PERSONAL CARE
2014 2013 % Change
Turnover (€ million) 17,739 18,056 (1.8)
Operating profit (€ million) 3,259 3,078 5.9
Core operating profit (€ million) 3,325 3,206 3.7
Core operating margin (%) 18.7 17.8 0.9
Underlying sales growth (%) 3.5 7.3
Underlying volume growth (%) 1.2 5.5
Effect of price changes (%) 2.3 1.7
KEY DEVELOPMENTS
• Personal Care delivered another year of underlying growth, although exchange rate movements (5.0%) led to turnover decreasing on last year. Underlying sales growth, at 3.5%, remained above our markets which slowed to around 3% for the year. Volume growth was lower than the previous year due to the slowdown of global markets and high competitive intensity. Growth benefited from a strong set of new product launches such as the Dove Advanced Hair Series and compressed deodorants in Europe.
• Core operating profit improved by €119 million over the prior year despite a €300 million reduction from exchange rate movements. Underlying sales growth contributed €189 million while improved margin added €230 million. Margin improvement was driven by our savings programmes, an improved mix from margin accretive innovation and savings in the cost of producing advertising, which is highest in Personal Care.
REFRESHMENT
2014 2013 % Change
Turnover (€ million) 9,172 9,369 (2.1)
Operating profit (€ million) 538 851 (36.8)
Core operating profit (€ million) 811 856 (5.3)
Core operating margin (%) 8.8 9.1 (0.3)
Underlying sales growth (%) 3.8 1.1
Underlying volume growth (%) 2.0 (1.8)
Effect of price changes (%) 1.8 2.9
KEY DEVELOPMENTS
• Refreshment turnover declined due to exchange rate movements (4.6%) and business disposals (1.6%), primarily Slim.Fast, offset by acquisitions of 0.4%, primarily Talenti Gelato & Sorbetto. Underlying sales growth was driven by good volume growth in ice cream due to a strong innovation programme. The more premium brands like Ben & Jerry’s and Magnum grew particularly well. Cornetto also had a strong year with multi-media advertising building the core brand and new smaller products launched at lower price points. Tea grew, with a better performance in the US offsetting weaker sales in Russia and Poland.
• Core operating profit was €45 million lower than the prior year due to underlying sales growth, which added €80 million, offset by a €73 million adverse impact of exchange rates and a €41 million reduction due to disposals. Margins declined, reducing profit by €11 million, as higher dairy and chocolate prices were not fully recovered by pricing and savings.
FOODS
2014 2013 % Change
Turnover (€ million) 12,361 13,426 (7.9)
Operating profit (€ million) 3,607 3,064 17.7 Core operating profit (€ million) 2,305 2,377 (3.0)
Core operating margin (%) 18.6 17.7 0.9
Underlying sales growth (%) (0.6) 0.3
Underlying volume growth (%) (1.1) (0.6)
Effect of price changes (%) 0.6 0.9
KEY DEVELOPMENTS
• Foods turnover declined primarily due to exchange rate movements (3.9%) and business disposals (3.6%) including the Ragu and Bertolli pasta sauces business. Savoury and dressings both grew but spreads declined due to lower consumer demand for margarine in Europe and North America. We gained market share in margarine but this was insufficient to offset the decline of the category which also saw price deflation in a benign commodity cost environment.
• Core operating profit was €72 million lower than the prior year after a €95 million adverse impact from exchange rates, a reduction of €105 million from disposals and a €23 million reduction from declining underlying sales. Improved margin added €152 million driven by savings in supply chain costs and our overheads reduction programme, particularly in Europe where we have a large Foods business.
HOME CARE
2014 2013 % Change
Turnover (€ million) 9,164 8,946 2.4
Operating profit (€ million) 576 524 9.9
Core operating profit (€ million) 579 577 0.3
Core operating margin (%) 6.3 6.4 (0.1)
Underlying sales growth (%) 5.8 8.0
Underlying volume growth (%) 2.4 5.7
Effect of price changes (%) 3.4 2.1
KEY DEVELOPMENTS
• Home Care turnover showed strong underlying growth, supported by the impact of the Qinyuan acquisition in March of 1.8%, but this was partially offset by exchange rate movements (4.8%). This is the result of a strong portfolio of brands across price points, the depth of our distribution and sustained investment in product performance. We have successfully extended the Omo brand into Saudi Arabia and the Gulf, and we have launched a range of Omo stain removers and pre-treaters in Brazil.
• Core operating profit at €579 million was broadly unchanged on last year after an adverse €84 million from exchange rates was offset by underlying sales growth adding €100 million with acquisitions adding €5 million. Decreasing margin reduced profit by €19 million as gross margins were impacted by cost increases from weaker currencies in emerging markets which were not fully offset by pricing and savings. There was a strong improvement in the second half of the year, which was boosted by gains from property sales in India.
Financial Review 2014
€ million
2014 € million2013
Goodwill and intangible assets 22,174 20,904
Other non-current assets 13,506 12,487
Current assets 12,347 12,122 Total assets 48,027 45,513 Current liabilities 19,642 17,382 Non-current liabilities 14,122 13,316 Total liabilities 33,764 30,698 Shareholders’ equity 13,651 14,344 Non-controlling interest 612 471 Total equity 14,263 14,815
Total liabilities and equity 48,027 45,513 Current assets were up €0.2 billion largely due to the impact of currency. Cash and cash equivalents on the balance sheet amounted to €2.2 billion compared to €2.3 billion at the end of 2013. Closing net debt was €9.9 billion versus €8.5 billion as at 31 December 2013. The increase was driven by payment of dividends, the repurchase of the Leverhulme Estate shares and adverse currency movements, offset by free cash flow generated by operations and net cash inflow from acquisitions and disposals. Current liabilities were €2.3 billion higher mainly driven by an increase in current financial liabilities of €1.4 billion due to bonds maturing in 2015 and by the impact of currency and other underlying movements of €0.9 billion.
Non-current liabilities (excluding pensions) were broadly flat with increases as a result of currency offset by a decrease in financial liabilities due to the bond movements noted above. During the year the following bonds matured and were repaid: (i) US $750 million 3.65%, (ii) Renminbi 300 million 1.15%, and (iii) £350 million 4.00%. On 20 February 2014, we issued Renminbi 300 million 2.95% fixed rate notes due February 2017. On 19 March 2014 we issued £250 million 2% fixed rate notes due December 2018. The net movement in assets and liabilities for all pension arrangements during the year was as follows:
€ million 2014
1 January (1,977)
Current service cost (259)
Employee contributions 16
Actual return on plan assets (excluding interest) 1,316
Net interest cost (94)
Actuarial loss (3,026)
Employer contributions 537
Currency retranslation (137)
Other movements(1) 53
31 December (3,571)
(1) Other movements relate to special termination benefits, past service costs
including losses/(gains) on curtailment, settlements and reclassification of benefits. For more detail see Governance and Financial Report note 4B on page 96.
The overall net liability for all pension arrangements was €3.6 billion at the end of 2014, up €1.6 billon from the end of 2013. The increase in the net obligation reflects the impact of changes in actuarial assumptions, largely due to decreases in the discount rates, partially offset by returns on plan assets. Cash expenditure on pensions was €0.7 billion, the same as in the prior year.
€ million
2014 € million2013
Operating profit 7,980 7,517 Depreciation, amortisation and impairment 1,432 1,151
Changes in working capital 8 200
Pensions and similar obligations less payments (364) (383)
Provisions less payments 32 126
Elimination of (profits)/losses on disposals (1,460) (725) Non-cash charge for share-based compensation 188 228
Other adjustments 38 (15)
Cash flow from operating activities 7,854 8,099
Income tax paid (2,311) (1,805)
Net capital expenditure (2,045) (2,027)
Net interest and preference dividends paid (398) (411)
Free cash flow 3,100 3,856
Net cash flow (used in)/from investing activities (341) (1,161)
Net cash flow (used in)/from financing activities (5,190) (5,390) The net outflow from investing activities was €0.8 billion lower than the previous year. While net capital expenditure and interest were broadly unchanged, the net inflow of acquisitions, disposals and other investing activities increased €0.8 billion compared with 2013. The increase was principally driven by the disposal of the Ragu and Bertolli pasta sauces business partially offset by the acquisition of Qinyuan and Talenti Gelato & Sorbetto.
Net cash outflow from financing activities was €0.2 billion lower than the prior year. Of the €5.2 billion outflow, €3.2 billion was used to fund our dividend payments and €0.9 billion to purchase the rights left in trust by the first Viscount Leverhulme. The prior year included €2.5 billion in relation to the acquisition of an increased stake in Hindustan Unilever Limited as well as an increase in borrowings of €1.3 billion, which was flat in 2014.
BALANCE SHEET
In the year to December 2014, Unilever’s combined market capitalisation rose from €83.8 billion to €93.9 billion.
Goodwill and intangible assets increased by €1.3 billion mainly due to business acquisitions and currency movements. All material goodwill and indefinite-life intangible assets have been tested for impairment. An impairment charge of €0.3 billion was recognised assets related to the Slim.Fast business as part of the disposal. Increases in other non-current assets of €1.0 billion were driven by capital expenditure and favourable currency movements.
Net cash flow from operating activities and free cash flow were down by €0.8 billion mainly due to tax on disposal profits which were €0.8 billion versus €0.2 billion in 2013. Year-end working capital was in line with the prior year. Our net capital expenditure of €2.0 billion, or 4.2% of turnover, reflects the investment in capacity to support our growing business.
FINANCE AND LIQUIDITY
We concentrate cash in the parent and central finance companies for maximum flexibility. These companies provide loans to our subsidiaries that are also funded through retained earnings and third-party borrowings. We maintain access to global debt markets through an infrastructure of short and long-term debt programmes. We make use of plain vanilla derivatives, such as interest rate swaps and foreign exchange contracts, to help mitigate risks. More detail is provided on pages 114 to 119 of our Governance and Financial Report.
Approximately €1.7 billion (or 81%) of the Group’s cash and cash equivalents are held in foreign subsidiaries which repatriate distributable reserves on a regular basis. For most countries this is done through dividends free of tax. In a few countries we face cross-border foreign exchange controls and/or other legal restrictions that inhibit our ability to make these balances available in any means for general use by the wider business. The amount of cash held in these countries was €452 million (2013: €243 million, 2012: €220 million). The cash will generally be invested or held in the relevant country and, given the other capital resources available to the Group, does not significantly affect the ability of the Group to meet its cash obligations.
We closely monitor all our exposures and counter-party limits. Unilever has committed credit facilities in place for general corporate purposes. The undrawn bilateral committed credit facilities in place on 31 December 2014 were US $6,550 million.
CONTRACTUAL OBLIGATIONS AT 31 DECEMBER 2014
€ million Total Due within 1 year Due in 1-3 years Due in 3-5 years Due in over 5 years Total contractual obligations(1) 19,015 6,812 4,016 2,623 5,564 (1) Included within total contractual obligations are long-term debt, interest
on financial liabilities, operating lease obligations, purchase obligations for raw and packing materials and finished goods, finance leases and other long-term obligations (not including pensions).
Further details are set out in the Governance and Financial Report in the following notes to the consolidated financial statements: note 10 on pages 105 and 106, note 15C on pages 112 and 113, and note 20 on pages 124 to 125. Unilever is satisfied that its financing arrangements are adequate to meet its working capital needs for the foreseeable future. In relation to the facilities available to the Group, borrowing requirements do not fluctuate materially during the year and are not seasonal.
AUDIT FEES
Included within operating profit is €14 million (2013: €21 million) paid to the external auditor, of which €14 million (2013: €16 million) related to statutory audit services. Remuneration of the external auditor in respect of 2014 was payable to KPMG while in respect of 2013 it was payable to PricewaterhouseCoopers.