Unilever 2003 Annual Report Download - page 100

Unilever Annual Report & Accounts and Form 20-F 2003 97
Notes to the consolidated accounts
Unilever Group
15 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 75. 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, all debtors and trade and other creditors have been excluded from the analysis
below and from the interest rate and currency profiles in note 14 on page 96 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 46. 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 2003, interest rates were fixed on approximately 61% of the projected net debt for 2004 and 62% of the projected net debt for
2005 (compared with 80% for 2003 and 47% for 2004 at the end of 2002).
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 46.
€ million € million
Nominal amounts at 31 Dec
2003 2002
Interest rate swaps 10 190 15 804
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 2003.
€ million € million € million
Total net
gains/
Gains Losses (losses)
Unrecognised gains and losses:
Balance at 1 January 300 (204) 96
Brought forward balance recognised in current year 129 (147) (18)
Brought forward balance not recognised in current year 171 (57) 114
Current year items not recognised in current year 18 (4) 14
Balance at 31 December 2003 189 (61) 128
Expected to be dealt with next year 89 (48) 41
Expected to be dealt with later 100 (13) 87
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 2004 or in subsequent years.
€ million € million € million
Total net
gains/
Gains Losses (losses)
Deferred gains and losses:
Balance at 1 January 5 (48) (43)
Brought forward balance recognised in current year 5 (25) (20)
Brought forward balance not recognised in current year – (23) (23)
Current year items not recognised in current year –33
Balance at 31 December 2003 – (20) (20)
To be recognised in the profit and loss account for next year – (8) (8)
To be recognised in the profit and loss account later – (12) (12)