Unilever leaves nothing to chance

Few companies will be as well prepared for the arrival of the single currency as Unilever, the Anglo-Dutch consumer group, which operates in every country in the single currency zone and which makes products as diverse as ice cream, tea, margarine, Calvin Klein fragrances, Elizabeth Arden cosmetics and Persil soap powder.

For the past three years, this epitome of a European enterprise has had a high-level taskforce planning for the birth of the euro. And Mr Niall Fitzgerald, chairman of its UK wing, has warned constantly of the dangers to British industry of being outside the monetary union.

Yet Mr Hans Eggerstedt, Unilever's German finance director, takes a surprisingly relaxed view of the impact of the single currency. "The world won't change because of the euro," he says. "Currency is a denominator - nothing more."

There is no division between Mr Eggerstedt and the chairman, however. The significance of the euro lies not so much in the creation of a single currency as in the contribution it will make to a much bigger process - the completion of the European Union's single market.

By removing one uncertainty in doing business across borders inside the single currency zone, the euro will allow groups such as Unilever to develop further on a European scale. But it will only accelerate a process that is already under way.

"As a European company, we are a great supporter of the single market," says Mr Eggerstedt. "Business and the European Union have grown together and captured efficiencies."

He understands why the politicians make so much of the single currency: the notes and coins handled every day by the EU's consumers will powerfully symbolise the deeper process. "Hype about the euro is an essential part of completing the single market," he says.

The savings from the single currency will be surprisingly modest for large companies such as Unilever. Mr Jan Haars, group treasurer, estimates the reduction in transaction costs at no more than £20 million sterling a year - on European turnover last year of £13.6 billion sterling.

"The benefit will be much greater for smaller companies for whom the transaction costs form a higher proportion of sales," he says. "We already operate in more than 100 countries and will still have to deal with almost as many currencies."

Mr Haars has chaired the steering group that has been planning for the transition at corporate level since 1995. It was charged with making preparations for functions controlled centrally such as treasury management, taxation and reporting. It has also kept an eye on the national subsidiaries to make sure they did not diverge in the decisions they made on the single currency.

There will be no immediate move to managing cash balances centrally across the single currency area. "The different countries will remain and it won't be possible to net off the individual balances in a single total," he says. "It takes a day to transfer balances between countries and cash management is all about today."

But the group's foreign exchange operations will be centralised as soon as possible after January 1st. "Once the euro arrives, all foreign currency positions in the members of the monetary union will be netted - a huge simplification."

Unilever will start pricing in euros for transactions between its European subsidiaries from January 1st. Those outside the euro-zone will have to hedge if they want to close off the currency risk.

Mr Haars expects the impact of the single currency on the EU's capital markets to be significant. "Liquidity will improve, giving sharper margins and better prices," he says. "It will offer more opportunities for institutions such as pension funds by reducing the risk in cross-border investments."

The group will use euros for internal reporting from January 1st, 2000, one year after the launch of monetary union. However, it will start accounting in euros next year to supplement the existing sterling and guilder figures and help executives get a feel for the new currency. For a group that already operates in more than 100 currencies, this will be relatively simple.

Beginning to use the euro next year will also provide 1999 data for comparison purposes when the full switch is made in 2000. The absence of appropriate data for 1998 - when the exchange rates for entering Emu could still be changed - persuaded Unilever not to make the switch from January 1st, 1999.

The Dutch wing will report to its shareholders in euros from 2000 onwards, with the British wing following suit as soon as possible. "The London Stock Exchange is very pro-Emu, so I expect euro reporting for big British companies will happen before the UK adopts the single currency, "says Mr Eggerstedt.

Unilever will not be making an early move towards EU-wide prices for consumers: it leaves such decisions to its operating companies in the various countries.

Mr Eggerstedt expects the euro to increase the pressure for price harmonisation - it will be much easier for consumers to spot the variations inside the monetary union. "That pressure will be felt by manufacturers, retailers and the authorities responsible for taxes such as VAT," he says.

The single market is already forcing prices down all the time and will continue to do so. Value added tax rates, which varied between 5 per cent and 25 per cent two decades ago, are bunching in a much narrower range.

"Anyone who believes they can force prices up by the change to the euro is dreaming," he says.

Large organisations like Unilever are already comparing prices and buying supplies on an EU-wide scale, however. And the single currency will affect the allocation of resources within the single market, since decisions must always involve a currency assumption.

"The UK will be an unpredictable currency area for the rest of Europe," says Mr Eggerstedt, "despite its advantages as a manufacturing centre.

"It's an unpredictability thing and we don't like that. We already have to deal with the consumer, the competition and the authorities - so we like to eliminate other uncertainties."