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100 Unilever Annual Report and Accounts 2007
Financial statements continued
Notes to the consolidated accounts Unilever Group
17 Financial instruments and treasury risk management (continued)
Natural hedges
A natural hedge – sometimes known as an economic hedge – is where exposure to a risk is offset, or partly offset, by an opposite exposure to
that same risk. Hedge accounting is not applied to these relationships.
The following table shows the fair value of derivatives outstanding at year end that are natural hedges.
€ million € million € million € million
Assets Assets Liabilities Liabilities
Fair values of natural hedges 2007 2006 2007 2006
Current
Interest rate derivatives 1231
Cross currency swaps –––6
Foreign exchange derivatives 377 371 41 31
378 373 44 38
Non-current
Interest rate derivatives –––1
Cross currency swaps ––18 12
––18 13
378 373 62 51
Of the fair values disclosed above, the fair value of financial liability-related derivatives at 31 December 2007 amounted to €320 million
(2006: €323 million) of which €78 million (2006: €20 million) is included under other financial assets and €242 million (2006: €301 million) is
included under financial liabilities as a positive amount partly offsetting the €(337) million (2006: €(350) million) included under financial
liabilities relating to the fair values of derivatives used as net investment hedges. The remaining balances are shown under trade and other
receivables and other liabilities.
Sensitivity to not applying hedge accounting
Derivatives have to be reported at fair value. Those derivatives used for cash flow hedging and net investment hedging for which we do not
apply hedge accounting will cause volatility in the income statement. Such derivatives did not have a material impact on the 2007 income
statement.
Embedded derivatives
In accordance with IAS 39, 'Financial instruments: Recognition and Measurement', Unilever has reviewed all contracts for embedded derivatives
that are required to be separately accounted for if they do not meet specific requirements set out in the standard; no material embedded
derivatives have been identified.
Fair values of financial assets and financial liabilities
The following table summarises the fair values and carrying amounts of the various classes of financial assets and financial liabilities. All trade
and other receivables and trade payables and other liabilities have been excluded from the analysis below and from the interest rate and
currency profiles in note 15 on page 93 and note 16 on page 96, as their carrying amounts are a reasonable approximation of their fair value,
because of their short-term nature.
€ million € million € million € million
Fair Fair Carrying Carrying
value value amount amount
2007 2006 2007 2006
Financial assets
Other non-current assets 733 748 738 735
Cash and cash equivalents 1 098 1 039 1 098 1 039
Other financial assets 138 237 138 237
Derivatives related to financial liabilities 78 36 78 36
2 047 2 060 2 052 2 047
Financial liabilities
Bank loans and overdrafts (1 212) (1 307) (1 212) (1 307)
Bonds and other loans (8 073) (7 402) (7 907) (7 170)
Finance lease creditors (313) (192) (311) (187)
Preference shares (114) (122) (124) (124)
Derivatives related to financial liabilities (95) (47) (95) (47)
(9 807) (9 070) (9 649) (8 835)