Unilever 2009 Annual Report Download - page 48

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 2009, ROIC was 11.2% (2008: 15.7%; 2007: 12.7%). The
reconciliation of ROIC to the GAAP measure net profit is
shown below.
ROIC is based on total business profit, including profit on business
disposals. The impact of such disposals in 2008 and 2007 was
€1.6 billion and €0.3 billion respectively. ROIC excluding this
impact was 11.2% in 2008 and 11.3% in 2007. The above
includes gains and losses on the sale of non-current assets. In
2008 it included €61 million on the sale of our interest in Palmci
and in 2009 €327 million from the sale of our interest in
JohnsonDiversey, with a net impact on the ROIC of 0.75
percentage points. The change in the pension finance charge of
€307 million accounted for a reduction of 0.85 percentage points
in ROIC.
€ million € million € million
Return on invested capital 2009 2008 2007
Net profit 3,659 5,285 4,136
Add back net interest expense net of tax 317 294 314
Add back impairment charges net of tax(a) (3) 38 1
Profit after tax, before interest and
impairment of goodwill and
indefinite-lived intangible assets 3,973 5,617 4,451
Year-end positions for invested capital:
Property, plant and equipment and
other non-current investments 7,263 7,024 7,276
Software and finite-lived
intangible assets 533 540 590
Inventories 3,578 3,889 3,894
Trade and other receivables 4,001 5,002 4,965
Trade payables and other creditors
due within one year (8,900) (8,449) (8,545)
Elements of invested capital included
in assets and liabilities held for sale 17 45 150
Goodwill and indefinite-lived
intangible assets at gross
book value 21,814 20,892 20,029
Total 28,306 28,943 28,359
Add back cumulative goodwill
written off directly to reserves 6,343 6,343 6,427
Year-end invested capital 34,649 35,286 34,786
Average invested capital for the year 35,587 35,832 35,122
Return on average invested capital 11.2% 15.7% 12.7%
(a) Excluding write-downs of goodwill and indefinite-lived intangible
assets taken in connection with business disposals.
Unilever Annual Report and Accounts 2009 45
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 for the impact on profit of material
business disposals) but before the financing of pensions.
In 2009, UFCF was €4.9 billion (2008: €3.2 billion; 2007:
€3.8 billion). The reconciliation of UFCF to the GAAP measures
of 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. UFCF for 2009 based on actual
cash tax paid would have been €5.2 billion (2008: €3.6 billion;
2007: €3.6 billion).
€ million € million € million
Ungeared free cash flow 2009 2008 2007
Net profit 3,659 5,285 4,136
Taxation 1,257 1,844 1,137
Share of net profit of joint ventures/
associates and other income from
non-current investments (489) (219) (191)
Net finance costs 593 257 252
Depreciation, amortisation
and impairment 1,032 1,003 943
Changes in working capital 1,701 (161) 27
Pensions charges in operating profit
less payments (1,028) (502) (910)
Movements in provisions less payments (258) (62) 145
Elimination of (profits)/losses on disposals 13 (2,259) (459)
Non-cash charge for share-based
compensation 195 125 118
Other adjustments 58 15 (10)
Cash flow from operating activities 6,733 5,326 5,188
Less charge for share-based compensation (195) (125) (118)
Add back pension charges less payments
in operating profit 1,028 502 910
Less net capital expenditure (1,258) (1,099) (983)
Less tax charge adjusted to reflect
an ungeared position (1,367) (1,368) (1,228)
Taxation on profit (1,257) (1,844) (1,137)
Taxation on profit on material
business disposals –581 –
Tax relief on net finance costs (110) (105) (91)
Ungeared free cash flow 4,941 3,236 3,769