Unilever 2005 Annual Report Download - page 102

Financial Statements
Unilever Annual Report and Accounts 2005 99
10 Goodwill and intangible assets (continued)
€ million € million € million € million € million
Indefinite- Finite-
lived lived
intangible intangible
Movements during 2004 Goodwill assets assets Software Total
Cost
1 January 2004 13 461 4 505 603 110 18 679
Acquisitions of group companies 7 1 2 – 10
Disposals of group companies (3) (20) – – (23)
Additions – 1 1 87 89
Currency retranslation (445) (176) (9) (4) (634)
31 December 2004 13 020 4 311 597 193 18 121
Amortisation and impairment
1 January 2004 – – (103) (7) (110)
Amortisation for the year(b) – – (45) (21) (66)
Impairment losses (1 003) – – – (1 003)
Currency retranslation 66 – (2) 1 65
31 December 2004 (937) – (150) (27) (1 114)
Net book value 31 December 2004 12 083 4 311 447 166 17 007
(b) Includes €(2) million relating to discontinued operations.
There are no significant carrying amounts of goodwill and intangible assets that are allocated across multiple cash generating units.
Impairments in the year
During 2005, Slim•Fast maintained its leadership of the weight management sector by refreshing its product range and offering a more
personalised diet plan. However, the 2005 impairment review of the global Slim•Fast business resulted in an impairment charge of €363 million
due to the continued decline of the weight management sector. This charge has been reflected in operating profit for The Americas region.
Value in use of the business was calculated using the present values of projected future cash flows, adjusted to reflect the risk present in the
markets in which the business operates. The pre-tax discount rate applied to the business was 11%. As a result of the impairment review, the
carrying value of the business was determined to be in excess of the value in use, thereby requiring an impairment loss to be recognised.
The 2004 impairment charge of €791 million in relation to the Slim•Fast business was calculated using value in use and applied a pre-tax
discount rate of 11%. This charge was also reflected in operating profit for The Americas region.
The remainder of the impairment loss charged in 2005 of €19 million includes €2 million representing write-downs in respect of planned
business disposals that will complete during 2006, and €10 million in respect of impairment of goodwill and indefinite-lived intangible assets
in Colombia and India. In 2004, the remaining balance of €212 million included €156 million in respect of planned business disposals in 2005.
Other smaller impairments were recognised during the course of 2004 for tea plantations and a bakery business in India, and a home and
personal care business in North Africa.
Significant cash generating units
The goodwill and indefinite-lived intangible assets held in the global savoury and dressings cash generating unit (CGU), comprising €11.9 billion
and €3.6 billion respectively, are considered significant in comparison to the total carrying amounts of goodwill and indefinite-lived intangible
assets at 31 December 2005.
During 2005, we conducted an impairment review of the carrying value of these assets. Value in use of the global savoury and dressings CGU
has been calculated as the present value of projected future cash flows. A pre-tax discount rate of 10% was used.
The following key assumptions were used in the discounted cash flow projections for the savoury and dressings CGU:
•a longer-term sustainable growth rate of 2%, adjusted for market fade, used to determine an appropriate terminal value multiple;
•average near-term nominal growth for the major product groups within the CGU of 4%; and
•average operating margins for the major product groups within the CGU ranging from 19% to 23%.
The growth rates and margins used to estimate future performance are based on past performance and our experience of growth rates and
margins achievable in our key markets as a guide. We believe that the assumptions used in estimating the future performance of the savoury
and dressings CGU are consistent with past performance.
The projections covered a period of 10 years as we believe this to be a suitable timescale over which to review and consider annual
performance before applying a fixed terminal value multiple to the final year cash flows of the detailed projection. Stopping the detailed
projections after 5 years and applying a terminal value multiple thereafter would not result in a materially different estimate of the value in use.
The growth rates used to estimate future performance beyond the periods covered by our annual planning and strategic planning processes do
not exceed the long-term average rates of growth for similar products.
We have performed sensitivity analysis around the base case assumptions and have concluded that no reasonably possible changes in key
assumptions would cause the carrying amount of the savoury and dressings CGU to exceed its recoverable amount.
Notes to the consolidated accounts
Unilever Group