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How Unilever transformed its finance structure, leading to involvement of CFO with CEO for major decision making processes of the company. Unilever being one of the biggest FMCG company needed the finance structure to be modified because of the globalization.
Role of finance function becoming broader
CFO is now becoming strategic partner of CEO for Decision
Finance operations getting complex by globalization
Role of Finance Function
Investment Decision – Investment in fixed assets (Capital Budgeting)
Financing Decision – Sources for raising funds, period and cost, returns
Dividend Decision – Regarding distribution of profits
Transformation of Finance Function
The transformation of finance function is sub-divided into 2 parts:-
According to this approach ,finance function is restricted to procurement of
The term procurement refers to raising of fund externally as well as interrelated
aspects of raising funds.
In this approach the resources could be raised from the combination of available
This approach is confirmed to procurement of funds only.
It fails to consider an important aspect ie. allocation of funds.
It deals with only outside ie. Investors, investment bankers.
The modern approach is an analytical way of looking into Financial problems of the
According to this approach ,finance function covers both acquisition of funds as well as
allocation of funds to various uses.
Finance Management is concerned with the isssue involved in raising of funds and
efficient and wise allocation of funds.
Finance Function at Unilever
• Unilever is one of the world’s largest producer of packet
• Offers wide range of product, with 400 brand spanning
14 categories of food, personal and home product.
Management committee at Unilever
Paul Polman- Chief Executive Officer (CEO)
Michael Treschow- Non-Executive Chairman
Jean-Marc Huet- Chief Financial Officer (CFO)
David Blanchard- Chief R&D Officer
Douglas Baillie- Chief HR Officer
Facts of Unilever
1. Position in Fortune 500 list
2. Company Growth
Organic moves- Expanded unilever around the globe.
Inorganic moves- In 2008 it accquired Immarko, in
current year they sold Bourisn brand to Le Groupe
Bel for € 400 million.
3. Annual Revenue
4. Net Profit
5.Significance of Financial function
“Top performing firms have top performing financial functions but
few finance functions are top performing”
• Managing or administering financial assets and holdings of a company.
• Optimizing the usage of company’s liquidity.
• Make proper use of investment.
• Minimizing financial risks.
Unilever treasury management
•Using short term(less than 1 year) and long term(more than 12
months period) borrowings.(Co. had 1794million Euro in 2008).
•Fixed( physical assets such as machinery, land, buildings,
installations, vehicles, or technology and current investments.
• Investing in Portfolio, Investments are well diversified.
•Pension funds are invested in property, Bonds , Hedge bonds.
•In 2008 company had 344 million Euros investment in recognizes
stock exchange and 560 million Euros in unlisted investments.
“With high investments comes high risk”
Identification Assessment Prioritization.
Then , Allocation of Resources Monitoring Controlling
the impact .
•Cos. are operating in various countries.
•Hedging their Investment’s(through the use of foreign borrowing’s
and Forward exchange contracts).
•“Setup global treasury centre "to manage foreign exchange risk and
manage overall financial risk.
3 main objectives of treasury bill
•Maintaining good relationship with banks.
•Reducing all local risks.
•To look for chances to create value for the company.
•More than 20,000 transactions per annum and external forex trades
of 10 billion dollar have been achieved.
Financial Performance of Unilever
Operational Highlights of the year
2014 was challenging year with significant economic
headwinds and weak markets but Unilever has delivered
competitive underlying sales growth and margin
Turnover was € 48.4 billion, down 2.7% with a negative
impact from foreign exchange of 4.6%.
In December 2014 Unilever’s combined market
capitalization rose from €83.8 bn. to €93.9 bn.
Underlying sales growth- USG is the actual reflection
of company’s profit excluding other changes.
Unilever underlying growth in 2013 was 4.3% which
reduced to 2.9% in 2014.
Core Operating Margin- It is the margin ratio used
measure the company’s pricing strategy and
Unilever core operating margin in 2013 was 14.1%
which increased to 14.5% in 2014.
Underlying Volume Growth- It is the increase in turnover
attributable to the volume of the product sold.
Unilever UVG dropped down to 1.0% in 2014 from
2.5% in 2013.
Free Cash Flow- It is the measure of financial
performance calculate as operating cash minus capital
Unilever FCF went down from €3.9 billion in 2013 to
€3.1 billion in 2014 because they focused on Capital
The New Finance Model
Define “Finance” of the future
Develop Strategic Thrusts
Crete Global Finance Excellence Center
Develop innovative business partners
Organize for Success
Finance Function Challenging – Growing enormously
Decided policies to control risk and return trade off
Investment Vehicle- Univest-to implement strategic asset
Reduces its risk through hedging
Economic slowdown sustained- Financial Policies
High credit rating
Proper debt-equity ratio
Met new regulatory demands