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Unilever Annual Report & Accounts and Form 20-F 2002
86 Notes to the consolidated accounts
Unilever Group
15 Financial instruments continued
Under the Group’s foreign exchange policy, transaction exposures,
which usually have a maturity of less than one year, are generally
hedged; this is primarily achieved through the use of forward
foreign exchange contracts. The market value of these instruments
at the end of 2002 represented a recognised unrealised gain of
572 million (2001: loss of 157 million) which was largely offset
by recognised unrealised losses on the underlying assets and
liabilities.
million million
Nominal amounts
at 31 December
2002 2001
Foreign exchange contracts – buy 3 627 6 053
– sell 11 076 13 812
Total 14 703 19 865
Our policy for financing the net investments in our subsidiaries is
discussed in the Financial Review on page 37 and 38. At the end of
2002 some 75% (2001: 67%) of Unilever’s total capital and reserves
were denominated in the currencies of the two parent companies,
euros and sterling.
Counterparty exposures are minimised by dealing with a limited
range of financial institutions with secure credit ratings, and by
working within agreed counterparty limits. There is no significant
concentration of credit risk with any single counterparty.
Master netting agreements are in place for the majority of interest
rate derivative instruments. The risk in the event of default by a
counterparty is determined by the extent to which market prices
have moved since the contracts were made. The Group believes
that the risk of incurring such losses is remote.
The following table summarises the fair values and carrying
amounts of the various classes of financial instruments as at
31 December:
million million million million
Fair value Carrying amount
2002 2001 2002 2001
Financial assets:
Other fixed investments 404 176 404 176
Current investments 1 226 439 1 226 439
Cash 2 252 1 862 2 252 1 862
3 882 2 477 3 882 2 477
Financial liabilities:
Bank loans and overdrafts (1 849) (2 899) (1 844) (2 893)
Bonds and other loans (19 675) (23 125) (18 600) (22 607)
(21 524) (26 024) (20 444) (25 500)
Derivatives:
Interest rate swaps
– assets 300 151 152 134
– liabilities (204) (293) (6) (10)
Foreign exchange
contracts – assets 780 190 780 190
– liabilities (208) (347) (208) (347)
The fair values of listed fixed investments are based on their
market values. The fair values of unlisted fixed investments are
not materially different from their carrying amounts. The carrying
amount of current investments is based on their market value.
Cash, bank loans and overdrafts have fair values which approximate
to their carrying amounts because of their short-term nature. The
fair values of forward foreign exchange contracts represent the
unrealised gain or loss on revaluation of the contracts to year-end
exchange rates. The fair values of bonds and other loans, interest
rate swaps and forward rate agreements are based on the net
present value of the anticipated future cash flows associated
with these instruments. Short-term debtors and creditors have fair
values which approximate to their carrying values.
In November 2001, NV entered into a forward purchase contract
with a counterparty bank to buy 10 000 000 PLC shares at 559p
per share in November 2006. If the PLC share price falls by more
than 5% below 559p, cash collateral for the difference must be
placed with the counterparty bank.
Currency exposures
Group Treasury manages the foreign exchange exposures that arise
from Unilever’s financing and investing activities in accordance with
Unilever policies.
The objectives of Unilever’s foreign exchange policies are to allow
operating companies to manage foreign exchange exposures that
arise from trading activities effectively within a framework of control
that does not expose Unilever to unnecessary foreign exchange
risks. Operating companies are required to cover substantially all
foreign exchange exposures arising from trading activities and each
company operates within a specified maximum exposure limit.
Business Groups monitor compliance with these policies.
Compliance with the Group’s policies means that the net amount
of monetary assets and liabilities at 31 December 2002 that are
exposed to currency fluctuations is not material.
16 Trade and other creditors
million million
2002 2001
Due within one year:
Trade creditors 4 414 4 882
Social security and sundry taxes 458 534
Accruals and deferred income 2 889 3 196
Taxation on profits 857 977
Dividends 1 138 1 057
Others 1 335 1 287
11 091 11 933
Due after more than one year:
Accruals and deferred income 147 246
Taxation on profits 365 377
Others 129 182
641 805
Total trade and other creditors 11 732 12 738