Unilever 2002 Annual Report Download - page 38

Unilever Annual Report & Accounts and Form 20-F 2002
Financial review 35
Report of the Directors
The figures quoted in this review are in euros, at current
rates of exchange, unless otherwise stated. The profit and
loss and cash flow information is translated at average rates
of exchange for the relevant year and the balance sheet
information at year-end rates of exchange.
For definitions of key ratios referred to in this review please
refer to page 115.
Critical accounting policies
The accounts comply in all material respects with UK
generally accepted accounting principles and Netherlands
law. To prepare the 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, and are
described on pages 66 to 68. Unilever complies with UK
Financial Reporting Standard 18, which requires that the
most appropriate accounting policies are selected in all
circumstances. Some of these policies require difficult,
subjective or complex judgements from management,
the most important being:
Retirement benefits:
Determining Unilever’s pension assets, obligations and
expenses depends on certain assumptions used by actuaries
in calculating such amounts. Those assumptions are
described in note 17 on page 88. Although the assumptions
are thought to be appropriate, significant differences in
actual experience or significant changes in assumptions may
materially affect pension assets and obligations and future
expenses.
Provisions:
Provision is made, amongst other reasons, for environmental
and legal matters where a legal or constructive obligation
exists at the balance sheet date and a reasonable estimate
can be made of the likely outcome.
Market support costs:
Expenditure on market support costs, such as consumer
promotions and trade advertising, is charged against profit
in the year in which it is incurred. At each balance sheet
date, we estimate the degree of expenditure incurred
based on our knowledge of customer, consumer and
promotional activity.
Goodwill, intangible and tangible fixed assets:
Following UK Financial Reporting Standard 11, United States
SFAS 142 and SFAS 144, goodwill, intangible and tangible
fixed assets are subject to review for impairment. Such
reviews are performed by comparing the carrying value of
the asset concerned to a valuation derived from discounted
future cash flows. Significant assumptions are made in
preparing these forecast cash flows; although these are
believed to be appropriate, changes in these assumptions
could change the outcomes of the impairment reviews.
The most significant goodwill is that arising from the
purchase of Bestfoods. We have reviewed the goodwill
related to the Bestfoods acquisition, by considering actual
and planned growth rates of Bestfoods brands and the
actual and planned synergy savings arising from
its integration. No impairment loss has been identified.
Deferred tax:
Full provision is made for deferred taxation, as required
under UK Financial Reporting Standard 19, at the rates of
tax prevailing at the year-end unless future rates have been
enacted, as detailed on page 68. Deferred tax assets are
regularly reviewed for recoverability, and a valuation
allowance is established to the extent recoverability is not
considered likely.
Results – 2002 compared with 2001
The 7% strengthening of the average exchange rate for the
euro against the basket of Unilever currencies impacted
turnover, which fell by 7% to €48 760 million. Underlying
sales growth of 4% was offset by the net impacts of
acquisitions and disposals which reduced sales by 4%. The
most significant disposal impact came from DiverseyLever
and Mazola, offset by the increase in our holding in the
Unilever Bestfoods Robertsons business in Africa and the
Middle East.
Group turnover, excluding our share of the turnover of
joint ventures, fell by 6% to €48 270 million. Our share
of turnover from joint ventures fell to €490 million
(2001: €692 million) as the increase in our holding in
Unilever Bestfoods Robertsons resulted in its
reclassification as a subsidiary.
Operating profit BEIA was €7 260 million (2001:
€7269 million). Operating margin BEIA improved to 14.9%
from 13.9% in 2001. This underlying margin improvement
reflects the continuing contribution from our Path to
Growth strategy; it was offset by the strengthening of the
euro leaving operating profit BEIA in line with 2001. Group
operating profit BEIA was also flat at €7 165 million.
Amortisation of goodwill and intangibles was €1 261
million for the year, down from €1 423 million in 2001.
Operating profit
BEIA € million
Tur nover
€ million
At current exchange rates
Operating profit
€ million
48 066
52 206
48 760
5 794
7 269
7 260
3 238
5 258
5 125
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