Unilever 2009 Annual Report Download - page 28

Our business
Unilever Annual Report and Accounts 2009 25
Our business
Unilever is one of the world’s leading suppliers of fast-moving
consumer goods. We aim to meet everyday consumer needs for
nutrition, hygiene and personal care with products that help
people to feel good, look good and get more out of life. Unilever
is a global business which by the end of the year was generating
more than half of its turnover in developing and emerging markets
in Asia, Africa, Central & Eastern Europe and Latin America.
Unilever’s portfolio includes such well-known brands as Knorr,
Lipton, Hellmann’s, Magnum, Omo, Dove, Lux and Axe/Lynx.
Our long-term ambition is to be in the top third of a group of
21 fast moving consumer goods companies in terms of total
shareholder return on a three-year basis. A list of the companies
included in our peer group in 2009 is set out on page 46.
Key indicators 2009 – performance and portfolio
During 2009, progress against our key financial performance
indicators was as follows:
2009 2008 2007
Underlying sales growth (%) 3.5 7.4 5.5
Underlying volume growth (%) 2.3 0.1 3.7
Operating margin (%) 12.6 17.7 13.1
Operating margin before RDIs (%) 14.8 14.6 14.5
Ungeared free cash flow (€ billion) 4.9 3.2 3.8
Return on invested capital (%) 11.2 15.7 12.7
Total shareholder return (ranking) 598
Underlying sales growth, underlying volume growth, operating
margin before RDIs, ungeared free cash flow, return on invested
capital and total shareholder return are not recognised measures
under IFRS. Further information about our use of these measures,
including definitions and, where appropriate, reconciliation to
IFRS measures, can be found in our Financial Review starting on
page 37.
Underlying sales growth (USG) is defined as the percentage
increase in turnover, adjusted for the impact of acquisitions and
disposals and exchange rate fluctuations. In 2009, underlying sales
growth was 3.5% compared with 7.4% in 2008. Underlying
volume growth is underlying sales growth after excluding the
impact of price changes.
Operating margin for 2009 was 12.6% compared with 17.7% in
2008, which benefited significantly from the net impact of profits
on disposals, restructuring charges and other one-off items. Before
these items the underlying improvement in operating margin in
2009 was 0.2 percentage points.
Ungeared free cash flow (UFCF) is defined as the cash flow from
operating activities less net capital expenditure, pension charges,
share-based compensation costs and tax. A more comprehensive
definition is given on page 45. In 2009, UFCF was €4.9 billion,
which was €1.7 billion higher than a year earlier.
Return on invested capital (ROIC) is defined as profit after tax
(excluding finance and net impairment charges) divided by the
average invested capital. A more comprehensive definition is given
on page 45. In 2009, ROIC was 11.2% compared with 15.7% in
2008, which benefited from significant profits on business
disposals. Excluding the impact of profits on sale of group
companies, ROIC was at the same level as in 2008.
Within our peer group of 21 companies, our ranking for Total
Shareholder Return over a three-year period was 5th in 2009. This
measure forms part of the basis for the long-term remuneration of
top management. Further information is given on page 46.
In addition to these financial indicators, we track other measures
in support of our strategic goals. We believe that the share of our
business that is generated in Developing and Emerging (D&E)
markets, and the proportion of our turnover that is generated by
our top 25 brands are particularly relevant. For the latter measure
we group together brands that have common consumer profiles
and are supported by common innovation programmes, although
in some cases the brand names may vary between countries.
The results for these measures for the last three reporting years are
as follows:
2009 2008 2007
Share of turnover in D&E markets (%) 49 47 44
Share of turnover in top 25 brands (%) 73 73 73
Our definition of D&E markets includes all countries in Latin
America, Central & Eastern Europe, Africa and Asia, except Japan
and Australia. In 2009, the turnover in D&E markets represented
49% of the turnover of the Group.
Our D&E strategy aims to increase the penetration and
consumption of our categories with D&E consumers at all income
levels and to trade consumers up to higher added value products
as needs change with rising incomes. We have an outstanding
geographic footprint in D&E markets. Our focus is to maintain and
develop our leading category and brand positions in our D&E
strongholds, such as Brazil, India, South Africa and Indonesia,
whilst simultaneously investing aggressively for growth to build up
new brand and category positions in countries that present
important new growth opportunities, notably China and Russia.
In the last decade we have strengthened our brand portfolio, with
the top 25 brands now collectively contributing 73% of our global
turnover, and our top 13 brands together accounting for sales of
€23.5 billion.
We also monitor the development of our brands through
independent market information that gives us insights into our
leading positions versus our direct competitors. In our section on
Operating environment on page 27 we indicate the product areas
in which we have leading or key strategic positions.
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