Unilever 2013 Annual Report Download - page 125

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16A. MANAGEMENT OF LIQUIDITY RISK 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)
2013
Foreign exchange cash inflows 1,088 –––––1,088
Foreign exchange cash outflows (509) –––––(509) 1
Interest rate cash flows (2) (111) (2) (1) – – (116) (41)
Commodity contracts cash flows (313) –––––(313) 14
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)
(a) See note 16C on page 124.
16B. MANAGEMENT OF MARKET RISK
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.
POTENTIAL IMPAT OF RISK MANAEMENT POLIY AND HEDIN
STRATEY SENSITIVITY TO THE RISK
I) OMMODITY PRIE RISK
The Group is exposed to the risk of changes
in commodity prices in relation to its
purchase of certain raw materials.
At 31 December 2013, the Group
hashedged its exposure to future
commoditypurchases for €318 million
(2012:€504million) with commodity
derivatives.
The Group uses commodity forward
contracts to hedge against this risk. All
commodity forward contracts hedge future
purchases of raw materials and the contracts
are settled either in cash or by physical
delivery.
Commodity derivatives are generally
designated as hedging instruments in cash
flow hedge accounting relations.
A 10% increase in commodity prices as at
31December 2013 would have led to a
€32million gain on the commodity
derivatives in the cash flow hedge reserve
(2012: €49 million gain in the cash flow
hedge reserve). A decrease of 10% in
commodity prices on a full-year basis
would have the equal but opposite effect.
II) URRENY RISK
urrency rsk on sales, purchases and
borrowngs
Because of Unilever’s global reach, it is
subject to the risk that changes in foreign
currency values impact the Group’s sales,
purchases and borrowings.
The Group manages currency exposures
within prescribed limits, mainly through the
use of forward foreign currency exchange
contracts.
Operating companies manage foreign
exchange exposures within prescribed limits.
Local compliance is monitored centrally.
As an estimation of the approximate impact
of the residual risk, with respect to financial
instruments, the Group has calculated the
impact of a 10% change in exchange rates.
122 Unlever Annual Report and Accounts 2013Fnancal statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNILEVER GROUP CONTINUED