Unilever 2001 Annual Report Download - page 32

Unilever Annual Report & Accounts and Form 20-F 2001
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Report of the Directors
FINANCIAL REVIEW
in turnover of approximately 500 million. Underlying
volume growth was 2%, compared with 1% in 1999.
The remaining increase was driven by the 9% weakening
of the average exchange rate for the euro against the
basket of Unilever currencies.
The Group’s share of joint venture turnover increased by
70% to 484 million, as a result of the acquisition of
Bestfoods’ joint ventures in Africa, Middle East and Turkey
and Asia and Pacific.
Group operating profit BEIA increased by 25% for the year to
5 729 million, with underlying margin up 0.8 percentage
points to 12.0% as the benefits of restructuring and
buying savings are realised. Acquisitions made in the year
contributed 415 million, of which 280 million related to
Bestfoods. 416 million of the overall increase was the
result of the weakening of the average euro rate between
the two years.
Amortisation of goodwill and intangibles was 435 million,
compared with 23 million in 1999, reflecting the impact
of acquisitions, notably Slim•Fast, Ben & Jerry’s, Cressida,
Amora Maille and Bestfoods. The amortisation of Bestfoods
goodwill in the period was 301 million.
Exceptional items increased to 1 992 million from
269 million in 1999. The majority of the exceptional
charges related to our Path to Growth programme.
Of the 2000 exceptional items, 1.9 billion related to
this programme. Of this amount, 1.1 billion related to
restructuring and 0.8 billion for other items, principally
business disposals. The key disposals were the European
bakery business which gave rise to a profit of 143 million
and the sale of Elizabeth Arden, completed in January 2001,
which gave rise to the recognition of a loss in 2000 of
859 million after writing back goodwill which had been
charged direct to shareholders’ funds on the acquisition
of the business in 1989. Exceptional items also included
approximately 100 million in respect of restructuring
arising from the integration of Bestfoods.
As a result of the amortisation and exceptional items
charged above, Group operating profit was down 23%
to 3 302 million.
Share of operating profit of joint ventures increased to
57 million (1999: 42 million) with the Bestfoods’ joint
ventures contributing 12 million.
An overview of operating performance by region and
product category is included in the Regional and Category
texts on pages 14 and 19 respectively.
Net interest cost was 632 million compared with
14 million in 1999. This significant increase reflects a
27 billion increase in debt during the year following the
Bestfoods acquisition in October 2000 and other acquisitions
during the year, together with a reduction in cash following
the payment of the special dividend in 1999. Included in
the interest cost is a 37 million exceptional charge which
primarily reflects the fees charged on the unused portion
of the financing facility put in place prior to the Bestfoods
acquisition. Net interest cover for the year was just over five
times; for the fourth quarter, interest cover was negative
as a result of the amortisation of goodwill and the very
high level of exceptional items together with the high level
of debt since the Bestfoods acquisition. The net interest
cover on the basis of EBITDA (bei) (see page 91 for
definition), was 11 times for the year and four times
for the final quarter.
The Group’s effective tax rate rose to 51.5% from 31.5%
in 1999. The increase was a result of Bestfoods goodwill
amortisation, which is not tax deductible, and net tax relief
of only 14% on exceptional items. This low rate arose
because tax relief was already obtained in prior years
on the goodwill writeback on the businesses disposed.
The underlying tax rate for normal trading operations
was 34% before the inclusion of Bestfoods goodwill
amortisation, the same level as in 1999.
Minority interests increased 7% to 215 million, due almost
entirely to the weakening of the euro.
Net profit fell by 60% as a result of the high level of
exceptional items and amortisation of goodwill, increased
interest costs due to higher borrowings and the impact
of the non-tax deductibility of some of these charges.
Combined earnings per share was similarly down 59%.
Combined earnings per share BEIA increased by 14%.
Return on capital employed fell to 8% from 22% in 1999.
The decline is due to the decrease in profit after tax,
combined with the increase in long term borrowings.
2001
Dividends and market capitalisation
Ordinary dividends paid and proposed on PLC ordinary
capital amount to 14.54p per 1.4p share (2000: 13.07p),
an increase of 11% per share. Ordinary dividends paid and
proposed on the NV ordinary capital amount to 1.56 per
0.51 share (2000: 1.43), an increase of 9% per share.
The ratio of dividends to profit attributable to ordinary
shareholders was 85.6% (2000: 133.3%).
Unilever’s combined market capitalisation at 31 December
2001 was 64.5 billion (2000: 65.3 billion).
Balance sheet
Although the euro weakened against both sterling and the
dollar between the two balance sheet dates, the substantial
devaluations in Brazil and Argentina, and the highly geared
balance sheet of our US business, resulted in an exchange
loss on translation of opening balances and of movements
of 1 069 million. Profit retained, after accounting for
dividends and for the retranslation impact, decreased by
527 million to 6 619 million.