Unilever 2013 Annual Report Download - page 123

16 TREASURY RISK MANAEMENT
DERIVATIVES AND HEDE AOUNTIN
Derivatives are measured at fair value with any related transaction costs expensed as incurred. The treatment of changes in the
value of derivatives depends on their use as explained below.
(I) FAIR VALUE HEDES
Certain derivatives are held to hedge the risk of changes in value of a specific bond or other loan. In these situations, the Group
designates the liability and related derivative to be part of a fair value hedge relationship. The carrying value of the bond is adjusted
by the fair value of the risk being hedged, with changes going to the income statement. Gains and losses on the corresponding
derivative are also recognised in the income statement. The amounts recognised are offset in the income statement to the extent
that the hedge is effective. When the relationship no longer meets the criteria for hedge accounting, the fair value hedge adjustment
made to the bond is amortised to the income statement using the effective interest method.
(II) ASH FLOW HEDES
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
Certain derivatives are designated as hedges of the currency risk on the Group’s investment in foreign subsidiaries. The accounting
policy for these arrangements is set out in note 1.
(IV) DERIVATIVES FOR WHIH HEDE AOUNTIN IS NOT APPLIED
Derivatives not classified as hedges are held in order to hedge certain balance sheet items and commodity exposures. No hedge
accounting is applied to these derivatives, which are carried at fair value with changes being recognised in the income statement.
The Group is exposed to the following risks that arise from its use of financial instruments, the management of which is described in
the following sections:
• liquidity risk (see note 16A);
• market risk (see note 16B); and
• credit risk (see note 17B).
16A. MANAGEMENT OF LIQUIDITY RISK
Liquidity risk is the risk that the Group will face in meeting its obligations associated with its financial liabilities. The Group’s approach to
managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when due without incurring unacceptable losses. In
doing this, management considers both normal and stressed conditions. A material and sustained shortfall in our cash flow could
undermine the Group’s credit rating, impair investor confidence and also restrict the Group’s ability to raise funds.
The Group maintained a cautious funding strategy, with a positive cash balance throughout 2013. This was the result of cash delivery
from the business, coupled with the proceeds from bond issuances in 2013. This cash has been invested conservatively with low risk
counter-parties at maturities of less than six months.
Cash flow from operating activities provides the funds to service the financing of financial liabilities on a day-to-day basis. The Group
seeks to manage its liquidity requirements by maintaining access to global debt markets through short-term and long-term debt
programmes. In addition, Unilever has committed credit facilities for general corporate use.
On 31 December 2013 Unilever had undrawn revolving 364-day bilateral credit facilities in aggregate of US $6,400 million (2012: US
$6,140 million) with a 364-day term out. On 31 December 2013 Unilever had no 364-day bilateral money market commitments (2012: US
$110 million). As part of the regular annual process these facilities will again be renewed in 2014.
120 Unlever Annual Report and Accounts 2013Fnancal statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNILEVER GROUP CONTINUED