Unilever 2005 Annual Report Download - page 23

20 Unilever Annual Report and Accounts 2005
Financial review
Basis of reporting and discussion
Our accounting policies are based on International Financial
Reporting Standards (IFRSs) and UK and Netherlands law. These
differ in certain respects from United States GAAP. The principal
differences are described on pages 158 to 161. We have shown
reconciliations to net income and equity under US GAAP on
page 157.
International Financial Reporting Standards
Unilever has adopted International Financial Reporting Standards
(IFRSs) as adopted by the EU with effect from 1 January 2005,
with a transition date of 1 January 2004. Unilever has applied the
exemption in IFRS 1 relating to business combinations, as
explained in note 35 on page 144. IAS 32 and IAS 39 in respect
of financial instruments and IFRS 5 in respect of non-current
assets and asset groups held for sale have been applied with
effect from 1 January 2005.
The most significant impacts of the transition to IFRS on Unilever’s
restated consolidated financial statements relate to the timing of
the recognition of items in the income statement. Reported net
assets are impacted as a result of these timing changes, but there
is no impact on the underlying cash flows generated by Unilever.
The key changes in our accounting policies as a result of our
adoption of IFRSs are described in note 35 on pages 144 and
145. These changes, unless otherwise stated, have been applied
retrospectively in arriving at the opening balance sheet under
IFRSs as at 1 January 2004.
Reconciliations of our equity as at the transition date and
31 December 2004 and the profit for the year then ended are
given in note 35 on pages 146 to 151. For further details of these
and other changes in Unilever’s reporting please refer to our
website at www.unilever.com/investorcentre.
Turnover definition
Until 31 December 2004, promotional couponing and trade
communication costs were included in the cost of advertising and
promotions. From 1 January 2005, these costs are deducted from
turnover and treated as part of the price element in the variance
analysis of sales growth, together with other trade promotion
costs which are already deducted from turnover. Comparatives
have been restated to reflect this change.
The effect of this change in presentation is a reclassification from
advertising and promotions expenditure to a deduction from
turnover for the year ended 31 December 2004 amounting to
€1 061 million. This change in accounting policy does not have
any impact on operating profit or net profit.
Critical accounting policies
Unilever complies with IAS 1, which requires that the most
appropriate accounting policies are selected in all circumstances.
The accounts comply in all material respects with IFRS and UK and
Netherlands law. To prepare these 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. Some of these policies require difficult,
subjective or complex judgements from management, the most
important being:
Goodwill, intangible assets and property, plant and
equipment
Impairment reviews in respect of goodwill and indefinite-lived
intangible assets are performed at least annually. More regular
reviews, and impairment reviews in respect of other assets, are
performed if events indicate that this is necessary. Examples of
such triggering events would include a significant planned
restructuring, a major change in market conditions or technology,
expectations of future operating losses, or negative cash flows.
Impairment reviews are performed following the guidance in
IAS 36. Such reviews are performed by comparing the carrying
value of the asset concerned to that asset’s recoverable amount
(being the higher of value in use and fair value less costs to sell).
Value in use is a valuation derived from discounted future cash
flows. Significant assumptions, such as long-term growth rates
and discount rates, 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 balances of goodwill and intangible assets
relate to the global savoury and dressings product group. We have
reviewed the carrying value of this cash generating unit by
considering expected future cash flows based on actual and
planned growth rates and margins for this product group. No
impairment loss has been identified.
We have reviewed the carrying value of the Slim•Fast business in
light of the continued decline in the weight management market
segment throughout 2005. Over the last few years, consumer
tastes in this group have changed frequently, featuring low-
calorie, low-carbohydrate, low-salt, low-sugar and other products.
The business declined in 2005 but maintained leadership of the
market segment by refreshing its product range and offering a
more personalised diet plan. The impairment review of the
business resulted in an impairment loss of €363 million (2004:
€791 million) reflected in operating profit for the Americas region.
The impairment review was based on determining the value in use
of the global Slim•Fast business incorporating a number of
important assumptions regarding the future performance of
the Slim•Fast business. For further details, refer to note 10 on
page 99.