Unilever 2000 Annual Report Download - page 29

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Unilever Annual Report & Accounts and Form 20-F 2000 Report of the Directors
Financial review
Capital expenditure at 1 356 million w as in line with
previous years.
During the year 20 businesses w ere acquired for a cash
consideration of 27 777 million of which 23 623 million
relates to Bestfoods. Other major acquisitions include
Cressida, Amora M aille, Ben & Jerry’s and Slim•Fast. During
2000, 27 businesses w ere disposed of for cash proceeds of
626 million, of w hich the most significant w as the
European bakery business.
Net debt at the end of the year w as 26 468 million
compared with 684 million net funds at the end of 1999.
This sw ing is due to the borrowings made to fund the
acquisition of businesses.
Finance and liquidity
Unilever’s financial strategy supports the objective of a top
third position in the Total Shareholder Return peer group, as
described on page 29. The fundamental elements of the
financial strategy are:
• Appropriate access to equity and debt capital
• Sufficient flexibility for tactical acquisitions
• A1/P1 short term rating
• Sufficient resilience against economic turmoil
• Optimal weighted average cost of capital, given the
constraints above
To manage the implementation of this strategy the following
ratios are used as key indicators:
• Net interest cover based on Earnings before Interest, Tax,
Depreciation, Amortisation (EBITDA) and exceptional items
• Net gearing
• Funds From Operations after interest and tax (FFO) and
before exceptional items over lease adjusted net debt
Definitions and further details on these ratios are given on
pages 92 and 93.
Financial ratios that are consistent with our strategy are an
EBITDA (bei) net interest cover greater than eight times, a
net gearing less than 45% and FFO (bei) over lease adjusted
net debt greater than 60% . Levels outside these targets,
such as have arisen in 2000, are acceptable for a period
following major acquisitions.
Group policy is to finance operating subsidiaries through a
mix of retained earnings, third party borrow ings and loans
from parent and group financing companies that is most
appropriate to the particular country and business
concerned. To ensure maximum flexibility in meeting
changing business needs, Unilever’s cash is concentrated
centrally in the parent and finance companies.
During 2000, total debt increased substantially following a
number of acquisitions, including Amora Maille, Cressida,
Ben & Jerry’s, Slim•Fast and Bestfoods.
Unilever maintains access to global debt markets through
an infrastructure of short-term debt programmes, principally
US domestic and euro commercial paper programmes,
and long-term debt programmes, principally the US Shelf
registration and euro market Debt Issuance Programme.
Debt in the international markets is, in general, issued in
the name of NV, PLC or Unilever Capital Corporation w ith
the joint credit strength of NV and PLC.
In advance of the acquisition of Bestfoods, a revolving credit
facility agreement of US$22 billion w as put in place together
with a money market commitment of US$3 billion. At year-
end, follow ing debt issues, Unilever had reduced the size of
the revolving credit facility agreement to US$5 billion. The
revolving credit facility agreement was further reduced to
US$3 billion in January 2001. Further details on these
facilities are given in note 16 on page 61.
The initial financing for the acquisition of Bestfoods
consisted of private placements issued in June and July,
swapped to US dollars and euros amounting in total to
approximately US$1.2 billion and 0.5 billion respectively,
13 months floating rate notes issued in August 2000,
US$6 billion and 1.5 billion, commercial paper and
available cash. The majority of the commercial paper was
refinanced by the issue of a US$7 billion Global Bond in
October including tranches with maturities between two
and ten years. In November and December eurobonds w ere
issued raising in total 2.75 billion, US$375 million and
£225 million with maturities up to three years.
Borrowings at the end of 2000 totalled 29 741 million
(1999: 4 789 million). Taking into account the various
cross currency sw aps and other derivatives, 72% of
Unilever’s borrow ings were in US dollars, 15% in euros
and 9% in sterling w ith the remainder spread over a
large number of other currencies.
Long-term borrow ings increased by 11 213 million to
13 066 million at the end of 2000, the majority of the
increase being the result of the financing of the Bestfoods
acquisition. At the end of 2000 short-term borrowings
were 16 675 million (1999: 2 936 million), including
483 million of long-term debt reclassified to short-term
at the year-end. Taking into account the long-term debt
acquired with Bestfoods, the maturity profile extends to
2097. At the end of 2000, 75% of the long-term debt is
repayable within 5 years (1999: 85% ).
Cash and current investments reduced substantially
following the acquisitions in 2000. Cash and current
investments at the end of 2000 totalled 3 273 million
(1999: 5 473 million); these funds were held in euros
(37% ), sterling (23% ), US dollars (7% ), and other currencies
(33% ). The funds are mainly to support day-to-day needs
and are predominantly invested in short-term bank deposits
and high-grade marketable securities.