30. Additional Disclosures on Financial Instruments, Financial Risk Management, and Derivative Financial Instruments

The table below shows the carrying amounts and fair values of the Group’s financial instruments as of December 31, 2023, and December 31, 2024:

The following overview shows the IFRS 13 fair value hierarchy levels used to classify financial instruments that are measured at fair value on a recurring basis:

In the Beiersdorf Group, securities carried at fair value are allocated to fair value hierarchy Level 1 and are measured at quoted prices on the balance sheet date.

Derivative financial instruments are assigned to fair value hierarchy Level 2. The fair values of currency forwards are calculated using the exchange rate as of the reporting date and discounted to the reporting date on the basis of their respective yield curves.

Fair value hierarchy Level 3 contains market values of equity investments and investment funds. They are usually assigned to the category “at fair value through profit or loss” (FVPL). If there is no intention to trade, Beiersdorf makes use of the option to assign certain financial investments in equity instruments to the FVOCI category without recycling. None of the investments in themselves are material for the Beiersdorf Group.

The changes in fair value of financial instruments categorized in Level 3 in financial years 2023 and 2024 can be viewed in the table below.

Due to their minor significance, we have not carried out a sensitivity analysis of the parameters relevant to fair value hierarchy Level 3.

There were no reclassifications between measurements categories or within the fair value hierarchy during the reporting year. In order to comply with internal minimum requirements for issuers’ creditworthiness, Beiersdorf sold bonds from the “at amortized cost” (AC) category with a carrying amount of €68 million before maturity in the reporting year. This resulted in a loss of €0 million, which is recognized within “Other financial result.”

Financial instruments that are not measured at fair value predominantly have remaining contractual maturities of less than 12 months as of the reporting date. Therefore, their carrying amounts at the balance sheet date correspond approximately to their fair value. Securities belonging to the “at amortized cost” (AC) category are an exception. The fair values for this item have been assigned to fair value hierarchy Level 1.

Risk Management Principles

As a result of its operations, the Beiersdorf Group is exposed to various risks such as currency risk, interest rate risk, and default risk. These risks are countered by active treasury management based on a global directive. They are managed and hedged centrally to a very large extent.

Derivative financial instruments are used to hedge the operational business and material financial transactions. The transactions are conducted exclusively with marketable instruments. IFRS 7 requires sensitivity analyses, which show the effects of hypothetical changes in relevant risk variables on profit or loss and equity, to be used in presenting market risk. For the Beiersdorf Group, this mainly relates to currency risk. The effects are ascertained by applying the hypothetical changes in risk variables to the portfolio of financial instruments as of the balance sheet date. It is assumed that the portfolio at the reporting date is representative for the full year.

Currency Risk

Currency risk is the risk of fluctuations in the fair value or future cash flows of a financial instrument as a result of changes in exchange rates.

Currency risk within the meaning of IFRS 7 arises through monetary financial instruments that are reported in a currency other than the functional currency. Exchange rate differences arising from the translation of financial statements of affiliates into the Group currency are not included. Relevant risk variables are therefore basically all non-functional currencies in which financial instruments are held by the Beiersdorf Group. As a result of the Beiersdorf Group’s international orientation and emphasis on the eurozone, the euro serves as the key currency. Consequently, the Beiersdorf Group is exposed to risks through financing measures and operational activities when other currencies fluctuate against the euro.

As a matter of principle, currency risks relating to cross-border intragroup financing are hedged centrally in full and at matching maturities using currency forwards. In such cases, the measurements of the derivative financial instruments are directly offset by changes in market value of the hedged items. These derivative financial instruments are allocated to the “derivatives not included in a hedging relationship” category; hedge accounting pursuant to IFRS 9 is not used. Derivatives not included in a hedging relationship are used solely to hedge economic risk and not for speculative purposes.

With regard to operations, a majority of cash flows in non-functional currencies in the Beiersdorf Group are generally hedged for the next 12 months using standard currency forwards. These transactions are recorded, measured, and managed centrally in the treasury management system. When a transaction is executed, the economic relationship between the hedging instrument and the hedged item is documented, along with the risk management objective and risk management strategy.

In forward currency transactions, Beiersdorf designates both the spot and the forward components into the hedging relationship. The effectiveness is determined using the critical terms match method at the beginning of the hedging relationship and through regular prospective assessments to ensure that there is an economic relationship between the hedged item and the hedging transaction. The ineffective portion of cash flow hedges refers to the income or expenses from changes in the fair value of hedging instruments that exceed the changes in the fair value of the underlying transactions. Time shifts between the underlying and hedging transactions as well as the consideration of the credit risk component in the hedging transaction can result in ineffectiveness in hedging relationships. Overall, these are not material for the Beiersdorf Group. Depending on the underlying transaction, ineffective parts of the change in value are recognized in the operating result.

The netted positive and negative fair values of the currency forwards at the balance sheet date totaled €–14 million (previous year: €13 million), and their notional value was €2,364 million (previous year: €2,167 million). As of the balance sheet date, the remaining terms of the forward exchange contracts were less than one year. In the previous year, market values of €2 million had remaining terms of more than one year; otherwise the remaining terms were less than one year. The change in fair value for determining ineffectiveness corresponds to the change in fair value of the designated component. Hedging did not result in any significant ineffectiveness as of the reporting date.

The notional values represent the aggregate of all purchase and selling amounts for derivatives. The notional values shown are not netted.

Positive fair values are recognized in the balance sheet under other financial assets (current and non-current), and negative fair values under other financial liabilities (current and non-current). The average hedging rates for major currency pairs as of the balance sheet date can be viewed in the table below.

By using forward exchange transactions to hedge exchange rate risks from future cash flows, exchange rate changes essentially affect the hedging reserve in equity and the fair values of the hedging transactions. The development of the hedging transactions recorded in other comprehensive income can be seen in the table below. The amounts recorded in reserves are recognized in profit or loss at the time at which the hedged transaction affects the profit or loss for the period. The reclassifications in the income statement were made into the operating result.

If the euro had appreciated by 10% against all currencies as of December 31, 2024, the fair values of the currency forwards recognized directly within the hedging reserves in equity would have increased by €73 million (previous year: €62 million). If the euro had depreciated by 10%, the fair values of the currency forwards recognized directly within the hedging reserves in equity would have decreased by €90 million (previous year: €73 million). An appreciation of the euro by 10% would have decreased the value of currency forwards not included in a hedging relationship by €6 million within the financial result (previous year: €4 million). A corresponding decrease in the value of the euro by 10% would have increased the financial result by €7 million (previous year: €7 million). The effects on comprehensive income and consolidated equity from the changes in individual currency pairs as of the balance sheet date can be viewed in the table below.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of the interest-bearing financial instrument will fluctuate due to changes in the market interest rate. Beiersdorf has a securities portfolio that is essentially classified as “measured at amortized cost (AC).” Therefore, an interest-induced change in market value has no effect on profit after tax or on equity. The hypothetical interest rate risk in relation to the future cash flows of variable-interest financial instruments is determined by a parallel shift in the yield curve of 100 basis points in both directions. Beiersdorf uses variable-interest financial instruments such as money market funds as well as bank, overnight, and short-term deposits which are measured at fair value through profit or loss. Since Beiersdorf only uses these as part of daily liquidity planning, the hypothetical interest rate risk with regard to future cash flows is negligible.

Default Risk

The Beiersdorf Group is exposed to default risk within the scope of its financing activities and in its operations. The maximum default risk can be seen from the carrying amount of each financial asset recognized in the balance sheet. The total carrying amount of the financial assets was €6,793 million as of December 31, 2024 (previous year: €6,829 million).

A three-stage process is applied under IFRS 9. A risk provision is recognized based on either the expected credit losses over the next 12 months (Stage 1), or the expected credit losses over the lifetime of the financial asset if there is a significant increase in credit risk from initial recognition (Stage 2) or the financial asset has become credit impaired (Stage 3). Potential default risks relating to the investment of the Group’s liquid funds are limited by only making investments with counterparties deemed reliable. Counterparty risk is monitored on the basis of ratings and the counterparties’ liable capital as well as continuously updated risk indicators. These parameters are used to determine maximum amounts for investments with partner banks and securities issuers (counterparty limits), which are regularly compared with the investments actually made throughout the Group. We have invested the majority of our liquidity in low-risk investments (such as government and corporate bonds).

Impairments based on expected credit losses over the next 12 months are recognized on securities measured at amortized cost or at fair value through other comprehensive income. The estimate is based on ratings and continuously updated risk indicators. Current CDS spreads and the issuers’ bond spreads are also used in the calculation.

The development of these valuation allowances can be viewed in the table below.

Financial assets such as cash and cash equivalents include bank balances and very short-term liquid investments. These belong to the “at amortized cost” category. Given the very short terms (e.g., due on demand) and the creditworthiness of our contractual partners, no impairment was identified based on expected credit losses.

The simplified approach is used for determining impairments on trade receivables under IFRS 9. In this approach, expected credit losses over the entire lifetime of the financial instruments are determined. The expected losses are estimated separately in each business unit based on analyses of historical defaults and the age structure of the receivables as well as current economic developments and an assessment of the credit quality of individual customers.

Given that historical and expected default rates are low, the impairments did not have a material impact on assets or equity. We counter the risk of bad debts through detailed monitoring of our customer relationships, active receivables management, and the selective use of trade credit insurance.

The simplified approach under IFRS 9 is also used to determine impairments on lease receivables. We estimate the risk of credit defaults by lessees to be very low. Moreover, the lease payments are secured via the value of the property. We have recognized a total valuation allowance of €0 million.

Liquidity Risk

Liquidity risk is the risk that an entity will encounter difficulties in meeting the obligations associated with its financial liabilities. As a result of the large amount of cash and cash equivalents as well as securities held as of the balance sheet date, the Beiersdorf Group is not currently exposed to any liquidity risk. Additionally, in order to ensure the liquidity and financial flexibility of the Beiersdorf Group at all times, liquidity reserves are maintained in the form of credit lines.

The payment terms for financial liabilities largely expire within the next 12 months. The future undiscounted cash outflows from trade payables are due within one year and amount to €2,571 million as of the reporting date (previous year: €2,234 million). Non-current financial liabilities primarily comprise lease liabilities. As of December 31, 2024, future undiscounted lease liabilities with a remaining term of up to one year amounted to €73 million (previous year: €61 million), those with a remaining term of more than one year and up to five years to €143 million (previous year: €134 million), and those with a remaining term of more than five year to €45 million (previous year: €48 million). Derivative financial liabilities are also predominantly short-term. Of the nominal values totalling €2,364 million (previous year: €2,167 million), all cash outflows are expected within the next 12 months. In the previous year, cash outflows of €2,030 million were planned within the next 12 months and €137 million within the next 12 to 24 months.