4th Aug 2005 07:01
Unilever PLC04 August 2005 SECOND QUARTER AND HALF YEAR RESULTS 2005 Encouraging progress towards restoring top line growth and increasedcompetitiveness. FINANCIAL HIGHLIGHTS(unaudited) Second Quarter 2005 • million Half Year 2005 Current Current Constant Current Current Constant rates rates rates rates rates rates Continuing operations:10 222 1% 2% Turnover 19 367 2% 3% 1 265 (18)% (18)% Operating profit 2 657 (7)% (6)% 1 124 (20)% (20)% Pre-tax profit 2 382 (8)% (7)% 787 (26)% (26)% Net profit from 1 751 (6)% (6)% continuing operations Total operations: 0.75 (29)% (29)% EPS - NV (Euros) 1.71 (6)% (6)% 11.19 (29)% (29)% EPS - PLC (Euro 25.63 (6)% (6)% cents) KEY FEATURES OF THE QUARTER •Underlying sales grew by 3.3%, entirely from volume. •Overall market shares have been stabilised since the start of the year. •Underlying profitability was robust, with savings programmes and a better mix largely offsetting higher input costs and increased marketing investment. •Operating profit of €1.3 billion includes €353 million write-down on Slim•Fast. CHIEF EXECUTIVE'S COMMENT AND OUTLOOK The second quarter marks another encouraging step as we execute our plans toimprove top line performance. We have strengthened our innovation programme andhalted the decline in overall market share. We are making good progress against our business priorities. Developing andemerging markets are once again a key driver of growth for Unilever, with strongsales in buoyant markets, and in personal care the improvement made in the firstquarter has been sustained. Conditions in Western Europe generally remaindifficult and we have more to do to improve our competitiveness there. We have made major changes in the way the business is organised and I am pleasedthat these are gaining traction. The focus on competitiveness is translatinginto more and better innovation, into keener pricing of our products and sharperexecution in the way in which we bring our brands to the market. We continue to drive cost efficiency through our savings programmes and theseare being reinforced as we integrate our foods and home and personal careoperations around the world. This has meant that so far this year we havelargely contained the impact on operating margin of higher input costs and theincreased level of investment behind our brands. The meal replacement category declined further in the first half year. Whilethis is less than 1% of our business, the reduced market size requires anadditional write-down on Slim•Fast which affects operating profit and earningsper share in the quarter. Looking forward, we do not expect significant change in the market environmentin the rest of the year. Input costs and investment behind our brands willincrease the pressure on margins. Against this background we remain focused onthe job of improving our competitiveness and restoring top line growth. Patrick CescauGroup Chief Executive4 August 2005 Unilever has adopted international accounting standards (IFRS). These apply toboth the prior year comparators and the current year results. In addition, thecondensed interim financial statements are now shown only at current exchangerates, while percentage year-on-year changes are shown at both current andconstant exchange rates to facilitate comparison. Further information on theimpact of IFRS can be found on page 10 and on the Unilever web site atwww.unilever.com/ourcompany/investorcentre/. In the following commentary sales growth is stated on an underlying basis atconstant exchange rates and excluding the effects of acquisitions and disposals.Turnover includes the impact of exchange rates and acquisitions and disposals. Unilever uses 'constant rate' and 'underlying' measures primarily for internalperformance analysis and targeting purposes. Unilever believes that suchmeasures provide additional information for shareholders on underlying businessperformance trends. Such measures are not defined under IFRS or US GAAP and arenot intended to be a substitute for GAAP measures of turnover and profit. Following the announcement of the disposal of our Prestige fragrancesoperations, Unilever Cosmetics International (UCI), results for this businesshave been presented in our financial results as discontinued operations, asrequired by IFRS 5. For further information please refer to page 11. The profitarising on the sale of this business will be included in our results for thethird quarter of 2005, and is expected to be around €450 million before tax. SECOND QUARTER AND HALF YEAR FINANCIAL RESULTSUnderlying sales grew by 3.3% in the quarter, entirely coming from volume. Inthe first half year, underlying sales grew by 4.6%, including about 2 percentagepoints from additional days in the first quarter. Turnover was 1.4% ahead in the quarter, with the growth in underlying salespartly offset by a negative 1.8% from disposals and a small negative impact ofcurrency movements. Operating margin was 12.4% in the quarter. This includes a reduction of 3.4percentage points from a €353 million write-down of the carrying value ofSlim•Fast, following the periodic review of goodwill and intangible assets atthe end of June. The additional impairment charge results from a further declinein the market size of the meal replacement category and consequently a lowersales outlook for Slim•Fast. Operating margin in the half year was 13.7%. This was 1.4 percentage pointslower than last year, including the impact of the Slim•Fast write-down.Restructuring costs in the half year were lower by €124 million, while profitson disposals and asset sales were higher by €47 million. Savings programmes anda better mix largely compensated for higher input costs and increased marketinginvestment behind our brands. Operating profit decreased by 18% in the quarter and by 7% in the first halfyear. (Before the effect of the Slim•Fast write-down, operating profit increasedby 5% in both the quarter and the half year). Net financing costs excluding pensions were reduced by 6% in the quarter, and by4% in the first half year, through a lower level of net debt. The tax rate was 30% in the quarter. For the first half year the tax rate was26.5% compared with 28% last year. This reflects the benefit of non-recurringitems and is below the longer term expectation of 30%. Net profit on continuing operations decreased by 26% in the quarter and by 6% inthe first half year, including the impact of the Slim•Fast write-down. Withinthis, there was a small adverse impact from currency movements. Including the results of discontinued operations, EPS decreased by 29% in thequarter and by 6% in the first half year. (Before the impact of the Slim•Fastwrite-down, EPS decreased by 7% in the quarter and increased by 6% in the firsthalf year). CASH FLOWNet cash flow from operating activities, which is net of tax payments, was €1.4billion for the first half year, a decrease of €0.6 billion on 2004. Of thisdecrease, €0.4 billion comes from a higher seasonal outflow of working capitalin the first half year following a particularly low level achieved at the end of2004. Tax was €0.2 billion higher, including tax paid on capital gains. Net cash flow from investing activities was €0.6 billion higher, mainly due toacquisition and disposal activity and net movements in investments with maturitygreater than three months. Net cash flow used in financing activities rose by€0.2 billion, reflecting the higher dividend paid. BALANCE SHEETGoodwill and intangibles have increased by €0.9 billion since 1 January.Currency movements added €1.4 billion, offset by Slim•Fast impairment anddisposals totalling €0.5 billion. Inventories and trade receivables were €1.8billion higher, reflecting currency movements and seasonal build-ups. Assets andliabilities held for sale include those related to the Prestige fragrancebusiness sold in July 2005. Closing net debt was €11.5 billion, an increase of €0.3 billion from the startof the year. A reduction of €1.4 billion on conversion of the €0.05 preferenceshares was largely offset by adverse currency movements, mainly from a strongerUS dollar, and purchases of treasury stock. Total equity has increased by €2.1 billion since 1 January 2005. Net profit added €1.7 billion and currency retranslation added €0.5 billion. Treasury stockwas used for the conversion of the €0.05 preference shares. This had the effect of reducing borrowings by €1.4 billion and increasing equity by the same amount.Subsequent purchases of treasury stock and the 2004 dividend reduced equity by€0.3 billion and €1.2 billion respectively. SECOND QUARTER PERFORMANCE BY REGION EUROPEThe difficult market conditions in much of the region have continued.Competition is intense between retailers as well as between manufacturers andpricing is under pressure. Our markets in home and personal care are flat, whilefoods categories have grown by about 1%. Underlying sales declined by 0.6% in the quarter, with volumes slightly ahead,but lower pricing as we have moved to improve competitiveness. The volume growthrepresents an improvement compared with the first quarter, including a betterperformance in both sales and market shares in ice cream. Market shares, in aggregate across our categories, have been stable since thestart of the year, although they are still lower than a year ago. Central and Eastern Europe grew strongly, particularly in Russia across all homeand personal care categories and in Knorr and Calve in savoury and dressings. Sales in Western Europe were disappointing in a challenging environment,particularly in the UK, France and the Netherlands, and by category in home andpersonal care and in frozen foods. We expect to see a gradual improvementresulting from a step-up in activity and innovation. The 'Vitality' theme increasingly drives our innovation programme across bothfoods and home and personal care. In Foods, the Flora/Becel brand continues to extend its footprint with theroll-out of the pro•activ range, now including yoghurt drinks. Knorr Vie shotshave been extended to the UK and Spain after a successful start in Belgium andthe Netherlands. Across the region, Magnum 5 Senses ice creams are off to a good start. In laundry, the globally successful 'Dirt is Good' campaign is now being appliedto re-energise the Persil brand in the UK and Ireland and Skip in a number ofother countries. In personal care, the Sunsilk styling range is being rolled outfollowing launches in the first quarter. The operating margin, at 17.6%, was 2.2 percentage points higher than last year,boosted by profits on disposals and with a lower level of restructuring costs.The benefits of savings programmes and an improved mix more than offset higherinput costs and more competitive pricing. THE AMERICASThere has been a sustained pick-up in market growth in home and personal carecategories in the US and most Latin American countries remain buoyant, howevermarkets in foods categories in the US were flat. Underlying sales grew by 5%, entirely from volume, with solid growth in the USand strong performances in Brazil, Mexico and Argentina. In home and personal care in the US, aggregate market shares have recovered inthe first half and are now back close to the level of a year ago. Salesperformance improved, driven by very good volume growth in skin care anddeodorants. US foods had a relatively weaker quarter, as expected, against a strongcomparator in the previous year which had benefited from rapid growth of theCarb Options range. Sales of the new Country Crock side dishes and Bertollifrozen meals are doing well. Aggregate shares have improved since the start ofthe year, although they are still slightly lower than a year ago. The ice creambusiness continues to perform well. The meal replacement category has seen a further sharp decline. Within this,Slim•Fast has increased share, but sales are well down. We are drivinginnovation with a range of high protein products and new 'meal-on-the-go' bars,and are further integrating the business into our other operations. Market shares remain healthy across Latin America and our established businessesare benefiting from increasing consumer demand. Sales in Argentina are risingstrongly and we are growing well again in Chile. In Brazil volumes are wellahead, particularly in home and personal care, despite an upsurge in localcompetition in lower priced segments of the market. Growth in Mexico was broadbased across categories. The innovation programme includes a series of activities directed at the'Vitality' opportunity. In the US, we have launched: Hellmann's with Canola oil,for a healthy heart; Ragu organic sauces; Lipton tea with the AOX seal -promoting tea's naturally antioxidant properties, and the 'Smart' ranges ofBreyers ice cream. AdeS soy based drinks in Latin America have been enhanced with new flavours and'light' varieties. Hellmann's cholesterol free mayonnaise has been extended toBrazil and Central America. In the US a Dove hair styling range and Dove cool moisturising bar and body washhave been launched. The Axe range has been extended with shower gel anddeodorant sticks and Degree for men has been introduced. In laundry, all nowincludes a detergent with softening. In Latin America we have introduced Sunsilk Hidraloe and Guarana and summervariants of Dove across several categories. The operating margin, at 5.1%, was 11.8 percentage points lower than last year,of which 10.7 percentage points related to the write-down of Slim•Fast. Theremaining reduction of 1.1 percentage points reflected increased investment inadvertising and promotions and lower profits on disposals. Savings programmesand an improved mix largely offset higher input costs. ASIA/AFRICAMost markets across the region are growing well, with strong consumer demand,although Japan remains a difficult business environment. Underlying sales grew by 8%, mainly from volume but also with a contributionfrom pricing to recover increased input costs, especially in home and personalcare. There was double digit growth across our key developing and emergingmarkets, almost without exception. This contrasts with weaker performances inJapan and Australia. Overall market share has been held since the start of the year, but has not yetrecovered to the level of a year ago. Good growth in India in the quarter was broad based across categories. Highlights of a good performance in China were Omo laundry detergent,outstanding growth of Lux Super Rich following its launch late last year, andinnovation led growth in Pond's. Sales in Japan improved after several difficult quarters. Lipton tea is growingwell, but the competitive background in hair and skin care remains tough. All our major businesses in South East Asia recorded strong growth in thequarter, in very competitive markets. Laundry, household care and hair careperformed particularly well. In Turkey sales and market shares made good progress. There has beenparticularly encouraging progress in laundry, with Omo consolidating itsposition as brand leader. Ice cream, tea and household care also grew well. Arabia has grown strongly in a buoyant economy. Recent innovation includes Dove shampoos in India, Dove combing cream in Turkeyand Sunsilk anti-dandruff shampoo in Arabia. New global bar products for Luxhave been launched in India, and Pond's Beauty White in China. In laundry, Omosensitive skin formulation has been introduced in Turkey and Indonesia. Lipton ready-to-drink teas have been extended with milk tea in China andLeaf'n'Lemon in Japan. Knorr Soupy Snax is being rolled out in a number ofcountries in Asia. The operating margin, at 13.0%, was slightly lower than last year. Input costsin home and personal care have increased sharply, but this has been offset byselective price increases, cost efficiencies and an improved mix. SAFE HARBOUR STATEMENT: This announcement may contain forward-lookingstatements, including 'forward-looking statements' within the meaning of theUnited States Private Securities Litigation Reform Act of 1995. Words such as'expects', 'anticipates', 'intends' or the negative of these terms and othersimilar expressions of future performance or results and their negatives areintended to identify such forward-looking statements. These forward-lookingstatements are based upon current expectations and assumptions regardinganticipated developments and other factors affecting the Group. They are nothistorical facts, nor are they guarantees of future performance. Because theseforward-looking statements involve risks and uncertainties, there are importantfactors that could cause actual results to differ materially from thoseexpressed or implied by these forward-looking statements, including, amongothers, competitive pricing and activities, consumption levels, costs, theability to maintain and manage key customer relationships and supply chainsources, currency values, interest rates, the ability to integrate acquisitionsand complete planned divestitures, physical risks, environmental risks, theability to manage regulatory, tax and legal matters and resolve pending matterswithin current estimates, legislative, fiscal and regulatory developments,political, economic and social conditions in the geographic markets where theGroup operates and new or changed priorities of the Boards. Further details ofpotential risks and uncertainties affecting the Group are described in theGroup's filings with the London Stock Exchange, Euronext Amsterdam and the USSecurities and Exchange Commission, including the Annual Report and Accounts onForm 20-F. These forward-looking statements speak only as of the date of thisdocument. Except as required by any applicable law or regulation, the Groupexpressly disclaims any obligation or undertaking to release publicly anyupdates or revisions to any forward-looking statements contained herein toreflect any change in the Group's expectations with regard thereto or any changein events, conditions or circumstances on which any such statement is based. CONDENSED INTERIM FINANCIAL STATEMENTS INCOME STATEMENT (unaudited) Second Quarter • million Half Year 2005 2004 Increase/ 2005 2004 Increase/ (Decrease) (Decrease) Current rates Constant rates Current rates Constant rates Continuing operations: 10 222 10 077 1% 2% Turnover 19 367 19 027 2% 3% 1 265 1 548 (18)% (18)% Operating 2 657 2 865 (7)% (6)% profit After charging: (353) - Impairment of (353) - Slim•Fast (153) (172) Net finance (306) (330) costs 4 (8) Finance 101 78 income (145) (142) Finance (379) (367) costs (12) (22) Pensions and (28) (41) similar obligations 8 9 Share in net 18 18 profit of joint ventures (8) 1 Share in net (8) 2 profit/(loss) of associates 12 19 Other income 21 32 from non-current investments 1 124 1 405 (20)% (20)% Profit before 2 382 2 587 (8)% (7)% taxation (337) (342) Taxation (631) (719) 787 1 063 (26)% (26)% Net profit 1 751 1 868 (6)% (6)% from continuing operations (3) 7 Net profit/ 14 4 (loss) from discontinued operations 784 1 070 (27)% (27)% Net profit 1 765 1 872 (6)% (5)% for the period Attributable to: 53 53 Minority 100 102 interests 731 1 017 (28)% (29)% Shareholders' 1 665 1 770 (6)% (5)% equity Combined earnings per share From total operations 0.75 1.05 (29)% (29)% Per • 0.51 1.71 1.82 (6)% (6)% ordinary NV share (Euros) 11.19 15.72 (29)% (29)% Per 1.4p 25.63 27.30 (6)% (6)% ordinary PLC share (Euro cents) 0.73 1.01 (28)% (28)% Per • 0.51 1.66 1.75 (5)% (5)% ordinary NV share - diluted (Euros) 10.91 15.07 (28)% (28)% Per 1.4p 24.85 26.20 (5)% (5)% ordinary PLC share - diluted (Euro cents) From continuing operations 0.75 1.05 (28)% (28)% Per • 0.51 1.69 1.82 (7)% (6)% ordinary NV share (Euros) 11.24 15.61 (28)% (28)% Per 1.4p 25.42 27.23 (7)% (6)% ordinary PLC share (Euro cents) 0.73 1.00 (27)% (27)% Per • 0.51 1.64 1.74 (6)% (5)% ordinary NV share - diluted (Euros) 10.95 14.98 (27)% (27)% Per 1.4p 24.64 26.14 (6)% (5)% ordinary PLC share - diluted (Euro cents) STATEMENT OF RECOGNISED INCOME AND EXPENSE (unaudited) • million Half Year 2005 2004 Fair value gains/(losses) on financial instruments andcash flow hedges net of tax 12 n/aActuarial gains/(losses) on pension schemes net of tax 12 (53)Currency retranslation gains/(losses) net of tax 556 (90) Net income/(expense) recognised directly in equity 580 (143) Net profit for the period 1 765 1 872 Total recognised income and expense for the period 2 345 1 729 Attributable to:Minority interests 146 104Shareholders' equity 2 199 1 625 BALANCE SHEET (unaudited) • million As at As at As at 2 July 31 December 26 June 2005 2004 2004 Non-current assetsGoodwill and intangible assets 17 876 17 007 18 952Property, plant and equipment 6 451 6 181 6 581Pension asset for funded schemes in 720 625 788surplusDeferred tax assets 1 633 1 491 1 329Other non-current assets 1 243 1 064 1 096Total non-current assets 27 923 26 368 28 746 Assets held for sale 373 n/a n/a Current assetsInventories 4 282 3 756 4 319Trade and other receivables duewithin one year 5 370 4 131 5 227Financial assets 372 1 013 1 188Cash and cash equivalents 1 594 1 590 2 297Total current assets 11 618 10 490 13 031 Current liabilitiesBorrowings due within one year (7 506) (5 155) (7 317)Trade payables and other current (8 613) (8 232) (9 129)liabilitiesTotal current liabilities (16 119) (13 387) (16 446)Net current assets/(liabilities) (4 501) (2 897) (3 415)Total assets less current 23 795 23 471 25 331liabilities Non-current liabilitiesBorrowings due after one year 6 085 6 893 9 042Pension liability for funded schemesin deficit 2 377 2 291 2 460Pension liability for unfunded 4 053 3 788 3 693schemesDeferred tax liabilities 835 773 1 177Restructuring and other provisions 1 349 1 364 794Other non-current liabilities 761 717 803Total non-current liabilities 15 460 15 826 17 969 Liabilities held for sale 119 n/a n/a EquityShareholders' equity 7 802 7 280 6 973Minority interests 414 365 389Total equity 8 216 7 645 7 362Total capital employed 23 795 23 471 25 331 MOVEMENTS IN EQUITY (unaudited) • million Half Year 2005 2004 Equity at 31 December 2004 7 645 n/aIFRS transition adjustment for financial instruments(including preference shares) (1 564) n/aEquity at 1 January 6 081 7 194Total recognised income and expense for the period 2 345 1 729Dividends (1 229) (1 134)Conversion of preference shares 1 380 -(Purchase)/sale of treasury stock (285) (366)Share option credit 85 121Dividends paid to minority shareholders (106) (122)Currency retranslation gains/(losses) net of tax (55) (25)Other movements in equity - (35)Equity at the end of the period 8 216 7 362 CASH FLOW STATEMENT (unaudited) • million Half Year 2005 2004Operating activitiesCash flow from operating activities 2 127 2 557Income tax paid (777) (576)Net cash flow from operating activities 1 350 1 981 Investing activitiesInterest received 79 36Net capital expenditure (335) (373)Acquisitions and disposals 117 (6)Other investing activities 299 (133)Net cash flow from/(used in) investing activities 160 (476) Financing activitiesDividends paid on ordinary share capital (1 093) (962)Interest and preference dividends paid (364) (338)Change in borrowings and finance leases 327 414Purchase of own shares (285) (343)Other financing activities (101) (63)Net cash flow from/(used in) financing activities (1 516) (1 292) Net increase/(decrease) in cash and cash equivalents (6) 213 Cash and cash equivalents at the beginning of the 1 406 1 428year Effect of foreign exchange rate changes (36) 381 Cash and cash equivalents at the end of period 1 364 2 022 ANALYSIS OF NET DEBT (unaudited) • million As at As at 2 July 1 January 2005 2005 Cash and cash equivalents as per cash flow 1 364 1 406statementAdd: bank overdrafts deducted therein 229 184Less: cash and cash equivalents in assets/liabilities 1 (8)held for disposalCash and cash equivalents as per balance sheet 1 594 1 582Financial assets 372 533Borrowings due within one year (7 506) (6 448)Borrowings due after one year (6 085) (7 221)Derivatives and finance leases included in otherreceivables and other liabilities 127 369Net debt at the end of the period (11 498) (11 185) GEOGRAPHICAL ANALYSIS (unaudited)Continuing operations - Second Quarter • million Europe Americas Asia/Africa Total Turnover 2004 4 431 3 164 2 482 10 077 2005 4 307 3 300 2 615 10 222Change (2.8)% 4.3% 5.3% 1.4%Impact of:Exchange rates 0.1% 0.1% (1.1)% (0.2)%Acquisitions 0.2% 0.0% 0.0% 0.1%Disposals (2.5)% (0.8)% (1.6)% (1.8)%Underlying sales growth (0.6)% 5.1% 8.2% 3.3%Price (0.8)% 0.0% 1.1% (0.1)%Volume 0.2% 5.0% 7.0% 3.4% Operating profit 2004 684 536 328 1 548 2005 757 167 341 1 265Change current rates 10.7% (68.8)% 3.7% (18.3)%Change constant rates 10.8% (71.7)% 6.4% (18.5)% Operating margin 2004 15.4% 16.9% 13.2% 15.4% 2005 17.6% 5.1% 13.0% 12.4% Continuing operations - Half Year • million Europe Americas Asia/Africa Total Turnover 2004 8 251 6 045 4 731 19 027 2005 8 175 6 248 4 944 19 367Change (0.9)% 3.4% 4.5% 1.8%Impact of:Exchange rates 0.2% (1.1)% (2.2)% (0.8)%Acquisitions 0.2% 0.0% 0.0% 0.1%Disposals (2.5)% (1.1)% (2.0)% (1.9)%Underlying sales growth 1.2% 5.7% 9.1% 4.6%Price (0.9)% 0.4% 0.9% 0.0%Volume 2.1% 5.3% 8.1% 4.6% Operating profit 2004 1 284 969 612 2 865 2005 1 398 606 653 2 657Change current rates 8.9% (37.5)% 6.6% (7.3)%Change constant rates 8.9% (37.6)% 10.2% (6.5)% Operating margin 2004 15.6% 16.0% 12.9% 15.1% 2005 17.1% 9.7% 13.2% 13.7% Operating profit/(loss) of discontinued operations - Second Quarter • million Europe Americas Asia/Africa Total 2004 (5) 19 - 14 2005 (5) 3 - (2) Operating profit/(loss) of discontinued operations - Half Year • million Europe Americas Asia/Africa Total 2004 (13) 24 2 13 2005 2 20 - 22 CATEGORY ANALYSIS (unaudited)Continuing operations - Second Quarter • million Spreads Ice cream Home Home Savoury and and care and and cooking frozen Personal and Personal dressings products Beverages foods Foods care other Care TotalTurnover 2004 2 065 1 104 774 1 938 5 881 2 490 1 706 4 196 10 077 2005 2 048 1 037 776 1 996 5 857 2 595 1 770 4 365 10 222Change (0.9)% (6.0)% 0.2% 3.0% (0.4)% 4.2% 3.8% 4.0% 1.4%Impact of:Exchange rates 0.1% 0.5% (0.6)% (0.4)% (0.1)% (0.8)% 0.5% (0.3)% (0.2)%Acquisitions 0.0% 0.0% 0.2% 0.3% 0.1% 0.0% 0.0% 0.0% 0.1%Disposals (2.6)% (5.5)% (1.4)% (0.9)% (2.4)% (0.5)% (1.3)% (0.8)% (1.8)%Underlying sales growth 1.6% (1.1)% 2.1% 4.1% 2.0% 5.6% 4.6% 5.2% 3.3% Operatingprofit/(loss) 2004 369 179 108 309 965 407 176 583 1 548 2005 346 178 (246) 383 661 420 184 604 1 265Change currentrates (6.2)% (0.8)% (328.2)% 23.9% (31.5)% 3.2% 4.0% 3.5% (18.3)%Changeconstant rates (5.8)% 0.0% (344.8)% 24.5% (32.5)% 4.7% 5.1% 4.8% (18.5)% Operatingmargin 2004 17.8% 16.3% 13.9% 15.9% 16.4% 16.4% 10.3% 13.9% 15.4% 2005 16.9% 17.2% (31.6)% 19.2% 11.3% 16.2% 10.3% 13.8% 12.4% Continuing operations - Half Year • million Spreads Ice cream Home Home Savoury and and care and and cooking frozen Personal and Personal dressings products Beverages foods Foods care other Care Total Turnover 2004 3 954 2 144 1 507 3 254 10 859 4 754 3 414 8 168 19 027 2005 4 013 2 094 1 490 3 353 10 950 4 973 3 444 8 417 19 367Change 1.5% (2.3)% (1.1)% 3.1% 0.8% 4.6% 0.9% 3.0% 1.8%Impact of:Exchange rates (0.4)% 0.1% (1.5)% (0.8)% (0.6)% (1.7)% (0.5)% (1.2)% (0.8)%Acquisitions 0.0% 0.0% 0.1% 0.4% 0.2% 0.0% 0.0% 0.0% 0.1%Disposals (2.1)% (6.1)% (1.2)% (1.5)% (2.6)% (0.6)% (1.7)% (1.1)% (1.9)%Underlyingsales growth 4.0% 3.9% 1.5% 5.0% 4.0% 7.1% 3.1% 5.4% 4.6% Operatingprofit/(loss) 2004 682 349 200 407 1 638 793 434 1 227 2 865 2005 712 390 (155) 472 1 419 857 381 1 238 2 657Change currentrates 4.4% 11.7% (177.5)% 16.1% (13.3)% 8.0% (12.4)% 0.8% (7.3)%Changeconstant rates 5.1% 12.6% (183.4)% 17.0% (13.3)% 10.7% (11.9)% 2.6% (6.5)% Operatingmargin 2004 17.2% 16.3% 13.3% 12.5% 15.1% 16.7% 12.7% 15.0% 15.1% 2005 17.7% 18.6% (10.4)% 14.1% 13.0% 17.2% 11.0% 14.7% 13.7% Discontinued operationsOperating loss of discontinued operations for the second quarter of 2005 was •(2) million (2004: profit of €14 million), and operating profit for the halfyear was €22 million (2004: €13 million). These amounts relate wholly to thepersonal care category. NOTES (unaudited) Adoption of IFRSUnilever adopted International Financial Reporting Standards (IFRS) with effectfrom 1 January 2005. This includes the early adoption of IAS 19 (revised 2004) on employee benefits. Our transition date is 1 January 2004 as this is the start date of the earliest period for which we will present full comparative information under IFRS in our 2005 Annual Report and Accounts. These condensed interim financial statements have been prepared in accordancewith IAS 34. The financial information is prepared under the historical costconvention as modified by the revaluation of biological assets, financial assetsclassified as 'available-for-sale' and 'at fair value through profit or loss',and derivatives. IFRS 1 mandates that most IFRS are applied fully retrospectively, meaning thatthe opening balance sheet at 1 January 2004 is restated as if those accountingpolicies had always been applied. There are certain limited exemptions to thisrequirement. A reconciliation from old GAAP to IFRS of the balance sheet as per26 June 2004 and the income statements for the quarter and the six month periodsthen ended is given on pages 12 to 14. A more detailed review of the changes toour accounting policies and a reconciliation of financial statements fromold GAAP to IFRS is available on our website at www.unilever.com/ourcompany/investorcentre/. From 1 January 2005 Unilever implemented the following additional changes inaccounting policies. These changes are applied prospectively from1 January 2005. Financial instruments (including preference shares) Since 1 January 2005 Unilever has applied IAS 32 and IAS 39. These standardshave many detailed consequences, however the key areas of impact for Unileverare described below. Under IAS 32, Unilever must present the NV preference share capital as aliability rather than as part of equity. All of the dividends paid on thesepreference shares are recognised in the income statement as interest expense.The carrying value of the preferential share capital of NV as at 1 January 2005was €1 502 million. IAS 39 requires certain non-derivative financial assets to be held at fair valuewith unrealised movements in fair value recognised directly in equity.Non-derivative financial liabilities continue to be measured at amortised cost,unless they form part of a fair value hedge accounting relationship when theyare measured at amortised cost plus the fair value of the hedged risk. IAS 39 requires recognition of all derivative financial instruments on thebalance sheet and that they are measured at fair value. The standard also placessignificant restrictions on the use of hedge accounting and changes the hedgeaccounting methodology. As a result Unilever recognises all derivative financialinstruments on balance sheet at fair value and applies the new hedge accountingmethodology to all significant qualifying hedging relationships. Non-current assets and asset groups held for sale Application of IFRS 5 has resulted in reclassifications of non-current assetsand asset groups held for sale in the balance sheet as at 1 January 2005. Itdoes not significantly affect the asset values themselves. Following theannouncement of the sale of UCI, results have been analysed between continuingand discontinued operations, as required by IFRS 5. Turnover definition From 1 January 2005 Unilever changed its treatment of promotional couponing andtrade communications. From 1 January 2005 these costs are deducted from turnovertogether with other trade promotion costs which are already deducted fromturnover. Comparatives have been restated to reflect this change, which has noimpact on operating profit or net profit. Issuances and repayments of debt Movements during the quarter included the repayment of US $ 200 million Notes atmaturity on 20 June 2005. Preference shares On 15 February 2005 after close of trading, NV converted part of the notionalvalue of the NLG 0.10 (• 0.05*) cumulative preference shares into NV ordinaryshares. Upon conversion the holders of the preference shares received one NVordinary share for every 11.2 preference shares held. This resulted in a totalof 18 881 587 NV ordinary shares being transferred to the preferenceshareholders. These NV ordinary shares had previously been held as treasuryshares by NV. As a consequence of the conversion, the notional value of theshares was reduced to €0.05*. On 10 May 2005 the Annual General Meeting of theshareholders of NV resolved to cancel the preference shares upon repayment ofthe notional value in accordance with NV's articles of Association. The shareswere cancelled at midnight on 13 July 2005 and were delisted by Euronext witheffect from 14 July 2005. \* This amount is a representation in Euros on the basis of Article 67c Book 2 ofthe Dutch Civil Code, rounded to two decimal places, of underlying Dutchguilders, as these have not been converted into Euros in Unilever N.V.'sArticles of Association. Acquisitions and Disposals On 11 July 2005, we announced the completion of the sale of our Prestigefragrance business, Unilever Cosmetics International (UCI), to Coty Inc. of theUnited States. Unilever received US $800 million in cash, with the opportunityfor further deferred payments contingent upon future sales. The businessincludes the perfume licences for Calvin Klein, Cerruti, Vera Wang, Chloe andLagerfeld, as well as a manufacturing and distribution centre in Mt. Olive, NewJersey, United States and a distribution centre in Lille, France. Sales for theglobal prestige business in 2004 were in excess of US $600 million (€490million). The profit arising on the sale of this business will be included inour results for the third quarter of 2005, and is expected to be around €450million before tax. Impairment Since the beginning of the year we have continued to review the carrying valueof goodwill and intangibles relating to the global Slim•Fast business in lightof the continuing decline in size of the weight management category and a lowersales outlook for this part of our business. Our review at the end of Q2resulted in a pre-tax charge of €353 million being taken to reflect a reducedview of the future size of the Slim•Fast brand. The impairment charge isincluded within operating profit of the Americas region. The impairment reviewcomprised a comparison of the carrying value of the brand with its value in use,calculated using a discounted cash flow methodology. The relevant cash flowprojections covered a period of 10 years as management considers that thisperiod fairly reflects long-term value in this highly dynamic category. Thediscount rate used for the valuation was based on a pre-tax weighted averagecost of capital and was 11%. Dividends The following final dividends in respect of 2004 were declared at the AnnualGeneral Meetings on 10 May and 11 May 2005: Unilever N.V.:€1.26 per ordinary €0.51 shareUnilever PLC:12.82p per ordinary 1.4p share These dividends were paid to shareholders on 13 June 2005. Discontinued operations Following the announcement of the disposal of UCI, results for this businesshave been presented in our income statement as discontinued operations, in linewith the requirements of IFRS 5. The amount reported for the year to daterepresents the profits and losses arising on these operations during the firsthalf of 2005. The assets and liabilities of the business have been classified asassets and liabilities held for disposal in our reported balance sheet as at 2July 2005. Basic earnings per €0.51 NV ordinary share in respect of the discontinuedoperations were €0.00 for the quarter and €0.02 for the year to date (2004:€0.00 in both cases). Diluted earnings per €0.51 NV ordinary share in respect ofthe discontinued operations were €0.00 for the quarter and €0.02 for the year todate (2004: €0.01 in both cases). Basic earnings per 1.4p PLC ordinary share in respect of the discontinuedoperations were (0.05) Euro cents for the quarter and 0.21 Euro cents for theyear to date (2004: 0.11 Euro cents and 0.07 Euro cents respectively). Dilutedearnings per 1.4p PLC ordinary share in respect of the discontinued operationswere (0.04) Euro cents for the quarter and 0.21 Euro cents for the half year(2004: 0.09 Euro cents and 0.06 Euro cents respectively). The cash outflows attributable to the discontinued operations in respect ofoperating, investing and financing activites for the first half year were•(60) million, €0 million and €0 million respectively (2004 : •(2) million, •(1)million and €0 million). Exchange rate conventions The income statement on page 5, the statement of recognised income and expenseon page 6, the movements in equity on page 7 and the cash flow statement on page7 are translated at rates current in each period. The balance sheet on page 6 is translated at period-end rates of exchange.Supplementary information in US dollars and sterling is available on our websiteat www.unilever.com/ourcompany/investorcentre/. The financial statements attached do not constitute the full financialstatements within the meaning of Section 240 of the UK Companies Act 1985. Fullaccounts for Unilever for the year ended 31 December 2004 have been delivered tothe Registrar of Companies. The auditors' report on these accounts wasunqualified and did not contain a statement under Section 237(2) or Section 237(3) of the UK Companies Act 1985. Reconciliation of profit for the half year ended 26 June 2004(unaudited) Previously Godwill and reported indefinite under old lived Pensions Deferred GAAP intangible Biological and similar tax restate- assets Software assets obligations ment effects • million • million • million • million • million • million Turnover 19 873 - - - - - Turnover of joint ventures (96) - - - - - Operating costs (17 451) 523 27 2 - - Share of operating profit of joint ventures 20 - - - - - Operating profit/(loss) 2 346 523 27 2 - - Share of operating profit of associates 20 4 - - - -Finance costs (312) - - - - -Other finance income/(cost) - pensions and similar obligations (43) - - - 1 -Share of net profit of joint ventures - - - - - -Share of net profit of associates - - - - - -Income from other non-current investments 21 - - - 11 - Profit/(loss) before taxation 2 032 527 27 2 12 - Taxation (668) (25) (7) (1) (4) (23) Profit/(loss) for the period 1 364 502 20 1 8 (23) Attributable to: Minority interests 100 1 1 - - -Shareholders' equity 1 264 501 19 1 8 (23) Reconciliation of profit for the half year ended 26 June 2004(unaudited) Cont/... Tax Joint Total Change reclassifying ventures effect of relating to Restated effect and transition turnover under associates Dividends Others to IFRS definition IFRS • million • million • million • million • million • million • million Turnover - (96) - - (96) (532) 19 245 Turnover of joint ventures - 96 - - 96 - - Operating costs - - - - 552 532 (16 367) Share of operating profit of joint ventures - (20) - - (20) - - Operating profit/(loss) - (20) - - 532 - 2 878 Share of operating profit of associates - (24) - - (20) - -Finance costs - 23 - - 23 - (289)Other finance income/(cost) - pensions and similar obligations - - - - 1 - (42)Share of net profit of joint ventures - 18 - - 18 - 18Share of net profit of associates - 2 - - 2 - 2Income from other non-current investments - - - - 11 - 32 Profit/(loss) before taxation - (1) - - 567 - 2 599 Taxation - 1 - - (59) - (727) Profit/(loss) for the period - - - - 508 - 1 872 Attributable to: Minority interests - - - - 2 - 102Shareholders' equity - - - - 506 - 1 770 Reconciliation of profit for the second quarter ended 26 June 2004(unaudited) Previously Godwill and reported indefinite under old lived Pensions Deferred GAAP intangible Biological and similar tax restate- assets Software assets obligations ment effects • million • million • million • million • million • million Turnover 10 516 - - - - - Turnover of joint ventures (53) - - - - - Operating costs (9 184) 264 15 4 - - Share of operating profit of joint ventures 10 - - - - - Operating profit/(loss) 1 289 264 15 4 - - Share of operating profit of associates 11 2 - - - -Finance costs (161) - - - - -Other finance income/(cost) - pensions and similar obligations (23) - - - - -Share of net profit of joint ventures - - - - - -Share of net profit of associates - - - - - -Income from other non-current investments 19 - - - - - Profit/(loss) before taxation 1 135 266 15 4 - - Taxation (335) (11) (4) (1) - 1 Profit/(loss) for the period 800 255 11 3 - 1 Attributable to: Minority interests 51 - 1 1 - -Shareholders' equity 749 255 10 2 - 1Related Shares:
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