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ABOUT UNILEVER GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
119Unilever Annual Report and Accounts 2012 Financial statements
16B Management of market rsk continued
Potental mpact of rsk Management polcy and
hedgng strategy Senstvty to the rsk
At 31 December 2012, the unhedged Exchange risks related to the principal A 10% strengthening of the euro against
exposure to the Group from companies amounts of the US$ and Swiss franc key currencies to which the Group is
holding financial assets and liabilities other denominated debt either form part of exposed would have led to approximately
than in their functional currency amounted hedging relationships themselves, or an additional €4 million gain in the income
to €45 million (2011: €56 million). are hedged through forward contracts. statement (2011: €6 million gain). A 10%
weakening of the euro against these
The aim of the Group’s approach to currencies would have led to an equal but
management of currency risk is to leave opposite effect.
the Group with no material residual risk.
This aim has been achieved in all
years presented.
Currency risk on the Group’s investments Unilever aims to minimise this foreign A 10% strengthening of the euro against
investment exchange exposure by all other key currencies would have led
The Group is also subject to the exchange borrowing in local currency in the to an additional €382 million loss being
risk in relation to the translation of the net operating companies themselves. recognised in equity (2011: €377 million
assets of its foreign operations into euros In some locations, however, the Group’s loss). A 10% weakening of the euro
for inclusion in its consolidated financial ability to do this is inhibited by local against these currencies would have
statements. regulations, lack of local liquidity the equal but opposite effect.
or by local market conditions.
At 31 December 2012 the nominal value There would be no impact on the income
of the Group’s designated net investment Where the residual risk from these statement under either of these scenarios.
hedges amounted to €4.2 billion (2011: countries exceeds prescribed limits,
€4.1 billion). Most of these arrangements Treasury may decide on a case-by-case
were in relation to US $/€ contracts. basis to actively hedge the exposure.
This is done either through additional
borrowings in the related currency, or
through the use of forward foreign
exchange contracts.
Where local currency borrowings,
or forward contracts, are used to hedge
the currency risk in relation to the
Group’s net investment in foreign
subsidiaries, these relationships are
designated as net investment hedges
for accounting purposes.
) Interest rate rsk(a)
The Group is exposed to market interest Unilever’s interest rate management Assuming that all other variables remain
rate fluctuations on its floating rate debt. approach aims for an optimal balance constant, a 100bps increase in floating
Increases in benchmark interest rates between fixed and floating-rate interest interest rates on a full-year basis as at
could increase the interest cost of our rate exposures on expected net debt. 31 December 2012 would have led to an
floating-rate debt and increase the cost The objective of this approach is to additional €3 million of finance costs
of future borrowings. The Group’s ability minimise annual interest costs after (2011: €26 million additional finance
to manage interest costs also has an tax and to reduce volatility. costs). A 100bps decrease in floating
impact on reported results. interest rates on a full-year basis would
This is achieved either by issuing fixed have an equal but opposite effect.
Taking into account the impact of interest or floating-rate long-term debt, or by
rate swaps, at 31 December 2012, interest modifying interest rate exposure through Assuming that all other variables remain
rates were fixed on approximately 91% of the use of interest rate swaps. constant, a 100bps increase in floating
the expected net debt for 2013, and 90% interest rates on a full-year basis as at
for 2014 (73% for 2012 and 57% for 2013 Furthermore, Unilever has interest 31 December 2012 would have led to an
at 31 December 2011). rate swaps for which cash flow hedge additional €102 million credit in equity
accounting is applied. from derivatives in cash flow hedge
The average interest rate on short-term relationships (2011: €16 million credit).
borrowings in 2012 was 1.5% (2011: 2.5%). A 100bps decrease in floating interest
rates on a full-year basis would have led
to an additional €111 million debit in
equity from derivatives in cash flow hedge
relationships (2011: €16 million debit).
(a) See the split in fixed and floating-rate interest in the following table.