Unilever 2004 Annual Report Download - page 123

Notes to the consolidated accounts
Unilever Group
120 Unilever Annual Report and Accounts 2004
16 Financial instruments
The Group has comprehensive policies in place, approved by the Directors, covering the use of derivative financial instruments. These
instruments are used for hedging purposes. 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 with generally accepted practice in the UK and the Netherlands
and follow hedge accounting principles described in the accounting policies on page 98. The use of leveraged instruments is not permitted.
Details of the instruments used for interest rate and foreign exchange exposure management, together with information on related exposures,
are given below.
Except for the description of Unilever’s currency exposures as included on page 51 on treasury risks, all debtors and trade and other creditors
(other than for finance lease creditors) and provisions have been excluded from the analysis below and from the interest rate and currency
profiles in note 14 on page 117 and note 15 on page 118 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.
Unilever’s interest rate management policy is described on page 51. The Group’s financial position is mainly fixed by fixed rate long-term debt
issues and straightforward derivative financial instruments, such as interest rate swaps. In general, cash is invested short-term at floating
interest rates.
At the end of 2004, interest rates were fixed on approximately 54% of the projected net debt for 2005 and 36% of the projected net debt for
2006 (compared with 61% for 2004 and 62% for 2005 at the end of 2003).
Nominal values of interest rate derivative instruments are shown in the table below. These nominal values do not reflect the actual level of use
of financial instruments when compared with the nominal value of the underlying debt. This is because certain financial instruments have
consecutive strike and maturity dates on the same underlying debt in different time periods. Whilst the nominal amounts reflect the volume
of activity, they are not indicative of the amount of credit risk to which the Group is exposed. For details of our policy for managing credit risk
see page 51.
€ million € million
Nominal amounts at 31 Dec
2004 2003
Interest rate swaps 5 903 10 190
The following table shows the extent to which the Group had unrecognised gains and losses in respect of interest rate instruments at the
beginning and end of the year. It shows the movement in the market value of these instruments during the year ended 31 December 2004.
€ million € million € million
Total net
gains/
Gains Losses (losses)
Unrecognised gains and losses
Balance at 1 January 189 (61) 128
Brought forward balance recognised in current year 89 (48) 41
Brought forward balance not recognised in current year 100 (13) 87
Current year items not recognised in current year 426
Balance at 31 December 2004 104 (11) 93
Expected to be dealt with next year 60 (8) 52
Expected to be dealt with later 44 (3) 41
The following table shows the extent to which the Group had recognised but deferred gains and losses in respect of interest rate instruments
at the beginning and end of the year. It also shows the amount which has been included in the profit and loss account for the year and those
gains and losses which will be reflected in the profit and loss account in 2005 or in subsequent years.
€ million € million € million
Total net
gains/
Gains Losses (losses)
Deferred gains and losses
Balance at 1 January – (20) (20)
Brought forward balance recognised in current year – (8) (8)
Brought forward balance not recognised in current year – (12) (12)
Current year items not recognised in current year –11
Balance at 31 December 2004 – (11) (11)
To be recognised in the profit and loss account for next year – (5) (5)
To be recognised in the profit and loss account later – (6) (6)