Meeting everyday needs of people everywhere - Unilever

26 Unilever Annual Report on Form 20-F 1999 Report of the Directors
Performance review – 1998
1998 results compared with 1997
Unilever Group
In 1998 our net profits before all exceptional items
increased by 16% at constant rates of exchange. The net
profit margin on the same basis exceeded 7% of turnover,
an all-time high. Our global reach and regional balance
were significant factors in our performance in 1998. We
have almost two thirds of our business in Western Europe
and North America, which helped to maintain momentum
when developing and emerging markets faltered.
In We s t e rn Europe, underlying volume growth was flat but
we had a further strong increase in operating margins.
Turnover was down slightly due to continued reduction
in non-core brands and disposals of businesses. In Central
and Eastern Europe, the Russian economic crisis caused
a sharp downturn in our business from August onwards.
We will remain committed to Russia as a long-term
opportunity, provided free market conditions continue.
In North America our Foods business achieved underlying
volume growth of 5%, the highest for several years.
Volume growth in Home & Personal Care was lower at
2%. Our profit margins increased significantly in both
businesses. We completed the integration of our Foods
businesses in the United States.
Our businesses in Africa and the Middle East performed
well. This region is consistently successful despite a volatile
environment. In 1998 our volume, market share and
profits again increased in the face of heightened
international competition.
The slowdown in economies in Latin America in the
second half of 1998 meant that we had weaker volume
growth than in 1997. Our profits still advanced strongly,
despite higher marketing spend than in the previous year.
Our performance in Asia and Pacific varied enormously.
Yet again, our businesses in India produced outstanding
results with Home & Personal Care being particularly
successful. In those economies hit by the South East Asia
crisis, our businesses performed well by shifting rapidly
from a strategy of high growth to one of protecting
market share, margins and cash flow. We continue to
see attractive long-term growth potential in these
countries, and also in China, where our performance
in 1998 was disappointing.
Economies around the world were delicately poised at
the end of 1998. Looking ahead, it was unclear whether
they would recover or move further into recession.
Nevertheless, we believed that the improvement in
underlying profitability of recent years was sustainable
and further margin improvement could reasonably be
expected as restructuring benefits continue to flow.
We believed many of the challenges and opportunities
the business experienced in 1998 would continue to be
faced in 1999. In 1998 we concentrated on building and
enhancing market shares in key categories and we were
well placed to benefit from any improvement in general
trading conditions.
1998 was a critical year for the European Monetary Union.
The introduction of the euro proceeded on time on
1 January 1999. The Netherlands participated; the United
Kingdom did not. As a consequence the euro will replace
the Dutch guilder by 2002. As a result we published
supplementary information in euros in 1999 and will
replace the guilder with the euro for reporting purposes as
from year 2000. We began to undertake euro contracts for
foreign exchange contracts and deposits from January
1999. We believe it is an important step in the
development of the single market and will enhance
competitiveness to the benefit of Europe’s citizens.
Our turnover of Fl. 89 112 million (at current rates)
decreased by 6% compared with 1997, which included
the speciality chemicals businesses. At constant rates of
exchange, turnover decreased by 2%.
In our continuing operations, (that is excluding the
speciality chemicals businesses in 1997), turnover fell by
2%; at constant rates of exchange turnover increased
by 2% to Fl. 92 393 million. In our continuing business,
underlying volume growth was little more than half the
rate achieved in 1997. Productivity for our continuing
operations, based on sales per employee, improved by
6% in 1998.
Exceptionals and restructuring
Exceptional items in 1998 produced a net benefit of
Fl. 276 million in comparison with the charge of
Fl. 1 800 million in 1997. This Fl. 276 million includes
restructuring costs of Fl. 585 million mainly focused in
Europe, and Asia and Pacific which were more than offset
by profits on business disposals. Our significant projects
included further restructuring of foods businesses in
Europe (mainly Austria, France, Germany and Turkey),
foods operations in India, ice cream and detergents in
China and tomato products in Brazil.
The profits on business disposals arose principally from the
sale of Plant Breeding International in Europe. The cash