Unilever 2006 Annual Report Download - page 34

Financial review (continued)
Unilever Annual Report and Accounts 2006 31
Report of the Directors (continued)
Contractual obligations at 31 December 2006
€million € million € million € million € million
Due Due in
within Due in Due in over
Total one year 1-3 years 3-5 years 5 years
Long-term debt 6183 1 944 696 1 346 2 197
Operating lease
obligations 1617 342 537 338 400
Purchase obligations(a) 233 156 58 16 3
Finance leases 296 71 90 27 108
Other long-term
commitments 1547 315 395 312 525
(a) Raw and packaging materials and finished goods.
Off-balance sheet arrangements
IFRS interpretation SIC 12 and US GAAP FIN 46R require that
entities with which we have relationships are considered for
consolidation in the consolidated accounts based on relative
sharing of economic risks and rewards rather than based solely
on share ownership and voting rights. We periodically review our
contractual arrangements with potential special purpose entities
(SPEs) or variable interest entities (VIEs) as defined by SIC 12 and
FIN 46R respectively. The most recent review has concluded that
that there are no significant SPE or VIE relationships which are
not already appropriately reflected in the accounts. Information
concerning guarantees given by the Group is stated in note 25
on page 112.
Cash flow
€million €million €million
2006 2005 2004
Net cash flow from
operating activities 4511 4353 5547
Net cash flow from/(used in)
investing activities 1155 515 (120)
Net cash flow from/(used in)
financing activities (6 572) (4 821) (5 938)
Net increase/(decrease) in cash and cash
equivalents (906) 47 (511)
Cash and cash equivalents at 31 December 2006 were
€0.6 billion lower than as at 31 December 2005. Cash from
operating activities was €0.3 billion lower than in 2005 due to
significantly higher contributions to pension schemes. This was
offset to some extent by the improvements in the level of working
capital, with a further reduction of €0.1 billion as at 31 December
2006. Income tax paid was substantially lower through a
combination of tax relief on the higher pension contributions,
structural improvements in the tax rate and timing differences. As
a result, net cash flow from operating activities was €0.2 billion
higher than last year.
Net cash flow from investing activities was €0.6 billion higher due
to the impact of the disposals in the year which had a positive
impact of €1.8 billion (2005: €0.8 billion), offset by increased
capital expenditure of €0.1 billion compared with the prior year.
Net cash flow used in financing activities increased by €1.8 billion,
reflecting dividend payments and repayment of debt.
Finance and liquidity
Unilever aims to be in the top third of a reference group including
20 other international consumer goods companies for Total
Shareholder Return, as explained on page 27. The Group’s
financial strategy supports this objective and provides the financial
flexibility to meet its strategic and day-to-day needs. The key
elements of the financial strategy are:
• Appropriate access to equity and debt capital;
• Sufficient flexibility for acquisitions that we fund out of current
cash flows;
• A1/P1 short-term credit rating;
• Sufficient resilience against economic turmoil; and
• Optimal weighted average cost of capital, given the constraints
above.
Unilever aims to concentrate cash in the parent and finance
companies in order to ensure maximum flexibility in meeting
changing business needs. Operating subsidiaries are financed
through the mix of retained earnings, third-party borrowings and
loans from parent and group financing companies that is most
appropriate to the particular country and business concerned.
Unilever maintains access to global debt markets through an
infrastructureof short-term debt programmes (principally US
domestic and euro commercial paper programmes) and long-term
debt programmes (principally a US Shelf registration and
euromarket Debt Issuance Programme). Debt in the international
markets is, in general, issued in the name of NV, PLC, Unilever
Finance International BV or Unilever Capital Corporation. NV and
PLC will normally guarantee such debt where they are not the
issuer.
Treasury
Unilever Treasury’s role is to ensure that appropriate financing is
available for all value-creating investments. Additionally, Treasury
delivers financial services to allow operating companies to
manage their financial transactions and exposures in an efficient,
timely and low-cost manner.
Unilever Treasury operates as a service centre and is governed by
policies and plans approved by the Boards. In addition to policies,
guidelines and exposurelimits, a system of authorities and
extensive independent reporting covers all major areas of activity.
Performance is monitored closely. Reviews are undertaken by the
corporate internal audit function.