Unilever 2007 Annual Report Download - page 29

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Unilever Annual Report and Accounts 2007 27
Report of the Directors continued
Financial Review continued
Unilever Treasury operates as a service centre and is governed by
policies and plans approved by the Boards. In addition to policies,
guidelines and exposure limits, 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.
The key financial instruments used by Unilever are short- and
long-term borrowings, cash and cash equivalents and certain
straightforward derivative instruments, principally comprising
interest rate swaps and foreign exchange contracts. The
accounting for derivative instruments is discussed in note 1 on
page 74. The use of leveraged instruments is not permitted.
Other relevant disclosures are given in notes 15, 16 and 17 on
pages 92, 94 and 97.
Unilever Treasury manages a variety of market risks, including the
effects of changes in foreign exchange rates, interest rates and
liquidity. Further details of the management of these risks are
given in note 17 on page 97.
Pensions investment strategy
The Group’s investment strategy in respect of its funded
pension plans is implemented within the framework of the
various statutory requirements of the territories where the
plans are based. The Group has developed policy guidelines for
the allocation of assets to different classes with the objective of
controlling risk and maintaining the right balance between risk
and long-term returns in order to limit the cost to the Group of
the benefits provided. To achieve this, investments are well
diversified, such that the failure of any single investment would
not have a material impact on the overall level of assets. The
plans invest the largest proportion of the assets in equities, which
the Group believes offer the best returns over the long term
commensurate with an acceptable level of risk. The pension funds
also have a proportion of assets invested in property, bonds,
hedge funds and cash. The majority of the assets are managed by
a number of external fund managers with a small proportion
managed in-house. Unilever has a pooled investment vehicle
(Univest) which it believes offers its pension plans around the
world a simplified externally managed investment vehicle to
implement their strategic asset allocation models currently for
equities and hedge funds. The aim is to provide a high quality,
well diversified risk controlled vehicle.
Significant events after the balance sheet date
Effective 1 January 2008, Unilever and PepsiCo have entered into
an expanded international partnership for the marketing and
distribution of ready-to-drink tea products under the Lipton
brand. The new agreement adds 11 counties to the partnership’s
existing Lipton ready-to-drink tea business – eight in Europe
(Germany, Italy, France, Netherlands, Switzerland, Austria, Belgium
and Portugal) as well as Korea, Taiwan and South Africa.
On 5 November 2007, Unilever announced the disposal of
Boursin to Le Groupe Bel for €400 million. The sale was effective
on 3 January 2008.
On 4 February 2008, we announced that we had reached an
agreement to acquire the leading Russian ice cream business
Inmarko, for an undisclosed amount. The deal is subject to
regulatory approval and is expected to be completed in the first
half of 2008.
On 11 February 2008, Unilever announced a share buy-back
programme of at least €1.5 billion for 2008.
On 21 February 2008, Unilever launched a bond composed of
two tranches; i) CHF 250 million fixed rate bond which will
mature in four years, and ii) CHF 350 million fixed rate bond
which will mature in seven years. Completion is expected in late
March 2008.
On 28 February 2008 Unilever announced a number of changes
affecting its organisation. As a further extension of the One
Unilever programme, Foods and Home and Personal Care will be
combined into a single category structure. To reflect our strategic
focus on growth in developing markets, operations in Central and
Eastern Europe will be managed as part of an enlarged region
comprising Asia, Africa and Central and Eastern Europe, with
Western Europe becoming a separate region.
A number of Board and senior executive changes were
announced simultaneously. Kees van der Graaf will step down
from the Boards of Unilever and from his role as President Europe
at the AGMs on 14 and 15 May 2008. Ralph Kugler, President
Home and Personal Care, will similarly step down at the AGMs.
Harish Manwani, currently President Asia Africa, will lead the new
expanded region. Doug Baillie, previously Chief Executive Officer
of Hindustan Unilever, will join the Unilever Executive as President
Western Europe. The roles of President Home and Personal Care
and President Foods will be merged under the leadership of Vindi
Banga, currently President Foods.
Critical accounting policies
The accounts presented comply in all material respects with IFRS
as adopted by the EU and with UK and Dutch law. They are also
in accordance with IFRS as issued by the International Accounting
Standards Board. To prepare these accounts, we are required to
make estimates and assumptions, using judgement based on
available information, including historical experience. These
estimates and assumptions are reasonable and are re-evaluated
on an ongoing basis. However, actual amounts and results could
differ. Critical accounting policies are those which are most
important to the portrayal of Unilever’s financial position and
results of operations. Some of these policies require difficult,
subjective or complex judgements from management, the most
important being:
Goodwill and intangible assets
Impairment reviews in respect of goodwill and indefinite-lived
intangible assets are performed at least annually. More regular
reviews, and impairment reviews in respect of other assets, are
performed if events indicate that this is necessary. Impairment
reviews are performed by comparing the carrying value of the
asset concerned to that asset’s recoverable amount (being the
higher of value in use and fair value less costs to sell). Value in use
is a valuation derived from discounted future cash flows. The
most important assumptions when preparing these forecast cash
flows are long-term growth rates and discount rates. These are
challenged at least anually and although these are believed to be
appropriate, changes in these assumptions could change the
outcomes of the impairment reviews.