Hydro Annual Report 2011b

F22
FINANCIAL STATEMENTS
Note 6 - Financial and commercial risk management
The fair value of interest rate derivatives as of December 31, 2011 and 2010 is immaterial and not presented here.
Financial instruments and provisions are also exposed to changes in interest rates in connection with discounting of positions to
net present value. See sensitivity analysis of financial instruments below.
Sensitivity analysis
In accordance with IFRS, requirements Hydro has chosen to provide information about market risk and potential exposure to
hypothetical loss from its use of derivative financial instruments and other financial instruments and derivative commodity
instruments through sensitivity analysis disclosures. The sensitivity analysis depicted in the tables below reflects the
hypothetical gain/loss in fair values that would occur assuming a 10 percent increase in rates or prices and no changes in the
portfolio of instruments as of December 31, 2011 and December 31, 2010, respectively. Effects shown below are largely also
representative of reductions in rates or prices by 10 percent but with the opposite sign convention. Only effects that would
ultimately be accounted for in profit and loss, or equity, as a result of a change in rates or prices are included. All changes are
before tax.
Interest
Amounts in NOK million 2011 1)
Gain/loss from 10 percent increase in
Fair value as of
December 31, Foreign currency exchange rates Commodity prices
USD EUR Other Aluminium Other rates Other
Derivative financial instruments 2)
Other financial instruments 3)
Derivative commodity instruments 4)
Financial instruments directly to equity 5)
27 (75) (20) ­ ­ ­ ­ ­
7 890 (572) 285 79 ­ ­ (9) 41
(1 157) (490) 1 3 (233) (266) (13) 4
1 052 421 3 3 231 ­ (42) ­
Interest
Amounts in NOK million 2010 1)
Gain/loss from 10 percent increase in
Fair value as of
December 31, Foreign currency exchange rates Commodity prices
USD EUR Other Aluminium Other rates Other
Derivative financial instruments 2)
Other financial instruments 3)
Derivative commodity instruments 4)
Financial instruments directly to equity 5)
11 86 (29) ­ ­ ­ ­ ­
19 564 727 347 58 ­ ­ (14) 38
(2 156) (558) (12) (1) (905) (294) 42 (29)
1 455 108 2 1 (276) ­ (87) ­
1) The change in fair value due to price changes is calculated based on pricing formulas for certain derivatives, the Black-Scholes/Turnbull-Wakeman models
for options and the net present value of cash flows for certain financial instruments or derivatives. Discount rates vary as appropriate for the individual
instruments.
2) Includes mainly forward currency contracts.
3) Includes cash and cash equivalents, investments in marketable securities, bank loans and other interest-bearing short-term debt and long-term debt.
Trade payables and trade receivables are also included.
4) Includes all contracts with commodities as underlying, both financial and physical contracts, such as LME contracts and NASDAQ OMS Commodities
Europe contracts, which are accounted for at fair value.
5) Includes shares classified as available-for-sale and commodity hedging derivatives.
Hydro's management emphasizes that the above sensitivity analysis contains material limitations due to the necessarily
simplified assumptions including:
Include only the effects of the derivative instruments discussed above and of certain financial instruments (see footnotes
in the table above) which excludes all related offsetting physical positions, contracts, and anticipated transactions.
No adjustments for potential correlations between the risk exposure categories, such as the effect of a change in a foreign
exchange rate on a commodity price.
The unlikely assumption that all rates or prices simultaneously move in directions that would have negative/positive
effects on Hydro's portfolio of instruments.
The above discussion about Hydro's risk management policies and the estimated amounts included in the sensitivity analysis
relate to the balance sheet position as of December 31. Outcomes could differ materially based on actual developments in the
global markets. The methods used by Hydro to analyze risks discussed above should not be considered projections of future
events, gains or losses.