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Unilever Annual Report and Accounts 2010 103
Financial statements
15 Financial instruments and treasury risk management (continued)
As at 31 December 2009, the Group held the following financial instruments measured at fair value in each level described above:
€ million € million € million € million
Total fair
value
Level 1 Level 2 Level 3 2009
Assets measured at fair value
Other non-current financial assets 11
Available-for-sale financial assets 178 237 21 436
Financial assets at fair value through profit or loss 47 – – 47
Cash and cash equivalents 14
Available-for-sale financial assets – 1,150 – 1,150
Other financial assets 14
Available-for-sale financial assets – 613 – 613
Financial assets at fair value through profit or loss – 88 – 88
Derivatives related to financial liabilities – 271 – 271
Derivatives used for hedging trading activities (part of Trade and other receivables) – 22 – 22
Other derivatives (part of Trade and other receivables) – – 25 25
Liabilities measured at fair value
Bonds and other loans, subject to fair value hedge accounting 14 – (2,308) – (2,308)
Derivatives related to financial liabilities 14 – (107) – (107)
Derivatives used for hedging trading activities (part of Trade payables and other liabilities) – (36) – (36)
During the reporting period ending 31 December 2010, there were no transfers between Level 1 and 2 fair value measurements, and no transfers
into and out of Level 3 fair value measurements.
Reconciliation of Level 3 fair value measurements of financial assets is given below:
€ million € million € million € million € million € million € million € million
Assets at Assets at
Other fair value Other fair value
derivative through Available derivative through Available
financial profit for sale financial profit for sale
assets or loss assets Total assets or loss assets Total
2010
2010 2010 2010 2009 2009 2009 2009
Opening balances 25 – 21 46 – – 11 11
Total gains or losses:
In profit or loss – 22 – 22 – – – –
In other comprehensive income – – 1 1 – – 10 10
Purchases, issuances and settlements – – – – 25 – – 25
Transfers in and out of Level 3
Closing balances
(25)
–
25 – – – – – –
47 22 69 25 – 21 46
Commodity contracts
The Group uses commodity forward contracts and futures to hedge against price risk in certain commodities. All commodity forward contracts
and futures hedge future purchases of raw materials. Settlement of these contracts will be in cash or by physical delivery. Those contracts that will
be settled in cash are reported in the balance sheet at fair value and, to the extent that they are considered as an effective hedge under IAS 39,
fairvalue movements are recognised in the cash flow reserve.
Capital management
The Group’s financial strategy provides the financial flexibility to meet strategic and day-to-day needs. The key elements of the financial strategy
are:
• appropriate access to equity and debt markets;
• sufficient flexibility for acquisitions that we fund out of current cash flows;
• A+/A1 long-term credit rating;
• A1/P1 short-term credit rating;
• sufficient resilience against economic and financial uncertainty; and
• optimal weighted average cost of capital, given the constraints above.
For the A1/P1 short-term credit rating and for the A+/A1 long-term credit rating, Unilever monitors the qualitative and quantitative factors utilised
by the rating agencies. This information is publicly available and is updated by the credit rating agencies on a regular basis.
The capital structure of Unilever is based on management’s judgement of the appropriate balancing of all key elements of its financial strategy in order
to meet its strategic and day-to-day needs. We consider the amount of capital in proportion to risk and manage the capital structure and make
adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. Unilever will take appropriate
steps in order to maintain, or if necessary adjust, the capital structure. Annually the overall funding plan is presented to the Board for approval.
Unilever is not subject to covenants in any of its significant financing agreements.