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Report of the Directors
Unilever Annual Report and Accounts 2005 17
Financial Review
Non-GAAP measures (continued)
Ungeared free cash flow
UFCF expresses the generation of profit by the business and how this is translated into cash, and thus economic value. It is therefore not
used as a liquidity measure within Unilever. The movement in UFCF is used by Unilever to measure progress against our longer-term value
creation goals as outlined to investors.
UFCF is cash flow from group operating activities, less capital expenditure, less charges to operating profit for share-based compensation
and pensions, and less tax (adjusted to reflect an ungeared position), but before the financing of pensions.
The reconciliation of UFCF to the GAAP measures net profit and cash flow from operating activities is as follows:
€ million € million
2005 2004
Net profit 3 975 2 941
Taxation 1 301 836
Share of net profit of joint ventures/associates and other income from non-current investments (55) (95)
Net finance costs 618 631
Depreciation, amortisation and impairment 1 274 2 063
Changes in working capital 193 547
Pensions charges in operating profit less payments (532) (472)
Movements in provisions less payments (230) 574
Elimination of profits on disposals (789) (308)
Non-cash charge for share-based compensation 192 218
Other adjustments (23) (10)
Cash flow from operating activities 5 924 6 925
Less charge for share-based compensation (192) (218)
Add back pension payments less pension charges in operating profit 532 472
Less net capital expenditure (813) (869)
Less tax charge adjusted to reflect an ungeared position (1 440) (964)
Taxation on profit (1 301) (836)
Tax relief on net interest expense (139) (128)
Ungeared free cash flow 4 011 5 346
The tax charge used in determining UFCF can be either the income statement tax charge or the actual cash taxes paid. Our consistently
applied definition uses the income statement tax charge in order to eliminate the impact of volatility due to the variable timing of
payments around the year end. For 2005 and 2004 the income statement tax charge on this basis is materially impacted by the tax
effect of non-cash charges for the impairment of Slim•Fast and certain other non-cash items. UFCF based on actual cash tax paid would
be €3.7 billion (2004: €4.8 billion).
UFCF reported in the 2004 Annual Report and Accounts was based on cash flow from group operating activities, less capital expenditure
and financial investment less a tax charge adjusted to reflect an ungeared position. This measure is the same as defined above in all
respects except for the non-cash charge for share-based compensation less payments of €545 million (2004: €(114) million), the non-cash
charge for pensions less payments of €(532) million (2004: €(472) million) and net financial investment of €33 million
(2004: €43 million), resulting in UFCF on this basis of €4 057 million (2004: €4 803 million).