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Management of
Nestl Group
Table of Contents
Background Information of Nestl Group .......................................................................... 3
Business Overview of Nestl Group ............................................................................... 3
Vision of Nestl Group ................................................................................................... 3
Financial & Reporting Management of Nestl Group ........................................................ 3
Foreign Currency Exposures........................................................................................... 3
Foreign currency risk .................................................................................................. 4
Pension Benefit Policy, Scheme and Plan Asset Disclosure .......................................... 4
Post-employment Benefit............................................................................................ 4
Pension and Retirement Benefit.................................................................................. 5
Pension Scheme and Plan Asset ................................................................................. 6
Segment Reporting Section............................................................................................. 7
Information by Geographic Zones .............................................................................. 7
Information by Products ............................................................................................. 9
Managers Judgements and Disclosures Influence Financial Reporting .......................... 10
Earning management ............................................................................................. 10
Accounting Principle ............................................................................................. 11
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Financial Reporting & Management of Nestl Group 2015
This company is one of the main shareholders of L'Oral, the largest cosmetic companies
in the world. With the motto of Nestl "Good Food, Good Life", the company is committed
to combining science and technology in order to provide products that meet basic human
needs nutritious foods and beverages, as well as safe for consumption as well as delicious
taste.
In order to realize the vision, innovation has been the key to the company. They have the
largest R&D network (3 Science and Research Center and 31 Product Technology Center)
to ensure that every day they produce tasty and healthy products that help consumers care
for themselves and their families.
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Financial Reporting & Management of Nestl Group 2015
at the date of transactions in foreign currencies transaction. Monetary assets and liabilities
in foreign currencies are also translated at year-end rates. The difference from exchange
rates is recorded in the income statement except for cash flow hedges that are qualified
recorded in other comprehensive income.
Besides, in consolidation transaction, they use year-end exchange rates to translate the
currency into Swiss Francs, the Groups presentation currency to record the asset &
liabilities of Nestl Group. The incomes and expenses that were generated from the
transactions are also translated into Swiss Francs using the annual weighted average rates
of exchange or using the rate of the date of the transaction for several items. The
Differences that arise from the translation of opening net assets of Nestl Group, and also
with differences arising from the restatement of the net results for the year of the company
entities, are recorded and recognized in other comprehensive income.
According to Investopedia, Value at Risk is a statistical technique used to measure the level
of financial risk within a firm or investment portfolio within a specific period of time. VaR
technique is generally used by investment and commercial banks to determine the extent
of potential losses in the portfolios. However, Nestl Group cannot forecast the movement
of the exchange rate. Therefore, they set the above VaR (Value at Risk) number to neither
represents actual losses nor considers the effects of favorable movements in underlying
variables. Accordingly, the VaR number can only be acknowledged the indicative of future
movements to the historic market patterns repeat in the future.
Post-employment Benefit
Nestl group is using projected unit credit method to determine the liabilities that arise
from benefit obligations and current service cost. They use actuarial advice from external
consultants and internal actuaries employed by the company. The actuarial result is used
to calculate the defined benefit obligations per the economic conditions in each country in
which the plan is located. The plans are either externally funded which come from
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Financial Reporting & Management of Nestl Group 2015
independent administered funds or unfunded. The deficit or excess of the fair value of plan
assets over the present value of the benefit payable is recognized as a liability or an asset
and recorded on the balance sheet. Pension cost recorded to the income statement which is
consists of service cost (comes from current and past service cost, gains and losses arising
from settlement) and administration costs (other than costs of managing plan assets), and
net interest expense or income, which is realized as part of net financial income/(expense).
The differences between actuarial assumptions and what has actually occurred in pension
cost are reported in other comprehensive income.
The Group regulate their pension plans by geographic area and also comply under IAS 19
which are in EMENA consist of Switzerland, UK and Germany and in AMS which is USA.
In accordance with applicable legal frameworks, these plans have Boards of Trustees or
General Assemblies which are generally independent from the Group and are responsible
for the management and governance of the plans. The plans are explain based on the
country, as follows:
The group located in Germany also use a cash balance plan for their pension plan. In
addition, there is heritage plan that based on final pensionable salary, but the plan has been
closed to new employees starting year 2006.
United Kingdom
In the United Kingdom, the groups pension plan is a career average plan with salary
revaluation. The employees accumulate a pension based on the average of their salaries
during their career at Nestl since 2010. The salaries are automatically revalued according
to inflation. Pensions earned before 2010 are also revalued according to inflation subject
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Financial Reporting & Management of Nestl Group 2015
The group has divided the plan assets into several major categories which are equities,
debts, real estate, alternative investment and cash/deposits.
Nestl Waters;
Unallocated items
Unallocated items represent items whose allocation to a segment or product would
be inconsistent. Nestl Group has explained that the situations mainly due to several
issues, which are:
- corporate expenses and related assets/liabilities;
- research and development costs and related assets/liabilities; and
- some goodwill and intangible assets.
the Bbchen business (other business)
The business activities and operating segments that do not meet the threshold such as
Nestl Professional, Nespresso, Nestl Health and Nestl Skin Health are combined
together and presented in other business as in the table below.
Nestl group do not disclose asset and liabilities segment performances to executive board.
However, The Group has declared the invested capital as well as goodwill and intangible
asset by segment and by product on a voluntary basis. Invested capital account consist of
property, plant and equipment, trade and other receivables, assets held for sale, inventories,
prepayments and accrued income as well as specific financial assets that associated to the
segments, deducted with trade and other payables, liabilities directly associated with assets
held for sale, non-current other payables as well as accruals and deferred income. The other
is goodwill and intangible assets are not included in invested capital because the amounts
recognized are not comparable between segments since there are differences in intensity of
acquisition activity and changes in accounting standards which were also relevant at
various points in time when the Group undertake a significant acquisitions. The table below
explains the geographical zone of invested capital and goodwill and intangible asset.
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Financial Reporting & Management of Nestl Group 2015
Information by Products
Nestl Group provide operating segment based on information by product. As you can see
from the table below, the highest sales earned by milk products and ice cream products
followed by nutrition and health science product.
Based on the table below, Nestl Group invest the highest capital in Nutrition and health
science products with 7,183 million CHF and also powdered and liquid beverages for the
amount of 5,830 million CHF.
There are several solutions in or der to minimize earning management in the company,
which are monitoring managerial behaviour, create incentive schemes, create
corporate governance regulations, and information flow. The company should
generate regulation regarding corporate governance so there will be exact information
about the rights and obligation the shareholder and manager should have and give to
the manager and company. This matter includes in what extent the information about
companys financial position must be disclosed. Besides, manager should be
transparent in reporting financial position of the company. Another solution
mentioned above is create incentive scheme which is in order to prevent information
asymmetry caused by wealth maximization of the manager. The company should
create incentive scheme to the employee that provide good performance or service to
the company. So that, the employees and managers would motivated to do their best
to the company without hiding or change financial information of the company for
their own benefit.
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Financial Reporting & Management of Nestl Group 2015
Accounting Principle
According to accounting regulation, financial reports are prepared using accrual
accounting instead of cash accounting. This means that company recognized economic
events regardless when cash transaction happens. Manager of the company realizes
and recognize revenues and expenses based on when the transaction occurs rather than
when the payment is received or made.
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