiang Hops was disposed of
in June and the Group acquired a 35% non-
controlling interest in Xinjiang Wusu Breweries

in exchange. Following the completion, the
Group holds 100% of Xinjiang Wusu Breweries.
The gain on disposal of Xinjiang Hops was
recognised in special items, income, while the
cost of the acquisition of the non-controlling
interest was recognised in the statement of
equity. The cash flows were recognised
accordingly and amounted to approximately
DKK 200m, net.

In 2016, the Group also disposed of its 59%
controlling interest in Carlsberg Malawi
(August), its wholly owned entities Danish
Malting Group (January) and Carlsberg
Vietnam Breweries - Vung Tau (July), as well
as the associate Sejet Planteforædling
(December) and other minor entities.

The disposals completed in both 2017 and
2016 were part of the structural changes under
the Funding the Journey programme, and all
related to non-core assets.

ACCOUNTING ESTIMATES
AND JUDGEMENTS

2017

453

269

103

-321

-221

283

-3

280

-57

-4

300

519

2016

687

995

-156

-630

896

-83

813

263

2,078

-25

3,136

Assessment of control
The classification of entities where Carlsberg does
not control 100% of the voting rights is based on an
assessment of the contractual and operational
relationship between the parties. This includes
assessing the conditions in shareholder agreements,
contracts etc. Consideration is also given to the extent
to which each party can govern the financial and
operating policies of the entity, how the operation of
the entity is designed, and which party possesses the
relevant knowledge and competences to operate the
entity.

Another factor relevant to this assessment is the
extent to which each of the parties can direct the
activities and affect the returns, for example by
means of rights, exclusively reserved matters or
casting votes.

comparative figures are restated accordingly if the
amount is material.

Except in cases of material error, changes in
estimates of contingent purchase considerations are
recognised in the income statement under special
items, unless they qualify for recognition directly in
equity. Changes in estimates of contingent purchase
considerations in business combinations completed no
later than 31 December 2009 are recognised as an
adjustment to goodwill.

Disposals
Gains or losses on the disposal or winding-up of
subsidiaries, associates and joint ventures are stated
as the difference between the sales price and the
carrying amount of net assets, including goodwill at
the date of disposal or winding-up, foreign exchange
adjustments recognised in other comprehensive
income, and costs to sell or winding-up expenses.

Partial disposal of investments with loss of control
When the Group loses control of a subsidiary through
a partial disposal of its shareholding or voting rights,
the retained shareholding in the entity is classified as
an associate or a security depending on the level of
control after the disposal. The shareholding in the
associate or the security held after the partial disposal
is measured at fair value at the date of disposal. The
fair value is recognised as the new cost of the
shareholding in the associate or the security. The
resulting gain or loss is recognised under special
items.

SECTION 5.2 (CONTINUED)
ACQUISITIONS
AND DISPOSALS

ACCOUNTING
POLICIES

For acquisition of subsidiaries, associates and joint
ventures, the acquisition method is used. The
acquired entities’ identifiable assets, liabilities and
contingent liabilities are measured at fair value at the
acquisition date. Identifiable intangible assets are
recognised if they are separable or arise from a
contractual right. Deferred tax on revaluations is
recognised.

The acquisition date is the date when the Group
effectively obtains control of an acquired subsidiary
or significant influence over an associate or a joint
venture.

The cost of a business combination comprises the fair
value of the consideration agreed upon. When a
business combination agreement provides for an
adjustment to the cost of the combination that is
contingent on future events, the fair value of that
adjustment is included in the cost of the combination.

Goodwill and fair value adjustments in connection
with the acquisition of a foreign entity with a
functional currency other than the presentation
currency used in the Group are treated as assets and
liabilities belonging to the foreign entity and
translated into the foreign entity’s functional currency
at the exchange rate at the transaction date.

If uncertainties regarding measurement of acquired
identifiable assets, liabilities and contingent liabilities
exist at the acquisition date, initial recognition will
take place on the basis of preliminary fair values. If
identifiable assets, liabilities and contingent liabilities
are subsequently determined to have a different fair
value at the acquisition date from that first assumed,
goodwill is adjusted up until 12 months after the
acquisition. The effect of the adjustments is
recognised in the opening balance of equity, and the

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 97

SECTION 5.3
CASH FLOW EFFECT
FROM ACQUISITIONS
AND DISPOSALS

Elements of cash consideration paid
and received

DKK million

2017

2016

SECTION 5.4
NON-CONTROLLING
INTERESTS

The Group has entities, primarily in Asia, that
are not wholly owned.

Non-controlling interests' share of profit for
the year

Cash consideration
received/paid, associates

Cash and cash equivalents
acquired/disposed of

Cash consideration
received/paid, subsidiaries

Total cash consideration
received, net

- of which consideration
received for entities disposed

242

716

-2

-210

DKK million

Lao Brewery

Chongqing Brewery Group

Carlsberg Malaysia Group

Asia, other

270

2,179

Other regions

Total

2017

304

230

182

806

2016

288

-164

173

371

510

2,685

519

3,136

CONTINGENT CONSIDERATIONS
Contingent considerations relate to subsidiaries
of the Group that are operated in cooperation
with local partners who hold options to sell
their shares to the Group.

The contingent consideration primarily relates
to put options on 49% of the shares in Olympic
Brewery, Greece, 21% in Brewery Alivaria,
Belarus, and 33% in the parent company
holding 100% and 90% of the shares in the
businesses in India and Nepal respectively. The
total contingent consideration recognised
amounted to DKK 3,820m at 31 December
2017 (2016: DKK 3,027m).

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 98

generally accepted valuation methods,
including discounted cash flows and multiples.
Estimates are based on updated information
since initial recognition of the contingent
consideration, including new budgets and sales
forecasts, discount rates etc. The determination
of the fair value makes use of non-observable
data (level 3 input) such as entity-specific
discount rates and industry-specific
expectations of price developments. These
inputs are identical to the input applied in the
test for impairment, cf. section 2.3.

The total fair value adjustment recognised in
2017 amounted to DKK 793m (2016: DKK
1,011m). Of this, the fair value adjustment of
contingent considerations for acquisitions
completed before 1 January 2010 amounted
to DKK 3m (2016: DKK 6m), which was
recognised as an adjustment to goodwill.

ACCOUNTING
POLICIES

On acquisition of non-controlling interests (i.e.
subsequent to the Group obtaining control), acquired
net assets are not measured at fair value. The
difference between the cost and the non-controlling
interests’ share of the total carrying amount, including
goodwill, is transferred from the non-controlling
interests’ share of equity to equity attributable to
shareholders in Carlsberg A/S. The amount deducted
cannot exceed the non-controlling interests’ share of
equity immediately before the transaction.

On disposal of shareholdings to non-controlling
interests, the difference between the sales price and
the share of the total carrying amount, including
goodwill acquired by the non-controlling interests, is
transferred from equity attributable to shareholders in
Carlsberg A/S to the non-controlling interests’ share
of equity.

Fair value adjustment of put options granted to non-
controlling interests on or after 1 January 2010 is
recognised directly in the statement of changes in
equity. Fair value adjustment of put options granted
no later than 31 December 2009 is recognised in
goodwill.

SECTION 5.5
ASSOCIATES AND
JOINT VENTURES

The total investments in associates and joint
ventures amounted to DKK 4,266m at 31
December 2017 (2016: DKK 4,701m).

While none of the investments are individually
material, they include the investments in the
businesses in Portugal (44%), Cambodia (50%),
Myanmar (51%) and five associates in China
(each 50%). The total investment in these
associates amounted to DKK 2,611m at 31
December 2017, while the share of profit after
tax amounted to DKK 166m for 2017.

Despite the legal ownership of 51% of
Myanmar Carlsberg, the entity is classified
as an associate due to the shareholders’
agreement with the partner.

SECTION 5.4 (CONTINUED)
NON-CONTROLLING
INTERESTS

In accordance with the Group’s accounting
policy, shares subject to put options are
consolidated as if the shares had already been
acquired. The ownership percentage at which
these subsidiaries are consolidated therefore
differs from the legal ownership interest
retained by the Group. The legal and
consolidated ownership is stated in section 10.

The carrying amount of contingent
considerations regarding the expected future
exercise of put options held by non-controlling
interests is determined in accordance with the
terms of the agreements made with the holders
of the options. Therefore, not all are measured
at fair value. For put options measured at fair
value in accordance with the terms of the
agreement, the value is estimated using

Transactions with non-controlling interests

DKK million

2017

Consideration paid for acquisition of non-controlling interests

Proportionate share of equity acquired from non-controlling interests

Fair value adjustment of contingent considerations

Recognised in equity

2016

-2

-790

-807

-2

-597

2016

Transactions with non-controlling interests primarily comprise transactions with shareholdings in:
2017: Carlsberg South Asia Pte Ltd (holding company of the investments in India and Nepal) and Olympic Brewery SA.
2016: Xinjiang Wusu Breweries Co., Ltd., Carlsberg South Asia Pte Ltd, and Olympic Brewery SA.

Associates

Joint ventures

Attributable to
shareholders in
Carlsberg A/S

Attributable to
non-controlling
interests

Key figures for associates and joint ventures

DKK million

2017

Associates

Joint ventures

Carlsberg Group share

Profit
after tax

Other
comprehensive
income

Total
comprehensive
income

Investments in
associates and
joint ventures

252

262

220

104

324

-12

240

250

223

104

327

3,200

1,066

4,266

3,500

1,201

4,701

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 99

SECTION 5.5 (CONTINUED)
ASSOCIATES AND
JOINT VENTURES

Investments in associates and joint ventures
decreased compared with 2016, primarily due
to the disposal of the associates United
Romanian Breweries, Malterie Soufflet in
Russia and Nya Carnegiebryggeriet in Sweden,
as well as foreign exchange losses.

For associates in which the Group holds an
ownership interest of less than 20%, the Group
participates in the management of the
company and is therefore exercising significant
influence.

The Group also has minor investments in
entities in which the Group is unable to exercise
significant influence.

Fair value of investment in listed associates

DKK million

2017

2016

The Lion Brewery
Ceylon, Biyagama,
Sri Lanka

442

439

None of the associates and joint ventures are
material to the Group.

CONTINGENT LIABILITIES
The Group did not issue any guarantees for
loans etc. raised by associates and joint
ventures in 2017 or 2016.

ACCOUNTING
POLICIES

Investments in associates and joint ventures are
recognised according to the equity method and
measured at the proportionate share of the entities’
net asset values calculated in accordance with the
Group’s accounting policies. The proportionate share
of unrealised intra-group profits and the carrying
amount of goodwill are added, whereas the
proportionate share of unrealised intra-group losses
is deducted.

Investments in associates and joint ventures with
negative net asset values are measured at DKK 0. If
the Group has a legal or constructive obligation to
cover a deficit in the associate or joint venture, the
deficit is recognised under provisions. Any amounts
owed by associates and joint ventures are written
down to the extent that the amount owed is deemed
irrecoverable.

SECTION 5.6
ASSETS AND
LIABILITIES HELD
FOR SALE

For 2017, assets and liabilities held for sale
amounted to DKK 0. In 2016, assets held for
sale, DKK 125m, consisted primarily of
Carlsberg Uzbekistan and two associates,
which were all disposed of in 2017.

Assets and liabilities held for sale

DKK million

2017

2016

Assets

Property, plant and
equipment

Inventories

Other current assets

Total assets in a disposal
group held for sale

Assets held for sale

Total assets held for sale

Liabilities

Other liabilities

Total liabilities held for sale

105

125

In 2016, a reversal of impairment of DKK
105m was recognised in special items prior to
the classification as assets held for sale. Except
for the reversal of impairment, the classification
of assets as held for sale did not impact the
income statement or statement of cash flows
for 2016.

ACCOUNTING
POLICIES

Assets held for sale comprise non-current assets and
disposal groups held for sale. Disposal groups are
defined as a group of assets to be disposed of, by
sale or otherwise, together as a group in a single
transaction and those liabilities directly associated
with the assets that will be transferred in the
transaction.

Assets are classified as held for sale if management
has decided to sell the asset or disposal group and
taken the necessary steps to carry out the sale such
that the carrying amount will be recovered principally
through a sale within 12 months in accordance with a
formal plan rather than through continuing use.
Comparative figures are not restated.

Assets or disposal groups held for sale are measured
at the lower of carrying amount and fair value less
costs to sell. Assets are not depreciated or amortised
from the date when they are reclassified as held for
sale.

If a sale is not completed as expected, the asset or
disposal group is reclassified to the items in the
statement of financial position from which the asset
or disposal group was originally separated. This
reclassification is made at the carrying amount less
any depreciation charges that would have been
recognised if the asset had not been classified as held
for sale.

SECTION 6

TAX

2,427m

CORPORATION TAX (DKK)

Excluding impairment of brands, down
from DKK 2,565m in 2016.

29%

TAX RATE (%)

Excluding impairment of brands.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 100

SECTION 6.1
CORPORATION TAX

The nominal weighted tax rate for the Group is
calculated as domestic tax rates applicable to
profits in the entities as a proportion of each
entity’s share of the Group’s profit before tax.

The tax rate of 41.4% was negatively impacted
by the impairment of brands in Russia and
Finland, which was recognised in special items.
Excluding impairment of brands, the effective
tax rate would have been 29%.

In 2016, the tax rate of 33% was negatively
impacted, mainly by the lost tax case in

Finland. The tax expense related to this is non-
recurring and had no impact on cash flow.

Valuation allowances on tax losses in 2017
and 2016 also impacted negatively.

Fair value adjustments of hedging instruments
arise in Denmark, but it is not possible to
deduct all fair value adjustments due to
local thin capitalisation rules. Tax on such
adjustments therefore fluctuates from year to
year.

Reconciliation of the effective tax rate for the year

2017

2016

ACCOUNTING
POLICIES

DKK million

Nominal weighted tax rate

Change in tax rate

Adjustments to tax for prior years

Non-capitalised tax assets, net movements

Non-taxable income

Non-deductible expenses

Tax incentives etc.

Special items

Withholding taxes

Other and tax in associates and
joint ventures

Effective tax rate for the year

Tax on impairment of brands

22.5%

-3.6%

-0.7%

11.2%

-1.0%

8.6%

-1.4%

-1.2%

9.4%

-2.4%

41.4%

793

-127

-24

394

-37

302

-49

-41

329

-82

1,458

969

21.7%

-1.1%

2.2%

7.5%

3.9%

-0.8%

-2.5%

3.7%

-1.6%

33.0%

1,575

-81

159

543

283

-56

-184

268

-115

2,392

173

Effective tax rate for the year adjusted for
impairment of brands

29.0%

2,427

31.6%

2,565

Tax for the year comprises current tax and changes in
deferred tax for the year, including changes as a
result of a change in the tax rate. The tax expense
relating to the profit/loss for the year is recognised in
the income statement, while the tax expense relating
to items recognised in other comprehensive income is
recognised in the statement of comprehensive
income.

If the Group obtains a tax deduction on computation
of the taxable income in Denmark or in foreign
jurisdictions as a result of share-based payment
programmes, the tax effect of the programmes is
recognised in tax on the profit/loss for the year.
However, if the total tax deduction exceeds the total
tax expense, the tax benefit for the excess deduction
is recognised directly in equity.

SECTION 6.1 (CONTINUED)
CORPORATION TAX

Corporation tax

DKK million

Tax for the year can be specified as follows

Current tax

Change in deferred tax during the year

Change in deferred tax as a result of change in tax rate

Adjustments to tax for prior years

Total

Tax recognised in other comprehensive income

Income
statement

Other
comprehensive
income

Total
comprehensive
income

Income
statement

Other
comprehensive
income

Total
comprehensive
income

2017

2016

2,319

-710

-127

-24

1,458

-36

152

116

2,283

-558

-127

-24

1,574

2,700

-393

-74

159

2,392

-41

-21

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 101

SECTION 6.2
DEFERRED TAX

Of the total deferred tax assets recognised,
DKK 531m (2016: DKK 673m) related to tax
loss carryforwards, the utilisation of which
depends on future positive taxable income
exceeding the realised deferred tax liabilities.
It is management’s opinion that these tax loss
carryforwards can be utilised.

Tax assets not recognised of DKK 1,411m
(2016: DKK 1,287m) primarily related to tax
losses that are not expected to be utilised in
the foreseeable future. Tax losses that will not
expire amounted to DKK 776m (2016: DKK
525m).

Deferred tax of DKK 115m (2016: DKK 113m)
was recognised in respect of earnings in entities
in the Eastern Europe region that are intended
for distribution in the short term, as tax of 5% is
payable on distributions.

For other subsidiaries where reserves are
planned to be distributed, any distribution of
earnings will not trigger a significant tax
liability based on current tax legislation.

Deferred tax on temporary differences relating
to investments in subsidiaries, associates and
joint ventures amounted to DKK 0m (2016: 0m).

2,718

-434

-72

159

2,371

2016

After tax

5,843

111

-902

-4

5,051

DKK million

Foreign exchange adjustments

Hedging instruments

Retirement benefit obligations

Share of other comprehensive income in associates and joint ventures

Other

Total

Recognised
item
before tax

-3,842

-305

1,266

-12

-2,893

Tax
income/
expense

-138

-3

-116

2017

After tax

-3,842

-280

1,128

-12

-3

Recognised
item
before tax

Tax
income/
expense

5,843

141

-957

-30

-4

-3,009

5,030

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 102

SECTION 6.2 (CONTINUED)
DEFERRED TAX

ACCOUNTING ESTIMATES
AND JUDGEMENTS

The Group recognises deferred tax assets, including
the expected tax value of tax loss carryforwards, if
management assesses that these tax assets can be
offset against positive taxable income in the
foreseeable future. This judgement is made annually
and based on budgets and business plans for the
coming years, including planned commercial
initiatives.

Carlsberg operates in a large number of tax
jurisdictions where tax legislation is highly complex
and subject to interpretation. Management makes
judgements on uncertain tax positions to ensure
recognition and measurement of tax assets and
liabilities.

ACCOUNTING
POLICIES

Current tax payable and receivable are recognised in
the statement of financial position as tax computed
on the taxable income for the year, adjusted for tax
on the taxable income of prior years and for tax paid
on account.

Deferred tax on all temporary differences between
the carrying amount and the tax base of assets and
liabilities is measured using the balance sheet liability
method. However, deferred tax is not recognised on
temporary differences relating to goodwill that is not
deductible for tax purposes or on office premises and
other items where temporary differences, apart from
business combinations, arise at the acquisition date
without affecting either profit/loss for the year or
taxable income. Where alternative tax rules can be
applied to determine the tax base, deferred tax is
measured based on management’s planned use of
the asset or settlement of the liability.

If specific dividend plans exist for subsidiaries,
associates and joint ventures in countries levying
withholding tax on distributions, deferred tax is
recognised on expected dividend payments.
Deferred tax assets, including the tax base of tax
loss carryforwards, are recognised under other
non-current assets at the expected value of their
utilisation, either as a set-off against tax on future
income or as a set-off against deferred tax liabilities
in the same legal tax entity and jurisdiction.

Deferred tax assets and tax liabilities are offset if the
entity has a legally enforceable right to offset current
tax liabilities and tax assets or intends either to settle
current tax liabilities and tax assets or to realise the
assets and settle the liabilities simultaneously.
Deferred tax assets are subject to annual impairment
tests and are recognised only to the extent that it is
probable that the assets will be utilised.
Adjustments are made to deferred tax resulting from
elimination of unrealised intra-group profits and
losses.

Deferred tax is measured according to the tax rules
and at the tax rates applicable in the respective
countries at the reporting date and when the deferred
tax is expected to crystallise as current tax. The
change in deferred tax as a result of changes in tax
rates is recognised in the income statement. Changes
to deferred tax on items recognised in other
comprehensive income are, however, recognised
in other comprehensive income.

Deferred tax

DKK million

Deferred tax at 1 January, net

Adjustments to prior years

Acquisition and disposal of entities

Recognised in other comprehensive income

Recognised in the income statement

Change in tax rate

Foreign exchange adjustments

Deferred tax at 31 December, net

Recognised as follows

Deferred tax liabilities

Deferred tax assets

Deferred tax at 31 December, net

Specification of deferred tax

2017

4,640

152

-710

-127

-34

3,938

5,601

-1,663

3,938

DKK million

2016

Intangible assets

4,227

Property, plant and equipment

123

-41

Current assets

Provisions and retirement benefit obligations

Fair value adjustments

-393

Tax losses etc.

-72

Total before set-off

735

Set-off

4,640

Deferred tax assets and liabilities at 31 December

Expected to be used as follows

6,250

-1,610

Within one year

After more than one year

4,640

Total

Deferred tax assets

Deferred tax liabilities

2017

1,107

528

176

1,094

144

1,233

4,282

-2,619

1,663

250

1,413

1,663

2016

446

412

141

1,281

154

1,407

3,841

-2,231

1,610

311

1,299

1,610

2017

4,736

1,727

1,692

8,220

-2,619

5,601

1,850

3,751

5,601

2016

5,072

1,909

195

1,235

8,481

-2,231

6,250

1,149

5,101

6,250

SECTION 7

STAFF COSTS AND
REMUNERATION

Pensions

Defined benefit obligations decreased due
to the implementation of risk sharing in
Switzerland and gains on investments in
plan assets in the UK.

41,430

The average number of employees
decreased by 632, mainly as a result
of disposal of entities and restructuring
projects.

Employees
By region (%)

By function (%)

2017

(2016)

2017

(2016)

Western Europe 31%
Eastern Europe 29%
Asia 38%
Other 2%

(40%)
(3%)

(32%)
(25%)

(35%)
Production 32%
(19%)
Distribution 17%
Sales & Marketing 41%
Administration 10%

(36%)

(10%)

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 103

SECTION 7.1
STAFF COSTS

The average number of employees decreased
during 2017, due to disposal of entities and
restructuring projects. The disposal of Carlsberg
Uzbekistan and Nordic Getränke in 2017 and the
full-year effect of the disposals in 2016 impacted
the average headcount for 2017 by around
1,300 employees. In addition, various

restructuring projects in the UK, France and China
as well as brewery closures in China also
contributed to the reduction of the average
headcount for 2017.

The decrease from the disposals and
restructurings was partially offset by an increase
in the sales force in Russia, which as a
consequence of the new trade law has to be
employed by the selling company instead of the
distributors.

Staff costs

DKK million

Salaries and other remuneration

Severance payments

Social security costs

Retirement benefit costs – defined contribution plans

Retirement benefit costs – defined benefit plans

Share-based payments

Other employee benefits

Total

Average number of employees

Staff costs are included in the following line items in the income statement

Cost of sales

Sales and distribution expenses

Administrative expenses

Other operating activities, net

Special items (restructurings)

Total

2017

7,980

415

1,321

275

219

10,340

41,430

2,653

5,391

2,098

141

2016

8,060

506

1,359

273

310

10,635

42,062

2,689

5,347

2,239

323

10,340

10,635

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 104

SECTION 7.2
REMUNERATION

These programmes and schemes cover a
number of years.

The remuneration policy
applicable to the Supervisory
Board, the executive directors
and key management personnel
is described in detail in the
Remuneration Report.
Cf. Management review, page 40.

Remuneration of the executive directors and
key management personnel is based on a fixed
salary, cash bonus payments and non-
monetary benefits such as company car,
telephone etc. Furthermore, share option
programmes and incentive schemes have been
established for the executive directors and
other management personnel.

Employment contracts for the executive
directors contain terms and conditions that are
considered common to executive board
members in Danish listed companies, including
terms of notice and non-competition clauses.

For 2017, the potential maximum bonus for
the CEO and CFO was 100% of fixed salary,
with a bonus equal to 60% of fixed salary
payable for on-target performance. A
scorecard of performance measures is used to
assess performance, cf. the Remuneration
report.

The remuneration of key management
personnel was lower than in 2016 as a result of
the Executive Committee having fewer
members and of lower severance payments.

In respect of other benefits and bonus schemes,
the remuneration of CEOs in subsidiaries is
based on local terms and conditions.

KEY MANAGEMENT PERSONNEL
Key management personnel comprise the
Executive Committee, excluding the executive
directors. Other management personnel
comprise Vice Presidents and other key
employees in central functions as well as the
management of significant subsidiaries. The
key management personnel, together with the
executive directors, are responsible for
planning, directing and controlling the Group’s
activities.

ACCOUNTING
POLICIES

Staff costs are recognised in the financial year in
which the employee renders the related service. The
cost of share-based payments, which is expensed
over the vesting period of the programme according
to the service conditions, is recognised in staff costs
and provisions or equity, depending on how the
programme is settled with the employees.

Remuneration

DKK million

Fixed salary

Cash bonus

Special bonus¹

Severance payments

Non-monetary benefits

Funding the Journey cash plan

Share-based payments

Total

Cees 't Hart

Heine Dalsgaard

2017

2016

2017

2016

2017

2016

2017

2016

Executive directors

Key management personnel

Supervisory Board

12.0

9.3

1.3

20.6

43.2

12.0

10.0

1.3

12.8

36.1

7.3

5.6

3.1

0.3

9.0

25.3

4.2

7.3

11.9

0.2

1.9

25.5

30.7

12.2

15.3

9.2

10.9

0.7

79.0

35.7

11.2

29.5

5.7

20.7

5.2

9.58

8.92

108.0

9.58

8.92

1 Special bonus covering remuneration waived from previous employer, in total DKK 15m, which was paid out equally over the two years

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 105

The estimated number is subsequently revised for
changes in the number of awards expected to vest.
Accordingly, recognition is based on the number of
awards that ultimately vest.

SECTION 7.3
SHARE-BASED
PAYMENTS

The Group has set up share-based incentive
programmes to attract, retain and motivate the
Group’s executive directors and other levels of
management personnel, and to align their
interests with those of the shareholders. No
share-based incentive programme has been set
up for Carlsberg A/S’ Supervisory Board.

In 2017, performance share awards were
granted to the Executive Board only.

In March 2017, 10,863 regular performance
shares awarded in 2014 under the long-term
incentive programme vested. Immediately after
vesting, they were converted to Carlsberg B
shares and transferred to the eligible
employees.

ACCOUNTING ESTIMATES
AND JUDGEMENTS

ACCOUNTING
POLICIES

For share options granted after 1 January 2015, the
volatility is based on the historical volatility of the
price of Carlsberg A/S’ class B shares over the
previous eight years. From 1 January 2010 until 31
December 2014, the volatility was based on presently
observed data on Bloomberg’s Options Valuation
Function, while prior to 2010 it was based on the
historical volatility of the price of Carlsberg A/S’ class
B shares over the previous two years. For
performance shares, the volatility is based on similar
data over the previous three years.

The risk-free interest rate is the interest rate on
Danish government bonds of the relevant maturity,
while the dividend yield is calculated as the expected
future dividends at the grant date. In 2016, the yield
was calculated using a dividend of DKK 9.00 per
share divided by the share price. The fair value at 31
December 2017 has been calculated by applying an
expected dividend of DKK 10.00 per share.

For share options and performance shares granted or
measured after 1 January 2010, the expected life is
based on exercise at the end of the exercise period,
whereas for share options granted prior to 2010, it
was based on exercise in the middle of the exercise
period.

The fair value of equity-settled programmes is
measured at the grant date and recognised under
staff costs over the vesting period with a
corresponding increase in equity.

The fair value of granted share options is estimated
using the Black-Scholes call option-pricing model,
taking into account the terms and conditions upon
which the options were granted.

The share price and the exercise price for share
options are calculated as the average price of
Carlsberg A/S’ class B shares on Nasdaq Copenhagen
during the first five trading days after publication of
Carlsberg A/S’ Financial statement following the
granting of the options.

The fair value of granted performance shares is
estimated using a stochastic (quasi-Monte Carlo)
valuation model and a Black-Scholes call option-
pricing model, taking into account the terms and
conditions upon which the performance shares were
granted.

On initial recognition of share options and
performance shares, an estimate is made of the
number of awards expected to vest.

General terms and conditions

Granted during the year

Number of employees

DKK million

Fair value at grant date

Cost of share-based payment granted in the year recognised in the income
statement

Total cost of share-based payments granted 2014-2017 (2013-2016)

Not recognised in respect of share-based payments expected to vest

Fair value of outstanding options and performance shares at 31 December

Share options

2016

17,650

2017

Regular
performance shares

Funding the Journey
performance shares

2017

2016

74,877

25,079

171

195

2017

2016

37,242

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 106

SECTION 7.3 (CONTINUED)
SHARE-BASED
PAYMENTS

Share-based incentive programmes

Share options

Share options outstanding at 31 December 2015

Granted

Forfeited/expired

Exercised

Transferred

Share options outstanding at 31 December 2016

Forfeited/expired

Exercised

Transferred

Share options outstanding at 31 December 2017

Regular performance shares

Exercise price

Fixed,
weighted
average

360.10

597.60

516.42

476.56

439.48

248.66

203.50

536.25

310.43

522.85

Executive
directors

97,334

17,650

114,984

Number

Total

830,013

17,650

-62,559

Key
management
personnel

Other
management
personnel

Resigned
employees

14,894

67,700

650,085

-6,200

8,694

-8,694

-7,433

-55,126

-37,462

-275,615

-313,077

-1,900

20,905

-9,800

-4,505

6,600

8,100

327,444

-1,599

472,027

-1,599

-195,800

-205,600

13,199

143,244

264,828

Performance shares outstanding at 31 December 2015

35,810

199,460

Granted

Forfeited/expired/adjusted

Exercised/settled

Transferred

Performance shares outstanding at 31 December 2016

Granted

Forfeited/expired/adjusted

Exercised/settled

Transferred

25,079

74,877

-3,471

-2,396

-15,327

-20,078

-18,172

1,340

14,616

162,550

-4,783

-810

-26,816

-7,926

-5,713

Performance shares outstanding at 31 December 2017

99,956

9,023

122,095

Funding the Journey performance shares

Performance shares outstanding at 31 December 2015

Granted

Performance shares outstanding at 31 December 2016

No changes in 2017

Performance shares outstanding at 31 December 2017

37,242

14,654

4,371

-4,481

13,987

28,531

-6,832

-2,127

5,713

25,285

249,924

25,079

-19,178

-25,049

230,776

74,877

-38,431

-10,863

256,359

37,242

The granted number of performance shares included in the specification is the number of performance shares that are expected to vest. The estimated number is revised on a regular
basis until vesting. Transferred performance shares comprise performance shares that have been granted to employees who have either moved between management categories or
left the Group during the year. Adjusted performance shares comprise the change in the number of performance shares expected to vest, based on an assessment of the extent to
which the vesting conditions are expected to be met.

SECTION 7.3 (CONTINUED)
SHARE-BASED
PAYMENTS

Key information

Average share price at the exercise date

Weighted average contractual life for awards outstanding
at 31 December

Share options

2016

630

5.9

2017

701

4.9

Range of exercise prices for share options outstanding at 31 December

417.34-597.60 203.50-597.60

Exercisable outstanding share options at 31 December

16,289

128,488

Weighted average exercise price for exercisable share options at 31
December

417

482

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 107

Regular
performance shares

Funding the Journey
performance shares

2017

0.8

None

22%

0.0%

1.6%

3.0

2016

1.1

None

2017

1.2

None

2016

2.2

None

No grant

None

24%/23%

0.0%

1.5%/1.4%

3.0/2.5

1.5%/1.4%

3.0/2.5

583.61/603.07

No grant

597.60

26%

1.5%

8.0

121.89

523.50 523.37/528.36

2001-2016

Since 2013

Only 2016

Each share option entitles the
holder to purchase one class B
share in Carlsberg A/S. The Group
has purchased treasury shares to
meet the exercisable part of this
obligation, cf. section 4.3.2.

Each performance share granted
entitles the holder to receive a
number of Carlsberg B shares. For
each grant, the exact number of
shares granted is determined after
publication of the Annual Report
for the last year in the vesting
period.

Each performance share granted
entitles the holder to receive a
number of Carlsberg B shares. The
exact number of shares vesting is
determined after publication of the
Annual Report for the last year in
the vesting period.

Immediately following the
publication of the Annual Report
for the Group for the prior
reporting period.

3 years of service.

3 years of service and
achievement of 3 KPIs in the
vesting period.

3 years of service and
achievement of the Funding the
Journey financial targets.

3 years from grant date.

N/A

Assumptions

Exercise price

Expected volatility

Risk-free interest rate

Expected dividend yield

Expected life of options, years

Fair value at measurement date

Terms and conditions

Years granted

Settlement features

Timing of valuation of award

Vesting conditions

Earliest time of exercise

Latest time of exercise

8 years from grant date.

Shares are transferred to the
employee immediately after they
have vested.

Upon resignation, a proportion of share options may be exercised within one to three months unless special severance terms have been agreed. Special terms and conditions apply in
the case of retirement, illness, death or changes in Carlsberg A/S’ capital resources.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 108

for life based on seniority and the salary at the
time of retirement. The Group assumes the risk
associated with future developments in interest
rates, inflation, mortality and disability etc.

DKK 1,820m (2016: DKK 1,922m) or
approximately 14% (2016: 13%) of the gross
obligation.

The majority of the obligations are funded,
with assets placed in independent pension
funds mainly in Switzerland, the UK and
Hong Kong. In some countries, primarily
Germany, Sweden and China, the obligation is
unfunded. For these unfunded plans, the
retirement benefit obligations amounted to

In 2017, the Group’s defined benefit plans
decreased by DKK 1.5bn compared with 2016.
The decrease mainly relates to the
implementation of risk-sharing methodology in
Switzerland and gains on plan assets in the UK.
The pension funds in Switzerland are based on
shared contributions by employer and
employees, which are more similar to a defined

contribution scheme. However, certain
guarantees in the schemes mean they are
accounted for as defined benefit schemes under
IAS 19. Under Swiss law, risks relating to
pensions in Switzerland are typically shared
between the employer and the employees.
Important aspects of the risk sharing for the
pension situation includes employee
contributions and future benefits changes,
some of which can be undertaken by trustees
without the need to make formal plan
amendments.

SECTION 7.4
RETIREMENT
BENEFIT
OBLIGATIONS
AND SIMILAR
OBLIGATIONS

A number of the Group’s employees are
covered by retirement benefit plans. The nature
of the retirement benefit plans varies
depending on labour market conditions in the
individual countries. Benefits are generally
based on wages and salaries and length of
employment.

Retirement benefit obligations cover both
present and future retirees’ entitlement to
retirement benefits.

DEFINED CONTRIBUTION PLANS
A defined contribution plan is a post-
employment benefit plan under which the
Group pays fixed contributions into a separate
independent entity. The Group’s legal or
constructive obligation is limited to the
contributions.

Obligation, net

DKK million

Obligation at 1 January

Recognised in the income statement

Current service cost

Past service cost

Net interest on the net defined benefit liability (asset)

Curtailments and settlements

Total

Remeasurements

Gain/loss from changes in actuarial assumptions

Gain/loss from changes in financial assumptions

Approximately 56% (2016: approximately 47%)
of the Group’s retirement benefit costs relates
to defined contribution plans. In 2017, the
expense recognised in relation to these
contributions was DKK 275m (2016:
DKK 273m).

Total

Other changes

Contributions to plans

Benefits paid

Disposals of entities

Transfers

DEFINED BENEFIT PLANS
The defined benefit plans typically guarantee
employees a certain level of pension benefits

Foreign exchange adjustments etc.

Obligation at 31 December

The total return on plan assets for the year amounted to DKK 711m (2016: DKK 696m).

2017

2016

Present value
of obligation

Fair value of
plan assets

Obligation,
net

Present value
of obligation

Fair value of
plan assets

Obligation,
net

14,813

9,935

4,878

14,269

9,034

5,235

253

-38

250

469

-330

-377

-707

-692

-3

-17

-794

13,069

152

558

559

209

-570

-568

9,718

253

-38

317

-331

-935

-1,266

-209

-122

-3

-18

-226

3,351

310

296

606

-81

1,561

1,480

-646

-46

-930

14,813

173

523

1,232

-491

-596

9,935

310

123

433

-81

1,038

957

-1,232

-155

-46

-334

4,878

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 109

-623m). The development in foreign exchange
adjustments was mainly affected by the
depreciation of CHF.

The accumulated actuarial loss and foreign
exchange adjustment recognised at 31
December 2017 was DKK 3,421m
(2016: DKK -4,925m), of which actuarial
losses, net, totalled DKK 3,548m (2016: DKK
4,814m).

The most significant plans are in the UK and
Switzerland, representing 47% and 37%
(2016: 46% and 40%) respectively, whereas the
eurozone countries represented 6% (2016: 5%)
of the gross obligation at 31 December 2017.

Assumptions applied
In 2017, the discount rate used for the pension
plans in Western Europe was determined by
reference to market yields on corporate bonds.
In the Asian countries where no deep market in
high-quality corporate bonds exists, the
discount rate was determined by reference to
market yields on government bonds.

The mortality tables used in Carlsberg UK are
S1PMA/S2PFA tables for post-retirement and
AMC00/AFC00 for pre-retirement, both with
CMI_2016 projections, while the Swiss entities
use BVG 2015 GT for valuation of their
retirement obligations.

SECTION 7.4 (CONTINUED)
RETIREMENT
BENEFIT
OBLIGATIONS
AND SIMILAR
OBLIGATIONS

Applying risk sharing indicates that a deficit
may not necessarily be the employer’s sole
responsibility and has led to changes in the
calculation of the defined benefit scheme to
reflect the shared risk. The implementation of
risk sharing has impacted the Group’s defined
benefit plans by approximately DKK -0.7bn.
The impact from the UK plan amounted to
DKK -0.6bn.

The Group expects to contribute DKK 76m
(2016: DKK 76m) to the plan assets in 2018.
Plan assets do not include shares in or
properties used by Group companies.

The actuarial gain and foreign exchange
adjustment recognised in other comprehensive
income for 2017 was DKK 1,504m (2016: DKK

Breakdown of plan assets

Bonds and other securities

Real estate

Cash and cash equivalents

Total

Assumptions applied

2017

2016

DKK million

2017

1,241

6,314

2,028

135

9,718

13%

65%

21%

100%

2,767

4,116

2,095

957

9,935

Discount rate

Growth in wages and salaries

2016

Discount rate

28%

41%

21%

10%

100%

Growth in wages and salaries

CHF

0.6%

1.0%

0.5%

1.0%

2.5%

2.3%

EUR

Other

0.8-1.6%

0.5-7.8%

0.0-2.7%

2.0-10.0%

Weighted
average

1.8%

2.1%

2.7%

2.5%

1.1-1.7%

0.5-5.0%

2.2-2.3%

2.3-10.0%

1.5%

1.7%

SECTION 7.4 (CONTINUED)
RETIREMENT
BENEFIT
OBLIGATIONS
AND SIMILAR
OBLIGATIONS

Sensitivity analysis
The sensitivity analysis is based on a change in
one of the assumptions, while all other
assumptions remain constant. This is highly
unlikely, however, as a change in one

assumption would probably affect other
assumptions as well. When calculating the
obligation on the basis of a changed
assumption, the same method has been
applied as when calculating the defined benefit
obligation.

Expected maturity and duration
Defined benefit obligations are primarily
expected to mature after five years. The
expected duration of the obligations at year-
end 2017 was 24 years. The duration is
calculated using a weighted average of the
duration divided by the obligation.

Sensitivity analysis

DKK million

Reported retirement benefit obligation

Discount rate

Discount assumption +0.5%

Discount assumption -0.5%

Growth in wages and salaries

Wages and salaries assumption +0.5%

Wages and salaries assumption -0.5%

Mortality

Mortality assumption +1 year

Mortality assumption -1 year

2017

2016

13,069

14,813

-972

1,155

-1,316

1,512

141

-110

204

-194

517

-484

422

-425

Maturity of retirement benefit obligations

DKK million

Retirement benefits

<1 year

1-5 years

>5 years

421

1,267

3,824

Total

5,512

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 110

ACCOUNTING ESTIMATES
AND JUDGEMENTS

The value of the Group’s defined benefit plans is
based on valuations from external actuaries. The
valuation is based on a number of actuarial
assumptions, including discount rates, expected return
on plan assets, expected growth in wages and
salaries, mortality and retirement benefits.

The actuarial assumptions used to calculate the
defined benefit plans vary from country to country
due to local economic and labour market conditions.

The present value of the net obligation is calculated
by using the projected unit credit method and
discounting the defined benefit plan by a discount
rate for each country. The discount rate is determined
by reference to market yields on high-quality
corporate bonds. Where high-quality corporate bonds
are not available, the market yields on government
bonds are used instead.

Mortality assumptions are based on the Group
entity’s best estimate of the mortality of plan
members during and after employment, and include
expected changes in mortality, for example using
estimates of mortality improvements. Due to the
broad range of entities comprising the retirement
benefit obligation, several different mortality tables
are used to calculate the future retirement benefit
obligation.

ACCOUNTING
POLICIES

Contributions paid to a defined contribution plan are
recognised in the income statement in the period
during which services are rendered by employees.
Any contributions outstanding are recognised in the
statement of financial position as other liabilities.

The Group’s net liability recognised in the statement
of financial position in respect of defined benefit
plans is the present value of the defined benefit
obligation at the reporting date less the fair value of
plan assets calculated by a qualified actuary.

The present value is determined separately for each
plan by discounting the estimated future benefits that
employees have earned in return for their service in
the current and prior years.

The costs of a defined benefit plan are recognised in
the income statement and include service costs, net
interest based on actuarial estimates and financial
expectations at the beginning of the year.

Service costs comprise current service cost and past
service cost. Current service cost is the increase in the
present value of the defined benefit obligation
resulting from employee services in the current
period. Past service cost is the change in the present
value of the obligation regarding employee services in
prior years that arises from a plan amendment or a
curtailment. Past service costs are recognised
immediately, provided employees have already
earned the changed benefits.

Realised gains and losses on curtailment or
settlement are recognised under staff costs.

Interest on retirement benefit obligations and the
interest on return on plan assets are recognised as
financial income or financial expenses.

Differences between the development in retirement
benefit assets and liabilities and realised amounts at
year-end are designated as actuarial gains or losses
and recognised in other comprehensive income. As
they will never be reclassified to the income
statement, they are presented in retained earnings.

If a retirement benefit plan constitutes a net asset,
the asset is recognised only if it offsets future refunds
from the plan or will lead to reduced future payments
to the plan.

Realised gains and losses on the adjustment of
retirement benefit obligations as a result of large-
scale termination of jobs in connection with
restructurings are recognised under special items.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 111

SECTION 8

OTHER DISCLOSURE
REQUIREMENTS

4,925m

Profit attributable to shareholders in
Carlsberg A/S, adjusted for special items
after tax (DKK).

SECTION 8.1
EARNINGS PER
SHARE

Earnings per share

DKK

Basic earnings per share of DKK 20 (EPS)

Diluted earnings per share of DKK 20 (EPS-D)

Earnings per share, adjusted (EPS-A)

32.3

Earnings per share, adjusted for special
items after tax (DKK).

For all share-based incentive instruments the
average market price of Carlsberg B shares in
the year was higher than the exercise price and
the fair value at the grant date.

Number of shares

1,000 shares

Average number of shares

As a result, in 2017, diluted earnings per share
did not exclude any share-based incentive
instruments (2016: 264,001) that could
potentially dilute earnings in the future.

Average number of treasury shares

Average number of shares outstanding

Average dilutive effect of share-based incentives

Diluted average number of shares outstanding

Profit attributable to shareholders

DKK million

Consolidated profit

Non-controlling interests

Profit attributable to shareholders in Carlsberg A/S

Special items after tax

Profit attributable to shareholders in Carlsberg A/S, adjusted

2017

8.3

8.2

32.3

2016

29.4

25.4

152,557

-61

-5

152,496

152,552

360

264

152,856

152,816

2,065

-806

1,259

3,666

4,925

4,857

-371

4,486

-605

3,881

SECTION 8.2
RELATED PARTIES

RELATED PARTIES EXERCISING CONTROL
The Carlsberg Foundation, H.C. Andersens
Boulevard 35, 1553 Copenhagen V, Denmark,
exercises control over Carlsberg A/S. The
Foundation holds 30.3% of the shares and
75.3% of the voting power in Carlsberg A/S,
excluding treasury shares.

The following transactions took place between
the Carlsberg Foundation and the Carlsberg
Group in 2017:

The Carlsberg Foundation received a dividend
of DKK 10.00 per share from Carlsberg A/S,
the same as every other shareholder.

Funding and grants received for research and
development activities from the Carlsberg
Foundation amounted to DKK 43m (2016:
DKK 25m) and related to the operation of the
Carlsberg Research Laboratory, of which DKK
17m has been deferred to be used for research
projects in the future years.

Disposal of the Carlsberg Academy to the
Carlsberg Foundation. The Academy was
valued at market price using the same
conditions/price as applicable to other
buildings in the area.

The Carlsberg Foundation sold unused building
rights for the Researcher Apartments to
Carlsberg Byen. The building rights were valued
at market price using the same conditions/price
applicable to other building rights in the area.

Carlsberg Breweries A/S leases storage
facilities in the Researcher Apartments. The
annual lease, DKK 173 thousand, and the
lease terms are on market conditions.

A collaboration between Carlsberg foundations
and the Carlsberg Group to launch a campaign
at Copenhagen Airport to celebrate Carlsberg’s
170-year anniversary.

The Carlsberg Science to Business forum is
organised by the Carlsberg Foundation and the
Group. The Carlsberg Foundation pays for
presenters’ costs, which amount to DKK 250-
300 thousand. The Group contributes the
meeting room and approximately 30 working
hours.

An agreement between the Group and the
Carlsberg foundations on delivery of beer and
soft drinks was formalised to the effect that the
Carlsberg foundations are charged an ordinary
listing price minus a discount of 25% for
Carlsberg products and 15% for third-party
products. In 2017, the deliveries amounted to a
value of DKK 227 thousand (total sales of
goods).

It is estimated that the benefit for the Carlsberg
Group corresponds to the value of the services
provided to the Carlsberg Foundation, which in
turn corresponds to what each party would
have had to invest to have the same
deliverables provided by external parties.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 112

OTHER RELATED PARTIES
Related parties also comprise Carlsberg A/S’
Supervisory Board and Executive Board, their
close family members and companies in which
these persons have significant influence.

SECTION 8.3
FEES TO AUDITORS

Fees to auditors appointed by the
Annual General Meeting

During the year, there were no transactions
between these parties and the Group, except
for remuneration as disclosed in section 7.

In 2017, the Group had no significant
transactions with its associates and joint
ventures.

The income statement and the statement
of financial position include the following
transactions

DKK million

2017

2016

Associates and joint ventures

Revenue

Cost of sales

Loans

Receivables

Borrowings

-609

290

239

-22

104

-230

300

Trade payables and other
liabilities etc.

-4

-18

DKK million

Statutory audit

Assurance
engagements

Tax advisory

Other services

PwC

2017

KPMG

2016

Other services delivered by PwC Denmark in
addition to audit include fees for review
services, issuing comfort letters in connection
with prospectuses and agreed-upon procedures
regarding financial information.

SECTION 8.4
EVENTS AFTER THE
REPORTING PERIOD

Apart from the events recognised or disclosed
in the consolidated financial statements, no
events have occurred after the reporting period
of importance to the consolidated financial
statements.

In February 2018, the Group acquired the
remaining 49% of the shares in Olympic
Brewery, Greece. The transaction has no
significant impact on the consolidated financial
statements.

SECTION 9

BASIS FOR
PREPARATION

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 113

Changes
from 2018

CLASSIFICATION OF
REVENUE

Application of the new IFRS revenue
standard changes the classification of
certain marketing activities, which will be
recognised as revenue as of 1 January
2018.

The accounting policies set out below have
been used consistently in respect of the
financial year and the comparative figures.

DEFINING MATERIALITY
Significant items are presented individually in
the financial statements as required by IAS 1.
Other items that may not be significant but are
considered relevant to stakeholders and the
understanding of the Group’s business model,
including research, real estate, geographical
diversity etc., are also presented in the financial
statements.

SECTION 9.1
SIGNIFICANT
ACCOUNTING
ESTIMATES AND
JUDGEMENTS

In preparing the consolidated financial
statements, management makes various
accounting estimates and judgements that
form the basis of presentation, recognition and
measurement of the Group’s assets, liabilities,
income and expenses. The estimates and
judgements made are based on historical
experience and other factors that management
assesses to be reliable, but that, by nature, are
associated with uncertainty and unpredictability
and may therefore prove incomplete or
incorrect.

Areas involving significant estimates and judgements:

Impairment testing, useful life and residual value Section 2

Restructurings, provisions and contingencies

Section 3

Receivables

Deferred tax assets

Defined benefit obligations

Acquisitions and disposals, including contingent
considerations

Section 1

Section 6

Section 7

Section 5

SECTION 9.2
GENERAL
ACCOUNTING
POLICIES

The Group’s 2017 consolidated financial
statements have been prepared in accordance
with IFRS as adopted by the EU and additional
requirements in the Danish Financial
Statements Act.

The consolidated financial statements are
presented in Danish kroner (DKK), which is the
Parent Company’s functional currency, and all
values are rounded to the nearest DKK million,
except when otherwise stated.

Assets and liabilities measured or disclosed at
fair value are categorised within the fair value
hierarchy. The Group has no financial
instruments measured at fair value based on
level 1 (quoted prices). The methods and
assumptions applied to determine the fair value
of derivative financial instruments, loans and
borrowings and on-trade loans (level 2) and of
contingent consideration (level 3) are disclosed
in the relevant sections. The carrying amount
of other financial assets and liabilities
approximates their fair value.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 114

SECTION 9.2 (CONTINUED)
GENERAL
ACCOUNTING
POLICIES

BASIS OF CONSOLIDATION
The consolidated financial statements are
prepared as a consolidation of the financial
statements of the Parent Company, Carlsberg
A/S, and its subsidiaries according to the
Group’s accounting policies.

The Group controls an investee if it has:

• Power over the investee (i.e. existing rights
that give it the current ability to direct the
relevant activities of the investee)

• Exposure, or rights, to variable returns from

its involvement with the investee

• The ability to use its power over the investee

to affect its returns.

Entities over which the Group exercises
significant influence, but which it does not
control, are considered associates. Significant
influence is generally obtained by direct or
indirect ownership or control of more than 20%
but less than 50% of the voting rights. For
associates in which the Group holds an interest
of less than 20%, the Group participates in the
management of the company and is therefore
exercising significant influence. The assessment
of whether Carlsberg A/S exercises control or
significant influence includes potential voting
rights exercisable at the reporting date. Entities
that by agreement are managed jointly with
one or more other parties are considered joint
ventures. Associates and joint ventures are

consolidated using the equity method, cf.
section 5.

On consolidation, intra-group income and
expenses, shareholdings, intra-group balances
and dividends, and realised and unrealised
gains on intra-group transactions are
eliminated. Unrealised gains on transactions
with associates and joint ventures are
eliminated in proportion to the Group’s
ownership share of the entity. Unrealised losses
are eliminated in the same way as unrealised
gains to the extent that impairment has not
taken place.

On acquisition, investments in subsidiaries are
set off against the proportionate share of the
subsidiaries’ fair value of identifiable net assets,
including recognised contingent liabilities.

The accounting items of subsidiaries are
included in full in the consolidated financial
statements. Non-controlling interests’ shares
of the profit/loss for the year and of the equity
of subsidiaries are included in the Group’s
profit/loss and equity respectively, but are
disclosed separately. Entities acquired or
formed in the year are recognised in the
consolidated financial statements from the
date of acquisition or formation. Entities
disposed of or wound up are recognised in the
consolidated income statement until the date
of disposal or winding-up. The comparative
figures are not restated for entities acquired or
disposed of.

FOREIGN CURRENCY TRANSLATION
A functional currency is determined for each of
the reporting entities in the Group. The
functional currency is the primary currency
used for the reporting entity’s operations.
Transactions denominated in currencies other
than the functional currency are considered
transactions denominated in foreign currencies.

On initial recognition, transactions
denominated in foreign currencies are
translated to the functional currency at the
exchange rates at the transaction date. Foreign
exchange differences arising between the
exchange rates at the transaction date and at
the date of payment are recognised as financial
income or expenses.

Receivables, payables and other monetary
items denominated in foreign currencies are
translated at the exchange rates at the
reporting date. The difference between the
exchange rates at the reporting date and at the
date at which the receivable or payable arose
or the exchange rate in the latest consolidated
financial statements is recognised as financial
income or financial expenses.

On recognition in the consolidated financial
statements of entities with a functional
currency other than the presentation currency
of Carlsberg A/S (DKK), the income statement
and statement of cash flows are translated at
the exchange rates at the transaction date, and
the statement of financial position items are
translated at the exchange rates at the
reporting date. An average exchange rate for
the month is used at the transaction date to
the extent that this does not significantly

deviate from the exchange rate at the
transaction date. Foreign exchange differences
arising on translation of the opening balance of
equity of foreign entities at the exchange rates
at the reporting date, and on translation of the
income statement from the exchange rates at
the transaction date to the exchange rates at
the reporting date, are recognised in other
comprehensive income and attributed to a
separate translation reserve in equity.

Foreign exchange adjustment of balances with
foreign entities that are considered part of the
investment in the entity is recognised in other
comprehensive income. Correspondingly,
foreign exchange gains and losses on the part
of loans and derivative financial instruments
that is designated as hedges of investments in
foreign entities with a functional currency other
than that of Carlsberg A/S, and that effectively
hedges against corresponding foreign exchange
gains and losses on the investment in the
entity, are also recognised in other
comprehensive income and attributed to a
separate translation reserve in equity.

On recognition in the consolidated financial
statements of associates and joint ventures
with a functional currency other than the
presentation currency of Carlsberg A/S (DKK),
the share of profit/loss and other
comprehensive income for the year is
translated at average exchange rates and the
share of equity, including goodwill, is
translated at the exchange rates at the
reporting date. Foreign exchange differences
arising on the translation of the share of the
opening balance of equity of foreign associates
and joint ventures at the exchange rates at the

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 115

before special items and the effective tax rate
for measures adjusted for tax.

Other financial ratios are calculated in
accordance with the Danish Finance Society’s
online guidelines on the calculation of financial
ratios, “Recommendations and Financial
Ratios”, unless specifically stated.

SECTION 9.2 (CONTINUED)
GENERAL
ACCOUNTING
POLICIES

reporting date, and on translation of the share
of profit/loss and other comprehensive income
for the year from average exchange rates to
the exchange rates at the reporting date, are
recognised in other comprehensive income and
attributed to a separate translation reserve in
equity.

On complete or partial disposal of a foreign
entity or on repayment of balances that
constitute part of the net investment in the
foreign entity, the share of the cumulative
amount of the exchange differences recognised
in other comprehensive income relating to that
foreign entity is recognised in the income
statement when the gain or loss on disposal is
recognised.

INCOME STATEMENT
The presentation of the Group’s income
statement is based on the internal reporting
structure, as IFRS does not provide a specific
disclosure requirement.

Special items not directly attributable to
ordinary operating activities and that are
significant and non-recurring are shown
separately in order to give a truer and fairer
view of the Group’s operating profit.

CASH FLOW
Cash flow is calculated using the indirect
method and is based on operating profit before
special items adjusted for depreciation,
amortisation and impairment losses.

Cash flow cannot be derived directly from the
statement of financial position and income
statement.

FINANCIAL RATIOS AND NON-IFRS
FINANCIAL MEASURES
The Group uses certain additional financial
measures to provide management, investors
and investment analysts with additional
measures to evaluate and analyse the
Company’s results. These non-IFRS financial
measures are defined and calculated by the
Group, and therefore may not be comparable
with other companies’ measures.

The non-IFRS financial measures disclosed in
the Annual Report are:

• Earnings per share, adjusted
• Organic development
• Pro rata volumes
• Volumes

Earnings per share (EPS) and diluted earnings
per share (EPS-D) are calculated in accordance
with IAS 33.

The Danish Finance Society does not
acknowledge use of special items and states
that adjustments of tax should be based on the
marginal tax rate. When calculating financial
measures, the Group uses operating profit

SECTION 9.2 (CONTINUED)
GENERAL
ACCOUNTING
POLICIES

Calculation of key figures and financial ratios stated in the Annual Report

Cash flow from operating activities per
share (CFPS)

Cash flow from operating activities5 divided by the number of shares
outstanding, fully diluted for share options and performance shares in the
money in accordance with IAS 331.

Debt/operating profit before
depreciation, amortisation and
impairment losses2

Earnings per share (EPS)

Earnings per share, adjusted (EPS-A)4

Earnings per share,
diluted (EPS-D)

Equity ratio

Financial gearing

Free cash flow per share (FCFPS)

Net interest-bearing debt3 divided by operating profit before special items
adjusted for depreciation, amortisation and impairment losses.

Consolidated profit for the year, excluding non-controlling interests,
divided by the average number of shares outstanding.

Consolidated profit for the year adjusted for special items after tax,
excluding non-controlling interests, divided by the average number of
shares outstanding.

Consolidated profit for the year, excluding non-controlling interests,
divided by the average number of shares outstanding, fully diluted for
share options and performance shares in the money in accordance with
IAS 331.

Net interest-bearing debt3 at year-end divided by total equity at
year-end.

Free cash flow5 divided by average number of shares outstanding, fully
diluted for share options and performance shares in the money in
accordance with IAS 331.

Interest cover2

Operating profit before special items divided by interest expenses, net.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 116

Number of shares, average

Number of issued shares, excluding treasury shares, as an average for the
year (=average number of shares outstanding).

Number of shares, year-end

Total number of issued shares, excluding treasury shares, at year-end
(=number of shares outstanding at year-end).

Operating margin2

Operating profit before special items as a percentage of revenue.

Operating profit2

Expression used for operating profit before special items.

Organic development4

Measure of growth excluding the impact of acquisitions, divestments and
foreign exchange from year-on-year comparisons.

Payout ratio

Pro rata volumes4

Dividend for the year as a percentage of consolidated profit, excluding non-
controlling interests.

The Group’s sale of beverages in consolidated entities, plus 100% of the sale
of the Group’s international brands in associates and joint ventures and the
proportionate share of the sale of local brands in these entities.

Return on invested capital excluding
goodwill (ROIC excl. goodwill)2

Operating profit before special items adjusted for tax as a percentage of
average invested capital excluding goodwill6 calculated as a 12-month
rolling average.

1 The dilutive effect is calculated as the difference between the number of shares that could be acquired at fair value for
the proceeds from exercise of the share options and performance shares, and the number of shares that could be issued
assuming these are exercised.
2 The calculation is based on operating profit before special items, whereas the Danish Finance Society defines the ratio
using operating profit.
3 The calculation of net interest-bearing debt is specified in section 4.2.
4 This key figure or ratio is not defined by the Danish Finance Society.
5 The calculation of operating cash flow and free cash flow is specified in the statement of cash flows.
6 The calculation of invested capital is specified in section 2.1.

Equity attributable to shareholders in Carlsberg A/S at year-end as a
percentage of total assets at year-end.

Return on invested capital including
goodwill (ROIC)2

Operating profit before special items adjusted for tax as a percentage of
average invested capital6 calculated as a 12-month rolling average.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 117

SECTION 9.3
CHANGES IN
ACCOUNTING
POLICIES

9.3.1 CHANGED ACCOUNTING POLICIES
AND CLASSIFICATION IN THE ANNUAL
REPORT 2017

The Annual Report has been prepared using the
same accounting policies for recognition and
measurement as those applied to the
consolidated financial statements for 2016.

As of 1 January 2017, the following
amendments and improvements became
applicable without having any impact on the
Group’s accounting policies, as they cover areas
that are not relevant for the Group or limit
choices of accounting policies that have not
been used by the Group:

• Amendments to IAS 7 “Disclosure Initiative”
• Amendments to IAS 12 “Recognition of

Deferred Tax Assets for Unrealised Losses”

• Part of Annual Improvements to IFRS

Standards 2014-2016 Cycle

The amendments to IAS 7 require disclosure of
changes in liabilities arising from financing
activities, cf. section 4.4.

Furthermore, as of 1 January 2017, the Group
has changed:

• The segmentation format, such that Carlsberg
Supply Company, previously included in “Not
allocated”, is now included in “Western
Europe”.

• The calculation of return on invested capital

(ROIC).

The effect of those changes for 2016 is
disclosed in the consolidated financial
statements for 2016, section 9.3.

9.3.2 CHANGES IN ACCOUNTING POLICIES
AND CLASSIFICATION FOR 2018
IFRS 15 “REVENUE FROM CONTRACTS WITH
CUSTOMERS”
The implementation of IFRS 15 “Revenue from
Contracts with Customers” will impact the
Group’s financials and revenue stream, as the
standard requires marketing activities with
customers to be recognised as revenue. For the
Group, IFRS 15 results only in changes in
classification and does not have an impact on
the timing of revenue recognition.

Supporting marketing activities provided for or
organised together with our customers will be
considered a part of the customer relationship
and related costs will be recognised as
discounts, not as marketing expenses.

When applying the new policy, judgement is
required to decide whether supporting an
activity with a customer should be classified as
a discount or a marketing expense, taking into
account the drivers behind and the purpose of
the activity. Generally, if the purpose of

marketing activities is to increase sales with the
individual customer, the activities should be
seen as a reduction of the transaction price and
therefore classified as a discount.

The effect of the changes from implementing
IFRS 15 is shown in section 9.5.

IFRS 9 “FINANCIAL INSTRUMENTS”
IFRS 9 “Financial Instruments” introduces new
hedge-accounting rules and a new impairment
model for financial assets: the expected credit
loss (ECL) model.

The new hedge-accounting rules imply that it
will generally be easier to apply hedge
accounting, as the new rules are more in line
with the Group’s risk management practice.
Based on an assessment of the Group’s current
hedge arrangements, primarily aluminium
hedges, an increased portion will qualify for
hedge accounting, resulting in an increased
portion of the fair value adjustment being
recognised in other comprehensive income. The
total ineffective portion of hedges for 2017,
DKK 1m, related to the Group’s aluminium
hedging. The change in accounting policies
applies to all hedging instruments.

The new impairment model for financial assets
requires recognition of impairment losses based
on expected credit losses (ECL) rather than
incurred losses as is the case under current
practice. The ECL model involves a three-stage
approach under which financial assets move
through the stages as their credit quality
changes.

The stages determine how impairment losses
are measured and the effective interest is
applied. For trade receivables, the Group
applies the simplified approach, which permits
the use of lifetime ECL. Provision rates are
determined based on grouping of trade
receivables sharing the same credit risk
characteristics and days past due.

Regarding on-trade loans, impairment losses
will be recognised based on 12-month or
lifetime ECL depending on whether a significant
increase in credit risk has arisen since initial
recognition. Impairment losses on loans to
associates will be recognised based on a 12-
month ECL model.

The impact from implementation of IFRS 9 and
calculating ECL has only an insignificant impact
on provisions and the income statement.

CHANGES IN CLASSIFICATION
In addition to the above changes in accounting
policies, the classification of certain costs of the
central supply chain and IT functions will
change. These costs will be reclassified from
administrative expenses to the functions they
support, primarily production, logistics and
sales. The reclassification is aligned with
changes in the internal reporting, control and
monitoring of the Group’s strategic and
financial targets and is a natural step in
managing the functional activities under the
Group’s new strategy.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 118

SECTION 9.3 (CONTINUED)
CHANGES IN
ACCOUNTING
POLICIES

IMPACT FROM CHANGES IN ACCOUNTING
POLICIES AND CLASSIFICATION FOR 2018
The changes in accounting policies and
classification of central supply chain costs and
IT costs will only impact the classification of
revenue and expenses in the consolidated
financial statements. The impact on
administrative expenses will be a reduction of
DKK 314m, which will be reclassified to cost of
sales and sales and distribution expenses.
Operating profit before special items will
remain unchanged.

The impact from the implementation of IFRS
15 on the consolidated financial statements for
2017 will be a reduction of revenue as a result
of increased discounts of DKK 1.2bn.

As a consequence, all regions will see a
negative impact on net revenue, with Western
Europe and Asia experiencing the largest
impacts due to the business models chosen,
and on their share of sales to/from retailers
and the wholesale market.

The total impact from the changes in
accounting policies and classification will be an
increase in operating margin of 0.2 percentage
point due to lower net revenue. Average trade
working capital as a percentage of net revenue
will increase by approximately 0.3 percentage
point.

Return on invested capital (ROIC) will remain
unchanged.

CHANGES TO VOLUME REPORTING
As of 1 January 2018, the Group has decided
to change the definition of volumes to include
only the Group’s sales of beverages in
consolidated entities. Compared with 2017, the
new definition excludes volumes in associates
and joint ventures.

NEW AND AMENDED IFRS STANDARDS
AND INTERPRETATIONS NOT YET
ADOPTED BY THE EU
The following new or amended IFRS Standards
and Interpretations of relevance to the Group
have been issued but not yet adopted by the
EU:

• Annual Improvements to IFRS Standards

2014-2016 Cycle, effective for financial years
beginning on or after 1 January 2018.

SECTION 9.4
NEW LEGISLATION

• Annual Improvements to IFRS Standards

2015-2017 Cycle, effective for financial years
beginning on or after 1 January 2019.

NEW AND AMENDED IFRS STANDARDS
AND INTERPRETATIONS NOT YET
APPLICABLE WITHIN THE EU
The following new or amended IFRS Standards
and Interpretations of relevance to the Group
have been issued and adopted by the EU but
are not applicable to the financial reporting
for 2017:

• IFRS 9 “Financial Instruments”, effective for

financial years beginning on or after 1
January 2018.

• IFRS 15 “Revenue from Contracts with
Customers”, including clarifications and
amendments to IFRS 15 “Effective date of
IFRS 15”, effective for financial years
beginning on or after 1 January 2018.

• IFRIC Interpretation 22 “Foreign Currency
Transactions and Advance Consideration”,
effective for financial years beginning on or
after 1 January 2018.

• IFRIC Interpretation 23 “Uncertainty over

Income Tax Treatments”.

• Amendments to IFRS 2 “Classification and
Measurement of Share-based Payment
Transactions”, effective for financial years
beginning on or after 1 January 2018.

• Amendments to IFRS 9 “Prepayment

Features with Negative Compensation”,
effective for financial years beginning on or
after 1 January 2019.

• IFRS 16 “Leases”, effective for financial years

• Amendments to IAS 28 “Long-term Interests

beginning on or after 1 January 2019.

The impact of IFRS 9 and IFRS 15 is described
in section 9.3.

in Associates and Joint Ventures”, effective for
financial years beginning on or after 1
January 2019.

The new and amended Standards and
Interpretations are not mandatory for the
financial reporting for 2017. The Group expects
to adopt the Standards and Interpretations
when they become mandatory.

The implementation of IFRS 16 “Leases” will
result in almost all leases being recognised in
the statement of financial position, as the
distinction between operating and finance
leases is removed. The expected impact for the
Group is an increase in property, plant and
equipment and in financial liabilities.
Information on current lease agreements is
disclosed in section 2.4.

Furthermore, an improvement in operating
profit before special items is expected, as the
lease cost includes an interest element, which
will be recognised as a financial item. In the
cash flow statement, the interest element will
be presented in interest etc. paid.

The implementation of the standard is not
expected to have a material impact on the
consolidated financial statements.

Impact from changes in accounting policies and classification - unaudited

CARLSBERG GROUP ANNUAL REPORT 2017 IMPACT FROM CHANGES IN ACCOUNTING POLICIES AND CLASSIFICATION - UNAUDITED 119

Impact on the income statement from changes in accounting policies and classification

SECTION 9.5
IMPACT FROM
CHANGES IN
ACCOUNTING
POLICIES AND
CLASSIFICATION

The impact from changes in accounting policies
and classification as described in section 9.3 in
the consolidated financial statements is shown
in the tables.

DKK million

Net revenue

Cost of sales

Gross profit

Sales and distribution expenses

Administrative expenses

Other operating activities, net

Section 9.5 is not part of the consolidated
financial statements and has not been audited.

Share of profit after tax of associates and joint ventures

Operating profit before special items

2017

Full year

Reported

31,765

Restated

Reported

Restated

Reported

Restated

31,176

30,043

29,479

61,808

60,655

-15,619

-15,681

-14,706

-14,766

-30,325

-30,447

16,146

-9,617

-2,540

15,495

-9,105

-2,401

15,337

-8,488

-2,337

167

14,713

31,483

-8,039

-18,105

-2,162

-4,877

167

113

262

30,208

-17,144

-4,563

113

262

4,125

4,751

8,876

Restated net revenue by region

DKK million

Western Europe

Eastern Europe

Asia

Not allocated

Beverages, total

Non-beverage

7,673

2,329

3,415

10,570

3,173

3,985

13,429

17,747

9,450

3,136

3,768

16,374

8,023

2,287

2,776

18,243

5,502

7,400

2017

Full year

17,473

5,423

6,544

35,716

10,925

13,944

13,105

31,176

29,479

60,655

Carlsberg Group, total

13,429

17,747

16,374

13,105

31,176

29,479

60,655

Operating margin (%)

Western Europe

Eastern Europe

Asia

Not allocated

Beverages, total

Non-beverage

Carlsberg Group, total

12.7%

19.0%

20.2%

13.3%

13.2%

16.1%

21.6%

21.7%

16.3%

16.1%

14.4%

20.3%

20.8%

14.8%

14.6%

SECTION 9.5 (CONTINUED)
IMPACT FROM
CHANGES IN
ACCOUNTING
POLICIES AND
CLASSIFICATION

Changes to volume reporting

2017

Beer sales

Western Europe

Eastern Europe

Asia

Total

Other beverages

Western Europe

Eastern Europe

Asia

Total

Total volumes

Western Europe

Eastern Europe

Asia

Total

CARLSBERG GROUP ANNUAL REPORT 2017 IMPACT FROM CHANGES IN ACCOUNTING POLICIES AND CLASSIFICATION - UNAUDITED 120

Full year

Reported volumes

Pro rata, million hl

Excl. associates and joint ventures, million hl

Restated volumes

9.8

6.1

8.3

14.3

8.4

9.8

24.2

32.5

3.5

0.3

0.9

4.7

13.3

6.4

9.2

4.3

0.7

1.0

6.0

18.6

9.1

10.8

28.9

38.5

13.1

8.7

10.3

32.1

3.9

0.6

0.9

5.4

17.0

9.3

11.2

37.5

10.5

6.6

6.5

23.6

3.8

0.3

0.7

4.8

14.3

6.9

7.2

28.4

24.1

14.5

18.1

56.7

7.8

1.0

1.9

10.7

31.9

15.5

20.0

67.4

23.6

15.3

16.8

47.7

29.8

34.9

9.5

6.1

7.3

55.7

112.4

22.9

7.7

0.9

1.6

10.2

31.3

16.2

18.4

65.9

15.5

1.9

3.5

20.9

63.2

31.7

38.4

133.3

3.3

0.3

0.7

4.3

12.8

6.4

8.0

23.3

22.8

13.8

8.4

8.9

31.1

4.0

0.7

0.8

5.5

17.8

9.1

9.7

12.6

8.7

9.3

10.2

6.6

5.7

14.5

16.2

30.6

22.5

54.0

3.6

0.6

0.7

4.9

16.2

9.3

10.0

3.6

0.3

0.6

4.5

13.8

6.9

6.3

7.3

1.0

1.5

9.8

30.6

15.5

17.7

15.3

15.0

53.1

7.2

0.9

1.3

9.4

30.0

16.2

16.3

62.5

46.1

29.8

31.2

107.1

14.5

1.9

2.8

19.2

60.6

31.7

34.0

126.3

27.2

36.6

35.5

27.0

63.8

Consolidated financial statements

SECTION 10

GROUP
COMPANIES

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 121

Carlsberg Breweries A/S, Copenhagen,
Denmark

Western Europe

Carlsberg Danmark A/S,
Copenhagen, Denmark

Carlsberg Supply Company Danmark A/S,
Copenhagen, Denmark

Carlsberg Sweden Holding 2 AB,
Stockholm, Sweden

Carlsberg Sverige AB, Stockholm, Sweden

Carlsberg Supply Company Sverige AB,
Falkenberg, Sweden

Ringnes Norge AS, Oslo, Norway

Ringnes AS, Oslo, Norway

Ringnes Supply Company AS, Oslo, Norway

Oy Sinebrychoff Ab, Kerava, Finland

Sinebrychoff Supply Company Oy, Kerava,
Finland

Carlsberg Deutschland Holding GmbH,
Hamburg, Germany

Carlsberg Deutschland GmbH, Hamburg,
Germany

Carlsberg Supply Company Deutschland
GmbH, Hamburg, Germany

Carlsberg Polska Sp. z o.o., Warsaw, Poland

Carlsberg Supply Company Polska SA,
Warsaw, Poland

Saku Ölletehase AS, Tallinn, Estonia

Aldaris JSC, Riga, Latvia

Svyturys-Utenos Alus UAB, Utena, Lithuania

Reference

Number of
subsidiaries

Type of
investment

Parent
direct
ownership*

Consolidated
ownership**

100%

99%

100%

99%

Subsidiary

Associate or joint venture

Parent direct ownership shows the legal ownership held by the immediate holding company in the Group.
Crossholdings held by fully owned companies of the Group are aggregated.

Consolidated ownership shows the share of the result of the entity that is attributed to the shareholders
of Carlsberg A/S in the consolidated financial statements.

Listed company.

Company not audited by PwC.

Consolidation percentage is higher than the ownership share due to written put options.

Sicera AG is legally owned 65% by the Group but recognised as a joint venture, as the shareholders'
agreement stipulates joint control by the shareholders of the company.

Classification as subsidiary, joint venture or associate and the consolidated ownership of the entity is
determined by the Group's ownership of the entity's parent company.

Chongqing Jianiang Brewery Ltd is owned by Chongqing Brewery Co., Ltd (51%) and Carlsberg Brewery
Hong Kong Ltd (49%), resulting in a consolidated ownership of 79%.

Lion Brewery (Ceylon) PLC is owned by Carlsberg Brewery Malaysia Berhad (25%) and Ceylon Beverage
Holdings PLC (52%). Carlsberg owns 8% of Ceylon Beverage Holdings PLC and 51% of Carlsberg Brewery
Malaysia Berhad, resulting in a one-line consolidated ownership of 17%.

Maybev Pte Ltd is owned by Carlsberg Singapore Pte Ltd (51%), which is owned by Carlsberg Brewery
Malaysia Berhad (51%), resulting in a consolidated ownership of 26%.

The Group own 67% of Carlsberg South Asia Pte Ltd., which is the holding company of South Asian
Breweries Pte. Ltd., Carlsberg India Pvt. Ltd and Gorkha Brewery Pvt. Ltd. The consolidation percentage
of Carlsberg South Asia Pte Ltd. is 100% due to a written put option.

A separate annual report is not prepared.

The Group acquired the remaining 49% of the shares in February 2018.

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 122

Reference

Number of
subsidiaries

Type of
investment

Parent
direct
ownership*

Consolidated
ownership**

Reference

Number of
subsidiaries

Type of
investment

Parent
direct
ownership*

Consolidated
ownership**

Western Europe

Carlsberg UK Holdings Limited,
Northampton, United Kingdom

Carlsberg UK Limited, Northampton,
United Kingdom

Carlsberg Supply Company UK Limited,
Northampton, United Kingdom

Emeraude S.A.S., Strasbourg, France

Kronenbourg S.A.S., Strasbourg, France

Kronenbourg Supply Company S.A.S.,
Strasbourg, France

Feldschlösschen Getränke Holding AG,
Rheinfelden, Switzerland

Feldschlösschen Getränke AG,
Rheinfelden, Switzerland

Feldschlösschen Supply Company AG,
Rheinfelden, Switzerland

Carlsberg Supply Company AG,
Ziegelbrücke, Switzerland

Carlsberg Italia S.p.A., Lainate, Italy

Olympic Brewery SA, Thessaloniki, Greece

B, C, K

Carlsberg Serbia Ltd., Celarevo, Serbia

Carlsberg Croatia d.o.o., Koprivnica, Croatia

Carlsberg Bulgaria AD, Mladost, Bulgaria

Carlsberg Hungary Kft., Budaőrs, Hungary

CTDD Beer Imports Ltd., Montreal, Canada

Carlsberg Canada Inc., Mississauga, Canada

Sicera AG, Glarus, Switzerland

Nya Carnegiebryggeriet AB, Stockholm,
Sweden

E. C. Dahls Bryggeri AS, Trondheim,
Norway

HK Yau Limited, Hong Kong

UAB "Svyturys Brewery", Klaipeda,
Lithuania

London Fields Brewery Opco Ltd.,
London, United Kingdom

Super Bock Group, S.G.P.S., S.A.,
Leca do Balio, Portugal

Nuuk Imeq A/S, Nuuk, Greenland

100%

Eastern Europe

Baltika Breweries LLC, Saint Petersburg,
Russia

Carlsberg Azerbaijan, Baku, Azerbaijan

100%

PJSC Carlsberg Ukraine, Zaporizhzhya, Ukraine

100%

OJSC Brewery Alivaria, Minsk, Belarus

Carlsberg Kazakhstan, Almaty, Kazakhstan

Baltic Beverages Holding AB, Stockholm, Sweden

100%

Asia

Carlsberg Brewery Hong Kong Ltd,
Hong Kong, China

Carlsberg Brewery (Guangdong) Ltd,
Huizhou, China

Kunming Huashi Brewery Company Limited,
Kunming, China

Xinjiang Wusu Breweries Co., Ltd., Urumqi, China

Ningxia Xixia Jianiang Brewery Limited, Xixia,
China

Carlsberg (China) Breweries and Trading
Company Limited, Dali, China

Chongqing Brewery Co., Ltd, Chongqing, China

Chongqing Jianiang Brewery Ltd.,
Chongqing, China

Carlsberg Beer Enterprise Management
(Chongqing) Company Limited, Chongqing,
(“Eastern Assets”), China

Tibet Lhasa Brewery Company Limited,
Lhasa, China

Lanzhou Huanghe Jianiang Brewery
Company Limited, Lanzhou, China

Qinghai Huanghe Jianiang Brewery
Company Ltd., Xining, China

Jiuquan West Brewery Company Limited,
Jiuquan, China

Tianshui Huanghe Jianiang Brewery
Company Ltd, Tianshui, China

100%

51%

100%

65%

98%

100%

44%

32%

100%

65%

63%

65%

44%

32%

100%

99%

68%

100%

99%

89%

100%

99%

100%

70%

100%

60%

100%

60%

51%

79%

100%

50%

CARLSBERG GROUP ANNUAL REPORT 2017 CONSOLIDATED FINANCIAL STATEMENTS 123

Reference

Number of
subsidiaries

Type of
investment

Parent
direct
ownership*

Consolidated
ownership**

Reference

Number of
subsidiaries

Type of
investment

Parent
direct
ownership*

Consolidated
ownership**

Asia

Carlsberg Brewery Malaysia Berhad,
Selangor Darul Ehsan, Malaysia

Carlsberg Marketing Sdn BHD, Selangor Darul
Ehsan, Malaysia

Euro Distributors Sdn BHD, Selangor Darul
Ehsan, Malaysia

Lion Brewery (Ceylon) PLC, Biyagama,
Sri Lanka

Carlsberg Singapore Pte Ltd, Singapore

Maybev Pte Ltd., Singapore

Carlsberg South Asia Pte Ltd, Singapore

South Asian Breweries Pte. Ltd., Singapore

Carlsberg India Pvt. Ltd, New Delhi, India

Gorkha Brewery Pvt. Ltd., Kathmandu,
Nepal

Carlsberg Vietnam Trading Co. Ltd., Hanoi,
Vietnam

Carlsberg Vietnam Breweries Ltd.,
Hue, Vietnam

Hanoi Beer Alcohol and Beverage Joint Stock
Corporation, Hanoi, Vietnam

Lao Brewery Co. Ltd., Vientiane, Laos

Paduak Holding Pte. Ltd., Singapore

Myanmar Carlsberg Co. Ltd, Yangon,
Myanmar

Caretech Limited, Hong Kong, China

Cambrew Limited, Phnom Penh, Cambodia

Carlsberg Distributors Taiwan Limited, Taipei,
Taiwan

CB Distribution Co., Ltd., Bangkok, Thailand

Brewery Invest Pte Ltd, Singapore

Carlsberg Asia Pte Ltd, Singapore

A, B, G

B, E

51%

100%

25%

100%

51%

67%

100%

51%

17%

51%

26%

100%

90%

100%

17%

61%

100%

51%

50%

100%

50%

100%

17%

61%

100%

51%

50%

100%

Not allocated

Carlsberg Finans A/S,
Copenhagen, Denmark

Carlsberg International A/S,
Copenhagen, Denmark

Carlsberg Invest A/S,
Copenhagen, Denmark

Carlsberg Global Business Services A/S,
Copenhagen, Denmark

Carlsberg Insurance A/S,
Copenhagen, Denmark

Carlsberg Shared Services Sp. z o.o.,
Poznan, Poland

Non-beverage

Ejendomsaktieselskabet Tuborg Nord C,
Copenhagen, Denmark

Ejendomsaktieselskabet af 4. marts 1982,
Copenhagen, Denmark

Carlsberg Ejendomme Holding A/S,
Copenhagen, Denmark

Boliginteressentskabet Tuborg,
Copenhagen, Denmark

Carlsberg Byen P/S, Copenhagen,
Denmark

100%

25%

Parent Company
Parent Company

PARENT COMPANY

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 124

PARENT COMPANY FINANCIAL
STATEMENTS

Income statement ................................ 125

Statement of comprehensive
income ...................................................... 125

Statement of financial position ...... 126

Statement of changes in equity ..... 127

Statement of cash flows ................... 128

Notes ......................................................... 129

SECTION 1
SUBSIDIARIES AND RELATED PARTIES
Investments in subsidiaries .................. 129
1.1
1.2 Related parties ........................................ 129

SECTION 2
CAPITAL STRUCTURE
2.1 Financial income and expenses ......... 130
2.2 Receivables and borrowings ............... 130
2.3 Net interest-bearing debt .................... 131
2.4 Share capital ............................................ 131

SECTION 4
OTHER DISCLOSURE REQUIREMENTS
4.1 Other operating activities, net ............ 135
4.2 Provisions .................................................. 135
4.3 Special items ............................................ 135
4.4 Asset base and leases ........................... 135
4.5 Fees to auditors ...................................... 135
4.6 Tax .............................................................. 136
4.7 Contingent liabilities and other

commitments ........................................... 137
4.8 Events after the reporting period ...... 137

SECTION 3
STAFF COSTS AND REMUNERATION
3.1 Staff costs and remuneration of

executive directors.................................. 132
3.2 Share-based payments ........................ 133
3.2 Retirement benefit obligations

and similar obligations ......................... 134

SECTION 5
GENERAL ACCOUNTING POLICIES
5

General accounting policies ................ 137

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 125

INCOME STATEMENT

STATEMENT OF COMPREHENSIVE INCOME

DKK million

Administrative expenses

Other operating activities, net

Operating profit before special items

Special items

Financial income

Financial expenses

Profit before tax

Corporation tax

Profit for the year

Attributable to

Dividend to shareholders

Reserves

Profit for the year

Section

4.1

4.3

2.1

4.6

2017

-75

-48

-123

1,530

-6

1,451

1,482

2,441

-959

1,482

2016

DKK million

Profit for the year

Other comprehensive income

Retirement benefit obligations

Corporation tax

Items that will not be reclassified to the income statement

Other comprehensive income

Total comprehensive income

-67

-38

-105

-50

1,378

-10

1,213

1,242

1,526

-284

1,242

Section

2017

1,482

2016

1,242

3.3

4.6

-1

-3

-2

1,484

1,240

STATEMENT OF FINANCIAL POSITION

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 126

DKK million

ASSETS

Non-current assets

Intangible assets

Property, plant and equipment

Investments in subsidiaries

Receivables

Deferred tax assets

Total non-current assets

Current assets

Receivables from subsidiaries

Tax receivables

Other receivables

Total current assets

Total assets

Section 31 Dec. 2017

31 Dec. 2016

DKK million

Section 31 Dec. 2017

31 Dec. 2016

4.4

1.1

2.2

4.6

2.2

EQUITY AND LIABILITIES

Equity

454

Share capital

270

Retained earnings

45,340

45,513

Total equity

490

127

490

136

Non-current liabilities

46,419

46,418

Retirement benefit obligations and similar obligations

Provisions

Other liabilities

Total non-current liabilities

Current liabilities

103

171

Borrowings

215

325

46,744

46,589

Trade payables

Provisions

Corporation tax

Other liabilities etc.

Total current liabilities

Total liabilities

Total equity and liabilities

2.4

3.3

4.2

2.2

4.2

3,051

41,908

44,959

3,051

42,072

45,123

102

144

1,477

1,175

122

1,700

1,785

1,322

1,466

46,744

46,589

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 127

STATEMENT OF CHANGES IN EQUITY

DKK million

2017

Equity at 1 January

Profit for the year

Other comprehensive income

Retirement benefit obligations

Corporation tax

Other comprehensive income

Total comprehensive income for the year

Acquisition/disposal of treasury shares

Settlement of share-based payments

Share-based payments

Share-based payments to employees in subsidiaries

Dividends paid to shareholders

Total changes in equity

Equity at 31 December

Shareholders in Carlsberg A/S

DKK million

Share capital

3,051

Retained
earnings

42,072

1,482

-1

1,484

-118

-38

-1,525

-164

41,908

Total equity

2016

45,123

Equity at 1 January

1,482

Profit for the year

Other comprehensive income

Retirement benefit obligation

Corporation tax

Other comprehensive income

Total comprehensive income for the year

Acquisition/disposal of treasury shares

Settlement of share-based payments

Share-based payments

Share-based payments to employees in subsidiaries

-1

1,484

-118

-38

-1,525

-164

Dividends paid to shareholders

Total changes in equity

44,959

Equity at 31 December

The proposed dividend of DKK 16.00 per share, in total DKK 2,441m (2016: DKK 10.00 per share, in total DKK
1,526m), is included in retained earnings at 31 December 2017.

Dividends paid out in 2017 for 2016 amount to DKK 1,525m (paid out in 2016 for 2015: DKK 1,373m). Dividends paid
out to shareholders of Carlsberg A/S do not impact taxable income in Carlsberg A/S.

Shareholders in Carlsberg A/S

Share capital

3,051

Retained
earnings

42,219

1,242

Total equity

45,270

1,242

-3

-2

-3

-2

1,240

-1

-64

-1,373

-147

-1

-64

-1,373

-147

45,123

3,051

42,072

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 128

STATEMENT OF CASH FLOWS

DKK million

Operating profit before special items

Adjustment for depreciation and amortisation

Operating profit before depreciation and amortisation

Adjustment for other non-cash items

Change in working capital¹

Interest etc. received

Interest etc. paid

Corporation tax paid

Cash flow from operating activities

Acquisition of property, plant and equipment and intangible assets

Total operational investments

Disposal of securities

Dividends from subsidiaries and joint ventures

Total financial investments

Other investments in property, plant and equipment

Disposal of other property, plant and equipment

Total other activities²

Cash flow from investing activities

Free cash flow

Shareholders in Carlsberg A/S

External financing

Cash flow from financing activities

Net cash flow

Cash and cash equivalents at 1 January

Cash and cash equivalents at 31 December

2017

-123

-106

-12

101

-6

-205

1,526

1,346

1,351

-1,681

330

2016

-105

-91

-74

-179

-15

-251

-6

1,373

1,374

-20

1,369

1,118

-1,438

318

-1,351

-1,120

-2

1 Change in working capital includes receivables of DKK 16m (2016: DKK -22m), trade payables and other
liabilities of DKK 112m (2016: DKK -180m), and other provisions of DKK -27m (2016: DKK 23m).
2 Other activities cover real estate activities.

SECTION 1

SUBSIDIARIES AND
RELATED PARTIES

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 129

SECTION 1.1
INVESTMENTS IN
SUBSIDIARIES

Please see section 10 in the consolidated
financial statements for a list of companies in
the Carlsberg Group. The carrying amount
includes goodwill of DKK 11,207m (2016: DKK
11,207m) on acquisition of subsidiaries. Share-
based payments to employees in subsidiaries
comprise exercised as well as outstanding
share-based incentive instruments.

DKK million

2017

2016

Cost

Cost at 1 January

45,513

45,481

Share-based payments
to employees

Cost at 31 December

Carrying amount at 31
December

-173

45,340

45,513

45,340

45,513

ACCOUNTING ESTIMATES
AND JUDGEMENTS

Management performs an annual test on investments
in subsidiaries for indications of impairment.
Impairment tests are conducted in the same way as
for goodwill in the Group, cf. section 2.3 in the
consolidated financial statements.

It is management’s assessment that no indications of
impairment existed at year-end 2017. Impairment
tests have therefore not been carried out for
subsidiaries.

The Carlsberg Foundation received a dividend
of DKK 10.00 per share from Carlsberg A/S,
the same as every other shareholder.

ACCOUNTING
POLICIES

Dividends on investments in subsidiaries are
recognised as income in the income statement of the
Parent Company in the financial year in which the
dividend is declared.

Investments in subsidiaries are measured at the lower
of cost and recoverable amount.

SECTION 1.2
RELATED PARTIES

The Carlsberg Foundation, H.C. Andersens
Boulevard 35, 1553 Copenhagen V, Denmark,
exercises control over Carlsberg A/S. The
Foundation holds 30.3% of the shares and
75.3% of the voting power in Carlsberg A/S,
excluding treasury shares.

The following transactions took place between
the Carlsberg Foundation and the Carlsberg
Group in 2017:

Disposal of the Carlsberg Academy to the
Carlsberg Foundation. The Academy was
valued at market price using the same
conditions/price as applicable to other
buildings in the area.

Carlsberg Breweries A/S leases storage
facilities in the Researcher Apartments. The
annual lease, DKK 173 thousand, and the
lease terms are on market conditions.

A collaboration between Carlsberg foundations
and the Carlsberg Group to launch a campaign
at Copenhagen Airport to celebrate Carlsberg’s
170-year anniversary.

SECTION 2

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 130

CAPITAL STRUCTURE

SECTION 2.1
FINANCIAL INCOME
AND EXPENSES

Financial items recognised in the income
statement

DKK million

2017

2016

SECTION 2.2
RECEIVABLES AND
BORROWINGS

SECTION 1.2 (CONTINUED)
RELATED PARTIES

OTHER RELATED PARTIES
Related parties also comprise Carlsberg A/S’
Supervisory Board and Executive Board, their
close family members and companies in which
these persons have significant influence.

During the year, there were no transactions
between these parties and the Group, except
for remuneration as disclosed in section 3.

Interest income relates to interest from cash
and cash equivalents and loans to subsidiaries.

Other financial income relates to foreign
exchange gains.

Interest expenses primarily relate to interest on
borrowings.

No losses on loans to or receivables from
subsidiaries or joint ventures were recognised or
provided for in either 2017 or 2016.

No financial items were recognised directly in
other comprehensive income.

The income statement and the statement
of financial position include the following
transactions with subsidiaries

DKK million

Other operating
activities, net

Interest income

Interest expenses

Dividends received

Loans

Receivables

Borrowings

Trade payables

2017

2016

-6

1,526

500

-1,477

-13

-6

1,373

528

-1,175

-8

Financial income

Interest income

Dividends from
subsidiaries

Other financial income

Total

Financial expenses

Interest expenses

Other financial
expenses

Total

Financial items, net,
recognised in the
income statement

1,526

1,530

-6

1,373

1,378

-6

-4

-10

Receivables

DKK million

Loans to subsidiaries

Receivables from
subsidiaries

Other receivables

Total

2017

500

217

803

2016

528

661

The fair value of receivables and borrowings in
subsidiaries corresponds to the carrying
amount in all material respects.

1,524

1,368

Borrowings

The average effective interest rate on loans to
subsidiaries was 0.7% (2016: 0.8%) and on
loans from subsidiaries 0.5% (2016: 0.5%).

DKK million

2017

2016

Current borrowings

Borrowings from
subsidiaries

Total

Fair value

1,477

1,175

Borrowings are measured at amortised cost.

SECTION 2.3
NET INTEREST-
BEARING DEBT

Net interest-bearing debt

DKK million

Current borrowings

Gross interest-bearing debt

Receivables

Loans to subsidiaries

Net interest-bearing debt

Changes in net interest-bearing debt

Net interest-bearing debt at 1 January

Cash flow from operating activities, excluding interest-bearing part

Cash flow from investing activities

Dividends to shareholders

Acquisition/disposal of treasury shares and settlement of share-based payments

Total change

Net interest-bearing debt at 31 December

2017

1,477

-1

-500

976

646

-5

2016

1,175

-1

-528

646

320

257

-1,346

-1,369

1,525

156

330

976

1,373

326

646

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 131

DKK 8m (2016: DKK 7m) at an average price
of DKK 706 (2016: DKK 637). Class B treasury
shares are primarily acquired and disposed of
to facilitate settlement of the share-based
incentive programmes. The Company holds no
class A shares.

Transactions with
shareholders in Carlsberg A/S

Dividends to
shareholders

Acquisition of treasury
shares

Disposal of treasury
shares

Total

2017

2016

-1,525

-1,373

-266

-214

110

149

-1,681

-1,438

SECTION 2.4
SHARE CAPITAL

At 31 December 2017, the fair value of
treasury shares amounted to DKK 124m
(2016: DKK 3m). The holdings of treasury
shares are specified in section 4.3 in the
consolidated financial statements.

According to the authorisation of the Annual
General Meeting, the Supervisory Board may,
in the period until 19 March 2019, allow the
Company to acquire treasury shares up to a
total holding of 10% of the nominal share
capital at a price quoted on Nasdaq
Copenhagen at the time of acquisition with a
deviation of up to 10%.

In the financial year, the Company acquired
class B treasury shares of a nominal amount of

Share capital

Class A shares

Class B shares

Total share capital

Shares of
DKK 20

Nominal
value, DKK
'000

Shares of
DKK 20

Nominal
value, DKK
'000

Shares of
DKK 20

Nominal value,
DKK '000

1 January 2016

33,699,252

673,985

118,857,554

2,377,151

152,556,806

3,051,136

No change in 2016

31 December 2016

33,699,252

673,985

118,857,554

2,377,151

152,556,806

3,051,136

No change in 2017

31 December 2017

33,699,252

673,985

118,857,554

2,377,151

152,556,806

3,051,136

SECTION 3

STAFF COSTS AND
REMUNERATION

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 132

SECTION 3.1
STAFF COSTS AND
REMUNERATION OF
EXECUTIVE
DIRECTORS

Remuneration of executive directors is based
on a fixed salary, cash bonus payments and
non-monetary benefits, such as company car,

telephone etc. Furthermore, share option
programmes and incentive schemes have been
established for executive directors. These
programmes and schemes cover a number of
years. The remuneration is specified in section
3.2.

Staff costs and remuneration also cover costs
and remuneration regarding executive directors
of the Company who are contractually
employed by other Group companies where the
related cost is recognised and payment is made
in those companies.

Employment contracts for executive directors
contain terms and conditions that are
considered common to executive board
members in Danish listed companies, including
terms of notice and non-competition clauses.

Remuneration of executive directors and the
Supervisory Board as well as their holdings of
shares in the Company are specified in the
Management review and section 7 in the
consolidated financial statements.

Staff costs and remuneration

DKK million

Salaries and other remuneration

Retirement benefit costs - defined contribution plans

Share-based payments

Total

Staff costs are included in the following items in the income statement

Administrative expenses

Other operating activities, net

Total staff costs recognised by the Parent Company

Staff costs recognised by other Group companies

Total

The Company had an average of 81 (2016: 77) full-time employees during the year.

2017

104

139

2016

108

SECTION 3.2
SHARE-BASED
PAYMENTS

SHARE OPTIONS
No share options were granted in 2017. In
2016, 17,650 share options were granted to
1 employee. The grant date fair value of these
options was DKK 2m. The total cost of the
share options was DKK 7m, which is recognised
under staff costs. Refunds etc. between
Carlsberg A/S and its subsidiaries are
recognised directly in equity.

REGULAR PERFORMANCE SHARES
In 2017, a total of 74,877 (2016: 25,079)
regular performance shares were granted to
2 employees (2016: 2). The grant date fair
value of these performance shares was
DKK 39m (2016: DKK 13m). The total cost
of the performance shares was DKK 15m
(2016: DKK 13m), which is recognised under
staff costs. Refunds etc. between Carlsberg
A/S and its subsidiaries are recognised directly
in equity.

FUNDING THE JOURNEY
PERFORMANCE SHARES
In 2016, a total of 37,242 performance shares
were granted to 2 employees under the
Funding the Journey performance share
programme. The grant date fair value of these
performance shares was DKK 22m. The total
cost of the performance shares was DKK 8m,
which is recognised under staff costs. Refunds
etc. between Carlsberg A/S and its subsidiaries
are recognised directly in equity.

Share-based incentive programmes

Share options

Share options outstanding at 31 December 2015

Granted

Exercised

Share options outstanding at 31 December 2016

Exercised

Share options outstanding at 31 December 2017

Regular performance shares

Performance shares outstanding at 31 December 2015

Granted

Adjusted

Exercised/settled

Performance shares outstanding at 31 December 2016

Granted

Adjusted

Exercised

Performance shares outstanding at 31 December 2017

Funding the Journey performance shares

Performance shares outstanding at 31 December 2015

Granted

Performance shares outstanding at 31 December 2016

No changes in 2017

Performance shares outstanding at 31 December 2017

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 133

Exercise price

Fixed,
weighted
average

540.07

597.60

550.10

Executive
directors

97,334

17,650

536.93

114,984

568.23

529.76

114,984

Number

Total

638,389

17,650

Resigned
employees

541,055

-233,500

307,555

422,539

-174,000

133,555

248,539

Other
employees

564

25,079

74,877

99,956

37,242

583

-31

-32

520

-32

-1

598

25,079

-32

25,664

74,877

-32

-33

100,476

37,242

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 134

The discount rate was 0.5% compared to 0.5%
in 2016. The rate of increase in future
retirement obligations was 2% (2016: 2%).

During the year, DKK 0m (2016: DKK 0m) was
recognised in the income statement.

At 31 December 2017, DKK 3m (2016:
DKK -3m) was recognised in other
comprehensive income.

SECTION 3.2 (CONTINUED)
SHARE-BASED
PAYMENTS

ACCOUNTING
POLICIES

The fair value of share-based incentives granted to
employees in the Parent Company’s subsidiaries is
recognised as investments in subsidiaries as the
services rendered in exchange for the granted
incentives are received in the subsidiaries and offset
directly against equity.

The difference between the purchase price and the
sales price for the exercise of share-based incentives
by employees in subsidiaries is settled between
Carlsberg A/S and the individual subsidiary and offset
directly against investments in subsidiaries.

The difference at the reporting date between the fair
value of the Parent Company’s equity instruments
and the exercise price of outstanding share-based
incentives is recognised as a receivable in Carlsberg
A/S and offset directly against investments in
subsidiaries.

Share-based incentives granted to the Parent
Company’s own employees are recognised and
measured in accordance with the accounting policies
used by the Group. Please refer to the consolidated
financial statements for a description of accounting
policies.

SECTION 3.3
RETIREMENT
BENEFIT
OBLIGATIONS
AND SIMILAR
OBLIGATIONS

Retirement benefit obligations and similar
obligations comprise payments to retired
directors that are not covered by an insurance
company. The plan is unfunded.

Total obligations at 31 December 2017
amounted to DKK 34m (2016: DKK 41m) and
include actuarial gains of DKK 3m (2016: DKK
-3m) and benefits paid in the year of DKK 4m
(2016: DKK 2m).

Of the expected payment obligation, DKK 3m
is due within one year and DKK 18m after
more than five years from the reporting date.

The actuarial assumptions underlying the
calculations are based on local economic
conditions and labour market conditions.

Key information

Average share price at the exercise date for share options exercised in the year

Weighted average contractual life for awards outstanding at 31 December

Range of exercise prices for share options outstanding at 31 December

Exercisable outstanding share options at 31 December

Weighted average exercise price for share options exercisable at 31 December

Share options

Regular
performance shares

Funding the Journey
performance shares

2017

675

5.2

503.00-
597.60

2016

629

6.5

417.34-
597.60

79,000

504

2017

2.0

None

2016

2.1

None

2017

1.2

None

2016

2.2

None

The assumptions underlying the calculation of the fair value of share-based payment awards are described in section 7.3 in the consolidated financial statements.

SECTION 4

OTHER DISCLOSURE
REQUIREMENTS

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 135

SECTION 4.1
OTHER OPERATING
ACTIVITIES, NET

Other operating activities are secondary to the
principal activities of the Group and include
income and expenses relating to rental
properties, research activities, and gains and
losses on the disposal of intangible assets and
property, plant and equipment.

Other operating activities, net
DKK million

2017

Gains on disposal of
real estate

Real estate, net

Research activities,
including the Carlsberg
Research Laboratory,
net

Other, net

Total

-23

-47

-48

2016

-26

-34

-3

-38

Research expenses are partially financed
through funding received from the Carlsberg
Foundation for the operation of the Carlsberg
Research Laboratory and other grants. The
funding and grants are recognised in the
income statement in the same period as the
activities to which they relate.

SECTION 4.2
PROVISIONS

SECTION 4.3
SPECIAL ITEMS

Provisions primarily comprise warranty
provisions regarding real estate disposed of
and provisions for ongoing disputes and
lawsuits etc.

At 31 December 2017, provisions amounted
to DKK 105m (2016: DKK 181m). Additional
provisions recognised amounted to DKK 4m
(2016: DKK 50m), and DKK 27m (2016: DKK
21m) was utilised in the year. Reversal of
provisions amounted to DKK -53m (2016:
DKK -7m).

Of total provisions, DKK 54m (2016: DKK
79m) falls due within one year and DKK 0m
(2016: DKK 0m) after more than five years
from the end of the reporting period.

Special items, net, amounted to DKK 50m and
relate to reversal of provisions related to
disposal of property, plant and equipment in
prior years. In 2016, special items amounted to
DKK -50m and related to an adjustment to the
gain on disposal of property, plant and
equipment in prior years.

SECTION 4.4
ASSET BASE AND
LEASES

The carrying amount of intangible assets was
DKK 8m (2016: DKK 9m), and the carrying
amount of property, plant and equipment was
DKK 454m (2016: DKK 270m). Property, plant
and equipment comprise mainly land and
buildings of DKK 182m (2016: DKK 189m).
Property, plant and equipment under
construction amounted to DKK 262m (2016:
DKK 72m).

Depreciation, amortisation and impairment of
DKK 17m (2016: DKK 14m) were included in
administrative expenses.

For accounting policies on property, plant and
equipment, and on impairment of assets in the
Group, please refer to sections 2.3-2.4 in the
consolidated financial statements.

Carlsberg A/S has entered into an operating
lease relating to transport equipment. The
lease contains no special purchase rights etc.
Future lease payments total DKK 1m (2016:
DKK 1m). Operating lease payments
recognised in the income statement in 2017
amounted to DKK 1m (2016: DKK 1m).

Carlsberg A/S has entered into contractual
commitments regarding development of
property, plant and equipment of DKK 390m
(2016: DKK 54m).

SECTION 4.5
FEES TO AUDITORS

The audit fee to PwC, which is appointed by
the Annual General Meeting to perform the
statutory audit, amounted to DKK 0.5m (2016:
DKK 0.5m to KPMG).

SECTION 4.6
TAX

Deferred tax assets amounted to DKK 127m
(2016: DKK 136m) and primarily comprise tax
on property, plant and equipment of DKK 41m
(2016: DKK 46m), provisions and retirement
benefit obligations of DKK 20m (2016: DKK
36m) and tax losses etc. of DKK 76m (2016:
DKK 64m). The utilisation of tax loss
carryforwards depends on future positive
taxable income exceeding the realised deferred
tax liabilities. Deferred tax liabilities amounted
to DKK 10m (2016: DKK 10m) and were offset
against the deferred tax asset.

The changes in deferred tax comprise tax
recognised in total comprehensive income
of DKK 26m (2016: DKK -59m) and a joint
taxation contribution of DKK -35m (2016:
DKK 5m).

Together with changes to tax for prior years,
the total tax for the year recognised in the
income statement comprised income of DKK
-31m (2016: DKK 29m). Of the deferred tax
assets, DKK 1m (2016: DKK 5m) is expected
to be used within one year. All tax assets have
been recognised.

The administration company, Carlsberg A/S,
has unlimited and joint legal responsibility with
the other companies under the joint taxation
scheme for withholding taxes on dividends,
interest and royalties.

Reconciliation of tax for the year

DKK million

Tax in Denmark

Adjustments to tax for
prior years

Non-deductible
expenses

Tax-free dividend and
tax-exempted items

Tax for the year

2017

319

-15

-340

-31

2016

267

-11

-302

-29

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 136

ACCOUNTING ESTIMATES
AND JUDGEMENTS

ACCOUNTING
POLICIES

Carlsberg A/S recognises deferred tax assets,
including the tax base of tax loss carryforwards, if
management assesses that these tax assets can be
offset against positive taxable income in the
foreseeable future. This judgement is made annually
and based on budgets and business plans for the
coming years, including planned commercial
initiatives.

Carlsberg A/S is the administration company and is
subject to the Danish rules on mandatory joint
taxation of the Carlsberg Group’s Danish companies.
Carlsberg A/S accordingly pays all income taxes to
the tax authorities under the joint taxation scheme.

Danish subsidiaries are included in the joint taxation
from the date when they are included in the
consolidated financial statements and up to the date
when they are excluded from the consolidation. The
jointly taxed Danish companies are taxed under the
on-account tax scheme.

On payment of joint taxation contributions, the
current Danish corporation tax is allocated between
the Danish jointly taxed companies in proportion to
their taxable income. Companies with tax losses
receive joint taxation contributions from other
companies that have used the tax losses to reduce
their own taxable profit (full absorption).

Tax on profit/loss for the year comprises profit/loss
from real estate partnerships (joint ventures), as these
are not individually taxed but included in the taxable
income of the partners. In addition, tax on profit/loss
and deferred tax are calculated and recognised as
described in section 6 in the consolidated financial
statements.

Corporation tax

DKK million

Tax for the year

Income
statement

Other
comprehensive
income

Total
comprehensive
income

Income
statement

Other
comprehensive
income

Total
comprehensive
income

2017

2016

Change in deferred tax during the year

Adjustments to current tax for prior years

Adjustments to deferred tax for prior years

Total

-16

-6

-9

-31

-15

-6

-9

-30

-18

-88

-29

-1

-19

-88

-30

CARLSBERG GROUP ANNUAL REPORT 2017 PARENT COMPANY 137

SECTION 5

GENERAL
ACCOUNTING
POLICIES

SECTION 4.8
EVENTS AFTER THE
REPORTING PERIOD

Apart from the events recognised or disclosed
in the financial statements, no events have
occurred after the reporting date of importance
to the financial statements.

The 2017 financial statements of Carlsberg
A/S have been prepared in accordance with
International Financial Reporting Standards
(IFRS) as adopted by the EU and additional
requirements in the Danish Financial
Statements Act.

The financial statements are presented in
Danish kroner (DKK), which is the presentation
currency.

The accounting policies for the Parent
Company are the same as for the Group, cf.
section 9 in the consolidated financial
statements and the individual sections.

SIGNIFICANT ACCOUNTING ESTIMATES
AND JUDGEMENTS
In preparing Carlsberg A/S’ financial
statements, management makes various
accounting estimates and judgements that
form the basis of presentation, recognition and
measurement of the Company’s assets and
liabilities.

The estimates and judgements made are based
on historical experience and other factors that
management assesses to be reliable, but that
by their very nature are associated with
uncertainty and unpredictability. These
estimates and judgements may therefore prove
incomplete or incorrect, and unexpected events
or circumstances may arise.

The significant accounting estimates and
judgements made and accounting policies
specific to the Parent Company are presented
in the explanatory notes.

SECTION 4.7
CONTINGENT
LIABILITIES
AND OTHER
COMMITMENTS

Carlsberg A/S has issued guarantees to
subsidiaries for pension obligations of DKK
349m (2016: DKK 359m).

Carlsberg A/S is jointly registered for Danish
VAT and excise duties with Carlsberg
Breweries, Carlsberg Danmark and various
other minor Danish subsidiaries, and Carlsberg
A/S is jointly and severally liable for payment
of VAT and excise duties.

Carlsberg A/S is party to certain lawsuits,
disputes etc. of various scopes. In
management’s opinion, apart from as
recognised in the statement of financial
position or disclosed in the financial
statements, the outcome of these lawsuits,
disputes etc. will not have a material negative
effect on the Company’s financial position.

Carlsberg A/S has issued a guarantee in
respect of rental obligations of DKK 63m
(2016: DKK 12m).

REPORTS

MANAGEMENT STATEMENT

CARLSBERG GROUP ANNUAL REPORT 2017 FINANCIAL STATEMENTS 138

The Supervisory Board and the Executive
Board have today discussed and approved the
Annual Report of the Carlsberg Group and the
Parent Company for 2017.

The Annual Report has been prepared in
accordance with International Financial
Reporting Standards as adopted by the EU and
additional requirements in the Danish Financial
Statements Act.

In our opinion the consolidated financial
statements and the Parent Company’s financial
statements give a true and fair view of the
Carlsberg Group’s and the Parent Company’s
assets, liabilities and financial position at
31 December 2017 and of the results of the
Carlsberg Group’s and the Parent Company’s
operations and cash flows for the financial
year 2017.

Further, in our opinion the Management review
includes a fair review of the development in the
Carlsberg Group’s and the Parent Company’s
operations and financial matters, of the result
for the year, and of the Carlsberg Group’s and
the Parent Company’s financial position as well
as describing the significant risks and
uncertainties affecting the Carlsberg Group and
the Parent Company.

We recommend that the Annual General
Meeting approve the Annual Report.

Executive Board of Carlsberg A/S

Cees 't Hart
President & CEO

Heine Dalsgaard
CFO

Supervisory Board of Carlsberg A/S

Flemming Besenbacher
Chairman

Lars Rebien Sørensen
Deputy Chairman

Copenhagen, 7 February 2018

Hans Andersen

Carl Bache

Richard Burrows

Donna Cordner

Nancy Cruickshank

Eva V. Decker

Kees van der Graaf

Finn Lok

Erik Lund

Søren-Peter Fuchs Olesen

Peter Petersen

Nina Smith

Lars Stemmerik

REPORTS

INDEPENDENT
AUDITOR’S REPORT

CARLSBERG GROUP ANNUAL REPORT 2017 FINANCIAL STATEMENTS 139

What we have audited
The Consolidated Financial Statements and
Parent Company Financial Statements of
Carlsberg A/S for the financial year 1 January
to 31 December 2017 comprise income
statement, statement of comprehensive
income, statement of financial position,
statement of changes in equity, statement of
cash flows and notes, including summary of
significant accounting policies for the Group as
well as for the Parent Company. Collectively
referred to as the “Financial Statements”.

TO THE SHAREHOLDERS OF
CARLSBERG A/S

OUR OPINION
In our opinion, the Consolidated Financial
Statements and the Parent Company Financial
Statements (pp 51-118 and pp 121-137) give
a true and fair view of the Group’s and the
Parent Company’s financial position at 31
December 2017 and of the results of the
Group’s and the Parent Company’s operations
and cash flows for the financial year 1 January
to 31 December 2017 in accordance with
International Financial Reporting Standards as
adopted by the EU and further requirements in
the Danish Financial Statements Act.

Our opinion is consistent with our Auditor’s
Long-form Report to the Audit Committee and
the Supervisory Board.

BASIS FOR OPINION
We conducted our audit in accordance with
International Standards on Auditing (ISAs) and
the additional requirements applicable in
Denmark. Our responsibilities under those
standards and requirements are further
described in the Auditor’s responsibilities for the
audit of the Financial Statements section of our
report.

To the best of our knowledge and belief,
prohibited non-audit services referred to in
Article 5(1) of Regulation (EU) No 537/2014
were not provided.

Appointment
We were first appointed auditors of Carlsberg
A/S on 30 March 2017 for the financial year
2017.

We believe that the audit evidence we have
obtained is sufficient and appropriate to provide
a basis for our opinion.

Independence
We are independent of the Group in
accordance with the International Ethics
Standards Board for Accountants’ Code of
Ethics for Professional Accountants (IESBA
Code) and the additional requirements
applicable in Denmark. We have also fulfilled
our other ethical responsibilities in accordance
with the IESBA Code.

KEY AUDIT MATTERS
Key audit matters are those matters that, in
our professional judgement, were of most
significance in our audit of the Financial
Statements for 2017. These matters were
addressed in the context of our audit of the
Financial Statements as a whole, and in
forming our opinion thereon, and we do not
provide a separate opinion on these matters.

KEY AUDIT MATTER

HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER

KEY AUDIT MATTER

HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER

CARLSBERG GROUP ANNUAL REPORT 2017 FINANCIAL STATEMENTS 140

Our audit procedures included considering the appropriateness of the Group’s
revenue recognition accounting policies and assessing compliance with
applicable accounting standards.

We tested the relevant controls, including applicable information systems and
Management’s monitoring of controls used to ensure the completeness,
accuracy and timing of revenue recognised.

We discussed the key assumptions related to the recognition and classification
of revenue with Management. Further we performed substantive procedures
regarding invoicing, significant contracts, significant transactions (including
discounts) and locally imposed duties and fees in order to assess the accounting
treatment and principles applied.

We applied data analysis in our testing of revenue transaction in order to
identify transactions outside the ordinary transaction flow including journal
entry testing and cut-off testing at year-end.

REVENUE RECOGNITION

Recognition of the Group’s revenue
is complex due to the extent of
different revenue streams ranging
from sales of goods, royalty
income, porterage income and sales
of by-products recognised when all
significant risks and rewards have
been transferred to the customer or
in terms of the licence agreement.

We focused on this area, as there is
a risk of non-compliance with
accounting policies due to
complexity originating from different
customer behaviour, structures,
market conditions and terms in the
various countries.

Furthermore, the various discounts
and locally imposed duties and fees
in regard to revenue recognition in
the Carlsberg Group are complex
and introduce an inherent risk to the
revenue recognition process.

The revenue recognition and
accounting treatment are described
in section 1.2 “Revenue and
segmentation of operations –
Accounting estimates and
judgements” of the Consolidated
Financial Statements.

RECOVERABILITY OF THE CARRYING AMOUNT OF GOODWILL AND BRANDS

In addressing the risk, we walked through and tested relevant controls designed
and operated by the Group relating to the assessment of the carrying amount
of goodwill and brands.

We considered the appropriateness of Management’s defined cash-generating
units (CGUs) within the business. We evaluated whether there were factors
requiring Management to change their definition. We examined the
methodology used by Management to assess the carrying amount of goodwill
and brands assigned to CGUs and the process for identifying CGUs that require
impairment testing to determine compliance with IFRS.

We performed detailed testing for the assets where an impairment review was
required or indications of impairment were identified. For those assets we
analysed the reasonableness of key assumptions in relation to the ongoing
operation of the assets.

We corroborated estimates of future cash flows and challenged whether they
are reasonable and supported by the most recent approved Management
budgets, including expected future performance of the CGUs, and challenged
whether these are appropriate in light of future macroeconomic expectations in
the markets.

We used our internal valuation specialists and evaluated the assumptions used
by Management, including assessment of price and volume forecasts, discount
rates and long-term growth rates, and tested the mathematical accuracy of
the relevant value-in-use models prepared by Management.

Further, we assessed the appropriateness of disclosures including sensitivity
analysis prepared for the key assumptions.

The principal risk is in relation to
Management’s assessment of the
future timing and amount of cash
flows, which are used to project the
recoverability of the carrying
amount of goodwill and brands.
There is a specific risk related to
macroeconomic conditions and
volatile earnings caused by volume
decline, intensified competition and
changed regulations in key markets
– conditions that could also result in
Management deciding to change
brand strategy to drive business
performance.

Bearing in mind the generally long-
lived nature of the Carlsberg Group's
assets, the most critical assumptions
are Management’s view of cash-
generating units, prices, volumes,
discount rates, growth rates, royalty
rates, expected useful life and costs,
and future free cash flows.

We focused on this area, as
Management is required to exercise
considerable judgement because of
the inherent complexity in
estimating future cash flows.

The key assumptions and
accounting treatment are described
in section 2.3 “Impairment” of the
Consolidated Financial Statements.

MANAGEMENT’S RESPONSIBILITIES FOR THE
FINANCIAL STATEMENTS
Management is responsible for the preparation
of consolidated financial statements and parent
company financial statements that give a true
and fair view in accordance with International
Financial Reporting Standards as adopted by
the EU and further requirements in the Danish
Financial Statements Act, and for such internal
control as Management determines is
necessary to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or error.

In preparing the Financial Statements,
Management is responsible for assessing the
Group’s and the Parent Company’s ability to
continue as a going concern, disclosing, as
applicable, matters related to going concern
and using the going concern basis of
accounting unless Management either intends
to liquidate the Group or the Parent Company
or to cease operations, or has no realistic
alternative but to do so.

STATEMENT ON THE MANAGEMENT REVIEW
Management is responsible for Management’s
Review (pp 3-50 and pp 119-120).

Our opinion on the Financial Statements does
not cover Management’s Review, and we do
not express any form of assurance conclusion
thereon.

In connection with our audit of the Financial
Statements, our responsibility is to read
Management’s Review and, in doing so,
consider whether Management’s Review is
materially inconsistent with the Financial
Statements or our knowledge obtained in the
audit, or otherwise appears to be materially
misstated.

Moreover, we considered whether
Management’s Review includes the disclosures
required by the Danish Financial Statements
Act.

Based on the work we have performed, in our
view, Management’s Review is in accordance
with the Consolidated Financial Statements
and the Parent Company Financial Statements
and has been prepared in accordance with the
requirements of the Danish Financial
Statements Act. We did not identify any
material misstatement in Management’s
Review.

CARLSBERG GROUP ANNUAL REPORT 2017 FINANCIAL STATEMENTS 141

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT
OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable
assurance about whether the Financial
Statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs
and the additional requirements applicable in
Denmark will always detect a material
misstatement when it exists. Misstatements
can arise from fraud or error and are
considered material if, individually or in the
aggregate, they could reasonably be expected
to influence the economic decisions of users
taken on the basis of these Financial
Statements.

As part of an audit in accordance with ISAs and
the additional requirements applicable in
Denmark, we exercise professional judgement
and maintain professional scepticism
throughout the audit. We also:
• Identify and assess the risks of material

misstatement of the Financial Statements,
whether due to fraud or error, design and
perform audit procedures responsive to those
risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a
material misstatement resulting from fraud is
higher than for one resulting from error, as
fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or
the override of internal control.

• Obtain an understanding of internal control
relevant to the audit in order to design audit
procedures that are appropriate in the
circumstances, but not for the purpose of
expressing an opinion on the effectiveness of
the Group’s and the Parent Company’s
internal control.

• Evaluate the appropriateness of accounting
policies used and the reasonableness of
accounting estimates and related disclosures
made by Management.

• Conclude on the appropriateness of

Management’s use of the going concern basis
of accounting and based on the audit
evidence obtained, whether a material
uncertainty exists related to events or
conditions that may cast significant doubt on
the Group’s and the Parent Company’s ability
to continue as a going concern. If we
conclude that a material uncertainty exists,
we are required to draw attention in our
auditor’s report to the related disclosures in
the Financial Statements or, if such
disclosures are inadequate, to modify our
opinion. Our conclusions are based on the
audit evidence obtained up to the date of our
auditor’s report. However, future events or
conditions may cause the Group or the Parent
Company to cease to continue as a going
concern.

• Evaluate the overall presentation, structure
and content of the Financial Statements,
including the disclosures, and whether the
Financial Statements represent the underlying
transactions and events in a manner that
achieves fair presentation.

CARLSBERG GROUP ANNUAL REPORT 2017 FINANCIAL STATEMENTS 142

From the matters communicated with those
charged with governance, we determine those
matters that were of most significance in the
audit of the Financial Statements of the current
period and are therefore the key audit matters.
We describe these matters in our auditor’s
report unless law or regulation precludes public
disclosure about the matter or when, in
extremely rare circumstances, we determine
that a matter should not be communicated in
our report because the adverse consequences
of doing so would reasonably be expected to
outweigh the public interest benefits of such
communication.

• Obtain sufficient appropriate audit evidence
regarding the financial information of the
entities or business activities within the Group
to express an opinion on the Consolidated
Financial Statements. We are responsible for
the direction, supervision and performance of
the Group audit. We remain solely responsible
for our audit opinion.

We communicate with those charged with
governance regarding, among other matters,
the planned scope and timing of the audit and
significant audit findings, including any
significant deficiencies in internal control that
we identify during our audit.

We also provide those charged with
governance with a statement that we have
complied with relevant ethical requirements
regarding independence, and to communicate
with them all relationships and other matters
that may reasonably be thought to bear on our
independence, and where applicable, related
safeguards.

Copenhagen, 7 February 2018

PricewaterhouseCoopers
Statsautoriseret Revisionspartnerselskab
CVR no 3377 1231

Mogens Nørgaard Mogensen
State Authorised Public Accountant
mne21404

Gert Fisker Tomczyk
State Authorised Public Accountant
mne9777

Carlsberg A/S
100 Ny Carlsberg Vej
1799 Copenhagen V
Denmark
Phone +45 3327 3300
www.carlsberggroup.com
CVR No. 61056416

CARLSBERG GROUP ANNUAL REPORT 2017 FINANCIAL STATEMENTS 143

This Annual Report contains forward-looking statements,
including statements about the Group’s sales, revenues,
earnings, spending, margins, cash flow, inventory,
products, actions, plans, strategies, objectives and
guidance with respect to the Group's future operating
results. Forward-looking statements include, without
limitation, any statement that may predict, forecast,
indicate or imply future results, performance or
achievements, and may contain the words “believe,
anticipate, expect, estimate, intend, plan, project, will be,
will continue, will result, could, may, might”, or any
variations of such words or other words with similar
meanings. Any such statements are subject to risks and
uncertainties that could cause the Group’s actual results
to differ materially from the results discussed in such
forward-looking statements. Prospective information is
based on management’s then current expectations or
forecasts. Such information is subject to the risk that such
expectations or forecasts, or the assumptions underlying
such expectations or forecasts, may change. The Group
assumes no obligation to update any such forward-
looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such
forward-looking statements. Some important risk factors
that could cause the Group’s actual results to differ
materially from those expressed in its forward-looking
statements include, but are not limited to: economic and

political uncertainty (including interest rates and
exchange rates), financial and regulatory developments,
demand for the Group’s products, increasing industry
consolidation, competition from other breweries, the
availability and pricing of raw materials and packaging
materials, cost of energy, production- and distribution-
related issues, information technology failures, breach or
unexpected termination of contracts, price reductions
resulting from market-driven price reductions, market
acceptance of new products, changes in consumer
preferences, launches of rival products, stipulation of fair
value in the opening balance sheet of acquired entities,
litigation, environmental issues and other unforeseen
factors. New risk factors can arise, and it may not be
possible for management to predict all such risk factors,
nor to assess the impact of all such risk factors on the
Group’s business or the extent to which any individual risk
factor, or combination of factors, may cause results to
differ materially from those contained in any forward-
looking statement. Accordingly, forward-looking
statements should not be relied on as a prediction of
actual results.

Proofreading: Borella projects
Editor: Carlsberg Group Investor Relations
Design & layout: Operate & SkabelonDesign
Photos: Nana Reimers et al