Unilever 2006 Annual Report Download - page 31

28 Unilever Annual Report and Accounts 2006
Report of the Directors (continued)
Financial review (continued)
Results and earnings per share
The following discussion summarises the results of the Group
during the years 2004, 2005 and 2006. The figures quoted are in
euros, at current rates of exchange, being the average or year-end
rates of each period, unless otherwise stated. Information about
exchange rates between the euro, pound sterling and the US
dollar is given on page 128.
The results reflected in the consolidated income statement and
supporting notes arise from the Group’s continuing operations.
In November 2006, we successfully completed the sale of the
majority of our European frozen foods businesses. The results of
the businesses disposed of have been presented as discontinued
operations for 2004 and 2005, and in 2006, for the period up to
the date of sale. During July 2005, we completed the sale of
Unilever Cosmetics International (UCI) to Coty Inc., United States.
The results of UCI are presented as discontinued operations for
the 2004 year and, in 2005, for the period up to the date of sale.
€million €million € million
2006 2005 2004
Continuing operations:
Turnover 39 642 38 401 37 168
Operating profit 5408 5074 3 981
Net profit 3685 3 335 2 728
Net profit from discontinued operations 1330 640 213
Net profit – total 5015 3975 2 941
€€ €
2006 2005 2004
EPS –continuing operations 1.19 1.07 0.87
EPS –total 1.65 1.29 0.94
Results for 2006 compared with 2005
Turnover for the period increased by 3.2% to €39 642 million.
The increase is driven by underlying sales growth of 3.8%, with
contributions from both volume and price, as well as favourable
currency effects of 0.3%. Offsetting the increase is the impact of
disposals (0.8)% in the period.
Operating profit for the period increased by 7% to €5 408 million
with operating margin increasing to 13.6%, up by 0.4 percentage
points compared with 2005. This was after charging restructuring,
disposals and impairments costs equivalent to 1.3 percentage
points of sales (compared with 1.5 percentage points in 2005).
It also included €266 million of one-off gains from changes to US
healthcare and UK pension plans, equivalent to 0.7 percentage
points of sales. Before these items, and the profit on the sale of
an office in the US in 2005, the operating margin would have
been 0.3 percentage points lower than last year. Gross margins
held steady during the year, with supply chain savings
programmes, pricing action and a positive mix fully offsetting
around €600 million of higher input costs. Investment in
advertising and promotions increased by nearly €300 million, from
12.8% to 13.1% of sales. An overview of performance by regions
is included in the Operating review on pages 13 to 19.
Net finance costs were 18% higher in the year at €721 million.
2006 includes the provision of €300 million relating to preference
shares. The costs of financing net borrowings were lower than
last year with the benefit of a lower level of debt. Pensions
financing, which was a net expense of €53 million in 2005,
showed a net income of €41 million in 2006, reflecting a lower
gross pension fund deficit.
The tax rate for the year was 24%, compared with 26% in 2005,
including the benefits of a better country mix.
Share of net profit from joint ventures was ahead of last year due
to the continued growth in the partnerships between Lipton and
Pepsi for ready-to-drink tea. Share of net profit from associates
increased significantly compared with prior year, principally
because of the placement of equity by one of our venture capital
fund investments.
Net profit and earnings per share from continuing operations
grew by 10% and 11% respectively in the year. Including the
profits of the discontinued operations, net profit and earnings per
share increased by 26% and 27% in the year, respectively.
Return on invested capital (ROIC) increased from 12.5% in 2005
to 14.6% in 2006. Both years included significant profits from
the sale of discontinued operations. Excluding these, the ROIC
increased from 11.3% to 11.5%.
Results for 2005 compared with 2004
Reported turnover grew by 3.3% in the year to €38 401 million.
This increase includes a favourable effect from movements of the
average euroexchange rate against the basket of Unilever
currencies, which amounted to 1.4% of turnover. The net impact
of disposals less acquisitions was a decline in turnover of 1.5%.
This arose principally from the sale of European olive oil and other
foods businesses. Underlying sales growth in the year of 3.4%
was the result of volume increases.
Operating profitincreased by 27% in the year to €5 074 million
with operating margin increasing to 13.2% (2004: 10.7%).
Before the impact of net costs of restructuring, business disposals
and impairments, the operating margin for 2005 would have
been 0.9 percentage points lower than the previous year.
Advertising and promotions were 1.1 percentage points of sales
higher than last year.Cost savings and an improved mix more
than offset the effect of an increase of nearly €600 million in
input costs. Operating charges for restructuring, business
disposals and impairments include the impairment of the Slim•Fast
business in both 2005 and 2004 amounting to €363 million and
€791 million respectively.An overview of performance by region
is included in the Operating review on pages 13 to 19.
Net finance costs were 2% lower in the year at €613 million,
through lower levels of borrowings.