Unilever 2014 Annual Report Download - page 77

16 TREASURY RISK MANAEMENT
DERIVATIVES AND HEDE AOUNTIN
Dervatves are measured at far value wth any related transacton costs expensed as ncurred The treatment of changes n the
value of dervatves depends on ther use as explaned below
(I) FAIR VALUE HEDES(a)
ertan dervatves are held to hedge the rsk of changes n value of a specfc bond or other loan In these stuatons, the roup
desgnates the lablty and related dervatve to be part of a far value hedge relatonshp The carryng value of the bond s adjusted
by the fair value of the risk being hedged, with changes going to the income statement ans and losses on the correspondng
dervatve are also recognsed n the ncome statement The amounts recognsed are offset n the ncome statement to the extent
that the hedge s effectve When the relatonshp no longer meets the crtera for hedge accountng, the far value hedge adjustment
made to the bond is amortised to the income statement using the effective interest method.
(II) ASH FLOW HEDES(a)
Derivatives are also held to hedge the uncertainty in timing or amount of future forecast cash flows. Such derivatives are classified
as being part of cash flow hedge relationships. For an effective hedge, gains and losses from changes in the fair value of derivatives
are recognised in equity. Any ineffective elements of the hedge are recognised in the income statement. If the hedged cash flow
relates to a non-financial asset, the amount accumulated in equity is subsequently included within the carrying value of that asset.
For other cash flow hedges, amounts deferred in equity are taken to the income statement at the same time as the related cash flow.
When a derivative no longer qualifies for hedge accounting, any cumulative gain or loss remains in equity until the related cash flow
occurs. When the cash flow takes place, the cumulative gain or loss is taken to the income statement. If the hedged cash flow is no
longer expected to occur, the cumulative gain or loss is taken to the income statement immediately.
(III) NET INVESTMENT HEDES(a)
ertan dervatves are desgnated as hedges of the currency rsk on the roup’s nvestment n foregn subsdares The accountng
polcy for these arrangements s set out n note 1
(IV) DERIVATIVES FOR WHIH HEDE AOUNTIN IS NOT APPLIED
Dervatves not classfed as hedges are held n order to hedge certan balance sheet tems and commodty exposures No hedge
accountng s appled to these dervatves, whch are carred at far value wth changes beng recognsed n the ncome statement
(a) Applyng hedge accountng has not led to materal neffectveness beng recognsed n the ncome statement for both 2013 and 2014
The roup s exposed to the followng rsks that arse from ts use of fnancal nstruments, the management of whch s descrbed
n the followng sectons
• lqudty rsk (see note 16A)
• market rsk (see note 16B) and
• credt rsk (see note 17B)
16A. MANAGEMENT OF LIQUIDITY RISK
Lqudty rsk s the rsk that the roup wll face n meetng ts oblgatons assocated wth ts fnancal labltes The roup’s approach
to managng lqudty s to ensure that t wll have suffcent funds to meet ts labltes when due wthout ncurrng unacceptable losses
In dong ths, management consders both normal and stressed condtons A materal and sustaned shortfall n our cash flow could
undermne the roup’s credt ratng, mpar nvestor confdence and also restrct the roup’s ablty to rase funds
The roup mantaned a cautous fundng strategy, wth a postve cash balance throughout 2014 Ths was the result of cash delvery
from the busness, coupled wth the proceeds from bond ssuances Ths cash has been nvested conservatvely wth low rsk counter-
partes at maturtes of less than sx months
ash flow from operatng actvtes provdes the funds to servce the fnancng of fnancal labltes on a day-to-day bass
The roup seeks to manage ts lqudty requrements by mantanng access to global debt markets through short-term and
long-term debt programmes In addton, Unlever has commtted credt facltes for general corporate use
On 31 December 2014 Unlever had undrawn revolvng 364-day blateral credt facltes n aggregate of US $6,550 mllon
(2013 US $6,400 mllon) wth a 364-day term out As part of the regular annual process the ntenton s that these facltes wll
agan be renewed n 2015
114 Unilever Annual Report and Accounts 2014Financial statements
NOTES TO THE ONSOLIDATED FINANIAL STATEMENTS
UNILEVER ROUP ONTINUED