Report & accounts 2002 in full - Unilever

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
68. 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 84 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 operates an interest rate management policy aimed at
optimising net interest and reducing volatility. Derivatives are used
to manage the interest rate exposure of debt and cash positions.
The Group’s financial position is largely 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 2002 interest rates were fixed on approximately
80% of the projected net debt for 2003 and 47% for 2004
(compared with 54% for 2002 and 47% for 2003 at the end
of 2001).
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 38.
Unilever Annual Report & Accounts and Form 20-F 2002
Notes to the consolidated accounts 85
Unilever Group
€ million € million
Nominal amounts
at 31 December
2002 2001
Interest rate swaps 15 804 21 360
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 2002.
€ million € million € million
Total net
gains/
Gains Losses (losses)
Unrecognised gains and losses:
Balance at 1 January 151 (293) (142)
Brought forward balance
recognised in current year 61 (234) (173)
Brought forward balance not
recognised in current year 90 (59) 31
Current year items not recognised
in current year 210 (145) 65
Balance at 31 December 2002 300 (204) 96
Expected to be dealt with next year 129 (147) (18)
Expected to be dealt with later 171 (57) 114
The following table shows the extent to which the Group has
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 2003 or in subsequent years.
€ million € million € million
Total net
gains/
Gains Losses (losses)
Deferred gains and losses:
Balance at 1 January 10 (82) (72)
Brought forward balance
recognised in current year 5 (29) (24)
Brought forward balance not
recognised in current year 5 (53) (48)
Current year items not recognised
in current year – 5 5
Balance at 31 December 2002 5 (48) (43)
To be recognised in the profit and
loss account for next year 5 (25) (20)
To be recognised in the profit and
loss account later – (23) (23)
Financial Statements