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118 Unilever Annual Report and Accounts 2012Financial statements
NOTES TO THE ONSOLIDATED FINANIAL STATEMENTS UNILEVER ROUP continued
16A Management of lqudty rsk continued
The following table shows cash flows for which cash flow hedge accounting is applied. The derivatives in the cash flow hedge
relationships are expected to have an impact on profit and loss in the same periods as the cash flows occur.
 mllon
Due
wthn
1 year
 mllon
Due
between
1 and 2
years
 mllon
Due
between
2 and 3
years
 mllon
Due
between
3 and 4
years
 mllon
Due
between
4 and 5
years
 mllon
Due
after
5 years
 mllon
Total
 mllon
Net
carryng
amount of
related
dervatves[a]
2012
Foreign exchange cash inflows 877 –––––877
Foreign exchange cash outflows (473) –––––(473) (4)
Interest rate cash flows –(173) (109) –––(282) (146)
Commodity contracts cash flows (498) –––––(498) (19)
2011
Foreign exchange cash inflows 779 –––––779
Foreign exchange cash outflows (519) –––––(519) 3
Interest rate cash flows – – (17) (41) (57) (170) (285) (27)
Commodity contracts cash flows (356) –––––(356) (2)
[a] See note 16C on page 120.
16B Management of market rsk
Unilever’s size and operations result in it being exposed to the following market risks that arise from its use of financial instruments:
• commodity price risk;
• currency risk; and
• interest rate risk.
The above risks may affect the Group’s income and expenses, or the value of its financial instruments. The objective of the Group’s
management of market risk is to maintain this risk within acceptable parameters, while optimising returns. Generally, the Group
applies hedge accounting to manage the volatility in profit and loss arising from market risk.
The Group’s exposure to, and management of, these risks is explained below. It often includes derivative financial instruments,
the uses of which are described in note 16C.
Potental mpact of rsk Management polcy and
hedgng strategy Senstvty to the rsk
) ommodty prce rsk
The Group is exposed to the risk of The Group uses commodity forward A 10% increase in commodity prices
changes in commodity prices in relation contracts to hedge against this risk. as at 31 December 2012 would have led to
to its purchase of certain raw materials. All commodity forward contracts hedge a €49 million gain on the commodity
future purchases of raw materials and derivatives in the cash flow hedge reserve
At 31 December 2012, the Group the contracts are settled either in cash (2011: €38 million gain in the cash flow
has hedged its exposure to future or by physical delivery. hedge reserve). A decrease of 10% in
commodity purchases for €504 million commodity prices on a full-year basis
(2011: €368 million) with commodity Commodity derivatives are generally would have the equal but opposite effect.
derivatives. designated as hedging instruments in
cash flow hedge accounting relations.
) urrency rsk
Currency risk on sales, purchases The Group manages currency exposures As an estimation of the approximate
and borrowings within prescribed limits, mainly through impact of the residual risk, with respect
the use of forward foreign currency to financial instruments, the Group has
Because of Unilever’s global reach, it is exchange contracts. calculated the impact of a 10% change
subject to the risk that changes in foreign in exchange rates.
currency values impact the Group’s sales, Operating companies manage
purchases and borrowings. foreign exchange exposures within
prescribed limits. Local compliance is
monitored centrally.