Carlsberg Breweries Group
Annual Report 2016

Carlsberg Breweries A/S
Ny Carlsberg Vej 100
1799 Copenhagen V
Denmark
CVR no. 25508343

As approved on the Company's Annual General Meeting on
/ 2017

Monica Gregers Smith
Chairwoman of the meeting

MANAGEMENT REVIEW

Management review

Delivering on our priorities. 3
Group financial review. 4
Five-year summary. 7
Earnings expectations. 8
Risk management. 16
Corporate governance. 19

FINANCIAL STATEMENTS

Consolidated financial statements

Statements. 22
Notes. 27

Parent Company

Statements. 91
Notes. 95
Supervisory and Executive Board. 108

Reports

Management statement. 109
Auditor's report. 110

SAIL'22 New strategy in 2016

A very important event in 2016 was the launch of our new strategy – SAIL'22 – in March. SAIL'22 sets a new direction for the Group with a focus on our core beer business and well-defined areas for future growth.

Carlsberg Breweries Group Annual Report 2016 3

Delivering on our priorities

Activities of the Group

The Carlsberg Breweries Group comprise the beverage activities in the Carlsberg Group. Carlsberg Breweries' activities are focused on the markets where the Group has the expertise and the right products to secure a leading position. Due to the variation of the markets, the contribution to growth, earnings and development within the Group differs, both at present and in the longer-term projections.

The Parent Company's main activities are investments in national and international breweries as well as license and export business. The Parent Company is listed with retail bonds at the Luxembourg Stock Exchange.

Highlights 2016

2016 was a good year for Carlsberg. It was a year of change as well as a year of delivering on our priorities. The uplift in our operating profit guidance, announced in November, served as a proof point of our commitment and ability to deliver on our plans, although the uplift was also supported by the warm summer in Russia.

SAIL'22

The most important activity during the year was the announcement and embedding of the Group's new strategy, SAIL'22.

SAIL'22 defines the key priorities and sets a clear direction for our work in the coming years. Our investments will be allocated to support successful delivery of the SAIL'22 priorities.

The strategy was the result of a joint effort by the Carlsberg leadership team over a period of about six months. The co-creation approach really proved itself during the roll-out phase in the second quarter of the year. By July, all leaders across our markets had participated in workshops where the priorities of SAIL'22 were communicated and discussed.

Throughout the Group, people have welcomed the priorities of SAIL'22, and during the second half of the year a lot of enthusiastic work was done to turn the priorities into strong tangible plans for the coming years. Thus, 2016 was a year of change and getting the hearts and minds of our people behind our new strategy.

2017 will be the first year of execution, made possible by the strong delivery of Funding the Journey. We are very pleased with the progress of this programme. Delivery of approx. DKK 0.5bn of the benefits this year was, timing-wise, slightly ahead of our expectations, giving us confidence that we will reach our target of DKK 1.5-2.0bn by 2018 as planned.

GROUP FINANCIAL REVIEW

Carlsberg Breweries Group Annual Report 2016 4

Financial highlights

We aim to strike the optimal balance in the Golden Triangle to drive sustainable value growth.

+140bp
Organic GPaL improvement

+4%
Organic growth, operating profit

62.6

Net revenue
DKKbn

8.3

Operating profit
DKKbn

In 2016, we applied our new value management approach based on the Golden Triangle across the Group. The Golden Triangle seeks to optimise the balance between market share/volumes, gross profit after logistics (GPaL) margin and operating profit. As part of this, we intensified the focus on profitability by brand, SKU and channel.

Consequently, net revenue was up organically by 2% due to solid price/mix of 3%, while total volumes were down organically by 2% due to less exposure to margin-dilutive volumes. GPaL margin improved by 140bp as a result of the positive price/mix and efficiency improvements.

Operating profit grew organically by 4%. All three regions delivered operating profit growth, with Eastern Europe performing particularly well. Reported operating profit declined by 3% due to a negative currency impact and disposal of businesses.

8.8

Free cash flow
DKKbn

Free cash flow was positively impacted by disposals of non-core businesses, including Danish Malting Group, Carlsberg Malawi and the Vung Tau brewery in Vietnam.

The average trade working capital to net revenue improved further in 2016 and was -9.5% compared to -6.5% in 2015. Other working capital was negatively impacted by an extraordinary payment into the UK pension fund.

10.7

ROIC (MAT)
%

Return on invested capital (ROIC) is a key metric for the Group.

In 2016, ROIC (MAT) showed a significant improvement of 140bp, driven by lower capital employed due to disposals, impairments, currencies and the fact that CapEx was below depreciation.

The improvement in ROIC excluding goodwill was even more significant, being up 500bp to 23.5%.

Earnings growth on track and strong cash flow

Income statement

Reported net revenue was DKK 62,614m (2015: DKK 65,354m), a decline of 4%. This was due to adverse currency developments in most markets, with a particularly significant impact from the Eastern European, Chinese, British and Norwegian currencies. In organic terms, net revenue grew by 2%, driven by a positive price/mix of 3%.

Cost of sales amounted to DKK 31,195m (2015: DKK 33,429m). Cost of sales per hl decreased by 5%. In organic terms, cost of sales per hl increased by approx. 1%. This was due to the negative transaction impact in Eastern Europe. Reported gross profit was DKK 31,419m (2015: DKK 31,925m). The reported gross margin improved by 140bp to 50.2% as a result of the positive price/mix and efficiency improvements.

Sales and distribution expenses amounted to DKK 18,476m (2015: DKK 19,158m), and administrative expenses amounted to DKK 5,172m (2015: DKK 4,869m). In total, these operating expenses declined by 2%, mainly due to currencies. Organically, they increased by 3%, primarily due to higher sales and marketing investments, including the UEFA EURO sponsorship, investments in SAIL'22, higher costs of incentive programmes and higher amortisation on IT.

Other operating activities, net, was DKK 251m, a decline of DKK 54m compared with 2015. Share of profit after tax in associates and joint ventures was DKK 279m, a decline of DKK 124m compared with 2015. The decline was mainly due to lower income in our business in Cambodia and Myanmar.

Operating profit before special items was DKK 8,301m (2015: DKK 8,606m). The decline of 4% was due to a translation impact of -6% and a net acquisition impact of -2%. Organically, operating profit before special items increased by 4%, with all three regions delivering operating profit growth. The organic growth was higher than the expectation at the beginning of the year of low-single-digit and was due to faster achievement of Funding the Journey benefits and the positive impact from the warm summer in Eastern Europe. The operating margin was 13.3% (2015: 13.2%).

Net special items (pre-tax) amounted to DKK 263m (DKK -8,455m in 2015). Special items were impacted by measures related to the Funding the Journey programme, including in particular gain on disposals of non-core assets, and restructuring measures and impairments in Western Europe and Asia. A specification of special items is included in section 3.1 of the consolidated financial statements.

Net financial items amounted to DKK -1,237m against DKK -1,513m in 2015. Net interest costs were DKK -873m compared to DKK -1,077m in 2015, driven by lower net debt. Other financial items, net, amounted to DKK -364m versus DKK -442m in 2015. The decline was mainly related to fair value adjustments partly offset by write-offs and interest expenses related to the lost tax case in Finland.

Tax totalled DKK -2,402m against DKK -917m in 2015, mainly impacted by a one-off expense related to the final ruling in the tax dispute in Finland. Consequently, the effective tax rate was 32.8%.

Non-controlling interests were DKK 371m (2015: DKK 344m). In both 2015 and 2016, non-controlling interests were impacted by the impairment of brands in Chongqing.

The Carlsberg Breweries Group's share of net profit was DKK 4,554m against DKK -2,623m in 2015, when net profit was severely impacted by the high level of special items.

Statement of financial position

At 31 December 2016, the Carlsberg Breweries Group had total assets of DKK 115.9bn against DKK 113.5bn at 31 December 2015. Invested capital amounted to DKK 78.4bn (2015: DKK 78.6bn).

Assets

As at 31 December 2016, total non-current assets amounted to DKK 97.9bn, an increase of DKK 2.1bn compared with 2015. Intangible assets were up DKK 3.8bn due to the appreciation of the rouble. This increase was offset by

Carlsberg Breweries Group Annual Report 2016 6

lower financial assets, which were mainly impacted by the tax receivable in Finland, which, subsequent to the court ruling, was expensed. Property, plant and equipment were DKK 25.6bn, down DKK 0.9bn compared with 2015 due to disposals and depreciation.

Inventories and trade receivables totalled DKK 9.5bn against DKK 9.6bn at 31 December 2015. Trade receivables were impacted by the exit from margin-dilutive contracts and currencies, particularly the British pound.

Other receivables of DKK 4.9bn were up DKK 0.3bn versus 31 December 2015. Cash and cash equivalents amounted to DKK 3.5bn, an increase of DKK 0.4bn due to the strong free cash flow.

Assets held for sale amounted to DKK 125m and related to assets in Western Europe and Eastern Europe.

Liabilities

Total equity as at 31 December 2016 totalled DKK 43.4bn, impacted by a significant increase in equity for shareholders in Carlsberg Breweries A/S of DKK 7.4bn. Of the total equity,

DKK 40.6bn was attributed to shareholders in Carlsberg Breweries A/S and DKK 2.8bn to non-controlling interests.

The increase in equity attributed to shareholders in Carlsberg Breweries A/S was mainly due to foreign exchange gains of DKK 5.8bn, profit for the period of DKK 4.6bn, payment of dividends to shareholders of DKK -1.4bn and retirement benefit obligations of DKK -1.0bn.

Liabilities were DKK 72.4bn compared to DKK 76.6bn at 31 December 2015. The most notable change was the net decrease in long- and short-term borrowings of DKK -5.7bn versus 31 December 2015, positively impacted by the strong free cash flow. Other non-current liabilities were DKK 17.1bn, an increase of DKK 1.5bn compared with 2015, impacted by a shift between current and non-current liabilities and an increase in contingent considerations.

Trade payables increased by DKK 1.2bn to DKK 13.5bn as at 31 December 2016, impacted by a reclassification in Asia from other current liabilities to trade payables. Other current liabilities decreased by DKK 1.0bn to DKK 9.8bn.

Pro rata (million hl)	2015	Organic	Acq., net	FX	2016	Change Reported
Beer	120.3	-3%	0%		116.9	-3%
Other beverages	21.5	4%	-2%		21.9	2%
Total volume	141.8	-2%	-1%		138.8	-2%
DKK million
Net revenue	65,354	2%	-1%	-5%	62,614	-4%
Operating profit, before special items	8,606	4%	-2%	-6%	8,301	-4%
Operating margin (%)	13.2				13.3	10bp

Cash flow

Free cash flow amounted to DKK 8,805m versus DKK 6,743m in 2015, positively impacted by disposals of non-core businesses.

Cash flow from operating activities was DKK 9,601m against DKK 9,943m in 2015. The decline was primarily impacted by the development in other working capital.

Operating profit before depreciation, amortisation and impairment losses was DKK 13,054m (DKK 13,354m in 2015).

The change in trade working capital was DKK +1,043m (DKK +1,270m in 2015). The average trade working capital to net revenue improved further and was -9.5% for 2016 compared to -6.5% for 2015. The change in other working capital was DKK -961m (DKK +226m in 2015). The significant change compared with 2015 was due to an extraordinary payment into the UK pension fund.

Restructuring costs paid amounted to DKK -407m (DKK -540m in 2015). They were impacted by measures across the Group, including actions under Funding the Journey.

Net interest etc. paid amounted to DKK -988m (DKK -1,799m in 2015). The decline was mainly due to lower interest-bearing debt.

Corporation tax paid was DKK 1,847m, which was DKK 306m lower than in 2015. The decrease was mainly explained by phasing of tax payments between 2015 and 2016.

Cash flow from investing activities was DKK -796m against DKK -3,200m in 2015. Operational investments totalled DKK -3,5548m (DKK -3,299m in 2015).

Total financial investments amounted to DKK +2,752m (DKK +99m in 2015), positively impacted by the disposals during the year.

Financing

At 31 December 2016, gross financial debt amounted to DKK 30.3bn and net interest-bearing debt to DKK 24.6bn. The difference of DKK 5.7bn comprised other interest-bearing assets of DKK 2.3bn 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 1.96x (2.34x in 2015).

Of the gross financial debt, 70% (DKK 21.1bn) was long term, i.e. with maturity more than one year from 31 December 2016. A EUR 1bn bond with a coupon rate of 3.375% will mature on 13 October 2017.

Of the net financial debt, 95% was denominated in EUR and DKK (after swaps) and 76% 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. In 2016, the duration was 3.7 years (3.8 years in 2015).

Carlsberg Breweries Group Annual Report 2016 7

Five-year summary

	2016	2015	2014	2013	2012
Sales volumes, pro rata (million hl)
Beer	116,9	120,3	122,8	119,7	120,4
Other beverages	21,9	21,5	21,0	19,7	19,1
DKK million
Income statement
Net revenue	62.614	65.354	64.506	64.350	66.468
Gross profit	31.419	31.925		32.930	32.637
Operating profit before amortisation, depreciation and impairment losses	13.054	13.354	13.723	13.963	13.917
Operating profit before special items	8.301	8.606	9.345	9.862	9.909
Special items, net	263	-8.455	-1.245	-442	-1.812
Financial items, net	-1.237	-1.513	-1.169	-1.486	-1.735
Profit before tax	7.327	-1.362	6.931	7.934	6.362
Corporation tax	-2.402	-917	-1.883	-2.025	-1.529
Consolidated profit	4.925	-2.279	5.048	5.909	4.833
Attributable to
Non-controlling interests	371	344	524	478	638
Shareholders in Carlsberg Breweries A/S	4.554	-2.623	4.524	5.431	4.195
Statement of financial position
Total assets	115.913	113.501	125.756	140.519	141.948
Invested capital	78.392	78.586	92.234	106.511	109.096
Invested capital excluding goodwill	33.734	36.522	47.577	57.551	63.388
Interest-bearing debt, net	24.569	30.272	35.261	33.407	31.639
Equity, shareholders in Carlsberg Breweries A/S	40.580	33.145	41.828	57.063	59.529
	2016	2015	2014	2013	2012
---	---	---	---	---	---
Statement of cash flows
Cash flow from operating activities	9.601	9.943	7.452	8.397	10.138
Cash flow from investing activities	-796	-3.200	-6.696	-7.985	-5.888
Free cash flow	8.805	6.743	756	411	4.250
Financial ratios
Operating margin	%	13,3	13,2	14,5	15,3
Return on invested capital (ROIC)	%	10,7	9,3	9,1	9,2
Return on invested capital excluding goodwill (ROIC excl. goodwill)	%	23,5	18,5	17,7	15,6
Equity ratio	%	40,2	35,0	38,4	41,3
Debt/equity ratio (financial gearing)	x	0,46	0,64	0,63	0,55
Interest cover	x	6,71	5,69	8,00	6,64
Dividend per share (proposed)	DKK	3.045	2.741	2.741	2.435
Payout ratio	%	33	nm	30	22
Employees
Full-time employees (average)	41.985	47.382	46.738	38.611	41.614

1 MAT.

EARNINGS EXPECTATIONS

Carlsberg Breweries Group Annual Report 2016 8

Guiding for growth in operating profit and reduction in leverage

For 2017, the Group has two overall priorities: execution of Funding the Journey and execution of the SAIL'22 priorities.

Regional priorities

At a regional level, we have the following financial priorities:

Improving margins and operating profit in Western Europe.
Continuing top-line and earnings growth in Asia.
Growing operating profit organically in Eastern Europe.

2017 expectations

Based on these priorities, for 2017 the Group expects to deliver:

Mid-single-digit percentage organic operating profit growth.
Financial leverage reduction.

Based on spot rates as at February 6, 2017 including a EUR/RUB rate of 63.2, the Group assumes a positive translation impact of around DKK +350m.

Other relevant assumptions

Financial expenses, excluding currency losses or gains, are expected to be DKK 1.0-1.1bn.

The tax rate is expected to be just below 30%.

Capital expenditures are expected to be approximately DKK 4bn.

Carlsberg Breweries Group Annual Report 2016 9

SAIL'22

Setting sail

Our new strategy, SAIL'22, was launched in March 2016 with the ambition to make the Carlsberg Group a successful, professional and attractive brewer in our markets: successful by delivering sustainable organic top- and bottom-line growth; professional by being the preferred supplier of our customers; and attractive by delivering value for shareholders, employees and society.

SAIL'22 was co-developed by the top leadership team in the Group in order to leverage the Company's vast knowledge base, support a team-based culture and secure a fast implementation.

Our strategic choices

The key strategic choices of SAIL'22 are grouped under the headings "Strengthen the core", "Position for growth" and "Create a winning culture". Achieving strong results within these choices will enable us to deliver enhanced value for our shareholders. You can read more about SAIL'22 on the following pages.

STRENGTHEN THE CORE	POSITION FOR GROWTH	DELIVER VALUE FOR SHAREHOLDERS
Leverage our strongholds	Win in growing categories	Organic growth in operating profit
Excel in execution	Target big cities	ROIC improvement
Funding the Journey	Grow in Asia	Optimal capital allocation

Carlsberg Breweries Group Annual Report 2016 10

SAIL®22

Strengthen the core

Leverage our strongholds

This priority encompasses two levers: revitalising core beer and transforming our business in Russia.

Revitalising core beer

Core beer – defined as our local power and international brands – accounts for 83% of beer net revenue. Revitalising core beer will leverage our strong beer brands and market positions, driving growth and improving margins.

> A core strength of the Carlsberg Group is that we generate 74% of our volumes in our no. 1 and 2 positions in 24 markets across Europe and Asia.

Important initiatives include revising our local portfolio strategies, and redirecting and refocusing our investments towards those key brands that deliver the core of our profit and

have margin growth potential. As part of this, we will strengthen brand fundamentals and develop brand renovation plans.

Furthermore, we will improve the OBPPCC (occasion, brand, pack, price and channel) processes to obtain the appropriate balance of brands and profitability across occasions by having the right packaging and price in the right channels to meet consumer needs and expectations.

Actions and initiatives in 2016

We began the development of a new commercial approach specifically focused on helping customers to grow the beer category by better meeting consumer needs. Moreover, an analysis of the allocation of marketing spend was carried out in order to ensure the right level of support for the right brands.

Furthermore, we initiated work on revitalising the Carlsberg brand and updating the visual identity of the Tuborg brand in order to keep these brands relevant for the future. The result of this work will come alive in 2017.

Transforming our business in Russia

In Russia, we have a strong no. 1 position, a unique brewery footprint and route-to-market set-up, and a distinctive portfolio of local, regional, national and international brands.

To transform our business in Russia, we will market the optimal range of our local, regional, national and international brands to meet changing consumer needs. We will improve our in-store visibility and enhance our position in the growing channels and segments.

Additionally, we will more fully leverage our supply chain and production network, and continuously work to reduce costs in all areas.

Actions and initiatives in 2016

We embarked on a new commercial agenda in 2016, including reallocation of our resources to a number of selected core brands and sales channels.

Furthermore, as in the wider Group, we implemented Funding the Journey initiatives in our Russian business.

Excel in execution

Quality, impact and efficiency of execution are vital if we are to be successful.

Leveraging our strongholds requires superior capabilities that allow us to excel in execution.

Excel in execution embraces a wide range of areas, such as: applying a consumer-occasion and benefit-driven portfolio approach; developing a consumer-driven R&D and innovation agenda; embedding high-quality point-of-sale capabilities and standards; managing complexity smartly; and step-changing within digital to connect with customers and consumers in an efficient manner.

Consumer insights and R&D

We are fortunate that R&D is in our DNA, and the vast knowledge of the Carlsberg Research Laboratory is an indisputable strength of our business.

We will regularly collect consumer insights in a consistent manner in order to gain a better understanding of consumer drinking occasions and identify growth opportunities.

SAIL'22

Carlsberg Breweries Group Annual Report 2016 11

Additionally, these insights will play a key role in guiding our R&D efforts, where investments will be more focused on bigger bets and leveraging the potential of technologies.

Actions and initiatives in 2016

We recreated the original Carlsberg beer, based on yeast derived from a 130-year-old bottle, drawing international attention.

A systematic and recurrent survey of consumer perception of the quality of beer brands was implemented in a number of markets to ensure that our brands remain relevant. To further enhance our position in the on-trade, we will further roll out DraughtMaster™, our proprietary one-way keg system.

Point of sale

To excel at point of sale, we will further develop and implement our FIT (Focus-Implement-Track) model to ensure a single effective way of working across markets.

Actions and initiatives in 2016

Our FIT approach was put into use in all Western European markets. The central team carried out a FIT assessment of all the markets in question to determine areas for improvement. By the end of the year, the FIT approach had been implemented in India, and more Asian markets will follow in 2017.

Managing complexity

Managing complexity smartly is about identifying and removing or optimising SKUs that create unwanted inefficiencies throughout the supply chain. To accommodate this, we will embed new tools in our ways of working, leading to greater transparency and understanding of the relationship between complexity and cost.

Actions and initiatives in 2016

A number of tools were developed during the year with the aim of managing SKU complexity more smartly. These included a SKU performance tracker tool and a pain assessment tool.

Digital

Stepping up on digital has three focus areas: applying digital in the servicing of on-trade customers; managing our brands online to improve consumer engagement; and developing excellence in e-commerce.

Actions and initiatives in 2016

Stepping up on digital required the hiring of new capabilities, which happened during the second half of the year.

Funding the Journey

Funding the Journey brings together in a single programme a range of individual programmes designed to save costs or improve profit.

Funding the Journey was launched in late 2015 and encompasses four main areas: Value Management, Supply Chain Efficiency, Operating Expense Efficiency and Right-sizing of Businesses.

Funding the Journey will deliver net benefits of DKK 1.5-2.0bn by 2018. Half of the benefits will be reinvested in the business in support of the SAIL'22 priorities, while the other half will improve earnings. In 2016, Funding the Journey delivered benefits of approx. DKK 0.5bn. Funding the Journey is described in detail in the 2015 Annual Report.

Value management

To succeed with Value Management, we trained our people in the local markets to work with the concept and implement the mindset of the Golden Triangle. The Golden Triangle seeks to strike the right balance between market share, gross profit after logistics (GPaL) margin and operating profit. We initially applied the approach at market level and subsequently at SKU and customer level.

Supply Chain Efficiency

Within Supply Chain Efficiency, an important task during the year was the reduction of SKUs and complexity. In 2016, approx. 1,200 SKUs were eliminated. We will continue to further reduce SKU complexity.

Operating Expense Efficiency

Within Operating Expense Efficiency, white-collar staff were reduced by a total of 2,280. During the year, we transferred a significant amount of back-office functions to an external service provider, which resulted in a move of approx. 300 roles. In addition, we saw good progress towards the savings target for SG&A costs.

Right-sizing of Businesses

Within Right-sizing of Businesses, we disposed of a number of non-core assets during the year. These included Danish Malting Group, Carlsberg Malawi and Vung Tau brewery in Vietnam. In addition, we have closed or sold a total of 17 breweries in China.

Carlsberg Breweries Group Annual Report 2016 12

SAIL'22

Position for growth

Win in growing categories

In the beer category, craft & speciality beers are increasingly taking share of throat, while non-alcoholic beer (NAB) is growing three times faster than the overall beer market.

Craft & speciality

The growth of craft & speciality is particularly prevalent in the mature markets of Western Europe, where the annual volume growth rate in the segment is expected to be around 15%. The profitability of craft & speciality significantly exceeds that of mainstream beer.

To exploit the craft & speciality opportunity, we will leverage our heritage and promote selected brands with the aim of delivering a clear and tight portfolio. This includes: authentic craft propositions, such as Jacobsen and the Nya Carnegie Brewery, in addition to our partner brand, Brooklyn; speciality brands, such as Grimbergen and 1664 Blanc; and craft-like line extensions of local brands, such as Koff IPA in Finland and Frydenlund Bayer in Norway.

Craft & speciality and NAB account for around 5% of our beer volumes today, but this figure is expected to double during the course of SAIL'22.

To drive profitability, we will employ smart complexity to deliver craft quality at scale, manage COGS and increase category profitability. Moreover, we will increase marketing support for our brands.

Actions and initiatives in 2016

In 2016, our central team worked with the local teams to ensure successful launches of craft & speciality beers. We further developed a training programme, Art of Beer, which aims to turn local sales and marketing teams into beer experts, enabling local markets to focus on customers' conversations around beer. This programme will be rolled out across Western Europe.

NAB

Likewise, NAB is a category with very appealing prospects, as it is benefiting from the growing global health and wellness trend among consumers. NAB is a fast-growing category and offers excellent margin opportunities. We will leverage our unique insights and R&D capabilities to drive growth. We will actively shape the category by marketing a full portfolio of both line extensions and specialised brands, such as Nordic in Denmark and Tourtel in France.

Actions and initiatives in 2016

In order to drive the non-alcoholic priority, a dedicated team needed to be established. By the end of 2016, the recruitment of a head of non-alcoholic team was complete.

SAIL'22

Carlsberg Breweries Group Annual Report 2016 13

Target big cities

By 2050, it is expected that 70% of the world population will be living in big cities, where beer consumption exceeds the market average by 30%.

Of the 50 biggest cities of the future, the Carlsberg Group is currently present in 30.

In order to drive further growth, we will tap into the significant global urbanisation trend by applying a targeted approach to big cities.

> By its very nature, the big city strategy has a longer time horizon than our other strategic priorities.

Our big city strategy is twofold. Firstly, we will target big cities in countries outside our current geographic footprint in order to expand our global presence in a profitable way.

Secondly, we will aim to build profitable businesses in countries where we already operate but have gaps in key big cities.

We will apply a focused and high-value approach in terms of portfolio, channels and sequencing. In addition, we will employ an asset-light model and build on the experience, learnings and capabilities of our Export and License department.

Actions and initiatives in 2016

The team focusing on big cities became operational in August 2016, since when it has concentrated on carrying out analyses to determine the relevant cities for entry in 2017.

The analyses have taken into account consumer behaviour and needs, matching brands and portfolio, competitor analyses, urban life and characteristics. Supply chain and local partner models were also a focus.

In addition, work was carried out on developing new urban concepts to be piloted and tested in the first cities.

Grow in Asia

Asia accounts for almost 40% of global beer consumption, while in the Carlsberg Group it accounts for 28% of operating profit.

The latter figure has increased almost fivefold during the past decade and will remain a key growth driver for the Group. We are confident that we can extract further top- and bottom-line growth with our geographic footprint across the region.

Our Asia region comprises diverse markets, including the mature markets of Malaysia, Singapore and Hong Kong and the less developed beer markets of China, India, Vietnam, Laos and Nepal.

The Group is well placed to capture future volume and value growth in Asia and will ambitiously drive and support this priority by increasing the focus on our premium portfolio and further strengthening our no. 1 and 2 positions.

Specifically, we will further build our position in the large beer markets of China, India and Vietnam, which together account for approx. 10% of Group operating profit. This will be done through successful management of brand portfolios designed to meet a broad range of consumer benefits and price needs. Our international premium brands, in particular Tuborg, will play a key role. In India, we will also expand our current footprint through greenfield investments.

Actions and initiatives in 2016

Premiumisation of our portfolio continued. As the first SAIL'22 investment, we launched Tuborg in Vietnam, Cambodia and Laos with promising initial results.

Carlsberg Breweries Group Annual Report 2016 14

SAIL'22

Create a winning culture

Our winning culture has three priorities: foster team-based performance; contribute to a better society; and live by our Compass.

> A critical enabler to achieve our SAIL'22 priorities is to create a winning culture.

To allow for a fast roll-out of our new winning culture and achieve buy-in from colleagues throughout the organisation, we conducted a number of train-the-trainer workshops during the second half of 2016 with the aim of enabling participants from across the Group to become change agents.

These change agents subsequently led workshops with leadership teams in their respective markets, with around 4,500 leaders at different levels of the organisation participating in 2016. A condensed form of the programme will reach all employees in the first months of 2017.

Team-based performance

Our winning culture must foster one-team behaviour and reward high-level performance.

To this end, we launched a new performance management system based on the triple A concept:

Alignment: We will drive a proactive alignment with the emphasis on one team with one aspiration.

Accountability: We will hold people accountable for their actions and areas of responsibility.

Action: We will ensure that decisions are implemented with speed and rigour.

By living the triple A concept, we will create a strong sense of ownership and accountability for delivering results, which will be further supported by a close alignment between management incentive schemes and financial objectives.

Actions and initiatives in 2016

As of the end of 2016, the triple A concept has been applied to all performance and potential assessment.

The implementation of the triple A concept into all people management tools has also been taking place, including people board discussions, 360 feedback of top 200 managers and interview guidelines for both external and internal candidates.

20%

Completed in June 2016, the Dali Brewery's rooftop solar panel installation provides renewable energy meeting up to 20% of Dali's electricity needs.

Contribute to a better society

Sustainability plays a growing role in our corporate strategy and is essential for achieving our goals and ambitions.

In 2016, we redefined our sustainability approach based on a rigorous materiality assess-

SAIL'22 Contribute to a better society

SAIL®22

Carlsberg Breweries Group Annual Report 2016 15

ment. The assessment highlighted the most important sustainability topics for our business and stakeholders, and led to the identification of four priority areas: energy & carbon, water, responsible drinking, and health & safety.

You can read more about the sustainability priority areas and our progress against current targets in our 2016 Sustainability Report, available at www.carlsberggroup.com/sustainability/reports.

While much is new, our efforts to make the business more sustainable also build on the legacy of our founder, J.C. Jacobsen. Adopting his visionary mindset, we plan, for example, to fund scientific research into better solutions to the problems of climate change and water scarcity.

Actions and initiatives in 2016

In 2016, we began working on defining new, more ambitious targets related to the management and reduction of our carbon footprint and water usage. We also prepared to revisit our approach to responsible drinking and establish stricter health & safety targets in order to significantly improve our performance in this area. The new targets will be made available online on www.carlsberggroup.com later in 2017.

Compass

Integrity, responsibility and honest, ethical business conduct are core values of the Carlsberg Group.

We believe that our winning culture can only be successful if supported and maintained by high ethical standards.

> Our Compass serves to guide employees across the Group in their daily work.

Our standards include strict compliance with company policies and applicable laws, rules and regulations, including but not limited to anti-corruption and anti-bribery laws, trade sanctions and export control laws as well as competition laws.

Actions and initiatives in 2016

A new Code of Ethics and Conduct (CoEC) addressing the most relevant ethical work-related issues was launched in Q4. To make the CoEC come alive and embed it across the

organisation, an e-learning tool and a Compass game were developed.

A policy house, encompassing general company policies and functional policies, is in the process of being finalised. Employees will always have easy access to the policy house, which will facilitate awareness of and compliance with all Carlsberg Group policies.

Finally, in support of the Group's whistleblower set-up we have signed up for a new "speak up" helpline, which went live in January 2017. The helpline can be used to anonymously report breaches of the CoEC and other policies.

27

Our employees must know what we consider right and wrong. Our new Code of Ethics and Conduct has been translated into 27 languages and is a user-friendly resource that helps our people to determine appropriate actions and behaviour.

MANAGE CONFLICTS OF INTEREST

COMPLY WITH COMPETITION LAWS

PROMOTE RESPONSIBLE DRINKING

RESPECT TRADE SANCTIONS AND EXPORT CONTROL REGULATIONS

SAIL®22 Compass

RISK MANAGEMENT

Carlsberg Breweries Group Annual Report 2016 16

Managing risks in the best possible way

Risk management governance structure

The Supervisory Board is ultimately responsible for risk management and receives regular updates on the risk pattern and risk-mitigating activities. The Audit Committee monitors the effectiveness of the Group's risk management processes.

Monitoring is mainly performed in connection with the half-year reviews, although the Audit Committee receives quarterly reports on certain risks, such as compliance, legal and regulatory risks.

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

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 also responsible for the identification, evaluation, qualification, recording and reporting to management of business risks at local level. Local-level 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, in order 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.

A formal procedure is in place for ongoing identification, assessment and reporting during the year of any new risks that are determined to have a material impact upon the business.

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.

High risks identified for 2017

HIGH RISKS 2017

Carlsberg Breweries Group Annual Report 2016 17

Four areas identified as high risks for 2017

Funding the Journey

Description

Funding the Journey was classified as a high risk for 2016. Although we had achieved approx. DKK 0.5bn of the total net benefits by the end of 2016, Funding the Journey is also viewed as a high risk for 2017 as it remains a key initial success parameter of SAIL'22 and will provide funding for strategic choices.

Possible impact

Failure to successfully implement the Funding the Journey initiatives could result in under-delivery of the expected net benefits of DKK 1.5-2.0bn, impacting on our ability to invest in the SAIL'22 choices and improve operating profit.

Mitigation

The CFO is ultimately in charge of Funding the Journey. A dedicated team will continue to closely monitor and track Funding the Journey initiatives across the Group to ensure the realisation of benefits. Monthly follow-up is carried out by ExCom and quarterly follow-up by the Supervisory Board, enabling fast reaction if needed.

Talent

Description

Although the risk associated with attracting, developing and retaining the appropriately qualified personnel has diminished compared with 2016, talent remains a high risk for 2017. The risk includes shortage of skilled staff to fill current and future positions, and lower-than-required quality of staff in key positions.

Possible impact

Lack of qualified people could be critical for the Group's ability to compete in its markets, pursue the strategic choices of SAIL'22 and grow our business in an effective and profitable way.

Mitigation

We will strengthen our development centres and implement a structured selection process for level 1-3 managers across the Group. Furthermore, we will develop a plan for implementing career paths, starting with selected functions, to further build a solid succession pipeline and talent pool. Finally, we will carry out structured interviews with talents to mitigate the retention risk and develop the talents.

Industry consolidation

Description

Consolidation within the beer industry continues, creating bigger players with increased scale. In addition, consolidation is also taking place among our customers and suppliers.

Possible impact

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 and risk of margin pressure.

Mitigation

SAIL'22 aims to position the Group in such a way that we are able to act upon and mitigate the impact of industry consolidation. This includes continued investment in our core beer brands and improved performance of our core beer business as well as the pursuit of growth opportunities. In addition, we will seek to further develop our partnerships with suppliers and create alternative sourcing solutions.

Political and economic instability

Description

Adverse economic conditions may result in reduced consumer demand, while major social or political changes may disrupt sales and operations.

Possible impact

Political and economic instability may lead to adverse exchange rate fluctuations, increased credit risk, insolvency of suppliers, goodwill impairment of acquisitions 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 cost base.

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

HIGH RISKS 2016

Carlsberg Breweries Group Annual Report 2016 18

Mitigating actions related to the four high risk areas for 2016

Funding the Journey

A very important activity throughout the Group in 2016 was the execution of Funding the Journey. Delivery of the expected benefits from Funding the Journey will provide funding for necessary investment in the SAIL'22 priorities, as well as improving Group earnings.

In order to ensure this delivery, a plan was established for implementing Funding the Journey and realising its benefits, enabling close follow-up and prompt action in the event of any deviation from the programme.

Funding the Journey was initially headed up by Chris Warmoth, EVP Group Strategy. After joining the Carlsberg Group as new CFO, Heine Dalsgaard took over this responsibility.

Funding the Journey is well on track, delivering approx. DKK 0.5bn of the expected total net benefits of DKK 1.5-2.0bn in 2016, but has also been classified as a high risk for 2017.

Attracting and retaining talent

Attracting, developing and retaining the appropriately qualified personnel was considered a key area of risk for 2016. The specific risks included shortage of skilled staff to fill current and future positions, and lower-than-required quality of staff in key positions.

In order to mitigate these risks, a number of actions were taken during the year. These included the establishment of a talent development centre and structured development plans, as well as the development of plans and processes for implementing career paths in order to build a solid succession pipeline and talent pools.

Moreover, from 2017 we will carry out structured interviews with talents to mitigate retention risk and develop talents.

Attracting and retaining talents continues to be viewed as a high risk for 2017.

Financial flexibility

The Carlsberg Group currently has a BBB credit rating with outlook Stable with Fitch and a Baa2 credit rating with outlook Stable with Moody's.

The Group is committed to retaining an investment-grade credit rating, which it considers essential for controlling funding costs and terms & conditions, and for securing availability and depth of markets.

Fuelled by Funding the Journey, organic earnings grew by 4% in 2016, while free cash flow was DKK 8.8bn, positively impacted by disposals of non-core businesses. Consequently, at the end of the year, net debt/EBITDA was 1.96x.

In November 2016, Moody's changed its outlook for the Group to Stable from Negative.

Footprint and industry consolidation

The geographic exposure of the Carlsberg Group may lead to deteriorating profits. Additionally, financial constraints may preclude the Group from participating in industry consolidation opportunities.

To mitigate this risk, the Group focused on strengthening the profitability and return on investment of its current business. The new strategy, SAIL'22, including Funding the Journey, thus aims to secure sustainable value growth through both profitable top-line growth and cost efficiencies.

By the end of 2016, the Group had improved its financial position in terms of both organic earnings and leverage.

Industry consolidation continues to be categorised as a high risk for 2017.

CORPORATE GOVERNANCE
Carlsberg Breweries Group Annual Report 2016 19

Corporate governance

Framework

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

The Carlsberg Breweries Group operates on the same governance framework as the Carlsberg Group.

The Carlsberg Group seeks to develop and maintain a positive and constructive relationship 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.

Download the statutory report on corporate governance:

www.carlsberggroup.com/Company/Governance/Pages/UKrecommendations.aspx

Diversity

We refer to the description in the consolidated financial statements of Carlsberg A/S.

The Audit Committee

The Audit Committee is identical to the committee of Carlsberg A/S. In 2016, it 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, both of which are reviewed and approved by the Supervisory Board prior to the beginning of each financial year. The Supervisory Board approved the Audit Committee meeting plan for 2017 and the current Terms of Reference at the Supervisory Board meeting in December 2016. The Terms of Reference are available on the Company's website.

In 2016, the Audit Committee had, in addition to its statutory duties, particular focus on:

Ensuring a satisfactory control environment with due processes in place, especially with a view to the Group's outsourcing of tasks and definition of roles and access rights in relation to controls and approval processes as well as identifying gaps in automated controls and manual bridging of the same.
Restructuring and strengthening the Group Internal Audit function globally.
Monitoring Funding the Journey target setting and the audit of these targets.
Reviewing and considering tax structures.
Approving a new policy for use of auditors and following up on the implementation of two new policies on, firstly, Governance of Group Companies and, secondly, Charts of Authority and Signing Rules.
Overseeing the onboarding of the new CFO and head of Group Internal Audit.
Monitoring the audit tender process initiated by the Supervisory Board in 2016 with the purpose of recommending an external audit firm for appointment at the 2017 Annual General Meeting.

Auditing

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

In 2016, the Supervisory Board initiated a audit tender process with the purpose of recommending an external audit firm for appointment at the 2017 Annual General Meeting.

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, appointed by the Supervisory Board, is responsible for monitoring the internal control and risk management systems related to the financial reporting process on an ongoing basis.

Carlsberg Breweries Group Annual Report 2016 20

The Group has a number of policies and procedures in key areas of financial reporting, including the Finance Manual, the Controller Manual, the Chart of Authority, the Risk Management Policy, the Financial Risk Management Policy, the Information Security 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.

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.

Risk assessment

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

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 process. The Group's financial control framework reporting covers relevant Group companies and functions to the level where high-risk areas are at least 80% covered and medium-risk areas at least 60%. Low-risk areas are not covered.

Control activities

The Group has implemented a formalised financial reporting process for the strategy process, budget process, quarterly estimates and monthly reporting on actual performance. The accounting information reported by all Group companies is reviewed both by 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 and procedures during 2016 impacted the control environment and the quality with which processes and controls were performed during the implementation phase. This was still ongoing at the end of the year.

The first part of the implementation will be completed during the first half of 2017 and will be followed by further activities. The Group puts extensive compensating procedures and controls in place to ensure timely reporting of the required quality for internal and external financial reporting purposes.

Information and communication

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

Monitoring

The Audit Committee's monitoring covers both the internal control environment and business risk. Monitoring of the internal control environment 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 meetings at ExCom level, periodic review of control documentation, controller visits and audits performed by Group Internal Audit.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 21

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated financial statements

Income statement...22
Statement of comprehensive income...22
Statement of financial position...23
Statement of changes in equity...24
Statement of cash flows...26
Notes...27
Parent Company...90
Reports...108

SECTION 1 Operating activities

1.1 Business developments...28
1.2 Revenue and segmentation of operations...29
1.3 Operating expenses, inventories and deposit liabilities...30
1.4 Foreign exchange risk related to earnings...33
1.5 Cash flow from operating activities...34
1.6 Trade receivables and on-trade loans...35

SECTION 2 Asset base and returns

2.1 Return on invested capital...38
2.2 Segmentation of assets...39
2.3 Impairment...40
2.4 Intangible assets and property, plant and equipment...47

SECTION 3 Special items and provisions

3.1 Special items...51
3.2 Provisions...53
3.3 Contingent liabilities...53

SECTION 4 Financing costs, capital structure and equity

4.1 Financial income and expenses...55
4.2 Net interest-bearing debt...56
4.3 Capital structure...56
4.4 Borrowings and cash...58
4.5 Foreign exchange risk related to net investments and financing activities...59
4.6 Interest rate risk...61
4.7 Liquidity risk...62
4.8 Financial instruments...63

SECTION 5 Acquisitions, disposals, associates and joint ventures

5.1 Acquisitions and disposals...65
5.2 Cash flow effect from acquisitions and disposals...66
5.3 Non-controlling interests...67
5.4 Associates and joint ventures...67
5.5 Assets and liabilities held for sale...68

SECTION 6 Tax

6.1 Corporation tax...69
6.2 Deferred tax...70

SECTION 7 Staff costs and remuneration

7.1 Staff costs...72
7.2 Remuneration...73
7.3 Share-based payments...74
7.4 Retirement benefit obligations and similar obligations...77

SECTION 8 Other disclosure requirements

8.1 Related party disclosures...80
8.2 Fees to auditors...80
8.3 Events after the reporting period...80

SECTION 9 Basis for preparation

9.1 Significant accounting estimates and judgements...81
9.2 General accounting policies...81
9.3 Change in accounting policies...85
9.4 New legislation...86

SECTION 10 Group companies

10 Group companies...87

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 22

Income statement

DKK million	Section	2016	2015
Revenue		86,957	91,012
Excise duties on beer and soft drinks etc.		-24,343	-25,658
Net revenue	1.2	62,614	65,354
Cost of sales	1.3.1	-31,195	-33,429
Gross profit		31,419	31,925
Sales and distribution expenses	1.3.3	-18,476	-19,158
Administrative expenses		-5,172	-4,869
Other operating activities, net	1.3.4	251	305
Share of profit after tax of associates and joint ventures	5.4	279	403
Operating profit before special items		8,301	8,606
Special items, net	3.1	263	-8,455
Financial income	4.1	925	489
Financial expenses	4.1	-2,162	-2,002
Profit before tax		7,327	-1,362
Corporation tax	6.1	-2,402	-917
Consolidated profit		4,925	-2,279
Attributable to
Non-controlling interests	5.3	371	344
Shareholders in Carlsberg Breweries A/S		4,554	-2,623

Statement of comprehensive income

DKK million	Section	2016	2015
Consolidated profit		4,925	-2,279
Other comprehensive income
Retirement benefit obligations	7.4	-954	-333
Share of other comprehensive income in associates and joint ventures	5.4	-	-3
Corporation tax	6.1	54	84
Items that will not be reclassified to the income statement		-900	-252
Foreign exchange adjustments of foreign entities	4.1	5,843	-3,824
Value adjustments of hedging instruments	4.1	141	-437
Corporation tax	6.1	-34	76
Items that may be reclassified to the income statement		5,950	-4,185
Other comprehensive income		5,050	-4,437
Total comprehensive income		9,975	-6,716
Attributable to
Non-controlling interests		393	604
Shareholders in Carlsberg Breweries A/S		9,582	-7,320

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 23

Statement of financial position

DKK million	Section	31 Dec. 2016	31 Dec. 2015
ASSETS
Non-current assets
Intangible assets	2.3, 2.4	65,521	61,703
Property, plant and equipment	2.3, 2.4	25,615	26,502
Investments in associates and joint ventures	5.4	4,250	4,223
Receivables	1.6	1,060	1,840
Deferred tax assets	6.2	1,459	1,491
Total non-current assets		97,905	95,759
Current assets
Inventories	1.3.1	3,963	3,817
Trade receivables	1.6	5,493	5,745
Tax receivables		278	317
Other receivables	1.6	3,511	3,225
Prepayments		1,136	1,073
Cash and cash equivalents	4.4.2	3,502	3,096
Total current assets		17,883	17,273
Assets held for sale	5.5	125	469
Total assets		115,913	113,501
DKK million	Section	31 Dec. 2016	31 Dec. 2015
---	---	---	---
EQUITY AND LIABILITIES
Equity
Share capital	4.3.2	501	501
Reserves		-29,370	-35,316
Retained earnings		69,449	67,960
Equity, shareholders in Carlsberg Breweries A/S		40,580	33,145
Non-controlling interests		2,839	3,742
Total equity		43,419	36,887
Non-current liabilities
Borrowings	4.2, 4.4	21,137	31,479
Retirement benefit obligations and similar obligations	7.4	4,837	5,195
Deferred tax liabilities	6.2	5,585	5,262
Provisions	3.2	3,532	3,279
Other liabilities		3,197	1,899
Total non-current liabilities		38,288	47,114
Current liabilities
Borrowings	4.2, 4.4	9,198	4,560
Trade payables		13,543	12,264
Deposits on returnable packaging	1.3.2	1,681	1,819
Provisions	3.2	639	551
Corporation tax		912	598
Other liabilities etc.		8,218	9,620
Total current liabilities		34,191	29,412
Liabilities associated with assets held for sale	5.5	15	88
Total liabilities		72,494	76,614
Total equity and liabilities		115,913	113,501

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 24

Statement of changes in equity

DKK million	Shareholders in Carlsberg Breweries A/S
2016	Share capital	Currency translation	Hedging reserves	Total reserves	Retained earnings	Equity, shareholders in Carlsberg Breweries A/S	Non-control-ling interests	Total equity
Equity at 1 January	501	-34,804	-512	-35,316	67,960	33,145	3,742	36,887
Consolidated profit	-	-	-	-	4,554	4,554	371	4,925
Other comprehensive income
Foreign exchange adjustments of foreign entities	-	5,835	-	5,835	-	5,835	8	5,843
Value adjustments of hedging instruments	-	12	129	141	-	141	-	141
Retirement benefit obligations	-	-	-	-	-968	-968	14	-954
Corporation tax	-	-17	-13	-30	50	20	-	20
Other comprehensive income	-	5,830	116	5,946	-918	5,028	22	5,050
Total comprehensive income for the year	-	5,830	116	5,946	3,636	9,582	393	9,975
Capital increase	-	-	-	-	-	-	1	1
Refund to parent company for exercise of share options	-	-	-	-	-45	-45	-	-45
Change in expected future refunds for exercise of share options	-	-	-	-	28	28	-	28
Share-based payments	-	-	-	-	50	50	-	50
Dividends paid to shareholders	-	-	-	-	-1,373	-1,373	-617	-1,990
Acquisition of non-controlling interests	-	-	-	-	-807	-807	-597	-1,404
Acquisition of entities	-	-	-	-	-	-	-83	-83
Total changes in equity	-	5,830	116	5,946	1,489	7,435	-903	6,532
Equity at 31 December	501	-28,974	-396	-29,370	69,449	40,580	2,839	43,419

The proposed dividend of DKK 3,045 per share, in total DKK 1,526m (2015: DKK 2,741 per share, in total DKK 1,373m), is included in retained earnings at 31 December 2016.

Dividends paid out in 2016 for 2015 amount to DKK 1,373m (paid out in 2015 for 2014: DKK 1,373m), which is DKK 2,741 per share (2015: DKK 2,741 per share). Dividends paid out to shareholders of Carlsberg Breweries A/S do not impact taxable income in Carlsberg Breweries A/S.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 25

Statement of changes in equity

DKK million
2015	Shareholders in Carlsberg Breweries A/S
	Share capital	Currency translation	Hedging reserves	Total reserves	Retained earnings	Equity, shareholders in Carlsberg Breweries A/S	Non-control-ling interests	Total equity
Equity at 1 January	501	-30,392	-483	-30,875	72,202	41,828	3,560	45,388
Consolidated profit	-	-	-	-	-2,623	-2,623	344	-2,279
Other comprehensive income
Foreign exchange adjustments of foreign entities	-	-4,080	-	-4,080	-	-4,080	256	-3,824
Value adjustments of hedging instruments	-	-416	-21	-437	-	-437	-	-437
Retirement benefit obligations	-	-	-	-	-337	-337	4	-333
Share of other comprehensive income in associates and joint ventures	-	-	-	-	-3	-3	-	-3
Corporation tax	-	84	-8	76	84	160	-	160
Other comprehensive income	-	-4,412	-29	-4,441	-256	-4,697	260	-4,437
Total comprehensive income for the year	-	-4,412	-29	-4,441	-2,879	-7,320	604	-6,716
Refund to parent company for exercise of share options	-	-	-	-	-119	-119	-	-119
Change in expected future refunds for exercise of share options	-	-	-	-	-38	-38	-	-38
Share-based payments	-	-	-	-	62	62	-	62
Dividends paid to shareholders	-	-	-	-	-1,373	-1,373	-513	-1,886
Acquisition of non-controlling interests	-	-	-	-	105	105	91	196
Total changes in equity	-	-4,412	-29	-4,441	-4,242	-8,683	182	-8,501
Equity at 31 December	501	-34,804	-512	-35,316	67,960	33,145	3,742	36,887

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 26

Statement of cash flows

DKK million	Section	2016	2015
Operating profit before special items		8,301	8,606
Adjustment for depreciation and amortisation		4,734	4,666
Adjustment for impairment losses^{1}		19	82
Operating profit before depreciation, amortisation and impairment losses		13,054	13,354
Adjustment for other non-cash items	1.5.1	-293	-415
Change in trade working capital	1.5.1	1,043	1,270
Change in other working capital	1.5.1	-961	226
Restructuring costs paid		-407	-540
Interest etc. received		196	241
Interest etc. paid		-1,184	-2,040
Corporation tax paid		-1,847	-2,153
Cash flow from operating activities		9,601	9,943
Acquisition of property, plant and equipment and intangible assets		-3,814	-4,061
Disposal of property, plant and equipment and intangible assets		223	575
Change in on-trade loans	1.5.1	43	187
Total operational investments		-3,548	-3,299
Free operating cash flow		6,053	6,644
Acquisition and disposal of subsidiaries, net	5.2	1,969	-33
Acquisition and disposal of associates and joint ventures, net	5.2	642	-6
Acquisition and disposal of financial assets, net		4	29
Change in financial receivables	1.5.1	-78	-196
Dividends received		215	305
Total financial investments		2,752	99
Cash flow from investing activities		-796	-3,200
Free cash flow		8,805	6,743
Shareholders in Carlsberg Breweries A/S	4.3.2	-1,373	-1,373
Non-controlling interests	4.3.2	-1,015	-513
External financing	4.4.1	-6,972	-3,956
Cash flow from financing activities		-9,360	-5,842
Net cash flow		-555	901
Cash and cash equivalents at 1 January^{2}		2,985	2,178
Foreign exchange adjustment of cash and cash equivalents		-82	-94
Cash and cash equivalents at 31 December^{2}	4.4.2	2,348	2,985

Impairment losses excluding those reported in special items, cf. section 3.1.
Cash and cash equivalents less bank overdrafts.

SCTION 1

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 27

Operating activities

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.

62.6bn

Net revenue (DKK)

Organic net revenue growth of 2%. Reported net revenue declined by 4%, primarily due to foreign exchange effects during the year.

Net revenue growth (%)

8.3bn

Operating profit (DKK)

All three regions contributed to overall organic operating profit growth of 4%, but the effect was more than offset by foreign exchange effects during the year.

Operating profit growth (%)

8.8bn

Free cash flow (DKK)

Impacted mainly by a higher cash flow from financial investments.

Free cash flow (DKKbn)

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 28

SECTION 1.1

Business developments

Beer volumes declined organically by 3%, impacted by brewery closures in China and the termination of margin-dilutive contracts in Western Europe. Other beverages grew organically by 4%, driven by growth in the Nordics and Asia. Total volumes declined by 2% both organically and in reported terms, due to the disposal of entities in our Asian region.

In organic terms, net revenue grew by 2% driven by a positive price/mix of 3%. The Group delivered positive price/mix results in all three regions with particularly strong performance in Asia and Eastern Europe. Reported net revenue declined by 4% because of adverse currency developments in most markets, with a particularly significant impact from the Eastern European, Chinese, British and Norwegian currencies.

Cost of goods sold per hl grew organically by approximately 1% as a result of higher material costs due to a negative currency impact in Eastern Europe. In reported terms, cost of goods sold per hl decreased by 5%.

The reported gross margin improved by 140bp to 50.2% as a result of the positive price/mix and efficiency improvements.

Operating expenses grew organically by 3%, mainly due to higher sales and marketing investments, including the UEFA EURO sponsorship, investments in SAIL'22, higher amortisation on IT as well as higher costs of incentive programmes.

Operating profit increased organically by 4%. All three regions delivered operating profit growth, with Eastern Europe performing particularly well. Reported operating profit was DKK 8,301m. The reported operating profit declined by 4% due to a currency impact of -6% and a net acquisition impact of -2%. The operating margin improved by 10bp to 13.3% in reported terms.

The Carlsberg Breweries Group's share of reported net profit was DKK 4,554m (2015: DKK -2,623m, significantly impacted by special items of DKK -8,455m)

In 2016, net profit was positively impacted by the organic growth in operating profit, special items of DKK +263m and a decrease in net financial items of DKK -276m to DKK-1,237m, while an increase in the effective tax rate to 32.8% had a negative impact. The increase in corporation tax primarily related to a lost tax case in Finland in 2016. The related tax expense is of a non-recurring nature and had no impact on cash flow in the year.

Free cash flow was DKK 8.8bn. The increase of DKK 2.1bn compared with last year was mainly due to a higher cash flow from financial investments (DKK +2.7bn) as a result of disposal of entities.

Accounting policies

Reported figures represent the combined effect of the following three elements: 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 Breweries Group Annual Report 2016 Consolidated financial statements 29

SECTION 1.2

Revenue and segmentation of operations

Not allocated net revenue, DKK 146m (2015: DKK 314m), consisted of DKK 27,005m (2015: DKK 29,096m) net revenue from other companies and activities and DKK -26,859m (2015: DKK -28,782m) from eliminations of sales between these other companies and the geographical segments.

Not allocated operating profit before special items, DKK -1,691m (2015: DKK -1,426m), consisted of DKK -1,500m (2015: DKK -1,430m) from other companies and activities and DKK -191m (2015: DKK 4m) from eliminations.

Geographical allocation of net revenue

DKK million	2016	2015
Denmark (Carlsberg Breweries A/S' domicile)	4,445	4,491
Russia	7,755	8,116
China	7,668	8,143
Other countries	42,746	44,604
Total	62,614	65,354

The DKK value of revenue in Russia and China in 2016 was impacted by adverse currency developments.

Intra-segment revenue

DKK million	2016	2015
Western Europe	212	189
Eastern Europe	40	73

DKK million

2016	Western Europe	Eastern Europe	Asia	Not allocated	Carlsberg Breweries Group, total
Total net revenue	37,597	10,205	14,666	146	62,614
Total cost	-32,380	-8,383	-12,008	-1,821	-54,592
Share of profit after tax of associates and joint ventures	141	10	144	-16	279
Operating profit before special items	5,358	1,832	2,802	-1,691	8,301
Special items, net					263
Financial items, net					-1,237
Profit before tax					7,327
Corporation tax					-2,402
Consolidated profit					4,925
Operating margin	14.2%	18.0%	19.1%		13.3%
2015	Western Europe	Eastern Europe	Asia	Not allocated	Carlsberg Breweries Group, total
---	---	---	---	---	---
Total net revenue	38,811	10,890	15,339	314	65,354
Total cost	-33,575	-8,986	-12,848	-1,742	-57,151
Share of profit after tax of associates and joint ventures	89	4	308	2	403
Operating profit before special items	5,325	1,908	2,799	-1,426	8,606
Special items, net					-8,455
Financial items, net					-1,513
Profit before tax					-1,362
Corporation tax					-917
Consolidated profit					-2,279
Operating margin	13.7%	17.5%	18.2%		13.2%

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 30

SECTION 1.2 (CONTINUED)

Revenue and segmentation of operations

Accounting estimates and judgements

The classification of duties 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 and fees are classified as either sales-related duties, which are deducted from revenue, or as fees related to the input/use of goods in production, transportation, distribution etc., which are therefore recognised as an expense in the relevant line item.

Customer discounts are recognised in the same period as the sales to which they relate 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 buyer 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 buyer on delivery of the products.

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

Revenue is measured including excise duties on beer and soft drinks and excluding 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. On-trade loans to customers are also classified as discounts.

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 point-of-sale promotions are closely related to the volumes sold.

On-trade loans are described in section 1.6.

All discounts are estimated and recognised on a monthly basis 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 but shown separately.

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

Not allocated comprises income and expenses related to Group functions. The allocation will be changed from 2017 as described in Impact from changes in accounting policies for 2017 in section 9.3.

The geographical allocation is made on the basis of the selling entities' domicile and comprises entities 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 7% due to continued production efficiency improvements, the brewery closures in Asia and the minor decline in sales volume of 2%. Organically, cost of goods sold per hl grew by approximately 1% as a result of higher material costs due to the negative transaction impact, primarily from USD/EUR-denominated input costs in Eastern Europe. In reported terms, cost of goods sold per hl decreased by 5%.

Inventories increased by 4% compared with 2015. Raw materials and consumables remained stable, as the effect of higher stocks of packaging materials in Russia was offset by lower stocks of raw materials across the Group.

The cost of finished goods increased by 11%, primarily due to the currency impact from the appreciation of the Russian rouble.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 31

SECTION 1.3 (CONTINUED)

Operating expenses, inventories and deposit liabilities

Raw and packaging material risks

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 agreements in local currencies with suppliers.

To hedge the implicit 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 2016, the majority of the aluminium price risk was hedged for Western Europe and Eastern Europe. The same has been done for 2017.

The total volume of aluminium purchased via financial instruments was 66,284 tonnes at the end of 2016 (2015: 77,200 tonnes). Based on this volume, and assuming 100% efficiency, a 10% increase (decrease) in aluminium prices would impact equity positively (negatively) by DKK 79m (2015: DKK 80m). The fair values of the financial instruments are specified in section 4.8.

Cost of sales

DKK million	2016	2015
Cost of materials	16,178	17,558
Direct staff costs	1,364	1,469
Machinery costs	873	955
Amortisation, depreciation and impairment losses	3,267	3,088
Indirect production overheads	3,448	3,727
Purchased finished goods and other costs	6,065	6,632
Total	31,195	33,429

Inventories

DKK million	2016	2015
Raw materials and consumables	1,716	1,743
Work in progress	282	299
Finished goods	1,965	1,775
Total	3,963	3,817

It is Group policy to fix the prices of at least 70% of malt 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 2016 was therefore hedged through fixed-price purchase agreements entered into during 2015. Likewise, the majority of the exposure for 2017 was hedged during 2016. The percentage that is hedged or price-fixed is higher for Western Europe than for Eastern Europe.

Accounting estimates and judgements

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 of government and other grants received to fund operating activities on the standard cost. This includes accessing 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 because their limited shelf-life means that slow-moving goods must be scrapped instead. The individual entities impacted by the current macro-economic situation in Eastern Europe have paid special attention to inventory turnover and the remaining shelf-life when determining the net realisable value and scrapping.

Accounting policies

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.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 32

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 1,681m (2015: DKK 1,819m), while the value of returnable packaging materials amounted to DKK 2,288m (2015: DKK 2,473m). The deposit liabilities and value of returnable packaging materials declined during 2016 as a consequence of the brewery closures in China. 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.

Accounting estimates and judgements

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

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

Accounting policies

The obligation to refund deposits on returnable packaging is measured on the basis of deposit price as well as 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.

1.3.3 Sales and distribution expenses

Sales and distribution expenses declined by 4% but grew organically by 1%. The organic increase is mainly due to higher sales and brand marketing expenses, including the UEFA EURO sponsorship and investments in SAIL '22, which were offset by lower distribution and trade marketing expenses. The reported figure was positively impacted by the foreign currency translation.

Sales and distribution expenses

DKK million	2016	2015
Marketing expenses	6,211	6,342
Sales expenses	5,525	5,553
Distribution expenses	6,740	7,263
Total	18,476	19,158

Accounting policies

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.

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	2016	2015
Gains and losses on disposal of property, plant and equipment and intangible assets	-59	34
On-trade loans, net	96	62
Real estate, net	17	9
Research centres, net	-48	38
Other, net	245	162
Total	251	305

Accounting policies

Gains and losses on the 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 France less 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.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 33

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

The Group has chosen not to hedge the transaction risk in Eastern Europe due to the excessive cost of hedging these currencies over a longer period of time. Baltika Breweries has expenses in both USD and EUR, and appreciation of RUB vis-à-vis these currencies has a positive impact on operating profit, while depreciation has a negative impact. The volatility of RUB will continue to affect operating profit measured in both DKK and RUB.

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 functional 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.

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.

Net revenue by currency (% of net revenue)

Impact on operating profit

Developments in exchange rates between DKK and the functional currencies of foreign entities had a negative impact on the operating profit from all three regions measured in DKK. Eastern Europe experienced the sharpest decline of -16%, as all the currencies in the region depreciated over the year. At Group level the impact was limited to -6%, as Western Europe and Asia saw declines of only -2% and -4% respectively.

Entity	Functional currency	Change in average FX rate 2015 to 2016
Entities in the eurozone	EUR	-0.20%
Baltika Breweries	RUB	-10.90%
Entities in China	CNY	-5.60%
Carlsberg UK	GBP	-11.60%
Feldschlösschen	CHF	-2.60%
Ringnes	NOK	-3.90%
Carlsberg Sverige	SEK	-1.40%
Lao Brewery	LAK	-0.10%
Carlsberg Polska	PLN	-4.60%

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 34

SECTION 1.5

Cash flow from operating activities

Cash flow from operating activities decreased by DKK 342m to DKK 9,601m. The significant change compared with 2015 was due to an extraordinary payment into the Group's pension fund in the UK, partially offset by lower cash outflow from financial items and tax.

Operating profit before depreciation, amortisation and impairment losses was DKK 300m lower in 2016 than 2015.

Average trade working capital as a percentage of net revenue was -9.5% (MAT), an improvement of 300bp compared with 2015 (adjusted for reclassification of other payables in Asia), 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, Carlsberg 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. Inventories have been optimised further throughout the year.

Free cash flow increased to DKK 8,805m (2015: DKK 6,743m), and was impacted by a higher cash flow from financial investments as a result of the disposal of Danish Malting Group, Carlsberg Malawi, Carlsberg Vietnam Breweries - Vung Tau, a number of entities in China, including Xinjiang Hops, and other associates. Please refer to section 5 for a detailed description of disposal of entities.

Trade working capital (% of net revenue)

Accounting policies

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.

Cash and cash equivalents comprise cash, less bank overdrafts, and 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.

Cash flow from operating activities and free cash flow (DKKbn)

1.5.1 Other specifications of cash flow from operating activities

DKK million	2016	2015
Other non-cash items
Share of profit after tax of associates and joint ventures	-279	-403
Gain on disposal of property, plant and equipment and intangible assets, net	59	-34
Special items etc.	-73	22
Total	-293	-415
Trade working capital
Inventories	-83	250
Trade receivables	202	834
Trade payables, duties payable and deposit liabilities	924	186
Total	1,043	1,270
Other working capital
Other receivables	236	-218
Other payables	-585	440
Retirement benefit obligations and other liabilities related to operating profit before special items	-716	174
Adjusted for unrealised foreign exchange gains/losses	104	-170
Total	-961	226
On-trade loans
Loans provided	-676	-679
Repayments	481	511
Amortisation of on-trade loans	238	355
Total	43	187
Financial receivables
Loans and other receivables	-95	-214
Other financial receivables	17	18
Total	-78	-196

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 35

SECTION 1.6

Trade receivables and on-trade loans

Receivables included in the statement of financial position

DKK million	2016	2015
Trade receivables	5,493	5,745
Other receivables	3,511	3,225
Total current receivables	9,004	8,970
Non-current receivables	1,060	1,840
Total	10,064	10,810

The Group's non-current receivables consist mainly of on-trade loans. Non-current receivables fall due more than one year from the end of the reporting period, with DKK 180m (2015: DKK 179m) falling due more than five years from the end of the reporting period.

Receivables by origin

DKK million	2016	2015
Sale of goods and services	5,022	5,196
On-trade loans	1,370	1,452
Other receivables	3,672	4,162
Total	10,064	10,810

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 end of the reporting year.

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 central guidelines.

On-trade loans recognised in other operating activities, net

DKK million	2016	2015
Interest and amortisation of on-trade loans	81	89
Losses and write-downs on on-trade loans	15	-27
On-trade loans, net	96	62

The average effective interest rate on loans to the on-trade was 4.8% (2015:4.9%).

Accounting estimates and judgements

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.

1.6.1 Credit risk

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

The Group does not generally renegotiate the terms of trade receivables with the individual customer, and trade receivables are not changed to on-trade loans. However, if a negotiation does take place, the outstanding balance is included in the sensitivity analysis based on the original payment terms. No significant trade receivables or on-trade loans were renegotiated in 2016 or 2015.

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.

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.

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.

Exposure to credit risk

In 2016, 89% (2015: 88%) of the total receivables were neither impaired nor past due. An additional write-down for bad debt losses was made in 2016 to cover the current economic situation in Eastern Europe.

Translated into DKK, the proportionate share of the Group's total receivables in Russia increased from 12% at year-end 2015 to 14% at year-end 2016, mainly due to exchange rate effects. The change in the remaining countries was not significant.

The impairment losses at 31 December 2016 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.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 36

SECTION 1.6 (CONTINUED)

Trade receivables and on-trade loans

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

Russia 14%
France 6%
Germany 10%
Sweden 4%
Other 40%
UK 10%
Switzerland 9%
Poland 5%
China 2%

Accounting estimates and judgements

In assessing credit risk, management analyses the need for write-downs for bad debt losses due to customers' inability to pay.

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 as well as collateral received. When no objective indication of individual impairment exists, management assesses the need to recognise the impairment for a portfolio of receivables based on customer segments, historical information on payment patterns, terms of payment and concentration maturity, as well as information about the general economic situation in the markets/countries. The portfolios are based on on-trade and off-trade customers, and on-trade receivables and loans.

The financial uncertainty associated with write-downs for bad debt losses is usually considered to be limited. However, if the ability to pay deteriorates in the future, further write-downs may be necessary.

With regard to the on-trade loans, the individual Group companies 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 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

DKK million
2016	Trade receivables	On-trade loans	Other receivables	Total	2015 Total
Impairment at 1 January	-610	-266	-167	-1,043	-963
Impairment losses recognised	-245	-34	-11	-290	-273
Realised impairment losses	82	21	5	108	123
Reversed impairment losses	20	49	30	99	74
Disposal of entities/transfers	19	-28	123	114	-4
Impairment at 31 December	-734	-258	-20	-1,012	-1,043

Ageing of receivables and on-trade loans

DKK million
2016	Net carrying amount at 31 Dec.	Neither impaired nor past due	Past due less than 30 days	Past due between 30 and 90 days	Past due more than 90 days
Sale of goods and services	5,022	4,340	274	136	272
On-trade loans	1,370	1,302	5	7	56
Other receivables	3,672	3,359	106	197	10
Total	10,064	9,001	385	340	338
Total 2015	10,810	9,614	364	429	403

SECTION 2

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 37

Asset base and returns

Maximising return on investments is key in delivering sustainable value to 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.

ROIC is calculated as operating profit before special items as a percentage of average invested capital, including goodwill.

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.

-867m

Impairment (DKK)

Further impairment of brands primarily in the Chongqing Brewery Group, due to accelerated premiumisation in China in combination with the continued restructuring and disposal of entities in Chongqing and Eastern Assets.

3.8bn

CapEx (DKK)

Down by DKK 0.2bn due to lower investments, mainly in Asia, following the higher-than-normal capacity expansions in recent years. CapEx/amortisation and depreciation was 80%.

10.7%

ROIC

Increased by 140bp and continues to be a key focus area for the Group.

Asset base (DKKm)

Return on invested capital (ROIC) (%)

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 38

SECTION 2.1

Return on invested capital

Return on invested capital (ROIC) increased by 140bp to 10.7% (2015: 9.3%). ROIC excluding goodwill increased by 500bp to 23.5% (2015: 18.5%).

The increase in ROIC was caused by the decrease in average invested capital as a result of CapEx being lower than depreciation, a reduction in trade working capital and the impairment losses recognised in 2015. As the impairment losses were recognised in the autumn of 2015, they did not have full impact on the average invested capital for 2015, but had full-year effect in 2016. However, this was partially offset by the decrease in operating profit.

Invested capital

DKK million	2016	2015
Total assets	115,913	113,501
Less
Deferred tax assets	-1,459	-1,491
Loans to group companies, associates and joint ventures (current)	-1,313	-980
Interest receivables, fair value of hedging instruments and financial receivables	-654	-751
Cash and cash equivalents	-3,502	-3,096
Assets included	108,985	107,183
Trade payables	-13,543	-12,264
Deposits on returnable packaging	-1,681	-1,819
Provisions, excluding restructurings	-3,510	-3,342
Corporation tax	-912	-598
Deferred income	-935	-1,035
Finance lease liabilities, included in borrowings	-25	-31
Other liabilities, excluding deferred income, interest payable and fair value of hedging instruments	-9,987	-9,508
Liabilities offset	-30,593	-28,597
Invested capital	78,392	78,586
Goodwill	-44,658	-42,064
Invested capital excluding goodwill	33,734	36,522
Invested capital, average	77,899	92,218

During 2016, goodwill increased, primarily due to foreign exchange impact, cf. section 2.4.

CapEx decreased by DKK 0.2bn due to lower investments, mainly in Asia, following the higher-than-normal capacity expansions in recent years.

CapEx/amortisation and depreciation was 80% (2015: 86%).

CapEx and amortisation/ depreciation (DKKbn)

■ CapEx
■ Amortisation/depreciation

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 39

SECTION 2.2

Segmentation of assets

The Group's assets are segmented on the basis of geographical regions in accordance with the management reporting for 2016, cf. section 1.2.

Total assets and invested capital increased in Eastern Europe, primarily attributable to changes in foreign exchange rates.

Total assets in Russia increased by DKK 8.5bn as at 31 December 2016 compared with the DKK value had they been translated at the exchange rates applied at year-end 2015.

Total assets and invested capital in Asia were affected by the impairment of the Bihar brewery in India, and the disposals of Carlsberg Vietnam Breweries - Vung Tau and Carlsberg Malawi. The continued restructuring of the Chinese activities - mainly in Chongqing and Eastern Assets - resulting in the disposal of nine subsidiaries comprising brewing and malting activities, also contributed to the development.

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

The change in total assets not allocated was the result of increased intercompany funding of entities in the regions, and write-down of certain receivables.

Geographical allocation of non-current assets

DKK million	2016	2015
Denmark (Carlsberg Breweries A/S domicile)	4,257	4,972
Russia	32,298	26,183
China	15,725	17,692
Other countries	43,106	43,581
Total	95,386	92,428

DKK million

2016	Western Europe	Eastern Europe	Asia	Not allocated	Carlsberg Breweries Group, total
Total assets	53,768	49,880	32,768	-20,503	115,913
Invested capital, cf. section 2.1	25,961	33,053	20,774	-1,396	78,392
Invested capital excluding goodwill, cf. section 2.1	10,748	17,878	6,504	-1,396	33,734
Acquisition of property, plant and equipment and intangible assets	1,690	454	1,244	426	3,814
Amortisation and depreciation	1,747	737	1,352	898	4,734
Impairment losses	11	53	1,162	-	1,226
Return on invested capital (ROIC)	19.6%	6.4%	13.0%	-	10.7%
Return on invested capital excluding goodwill (ROIC excl. goodwill)	43.4%	12.0%	37.8%	-	23.5%
2015
Total assets	52,395	39,738	35,752	-14,384	113,501
Invested capital, cf. section 2.1	26,705	27,332	23,081	1,468	78,586
Invested capital excluding goodwill, cf. section 2.1	11,666	14,972	8,416	1,468	36,522
Acquisition of property, plant and equipment and intangible assets	1,242	449	1,781	589	4,061
Amortisation and depreciation	1,709	892	1,376	689	4,666
Impairment losses	60	4,399	3,560	-	8,019
Return on invested capital (ROIC)	18.8%	5.3%	10.8%	-	9.3%
Return on invested capital excluding goodwill (ROIC excl. goodwill)	40.3%	8.8%	28.2%	-	18.5%

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.

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

Segmentation of assets and invested capital in Carlsberg Breweries Group is different from the beverages, total segment in the Carlsberg Group, due to the goodwill and brands recognised as part of the acquisition of the non-controlling interest in Carlsberg Breweries A/S from Orkla in 2004.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 40

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.

Impairment of goodwill, brands and other non-current assets

DKK million	2016	2015
Goodwill
Eastern Assets, China	-	1,766
Brands and other intangible assets
Baltika brand, Baltika Breweries, Russia	-	4,000
Brands and land use rights, Eastern Assets, China	-	435
Brands and land use rights, Chongqing Brewery Group, China	846	440
Other brands	67	75
Other intangible assets	7	-
Total	920	6,716
Property, plant and equipment
Plant, machinery and equipment, Bihar, India	160	-
Plant, machinery and equipment, Eastern Assets, China	-	631
Plant, machinery and equipment, Chongqing Brewery Group, China	148	148
Breweries and brewery equipment, Baltika Breweries, Russia	-15	283
Plant, machinery and equipment, Xinjiang Wusu Group, China	2	82
Machinery and equipment, Carlsberg UK	10	43
Other	1	116
Total	306	1,303
Total impairment losses	1,226	8,019
Of which recognised in special items, cf. section 3.1	1,207	7,937

2.3.1 Impairment

In 2016, the impairment tests of goodwill and brands with indefinite useful life were prepared at the end of the reporting period. Based on the tests performed, the Group recognised impairment losses on brands amounting to DKK 867m.

During the year, impairment losses relating to other intangible assets and property, plant and equipment, amounting to DKK 359m, were recognised as a result of restructurings and other events. Total impairment losses recognised in 2016 amounted to DKK 1,226m (2015: DKK 8,019m).

Chongqing Brewery Group (China)

In 2016, Chongqing Brewery Group experienced a significant decline in the volume 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.

The lower growth led to a reassessment of the expected future growth of the local brands, resulting in the recoverable amount being below the carrying amount. The brands were therefore written down by DKK 800m, to the lower recoverable amount.

The write-down was the second in two years. The first followed the review of expected future growth that took place in the autumn of 2015 and resulted in the brands being written down by DKK 400m. However, the assessment at the time was that the premiumisation of the market and the internal restructurings would happen at a slower pace.

The recoverable amount of the brands was determined based on their value in use. A discount rate of 8.9% was used in the calculation (2015: 8.8%). The brands had a carrying amount after impairment of DKK 959m as at 31 December 2016 (2015: DKK 1,820m).

During 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 (2015: DKK 188m) were recognised in special items.

Baltika Breweries (Russia)

The Russian beer market has experienced a continuous decline in recent years, caused by very challenging macroeconomic conditions. In 2016, the market continued to decline but at a slower pace, as projected in 2015.

The Baltika brand performed in line with the growth projections made when the expected future growth for the brand was reassessed in the autumn of 2015, which led to the write-down of the brand by DKK 4,000m in 2015.

However, for the other local brand written down in 2015 (DKK 75m), the development in 2016 was below expectations. The growth expectations were therefore reassessed again, resulting in the brand's remaining carrying amount of DKK 67m being written down.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements
41

SECTION 2.3 (CONTINUED)

Impairment

The recoverable amount of the brand was determined based on a value in use calculation. A discount rate of 9.8% was used in the calculation (2015: 9.9%).

In 2015, impairment of breweries, DKK 283m, related to two breweries that were permanently closed in January 2015 and additional closure of production lines for the purpose of right-sizing the business to match expected future capacity requirements.

Eastern Assets (China)

In 2015, a thorough evaluation of the Eastern Assets business, including consideration of further improvement initiatives and unsuccessful attempts to dispose of some of the breweries, indicated a continuation of operating losses for the foreseeable future. Because of the expected future operating losses, the recoverable amount of the business was negative, and non-current assets, including goodwill, were fully impaired, in total DKK 2,832m. Since the business is still operating, working capital items etc. were not impaired.

Other impairments

The impairment of machinery and equipment in Carlsberg UK of DKK 10m was the result of the ongoing restructuring of the UK operations. In 2016, the decision was made to exit porterage distribution services by the end of the current contracts and to outsource the secondary logistics operations. In 2015, impairments of machinery and equipment of DKK 43m related to the delisting at a major retailer, which led to overcapacity and thereby underabsorption of costs in the production. Consequently, it was decided to right-size capacity by closing production lines.

The impairment of property, plant and equipment in Carlsberg India of DKK 160m was the consequence of the implementation of a statewide ban on the production and sale of alcohol in Bihar, cf. section 3.1.

Other impairments of property, plant and equipment are a consequence of restructuring and process optimisation in Western Europe, Eastern Europe and Asia.

Significant amounts of goodwill and brands

Goodwill and brands with indefinite useful life related to Baltika Breweries and Kronenbourg, Chongqing Brewery Group each account for 10% or more of the total carrying amount of goodwill and brands with an indefinite useful life at the end of the reporting period.

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 carried out 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 part of those 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 have been considered significant compared with the total carrying amount of brands with indefinite useful life:

Baltika brand
Chongqing Brewery Group brands (only for 2015)

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.

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 cost to sell, if such a value can be established, and value in use. Value in use is assessed

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 42

SECTION 2.3 (CONTINUED)

Impairment

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 from 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	2016	2015
Western Europe	15,213	15,038
Eastern Europe	15,175	12,361
China, Malaysia and Singapore	9,591	9,914
Indochina	4,072	4,143
Significant groups of CGUs	44,051	41,456
Other, Asia	607	608
Total	44,658	42,064

In 2016 and 2015, significant groups of CGUs represented 99% of the total carrying amount.

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 forecasted as stated below. The growth rate for the forecast period is the compound annual growth rate for the three-year forecast period.

Key assumptions

2016	Forecast period growth	Terminal period growth	Pre-tax discount rate
Western Europe	7%	0.3%	1.1%
Eastern Europe	4%	3.7%	7.0%
China, Malaysia and Singapore	4%	1.0%	3.7%
Indochina	4%	0.8%	7.8%

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 speciality and craft beers, 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 macro-environment of recent years has led to a shift from on-trade to off-trade consumption.

The Group's focus for Western Europe is to improve margins, primarily by delivering on Funding the Journey, including value management, supply chain efficiencies and operating cost management.

The significant average growth in cash flow of 7% in the forecast period is the result of the benefits expected from the Funding the Journey savings programme and a low comparison basis.

Eastern Europe

The Group's two main markets in the region are Russia, accounting for around 75% of regional beer volumes, and Ukraine, accounting for a little less than 20%. The Russian beer market has been under significant pressure over the past eight years, in recent years due to a challenged macroeconomy and unavoidable substantial price increases, partly due to local excise duty increases and generally due to high inflation. In value terms, however, the market has generally seen positive growth rates.

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.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 43

SECTION 2.3 (CONTINUED)

Impairment

Off-trade is the most important sales channel in the region. Traditional off-trade is declining at a rapid pace and being overtaken by modern trade, which offers more attractive and affordable pricing.

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 cost and efficiencies.

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

The average growth in cash flow of 4% in the forecast period 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 during the past decade. Over the years, the Group has expanded its presence in the region, both organically and through acquisitions, and today we have a very attractive regional footprint.

The Asian markets are very diverse but offer considerable prospects for 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.

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 cost and efficiencies.

The average growth in cash flow of 4% in the forecast period in Asia includes the expected impact of restructurings already implemented. 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.

1 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, 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 level of premiumisation. No changes in market shares are assumed in the medium or long term.

Demographic expectations general to the industry, such as the development in population, consumption levels, generation-shift patterns, rate of urbanisation, 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

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 44

SECTION 2.3 (CONTINUED)

Impairment

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.

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	2016	2015
Baltika brand	12,136	9,772
Chongqing Brewery Group brands	959	1,820
Significant brands	13,095	11,592

Other brands

Western Europe	3,628	3,401
Eastern Europe	943	713
Asia	600	594
Total	18,266	16,300

In 2016, significant brands represented 72% (2015: 71%) of the total carrying amount of brands with indefinite useful life.

Other brands comprise a total of 16 brands that are not considered individually material compared with the total carrying amount.

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 changes, cash flows are reassessed based on factors relevant to the individual brand.

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.

The risk-free cash flows are discounted using a discount rate reflecting the risk-free interest rate with the addition of the risk premium associated with the individual brand.

Key assumptions

The key assumptions on which management has based 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 forecasted based on a long-term strategic view of the risk and opportunities relevant to the brand. The curve is forecasted 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.

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 brand, the revenue growth in individual years may be above, equal to or below the forecasted inflation level in the markets where the brand is present.

Key assumptions

2016	Average revenue growth	Terminal period growth	Pre-tax discount rate	Post-tax discount rate
Baltika brand	5%	4.0%	9.8%	8.7%
Chongqing Brewery Group brands	-2%	2.0%	8.9%	7.0%

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 45

SECTION 2.3 (CONTINUED)

Impairment

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 that justify a higher royalty rate.

Royalty rates

International, premium and speciality beers	3.5-15.0%
Strong regional and national brands	3.0-5.0%
Local and mainstream brands	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.

Interest rates applied in Eastern Europe

In recent years, the macroeconomic situation 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 decade preceding 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 now turned positive and is expected to remain positive in the future. 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 the impairment tests, a long-term real interest rate of 1.5% has been applied as the long-term growth expectation, since this rate approximates the maximum rate in the range previously expected by key international financial institutions.

In connection with the annual impairment testing, it is verified whether recent developments in interest rates and inflation continue to support the assumption of a real interest rate of 1.5%.

Late in 2016, the Bank of Russia commented on its expectations for the short-term real interest rate. It expects a positive future real interest rate, which it estimates 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. The Group did not observe any market reactions to the comments made.

The Group did not receive any updated forecasts of long-term interest rates and inflation at the end of 2016. At the same time, no indications in the markets were observed that would contradict the expectation of a long-term real interest rate of 1.5%.

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

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 2016. The sensitivity tests calculate the impact of higher interest rates and allow for a double-digit 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.

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 BBH 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.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 46

SECTION 2.3 (CONTINUED)

Impairment

Following the impairment losses recognised in 2015 and 2016 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 very impractical. Instead sensitivity testing is performed for the overall revenue growth rate, both in the forecast period and the terminal period.

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.

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 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 the market dynamics and adjustments thereto will in practice have different impacts in the individual year and might not persist in the long term.

Baltika brand

The Baltika brand was written down to its recoverable amount in 2015, and therefore the recoverable amount at the end of 2016 remained very close to the carrying amount. As a result, any negative change in the key assumptions would lead to further impairment.

Changes in the market dynamics in Russia can have a significant negative impact on the recoverable amount. Macroeconomic recovery could lead to further premiumisation, which could drive consumers towards international brands.

Any increase in the real interest rate from the current 1.5%, 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.

A 1 percentage point increase in the interest rate would result in a reduction in the recoverable amount of DKK 2.0bn, and a 1 percentage point decrease in the terminal growth rate would result in a reduction in the recoverable amount of DKK 0.8bn.

Chongqing Brewery Group brands

The Chongqing Brewery Group brands were written down to their recoverable amount at the end of 2016, and the recoverable amount is therefore equal to the carrying amount. As a result, any 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 0.2bn, and a 1 percentage point decrease in the terminal growth rate would result in a reduction in the recoverable amount of DKK 0.1bn.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 47

SECTION 2.4

Intangible assets and property, plant and equipment

DKK million

2016	Goodwill	Brands	Other intangible assets	Total	Intangible assets		Property, plant and equipment
					Land and buildings	Plant and machinery	Fixtures and fittings, other plant and equipment	Total
Cost
Cost at 1 January	43,916	22,002	5,980	71,898	16,934	27,653	13,710	58,297
Acquisition of entities	255	355	-	610	7	49	5	61
Additions	-	-	312	312	215	1,814	1,473	3,502
Disposal of entities	-124	-3	-350	-477	-441	-608	-270	-1,319
Disposals	-	-	-171	-171	-248	-847	-1,154	-2,249
Transfers	-	-	-27	-27	90	-425	362	27
Foreign exchange adjustments etc.	2,394	3,453	-	5,847	355	522	177	1,054
Cost at 31 December	46,441	25,807	5,744	77,992	16,912	28,158	14,303	59,373
Amortisation, depreciation and impairment losses
Amortisation, depreciation and impairment losses at 1 January	1,852	5,300	3,043	10,195	7,010	16,027	8,758	31,795
Disposal of entities	-	-3	-258	-261	-325	-416	-159	-900
Disposals	-	-	-121	-121	-202	-719	-1,112	-2,033
Amortisation and depreciation	-	28	792	820	524	1,430	1,960	3,914
Impairment losses	-	867	53	920	148	131	27	306
Transfers	-	-	-2	-2	10	-20	12	2
Foreign exchange adjustments etc.	-69	969	20	920	138	444	92	674
Amortisation, depreciation and impairment losses at 31 December	1,783	7,161	3,527	12,471	7,303	16,877	9,578	33,758
Carrying amount at 31 December	44,658	18,646	2,217	65,521	9,609	11,281	4,725	25,615
Carrying amount of assets pledged as security for borrowings	-	-	-	-	420	-	-	420

Additions to goodwill are described in section 5.1.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 48

SECTION 2.4 (CONTINUED)

Intangible assets and property, plant and equipment

DKK million

2015	Goodwill	Brands	Other intangible assets	Total	Land and buildings	Plant and machinery	Fixtures and fittings, other plant and equipment	Total
Cost
Cost at 1 January	44,731	24,153	5,531	74,415	16,735	28,690	12,906	58,331
Acquisition of entities	238	100	2	340	153	90	54	297
Additions	-	1	458	459	382	1,562	1,658	3,602
Disposal of entities	-9	-	-64	-73	-1	-295	-19	-315
Disposals	-	-	-58	-58	-486	-631	-1,749	-2,866
Transfers	-	-	30	30	328	-1,214	1,112	226
Foreign exchange adjustments etc.	-1,044	-2,252	81	-3,215	-177	-549	-252	-978
Cost at 31 December	43,916	22,002	5,980	71,898	16,934	27,653	13,710	58,297
Amortisation, depreciation and impairment losses
Amortisation, depreciation and impairment losses at 1 January	74	1,045	2,105	3,224	6,195	15,145	8,021	29,361
Disposal of entities	-	-	-1	-1	-	-1	-7	-8
Disposals	-	-	-58	-58	-172	-597	-1,667	-2,436
Amortisation and depreciation	-	30	605	635	578	1,491	1,962	4,031
Impairment losses	1,766	4,571	379	6,716	449	751	103	1,303
Transfers	-	-	1	1	-4	-314	451	133
Foreign exchange adjustments etc.	12	-346	12	-322	-36	-448	-105	-589
Amortisation, depreciation and impairment losses at 31 December	1,852	5,300	3,043	10,195	7,010	16,027	8,758	31,795
Carrying amount at 31 December	42,064	16,702	2,937	61,703	9,924	11,626	4,952	26,502
Carrying amount of assets pledged as security for borrowings	-	-	-	-	412	838	-	1,250

Additions to goodwill are described in section 5.1.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 49

SECTION 2.4 (CONTINUED)

Intangible assets and property, plant and equipment

Intangible assets under development amounted to DKK 245m (2015: DKK 258m) and are included in other intangible assets. Property, plant and equipment under construction amounted to DKK 1,314m (2015: DKK 1,037m) and are included in plant and machinery.

Other intangible assets include software, land use rights and beer delivery rights. The carrying amount of software amounted to DKK 1,275m (2015: DKK 1,798m).

Fixtures and fittings, other plant and equipment include rolling equipment, such as cars and trucks, draught beer equipment, coolers, returnable packaging and office equipment.

Leases

Operating lease liabilities totalled DKK 1,333m (2015: DKK 1,505m), with DKK 450m (2015: DKK 441m) falling due within one year. Operating leases primarily relate to properties, IT equipment and transport equipment (cars, trucks and forklifts). These leases contain no special purchase rights etc.

Assets held under finance leases with a total carrying amount of DKK 28m (2015: DKK 34m) have been pledged as security for lease liabilities totalling DKK 26m (2015: DKK 31m).

Amortisation, depreciation and impairment losses

DKK million	Intangible assets		Property, plant and equipment
	2016	2015	2016	2015
Cost of sales	321	63	2,946	3,025
Sales and distribution expenses	228	49	810	819
Administrative expenses	278	523	170	269
Special items	913	6,716	294	1,221
Total	1,740	7,351	4,220	5,334

Gain/loss on disposal of assets

DKK million	2016	2015
Gain on disposal of property, plant and equipment and intangible assets, including those held for sale, within beverage activities	79	100
Loss on disposal of property, plant and equipment and intangible assets within beverage activities	-138	-66
Total	-59	34

Service agreements

The Group has entered into service contracts of various lengths in respect of sales, logistics and IT. Costs related to the contracts are recognised as the services are received.

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 113m (2015: DKK 30m).

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, expected long-term developments in the relevant markets and the brands' profitability.

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 will require reassessment of useful life and residual value as well as 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.

Lease and service agreements

The Group has entered into a number of leases and service contracts. When entering into these agreements, management considers the substance of the service being rendered in order to classify the agreement as either a lease or a service contract. In making this judgement, 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 lease 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.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 50

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, depreciation and impairment losses.

Cost comprises the purchase price and any 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.

Research costs are recognised in the income statement as they are incurred. Development costs are recognised as 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 and depreciated separately.

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 and depreciation

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.

The basis of depreciation is calculated on the basis of the cost less the residual value and impairment losses.

The expected useful life for the various items is as follows:

Brands with finite useful life	Normally 20 years
Software etc.	Normally 3-5 years. Group-wide systems developed as an integrated part of a major business development programme: 5-7 years
Delivery rights	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	20-40 years
---	---
Technical installations	15 years
Brewery equipment	15 years
Filling and bottling equipment	8-15 years
Technical installations in warehouses	8 years
On-trade and distribution equipment	5 years
Fixtures and fittings, other plant and equipment	5-8 years
Returnable packaging	3-10 years
Hardware	3-5 years
Land	Not depreciated

Amortisation and depreciation are recognised in the income statement 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 losses

Impairment losses of a non-recurring nature are recognised in the income statement under special items.

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

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 51

Special items and provisions

2.4bn

Special items, income (DKK)

Impacted by gain on disposal of entities.

-2.1bn

Special items, expenses (DKK)

Significantly impacted by measures taken under the Funding the Journey programme that led to impairment and restructuring charges.

SECTION 3.1 Special items

Measures taken under the Funding the Journey programme continued to impact special items, including the disposal of non-core assets and restructuring initiatives and impairments, primarily in Western Europe and Asia.

The Group recognised a gain on the disposal of the subsidiaries Danish Malting Group, Carlsberg Malawi, Carlsberg Vietnam Breweries - Vung Tau, and a number of entities in China. Additionally, the Group disposed of a number of associates, including Xinjiang Hops. Please refer to section 5 for a detailed description of disposal of entities.

The accelerated premiumisation in China in combination with the continued restructuring and disposal of entities in Chongqing and Eastern Assets impacted the expectations for the Chongqing Brewery Group brands and led to further impairments of DKK 800m in 2016. Additionally, a minor brand in Baltika Breweries was impaired. The impairments in 2015 also related to Baltika Breweries and

SECTION 3.1 (CONTINUED) Special items

Chongqing Brewery Group. Please refer to section 2.3.3 for a detailed description of impairment of brands.

DKK million	2016	2015
Special items, income
Gain on disposal of entities and activities, and adjustments to gains in prior years	2,040	22
Reversal of impairments in prior years	207	-
Gain on disposal of property, plant and equipment impaired in prior years	26	166
Reversal of provision recognised in a purchase price allocation in prior years	80	-
Total	2,353	188
Special items, expenses
Impairment, restructuring and termination benefits	-1,203	-4,138
Impairment of brands, Baltika Breweries and Chongqing Brewery Group	-867	-4,475
Disposal and impairment of real estate, including adjustments to gains in prior years	-20	-
Costs related to acquisition and loss on disposal of entities	-	-30
Total	-2,090	-8,643
Special items, net	263	-8,455
If special items had been recognised in operating profit before special items, they would have been included in the following items:
Cost of sales	-1,058	-5,837
Sales and distribution expenses	-334	-719
Administrative expenses	-100	-298
Other operating income	2,040	188
Other operating expenses	-285	-23
	263	-6,689
Impairment of goodwill	-	-1,766
Special items, net	263	-8,455

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 52

In 2016 and 2015, the Group recognised restructuring costs and related impairment losses in Chongqing Brewery Group and Eastern Assets, China, totalling DKK -299m (2015: DKK -3,152m). These related to a general restructuring of the business and closure of a total of 11 breweries. In 2016, the Group recognised a gain on disposal of Chinese breweries totalling DKK 1,036m.

Reversal of impairments in prior periods related to Carlsberg Uzbekistan, which was disposed of in January 2017, and other assets where the estimated recoverable amount increased due to changes in expected future use of the assets.

In April 2016, the local state government imposed a ban on production and sale of alcohol in the Indian state of Bihar. The brewery in Bihar has not been operational since the ban, and as it was not possible to create a viable, alternate business plan, the ban resulted in impairment of property, plant and equipment and inventories totalling DKK -199m.

The Group is optimising and standardising business processes across Western Europe.

The cost in 2016 mainly comprised restructuring and impairment related to the Group's logistics activities and back-office functions. The optimisation and standardisation project is running in a number of entities, including Kronenbourg and local supply companies. The optimisation of the back-office functions included the transfer of over 300 roles from the Group's captive in Europe to an external service provider in India.

Restructurings, termination benefits and other impairment losses

DKK million	2016	2015
Eastern Assets, China	-22	-2,882
Chongqing Brewery Group, China	-277	-270
Carlsberg U.K., including onerous contract and terminated licence agreement	-395	-98
Bihar, India	-199	-
Carlsberg Deutschland	-152	-
Optimisation and standardisation in Western Europe	-103	-123
Baltika Breweries, Russia	-	-344
Xinjiang Wusu Group, China	-18	-92
Other, net	5	-45
Group-wide organisational efficiency programme	-3	-233
Retirement of members of the Executive Committee	-39	-51
Total	-1,203	-4,138

In 2016, Carlsberg Deutschland commenced the construction of a new brewery in Hamburg. The current brewery has been sold and will be transferred to the buyer when the operations have been moved to the new brewery. The gain on disposal will be recognised when the asset is transferred. The restructuring cost in 2016 mainly comprised termination benefits to employees made redundant.

Impairment and restructuring of Carlsberg UK relates to the continued restructuring of the business, mainly for the purpose of exiting porterage distribution services by the end of the current contracts in addition to outsourcing secondary logistics operations as announced in June 2016. The net costs in both 2016 and 2015 include provision for an onerous contract and additionally, in 2015, compensation received for the termination of a third-party brand contract. Furthermore, the net cost includes a provision in relation to the tragic fatal accident at the Northampton Brewery in November 2016.

Retirement of members of the Executive Committee includes 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. In 2015, the expenses related to the retirement of former President & CEO Jørgen Buhl Rasmussen and former Deputy CEO & CFO Jørn P. Jensen.

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 Breweries Group Annual Report 2016 Consolidated financial statements 53

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 2016, restructuring provisions of DKK 661m related primarily to Carlsberg UK, Carlsberg Deutschland and local supply companies, as described in section 3.1.

Other provisions of DKK 2,958m related primarily to profit sharing in France, employee obligations other than retirement benefits, and ongoing disputes, lawsuits etc.

Accounting estimates and judgements

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 contingent liabilities as well as 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.

Provisions

DKK million	Restructurings	Onerous contracts	Other	Total
Provisions at 1 January 2016	488	386	2,956	3,830
Additional provisions recognised	431	257	533	1,221
Disposal of entities	-	-	-67	-67
Used during the year	-220	-5	-190	-415
Reversal of unused provisions	-26	-80	-190	-296
Transfers	9	8	-11	6
Discounting	9	13	65	87
Foreign exchange adjustments etc.	-30	-27	-138	-195
Provisions at 31 December 2016	661	552	2,958	4,171
Recognised in the statement of financial position
Non-current provisions	452	505	2,575	3,532
Current provisions	209	47	383	639
Total	661	552	2,958	4,171

Accounting policies

Provisions, including warranty provisions, are recognised when, as a result of events arising before or at the end of the reporting period, 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 under liabilities when a detailed, formal restructuring plan has been announced to those affected no later than at the end of the reporting period. 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 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.

SECTION 3.3

Contingent liabilities

In 2014, the Federal Cartel Office in Germany issued a decision against Carlsberg Deutschland and imposed a fine of EUR 62m for alleged 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. The imposed fine has therefore not been provided for in the financial statements.

The Group is party to certain other lawsuits, disputes etc. of various scopes. It is management's opinion that, apart from items recognised in the statement of financial position or disclosed in the consolidated financial statements, the outcome of these lawsuits, disputes etc. will not have a material effect on the Group's financial position.

No significant lawsuits, disputes etc. were provided for in 2016 or 2015.

The Group has issued guarantees for loans etc. raised by third parties (non-consolidated entities) of DKK 431m (2015: DKK 493m). 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.

Contractual commitments and lease and service agreements are described in section 2.4.

SECTION 4

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 54

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.

-1,237m

Net financial items (DKK)

Up from DKK -1,513m in 2015.

Distribution of gross financial debt – 2016 – Allocation (%)

Non-current bank borrowing 4%
Non-current bonds 85%
Non-current mortgages 1%
Current bank borrowing 4%
Other current and non-current borrowing 6%

24.6bn

Net interest-bearing debt (DKK)

Decreased by DKK 5,703m during 2016.

Distribution of gross financial debt – 2015 – Allocation (%)

Non-current bank borrowing 12%
Non-current bonds 81%
Non-current mortgages 3%
Current bank borrowing 2%
Other current and non-current borrowing 2%

13.3bn

Available credit resources (DKK)

Down from DKK 14.4bn in 2015.

3.0%

Average funding cost (%)

Up from 2.9% in 2015.

1.96x

Debt to operating profit before depreciation, amortisation and impairment losses

An improvement from 2.34x in 2015.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 55

SECTION 4.1

Financial income and expenses

Financial items, net, improved by DKK 276m, primarily due to a gain of DKK 415m, net, on foreign exchange and fair value adjustments of financial instruments (2015: loss of DKK 110m) and lower net interest expenses, mainly due to repayment of debt. Other financial expenses include write-downs of certain financial receivables and interest related to the lost tax case in Finland.

The currency translation of foreign entities in other comprehensive income at the end of the reporting period, DKK 5,580m, primarily related to the appreciation of RUB at the end of the year, which had an impact of DKK 6,258m. This effect was partly offset by the depreciation of CNY, UAH and PLN.

The impact from the changes in GBP around and following the Brexit referendum had a minor positive effect on other comprehensive income.

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	2016	2015
Financial income
Interest income	158	182
Fair value adjustments of financial instruments, net, cf. section 4.8	564	68
Expected return on plan assets, defined benefit plans	173	204
Other financial income	30	35
Total	925	489
Financial expenses
Interest expenses	-1,034	-1,259
Capitalised financial expenses	3	6
Foreign exchange losses, net	-149	-178
Interest cost on obligations, defined benefit plans	-296	-349
Other financial expenses	-686	-222
Total	-2,162	-2,002
Financial items, net, recognised in the income statement	-1,237	-1,513

Interest income relates to interest on cash and cash equivalents measured at amortised cost.

Financial items recognised in other comprehensive income

DKK million	2016	2015
Foreign exchange adjustments of foreign entities
Foreign currency translation of foreign entities	5,580	-3,812
Recycling of cumulative translation differences of entities acquired in step acquisitions or disposed of	263	-12
Total	5,843	-3,824
Value adjustments of hedging instruments
Change in fair value of effective portion of cash flow hedges	93	-343
Change in fair value of cash flow hedges transferred to the income statement	36	322
Change in fair value of net investment hedges	12	-416
Total	141	-437
Financial items, net, recognised in other comprehensive income	5,984	-4,261

Of the net change in fair value of cash flow hedges transferred to the income statement, DKK 110m (2015: DKK 184m) is included in net revenue and cost of sales and DKK -74m (2015: DKK 138m) is included in financial items.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 56

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, 70% (DKK 21.1bn) was long-term, i.e. with maturity of more than one year.

Current borrowings are relatively high due to a EUR 1bn bond maturing in October 2017.

Net interest-bearing debt

DKK million	2016	2015
Non-current borrowings	21,137	31,479
Current borrowings	9,198	4,560
Gross financial debt	30,335	36,039
Cash and cash equivalents	-3,502	-3,096
Net financial debt	26,833	32,943
Loans to associates, interest-bearing portion	-300	-248
On-trade loans, net	-863	-968
Other receivables, net	-1,101	-1,455
Net interest-bearing debt	24,569	30,272

Changes in net interest-bearing debt (DKKm)

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, which 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 targets a leverage ratio below 2.0x. As the leverage comes down even further towards a level of 1.5x to 2.0x, there will be a gradual increase in payout. The leverage ratio is measured as net interest-bearing debt to operating profit before depreciation, amortisation and impairment losses.

As an element in strategic decisions on capital structure, management assesses the risk of changes in the Group's investment-grade rating. The Group is rated by Moody's Investors Service and Fitch Ratings. Following a temporary downgrade of the Group's investment-grade ratings in 2015, both ratings were upgraded one notch in 2016. Identification and monitoring of risks were carried out on an ongoing basis throughout the year.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 57

SECTION 4.3 (CONTINUED)

Capital structure

4.3.2 Equity

The Group proposes a dividend of DKK 3,045 per share (2015: DKK 2,741 per share), amounting to DKK 1,526m (2015: DKK 1,373m). The proposed dividend has been included in retained earnings at 31 December 2016.

Transactions with shareholders in Carlsberg Breweries A/S

DKK million	2016	2015
Dividends paid to shareholders	-1,373	-1,373
Total	-1,373	-1,373

Transactions with non-controlling interests (NCI)

DKK million	2016	2015
Dividends paid to NCI	-617	-513
Acquisition of NCI	-399	-
Capital increase	1	-
Total	-1,015	-513

Dividends paid to non-controlling interests primarily related to entities in Asia.

Equity (DKKm)

Share capital

	Total share capital
	Shares of DKK 1.000	Nominal value, DKK '000
1 January 2015	501	501,000
No change in 2015	-	-
31 December 2015	501	501,000
No change in 2016	-	-
31 December 2016	501	501,000

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.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 58

SECTION 4.3 (CONTINUED)

Capital structure

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.

While the risk management activities were largely unchanged during 2016, the macro-economic situation affecting markets and exchange rates in Russia and Ukraine continued to warrant increased monitoring and planning.

SECTION 4.4

Borrowings and cash

4.4.1 Borrowings

Borrowings decreased during 2016 due to the strong free cash flow. A GBP 300m bond was repaid at maturity in November 2016. Bank borrowings also decreased compared with year-end 2015. Mortgage financing at the brewery in Fredericia, Denmark, was significantly reduced.

Gross financial debt

DKK million	2016	2015
Non-current
Issued bonds	18,489	25,988
Mortgages	420	1,248
Bank borrowings	1,114	4,202
Other borrowings	1,114	41
Total	21,137	31,479
Current
Issued bonds	7,424	3,103
Current portion of other non-current borrowings	193	225
Bank borrowings	1,443	1,212
Other borrowings	138	20
Total	9,198	4,560
Total borrowings	30,335	36,039
Fair value	32,291	37,646

An overview of issued bonds (current and non-current) is provided in section 4.6.

Other borrowings include finance lease liabilities of DKK 26m (2015: DKK 31m).

Cash flow from external financing

DKK million	2016	2015
Repayment of bonds	-2,620	-
Credit institutions, long-term	-3,080	-3,849
Credit institutions, short-term	-889	-361
Other financing liabilities	-383	254
Total	-6,972	-3,956

Accounting policies

Amounts owed to credit institutions, bonds etc. are recognised at the date of borrowing at fair value less transaction costs. In subsequent periods, the financial liabilities 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 in the income statement under financial expenses over the term of the loan. Financial liabilities also include the capitalised residual obligation on finance leases, which is measured at amortised cost. Other liabilities are measured at amortised cost.

4.4.2 Cash

Cash and cash equivalents

DKK million	2016	2015
Cash and cash equivalents	3,502	3,096
Bank overdrafts	-1,154	-111
Cash and cash equivalents, net	2,348	2,985

Short-term bank deposits amounted to DKK 1,014m (2015: DKK 688m). The average interest rate on these deposits was 5.9% (2015: 8.0%).

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.

The Group primarily enters into financial instruments and transactions with the Group's relationship banks, i.e. banks extending loans to the Group. In most cases, the Group will be in a net debt position with its relationship banks.

Group Treasury monitors the Group's gross credit exposure to banks and operates with individual limits on banks based on rating, level of government support and access to netting of assets and liabilities.

Exposure to credit risk

The carrying amount of DKK 3,502m (2015: DKK 3,096m) represents the maximum credit exposure related to cash and cash equivalents. Of this amount, DKK 2,057m is cash in Asia.

The credit risk on receivables is described in section 1.6.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 59

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 Group's functional currency due to the foreign exchange risk 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

DKK million
2016	Original principal	Effect of swap	After swap
CHF	146	1,578	1,724
DKK	674	6,783	7,457
EUR	28,170	-9,493	18,677
GBP	94	-310	-216
RUB	184	-2,408	-2,224
USD	34	3,128	3,162
Other	1,033	722	1,755
Total	30,335	-	30,335
Total 2015	36,039	-	36,039

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 RUB, CHF, CNY and MYR. 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 arising from operating activities or specific transactions.

The most significant net risk relates to foreign exchange adjustment of net investments in RUB.

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. Otherwise the fair value adjustments are recognised in the income statement. For 2016 and 2015, all fair value adjustments were recognised in other comprehensive income. The effect of net investment hedges on other comprehensive income is summarised in the table.

The fair value of derivatives used as net investment hedges recognised at 31 December 2016 amounted to DKK -104m (2015: DKK -216m).

4.5.3 Exchange rate risk on borrowings

The main principle for funding of subsidiaries is that 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 and is based on an assessment of the alternative cost of financing the entity in the local currency. For the countries concerned, the interest rate level in the local currency, and thus the additional cost of financing in local currency, is so high that it justifies a foreign exchange risk. In some countries, financing in local currency is not available at all.

Net investment hedges

DKK million	Hedging of investment, amount in local currency		Addition to net investment, amount in local currency		Total adjustment to other comprehensive income (DKK)
	2016	2015	2016	2015	2016	2015
RUB	-10,000	-	-	-	-133	-
CNY	-1,250	-1,250	-	-	-7	-122
MYR	-336	-336	-	-	-13	39
HKD	-	-	1,345	1,457	36	135
CHF	-330	-430	-	-	5	-289
GBP	-	-	75	77	-113	57
NOK	-	-	3,000	3,000	127	-143
SEK	-	-4,046	-	-	106	-108
SGD	-	-	84	167	5	56
Other	-	-	-	-	-1	-41
Total			-		12	-416

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 60

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 2016, the Group had net gains on foreign exchange and fair value adjustments of financial instruments of DKK 415m (2015: loss of DKK 110m), 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 2016, net interest-bearing debt decreased by DKK 46m (2015: decreased by DKK 256m) due to changes in foreign exchange rates.

Impact on other comprehensive income

For 2016, the total gains on net investments (Carlsberg's share), loans granted to subsidiaries as an addition to the net investment and net investment hedges amounted to DKK 5,585m (2015: losses of DKK 4,484m). Gains were primarily incurred in RUB, while CNY, UAH and PLN depreciated during the year, cf. section 4.1.

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 2016 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 on 31 December 2016, other comprehensive income would have been DKK 133m lower (2015: DKK 142m lower).

Applied exchange rates

DKK	Closing rate		Average rate
	2016	2015	2016	2015
Swiss franc (CHF)	6.9228	6.9008	6.8166	6.9994
Chinese yuan (CNY)	1.0156	1.0524	1.0125	1.0727
Euro (EUR)	7.4344	7.4625	7.4442	7.4595
Pound sterling (GBP)	8.6832	10.1119	9.1182	10.3102
Indian rupee (INR)	0.1040	0.1038	0.0999	0.1053
Laotian kip (LAK)	0.0009	0.0008	0.0008	0.0008
Norwegian krone (NOK)	0.8182	0.7761	0.8028	0.8350
Polish złoty (PLN)	1.6857	1.7600	1.7080	1.7895
Russian rouble (RUB)	0.1165	0.0938	0.1019	0.1143
Swedish krona (SEK)	0.7783	0.8122	0.7866	0.7982

Applied exchange rates

The DKK exchange rates applied for the most significant currencies when preparing the consolidated financial statements are presented above.

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.

Exchange rate sensitivity

DKK million
2016	EUR receivable	EUR payable	EUR borrowings	EUR cash	Gross exposure	Derivative	Net exposure	% change	Effect on P/L	2015 Effect on P/L
EUR/GBP	1,203	-731	-	194	666	-	666	5%	33	23
EUR/NOK	87	-735	-	6	-642	-	-642	5%	-32	-22
EUR/RUB	3	-189	-	2	-184	-	-184	10%	-18	-13
EUR/UZS	-	-	-245	5	-240	-	-240	10%	-24	-24
Total									-41	-36
2016	USD receivable	USD payable	USD borrowings	USD cash	Gross exposure	Derivative	Net exposure	% change	Effect on P/L	2015 Effect on P/L
USD/RUB	1	-	-	307	308	-	308	10%	31	20
USD/UAH	-	-52	-	179	127	-	127	10%	13	22
Total									44	42

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 61

SECTION 4.6

Interest rate risk

The most significant interest rate risk in the Group relates to borrowings. As the Group's net debt is primarily in EUR and DKK, the interest rate exposure relates to the development in the interest rates in these two currencies.

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 2016, the duration was 3.7 years (2015: 3.8). Interest rate risks are mainly managed using fixed-rate bonds. No interest rate swaps were in effect at 31 December 2016.

Interest rate risk

DKK million

2016	Interest rate	Average effective interest rate	Fixed for	Carrying amount	Interest rate risk
Issued bonds
EUR 1,000m maturing 13 October 2017	Fixed	3.55%	0-1 years	7,424	Fair value
EUR 750m maturing 3 July 2019	Fixed	2.58%	2-3 years	5,582	Fair value
EUR 750m maturing 15 November 2022	Fixed	2.71%	>5 years	5,546	Fair value
EUR 1,000m maturing 28 May 2024	Fixed	2.63%	>5 years	7,361	Fair value
Total issued bonds		2.90%		25,913
Total issued bonds 2015		3.11%		29,091
Mortgages
Floating-rate	Floating	0.72%	<1 year	420	Cash flow
Total mortgages		0.72%		420
Total mortgages 2015		1.02%		1,248
Bank borrowings
Floating-rate	Floating	3.7%	<1 year	2,178	Cash flow
Fixed-rate	Fixed	0.69%	>1 year	1,824	Fair value
Total bank borrowings and other borrowings				4,002
Total bank borrowings and other borrowings 2015				5,690

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, 76% of the net financial debt consisted of fixed-rate borrowings with interest rates fixed for more than one year (2015: 79%). It is estimated that a 1 percentage point interest rate increase would lead to an increase in annual interest expenses of DKK 64m (2015: DKK 69m). 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 978m (2015: DKK 1,245m), 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.

Net financial debt by currency

DKK million
2016	Net financial debt^{1}	Floating^{2}	Fixed^{3}	Floating^{2}	Fixed^{3}
EUR	18,207	-1,740	19,947	28%	72%
DKK	7,313	7,311	2	100%	0%
PLN	-172	-172	-	100%	0%
USD	2,922	2,922	-	100%	0%
CHF	1,715	1,715	-	100%	0%
RUB	-2,228	-2,228	-	100%	0%
Other	-924	-1,288	364	139%	-39%
Total	26,833	6,520	20,313	24.3%	75.7%
2015
EUR	19,536	-6,494	26,030	2%	98%
DKK	9,471	9,471	-	100%	0%
PLN	192	192	-	100%	0%
USD	2,222	2,222	-	100%	0%
CHF	3,090	3,090	-	100%	0%
RUB	-1,169	-1,169	-	100%	0%
Other	-399	-401	2	101%	-1%
Total	32,943	6,911	26,032	21%	79%

1Net financial debt consists of current and non-current items after currency derivatives less cash and cash equivalents.
2Net financial debt consists of current and non-current items less cash and cash equivalents.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 62

SECTION 4.6 (CONTINUED)

Interest rate risk

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 2015. The Group did not enter into new swaps during 2016.

The floating-rate mortgage was repriced in December 2016 at a rate of 0.07% (excl. margin) commencing in January 2017 and will be repriced again in July 2017. The time to maturity is more than five years. The floating-rate mortgage is repriced semi-annually with reference to 6-month CIBOR.

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 settlement of financial debt and paying suppliers. The Group's liquidity is managed by Group Treasury. The aim is to ensure effective liquidity management, which primarily 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, as these assets are not actively managed in relation to liquidity risk.

SECTION 4.8

Time to maturity for non-current borrowings

DKK million
2016	1-2 years	2-3 years	3-4 years	4-5 years	>5 years	Total
Issued bonds	-	5,582	-	-	12,907	18,489
Mortgages	-	-	-	-	420	420
Bank borrowings	1,058	18	16	12	10	1,114
Other non-current borrowings	20	1,079	-	-	15	1,114
Total	1,078	6,679	16	12	13,352	21,137
Total 2015	7,475	588	5,608	1	17,807	31,479

At 31 December 2016, net financial debt was DKK 26,833m (2015: DKK 32,943m).

At 31 December 2016, the Group had total unutilised credit facilities of DKK 19,388m (2015: DKK 16,836m), of which DKK 19,029m (2015: DKK 16,000m) was non-current credit facilities. Credit resources available consist of the unutilised non-current credit facilities and cash and cash equivalents of DKK 3,502m (2015: DKK 30,96m) less utilisation of current facilities of DKK 9,198m (2015: DKK 4,560m).

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 management and credit 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. As a result of withholding tax and local legislation, some of the majority-owned entities in Eastern Europe and Asia have their own credit facilities and borrowings from banks.

The table below lists the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of

Committed credit facilities and credit resources available

DKK million
	Total committed loans and credit facilities	Utilised portion of credit facilities	Unutilised credit facilities	Unutilised credit facilities
2016
<1 year	9,557	9,198	359	836
Total current committed loans and credit facilities	9,557	9,198	359	836
<1 year	-	-	-9,198	-4,560
1-2 years	1,447	1,078	369	-
2-3 years	6,679	6,679	-	873
3-4 years	16	16	-	-
4-5 years	18,672	12	18,660	-
>5 years	13,352	13,352	-	15,128
Total non-current committed loans and credit facilities	40,166	21,137	9,831	11,441
Cash and cash equivalents			3,502	3,096
Credit resources available (total non-current committed loans and credit facilities - net debt)			13,333	15,373

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 63

SECTION 4.7 (CONTINUED)

Liquidity risk

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 172m higher (2015: DKK 148m 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 2016.

The cash flow is estimated based on the notional amount of the above-mentioned borrowings and expected interest rates at year-end 2016 and 2015. Interest on debt recognised at year-end 2016 and 2015, for which no contractual obligation exists (current borrowing and cash pools), has been included for a two-year period.

SECTION 4.8

Financial instruments

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. The adjustments are included in financial income and financial expenses, cf. section 4.1. In 2016, fair value adjustments amounted to DKK 564m (2015: DKK 68m).

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 2016, DKK 65m related to the Group's aluminium hedging scheme (2015: DKK -58m) and DKK 9m related to foreign exchange hedges (2015: DKK -24m). The ineffective portion regarding aluminium relates to hedged transactions that are expected to take place in 2017.

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.

Maturity of financial liabilities

DKK million

2016	Contractual cash flows	Maturity <1 year	Maturity >1 year <5 years	Maturity >5 years	Carrying amount
Derivative financial instruments
Derivative financial instruments, payables	255	255	-	-	214
Non-derivative financial instruments
Gross financial debt	30,507	9,209	7,843	13,455	30,335
Interest expenses	2,950	710	1,751	489	N/A
Trade payables and other liabilities	15,239	15,239	-	-	15,239
Liabilities related to the acquisition of entities	3,027	-	3,027	-	3,027
Non-derivative financial instruments	51,723	25,158	12,621	13,944	-
Financial liabilities	51,978	25,413	12,621	13,944	-
Financial liabilities 2015	56,954	20,298	17,562	19,094	-

Fair value hedges and financial derivatives not designated as hedging instruments (economic hedges)

DKK million	Fair value adjustment recognised in the income statement	Fair value
2016
Exchange rate instruments	486	285
Other instruments	4	2
Ineffectiveness	74	-
Total	564	287
2015
Exchange rate instruments	154	-179
Other instruments	-4	-4
Ineffectiveness	-82	-
Total	68	-183

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 64

SECTION 4.8 (CONTINUED)

Financial instruments

Cash flow hedges comprise aluminium hedges where the hedged item is aluminium cans that will be used in a number of Group entities in Western Europe and Eastern Europe during 2017 and currency swaps entered to cover the foreign exchange risk on transactions expected to take place in 2017 and 2018.

The fair value of cash flow hedges recognised at 31 December 2016 includes the ineffective portion of the financial instruments designated as cash flow hedges. This does not include the value of cash flow hedges closed and not yet transferred to the income statement.

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).

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
2016	Fair value adjustment recognised in other comprehensive income	Fair value	Expected recognition
Interest rate instruments	1	-	N/A
Exchange rate instruments	-11	-37	2017-2018
Other instruments	139	83	2017
Total	129	46
2015
Interest rate instruments	52	-	N/A
Exchange rate instruments	26	-25	2016-2017
Other instruments	-99	-121	2016-2017
Total	-21	-146

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 hedge instruments is assessed at least quarterly.

Fair values of derivative financial instruments are computed 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 if 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 in the statement of financial position at fair value on the trade date and subsequently measured at fair value. Attributable transaction costs are recognised in the income statement.

The fair values of derivative financial instruments are included in other receivables and other payables, and positive and negative values are offset only when the Group has the right and the intention to settle several financial instruments net. Fair values of derivative financial instruments are computed on the basis of current market data and generally accepted valuation methods.

Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as a fair value hedge of recognised assets and liabilities 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 portion of the fair value of derivative financial instruments that are designated and qualify as a cash flow hedge and that effectively hedge changes in the value of the hedged item are recognised in other comprehensive income and attributed to 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 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 attributed to a separate translation reserve in equity.

SECTION 5

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 65

Acquisitions, disposals, associates and joint ventures

2.0bn

In gains on disposal of entities recognised in special items.

2.6bn

In net cash proceeds from disposal of entities included in cash flow from investments.

SECTION 5.1

Acquisitions and disposals

Acquisition of entities in 2016

In 2016, the Group gained control of two entities that individually and collectively are not material to the Group. The purchase price allocation has been completed for one of the entities, while the other has been recognised at provisional values at 31 December 2016. Goodwill amounted to DKK 249m.

Acquisition of entities in 2015

In 2015, the Group gained control of Olympic Brewery SA (Greece) through the completion of a merger with Carlsberg's wholly owned subsidiary Mythos Brewery SA, leaving the Group with a 51% ownership interest in the combined Olympic Brewery. The fair values of the identifiable assets and liabilities at the date of acquisition were provisionally estimated and disclosed in the Annual Report for 2015. In 2016, the provisional values were finalised, leading to a DKK 45m increase in deferred income and a corresponding DKK 45m increase in goodwill. Comparative figures have not been restated.

Disposal of entities in 2016

The restructuring of the Group's Chinese activities in Chongqing and Eastern Assets continued in 2016, resulting in the disposal of nine entities comprising brewing and malting activities. Most of the breweries had been closed before the disposals.

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 is recognised in the statement of equity. The cash flows were recognised accordingly and amounted to approximately DKK 200m, net.

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 other minor entities.

The disposals were part of the structural changes under the Funding the Journey programme, and all related to non-core assets.

Entities disposed of

DKK million	2016
Non-current assets	651
Current assets	995
Non-current liabilities	-156
Current liabilities	-630
Net assets of entities disposed of	860
Non-controlling interests	-83
Net assets of entities disposed of, attributable to Carlsberg	777
Recycling of cumulative exchange differences	263
Directly attributable expenses	7
Gain on disposal, net, recognised in special items, cf. section 3.1	2,040
Prepayment received in prior period	-25
Cash consideration received, cf. section 5.2	3,062

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 66

SECTION 5.1 (CONTINUED)

Acquisitions and disposals

Disposal of entities in 2015

As a result of changes to the shareholder agreement for Myanmar Carlsberg Co. Ltd, the company was deconsolidated as of 1 January 2015 and recognised as an associate.

In 2015, the Group disposed of a dormant subsidiary in the Xinjiang Wusu Group, China, and its 70% shareholding in Luen Heng F&B Sdn. Bhd., Malaysia.

The disposals and the deconsolidation resulted in a net loss of DKK 1m, which was recognised in special items.

Accounting estimates and judgements

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 casting votes, rights or exclusively reserved matters.

Accounting policies

For acquisition of new 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 Carlsberg Breweries 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 Carlsberg Breweries 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 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 in the income statement under special items.

SECTION 5.2

Cash flow effect from acquisitions and disposals

The cash flow from acquisition and disposal of entities comprises the cash consideration paid/received net of cash and cash equivalents acquired/disposed of with the entities.

Elements of cash consideration paid and received

DKK million	2016	2015
Cash consideration received/paid, associates	642	-6
Cash and cash equivalents acquired/disposed of	-210	-84
Cash consideration received/paid, subsidiaries	2,179	51
Total cash consideration received, net	2,611	-39
- of which consideration received for entities	3,062	51

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 67

SECTION 5.3

Non-controlling interests

The Group has entities, primarily in Asia, that are not wholly owned.

Non-controlling interests' share of profit for the year

DKK million	2016	2015
Lao Brewery	288	280
Carlsberg Malaysia Group	173	182
Chongqing Brewery Group	-164	-120
Asia, other	63	-8
Other regions	11	10
Total	371	344

Contingent considerations

The fair value of contingent considerations is estimated using generally accepted valuation methods, including discounted cash flows and multiples, in accordance with the agreements entered into with non-controlling interests. Estimates are based on updated information since initial recognition of the contingent consideration, including new budgets and sales forecasts, discount rates etc.

The total fair value adjustment recognised in 2016 amounted to DKK 1,011m (2015: DKK 367m). Of this, the fair value adjustment of contingent considerations for acquisitions completed before 1 January 2010 amounted to DKK 6m (2015: DKK 19m), 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 Breweries 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 Breweries 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 5.4

Associates and joint ventures

Investments in associates and joint ventures increased compared with 2015, primarily due to capital increases and a minor acquisition of additional shareholdings, in total DKK 52m. The increase was partially offset by a minor disposal and the classification of two associates as assets held for sale. Both are expected to be disposed of in 2017.

The disposal of Xinjiang Hops had no impact on the carrying amount of associates, as the investment had been written down in prior years.

As a result of changes to the shareholder agreement for Myanmar Carlsberg Co. Ltd, the

Transactions with non-controlling interests

DKK million	Attributable to shareholders in Carlsberg Breweries A/S	Attributable to non-controlling interests
2016
Consideration paid for acquisition of non-controlling interests	-399	-
Proportionate share of equity acquired from non-controlling interests	597	-597
Fair value adjustment of contingent considerations	-1,005	-
Recognised in equity	-807	-597
2015	105	91

Transactions with non-controlling interests comprise transactions with shareholdings in:
2016: Xinjiang Wusu Breweries, Carlsberg South Asia Pte Ltd and Olympic Brewery SA.
2015: Carlsberg South Asia Pte Ltd, PJSC Carlsberg Ukraine, Luen Heng F&B Sdn. Bhd, Chongqing Brewery Co., Ltd and Olympic Brewery SA.

Key figures for associates and joint ventures

DKK million	Carlsberg Breweries Group share
	Profit after tax	Other comprehensive income	Total comprehensive income	Investments in associates and joint ventures
Associates	175	-	175	3,049
Joint ventures	104	-	104	1,201
	279	-	279	4,250
2015
Associates	220	-3	217	3,066
Joint ventures	183	-	183	1,157
	403	-3	400	4,223

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 68

SECTION 5.4 (CONTINUED)

Associates and joint ventures

Group lost control in January 2015 but retained significant influence. Consequently, the company was deconsolidated and recognised as an associate from 2015.

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.

None of the associates and joint ventures are material to the Group.

Fair value of investment in listed associates

DKK million	2016	2015
The Lion Brewery Ceylon, Biyogama, Sri Lanka	439	600

Contingent liabilities

The Group did not issue any guarantees for loans etc. raised by associates and joint ventures in 2016 or 2015.

Accounting policies

The proportionate share of the results of associates and joint ventures after tax is recognised in the consolidated income statement after elimination of the proportionate share of unrealised intra-group profits/losses.

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.

On acquisition of investments in associates and joint ventures, the acquisition method is used, cf. section 5.1.

SECTION 5.5

Assets and liabilities held for sale

Assets and liabilities held for sale primarily comprise Carlsberg Uzbekistan and two associates, both of which are expected to be disposed of in 2017. The transactions are in line with the Group's ambition of disposing of non-core assets, improving the return on invested capital and reducing the financial leverage.

Assets and liabilities held for sale

DKK million	2016	2015
Assets
Property, plant and equipment	61	194
Deferred tax assets	-	6
Inventories	15	149
Trade receivables	-	103
Other current assets	29	10
Total assets in a disposal group classified as held for sale	105	462
Assets classified as held for sale	20	7
Total assets held for sale	125	469
Liabilities
Deferred tax liabilities	-	11
Provisions	-	1
Borrowings	-	1
Trade payables	-	44
Corporation tax	-	15
Other liabilities	15	16
Total liabilities held for sale	15	88

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.

In 2015, assets held for sale, DKK 469m, consisted primarily of Danish Malting Group, which was disposed of in 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 or 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

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements

Tax

Tax 2,402m

Up from DKK 917m in 2015.

Tax rate 32.8%

Negatively impacted by the outcome of tax dispute and valuation allowances on tax losses.

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 32.8% was negatively impacted, mainly by the lost tax case in Finland in 2016. The tax expense related to this is non-recurring and had no impact on cash flow. Valuation allowances on tax losses also impacted negatively.

The tax rate in 2015 of -67.5% was negatively impacted by the impairment of intangible assets and property, plant and equipment in Baltika Breweries, Eastern Assets, Chongqing Brewery Group and Carlsberg UK, which was recognised in special items.

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.

No prior-year adjustments are included in the tax income/ expense for hedging instruments in 2016 or 2015.

Accounting policies

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 other 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.

Reconciliation of the effective tax rate for the year

	2016		2016
	%	DKK million	%	DKK million
Nominal weighted tax rate	21.7%	1,592	20.8%	-283
Change in tax rate	-1.1%	-81	0.4%	-6
Adjustments to tax for prior years	2.3%	170	3.3%	-47
Non-capitalised tax assets, net movements	7.4%	543	-24.7%	336
Non-taxable income	-	-	-1.2%	16
Non-deductible expenses	3.5%	256	-17.3%	235
Tax incentives etc.	-0.8%	-56	5.9%	-80
Special items	-2.5%	-184	-53.9%	734
Withholding taxes	3.7%	268	-11.1%	151
Other and tax in associates and joint ventures	-1.4%	-106	10.3%	-139
Effective tax rate for the year	32.8%	2,402	-67.5%	917

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 70

SECTION 6.2

Deferred tax

Of the total deferred tax assets recognised, DKK 609m (2015: DKK 801m) 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, DKK 1,287m (2015: DKK 1,826m), 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 462m (2015: DKK 541m).

Deferred tax of DKK 113m (2015: DKK 32m) 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 (2015: 0m).

Corporation tax

DKK million	2016			2015
	Income statement	Other comprehensive income	Total comprehensive income	Income statement	Other comprehensive income	Total comprehensive income
Tax for the year can be specified as follows
Current tax	2,679	18	2,697	1,747	-34	1,713
Change in deferred tax during the year	-373	-40	-413	-777	-133	-910
Change in deferred tax as a result of change in tax rate	-74	2	-72	-6	7	1
Adjustments to tax for prior years	170	-	170	-47	-	-47
Total	2,402	-20	2,382	917	-160	757

Tax recognised in other comprehensive income

DKK million	2016			2015
	Recognised item before tax	Tax income/ expense	After tax	Recognised item before tax	Tax income/ expense	After tax
Foreign exchange adjustments	5,843	-	5,843	-3,824	-	-3,824
Hedging instruments	141	-30	111	-437	76	-361
Retirement benefit obligations	-954	54	-900	-333	84	-249
Share of other comprehensive income in associates and joint ventures	-	-	-	-3	-	-3
Other	-	-4	-4	-	-	-
Total	5,030	20	5,050	-4,597	160	-4,437

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 71

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.

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 end of the reporting period 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	2016	2015
Deferred tax at 1 January, net	3,771	5,204
Adjustments to prior years	44	-6
Acquisition and disposal of entities	61	19
Recognised in other comprehensive income	-40	-133
Recognised in the income statement	-373	-777
Change in tax rate	-72	1
Foreign exchange adjustments	735	-532
	4,126	3,776
Deferred tax assets and liabilities classified as held for sale	-	-5
Deferred tax at 31 December, net	4,126	3,771
Recognised as follows
Deferred tax liabilities	5,585	5,262
Deferred tax assets	-1,459	-1,491
Deferred tax at 31 December, net	4,126	3,771

Specification of deferred tax

DKK million	Deferred tax assets		Deferred tax liabilities
	2016	2015	2016	2015
Intangible assets	446	371	4,411	3,931
Property, plant and equipment	349	365	1,908	1,891
Current assets	141	182	60	23
Provisions and retirement benefit obligations	1,248	783	195	83
Fair value adjustments	154	164	10	10
Tax losses etc.	1,351	1,305	1,230	1,003
Total before set-off	3,689	3,170	7,814	6,941
Set-off	-2,230	-1,679	-2,229	-1,679
Deferred tax assets and liabilities classified as held for sale	-	-6	-	-11
Deferred tax assets and liabilities at 31 December	1,459	1,491	5,585	5,262
Expected to be used as follows
Within 12 months after the end of the reporting period	295	349	1,149	1,012
More than 12 months after the end of the reporting period	1,164	1,142	4,436	4,250
Total	1,459	1,491	5,585	5,262

SECTION 7

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 72

Staff costs and remuneration

Pensions

Defined benefit obligations decreased due to an additional cash contribution to the Group's pension fund in the UK. The effect of the contribution exceeded the net effect from the decrease in the discount rate and the depreciation of GBP.

41,985

The average number of employees decreased by 5,397, mainly as a result of brewery closures in China.

SECTION 7.1 Staff costs

The average number of employees decreased, driven by brewery closures in China during 2016. The brewery closures impacted approximately 3,400 employees. The layoff of approximately 2,280 employees in 2015 and 2016, due to the implementation of the operating expense efficiency programme, had an effect of approximately 1,000 on the 2016 average headcount compared with the average for 2015. Furthermore, the disposal of Danish Malting Group, Carlsberg Malawi and Carlsberg Vietnam Breweries - Vung Tau impacted the average headcount for 2016 by around 700 employees.

Employees By region (%)

Western Europe 33%
Eastern Europe 25%
Asia 40%
Other 2%

By function (%)

Production 35%
Distribution 19%
Sales & Marketing 36%
Administration 10%

Staff costs

DKK million	2016	2015
Salaries and other remuneration	7,995	8,631
Severance payments	505	189
Social security costs	1,359	1,412
Retirement benefit costs – defined contribution plans	269	182
Retirement benefit costs – defined benefit plans	310	262
Share-based payments	50	88
Other employee benefits	74	251
Total	10,562	11,015
Average number of employees	41,985	47,382
Staff costs are included in the following items in the income statement
Cost of sales	2,689	2,908
Sales and distribution expenses	5,347	5,555
Administrative expenses	2,202	2,355
Other operating activities, net	1	-
Special items (restructurings)	323	197
Total	10,562	11,015

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 73

SECTION 7.2

Remuneration

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. These programmes and schemes cover a number of years.

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 2016, the CEO and the new CFO were entitled to bonuses of a minimum of 60% and 100% of their respective fixed salaries.

For 2017, the potential maximum bonus will remain at 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 to key management personnel was higher than in 2015 as a result of severance payments to former employees and the introduction of the Funding the Journey cash plan with scheduled payout after two years in the spring of 2018, whereas the former share-based incentive schemes had a three-year vesting period.

In respect of other benefits and bonus schemes, the remuneration of CEOs in subsidiaries is based on local terms and conditions.

In 2015, former President & CEO Jørgen Buhl Rasmussen and former Deputy CEO & CFO Jørn P. Jensen retired and received severance payments totalling DKK 93m, of which share-based payments amounted to DKK 44m. As part of the severance payments outstanding performance shares at a value of DKK 28m were settled in cash. The severance payments were recognised in special items.

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 comprise wages and salaries, social security contributions, paid leave and sick leave, and bonuses and other employee benefits and are recognised in the financial year in which the employee renders the related service. Further, 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.

DKK million	Executive directors					Key management personnel		Supervisory Board
	2016	2015	Heine Dalsgaard^{1} 2016	Jørgen Buhl Rasmussen 2015	Jørn P. Jensen^{1} 2015	2016	2015	2016	2015
Fixed salary	12.0	7.0	4.2	5.1	7.3	35.7	38.0	8.92	8.76
Cash bonus	10.0	4.2	7.3	3.1	4.3	11.2	11.4	-	-
Special bonus^{1}	-	5.8	11.9	-	-	-	-	-	-
Severance payments	-	-	-	23.9	25.2	29.5	4.0	-	-
Non-monetary benefits	1.3	0.5	0.2	0.2	0.2	5.7	4.5	-	-
Funding the Journey cash plan	-	-	-	-	-	20.7	-	-	-
Share-based payments^{2}	12.8	2.5	1.9	32.0	24.6	5.2	6.0	-	-
Total	36.1	20.0	25.5	64.3	61.6	108.0	63.9	8.92	8.76

Special bonus covering remuneration waived from previous employer.
Includes accelerated cost of share-based payments granted to Jørgen Buhl Rasmussen and Jørn P. Jensen before retirement.
The remuneration of Heine Dalsgaard and Jørn P. Jensen was recognised in the parent company Carlsberg A/S and is therefore not included in the staff cost disclosed in the consolidated financial statements for Carlsberg Breweries Group.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 74

SECTION 7.3 Share-based payments

The Carlsberg Breweries 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 Breweries A/S' Supervisory Board.

In 2016, three different equity-settled awards were granted to the Executive Board: share options, regular performance shares and Funding the Journey performance shares. Funding the Journey performance shares vest subject to the achievement of the strategic measures in Funding the Journey and were only awarded in 2016.

CFO Heine Dalsgaard received a special grant of regular and Funding the Journey performance shares equal to 200% of his full-year base salary.

In 2015, President & CEO Cees 't Hart received a special grant of share options at a value equal to 150% of his full-year base salary.

In May 2016, 25,049 regular performance shares awarded in 2013 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

For share options granted after 1 January 2015, the volatility is based on the historical volatility of the price of Carlsberg Breweries A/S' class B shares over the previous eight years. From 1 January 2010 up 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 Breweries 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 of DKK 9.00 per share (2015: DKK 9.00 per share) divided by the share price. The fair value at 31 December 2016 has been calculated by applying an expected dividend of DKK 9.00 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.

General terms and conditions

	Share options		Regular performance shares		Funding the Journey performance shares
	2016	2015	2016	2015	2016
Granted during the year	17,650	230,889	25,079	327,673	37,242
Number of employees	1	3	2	317	2
DKK million
Fair value at grant date	2	42	13	135	22
Cost of share-based payment granted in the year recognised in the income statement	1	27	3	30	5
Total cost of share-based payments granted 2013-2016 (2012-2015)	7	46	40	67	5
Not recognised in respect of share-based payments expected to vest	11	15	34	70	17
Fair value of outstanding options and performance shares at 31 December	69	161	114	118	22

Accounting policies

The fair value of equity-settled programmes is measured at the grant date and recognised in the income statement 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 Breweries A/S' class B shares on Nosdaq Copenhagen during the first five trading days after publication of Carlsberg Breweries 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.

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.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 75

SECTION 7.3 (CONTINUED)

Share-based payments

Share-based incentive programmes

	Exercise price					Number
	Fixed, weighted average	Executive directors	Key management personnel	Other management personnel	Resigned employees	Total
Share options
Share options outstanding at 31 December 2014	463.85	581,828	50,250	133,280	163,340	928,698
Granted	524.58	230,889	-	-	-	230,889
Forfeited/expired	472.11	-	-	-929	-11,211	-12,140
Exercised	397.45	-24,776	-	-54,115	-238,543	-317,434
Transferred	485.48	-690,607	-35,356	-10,536	736,499	-
Share options outstanding at 31 December 2015	360.10	97,334	14,894	67,700	650,085	830,013
Granted	597.60	17,650	-	-	-	17,650
Forfeited/expired	516.42	-	-	-7,433	-55,126	-62,559
Exercised	476.56	-	-	-37,462	-275,615	-313,077
Transferred	439.48	-	-6,200	-1,900	8,100	-
Share options outstanding at 31 December 2016	248.66	114,984	8,694	20,905	327,444	472,027
Regular performance shares
Performance shares outstanding at 31 December 2014		8,609	7,704	46,534	1,018	63,865
Granted		15,312	52,516	259,845	-	327,673
Forfeited/expired/adjusted		-	-19,159	-99,700	568	-118,291
Exercised/settled		-23,921	-	-	-	-23,921
Transferred		-	-5,251	-7,817	13,068	-
Performance shares outstanding at 31 December 2015		-	35,810	198,862	14,654	249,326
Granted		25,079	-	-	-	25,079
Forfeited/expired/adjusted		-	-3,471	-20,063	4,369	-19,165
Exercised/settled		-	-2,396	-18,172	-4,481	-25,049
Transferred		-	-15,327	1,340	13,987	-
Performance shares outstanding at 31 December 2016		25,079	14,616	161,967	28,529	230,191
Funding the Journey performance shares
Exercised		37,242	-	-	-	37,242
Performance shares outstanding at 31 December 2016		37,242	-	-	-	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.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 76

SECTION 7.3 (CONTINUED)

Share-based payments

Key information

	Share options		Regular performance shares		Funding the Journey performance shares
	2016	2015	2016	2015	2016	2015
Average share price at the exercise date	630	587	-	-	-	-
Weighted average contractual life for awards outstanding at 31 December	5.9	4.5	1.1	1.9	2.2	-
Range of exercise prices for share options outstanding at 31 December	203.50-597.60	203.50-583.10	-	-	-	-
Exercisable outstanding share options at 31 December	128,488	413,124	None	None	None	None
Weighted average exercise price for exercisable share options at 31 December	482	463	-	-	-	-
Assumptions
Exercise price	597.60	503.00/540.30	None	None	None	No grant
Expected volatility	26%	38%	24%/23%	21%	-	-
Risk-free interest rate	0.0%	0.5% / 0.0%	0.0%	0.0%	0.0%	-
Expected dividend yield	1.5%	1.7%	1.5%/1.4%	1.7%	1.5%/1.4%	-
Expected life of options, years	8.0	8.0	3.0/2.5	3.0	3.0/2.5	-
Fair value at measurement date	121.89	184.93/180.17	523.37/528.36	411.23	583.61/603.07	-
Terms and conditions
Years granted	2001-2016		Since 2013		Only 2016
Settlement features	Each share option entitles the holder to purchase one class B share in Carlsberg Breweries A/S. The Group has not purchased a significant number of treasury shares to meet 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.
Timing of valuation of award	Immediately following the publication of the Annual Report for the Group for the prior reporting period.		Immediately following the publication of the Annual Report for the Group for the prior reporting period.		Immediately following the publication of the Annual Report for the Group for the prior reporting period.
Vesting conditions	3 years of service.		3 years of service and achievement of 3 (2015: 4) KPIs in the vesting period.		3 years of service and achievement of the Funding the Journey financial targets.
Earliest time of exercise	3 years from grant date.		-		-
Latest time of exercise	8 years from grant date.		Shares are transferred to the employee immediately after they have vested.		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 Breweries A/S' capital resources.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 77

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, legal requirements, tax legislation and economic 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.

The future retirement obligation is primarily based on seniority and salary at the point of retirement.

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity independent of the Group and will have no legal or constructive obligation to pay further amounts.

Approximately 46% (2015: approximately 41%) of the Group's retirement benefit costs relates to defined contribution plans. The cost related to these plans amounted to DKK 269m for 2016 (2015: DKK 182m).

Defined benefit plans

The defined benefit plans typically guarantee the employees covered a retirement benefit based on the salary at the time of retirement. For defined benefit plans, the Group assumes the risk associated with future developments in interest rates, inflation, mortality and disability etc.

The majority of the obligations are funded, with assets placed in independent pension funds in, for example, Switzerland, the UK and Hong Kong.

In some countries, primarily Germany, Sweden and Italy, the obligation is unfunded. For these unfunded plans, the retirement benefit obligations amounted to DKK 1,882m for 2016 (2015: DKK 1,895m) or approximately 13% (2015: 14%) of the total gross liability.

Obligation, net

DKK million	2016			2015
	Present value of obligation	Fair value of plan assets	Obligation, net	Present value of obligation	Fair value of plan assets	Obligation, net
Obligation at 1 January	14,229	9,034	5,195	12,886	8,302	4,584
Recognised in the income statement
Current service cost	310	-	310	276	-	276
Interest cost	296	-	296	349	-	349
Expected return on plan assets	-	173	-173	-	204	-204
Curtailments and settlements	-	-	-	-14	-	-14
Total	606	173	433	611	204	407
Remeasurements
Gain/loss from changes in actuarial assumptions	-84	-	-84	95	-	95
Gain/loss from changes in financial assumptions	1,561	523	1,038	205	-33	238
Total	1,477	523	954	300	-33	333
Other changes
Contributions to plans	-	1,232	-1,232	-	296	-296
Benefits paid	-643	-491	-152	-558	-467	-91
Disposals of entities	-46	-	-46	-	-	-
Transfers	80	60	20	-33	-16	-17
Foreign exchange adjustments etc.	-931	-596	-335	1,023	748	275
Obligation at 31 December	14,772	9,935	4,837	14,229	9,034	5,195

The total return on plan assets for the year amounted to DKK 696m (2015: DKK 171m).

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 78

SECTION 7.4 (CONTINUED)

Retirement benefit obligations and similar obligations

During 2016, the defined benefit plan in the UK was impacted by the Brexit referendum, which led to an increase in the obligation of approximately DKK 1.4bn due to lower interest rates. In DKK, this development was partly offset by a foreign exchange difference of approximately DKK 0.9bn. The increase in the deficit led to an extra cash contribution of GBP 100m in December 2016.

The Group expects to contribute DKK 76m (2015: DKK 218m) to the plan assets in 2017.

Plan assets do not include shares in or properties used by Group companies.

The actuarial loss and foreign exchange adjustment recognised in other comprehensive income amounted to DKK -619m (2015: DKK -608m). The development in the foreign exchange rate was mainly affected by the depreciation of GBP.

The accumulated actuarial loss and foreign exchange adjustment recognised at 31 December 2016 was DKK -4,860m (2015: DKK -4,241m), of which actuarial losses, net, totalled DKK 4,750m (2015: DKK 3,796m).

The two most significant plans in the Group are in the UK and Swiss entities. The UK represented 46% (2015: 44%), Switzerland 40% (2015: 41%) and the eurozone countries 5% (2015: 6%) of the gross obligation at 31 December 2016.

7.4.1 Assumptions applied

The mortality tables used in Carlsberg UK are S1PMA/S1PFA tables for post-retirement and AMC00/AFC00 for pre-retirement, both with CMI_2013 projections, while the Swiss entities use the BVG 2015/GT 2015 (KJ) mortality table for valuation of their retirement obligations.

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 assumptions vary from country to country due to local economic and labour market conditions.

The present value of the net obligation is calculated using the expected long-term interest rate in each country, where available, based on long-term government bonds.

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.

Breakdown of plan assets

	2016		2015
	DKK million	%	DKK million	%
Shares	2,767	28%	2,745	30%
Bonds and other securities	4,116	41%	4,073	45%
Real estate	2,095	21%	1,950	22%
Cash and cash equivalents	957	10%	266	3%
Total	9,935	100%	9,034	100%

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 79

SECTION 7.4 (CONTINUED)

Retirement benefit obligations and similar obligations

7.4.2 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 retirement benefit obligation.

Expected maturity and duration

Retirement benefit obligations are primarily expected to mature after five years.

The expected duration of the obligations at year-end 2016 was 19 years, comprising active employees at 25 years and retired employees at 15 years. The duration is calculated using a weighted average of the duration compared with the benefit obligation.

Sensitivity analysis

DKK million	2016	2015
Reported retirement benefit obligation	14,772	14,229
Discount rate
Discount assumption +0.5%	-1,786	-1,779
Discount assumption -0.5%	2,066	2,011
Growth in wages and salaries
Wages and salaries assumption +0.5%	758	817
Wages and salaries assumption -0.5%	-723	-809
Mortality
Mortality assumption +1 year	905	939
Mortality assumption -1 year	-870	-866

Maturity of retirement benefit obligations

DKK million	<1 year	1-5 years	>5 years	Total
Retirement benefits	447	2,096	23,583	26,169

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 obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefits that employees have earned in return for their service in the current and prior years. The future benefits are discounted to determine the present value. The calculation is performed annually by a qualified actuary.

The present value is determined on the basis of assumptions about the future development in variables such as salary levels, interest rates, inflation and mortality. The actuarial present value less the fair value of any plan assets is recognised in the statement of financial position under retirement benefit obligations.

Retirement benefit costs for the year are recognised in the income statement based on actuarial estimates and financial expectations at the beginning of the year. Any differences between the expected 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 changes in benefits relating to services rendered by employees in prior years result in changes in the actuarial present value, the changes are recognised as historical costs. Historical costs are recognised immediately, provided employees have already earned the changed benefits. If employees have not earned the benefits, the historical costs are recognised in the income statement over the period in which the changed benefits are earned by the employees.

If a retirement benefit plan constitutes a net asset, the asset is only recognised if it offsets future refunds from the plan or will lead to reduced future payments to the plan.

Interest on retirement benefit obligations and the expected return on plan assets are recognised under financial income or financial expenses.

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 in the income statement under special items.

Realised gains and losses on the curtailment or settlement of retirement benefit plans are recognised in the income statement under staff costs.

SECTION 8

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 80

Other disclosure requirements

SECTION 8.1 Related party disclosures

Related parties exercising control

Carlsberg A/S, Ny Carlsberg Vej 100, DK, 1799 Copenhagen V, Denmark, holds all the shares in Carlsberg Breweries A/S. During the year, the Group had balances with the parent company.

The following transactions took place between the Carlsberg Foundation (as the ultimate Parent Company) and the Carlsberg Breweries Group in 2016:

Carlsberg Breweries A/S leases storage facilities in the Researcher Apartments. The annual lease, DKK 172 thousand, and the lease terms are on market conditions.

Carlsberg Breweries Group of these rights corresponds to the value of the services provided to the Foundation, which again corresponds to what each party would have had to invest if having the same deliverables provided by external parties, excluding the additional work that the Carlsberg Breweries Group will have to include for use of the brand rights for its own commercial purposes.

Related parties exercising significant influence

Related parties exercising significant influence comprise Carlsberg Breweries A/S' Supervisory Board, Executive Board and close family members. Related parties also comprise companies in which these persons have significant influence.

During the year, the Group was not involved in any transactions with major shareholders, members of the Supervisory Board, members of the Executive Board or companies outside the Group in which these parties have significant influence, except for remuneration to the Supervisory Board and the Executive Board as disclosed in section 7.2.

Related parties also include the Group's associates and joint ventures.

The income statement and the statement of financial position include the following transactions

DKK million	2016	2015
Associates and joint ventures
Revenue	104	120
Cost of sales	-230	-203
Loans	300	85
Receivables	90	67
Trade payables and other liabilities etc.	-18	-14

SECTION 8.2 Fees to auditors

Fees to auditors appointed by the Annual General Meeting

DKK million	2016	2015
KPMG
Statutory audit	21	22
Assurance engagements	1	1
Tax advisory	3	2
Other services	9	7

Other services include fees for advice and services in relation to acquisition and disposal of entities, including accounting and tax advice.

SECTION 8.3 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.

SECTION 9

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements

Basis for preparation

Change in presentation from 2017

Carlsberg Supply Company included in Western Europe segment.

Change in calculation of ROIC from 2017

Alignment of internal and external ROIC measures.

SECTION 9.1

Significant accounting estimates and judgements

In preparing the Group's 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. These estimates and judgements may therefore prove incomplete or incorrect, and unexpected events or circumstances may arise.

The most significant accounting estimates and judgements made relate to the following areas:

Impairment testing	Section 2
Useful life and residual value of intangible assets with finite useful life and property, plant and equipment	Section 2
Restructurings	Section 3
Provisions and contingencies	Section 3
Receivables	Section 1
Deferred tax assets	Section 6
Retirement benefit obligations and similar obligations	Section 7
Acquisitions and disposals	Section 5

SECTION 9.2

General accounting policies

The Group's 2016 consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 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.

The consolidated financial statements are prepared on a historical cost basis except for the following assets and liabilities measured at fair value: derivative financial instruments, financial instruments in the trading portfolio and financial instruments classified as available for sale.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 82

SECTION 9.2 (CONTINUED)

General accounting policies

All assets and liabilities measured or disclosed at fair value in the financial statements are categorised within the fair value hierarchy. The Carlsberg Breweries 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). The methods and assumptions applied to determine the fair value of derivative financial instruments, loans and borrowings and on-trade loans on the basis of level 2 input are disclosed in the relevant sections. The carrying amount of other financial assets and liabilities approximates their fair value.

Non-current assets and disposal groups classified as held for sale are measured at the lower of the carrying amount before the changed classification and fair value less costs to sell.

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 Carlsberg Breweries Group business model, including research, real estate, geographical diversity etc., are also presented in the financial statements.

Basis of consolidation

The consolidated financial statements comprise the Parent Company, Carlsberg Breweries A/S, and its subsidiaries.

Control over an entity is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group 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 a 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. When assessing whether Carlsberg Breweries A/S exercises control or significant influence, potential voting rights exercisable at the end of the reporting period are taken into account. 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.

The consolidated financial statements are prepared as a consolidation of the financial statements of the Parent Company and subsidiaries according to the Group's accounting policies.

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.

Investments in subsidiaries are set off against the proportionate share of the subsidiaries' fair value of identifiable net assets, including recognised contingent liabilities, at the acquisition date.

The accounting items of subsidiaries are included in full in the consolidated financial statements. Non-controlling interests' share 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 during 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 in the income statement as financial income or financial expenses.

Receivables, payables and other monetary items denominated in foreign currencies are translated at the exchange rates at the end of the reporting period. The difference between the exchange rates at the end of the reporting period and at the date at which the receivable or payable arose or the exchange rate in the latest consolidated financial statements is recognised in the income statement 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 Breweries 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 end of the reporting period. An average exchange rate for the month is used as the exchange rate 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

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 83

SECTION 9.2 (CONTINUED)

General accounting policies

translation of the opening balance of equity of foreign entities at the exchange rates at the end of the reporting period, and on translation of the income statement from the exchange rates at the transaction date to the exchange rates at the end of the reporting period, 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 the consolidated financial statements in other comprehensive income if the balance is denominated in the functional currency of the Parent Company or the foreign entity. 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 Breweries 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 Breweries

A/S, 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 end of the reporting period. 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 end of the reporting period, 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 end of the reporting period, 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.

Prior to translation of the financial statements of foreign entities in countries with hyperinflation, the financial statements are inflation-adjusted for changes in purchasing power in the local currency. Inflation adjustment is based on relevant price indexes at the end of the reporting period.

Income statement and statement of financial position, general

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 depreciation, amortisation and impairment losses.

Cash flow cannot be derived directly from the statement of financial position and income statement.

Presentation of discontinued operations

Discontinued operations comprise activities and cash flows that can be clearly distinguished from the other business areas and have either been disposed of or are held for sale. The sale is expected to be carried out within 12 months in accordance with a formal plan. Discontinued operations also include entities that are classified as held for sale in connection with an acquisition.

Discontinued operations are presented in a separate line in the income statement and as

assets and liabilities held for sale in the statement of financial position, and main items are specified in the notes. Comparative figures are restated.

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:

Organic development
Pro rata volumes
Volumes

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 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 guidelines on the calculation of financial ratios, "Recommendations and Financial Ratios 2015", unless specifically stated.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 84

SECTION 9.2 (CONTINUED)

General accounting policies

Calculation of key figures and financial ratios stated in the Annual Report

Debt/operating profit before depreciation, amortisation and impairment losses^{1}	Net interest-bearing debt^{2} divided by operating profit before special items adjusted for depreciation, amortisation and impairment losses.
Equity ratio	Equity attributable to shareholders in Carlsberg Breweries A/S at year-end as a percentage of total assets at year-end.
Financial gearing	Net interest-bearing debt^{2} at year-end divided by total equity at year-end.
Interest cover^{1}	Operating profit before special items divided by interest expenses, net.
Operating margin^{1}	Operating profit before special items as a percentage of revenue.
Operating profit^{1}	Expression used for operating profit before special items in the Management review.
Organic development^{2}	Measure of growth excluding the impact of acquisitions, divestments and foreign exchange from year-on-year comparisons.
Payout ratio	Dividend for the year as a percentage of consolidated profit, excluding non-controlling interests.
Pro rata volumes^{2}	The Group's sale of beverages in consolidated entities, and 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 including goodwill (ROIC)^{1}	Operating profit before special items as a percentage of average invested capital^{4} calculated as a 12-month rolling average.
Return on invested capital excluding goodwill (ROIC excl. goodwill)^{1}	Operating profit before special items as a percentage of average invested capital excluding goodwill^{4} calculated as a 12-month rolling average.

The calculation is based on operating profit before special items, whereas the Danish Finance Society defines the ratio using operating profit.
The calculation of net interest-bearing debt is specified in section 4.2.
This key figure or ratio is not defined by the Danish Finance Society.
The calculation of invested capital is specified in section 2.1.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 85

SECTION 9.3

Change in accounting policies

Changed accounting policies and classification in the Annual Report 2016

The Annual Report has been prepared using the same accounting policies for recognition and measurement as those applied to the consolidated financial statements for 2015.

As of 1 January 2016, 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:

IAS 1 "Disclosure Initiative"
IAS 27 "Equity Method in Separate Financial Statements"
IAS 16 and IAS 38 "Clarification of Acceptable Methods of Depreciation and Amortisation"
IFRS 11 "Accounting for Acquisitions of Interests in Joint Operations"
IFRS 10, IFRS 12 and IAS 28 "Investment Entities: Applying the Consolidation Exception"
Improvements to IFRS 2012-2014

As of 2016, the Group has decided that intra-segment revenue should be allocated to and eliminated in the segment where the revenue is recognised. Previously, intra-segment revenue was eliminated in "Not allocated".

Impact from changes in accounting policies for 2017

The Group has changed the segmentation format as of 1 January 2017. Carlsberg Supply Company is a separate legal entity, containing the supply chain office and related activities. As it is operationally focused on Western Europe, which is also its key priority, the Group has decided to move the company to the Western Europe segment. Previously, the company was included in the "Not allocated" segment. Central costs, mainly overall management costs, not managed or influenced by Western Europe, will continue to be included in "Not allocated". The new segmentation reflects the structure used for internal control and monitoring of the Group's strategic and financial targets.

Furthermore, the calculation of the return on invested capital (ROIC) has changed as of 1 January 2017, as the Group decided to align internal and external measurements. Compared with the 2016 calculation, the new ROIC calculation uses operating profit before special items adjusted for tax using the effective tax rate, and includes assets held for sale and trade receivables sold and excludes contingent considerations and corporation tax.

The Danish Finance Society's guidelines in the "Recommendations and Financial Ratios 2015" do not acknowledge the use of special items and state that any adjustment for tax should be based on the marginal tax rate. The new calculation is therefore not fully in accordance with the Danish Finance Society's guidelines.

Changed segmentation

DKK million	Before			After
2016	Western Europe	Not allocated	Western Europe	Not allocated
Net revenue	37,597	146	37,597	146
Total cost	-32,380	-1,821	-32,880	-1,321
Share of profit after tax of associates and joint ventures	141	-16	141	-16
Operating profit before special items	5,358	-1,691	4,858	-1,191
Operating margin	14.2%	-	12.9%	-
Total assets	53,768	-20,503	55,179	-21,914
Invested capital, cf. section 2.1	25,961	-1,396	25,478	-913
Invested capital excluding goodwill, cf. section 2.1	10,748	-1,396	10,265	-913
Acquisition of property, plant and equipment and intangible assets	1,690	426	1,920	196
Amortisation and depreciation	1,747	898	1,971	674
Impairment losses	11	-	11	-

New calculation of ROIC

2016	Before		After
	ROIC	ROIC excl. goodwill	ROIC	ROIC excl. goodwill
Western Europe	19.6%	43.4%	11.8%	23.8%
Eastern Europe	6.4%	12.0%	4.8%	8.8%
Asia	13.0%	37.8%	8.6%	23.2%
Not allocated	-	-	-	-
Beverages, total	10.7%	23.5%	6.7%	13.8%

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 86

SECTION 9.4

New legislation

New and amended IFRSs and Interpretations not yet applicable within the EU

The following new or amended IFRSs and Interpretations of relevance to the Group have been issued and adopted by the EU but are not applicable for the financial reporting for 2016:

IFRS 9 "Financial Instruments", effective for financial years beginning on or after 1 January 2018.
IFRS 15 "Revenue from Contracts with Customers", including amendments to IFRS 15 "Effective date of IFRS 15", effective for financial years beginning on or after 1 January 2018.

The implementation of IFRS 9 is not expected to have any significant impact on the financials. The Group is still assessing the impact of IFRS 9.

The implementation of IFRS 15 "Revenue from Contracts with Customers" is expected to impact the Group's financials and revenue stream, as the new standard requires all activities with customers to be recognised as revenue.

With the implementation of IFRS 15, certain marketing activities provided for or organised together with customers will be considered a part of the customer relationship. Consequently, such costs will be recognised as discounts, and not as trade marketing costs.

The expected impact for the Group is an increase in discounts with a corresponding decrease in trade marketing costs, leaving operating profit before special items unchanged. The operating margin is expected to be positively impacted by approximately 0.2-0.3 of a percentage point.

New and amended IFRSs and Interpretations not yet adopted by the EU

Furthermore, the following new or amended IFRSs and Interpretations of relevance to the Group have been issued but not yet adopted by the EU:

IFRS 14 "Regulatory Deferral Accounts". The European Commission has decided not to launch the adoption process for this interim standard and to await the final standard instead.
IFRS 16 "Leases", effective for financial years beginning on or after 1 January 2019.
Clarifications to IFRS 15 "Revenue from Contracts with Customers", effective for financial years beginning on or after 1 January 2018.
Annual Improvements to IFRS Standards 2014-2016 Cycle, effective for financial years beginning on or after 1 January 2017 and 1 January 2018. Adoption is expected in H2 2017.
IFRIC Interpretation 22 "Foreign Currency Transactions and Advance Consideration", effective for financial years beginning on or after 1 January 2018.
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 4 applying IFRS 9 "Financial Instruments" with IFRS 4 "Insurance Contracts", effective for financial years beginning on or after 1 January 2018.
Amendments to IAS 7 "Disclosure Initiative", effective for financial years beginning on or after 1 January 2017. Adoption is expected in Q2 2017.
Amendments to IFRS 10 and IAS 28 "Sale or Contribution of Assets between an Investor and its Associate or Joint Venture". The amendments have been postponed.
Amendments to IAS 12 "Recognition of Deferred Tax Assets for Unrealised Losses", effective for financial years beginning on or after 1 January 2017. Adoption is expected in Q2 2017.
Amendments to IAS 40 "Transfer of Investment Property", effective for financial years beginning on or after 1 January 2018.

The new and amended Standards and Interpretations are not mandatory for the financial reporting for 2016. The Group expects to adopt the Standards and Interpretations when they become mandatory.

The implementation of IFRS 16 "Leases" is expected to impact the Group's financials and operating profit before special items.

The expected impact for the Group is an increase in property, plant and equipment and in financial liabilities corresponding to the liabilities on the operating leases, cf. 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.

The Group is still assessing the impact of IFRS 16.

SECTION 10

Group companies

	Number of subsidiaries	Ownership share¹	Nominal share capital ('000)	Currency
Western Europe
Carlsberg Danmark A/S, Copenhagen, Denmark	0	100%	100,000	DKK
Carlsberg Supply Company Danmark A/S, Copenhagen, Denmark	0	100%	501	DKK
Pripps Ringnes AB, Stockholm, Sweden	0	100%	287,457	SEK
Carlsberg Sverige AB, Stockholm, Sweden	1	100%	70,000	SEK
Carlsberg Supply Company Sverige AB, Falkenberg, Sweden	0	100%	50	SEK
Ringnes Norge AS, Oslo, Norway	7	100%	50,000	NOK
Ringnes AS, Oslo, Norway	2	100%	210,366	NOK
Ringnes Supply Company AS, Oslo, Norway	0	100%	20,907	NOK
Oy Sinebrychoff Ab, Kerava, Finland	0	100%	41,203	EUR
Sinebrychoff Supply Company Oy, Kerava, Finland	0	100%	1,000	EUR
Carlsberg Deutschland GmbH, Hamburg, Germany	10	100%	50	EUR
Carlsberg Supply Company Deutschland GmbH, Hamburg, Germany	0	100%	26,000	EUR
Nordic Getränke GmbH, Hamburg, Germany	10	100%	25,000	EUR
Carlsberg Polska Sp. z o.o., Warsaw, Poland	0	100%	6,662	PLN
Carlsberg Supply Company Polska SA, Warsaw, Poland	0	100%	28,721	PLN

0 Subsidiary
X Associate or joint venture
1 For some entities the consolidation percentage is higher than the ownership share due to written put options.
2 Listed company.
3 A separate annual report is not prepared.
4 Company not audited by KPMG.
5 The disposal of UzCarlsberg LLC was completed in January 2017.

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 88

	Number of subsidiaries		Ownership share1	Nominal share capital ('000)	Currency
Western Europe
Saku Ötletehase AS, Tallinn, Estonia		0	100%	51,300	EUR
Aldaris JSC, Riga, Latvia		0	99%	20,575	EUR
Svyturys-Utenos Alus UAB, Utena, Lithuania		0	99%	34,220	EUR
Carlsberg UK Holdings Limited, Northampton, United Kingdom	1	0	100%	190,104	GBP
Carlsberg UK Limited, Northampton, United Kingdom	3	0	100%	177,200	GBP
Carlsberg Supply Company UK Limited, Northampton, United Kingdom		0	100%	17,865	GBP
Emeraude S.A.S., Strasbourg, France	10	0	100%	153,257	EUR
Kronenbourg S.A.S., Strasbourg, France	7	0	100%	547,891	EUR
Kronenbourg Supply Company S.A.S., Strasbourg, France		0	100%	6,534	EUR
Feldschlösschen Getränke Holding AG, Rheinfelden, Switzerland	2	0	100%	95,000	CHF
Feldschlösschen Getränke AG, Rheinfelden, Switzerland	1	0	100%	36,200	CHF
Feldschlösschen Supply Company AG, Rheinfelden, Switzerland		0	100%	100	CHF
Sicera AG, Glarus, Switzerland	2	X	65%	3,231	CHF
Carlsberg Italia S.p.A., Lainate, Italy	3	0	100%	8,600	EUR
Unicer-Bebidas de Portugal, S.G.P.S., S.A., Leca do Balio, Portugal2	6	X	44%	50,000	EUR
Olympic Brewery SA, Thessaloniki, Greece2	1	0	51%	15,187	EUR
Carlsberg Serbia Ltd., Celarevo, Serbia	2	0	100%	3,010,468	RSD
Carlsberg Croatia d.o.o., Koprivnica, Croatia		0	100%	239,932	HRK
Carlsberg Bulgaria AD, Mladost, Bulgaria		0	100%	37,325	BGN
B to B Distribution EOOD, Mladost, Bulgaria		0	100%	10	BGN
Carlsberg Hungary Kft., Budaörs, Hungary		0	100%	26,100	HUF
CTDD Beer Imports Ltd., Montreal, Canada		0	100%	4,032	CAD
Carlsberg Canada Inc., Mississauga, Canada		0	100%	11,000	CAD
Nuuk Imeq A/S, Nuuk, Greenland2		X	32%	38,000	DKK
	Number of subsidiaries		Ownership share1	Nominal share capital ('000)	Currency
---	---	---	---	---	---
Eastern Europe
Baltiko Brewery LLC, Saint Petersburg, Russia	5	0	100%	156,087	RUB
Baltiko Baku LLC, Baku, Azerbaijan		0	100%	25,000	USD
PJSC Carlsberg Ukraine, Zaporizhzhya, Ukraine	2	0	99%	1,022,433	UAH
OJSC Brewery Alivaria, Minsk, Belarus		0	68%	6,145	BYN
Carlsberg Kazakhstan, Almaty, Kazakhstan	1	0	100%	30,160,779	KZT
UzCarlsberg LLC, Toshkent, Uzbekistan2,5		0	100%	82,282,014	UZS
Baltic Beverages Holding AB, Stockholm, Sweden	3	0	100%	12,000	EUR
Asia
Carlsberg Brewery Hong Kong Ltd, Hong Kong, China	2	0	100%	9,734,520	HKD
Carlsberg Brewery (Guangdong) Ltd, Huizhou, China		0	99%	53,000	USD
Kunming Huashi Brewery Company Limited, Kunming, China		0	100%	9,850	USD
Xinjiang Wusu Breweries Co., Ltd., Urumqi, China	9	0	100%	105,480	CNY
Ningxia Xixia Jianlang Brewery Limited, Xixia, China		0	70%	24,895	USD
Carlsberg (China) Breweries and Trading Company Limited, Dali, China		0	100%	299,902	CNY
Chongqing Brewery Co., Ltd, Chongqing, China2	4	0	60%	483,971	CNY
Chongqing Jianlang Brewery Ltd., Chongqing, China	6	0	79%	435,000	CNY
Carlsberg Beer Enterprise Management (Chongqing) Company Limited, Chongqing, ("Eastern Assets"), China2	4	0	100%	648,580	CNY
Tibet Lhasa Brewery Company Limited, Lhasa, China		X	50%	45,910	USD

Carlsberg Breweries Group Annual Report 2016 Consolidated financial statements 89

Number of subsidiaries	Ownership share¹	Nominal share capital ('000)	Currency
Asia
Lanzhou Huanghe Jianlang Brewery Company Limited, Lanzhou, China	X	50%	25,373 USD
Qinghai Huanghe Jianlang Brewery Company Ltd., Xining, China	X	50%	10,488 USD
Jiuquan West Brewery Company Limited, Jiuquan, China	X	50%	4,436 USD
Tianshui Huanghe Jianlang Brewery Company Ltd, Tianshui, China	X	50%	7,679 USD
Carlsberg Brewery Malaysia Berhad, Selangor Darul Ehsan, Malaysia²	0	51%	154,039 MYR
Carlsberg Marketing Sdn BHD, Selangor Darul Ehsan, Malaysia	0	100%	9,900 MYR
Euro Distributors Sdn BHD, Selangor Darul Ehsan, Malaysia	0	100%	- MYR
Carlsberg Singapore Pte Ltd, Singapore	0	100%	1,000 SGD
Maybev Pte Ltd., Singapore	0	51%	2,512 SGD
Lion Brewery (Ceylon) PLC, Biyagama, Sri Lanka²,³	X	25%	850,000 LKR
Carlsberg Distributors Taiwan Limited, Taipei, Taiwan	1	50%	100,000 TWD
Caretech Limited, Hong Kong, China⁴	X	50%	10,000 HKD
Cambrew Limited, Phnom Penh, Cambodia⁴	1	50%	125,000 USD
Carlsberg Vietnam Trading Co. Ltd., Hanoi, Vietnam	0	100%	80,000,000 VND
International Beverage Distributors Ltd., Hanoi, Vietnam	0	100%	15,622,000 VND
Carlsberg Vietnam Breweries Ltd., Hue, Vietnam	0	100%	344,410,832 VND
Hanai Beer Alcohol and Beverage Joint Stock Corporation, Hanoi, Vietnam⁴	X	17%	2,318,000,000 VND
Lao Brewery Co. Ltd., Vientiane, Laos	0	61%	21,053 USD
CB Distribution Co., Ltd., Bangkok, Thailand	0	100%	520,000 THB
Carlsberg India Pvt. Ltd, New Delhi, India	0	100%	821,239 INR
Parag Breweries Limited, Kolkata, India	0	100%	131,851 INR
Brewery Invest Pte Ltd, Singapore	0	100%	1,000 SGD
South Asian Breweries Pte. Ltd., Singapore	0	67%	513,115 SGD
Number of subsidiaries	Ownership share¹	Nominal share capital ('000)	Currency
---	---	---	---
Asia
Carlsberg Asia Pte Ltd, Singapore	1	0	100% 2,000 SGD
Paduak Holding Pte. Ltd., Singapore	0	0	100% 26,395 USD
Myanmar Carlsberg Co. Ltd, Yangon, Myanmar⁴	X	51%	75 USD
Gorka Brewery Pvt. Ltd., Kathmandu, Nepal⁴	1	0	90% 4,663,250 NPR
Not allocated
Carlsberg Finans A/S, Copenhagen, Denmark	0	100%	9,508,000 DKK
Carlsberg International A/S, Copenhagen, Denmark	0	100%	1,100 DKK
Carlsberg Invest A/S, Copenhagen, Denmark	1	0	100% 33,000 DKK
Carlsberg Global Business Services A/S, Copenhagen, Denmark	0	100%	60,000 DKK
Carlsberg Insurance A/S, Copenhagen, Denmark	0	100%	25,000 DKK
Carlsberg Shared Services Sp. z o.o., Poznan, Poland	0	100%	50 PLN
Carlsberg Supply Company AG, Ziegelbrücke, Switzerland	2	0	100% 5,000 CHF

PARENT COMPANY
Carlsberg Breweries Group Annual Report 2016 Parent Company 90

Parent Company financial statements

Income statement... 91
Statement of comprehensive income... 91
Statement of financial position... 92
Statement of changes in equity... 93
Statement of cash flows... 94

SECTION 1

Investments in subsidiaries, associates and joint ventures

1.1 Investments in subsidiaries and joint ventures... 95
1.2 Special items... 95
1.3 Related parties exercising control... 96

SECTION 2

Financing and share capital

2.1 Share capital... 97
2.2 Financial income and expenses... 97
2.3 Net interest-bearing debt... 97
2.4 Borrowings and cash... 98
2.5 Foreign exchange risk... 98
2.6 Interest rate risk... 98
2.7 Credit risk... 99
2.8 Liquidity risk... 99
2.9 Financial instruments... 100

SECTION 3

Operating activities

3.1 Operating expenses... 101
3.2 Cash flow from operating activities... 101
3.3 Receivables... 101

SECTION 4

Staff costs and remuneration

4.1 Staff costs and remuneration of executive directors... 102
4.2 Share-based payments... 103

SECTION 5

Other disclosure requirements

5.1 Provisions... 105
5.2 Fees to auditors... 105
5.3 Asset base and leases... 105
5.4 Assets held for sale... 105

5.5 Tax... 105
5.6 Contingent liabilities and other commitments... 107
5.7 Events after the reporting period... 107

SECTION 6

General accounting policies

6 General accounting policies... 107

Carlsberg Breweries Group Annual Report 2016 Parent Company 91

Income statement

DKK million	Section	2016	2015
Net revenue		2,650	2,524
Cost of sales	3.1	-1,037	-1,071
Gross profit		1,613	1,453
Sales and distribution expenses	3.1	-807	-713
Administrative expenses		-655	-334
Other operating activities, net	3.1	169	175
Operating profit before special items		320	581
Special items, net	1.3	1,674	213
Financial income	2.2	6,293	1,175
Financial expenses	2.2	-1,825	-1,673
Profit before tax		6,462	296
Corporation tax	5.4	-57	94
Profit for the year		6,405	390
Attributable to
Dividends to shareholders		1,526	1,373
Reserves		4,879	-983
Profit for the year		6,405	390

Statement of comprehensive income

DKK million	2016	2015
Consolidated profit	6,405	390
Other comprehensive income
Value adjustments of hedging instruments	49	92
Corporation tax	-11	-22
Items that may be reclassified to the income statement	38	70
Other comprehensive income	38	70
Total comprehensive income	6,443	460

Carlsberg Breweries Group Annual Report 2016 Parent Company 92

Statement of financial position

DKK million	Section	31 Dec. 2016	31 Dec. 2015
ASSETS
Non-current assets
Intangible assets	5.3	965	1,064
Property, plant and equipment	5.3	21	8
Investments in subsidiaries	1.1	78,720	77,623
Investments in associates and joint ventures	1.2	2,798	2,861
Receivables	3.3	64	2,475
Prepayments		169	149
Deferred tax assets	5.4	103	-
Total non-current assets		82,840	84,180
Current assets
Inventories		4	3
Trade receivables	3.3	1,797	1,532
Other receivables	3.3	13,306	10,989
Prepayments		8	66
Cash and cash equivalents	2.4	30	32
Total current assets		15,145	12,622
Assets held for sale		-	169
Total assets		97,985	96,971
DKK million	Section	31 Dec. 2016	31 Dec. 2015
---	---	---	---
EQUITY AND LIABILITIES
Equity
Share capital	2.1	501	501
Hedging reserves		-308	-346
Retained earnings		48,930	43,886
Total equity		49,123	44,041
Non-current liabilities
Borrowings	2.4	20,453	31,142
Deferred tax liabilities		-	41
Provisions	5.1	251	136
Other liabilities		41	-
Total non-current liabilities		20,745	31,319
Current liabilities
Borrowings	2.4	26,433	19,569
Trade payables		740	630
Deposits on returnable packaging		51	46
Provisions	5.1	1	2
Other liabilities, etc.		892	1,364
Total current liabilities		28,117	21,611
Total liabilities		48,862	52,930
Total equity and liabilities		97,985	96,971

Carlsberg Breweries Group Annual Report 2016 Parent Company 93

Statement of changes in equity

DKK million	Shareholders in Carlsberg Breweries A/S
	Share capital	Hedging reserves	Retained earnings	Total equity
2016
Equity at 1 January	501	-346	43,886	44,041
Profit for the year	-	-	6,405	6,405
Other comprehensive income
Value adjustments of hedging instruments	-	49	-	49
Corporation tax	-	-11	-	-11
Other comprehensive income	-	38	-	38
Total comprehensive income for the year	-	38	6,405	6,443
Share-based payment	-	-	20	20
Settlement of share-based payments	-	-	-8	-8
Dividends paid to shareholders	-	-	-1,373	-1,373
Total changes in equity	-	38	5,044	5,082
Equity at 31 December	501	-308	48,930	49,123
DKK million	Shareholders in Carlsberg Breweries A/S
---	---	---	---	---
	Share capital	Hedging reserves	Retained earnings	Total equity
2015
Equity at 1 January	501	-416	44,907	44,992
Profit for the year	-	-	390	390
Other comprehensive income
Value adjustments of hedging instruments	-	92	-	92
Corporation tax	-	-22	-	-22
Other comprehensive income	-	70	-	70
Total comprehensive income for the year	-	70	390	460
Share-based payment	-	-	23	23
Settlement of share-based payments	-	-	-61	-61
Dividends paid to shareholders	-	-	-1,373	-1,373
Total changes in equity	-	70	-1,021	-951
Equity at 31 December	501	-346	43,886	44,041

The proposed dividend of DKK 3,045 per share, in total DKK 1,526m (2015: DKK 2,741 per share, in total DKK 1,373m), is included in retained earnings at 31 December 2016.

Carlsberg Breweries Group Annual Report 2016 Parent Company 94

Statement of cash flows

DKK million	Section	2016	2015
Operating profit before special items		320	581
Adjustment for depreciation and amortisation and impairment losses		13	14
Operating profit before depreciation, amortisation and impairment losses		333	595
Adjustment for other non-cash items	3.2	21	15
Change in working capital	3.2	11	-518
Restructuring costs paid		-67	-64
Interest etc. received		403	368
Interest etc. paid		-1,428	-1,874
Corporation tax paid		-211	-21
Cash flow from operating activities		-938	-1,499
Acquisition of property, plant and equipment and intangible assets		-17	-2
Disposal of property, plant and equipment and intangible assets		-1	6
Total operational investments		-18	4
Acquisition and disposal of subsidiaries, net		2,223	318
Capital injection in subsidiaries		-1,133	-2,974
Acquisition and disposal of associates, net		-	-6
Change in financial receivables		-81	-23
Other Investing activities		-	-
Dividends received		5,334	779
Total financial investments		6,343	-1,906
Cash flow from investing activities		6,325	-1,902
Free cash flow		5,387	-3,401
Shareholders in Carlsberg Breweries A/S	2.1	-1,373	-1,373
External financing	2.4	-4,728	4,734
Cash flow from financing activities		-6,101	3,361
Net cash flow		-714	-40
Cash and cash equivalents at 1 January		32	73
Foreign exchange adjustment of cash and cash equivalents		-2	-1
Cash and cash equivalents at 31 December^{1}	2.4	-684	32

1 Cash and cash equivalents less bank overdrafts.

SECTION 1

Carlsberg Breweries Group Annual Report 2016 Parent Company 95

Investments in subsidiaries, associates and joint ventures

SECTION 1.1 Investments in subsidiaries, associates and joint ventures

Please see section 10 in the consolidated financial statements for a list of companies in the Carlsberg Breweries Group.

Investments in subsidiaries

DKK million	2016	2015
Cost
Cost at 1 January	83,667	81,023
Additions	1,875	2,972
Transfer to/from assets class as H-f-S	5
Transfers	54	-159
Disposals	-507	-169
Cost at 31 December	85,094	83,667
Value adjustments
Value adjustments at 1 January	6,044	6,044
Impairment in the period	329	-
Value adjustments at 31 December	6,374	6,044
Carrying amount at 31 December	78,720	77,623

The assumptions used for the impairment test of the parent company's investments in subsidiaries are identical with those used for the Carlsberg Breweries Group's cash-generating units. The assumptions are stated in section 2.3 to the consolidated financial statements.

Investments in associates and joint ventures

DKK million	2016	2015
Cost
Cost at 1 January	2,859	2,853
Additions	-	6
Disposals	-3	-
Transfers	-58	-
Cost at 31 December	2,798	2,859
Value adjustments
Value adjustments at 1 January	2	2
Dividends	-	-4
Share of profit after tax	-	4
Value adjustments at 31 December	-	2
Carrying amount at 31 December	2,798	2,861

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 2016. Impairment tests have therefore not been carried out for subsidiaries.

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 Special items

Special items

DKK million	2016	2015
Gain on disposal of investments	2,168	305
Impairment of intangible assets	-90	-
Impairment of investments in subsidiaries	-329	-
Other	-75	-92
Special items, net	1,674	213

The company recognised a gain on the disposal of subsidiaries mainly related to Danish Malting Group, Carlsberg Malawi and Carlsberg Vietnam Breweries - Vung Tau.

Other special items mainly include restructuring costs.

Carlsberg Breweries Group Annual Report 2016 Parent Company 96

SECTION 1.3

Related parties exercising control

Carlsberg A/S, Ny Carlsberg Vej 100, DK, 1799 Copenhagen V, Denmark, holds all the shares in Carlsberg Breweries A/S. Carlsberg Breweries A/S has paid dividend of DKK 1,373m (2015: DKK 1,373m) to Carlsberg A/S.

The following transactions took place between the Carlsberg Foundation (as the ultimate Parent Company) and Carlsberg Breweries A/S in 2016:

Carlsberg Breweries A/S leases storage facilities in the Researcher Apartments. The annual lease, DKK 172 thousand, and the lease terms are on market conditions.

The Carlsberg Breweries Group brewed a special beer, the "Rebrew" beer, for the Carlsberg Foundation's 140th anniversary. Carlsberg Breweries A/S managed the market communication and brand activation of the anniversary, and may in turn use the Hebrew beer rights globally. It is estimated that the benefit for the Carlsberg Breweries Group of these rights corresponds to the value of the services provided to the Foundation, which again corresponds to what each party would have had to invest if having the same deliverables provided by external parties, excluding the additional work that the Carlsberg Breweries Group will have to include for use of the brand rights for its own commercial purposes.

Related parties exercising significant influence

During the year, the Company was not involved in any transactions with major shareholders, members of the Supervisory Board, members of the Executive Board or companies outside the Group in which these parties have interests. The income statement and statement of financial position items include transactions as shown in the table.

Related party disclosures

DKK million	2016	2015
Carlsberg A/S
Other operating activities, net	12	19
Financial income	6	9
Loans	1,067	727
Receivables from the sale of goods and services	5	15
Trade payables	-32	-5
Associates and joint ventures
Revenue	27	16
Loans	115	68
Receivables from the sale of goods and services	43	35
Subsidiaries
Revenue	575	611
Cost of sales	-109	-116
Sales and distribution income	143	133
Administrative expenses	-62	-65
Other operating activities, net	162	171
Interest income	343	338
Interest expenses	-458	-241
Loans	12,494	12,614
Receivables	1,518	1,404
Borrowings	-19,619	-17,766
Trade payables and other liabilities etc.	-553	-294

Remuneration of the Executive Board is disclosed in section 4.1 - 4.2.

Dividends of DKK 189m (2015: DKK 251m) were received from associates and joint ventures. No losses on loans to or receivables from associates were recognised or provided for in either 2016 or 2015.

Dividends of DKK 5,144m (2015: DKK 525m) were received from subsidiaries

SECTION 2

Carlsberg Breweries Group Annual Report 2016 Parent Company 97

Financing and share capital

SECTION 2.1 Share capital

Share capital

	Shares of DKK 1,000	Nominal value, DKK '000
1 January 2015	501	501,000
No change in 2015	-	-
31 December 2015	501	501,000
No change in 2016	-	-
31 December 2016	501	501,000

The share capital amounts to DKK 501m divided into shares in denominations of DKK 1,000 and multiples thereof. None of the shares confer any special rights. The share capital is owned by Carlsberg A/S, Copenhagen, Denmark.

Dividends paid to shareholders amounted to DKK 1,373m (2015: DKK 1,373m).

Carlsberg Breweries A/S proposes dividend of DKK 3,045 per share, in total DKK 1,526m (2015: DKK 2,741 per share, in total DKK 1,373m). The proposed dividend is included in retained earnings at 31 December 2016.

SECTION 2.2 Financial income and expenses

Financial items recognised in the income statement

DKK million	2016	2015
Financial income
Interest income	378	393
Dividends from subsidiaries and associates	5,333	776
Fair value adjustments of financial instruments, net, cf. section 2.9	455	-
Other financial income	127	6
Total	6,293	1,175
Financial expenses
Interest expenses	1,370	1,332
Fair value adjustments of financial instruments, net, cf. Section 2.9	45	263
Realised foreign exchange losses, net	128	17
Bank and commitment fees	32	36
Other financial expenses	7	24
Total	1,825	1,672
Financial items, net	4,468	-497

Interest income relates to interest from cash and cash equivalents and intercompany loans and is measured at amortised cost.

Interest expenses primarily relate to interest on borrowings (external and intercompany) measured at amortised cost.

Financial items recognised in other comprehensive income

DKK million	2016	2015
Value adjustments of hedging instruments
Change in fair value of effective portion of cash flow hedges	49	-111
Change in fair value of cash flow hedges transferred to the income statement	-	203
Total	49	92
Financial items, net	4,517	-405

Foreign exchange adjustments of balances with foreign entities which are considered part of the total net investment in the entity are recognised in the income statement of the Parent Company.

SECTION 2.3 Net interest-bearing debt

DKK million	2016	2015
Non-current borrowings	20,453	31,142
Current borrowings	26,433	19,569
Gross interest-bearing debt	46,886	50,711
Cash and cash equivalents	-30	-32
Loans to group companies and associated companies	-12,609	-12,879
Net interest-bearing debt	34,247	37,800
Changes in net interest-bearing debt
Net interest-bearing debt at 1 January	37,800	33,972
Cash flow from operating activities	938	1,499
Cash flow from investing activities, excl. acquisition of subsidiaries, net	-4,102	2,220
Cash flow from acquisition of subsidiaries, net	-2,223	-318
Dividends to shareholders	1,373	1,373
Change in interest-bearing lending	151	-46
Effect of currency translation	310	-900
Total change	-3,553	3,828
Net interest-bearing debt at 31 December	34,247	37,800

Carlsberg Breweries Group Annual Report 2016 Parent Company 98

SECTION 2.4

Borrowings and cash

Gross financial debt

DKK million	2016	2015
Non-current borrowings
Issued bonds	18,489	25,988
Bank borrowings	641	3,738
Borrowings from Group companies	1,323	1,416
Total	20,453	31,142
Current borrowings
Issues bonds - short term portion	7,424	3,103
Bank overdrafts - cash equivalents	714	-
Bank borrowings	-	116
Borrowings from Group companies	18,295	16,350
Total	26,433	19,569
Total non-current and current borrowings	46,886	50,711
Fair value	46,886	50,711

The fair value of receivables and borrowings in subsidiaries corresponds to the carrying amount in all material respects.

External financing

DKK million	2016	2014
Repayment of bonds	-2,620	-
Borrowings from group companies	-2,108	4,734
Total	-4,728	4,734

Borrowings are measured at amortised cost.

Cash and cash equivalents amounts to DKK 30m (2015: DKK 32m) and bank overdrafts amount to DKK -714m (2015: DKK 0m). Cash and cash equivalents are not associated with any significant credit risks.

SECTION 2.5

Foreign exchange risk

Carlsberg Breweries A/S' main activity is to own a number of subsidiaries and funding the capital required for both net investment and loans to subsidiaries. As a consequence, Carlsberg Breweries A/S is exposed to foreign exchange risk from its borrowing in foreign currency and financial instruments to hedge net investments in foreign currency, and interest rate risk from its debt and interest rate derivatives.

Currency profile

DKK million
2016	Original principal	Effect of swap	After swap
CHF	1,094	1,579	2,673
DKK	1,658	6,783	8,441
EUR	34,739	-9,493	25,246
GBP	1,028	-310	718
RUB	3,706	-2,408	1,298
USD	290	3,128	3,418
Other	4,371	721	5,092
Total	46,886	-	46,886
Total 2015	50,711	-	50,711

SECTION 2.6

Interest rate risk

Carlsberg Breweries A/S performs the role of internal bank in the Carlsberg Breweries Group. Part of this role is to implement Carlsberg interest rate risk target, which is to have a duration of 1 to 5 years. This duration is measured on the net debt in the Carlsberg Breweries Group.

The Company's loan portfolio consists of bilateral loan agreements, syndicated credit facilities and loans from the shareholder and subsidiaries.

Interest rate risks are mainly managed using interest rate swaps and bonds with fixed interest and to a smaller degree loans with fixed interest rate from subsidiaries.

Interest rate risk

DKK million
2016	Average effective rate interest rate		Fixed for	Carrying amount	Interest rate risk
	Interest	per
Issued bonds
EUR 1,000m maturing 13 October 2017	Fixed	3.6%	0-1 year	7,424	Fair value
EUR 750m maturing 3 July 2019	Fixed	2.6%	2-3 years	5,582	Fair value
EUR 750m maturing 15 November 2022	Fixed	2.7%	>5 years	5,546	Fair value
EUR 1,000m maturing 28 May 2024	Fixed	2.6%	>5 years	7,361	Fair value
Total issued bonds		2.9%		25,913
Total issued bonds 2015		3.1%		29,091
Bank borrowings
Floating-rate	Floating	1.9%	<1 year	641	Cash flow
Total bank borrowings				641
Total bank borrowings 2015				3,854

Carlsberg Breweries Group Annual Report 2016 Parent Company 99

SECTION 2.6 (CONTINUED)

Interest rate risk

At year-end 57% of the gross loan portfolio consisted of fixed-rate loans with rates fixed for more than one year (2015: 57%). Carlsberg Breweries A/S engages in on-lending to subsidiaries. At 31 December 2016 Carlsberg Breweries A/S lent DKK 12,609m to subsidiaries, Carlsberg A/S and associated companies (2014: DKK 12,879m).

SECTION 2.7

Credit risk

Credit risk is the risk of a counterparty failing to meet its contractual obligations and so inflicting a loss on the Carlsberg Breweries Group. Group policy is that financial transactions may be entered into only with financial institutions with a solid credit rating.

SECTION 2.8

Liquidity risk

Liquidity risk is the risk of the Carlsberg Breweries Group failing to meet its contractual obligations due to insufficient liquidity. Carlsberg's policy is for the management of funding and liquidity to be managed centrally. It is therefore Group Treasury's task to ensure effective liquidity management, which primarily involves obtaining sufficient committed credit facilities to ensure adequate financial resources.

Carlsberg Breweries A/S is the main funding vehicle in the Carlsberg Breweries Group. Accordingly, reference to the section on financial risk in Carlsberg Breweries Group with regards to liquidity risk is made.

Time to maturity for non-current borrowings

DKK million
2016	1-2 years	2-3 years	3-4 years	4-5 years	> 5 years	Total
Issued bonds	-	5,582	-	-	12,907	18,489
Bank borrowings	705	-	-	-64	-	641
Borrowings from Group Companies	-	-	-	-	1,323	1,323
Total	705	5,582	-	-64	14,230	20,453
Total 2015	7,478	95	5,606	-	17,963	31,142

Maturity of financial liabilities

DKK million
2016	Contractual cash flows	Maturity < 1 year	Maturity > 1 year < 5 years	Maturity > 5 years	Carrying amount
Derivative financial instruments
Derivative financial instruments, payables	346	346	-	-	305
Non-derivative financial instruments
Financial debt gross	47,058	26,444	6,281	14,333	46,886
Interest expense	3,205	863	1,888	454	(N/A)
Trade payables and other liabilities	791	791	-	-	791
Non-derivate financial instruments total	51,054	28,098	8,169	14,787	-
Financial liabilities	51,400	28,444	8,169	14,787	-
Financial liabilities 2015	56,729	22,035	15,448	19,201	-

Carlsberg Breweries Group Annual Report 2016 Parent Company 100

SECTION 2.9

Financial instruments

The fair value of financial instruments is calculated on the basis of observable market data using generally accepted methods. Internally calculated fair values based on discounting of cash flows are used for the mark-to-market of financial instruments. The internally calculated fair values are tested against external market valuations on a quarterly basis.

Changes in the fair value of financial instruments not designated as hedging instruments are recognised in the income statement. These are mainly non-designated foreign exchange instruments, which are classified as net investment hedges in the consolidated account, but which for the purpose of the un-consolidated account are not designated as such.

Cash flow hedges are primarily used on interest rate swap where the hedged item is the underlying (floating rate) borrowing, and on currency derivatives where the underlying is sales in foreign currency. Cash flow hedges are also used on aluminium hedges (where the hedged item is aluminium cans used in a number of Group entities in across Carlsberg). However, for the purpose of the Carlsberg Breweries A/S un-consolidated account, the aluminium hedges are not treated as cash flow hedges.

Cash flow hedges

DKK million
2016	Fair value adjustment recognised in other comprehensive income	Fair value	Expected recognition
Interest rate instruments	-	-	(N/A)
Exchange rate instruments	49	-47	(2017-18)
Total	49	-47
2015
Interest rate instruments	114	-	(N/A)
Exchange rate instruments	-100	-36	(2016-17)
Total	14	-36

Financial derivatives not designated as hedging instruments (economic hedges)

DKK million	Fair value adjustment recognised in income statement	Fair value	Fair value adjustment recognised in income statement	Fair value
Exchange rate instruments	399	184	-187	-445
Other instruments	3	1	-52	-2
Ineffectiveness	8	-	-24	-
Total	410	185	-263	-447

SCTION 3

Carlsberg Breweries Group Annual Report 2016 Parent Company 101

Operating activities

SECTION 3.1

Operating expenses

Cost of sales

DKK million	2016	2015
Purchased finished goods and other costs	1,037	1,071
Total	1,037	1,071

Sales and distribution expenses

DKK million	2016	2015
Marketing expenses	617	536
Sales expenses	109	94
Distribution expenses	81	83
Total	807	713

Other operating activities, net

DKK million	2016	2015
Management fee from group companies	206	219
Gains and losses on disposal of property, plant and equipment and intangible assets, net	-	-2
Real estate, net	5	2
Other, net	-42	-44
Total	169	175

SECTION 3.2

Cash flow from operating activities

Cash flows

DKK million	2016	2015
Adjustment for other non-cash items
Gains on disposal of property, plant and equipment and intangible assets, net	1	-
Share-based payment	20	15
Other non-cash adjustments	-	-
Total	21	15
Change in working capital
Receivables	27	-14
Trade payables and other liabilities	-144	-536
Other liabilities related to operating activities before special items	115	-3
Adjusted for unrealised foreign exchange gains/losses	13	35
Total	11	-518

SECTION 3.3

Receivables

Trade receivables comprise invoiced goods and services.

Other receivables comprise VAT receivables, loans to group companies, associates, interest receivables and other financial receivables.

Receivables included in the statement of financial position

DKK million	2016	2015
Trade receivables	1,797	1,532
Other receivables	13,306	10,989
Total current receivables	15,103	12,521
Non-current receivables	64	2,475
Total	15,167	14,996

Receivables by origin

DKK million	2016	2015
Receivables from sale of goods and services	388	348
Receivables from group companies	1,409	1,183
Loans to group companies	12,494	12,613
Loans, fair value of hedging instruments and other receivables	876	852
Total	15,167	14,996

SECTION 4

Carlsberg Breweries Group Annual Report 2016 Parent Company 102

Staff costs and remuneration

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 4.2.

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.

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.

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.

SECTION 4.1

Staff costs and remuneration of executive directors

Staff cost and remuneration

DKK million	2016	2015
Salaries and other remuneration	424	378
Severance payments	2	107
Social security costs	2	2
Retirement benefit costs - defined contribution plans	15	23
Share-based payments	22	67
Other employee benefits	7	7
Total	472	584

Staff costs are included in the following items in the income statement

Sales and distribution expenses	153	122
Administrative expenses	294	293
Special items (restructuring)	-	107
Total staff costs recognised by Parent Company	447	522
Staff costs recognised by other Group companies	25	62
Total	472	584

Carlsberg Breweries Group Annual Report 2016 Parent Company 103

SECTION 4.2

Share-based payments

Share options

In 2016, a total of 17,650 (2015: 230,889) share options were granted to 1 employee (2015: 3). The grant date fair value of these options was a total of DKK 2m (2015: DKK 42m). The total cost of share options was DKK 7m (2015: DKK 46m), which is recognised in the income statement under staff costs. Refunds etc. between Carlsberg A/S and Carlsberg Breweries A/S are recognised directly in equity and total DKK -23m (2015: DKK -30m). Change in expected future refunds based on the fair value of share options at year end are recognised directly in equity by DKK 17m (2015: DKK -6m).

Regular performance shares

In 2016, a total of 25,079 (2015: 16,754) regular performance shares were granted to 2 employees (2015: 3). The grant date fair value of these performance shares was DKK 13m (2015: DKK 6m). The total cost of performance shares was DKK 13m (2015: DKK 12m), which is recognised in the income statement under staff costs. Refunds etc. between Carlsberg A/S and its subsidiaries are recognised directly in equity and total DKK -4m. Change in expected future refunds based on the fair value of performance shares at year end are recognised directly in equity by DKK 2m (2015: DKK -4).

Funding the Journey performance shares

In 2016, the Funding the Journey performance share programme was introduced, and a total of 37,242 performance shares were granted to 2 employees. The grant date fair value of these performance shares was DKK 22m. The total cost of performance shares was DKK 5m, which is recognised in the income statement under staff costs. Refunds etc. between Carlsberg A/S and its subsidiaries are recognised directly in equity. Change in expected future refunds based on the fair value of performance shares at year end are recognised directly in equity.

| Share option | Exercise price
Fixed, weighted average | Executive directors | Key management personnel | Other management personnel | Resigned employees | Number
Total |
| --- | --- | --- | --- | --- | --- | --- |
| Share options outstanding at 31 December 2014 | 455.04 | 581,828 | 25,468 | 22,524 | 131,762 | 761,582 |
| Granted | 524.58 | 230,889 | - | - | - | 230,889 |
| Forfeited/expired | 472.11 | - | - | - | -5,698 | -5,698 |
| Exercised | 391.33 | -24,776 | - | -1,819 | -226,307 | -252,902 |
| Transferred | 469.11 | -690,607 | -19,268 | -15,430 | 725,305 | - |
| Share options outstanding at 31 December 2015 | 540.07 | 97,334 | 6,200 | 5,275 | 625,062 | 733,871 |
| Granted | 597.60 | 17,650 | - | - | - | 17,650 |
| Forfeited/expired | 520.27 | - | - | - | -31,796 | -31,796 |
| Exercised | 460.59 | - | - | -400 | -275,354 | -275,754 |
| Transferred | 446.26 | - | -6,200 | -1,200 | 7,400 | - |
| Share options outstanding at 31 December 2016 | 501.07 | 114,984 | - | 3,675 | 325,312 | 443,971 |
| Regular performance shares | | | | | | |
| Performance shares outstanding at 31 December 2014 | | 8,609 | 3,262 | 7,912 | 1,396 | 21,179 |
| Granted | | 15,312 | 20,635 | 47,909 | - | 83,856 |
| Forfeited/expired/adjusted | | - | -6,704 | -18,027 | -934 | -25,665 |
| Transferred | | -23,921 | - | - | - | -23,921 |
| Forfeited/expired/adjusted | | - | -6,005 | -3,771 | 9,776 | - |
| Performance shares outstanding at 31 December 2015 | | - | 11,188 | 34,023 | 10,238 | 55,449 |
| Granted | | 25,079 | - | - | - | 25,079 |
| Forfeited/expired/adjusted | | - | 704 | 2,943 | 1,140 | 4,787 |
| Exercised | | - | -569 | -3,804 | -2,618 | -6,991 |
| Transferred | | - | -6,840 | -3,169 | 10,009 | - |
| Performance shares outstanding at 31 December 2016 | | 25,079 | 4,483 | 29,993 | 18,769 | 78,324 |
| Funding the Journey performance shares | | | | | | |
| Granted | | 37,242 | - | - | - | 37,242 |
| Performance share units outstanding at 31 December 2014 | | 37,242 | - | - | - | 37,242 |

Carlsberg Breweries Group Annual Report 2016 Parent Company 104

SECTION 4.2 (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 Breweries A/S and the individual subsidiary and offset directly against investments in subsidiaries.

The difference at the end of the reporting period 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 Breweries 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.

	Share options		Regular performance shares		Funding the Journey performance shares
	2016	2015	2016	2015	2016	2015
Average share price at the exercise date for share options exercised in the year	636	588	-	-	-	-
Weighted average contractual life for awards outstanding 31 December	6.4	5.0	1.4	1.8	2.2	-
Range of exercise prices for share options outstanding 31 December	203.50-597.60	203.50-583.10	-	-	-	-
Exercisable outstanding share options 31 December	100,433	316,982	(None)	(None)	(None)	(None)
Weighted average exercise price for share options exercisable 31 December	467	473	-	-	-	-

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.

Carlsberg Breweries Group Annual Report 2016 Parent Company 105

SECTION 5 Other disclosure requirements

SECTION 5.1

Provisions

DKK million	Other	Total
Provisions at 1 January 2016	138	138
Additional provisions recognised	114	114
Provisions at 31 December 2016	252	252

Provisions relates primarily to ongoing disputes, lawsuits, restructurings etc.

DKK 1m of total provisions (2015: DKK 2m) falls due within one year and DKK 0m (2015: DKK 0m) after more than five years from the end of the reporting period.

SECTION 5.2

Fees to auditors

The audit fee to KPMG, which is appointed by the Annual General Meeting to perform the statutory audit, amounted to DKK 3m (2015: DKK 2m).

Fees for other services amounted to DKK 3m (2015: DKK 1m).

SECTION 5.3

Asset base and leases

The carrying amount of intangible assets was DKK 965m (2015: DKK 1,064m), and the carrying amount of property, plant and equipment was DKK 21m (2015: DKK 8m). Intangible assets comprise brands of DKK 965m (2015: DKK 1,062m).

Of DKK 9m (2015: DKK 8m) of amortisation of intangible assets, DKK 7m (2015: DKK 7m) are included in cost of sales. Depreciation of property, plant and equipment of DKK 4m (2015: DKK 6m) are mainly included in sales and distribution expenses.

For accounting policies on impairment of assets in the Group, please refer to section 2.3 in the consolidated financial statements.

Carlsberg Breweries A/S has entered into operating lease agreements. The lease contains no special purchase rights etc. Future lease payments total DKK 8m (2015: DKK 7m).

Neither at the end of the reporting period in 2016 nor 2015 had Carlsberg Breweries A/S any capital commitments to be made at a later date or entered in to any contractual commitments.

SECTION 5.4

Assets held for sale

In 2015, asset held for sale, DKK 169m, consisted of the investment in Danish Malting Group A/S which was disposed in the first half of 2016. In 2016, assets held for sale amounted to DKK 0m.

SECTION 5.5

Tax

The domestic tax rate in 2016 is 22% (2015: 23.5%). The effective tax rate is 0.9% and the increase in the effective tax rate compared to last year (2015: -31.6%) is mainly due to the increase in non-capitalised tax assets last year of -47.5% against 0% this year along with a smaller relative amount of non-taxable dividends 17.8% (2015: 50.9%) and other non-taxable items of 3.4% (2014: 46.9%).

Hedging instruments recognised in other comprehensive income before tax amounts to DKK 49m (2015: DKK 92m) with a tax expense of DKK 11m (2015: DKK 22m).

Deferred tax asset amounts to DKK 517m (2015: DKK 219m) and comprise mainly provisions and retirement benefit obligations of DKK 151m (2015: DKK 122m), loan costs of DKK 26m (2014: DKK 0m) and tax loss carry forwards etc. of DKK 335m (2015: DKK 92m). The utilisation of tax loss carry forwards depends on future positive taxable income exceeding the realised deferred tax liabilities.

Deferred tax liabilities offset in deferred tax assets amount to DKK 414m (2015: DKK 260)

Carlsberg Breweries Group Annual Report 2016 Parent Company 106

and mainly comprise intangible assets of DKK 214m (2015: DKK 209m) and other liabilities of DKK 200m (2015: DKK 50m). Deferred tax at 31 December, net is a deferred tax asset of DKK 103m (2015: deferred tax liability of DKK 41m).

This year's changes in deferred tax DKK -144m (2015: DKK -134m) are due to joint taxation contribution of DKK -57m (2015: DKK -31m), tax recognised in the total comprehensive income DKK 11m (2015: DKK 22m) and recognised deferred tax in the income statement and others DKK -98m (2015: DKK -84m).

Not recognised tax assets amount to DKK 258m (2015: DKK 249m). Of the tax asset DKK 231m (2015: DKK 249m) relate to tax losses on exchange rates effect of the Danish tax rules for interest ceiling. The tax loss must be utilised within 3 years otherwise it will expire.

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.

Accounting estimates and judgements

Carlsberg Breweries 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.

Accounting policies

Carlsberg A/S is the administration company and is subject to the Danish rules on mandatory joint taxation of the Carlsberg Breweries 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

DKK million	2016			2015
	Income statement	Other comprehensive income	Total comprehensive income	Income statement	Other comprehensive income	Total comprehensive income
Tax for the year
Change in deferred tax during the year	224	-	224	-10	-	-10
Change in deferred tax as a result of change in tax rate	-116	11	-105	-76	22	-76
Adjustments to current tax for prior years	-	-	-	-12	-	-12
Adjustments to deferred tax for prior years	-51	-	-51	4	-	4
Total	57	11	68	-94	22	-72

Carlsberg Breweries Group Annual Report 2016 Parent Company 107

SECTION 6 General accounting policies

SECTION 5.6

Contingent liabilities and other commitments

Carlsberg Breweries A/S has issued guarantees for loans etc. raised by subsidiaries and associates (non-consolidated share of loan) of DKK 2,752m (2015: DKK 2,778m)

Carlsberg Breweries A/S is jointly registered for Danish VAT and excise duties with Carlsberg Breweries A/S, Carlsberg Danmark A/S and various other minor Danish subsidiaries, and Carlsberg Breweries A/S is jointly and severally liable for payment of VAT and excise duties.

Carlsberg Breweries 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 Breweries A/S has issued a guarantee in respect of rental obligations of DKK 12m (2015: DKK 64m).

SECTION 5.7

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 2016 financial statements of Carlsberg Breweries A/S have been prepared in accordance with International Financial Reporting Standards (IFRS) and additional requirements in the Danish Financial Statements Act.

The financial statements are presented in Danish kroner (DKK), which is the functional 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 Breweries 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.

SUPervisory AND EXECUTIVE BOARD
Carlsberg Breweries Group Annual Report 2016 Parent Company 108

Supervisory and Executive Board

Supervisory Board

Lars Rebien Sørensen
Chairman since 2015
Nationality: Danish
Year of birth: 1954
Appointed until: 2017

Professional position
Non-executive board director.

Non-executive functions
Member of the board of Thermo Fisher Scientific Inc.

Flemming Besenbacher
Deputy Chairman since 2015
Nationality: Danish
Year of birth: 1952
Appointed until: 2017

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

Non-executive functions
Member of the boards of the Danish Innovation Fund, Unisense, CfL, UNLEASH and the Danish government's advisory boards for circular economy and digital growth.

Cees 't Hart

CEO of Carlsberg A/S And Carlsberg Breweries A/S since 2015
Prior to joining Carlsberg, Cees was CEO of the Dutch dairy company Royal FrieslandCampina, a position he had held since 2008. Prior to FrieslandCampina, Cees spent 25 years with Unilever, holding management positions 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 Dalsgaard

CFO of Carlsberg A/S And Carlsberg Breweries A/S
Heine joined Carlsberg 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.

Eva Vilstrup Decker

Nationality: Danish
Year of birth: 1964

Board function
Employee representative.

Professional position
Director, Carlsberg Breweries A/S.

Non-executive functions
None.

Mette Kronborg

Nationality: Danish
Year of birth: 1976

Board function
Employee representative.

Professional position
Finance Director, Carlsberg Breweries A/S.

Non-executive functions
None.

Søren Leth

Nationality: Danish
Year of birth: 1979

Board function
Employee representative.

Professional position
Consultant, Carlsberg Global Business Services A/S.

Non-executive functions
None.

The Supervisory Board members' full CVs, including skills and competences, are available on www.carlsberggroup.com

Executive Board

Cees 't Hart
CEO of Carlsberg A/S And Carlsberg Breweries A/S

Heine Dalsgaard
CFO of Carlsberg A/S And Carlsberg Breweries A/S

REPORTS

Carlsberg Breweries Group Annual Report 2016 Parent Company 109

Management statement

The Supervisory Board and the Executive Board have today discussed and approved the Annual Report of the Carlsberg Breweries Group and the Parent Company for 2016.

The Annual Report has been prepared in accordance with International Financial Reporting Standards 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 Breweries Group's and the Parent Company's assets, liabilities and financial position at 31 December 2016 and of the results of the Carlsberg Breweries Group's and the Parent Company's operations and cash flows for the financial year 2016.

Further, in our opinion the Management review includes a fair review of the development in the Carlsberg Breweries Group's and the Parent Company's operations and financial matters, of the result for the year, and of the Carlsberg Breweries Group's and the Parent Company's financial position as well as describing the significant risks and uncertainties affecting the Carlsberg Breweries Group and the Parent Company.

We recommend that the Annual General Meeting approve the Annual Report.

Copenhagen, 30 March 2017

Executive Board of Carlsberg Breweries A/S

Cees 't Hart
CEO

Heine Dalsgaard
CFO

Supervisory Board of Carlsberg Breweries A/S

Lars Rebien Sørensen
Chairman

Flemming Besenbacher
Deputy Chairman

Cees 't Hart
Heine Dalsgaard

Eva V. Decker
Mette Kronborg

Søren Leth

REPORTS

Carlsberg Breweries Group Annual Report 2016 Parent Company 110

The independent auditor's report

To the shareholders of Carlsberg Breweries A/S

Opinion

We have audited the consolidated financial statements and the Parent Company financial statements of Carlsberg Breweries A/S for the financial year 1 January – 31 December 2016, which comprise the income statement, the statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows and notes to the financial statements, including a summary of significant accounting policies for both the Group and the Parent Company (jointly the "financial statements"). The financial statements have been prepared in accordance with the International Financial Reporting Standards ('IFRS') and additional requirements in the Danish Financial Statements Act.

In our opinion, the financial statements give a true and fair view of the financial position of the Group and Parent Company at 31 December 2016, and of the Group's and Parent Company's financial performance and the cash flows for the financial year 2016 in accordance with IFRS and additional requirements in the Danish Financial Statements Act.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing and additional requirements applicable in Denmark. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the financial statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants and the additional requirements applicable in Denmark, and we have fulfilled our other ethical requirements in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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 the financial year 2016. These matters were addressed in the context of our audit 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
Impairment test of goodwill and brands
Management conducts annual impairment tests to determine the recoverable amount of intangible assets with indefinite useful life calculated as the assets' value in use.	We have discussed with Management and evaluated the process for preparing the budgets supporting the impairment test. Additionally, we have assessed whether the models applied by Management to calculate the value in use of the individual cash-generating units related to goodwill and for brands comply with the requirements of IFRS.
The value in use is calculated as the present value of expected future net cash flows. The calculation is subject to Management's judgements about the key assumptions applied.	We have focused our audit on testing the key assumptions made by Management. Our internal valuations specialist has supported the audit where relevant.
The key assumptions related to goodwill and for brands are described in section 2.3 "Accounting estimates and judgements" on pages 42 and 44 respectively.	We have analysed the projected cash flows used in the models to determine whether they are reasonable and supported by the most recent approved Management budgets, including expected future performance of the cash-generating units and brands as well as macroeconomic expectations in the market.
	We have assessed the appropriateness of the discount rates applied and underlying assumptions, as well as benchmarking to market data and external information, and discussed Managements judgements, as relevant.
	We have assessed the sensitivity analysis prepared for the key assumptions as described in section 2.3.5. We have discussed the appropriateness of the sensitivity analysis by applying our own sensitivity analysis to the key assumptions.

Carlsberg Breweries Group Annual Report 2016 Parent Company 111

Key audit matter	How our audit addressed the key audit matter
Revenue recognition
The Group accounts for revenue arising from the sale of own-produced finished goods, goods for resale (third-party products) and by-products when all significant risks and rewards have been transferred to the buyer and when the income can be reliably measured and is expected to be received.	We have discussed with Management the key assumptions related to the recognition and classification of revenue.

We have focused our audit on testing the controls related to revenue and performed additional substantive procedures relating to revenue, including the appropriate classification.

We have evaluated the relevant IT systems and tested the internal controls the Group has implemented to ensure the completeness, accuracy and timing of revenue recognised.

We have analysed and assessed the accounting treatment of discounts and marketing contributions, including, on a sample basis, new contracts with non-standard terms entered into during the financial year. We have assessed journal entries related to revenue at year-end to ensure proper cut-off. |
| The Group enters into contracts with discounts and agreements with marketing contributions etc. where the classification in the consolidated financial statements is based on Management's judgement. | |
| The revenue recognition and accounting treatment are described in section 1.2 "Accounting estimates and judgements" on page 29. | |

Statement on the Management review

Management is responsible for the Management review.

Our opinion on the financial statements does not cover the Management 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 the Management review and, in doing so, consider whether the Management review is materially inconsistent with the financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. Moreover, it is our responsibility to consider whether the Management review provides the information required under the Danish Financial Statements Act.

Based on the work we have performed, we conclude that the Management review is in accordance with the 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 the Management review.

Responsibilities of Management for the consolidated financial statements and the Parent Company financial statements

Management is responsible for financial statements that give a true and fair view in accordance with IFRS and additional 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 in preparing the financial statements, 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.

Those charged with governance are responsible for overseeing the Group's and the Parent Company's financial reporting process.

Carlsberg Breweries Group Annual Report 2016 Parent Company 112

Auditor's Responsibilities for the Audit of the consolidated financial statements and the Parent Company financial statements

Our objectives are to obtain reasonable assurance as to 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 International Standards on Auditing (ISA) 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 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 conducted in accordance with ISA 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 in preparing the financial statements 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 and the 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 gives a true and fair view.
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 are required to 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 communicate to them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated to those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and that 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.

Copenhagen, 30 March 2017

KPMG
Statsautoriseret Revisionspartnerselskab
CVR No. 25 57 81 98

Mike Maloney
Certified Public Accountant

Henrik O. Larsen
State Authorised Public Accountant

Carlsberg Breweries A/S
Ny Carlsberg Vej 100
1799 Copenhagen V
Denmark

Phone +45 3327 3327

CVR no. 25508343

Editor: Carlsberg Group Investor Relations
Design & layout: Operate & SkabelonDesign
Photos: Nana Reimers et al

In 2007, we inaugurated our first brewery in India, and in 2016 we began work on our eighth brewery, which will open in Karnataka in 2017. Tuborg has been an important driver of our success and is now the no. 1 international brand in the country. Our Indian business broke even in 2015 and delivered a profit in 2016.

DISCLAIMER

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.

SAIL'22 Grow in Asia

AI assistant

Carlsberg A/S — Annual Report 2016

3355_rns_2017-03-30_b1f3733a-8261-4b55-9c91-a919e414d3cc.pdf

MANAGEMENT REVIEW

Management review

FINANCIAL STATEMENTS

Consolidated financial statements

Parent Company

Reports

SAIL'22 New strategy in 2016

Delivering on our priorities

Activities of the Group

Highlights 2016

SAIL'22

Financial highlights

62.6

8.3

8.8

10.7

Earnings growth on track and strong cash flow

Income statement

Statement of financial position

Assets

Liabilities

Cash flow

Financing

Five-year summary

Guiding for growth in operating profit and reduction in leverage

Regional priorities

2017 expectations

Other relevant assumptions

SAIL'22

Setting sail

Our strategic choices

SAIL®22

Strengthen the core

Leverage our strongholds

Revitalising core beer

Actions and initiatives in 2016

Transforming our business in Russia

Actions and initiatives in 2016

Excel in execution

Consumer insights and R&D

Actions and initiatives in 2016

Point of sale

Actions and initiatives in 2016

Managing complexity

Actions and initiatives in 2016

Digital

Actions and initiatives in 2016

Funding the Journey

Value management

Supply Chain Efficiency

Operating Expense Efficiency

Right-sizing of Businesses

SAIL'22

Position for growth

Win in growing categories

Craft & speciality

Craft & speciality and NAB account for around 5% of our beer volumes today, but this figure is expected to double during the course of SAIL'22.

Actions and initiatives in 2016

NAB

Actions and initiatives in 2016

Target big cities

Actions and initiatives in 2016

Grow in Asia

Actions and initiatives in 2016

SAIL'22

Create a winning culture

Team-based performance

Actions and initiatives in 2016

20%

Contribute to a better society

Actions and initiatives in 2016

Compass

Actions and initiatives in 2016

27

Managing risks in the best possible way

Risk management governance structure

Four areas identified as high risks for 2017

Carlsberg A/S Annual Report 2016