Unilever 2003 Annual Report Download - page 101

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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 2003
represented a recognised unrealised gain of €793 million (2002: gain of €572 million) which was largely offset by recognised unrealised losses
on the underlying assets and liabilities.
€ million € million
Nominal amounts at 31 Dec
2003 2002
Foreign exchange contracts – buy 4 909 3 627
– sell 10 350 11 076
Total 15 259 14 703
Our policy for financing the net investments in our subsidiaries is discussed in the Financial Review on page 19. At the end of 2003, some 90%
(2002: 75%) of Unilever’s total capital and reserves were denominated in the currencies of the two parent companies, euros and sterling.
Our policy for the management of counterparty exposures is set out on page 46.
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
Carrying Carrying
Fair value Fair value amount amount
2003 2002 2003 2002
Restated Restated
Financial assets:
Other fixed investments 146 404 143 404
Current investments 1 491 1 226 1 491 1 226
Cash 1 854 1 678 1 854 1 678
3 491 3 308 3 488 3 308
Financial liabilities:
Bank loans and overdrafts (1 834) (1 849) (1 834) (1 844)
Bonds and other loans (14 705) (19 101) (14 066) (18 026)
(16 539) (20 950) (15 900) (19 870)
Derivatives:
Interest rate swaps
– assets 189 300 113 152
– liabilities (61) (204) (1) (6)
Foreign exchange contracts
– assets 984 780 984 780
– liabilities (191) (208) (191) (208)
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. At 31 December 2003 €20 million (2002: €13 million) was so deposited. At 31 December 2003 the market value of the
forward purchase contract was €(11) million (2002: €(1) million). See note 14 on page 94.
Counterparties have deposited securities with a market value of €832 million (2002: €574 million) as collateral for their obligations in respect
of derivative financial instruments. Such collateral is not regarded as an asset of Unilever and is excluded from the balance sheet. See note 14
on page 94.
Currency exposures
Unilever’s foreign exchange policies are described on page 46. Compliance with the Group’s policies means that the net amount of monetary
assets and liabilities at 31 December 2003 that are exposed to currency fluctuations is not material.
98 Unilever Annual Report & Accounts and Form 20-F 2003