Foreign exchange  risk related to  earnings The foreign exchange risk in the entities in  Eastern Europe is managed differently from  Carlsberg’s operations in the main parts  of the rest of the Group. The reason is the  excessive cost of hedging these currencies  over a longer period of time. With regard  to transaction risk, Baltika Breweries has  expenses in both USD and EUR. This split is  likely to reduce the transaction risk. However,  appreciation and depreciation of RUB have  affected and will continue to affect operating  profit measured in both DKK and RUB. 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. IMPACT FROM EASTERN EUROPE TRANSACTION RISKS ON PURCHASES  AND SALES  The Group is exposed to transaction risks on purchases and sales in currencies other  than the functional currency of the local   entities. It is therefore Group policy to hedge  future cash flows in currencies other than  the functional currency of the entities for  a one-year period. This policy applies to  Western Europe, excluding some of the Baltic and Balkan states. Hedging is carried  out when plans for the following year are  being prepared, effectively hedging the enti- ties’ operating profit in local currency. Since  a major part of the purchases in foreign currency is in EUR, this will not constitute a risk at Group level. However, at Group level  these hedges are effectively an economic  hedge of (parts of) the net revenue in the  relevant currency, and they are accounted  for as cash flow hedges. The Group is exposed to risk from translation  of foreign entities into the Group’s functional  currency, DKK. The Group is primarily exposed  to RUB and secondarily to other currencies as  stated in the graph to the right, which distrib- utes revenue by major currencies. There is also  some exposure to a number of Asian curren- cies, which in total represent approximately  20% (2012: 15%) of the Group’s operating prof- it. The exposure to fluctuations in EUR/DKK is  considered insignificant due to Denmark’s fixed  exchange rate policy towards EUR. TRANSLATION RISK  Carlsberg Group Annual Report 2013 Consolidated financial statements SECTION 1: OPERATING ACTIVITIES 67 The Group has chosen not to hedge the  exposure arising from translation of revenue  or earnings in foreign currencies but does in  certain cases hedge specific cash flows such as  dividends to be received in foreign currencies.  Developments in exchange rates between DKK  and the functional currencies of foreign entities  had a negative impact on the Group’s operat- ing profit measured in DKK. Operating profit  was reduced as a result of a decrease in the  average rates for CHF/DKK (-1.9%), NOK/DKK  (-4.4%), GBP/DKK (-4.4%), MYR/DKK (-4.4%),  RUB/DKK (-5.6%) and UAH/DKK (-3.6%).  IMPACT ON OPERATING PROFIT NET REVENUE 2012  BY CURRENCY AS A PERCENTAGE OF TOTAL NET REVENUE EUR 27%  RUB 18% DKK 11% GBP 7% CHF 5% NOK 4% SEK 4% PLN 4% CNY 4% UAH 3% Other 13% EUR 26%  RUB 21% DKK 10% GBP 7% CHF 5% NOK 4% SEK 4% PLN 4% CNY 3% UAH 3% Other 13% NET REVENUE 2013  BY CURRENCY AS A PERCENTAGE OF TOTAL NET REVENUE