Meeting everyday needs of people everywhere - Unilever

Unilever Group Notes to the consolidated accounts
29 Financial instruments (continued)
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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.
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Fl. million
0100511
Nominal amounts at 31 December
051111105111
1999 1998
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Foreign exchange contracts – buy 3 889 9 872
– sell 7 849 17 642
05111 11051
Total 11 738 27 514
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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:
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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) — —
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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.