Unilever 2003 Annual Report Download - page 22

Unilever Annual Report & Accounts and Form 20-F 2003 19
Financial review
of in aggregate US $3 737 million, bilateral notes commitments
of in aggregate US $400 million and bilateral money market
commitments of in aggregate US $2 080 million. Further details
regarding these facilities are given in note 14 on page 94.
During 2003, a total of €509 million was raised through term
financing. The term financing mainly consisted of an issue of
a five-year debenture in Thailand of an equivalent of €85 million
in March 2003, an issue of a 30-month debenture in India of
an equivalent of €122 million in July 2003 and a five-year bond
issue in South Africa of an equivalent of €118 million in
September 2003.
Unilever is satisfied that its financing arrangements are adequate
to meet its working capital needs for the foreseeable future.
Unilever’s contractual obligations at the end of 2003
included capital expenditure commitments, borrowings, lease
commitments and other commitments. A summary of certain
contractual obligations at 31 December 2003 is provided in the
table below. Further details are set out in the following notes to
the accounts: note 10 on page 91, note 14 on page 94 and note
24 on page 112. Details on derivatives are given in note 15 on
pages 97 and 98.
Contractual obligations at 31 December 2003
€ million € million € million € million € million
Due Due in
within Due in Due in over
Total one year 1-3 years 3-5 years 5 years
Long-term debt 8 466 – 3 600 1 969 2 897
Operating lease
obligations 1 881 321 527 432 601
Purchase obligations 391 219 133 38 1
Other long-term
commitments 264 96 69 45 54
Finance leases under contractual obligations are not material.
Cash and current investments at the end of 2003 totalled
€3 345 million (2002: €2 904 million); these funds were held in
euros (51%), sterling (1%), US dollars (3%), Indian Rupee (15%)
and other currencies (30%). The funds are mainly to support day-
to-day needs and are predominantly invested in short-term bank
deposits and high-grade marketable securities.
In 2003, pension liabilities less plan assets (after allowing for
deferred tax) amounted to €3 759 million (2002: €3 936 million).
The reduction in the net liability has primarily arisen due to the
higher than expected return on the equity market in 2003.
The euro appreciated considerably against most other Unilever
currencies between the two balance sheet dates. This resulted in
an exchange gain on translation of opening balances and of
movements of €250 million. The translation gain arose principally
on the highly geared balance sheet of our US business, which was
partly offset by translation losses in other countries, notably the
UK. Profit retained, after accounting for dividends and for the
retranslation impact, increased by €1 527 million to
€6 190 million.
Total capital and reserves increased to €5 920 million (2002:
€4 702 million) reflecting the above movements in profit retained
together with a €400 million net increase in shares held to meet
employee share options. On the face of the balance sheet on
page 78, an analysis is given indicating how consolidated capital
and reserves are attributed to NV and PLC. PLC currently has
negative consolidated reserves; this arises largely because of an
accounting policy of writing off goodwill arising in previous years;
these write-offs do not have an impact on distributable reserves.
In November 2001, NV entered into a forward purchase contract
with a counterparty bank to buy 10 000 000 PLC shares at 559p
per share in November 2006 to meet the obligation to employees
under share option plans. If the PLC share price falls by more than
5% below 559p, cash collateral for the difference must be placed
with the counterparty bank. At year end, €20 million of collateral
had been placed with counterparties.
Other than as disclosed above and in note 15 on pages 97 and
98, Unilever has no off-balance sheet arrangements.
Cash flow
Cash flow from operating activities decreased by €1 103 million
to €6 780 million. This was primarily the result of increased
working capital outflows arising from a different pattern of brand
investment and sales development between the two years.
Capital expenditure of €1 041 million was 21% below 2002
levels and at 2.4% of turnover has continued to reduce.
Acquisition activity in the year was limited. The principal
transaction was the purchase of the remaining unheld shares in
CPC/Aji Asia. During the year, cash proceeds of €889 million were
received from disposals, notably Ambrosia in the UK and the
plantations in Malaysia.
Finance and liquidity
Unilever aims to be in the top third of a reference group for
Total Shareholder Return of 21 international consumer goods
companies, as explained below. The Group’s financial strategy
supports this objective and provides the financial flexibility to
meet its strategic and day-to-day needs. The key elements of the
financial strategy are:
• Appropriate access to equity and debt capital
• Sufficient flexibility for tactical acquisitions
• A1/P1 short-term credit rating
• Sufficient resilience against economic turmoil
• Optimal weighted average cost of capital, given the
constraints above
An EBITDA net interest cover greater than 8 times is consistent
with this strategy. An interest cover below this level is acceptable
for a period following major acquisitions.
The definition and further details on the EBITDA net interest cover
ratio are given on pages 126 and 128.
Unilever concentrates cash in the parent and finance companies
in order to ensure maximum flexibility in meeting changing
business needs. Operating subsidiaries are financed through the
mix of retained earnings, third-party borrowings and loans from
parent and group financing companies that is most appropriate
to the particular country and business concerned.