Unilever 2007 Annual Report Download - page 33

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Unilever Annual Report and Accounts 2007 31
Report of the Directors continued
Financial Review continued
Return on invested capital (ROIC)
ROIC expresses the returns generated on capital invested in the Group. The progression of ROIC is used by Unilever to measure
progress against our longer-term value creation goals outlined to investors.
ROIC is profit after tax but excluding net interest on net debt and impairment of goodwill and indefinite-lived intangible assets both net
of tax, divided by average invested capital for the year. Invested capital is the sum of property, plant and equipment and other non-
current investments, software and finite-lived intangible assets, working capital, goodwill and indefinite-lived intangible assets at gross
book value and cumulative goodwill written off directly to reserves under an earlier accounting policy.
In 2007, ROIC was 12.7% (2006: 14.6%). The reconciliation of ROIC to the GAAP measure net profit is shown below.
There were no disposals of discontinued operations in 2007; the impact of such disposals in 2006 and 2005 was €1.2 billion and €0.5
billion respectively. ROIC is based on total business profit, including profit on such disposals. ROIC excluding this impact in 2007 is
12.7% (2006: 11.5%; 2005: 11.3%).
€ million € million € million
Return on invested capital 2007 2006 2005
Net profit 4 136 5 015 3 975
Add back net interest expense net of tax 314 365 424
Add back impairment charges net of tax(a) 115 245
Profit after tax, before interest and impairment of goodwill and indefinite-lived intangible assets 4 451 5 395 4 644
Year-end positions for invested capital:
Property, plant and equipment and other non-current investments 7 276 7 142 7 333
Software and finite-lived intangible assets 590 608 642
Inventories 3 894 3 796 4 107
Trade and other receivables 4 965 4 667 5 185
Trade payables and other creditors due within one year (8 545) (8 513) (8 782)
Elements of invested capital included in assets and liabilities held for sale 150 15 200
Goodwill and indefinite-lived intangible assets at gross book value 20 029 20 705 21 621
Total 28 359 28 420 30 306
Add back cumulative goodwill written off directly to reserves 6 427 6 427 6 870
Year-end invested capital 34 786 34 847 37 176
Average invested capital for the year 35 122 36 850 37 012
Return on average invested capital 12.7% 14.6% 12.5%
Return on average invested capital excluding profit on disposal of discontinued operations 12.7% 11.5% 11.3%
(a) Excluding write-downs of goodwill and indefinite-lived intangible assets taken in connection with business disposals.