Unilever 2007 Annual Report Download - page 28

26 Unilever Annual Report and Accounts 2007
Report of the Directors continued
Financial Review continued
Contractual obligations at 31 December 2007
€ 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 5 851 632 2 367 792 2 060
Operating lease
obligations 1 663 363 527 332 441
Purchase obligations(a) 299 234 46 17 2
Finance leases 520 82 77 48 313
Other long-term
commitments 1 454 412 488 404 150
(a) Raw and packaging materials and finished goods.
Off-balance sheet arrangements
IFRS interpretation SIC 12 requires 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) as
defined by SIC 12. The most recent review has concluded that
that there are no significant SPE 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
2007 2006 2005
Net cash flow from
operating activities 3 876 4 511 4 353
Net cash flow from/(used in)
investing activities (623) 1 155 515
Net cash flow from/(used in)
financing activities (3 009) (6 572) (4 821)
Net increase/(decrease) in cash and cash
equivalents 244 (906) 47
Cash and cash equivalents at 31 December 2007 were
€0.2 billion higher than at 31 December 2006. Net cash flow
from operating activities, at €3.9 billion, was €0.6 billion lower
than in 2006 because of higher cash costs of restructuring and
increased income tax payments. Income tax paid was €0.2 billion
higher than in 2006 because of the timing of payments. Taking
the last two years together, cash tax paid was at a similar level to
the tax charges in the income statement. There was a further
small improvement in working capital.
The movement of €1.8 billion in net cash flow used in investing
activities when compared with 2006 is explained by the decrease
in completed disposal activity in the year and a small increase in
net capital expenditure. The increase in net capital expenditure
was entirely in Asia Africa, supporting the priority for growth in
the region.
The decrease of €3.6 billion cash used in financing activities from
2006 is a consequence of the changes in financial liabilities of
€4.6 billion, offset by the impact of the treasury stock movement.
The net €1.1 billion movement in treasury stocks reflects the net
effect of share buy-backs of €1.5 billion and the exercise of share
options of €(0.4) billion.
At 31 December 2007, the net debt position was €8.3 billion, an
increase of €0.8 billion compared with 2006. The increase is due
to the fact that cash generation was more than offset by the
outflows relating to dividends, share buy-backs and additional
pension funding. We also benefited from the appreciation of the
euro against the US dollar.
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 32. 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
infrastructure of 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.
Unilever has been unaffected by the credit issues prevalent in
some financial markets and we have been able to raise debt as
required to fulfil our capital requirements.
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.