Loreal 2011 Annual Report Download - page 134

132 REGISTRATION DOCUMENT − L’ORÉAL 2011
42011 Consolidated Financial Statements
Notes to the consolidated  nancial statements
23.4. Breakdown of fixed rate and floating rate debt
(after allowing for interest rate hedging instruments)
€ millions 12.31.2011 12.31.2010 12.31.2009
Floating rate 1,094.0 1,517.3 3,052.2
Fixed rate 54.3 74.0 79.1
Total 1,148.3 1,591.3 3,131.3
23.5. Effective interest rates
Effective interest rates on Group debt after allowing for hedging
instruments were 0.21% in2009, 0.21% in2010 and 1.47% in2011
for short-term paper, and 1.02% in2009 and 1.15% in2010
for bank loans. The Group no longer had any bank loans at
December31st, 2011.
23.6. Average debt interest rates
Average interest rates after allowing for hedging instruments
were 1.63% in2009, 0.99% in2010 and 1.39% in2011 on euro-
denominated debt and 0.53% in2009, 0.36% in2010 and 0.19%
in2011 on USD-denominated debt.
23.7. Fair value of borrowings and
debt
The fair value of fixed-rate debt is determined for each loan by
discounting future cash flows, based on bond yield curves at the
balance sheet date, after allowing for the spread corresponding
to the Group’s risk rating.
The net carrying amount of outstanding bank loans and other
floating-rate loans is a reasonable approximation of their fair
value.
The fair value of borrowings and debt amounted to €1,148.4million
at December31st, 2011. The fair value of borrowings and debt
amounted to €1,591.8million at December31st, 2010. The fair
value of borrowings and debt amounted to €3,131.7million at
December31st, 2009.
23.8. Debt covered by collateral
No debt was covered by material amounts of collateral at
December31st, 2011, 2010 or 2009.
23.9. Confirmed credit lines
At December31st, 2011, L’Oréal and its subsidiaries had
€2,438.6million of confirmed undrawn credit lines, compared
with €2,387million at December31st, 2010 and €2,425million
at December31st, 2009.
Credit lines fall due as follows:
♦€588.6million in less than 1year;
♦€1,850.0million between 1year and 4years.
NOTE24 Derivatives and exposure to market risks
To manage its exposure to currency and interest rate risks arising
in the course of its normal operations, the Group uses derivatives
negotiated with counterparties rated investment grade.
In accordance with Group rules, currency and interest rate
derivatives are set up exclusively for hedging purposes.
24.1. Hedging of currency risk
The Group is exposed to currency risk on commercial
transactions recorded on the balance sheet and on highly
probable future transactions.
The Group’s policy regarding its exposure to currency risk on
future commercial transactions is to hedge at the end of the
year a large part of the currency risk for the following year, using
derivatives based on operating budgets in each subsidiary.
All the Group’s future foreign currency flows are analysed in
detailed forecasts for the coming budgetary year. Any currency
risks identified are hedged by forward contracts or by options
in order to reduce as far as possible the currency exposure of
each subsidiary. The term of the derivatives is aligned with the
Group’s settlements. Exchange rate derivatives are negotiated
by REGEFI (the Group’s bank) or, in exceptional cases, directly
by the Group’s subsidiaries when required by local regulations.
Such operations are supervised by REGEFI.