Unilever 2001 Annual Report Download - page 33

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Unilever Annual Report & Accounts and Form 20-F 2001
>30
FINANCIAL REVIEW
Total capital and reserves decreased to 7 195 million
(2000: 8 169 million) reflecting the above movement in
profit retained together with the impact of the net increase
in shares held to meet employee share option plans.
Cash flow
Cash flow from operations increased by 759 million to
7 497 million, with strong underlying cash flows partly
offset by higher restructuring costs.
Capital expenditure of 1 536 million was slightly higher
than in 2000.
Acquisition activity in the year was very low with a total
of 132 million being mainly spent on increasing our
shareholdings in existing businesses through the purchase
of shares from minority shareholders. During the year,
1 968 million was received in respect of Bestfoods Baking
Company and other Bestfoods businesses. In addition,
33 Unilever businesses were disposed of for a total cash
consideration of 1 650 million. Other notable disposals
included: Batchelors, Royco, Oxo and other European
businesses sold as part of the remedies required by the
European Union’s Merger Task Force following the Bestfoods
acquisition; Elizabeth Arden; the Unipath women’s
diagnostics business in the UK and the Gorton’s frozen food
business in North America.
Net debt at the end of the year was 23 199 million
compared with 26 468 million at the end of 2000, as a
result of strong cash generation including the sale of brands
following the announcement of the Path to Growth strategy
and the acquisition of Bestfoods in 2000.
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 on page 33. 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 rating
> Sufficient resilience against economic turmoil
> Optimal weighted average cost of capital, given the
constraints above
Financial ratios that are consistent with this strategy are
an EBITDA (BEI) net interest cover greater than eight times,
a net gearing less than 45% and Funds From Operations
(BEI) over lease adjusted net debt greater than 60%.
Levels outside these targets are acceptable for a period
following major acquisitions.
Definitions and further details on these ratios are given on
pages 90 and 91.
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.
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 a 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 with
the joint credit strength of NV and PLC.
Unilever has committed credit facilities in place to support
its commercial paper programmes and for general corporate
purposes. The revolving credit facility and the money market
commitment put in place in 2000 were replaced in May
2001 by new bilateral committed credit facilities of in
aggregate $3 020 million, bilateral notes commitments of
in aggregate $200 million and bilateral money market
commitments of in aggregate $1 775 million. Further details
of these facilities are given in note 14 on page 67.
In 2001 a total of 4 932 million was raised through term
financing. The term financing consisted of a 2 billion
two-tranche Eurobond with a 3- and 5-year maturity
issued in June, a ¥50 billion 2-year placement in June, a
CHF500 million 4-year Swiss domestic bond issued in July,
a1 billion 2-year floating rate note issued in September,
and a $500 million 1.5-year Eurobond and a $500 million
5-year Eurobond issued in December.
During 2001, total debt decreased due to cash generated
by the business and a number of disposals, including the
sale of brands following the announcement of the Path to
Growth strategy and the acquisition of Bestfoods in 2000.
Borrowings at the end of 2001 totalled 25 500 million
(2000: 29 741 million). Taking into account the various
cross currency swaps and other derivatives, 74% of
Unilever’s borrowings were in US dollars, 7% in euros
and 7% in sterling with the remainder spread over a
large number of other currencies.
Long-term borrowings increased by 1 155 million to
14 221 million at the end of 2001. At the end of
2001 short-term borrowings were 11 279 million (2000:
16 675 million), including 4 034 million of long-term
debt reclassified to short-term at the year-end. At the end
of 2001, 77% of the long-term debt is repayable within
five years (2000: 75%).