Unilever 2008 Annual Report Download - page 41

Financial Review continued
38 Unilever Annual Report and Accounts 2008
Report of the Directors
On 1 January 2007 Unilever completed the restructuring of its
Portuguese businesses. The result of the reorganisation is that
Unilever now has a 55% share of the combined Portuguese
entity, called Unilever Jerónimo Martins. The combined business
includes the foods and home and personal care businesses. The
remaining 45% is held by Jerónimo Martins Group. The structure
of the agreement is such that there is joint control of the newly
formed entity and therefore it is accounted for by Unilever as a
joint venture.
Other business disposals in 2007 involved the sale of local
Brazilian margarine brands. To further develop our heart health
brand margarine Becel in Brazil we established a joint venture
with Perdigão.
In 2007 we purchased minority interests in several countries,
including Greece and India.
2006
On 4 September 2006 Unilever announced a public offer to
purchase all ordinary shares of Elais-Unilever S.A. held by third
party shareholders. Elais-Unilever S.A. was reported as a subsidiary
and is Unilever’s main foods business in Greece. The offer price
was €24.50 per share, with the public offer closing on 25 October
2006. A total of 2 234 692 shares were purchased by the end of
2006, increasing Unilever’s ownership of Elais-Unilever S.A.
to 83.52%. This shareholding was increased to 99.2% as at
31 December 2007.
On 3 November 2006 we announced the completion of the sale
of the majority of our frozen foods businesses in Europe to the
Permira Funds. Unilever received proceeds of €1.7 billion, and
recorded a profit on disposal of €1.2 billion. The businesses sold
included operations in Austria, Belgium, France, Germany, Ireland,
the Netherlands, Portugal and the United Kingdom.
In 2006 we disposed of various other businesses and brands with
a combined turnover of around €280 million, including Mora in
the Netherlands and Belgium, Finesse in North America and Nihar
in India.
Significant events after the balance sheet date
On 26 January 2009 we announced that we had signed an
agreement to acquire the global TIGI professional hair product
business and its supporting advanced education academies for a
cash consideration of US $411.5 million. The deal is subject to
regulatory approval and is expected to be completed by the end
of March 2009.
On 12 February 2009 Unilever issued a bond composed of two
senior notes: US $750 million 3.65% fixed-rate note which will
mature in five years and US $750 million 4.80% fixed-rate note
which will mature in ten years.
Critical accounting policies
The accounts presented comply in all material respects with IFRS
as adopted by the EU and with UK and Dutch law. They are also
in accordance with IFRS as issued by the International Accounting
Standards Board. To prepare these accounts, we are required to
make estimates and assumptions, using judgement based on
available information, including historical experience. We believe
these estimates and assumptions are reasonable and we re-
evaluate them 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 and intangible assets
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. Impairment
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. The
most important assumptions when preparing these forecast cash
flows are long-term growth rates and discount rates. These are
challenged at least annually and 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 sub-product group.
We have reviewed the carrying value of this cash generating unit
by considering expected future cash flows based on historical
experience and planned growth rates and margins for this
product group.
Please refer also to note 9 on page 97.
Financial instruments
Financial instruments are classified according to the purpose for
which the instruments were acquired. This gives rise to the
following classes: held-to-maturity investments, loans and
receivables, available-for-sale financial assets, and financial assets
at fair value through profit or loss. Please refer to note 1 on pages
85 and 86 for a description of each of these categories.
Derivative financial instruments are reported at fair value, with
changes in fair values booked through profit or loss unless the
derivatives are designated and effective as hedges of future cash
flows, in which case the changes are recognised directly in equity.
At the time the hedged cash flow results in the recognition of an
asset or a liability, the associated gains or losses on the derivative
that had previously been recognised in equity are included in the
initial measurement of the asset or liability. For hedged items that
do not result in the recognition of an asset or liability, amounts
deferred in equity are recognised in the income statement in the
same period in which the hedged item affects net profit or loss.
Changes in fair value of net investment hedges in relation to
foreign subsidiaries are recognised directly in equity.