Business Context and Reporting Period
This Form 20-F is the Annual Report for Unilever PLC (and Unilever N.V.) for the fiscal year ended December 31, 2007. Unilever operates as a single economic entity through its two parent companies, NV (Netherlands) and PLC (England), which are linked by an Equalisation Agreement. The Group is a leading global supplier of fast-moving consumer goods across Foods and Home and Personal Care categories, operating in over 150 countries. The reporting period reflects the third consecutive year of accelerating underlying sales growth, driven by a strategy focused on Vitality products, personal care, and developing/emerging markets.
Key Financial Metrics
| Metric | 2007 (€ million) | 2006 (€ million) | Change |
|---|---|---|---|
| Turnover | 40,187 | 39,642 | +1.4% |
| Underlying Sales Growth (USG) | 5.5% | 3.8% | +1.7 pp |
| Operating Profit | 5,245 | 5,408 | -3.0% |
| Operating Margin | 13.1% | 13.6% | -0.5 pp |
| Net Profit (Total) | 4,136 | 5,015 | -17.5% |
| Net Profit (Continuing Ops) | 4,056 | 3,685 | +10.1% |
| Earnings Per Share (Continuing) | €1.32 | €1.19 | +10.9% |
| Ungeared Free Cash Flow (UFCF) | 3,769 | 4,222 | -10.7% |
| Return on Invested Capital (ROIC) | 12.7% | 14.6% | -1.9 pp |
| Net Debt | €8,335 million | €7,523 million | +10.8% |
Note: Net Profit for 2006 included a significant one-off gain of €1.2 billion from the disposal of European frozen foods businesses. Excluding discontinued operations, Net Profit from continuing operations grew by 10% in 2007.
Material Changes vs. Prior Period
- Revenue Growth: Turnover increased by 1.4% to €40.2 billion. This was driven by strong underlying sales growth of 5.5% (volume +3.7%, price +1.8%), which was partially offset by unfavorable currency movements (-3.1%) and the impact of disposals (-0.9%).
- Profitability: Operating profit declined by 3% to €5.2 billion. The reported operating margin decreased by 0.5 percentage points to 13.1%, primarily due to higher restructuring charges (€875 million) related to the "One Unilever" acceleration program. Underlying operating margin improved by 0.2 percentage points, as savings and price increases offset rising commodity costs.
- Regional Performance:
- Asia Africa: The strongest performer with 11.1% underlying sales growth and a 1.6 percentage point increase in operating margin.
- The Americas: Underlying sales growth of 4.1%, though reported turnover fell 2.4% due to significant currency headwinds (-5.8%).
- Europe: Underlying sales growth of 2.8%. Operating profit fell 11.9% due to restructuring charges and one-off items, though underlying margin improved by 0.9 percentage points.
- Restructuring: The Group announced plans to reduce its annual cost base by approximately €1.5 billion by 2010 through the creation of multi-country organizations and factory closures. Restructuring charges in 2007 were €875 million.
Guidance, Outlook, and Risks
- 2008 Outlook: Management expects underlying sales growth to be towards the upper end of the 3-5% target range and anticipates a further underlying improvement in operating margin.
- Long-Term Targets (by 2010):
- Underlying sales growth of 3-5% per annum.
- Operating margin in excess of 15% (after normal restructuring charges of 0.5-1% of turnover).
- Return on Invested Capital (ROIC) increasing over the 2004 base of 11%.
- Ungeared Free Cash Flow of €25-30 billion over the 2005-2010 period.
- Portfolio Changes: The Group intends to dispose of brands with a combined turnover in excess of €2 billion (including the North American laundry business, Boursin, and Lawry's) to improve underlying sales growth by approximately 0.4 percentage points.
- Key Risks:
- Commodity Costs: Significant increases in raw material and packaging costs, though partially mitigated by price increases and efficiency savings.
- Competition: Intensifying competition and the growth of discounters in key markets.
- Legal Proceedings: Ongoing investigations regarding ice cream distribution exclusivity in Europe (e.g., Mars claims) and competition inquiries in France and Germany.
- Developing Markets: Economic volatility in developing and emerging markets, which account for 44% of turnover.
Investor Verification Checklist
- Restructuring Impact: Verify the actual cost savings realized from the "One Unilever" acceleration program against the €1.5 billion target and the timing of associated charges.
- Disposal Execution: Monitor the completion and financial impact of announced disposals (North American laundry, Boursin, Lawry's) and the acquisition of Inmarko (Russia).
- Commodity Hedging: Assess the effectiveness of price increases and supply chain savings in offsetting rising input costs in 2008.
- Legal Contingencies: Review the status of the ice cream distribution litigation in Europe and competition inquiries in France and Germany for potential financial exposure.
- Currency Sensitivity: Evaluate the impact of exchange rate fluctuations on reported results, given the significant exposure to non-Euro currencies (particularly the US Dollar).
- Pension Funding: Monitor the Group's pension funding position, which improved significantly in 2007 due to accelerated contributions and asset value increases.