Unilever 2007 Annual Report Download - page 26

Financial Review continued
24 Unilever Annual Report and Accounts 2007
Report of the Directors continued
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.
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
prior 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 the prior year
due to the continued growth in the partnerships between Lipton
and PepsiCo for ready-to-drink tea. Share of net profit from
associates increased significantly compared with the 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 2006. Including the profits
of the discontinued operations, net profit and earnings per share
increased by 26% and 27% respectively.
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, ROIC increased from 11.3% to
11.5%.
Acquisitions and disposals
2007
During 2007, we reached agreement with our partners in South
Africa and Israel to exchange respective shareholdings such that
Unilever now own 74.25% of a newly combined South African
entity and 100% of Unilever Israel. The share swaps were effected
as at 1 October 2007 and as a result we recognised a gain on
disposal of €214 million.
On 1 January 2007, Unilever completed the restructuring of its
Portuguese businesses. The result of the reorganisation is that
Unilever now has a 55% share of the combined Portuguese
entity, called Unilever Jerónimo Martins. The combined business
includes the foods and home and personal care businesses. The
remaining 45% is held by Jerónimo Martins Group. The structure
of the agreement is such that there is joint control of the newly
formed entity and therefore it is accounted for by Unilever as a
joint venture.
Other business disposals in 2007 involved the sale of local
Brazilian margarine brands. To further develop our heart health
brand margarine Becel in Brazil we have established a joint
venture with Perdigão.
During the year, we announced the disposal of Boursin to Le
Groupe Bel for €400 million, and the disposal of Lawry’s and
Adolph’s seasoning blends and marinades business to McCormick
and Company for US $605 million. Both will be effective during
2008 (see note 33 on page 121 for further details). Furthermore,
we announced plans to dispose of our North American laundry
business, the process for which is ongoing.
In 2007 we purchased minority interests in several countries,
including Greece and India.
2006
On 4 September 2006, Unilever announced a public offer to
purchase all ordinary shares of Elais-Unilever S.A. held by third
party shareholders. Elais-Unilever S.A. was reported as a subsidiary
and is Unilever’s main foods business in Greece. The offer price
was €24.50 per share, with the public offer closing on 25 October
2006. A total of 2 234 692 shares were purchased by the end of
2006, increasing Unilever’s ownership of Elais-Unilever S.A.
to 83.52%. This shareholding was increased to 99.2% as at
31 December 2007.
On 3 November 2006 we announced the completion of the sale
of the majority of our frozen foods businesses in Europe to the
Permira Funds. Unilever received proceeds of €1.7 billion, and
recorded a profit on disposal of €1.2 billion. The businesses sold
included operations in Austria, Belgium, France, Germany, Ireland,
the Netherlands, Portugal and the United Kingdom.
In 2006 we disposed of various other businesses and brands with
a combined turnover of around €280 million, including Mora in
the Netherlands and Belgium, Finesse in North America and Nihar
in India.
2005
There were no material acquisitions during 2005.
On 11 July 2005, we completed the sale of our Prestige fragrance
business, UCI, to Coty Inc. of the United States. Unilever received
US $800 million in cash, with the opportunity for further deferred
payments contingent upon future sales. Additional payments have
been made by Coty Inc. since the disposal, and during 2007 we
recorded a receivable for the future payments expected.
Business disposals in 2005 included Stanton Oil in the UK and
Ireland, Dextro in various countries in Europe, Opal in Peru, Karo
and Knax in Mexico, spreads and cooking products in Australia
and New Zealand, Crispa, Mentadent, Marmite, Bovril and
Maizena in South Africa, frozen pizza in Austria, Biopon in
Hungary and tea plantations in India. The combined annual
turnover of these businesses was approximately €200 million.
In March 2005 Unilever carried out a previous phase of the
restructuring of its Portuguese foods business. Before the
restructuring Unilever Portugal held an interest in FIMA/VG –
Distribuição de Produtos Alimentares, Lda. (FIMA) foods business,
a joint venture with Jerónimo Martins Group – in addition to its
wholly owned Bestfoods business acquired in 2000. As a result of
the transaction the two foods businesses – FIMA and Unilever
Bestfoods Portugal – were unified and the joint venture stakes
were re-balanced so that Unilever held 49% of the combined
foods business and Jerónimo Martins Group 51%.