Unilever 2011 Annual Report Download - page 23

20 Unilever Annual Report and Accounts 2011
Report of the Directors About Unilever
FINANCIAL REVIEW 2011
The virtuous circle of growth is starting to work for us.
We have successfully accelerated our growth and at the
same time have continued the steady and sustainable
expansion of operating profit.
Delivering against our priorities
Underlying sales growth ahead of our markets, with volumes broadly in line
Markets continued to grow in value in 2011, with double digit growth in emerging markets and mid
single digit growth overall. Market volume growth has slowed however, reflecting the impact of
rising prices and weak consumer confidence especially in Western Europe and North America.
Against this background, underlying sales growth of 6.5% was a strong performance. It was growth
ahead of our markets, and was driven by outstanding performance in emerging markets and in the
Home Care and Personal Care categories. In Foods and Refreshment, whilst price increases have
impacted volumes, growth was in line with relevant markets and several key businesses gained
share. Volume growth overall was 1.6%, a step down from 2010 but broadly in line with our markets.
Price growth of 4.8% was ahead of our markets as we increased prices more than others in a
number of categories.
Performance was particularly strong in emerging markets, which delivered underlying sales growth
of 11.5%, a significant proportion of this from volume. Double digit growth was achieved in a wide
range of countries including China, India, Turkey, South Africa and Mexico.
Growth continued to be driven by innovation, with good progress in the year in rolling out bigger
innovations more quickly across more markets. The launch of new brands into new markets was
also accelerated and acquisitions played an important role, with Alberto Culver performing
particularly strongly.
Underlying operating margins protected in a difficult environment
Underlying operating margin for the year was 14.9%, down slightly on the 15.0% achieved in 2010.
In the context of substantial cost inflation and depressed consumer demand in the developed world
we have built market shares and held margins to within 0.1% of the prior year, reflecting the strength
of our business.
Gross margin was down by 1.8% at constant currency, reflecting unusually high levels of cost inflation.
Strong pricing and excellent savings delivery were achieved in the year, but these were insufficient to
fully compensate for the level of cost inflation suffered.
The lower gross margin was largely mitigated by overheads, where outstanding progress in savings
programmes reduced the impact on margin by 1.0% for the year at constant currency. Although part
of this reduction was one-off, the various continuous improvement initiatives across the business
have been a major success, resulting in accelerated savings in a wide range of areas.
Advertising and promotions expenditure increased by €150 million, but was 0.7% lower as a
percentage of turnover, at constant currency.
Healthy cash delivery
Cash generation was healthy, with free cash flow of €3.1 billion. This was below the 2010 figure of
€3.4 billion, the difference largely reflecting a significant step up in net capital expenditure to €2.0
billion, due to capacity expansion in the fast-growing emerging markets.
The net working capital movement was a small cash outflow in 2011. This related to a series of
financial items, with no significant movement in trade working capital, which has now been negative
overall for nine consecutive quarters.
Key positive drivers of cash flow in 2011 were improved operating profit, which contributed around
€0.1 billion, and income tax payments, €0.1 billion lower.