Unilever 2000 Annual Report Download - page 76

Download and view the complete annual report

Please find page 76 of the 2000 Unilever annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

Unilever Annual Report & Accounts and Form 20-F 2000 Financial Statements
74
Notes to the consolidated accounts
Unilever Group
30 Financial instruments
The Group has comprehensive policies in place, approved by the directors, covering the use of straightforw ard derivative financial
instruments. These instruments are used for hedging purposes only. Established controls are in place covering all financial instruments.
These include policies, guidelines, exposure limits, a system of authorities and independent reporting. Performance is closely monitored with
independent reviews undertaken by internal audit. The accounting policies governing these instruments are in line w ith generally accepted
practice and follow hedge accounting principles described in the accounting policies on page 47. The use of leveraged instruments is not
permitted. Details of the instruments used for interest rate and foreign exchange exposure management, together w ith information on
related exposures, are given below.
Except for the description of Unilever’s currency exposures, all debtors and trade and other creditors have been excluded from the analysis
below and from the interest rate and currency profiles in notes 15 and 16 on pages 60 and 61 either due to the exclusion of short-term
items, as permitted by United Kingdom Financial Reporting Standard 13, or because the amounts are not material.
As a result of acquisitions, investments have been liquidated and fixed rate debt has increased during 2000. Unilever operates an interest
rate management policy aimed at optimising net interest and reducing volatility. The interest payable on debt depends on the Group’s
financial position and was largely fixed at the year end. This has been achieved by using fixed rate long-term debt issues and derivative
financial instruments such as interest rate sw aps. In general, cash is invested short-term at floating interest rates.
At the end of 2000 interest rates were fixed on approximately 67% of the projected debt for 2001 and 57% for 2002 (compared
with 22% for 2000 and 21% for 2001 at the end of 1999). Interest receivable is not fixed for 2001 nor for 2002 (compared with a
fixing level of 34% for 2000 and 15% for 2001 at the end of 1999).
Nominal values of interest rate derivative instruments are shown in the table below. These nominal values w hen compared w ith the nominal
value of the underlying debt do not reflect the actual level of use of financial instruments. This is because certain financial instruments have
consecutive strike and maturity dates on the same underlying debt in different periods. Derivatives are primarily used to swap floating
interest mid-term debt into fixed rate debt. Whilst the nominal amounts reflect the volume of activity, they do not properly reflect the
amount of credit risk to w hich the Group is exposed. Unrealised, unrecognised losses on interest rate instruments at 31 December 2000
were 43 million (1999: loss of 27 million). Of the movement for the year, a loss of 45 million arose from new instruments purchased
during the year, and the balance represents the movement in the market value of interest rate instruments held at 31 December 1999
and still held at 31 December 2000. Based on the maturity profile of the interest sw aps it is expected that 81% of the loss will be realised
in 2001. Deferred losses on interest rate instruments at 31 December 2000 were 95 million (1999: 25 million, of which 5 million
was recognised in the 2000 profit and loss account). It is expected that in 2001 a loss of 21 million will be recognised in the profit
and loss account.
million
Nominal amounts at 31 December
2000 1999
Interest rate sw aps 19 603 3 756
Forw ard rate agreements —1 198
Total 19 603 4 954
Under the Group’s foreign exchange policy, exposures with a maximum of one year maturity are generally hedged; this is achieved through
the use of forward foreign exchange contracts. The market value of these instruments at the end of 2000 represented a recognised
unrealised gain of 158 million (1999: loss of 129 million) which was largely offset by recognised unrealised losses on the underlying
assets and liabilities.
million
Nominal amounts at 31 December
2000 1999
Foreign exchange contracts – buy 6 814 1 765
– sell 12 318 3 562
Total 19 132 5 327
Assets held in foreign currencies are, to a large extent, financed by borrowings in the same currencies. Consequently, at the end of 2000
some 56% (1999: 51% ) of Unilever’s total capital and reserves were denominated in the currencies of the tw o parent companies, euros
and sterling.
Credit risk exposures are minimised by dealing only w ith a limited range of financial institutions with secure credit ratings, and by w orking
within agreed counterparty limits. Counterparty credit ratings are regularly monitored and there is no significant concentration of credit risk
with any single counterparty.