Unilever 2015 Annual Report Download - page 127

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 adusted by
the far value of the rsk beng hedged, wth changes gong to the ncome 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 adustment made to the
bond s amortsed to the ncome statement usng the effectve nterest method
(II) ASH FLOW HEDES(a)
Dervatves are also held to hedge the uncertanty n tmng or amount of future forecast cash flows Such dervatves are classfed as
beng part of cash flow hedge relatonshps For an effectve hedge, gans and losses from changes n the far value of dervatves are
recognsed n equty Any neffectve elements of the hedge are recognsed n the ncome statement If the hedged cash flow relates to
a non-fnancal asset, the amount accumulated n equty s subsequently ncluded wthn the carryng value of that asset For other
cash flow hedges, amounts deferred n equty are taken to the ncome statement at the same tme as the related cash flow
When a dervatve no longer qualfes for hedge accountng, any cumulatve gan or loss remans n equty untl the related cash flow
occurs When the cash flow takes place, the cumulatve gan or loss s taken to the ncome statement If the hedged cash flow s no
longer expected to occur, the cumulatve gan or loss s taken to the ncome statement mmedately
(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 2014 and 2015
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 2015 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 2015 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
(2014 US$6,550 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 2016
120 Unilever Annual Report and Accounts 2015Financial statements
NOTES TO THE ONSOLIDATED FINANIAL STATEMENTS
UNILEVER ROUP ONTINUED