Unilever 2007 Annual Report Download - page 32

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Financial Review continued
Ungeared free cash flow (UFCF)
UFCF expresses the generation of profit by the business and how this is translated into cash, and thus economic value. It is therefore
not used as a liquidity measure within Unilever. The movement in UFCF is used by Unilever to measure progress against our longer-term
value creation goals as outlined to investors.
UFCF is cash flow from group operating activities, less net capital expenditure, less charges to operating profit for share-based
compensation and pensions, and less tax (adjusted to reflect an ungeared position and, in 2006, for the impact on profit on sales of
frozen foods businesses), but before the financing of pensions.
In 2007, UFCF was €3.8 billion (2006: €4.2 billion; 2005: €4.0 billion). The reconciliation of UFCF to the GAAP measures net profit and
cash flow from operating activities is shown below.
The tax charge used in determining UFCF can be either the income statement tax charge or the actual cash taxes paid. Our consistently
applied definition uses the income statement tax charge in order to eliminate the impact of volatility due to the variable timing of
payments around the year end. For 2006 the income statement tax charge on this basis was materially impacted by the tax effect of
non-cash charges for the provision for preference shares and certain other non-cash items. UFCF for 2007 based on actual cash tax
paid would have been €3.6 billion (2006: €4.5 billion; 2005: €3.7 billion).
€ million € million € million
Ungeared free cash flow 2007 2006 2005
Net profit 4 136 5 015 3 975
Taxation 1 137 1 332 1 301
Share of net profit of joint ventures/associates and other income from non-current investments (191) (144) (55)
Net finance costs 252 725 618
Depreciation, amortisation and impairment 943 982 1 274
Changes in working capital 27 87 193
Pensions charges in operating profit less payments (910) (1 038) (532)
Movements in provisions less payments 145 107 (230)
Elimination of profits on disposals (459) (1 620) (789)
Non-cash charge for share-based compensation 118 120 192
Other adjustments (10) 8 (23)
Cash flow from operating activities 5 188 5 574 5 924
Less charge for share-based compensation (118) (120) (192)
Add back pension payments less pension charges in operating profit 910 1 038 532
Less net capital expenditure (983) (934) (813)
Less tax charge adjusted to reflect an ungeared position (1 228) (1 336) (1 440)
Taxation on profit (1 137) (1 332) (1 301)
Taxation on profit on sales of frozen foods businesses –159 –
Tax relief on net finance costs (91) (163) (139)
Ungeared free cash flow 3 769 4 222 4 011
30 Unilever Annual Report and Accounts 2007
Report of the Directors continued