CAPEX OVERVIEW

An overview of the Unilever capital

investment process including: Process
Overview, TOA requirements, example
templates, contacts, and governance

Personal Care NA
August 2017
OVERALL CAPEX PROCESS
FLOW
CAPEX LIFECYCLE

Inception

Post- Proposal
Evaluation Development

Accounting Approval
STAGE 1: INCEPTION
This stage is about crystallising the need for the Capex investment.
The Capex implication needs to be fully identified and confirmed,
based on the sourcing network study, the Long-Term Manufacturing
Study, Innovation plans and the VIP Savings Plan. A few instances
would be:

• Innovation and Major Capacity Expansion

Innovation projects are investments required to introduce new
products and grow the business, while major capacity expansion
projects are required as an enabler for manufacturing to support
growth of a business. They should be based on quantifiable
economic justification and are aligned with the long-term business
unit strategy.
• Savings
Savings should be part of the manufacturing strategy for each
business unit. These projects should be part of the agreed
framework for setting operational targets in the Budget Plan. They
should provide the capital necessary to reduce costs through
labour, material, and/or overhead savings.
• SHEQ
SHEQ projects include environment, safety and quality projects.
The justification for these projects is based on the facilities' ability
to meet production schedules, maintain acceptable work practices
STAGE 2: PROPOSAL DEVELOPMENT
This stage is about initiating, developing, and evaluating a
capital expenditure proposal.

• Two key documents developed in this stage will be a

Discounted Cash Fow (DCF) analysis, if applicable, & a
Capital Expenditure Request (CER).

• The CER is a detailed proposal that seeks approval to

proceed with the project. The CER process is led by the
project manager. A cross-functional team will help in the
development of the CER.
• The DCF analysis provides key Finanancial indicators for
decision-makers and guidance for dynamic resource
allocation (DRA) decisions. Document

CER Template -
• The CER templates can be found here: Full version
The ‘Full’ version is to be used for authorization amounts >€3M

• An example DCF template can be found here:

• Innovation business case financials are managed through the

innovation process. Link to Innovation Business Case Tools

• There are various types of proposals. They can be found in

STAGE 2: PROPOSAL DEVELOPMENT (CONTINUED)
• Key resources to consult during the business case development:
• Personal Care NA Engineering Manager - Jari Brink
• Personal Care NA Sourcing Unit Finance Manager - Kim Wooden
• Interim Personal Care SC Finance Business Partner - Izabela Kolodziejek
• Various Personal Care Finance Business Partners - Todd Hudson, Mark
Spivack, Kwame Dzineku, Kegan Hall
• Various Personal Care SU Finance Leads – Tim Caby (Jeff City), David
Newson (Raeford), Atif Muhammad (Jonesboro)
• Personal Care 3PM Finance Business Partner - tbd
• Utopia gate for Capex decisions: Utopia
• Reference document on investment appraisal measures:
Presentation
STAGE 2: PROPOSAL DEVELOPMENT (CONTINUED)
• To support the preparation of the proposal, some expenses may be incurred to assist with
the development of the proposal. This is a pre-proposal expenditure. Examples
include engaging contractors to assist with design work or site survey fees.

• The project manager has the authority to spend up to 3% of the proposed budget to
obtain input to support the proposal on the basis that the:
• Capital proposal is in the current year’s capital expenditure budget (pre-proposal
amount only)
• The pre-proposal expenditure is included in the amount for authorization of the full
project.

• The pre-proposal expenditure needs to be entered into Marlin (capital planning system)
and approved based on the pre-proposal amount.

• If a project has assets with a long lead time prior to the final capital proposal, or the
pre-proposal expenditure required is higher than 3% of the budget amount, the full
budget amount must be entered into Marlin for the pre-authorization proposal. This is to
ensure the pre-authorization proposal is approved by the same signatories who will
approval the final capital proposal for the project’s total spend.

• Further details can be found in section 4.1 of the attached Procedures for Capital Projects
Document
(which also includes various other helpful information).
STAGE 3: APPROVAL
• Once the capital proposal has been initiated and evaluated, key project
approvers should be briefed before the project is entered into Marlin.
Finance should have already reviewed the business case to verify the
financials.

• The project owner is responsible for initiating the capital expense proposal
in Marlin. The CER and DCF need to be uploaded.

• Marlin is the system used to obtain approvals. You can request access to
Marlin through the Service Request Tool. Further details can be found
Marlin SRhere:
Tool

• If you have any queries, please contact [Link]@[Link],

Geetha.Agnihotram2@[Link] or [Link]@[Link]

• The actions of individuals in the approval flow in Marlin is as follows:

• Marlin is a web-based system and can be accessed here:

STAGE 3: APPROVAL (CONTINUED)
• The approval Schedule of Authority (SOA) is set by global Unilever.
Value €M Proposer End/Auth 1 End/Auth 2 End/Auth 3 End/Auth 4

Make & €0 - €0.25 SC WL 2 SCF WL 2

Sustainabilityex
SC Category Director /
(incl Capacity, €0.25 - €0.5 SC WL 2 SCF WL 2
SU Director
Innovation, Moulds,
SC Category Director / SC Category VP /
Savings, Restructuring, €0.5 - €3 SCF WL 3
SU Director Cluster SC VP
Technology
SC Category VP / Cluster / Region SC
Convergence, SHEQ, €3 - €10 SCF VP Cluster President
Cluster SC VP SVP
Maintenance & Other
Cluster / Region SC
Infrastructure, & €10 - €50 SCF VP Cluster President CSCO
SVP
Sustainability, Quality)
Cluster / Region SC
> €50 SCF VP Cluster President CSCO CEO
SVP

• The Personal Care SOA details can be found here:

• Each Authority lead in Marlin will be required to review the documentation
provided and approve the project.

PC NA SOA Table
STAGE 4: ACCOUNTING
Step Activity

SC Category Project Manager will send a request to create a

1
IO code to Finance with a screenshot of the Marlin approval

Finance Manager will create one (or a series of) IO code(s)

2
under the same Capex Proposal based on WBS coding rule

Finance Manager will submit the IO creation requests to

3
Capgemini team via BMC Remedy
Capgemini team will set up the IO code in SAP accordingly
4
and confirm with the Finance Manager that the code is ready
Finance Manager will inform the SC Category Project
Manager and Project team that the IO code is ready. This will
5 enable the project team to commence their Purchase Orders.
Purchase Orders are raised in Ariba similar to procuring
other goods/services.
• Communication on how to raise the BMC Request (finance) can
be found here:
How to raise BMC
request

• Once a good is received, a Goods Receipt (GR) needs to be

executed in Ariba to recognize the cashflow. The GR should
equal the invoice value. Once the invoice is received, the P2P
(Purchase-to-Pay) team will issue payment – per Unilever and the
STAGE 4: ACCOUNTING (CONTINUED)
• What if you need to raise a supplementary request – i.e., a request for
more funding for your project than the original authorization amount?
• As a part of improved investment discipline and the need to ensure quality
across investment decisions and their execution, starting in March 2017, the
previous 15% overspend tolerance was eliminated.
• In the event a project manager identifies a possible overspend, they must get
email approval based on the below SOA. You can reference the same Personal
Care NA SOA for names based on the below. *Email approval is interim process until
Marlin allows for the change in process.

• Finance will then share the email approval with Supply Chain Financial Services
to monitor the overspend
 STAGE 4: ACCOUNTING (CONTINUED)
• What constitutes capital versus expense spend?

• Fixed Assets cover all tangible assets (property, plant and equipment) which are used in the business on a
continuing basis for more than one reporting period (i.e. one financial year), as defined in Unilever‘s APM.

• PPE are a class of assets owned by Unilever where each Fixed Asset costs more than 10,000 Euros
and are expected to be used for more than one (1) year.

• Assets that cost less than 10,000 Euros may only be classified as PPE subject to approval from the Finance
Director, in consultation with the Senior Vice President for Finance.

• Assets that should be classified as PPE (by definition) may be allowed to be classified as either inventories or
expenses only with written approval from the Group Controller.

• CapEx are costs which are necessary to bring the Fixed Asset to the desired location and in working condition.
This would be the total cost of the Fixed Asset, and may include:

Acquisition costs: purchase price or cost of construction, Site preparation and clearance, Transportation
and handling charges, Installation, Professional fees, such as legal, architects, project management,
Unilever Engineering fees

• The CapEx of a Fixed Asset would be depreciated over its useful life. An asset should be moved from Work-in-
Progress to Fixed Assets when the asset is ready to be fully operational for business needs (capitalized)

• Up-to-date materials to review for FA accounting and guidelines can be found here:
Document
UL Accounting `Manual (APM) &

• Always reference the Controllers Department Documentation (CDD) or KASH for latest accounting guidelines.
CAPITAL FORECASTING
PROCESS
CAPEX FORECASTING PROCESS
CAPEX FORECASTING PROCESS
• The UE Project Delivery Director (PDD) together with the SU Controller and SC
Category Finance (SCF) will take responsibility for running a process to produce
a monthly CapEx Forecast.

• PDD leads the process and ensures that the projects driving the forecast
numbers are aligned with the agreed plan and works with budget holders to
address any issues/deviations. SCF will accurately and timely consolidate the
forecast according to the reporting calendar.

• Moulds will be managed by Category Director and FC will be input to PDD each
month. Category SCF consolidates Capex FC. PDD signs off the forecast with
the Category Supply Chain Vice President (SCVP) prior to submission into
Marlin.
CAPEX FORECASTING PROCESS – ANNUAL BUDGET
• What will be the process to collect current year and 2018 requests for capital
by category
• Jari – can you share standard template?
• Key note: just because capex spend is included in the forecast/budget does
not automatically mean the project is approved.
• Cadence will be determined by Andy/Jari to meet with 7 th Generation team
• Do your engineers need access?
• Any other…
GOVERNANCE PROCESS
WHAT ARE OUR GOVERNANCE AND FINANCIAL CONTROL
MECHANISMS

• Capital Work In Progress (CWIP) reviews between finance and engineering and CWIP
scorecards distributed monthly be a third party service provider
• Fixed Asset Tagging requirements
• Physical Fixed Asset verification completed once every three years at all locations,
including 3PMs
• Review of asset useful life
WHY IS THE FIXED ASSET GOVERNANCE PROCESS
IMPORTANT?

• There are various mechanisms to ensure we have tight controls around our capital
process. This is essential to ensure we are presenting Unilever’s balance sheet,
cash flow statement, and P&L statement all correctly. This is non-negotiable.
• In the event of internal/external audit, we have proof of clear controls and governance in
one of the largest cash outlays for Unilever globally.
• We eliminate unexpected risks to our P&L.
CWIP REVIEWS
There are five things that need to be completed each month as a part of the Capital WIP
review and Engineering needs to partner on this – the SC team is equally responsible
and accountable for these controls.
1. Review WIP balance to identify if any assets should be moved from WIP to Fixed Assets.
An asset must be capitalized when it is fully operational for business needs. If
assets are not capitalized when in use, Unilever is using an asset to generate cash flows
and benefit without recognizing the expense (depreciation). If there are multiple assets
that are a part of a larger project that spans over accounting periods, assets that are in
use must be capitalized when ready. Do not wait for the entire project to be completed.
2. Review project (IO) end dates to assess if projects are still on track against original
expectations entered into SAP. If not, the finance team needs to raise a BMC request to
change the project end date. If a project end date lapses without a change and there is
still a CWIP balance, it will be flagged as an issue.
3. When a project is completed, the IO must be closed in SAP. It cannot remain open
because there are unused funds. If no further spend is required within the scope of the
project, the IO will be closed.
4. Communicate overall project status to the finance team so they can provide updates
to SCFS (Supply Chain Finance Services) and the UASCC Risk Management team on
project status, particularly for projects that are still open but have not had any spend in
+4 months.
5. Identify if any risk of overspend on capital projects so a request for supplementary
CWIP CONTROLS SCORES
Each month the SUs are scored on overall CWIP controls. The key control indicators are:
1. Overall Capital WIP aged > 1 year: This control tracks all capital spend that is
currently on the balance sheet under “assets under construction” (AUC) for projects that
began more than 365 days ago. We need your support to capitalize portions of the
projects which are already commissioned or providing us economic benefit and review all
of the IOs which are currently violating this control and work to capitalize and close these
IOs.
2. Capital Projects +4 months without spend: This is a quick-win category to show
good control, as the majority of these projects simply need to be fully capitalized and
closed. There are always going to be several projects that have been delayed due to
business reasons, and for those, good commentary should be provided to the Cost
Controller justifying the reasoning. This should include a comment for the anticipated re-
start date as well. Punch list items need to be closed out quickly and must be a part of
original business case scope.
3. Capital projects which are 30 days passed their end date: When a CapEx
proposal first gets submitted into Marlin for approval, an End of Work date is provided
with it. This date is ultimately what’s loaded into SAP as the completion date of the
project. In many cases, it takes months for a project to get finalized and approved, which
puts the End of Work date behind schedule before the project ever begins. However, this
is another quick win that every Cost Controller can update, and keep our projects in
compliance. All they need from the Engineer is an updated completion date of the
project
CWIP CONTROLS SCORES
Performance of the key indicators from July 2017 suggest an opportunity for improvement in
all 3 areas:
CWIP CONTROLS SCORES
Performance of the key indicators from the July 2017 suggest an opportunity for
improvement in all 3 areas:
FIXED ASSET TAGGING REQUIREMENTS
• It is a requirement to apply physical tags after acceptance/ capitalisation of all Fixed
Assets. The tag indicates that the asset is owned by Unilever and contains a unique
number that is recorded on the Fixed Assets Register (FAR).
• Fixed Asset tagging is a joint exercise between local finance and local engineering. The
engineering team is responsible for the physical attachment of the asset tag, finance is
responsible for confirming the tagging and enforcing the control.
• CapEx projects should not be closed until confirmation from finance that all necessary
assets have been tagged. While assets need to be capitalized once they are driving
Unilever economic benefit, the tagging of these assets should be done prior to
commissioning or in concert with the capitalization
• It is required the asset be tagged within 90 days (1 quarter) of capitalization.
• In order to tie the FA Tag number to the FAR the inventory number field in SAP must
contain the asset tag number assigned by the FA Administrator.
• Following this procedure you may download the FAR, including a listing of tag numbers
tied to back to the SAP Asset number. This procedure also prevents changes of Tag
numbers due to roll outs of new SAP versions.
• Requirement:
For those that have not used the inventory number field in the past, it is required to
insert the current tag number of already capitalized FA’s in this field. This may be
accomplished by raising a BMC remedy ticket.
FA Tagging
Guidelines
• Further details and the policy can be found here:
PHYSICAL ASSET VERIFICATION

• Fixed Assets, including those held at third party locations, are physically verified at least
once every three years and compared with details recorded on the FAR. Results of the
physical verification are reviewed by an independent person. Differences are
investigated and missing assets are written off in the FAR and General Ledger after
authorization as per the SOA.
• Full guidelines and instructions can be found here: Document
REVIEW OF ASSET USEFUL LIFE

• The useful life of fixed assets must be reviewed annually

• If there are significant events that indicate the useful life of a Fixed Asset would change,
the useful life of the asset should be adjusted to reflect the new ‘life.’
• The new depreciation rate is the rate in order to write off the asset’s current NBV (net
book value) over the revised estimate of the asset’s useful life.
• For example, if there are plans for a factory to be decommissioned in two years, the Fixed
Assets in the factory must have its useful life changed to two years. A Fixed Asset may
have a NBV of €2,000 at that point, so the depreciation expense would change to €1,000
per year.
 EXAMPLES OF WHAT IS CONSIDERED CAPITAL AN
NOT CAPITAL
Examples of fixed assets:
Plant
Plant and machinery, including their foundations, support and guards and other structures that
are an integral part of a piece of plant in the sense that the plant could not be removed without
demolishing the structure
Office furniture and equipment
Fixtures and fittings including racks and shelving
Moveable partitions and screens
Plumbing, heating, ventilation, air conditioning and fire protection
Forklift trucks, lifts, cranes and other mechanical handling equipment
Storage tanks and silos
Laboratory and medical equipment
Process control equipment
Railway track
OTHER KEY NOTES
EXAMPLES OF WHAT IS CONSIDERED CAPITAL AND WHAT IS
NOT CAPITAL
Examples of fixed assets:
Computer Equipment
Desktops, laptops
Peripheral equipment including printers, disk drives, modems etc
Word processors, servers, routers, mainframes
LAN's, LAN connection equipment
Cabling, PABX's and other similar devices

Capital Work-in-Progress (CWIP)

Payments on account for work already executed
Provisions for work executed but not yet invoiced by the supplier
Costs of purchasing, constructing, and installing assets ahead of their productive use
Plant in transit
EXAMPLES OF WHAT IS CONSIDERED CAPITAL AND WHAT IS
NOT CAPITAL
These are NOT considered fixed assets and cannot be classified
as PPE:
• Land and buildings held to earn rentals or for capital appreciation or
both which is not in the company’s ordinary course of business.
These assets are classified investment property. If a company
believes it has investment property, GCAD should be consulted, as
Unilever does not normally deal with investment of properties.
• Assets acquired to be resold as part of the company’s ordinary course
of business. Such assets are classified as inventories (e.g. raw
materials used for production).
FIXED ASSET WRITE-OFF (W/O) AND REPAIRS 2 (R2)
• Fixed Asset W/Os and Repairs 2 (R2) spend must be included in the total
authorization of a capital proposal.
• FA W/O and R2 must be forecasted by the engineering team in partnership
with SU finance at each factory for each monthly forecast cycle.
• Any variances between the monthly forecast and the actuals needs to be
explained in partnership between engineering and SU Finance.
• R2 Spend is defined as: Costs incurred after the initial installation which may
seem like CapEx, but should not be classified as CapEx. This will appear on
the Statement of Profit or Loss (or Income Statement) as an operating
expense.
• The following two examples are not CapEx because the Fixed Asset was
already in working condition and in the location previously decided. Any
additional costs do not fulfil the criteria needed to be classified as CapEx.
• Re-arranging plant after the initial set-up [including installation costs]
• Altering the structure of a building [the cost of knocking down existing walls
etc]
• The following two examples are not CapEx because the costs are to remove
the Fixed Asset from the premises. These do not satisfy the criteria for it to
be classified as CapEx.
• Dismantling & demolishing assets
 EXAMPLES OF WHAT IS CONSIDERED CAPITAL AND WHAT IS
NOT CAPITAL
SOME SPECIFICS…
Can be Capitalized Cannot be Capitalized

For non-UE employees who are not working full time on capital
projects (e.g. Category personnel who attend site visits), travel
Training directly related to the use of the Fixed Asset
expenses can only be capitalized if their purpose of travel is
related to a specific capital project
When cranes or forklifts are rented to install new equipment,
the cost to rent the crane or forklift can be capitalized if the Costs incurred for unsuccessful/cancelled projects
fixed asset could not be operated without the installation.
If tents are rented to protect material or equipment, the rental Start up or ‘ramp’ up costs, such as material expenses required to
costs can be capitalized get a machine up to normal operating efficiency are not capitalized.
Project Engineers that are required to travel during Factory
Acceptance Test (FAT) for validation of an equipment (in
another Unilever factory or with the supplier)
Some R&M costs can be classified as CapEx if they meet any
of the following criteria: The cost increases the future
economic benefits expected to be derived from the asset such When guidelines or procedures are translated, the costs of
as an extension of the asset’s useful life, an increase in the translation cannot be capitalized.
asset’s capacity or a substantial improvement in the quality of
the output
Freight costs associated with transporting the Fixed Asset from
Accident-related costs
one country to another
Commissioning costs can be classified as CapEx only if it is
absolutely necessary to get the machinery in working order. Research and Development (“R&D) is defined as “pure and applied
E.g. a User Acceptance Test (UAT) is carried out to ensure that research and development of new or improved products, processes,
the Fixed Asset is working as intended at the desired location. materials, and packaging from conceptual formulation to production
The costs involved to carry out this UAT can be capitalized, (including the design, testing and construction of prototypes)”.
less any gains made from the UAT
IDLE ASSETS
• Some Fixed Assets may still be functional but are no longer used by a Unilever entity. In this instance,
the Fixed Asset will be considered as an Idle Asset. Idle Assets can be Transferred to another UL entity
or sold to non-UL entity.

• Unilever strongly encourages Idle Assets to be transferred to another Unilever entity.

• For transfer to another UL entity, idle assets should be identified and their description should be listed
on Asset Redeployment Management System (ARMS). The table below outlines the duration for the Idle
Asset NBV Number of months on ARMS
Asset to be listed €0
before it is written
< NBV < €10,000 off: If the Unilever entity holding the Idle Asset
thinks that the Idle Asset is still useful, the Idle
Asset should be listed for 2 months on ARMS. If
not, the write-off proposal should be uploaded
on Marlin
€10,000 < NBV < 3
€100,000
€100,000 < NBV 6
• The procedures to dispose of idle assets to external parties are documented in the Unilever APM. The
key controls are as follows:

• Three (3) different quotes from different bidders are required.

• Written explanation and approval by SL must be documented

• If highest offer was accepted.
• If there was less than three (3) different quotes from different bidders.

• Assets that are held by Unilever for sale should not be disposed as idle assets.
FIXED ASSET WRITE-OFFS

• A write-off on the Fixed Asset should be done in the following cases:

• In case of a permanent stop, idle asset should be reviewed & full write off should be
considered.
• Permanent stop must be considered in case the asset is not planned to be productive
in the future.
• If the asset is not re-deployed/sold within 12 months.
OTHER KEY WATCH OUTS
• GRIR variances – GRIR variances create control issues where the GR amount does not
match the Invoice amount. Please ensure goods receipts = invoice receipts.
• Scope of projects – Any spend against a project IO MUST be within the original scope of
the business case.
• Creating POs to charge codes that are not the project IO – Should not create POs
against Accounts/CC other than the IO created for the project.
• Accrual Guidance – Many accruals must only be used in exceptional circumstances
such as when the GR/IR process fails. PPE can only be recognized when the risks &
rewards of ownership have been transferred to Unilever, this will be when the goods have
been delivered.
• Risks and Rewards of Asset Ownership have only been met when all of the following
criteria have been met: See attached capital accrual guidelines.
Capex Accrual
Guidelines
 BEST PRACTICES

Atif – can you see if anything you want

to add here?
APPENDIX
APPENDIX – PROPOSAL TYPES (MAKE ONLY)
Proposal
Description
Type
Capacity Projects are related to extensions of existing lines, installation of new lines with existing
technology or development or modernization of existing lines, installation of additional mixer, new
Capacity
processing facilities or building a new factory/plant to support business growth. In some instances, a
capacity project can merely be to replace current machines which are worn out / obsolete.
Innovation Innovation Projects are investments made in any new product, category or brand launch.

Maintenan
Maintenance and other Infrastructure Projects are investments in, for example, internal plant road,
ce & Other
utilities, drainage system etc., for maintenance and plant infrastructure to adhere to the Unilever
Infrastruct
prescribed standards.
ure

Restructuring Projects cover a range of investments such as relocating the sourcing unit; building a new
Restructur
factory or expansion in a current sourcing unit to strategically consolidate the existing sourcing unit
ing
into one to optimize production efficiency and sourcing costs.
Savings
(excl. Savings Projects relate to CapEx expenditure incurred on projects, which aim to achieve cost savings.
Restructur For example, Automation/ EOL, Line speed increase, Alternate fuel Boiler etc.
ing)
SHEQ (Safety, Health, Environment) Projects are investments, for example, in safety and underlying
SHEQ items for improvement in health, safety and environment to adhere to the Unilever prescribed
standards.
Projects are investments, for example, in safety and underlying items for improvement in quality to
Quality
adhere to the Unilever prescribed standards.
Moulds Projects are investments in moulds incurred to replace the current mould, to support volume
Moulds
growth or to support innovation projects.
 APPENDIX – UNILEVER DEPRECIATION RATES
Unless circumstances indicate the need for a different rate of depreciation, the following
standard rates must be applied:
• Freehold buildings 2.5% per annum (40 years).
• Leasehold buildings 2.5% per annum, except for a lease of less than 40 years which
must be amortized over the life of the lease.
• Plant 7% per annum (14 years).
• Computer equipment 20% per annum, except for desktop and laptop computers which
must be amortized at 25% per annum (4/5 years).
• Moulds 33% are generally depreciated over 3 years. Please refer to local rules.
• Cabinets 12.5% are generally depreciated over 8 years. Please refer to local rules.

• The following items of Fixed Asset are normally not depreciated:

• Freehold Land
• Capital Work in Progress (CWIP)
• Assets in transit