Unilever 2008 Annual Report Download - page 33

Performance Review continued
30 Unilever Annual Report and Accounts 2008
Report of the Directors
Costs of financing net borrowings were 1% lower than last year.
The average interest rate was lower at 4.5%, offsetting the
impact of a higher average level of net debt.
Share of net profit from joint ventures and associates and other
income from non-current investments contributed €219 million.
This included a gain of €61 million in non-current investments
resulting from the disposal of our interests in plantations in Côte
d’Ivoire.
The effective tax rate was 26.4% and the underlying tax rate,
before RDIs, was 26.6% for the full year. This compared with an
underlying rate of 24.5% in 2007, which included substantial
benefits from the favourable settlement of prior year tax audits.
Net profit was 28% higher than in 2007, boosted by the profits
on disposals. Earnings per share were €1.79, including a net gain
of €0.36 from RDIs. This compared with €1.35 last year, which
included a net loss of €0.07 from RDIs.
Return on invested capital was 15.7%, boosted by profits on
business disposals. Excluding profits on disposals, ROIC was
11.2%, broadly in line with 2007 on a comparable basis.
Group 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 the prior
year. The lower operating profit and margin 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 the previous year.
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
included €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 in the prior year, which included the profit on disposal of
European frozen foods businesses.
ROIC was 12.7% in 2007. This represented an improvement from
11.5% in 2006 when adjusted for business disposals.
Western Europe
2008 compared with 2007
€ million € million
2008 2007
Turnover 12 853 13 327
Operating profit 2 521 1 563
Operating margin 19.6% 11.7%
Restructuring, business disposals and impairment
charges included in operating margin 2.8% (4.4)%
%
Underlying sales growth at constant rates 1.3
Effect of acquisitions (0.0)
Effect of disposals (2.1)
Effect of exchange rates (2.8)
Turnover growth at current rates (3.6)
%
Operating profit 2008 vs 2007
Change at current rates 61.3
Change at constant rates 63.6
Turnover at current rates of exchange fell by 3.6%, after the
impact of acquisitions, disposals and exchange rate changes
as set out in the table above. Operating profit at current rates
of exchange rose by 61%, after including an adverse currency
movement of 2%. The underlying performance of the business
after eliminating these exchange translation effects and the
impact of acquisitions and disposals is discussed below at
constant exchange rates.
Underlying sales growth was 1.3% for the year with pricing
contributing 3.8% and volume lower by 2.4%. Volume
consumption in our markets has reduced and shoppers are
increasingly looking to economise on their purchases.