Meeting everyday needs of people everywhere - Unilever

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Unilever Group Notes to the consolidated accounts 28 Analysis of net funds/(debt) 00000000000000001111 Fl. million 100000000000511 Acquisitions/ Disposals Other 1 January Cash (excl. cash & non cash Currency 31 December 1999 Flow overdrafts) changes movements 1999 0000001111 05111 05111 05111 05111 05111 Cash on call and in hand 2 047 786 199 3 032 Overdrafts (2 404) 74 (57) (2 387) 51115111 860 Borrowings due within one year (2 719) 442 (44) (1 492) (269) (4 082) Borrowings due after one year (5 023) (110) (9) 1 158 (100) (4 084) 51115111 332 Current investments 10 870 (7 875) 6 (131) 384 3 254 Cash on deposit 9 964 (4 634) — — 445 5 775 51115111 (12 509) 05111 05111 05111 05111 05111 05111 Net funds/(debt) 12 735 (11 317) (47) (465) 602 1 508 05111 05111 05111 05111 05111 05111 Other non cash changes include profits and losses on disposal and adjustments to realisable value of current investments; exchange gains and losses on borrowings; and the reclassification of long-term borrowings falling due within one year at the balance sheet date. 00000000000000001111 29 Financial instruments 00000000000000001111 The Group has comprehensive policies in place, approved by the directors, covering the use of straightforward derivative financial instruments. These instruments are used only for hedging purposes. Established controls are in place covering all financial instruments and 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 and follow hedge accounting principles described in the accounting policies on page 64. 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 notes 14 and 15 on pages 76 and 77 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. The reduction in the portion of fixed investments and fixed rate debt during 1999 and the position at the year end is in line with Unilever’s interest rate management policy. Unilever operates an interest rate management policy aimed at optimising net interest and reducing volatility. In general, cash is invested short-term, at floating interest rates. The interest payable on debt is in general also floating, but depending on the Group’s financial position, part may be fixed up to five years. This is achieved by using fixed rate longterm debt issues and derivative financial instruments such as interest rate swaps and forward rate agreements. At the end of 1999 interest rates were fixed on approximately 22% of the projected debt for 2000 and 21% for 2001 (compared to 72% for 1999 and 50% for 2000 at the end of 1998). Interest receivable was fixed on approximately 34% of projected funds for 2000 and 15% for 2001 (compared to 31% for 1999 and 16% for 2000 at the end of 1998). Nominal values of interest rate derivative instruments are shown in the table below. These nominal values when compared to the nominal value of the underlying debt and investments do not reflect the actual level of use of financial instruments. This is because certain financial instruments have consecutive strike and maturity dates on the same underlying investments in different periods. Derivatives are primarily used to swap fixed interest long-term debt into floating rate debt or to swap floating rate investments into fixed rate investments. Whilst the nominal amounts reflect the volume of activity, they do not therefore properly reflect the amount of credit risk to which the Group is exposed. The market value of these interest rate instruments at the end of 1999 represented an unrealised and unrecognised loss of Fl. 60 million (1998: gain of Fl. 243 million). In 1998 losses of Fl. 47 million were deferred on the balance sheet. 44% (1998: 50%) of these derivative financial instruments will mature within one year, 92% (1998: 93%) within five years and the balance within ten years. 00000000000000001111 Fl. million 0100511 Nominal amounts at 31 December 051111105111 1999 1998 00000011111105111110511105111111105111 05111 Interest rate swaps 8 278 11 280 Forward rate agreements 2 641 — 05111 11051 Total 10 919 11 280 00000000000000001111
Unilever Group Notes to the consolidated accounts 29 Financial instruments (continued) 00000000000000001111 Under the Group’s foreign exchange policy, exposures with a maximum of one year maturity are generally hedged; this is achieved through the use of forward foreign exchange contracts. The market value of these instruments at the end of 1999 represented a recognised unrealised loss of Fl. 284 million (1998: Fl. 190 million) which was largely offset by recognised unrealised gains on the underlying assets and liabilities. 00000000000000001111 Fl. million 0100511 Nominal amounts at 31 December 051111105111 1999 1998 00000011111105111110511105111111105111 05111 Foreign exchange contracts – buy 3 889 9 872 – sell 7 849 17 642 05111 11051 Total 11 738 27 514 00000000000000001111 Assets held in foreign currencies are, to a large extent, financed by borrowings in the same currencies. Consequently, at the end of 1999 some 51% (1998: 57% before accounting for the special dividend) of Unilever’s total capital and reserves was denominated in the currencies of the two parent companies, euro and sterling. From an earnings perspective some 43% of Unilever’s 1999 net income was denominated in the euro, 14% in sterling and 15% in the US dollar. To ensure maximum flexibility in meeting changing business needs, investment management policy is to concentrate Unilever’s substantial liquid funds centrally in the parent and finance companies. These funds, mainly in dollars, guilders and sterling, are invested in short-term bank deposits and marketable securities, or on-lent to subsidiaries. Credit risk exposures are minimised by dealing only with a limited range of financial institutions with secure credit ratings, and by working within agreed counterparty limits. Counterparty credit ratings are regularly monitored and there is no significant concentration of credit risk with any single counterparty. 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 undernoted table summarises the fair values and carrying amounts of the various classes of financial instruments as at 31 December: 0000000011111110511111051111051111105111 Fl. million 000010100511 Fair value Carrying amount 1051111105111 051111105111 1999 1998 1999 1998 0000000011111110511 10511 05111 05111 Financial assets: Other fixed investments 269 294 238 257 Current investments 3 254 10 870 3 254 10 870 Cash 8 807 12 011 8 807 12 011 05111 10511 05111 11051 12 330 23 175 12 299 23 138 Financial liabilities: Bonds and other loans (6 083) (6 422) (6 002) (6 082) Bank loans and overdrafts (4 551) (4 064) (4 551) (4 064) 05111 10511 05111 11051 (10 634) (10 486) (10 553) (10 146) Derivatives: Interest rate swaps – assets 71 362 — — – liabilities (131) (119) 3 (44) Forward rate agreements – liabilities — — (3) (3) Foreign exchange contracts – assets 92 66 (284) (190) – liabilities (376) (256) — — 0000000011111110511111051111051111105111 The fair values of fixed investments are based on their market values. The fair values of unlisted fixed investments are not materially different from their carrying amounts. Current investments, 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 rates of exchange. The fair values of bonds and other loans, interest rate swaps and forward rate agreements are based on the net present value of the discounted anticipated future cash flows associated with these instruments.
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Unilever N.V. 1999 Annual Report on
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Financial highlights • Excellent
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Chairmen’s Statement The principa
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About Unilever History and structur
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Meeting everyday needs of people everywhere - Unilever

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