Unilever 2007 Annual Report Download - page 25

Unilever Annual Report and Accounts 2007 23
Report of the Directors continued
Financial Review
Basis of reporting
Certain discussions within this Financial Review include measures
that are not defined by generally accepted accounting principles
(GAAP) such as IFRS. These include Ungeared Free Cash Flow
(UFCF), Return on Invested Capital (ROIC), Underlying Sales
Growth (USG), and Net Debt. For further information please refer
to the section entitled ‘Non-GAAP measures’ on page 29.
The accounting policies that are most significant in connection
with our financial reporting are set out on pages 27 and 28.
Foreign currency amounts for results and cash flows are translated
from underlying local currencies into euros using annual average
exchange rates; balance sheet amounts are translated at year-end
rates except for the ordinary capital of the two parent companies.
These are translated at the rate referred to in the Equalisation
Agreement of 31⁄9p = €0.16 (see Corporate governance on
page 40).
Results and earnings per share
The following discussion summarises the results of the Group
during the years 2007, 2006 and 2005. 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 US dollar is
given on page 124.
The results reflected in the consolidated income statement and
supporting notes arise from the Group’s continuing operations. In
2007, no disposals qualified to be disclosed as discontinued
operations. During 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 2005, and in 2006 for the period up
to the date of sale. During 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
2005 for the period up to the date of sale.
€ million € million € million
2007 2006 2005
Continuing operations:
Turnover 40 187 39 642 38 401
Operating profit 5 245 5 408 5 074
Net profit 4 056 3 685 3 335
Net profit from discontinued operations 80 1 330 640
Net profit – total 4 136 5 015 3 975
€€€
2007 2006 2005
EPS – continuing operations 1.32 1.19 1.07
EPS – total 1.35 1.65 1.29
Results for 2007 compared with 2006
Turnover for the period increased by 1.4% to €40 187 million.
The increase was a consequence of USG of 5.5% in the year,
offset by unfavourable currency movements of (3.1)% and the
impact of disposals of (0.9)%. The USG was a result of both price
and volume increases, respectively contributing 1.8% and 3.7%.
Operating profit for the year was 3% lower and the operating
margin at 13.1% was 0.5 percentage points lower than a year
ago. The lower margin and operating profit were due to a higher
net charge for restructuring, disposals and one-off items. Before
the impact of these items, the operating margin showed an
underlying increase of 0.2 percentage points. Savings and price
increases more than offset significant increases in product input
costs. Advertising and promotions as a percentage of sales was in
line with last year. An overview of performance by regions is
included in the Operating Review on pages 15 to 19.
The net charge for restructuring, disposals and one-off items in
2007 was €569 million. This was made up of restructuring
charges of €875 million, partly offset by disposal profits of
€297 million and other items of €9 million. The disposal profits
include €214 million arising from the reorganisation of our
interests in South Africa and Israel, which was a fair value
economic swap that resulted in an accounting profit. In
comparison, the net charge for restructuring, disposals and one-
off items in 2006 was €242 million.
Costs of financing net borrowings were 13% lower in the year
with the impact of movements in the US dollar exchange rate
more than offsetting higher rates. The credit on pensions
financing increased to €158 million, reflecting an improved
funding position of our schemes in 2007 compared with 2006.
The tax rate was 22% for the year, compared with 24% in 2006,
and benefited from the favourable settlement of prior year tax
audits. We also benefited from a lower tax charge on disposals
during 2007.
Our share in net profit from joint ventures increased by 31% in
the year, mainly driven by continuing strong growth in the
partnerships between Lipton and PepsiCo for ready-to-drink tea.
For the full year, net profit from continuing operations grew by
10%, while EPS on the same basis grew by 12%.
Net profit, including discontinued operations, was 18% lower
than prior year, which included the profit on disposal of European
frozen foods businesses in the fourth quarter.
ROIC was 12.7% in 2007. This represented an improvement from
11.5% in 2006, adjusted for the profit on disposal of European
frozen foods businesses.
Results for 2006 compared with 2005
Turnover for the period increased by 3.2% to €39 642 million.
The increase was driven by USG of 3.8%, with contributions from
both volume and price, as well as favourable currency effects of
0.3%. Offsetting the increase was the impact of disposals of
(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 the prior year. Gross
margins held steady during the year, with supply chain savings
programmes, pricing action and a positive mix fully offsetting