Combined Earnings Per Share

7. Combined Earnings Per Share

Combined earnings per year

From continuing operations

Basic earnings per share

Diluted earnings per share

From discontinued operations

Basic earnings per share

Diluted earnings per share

From total operations

Basic earnings per share

Diluted earnings per share

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Basis of calculation

The calculations of combined earnings per share are based on the net profit attributable to ordi- nary capital divided by the average number of share units representing the combined ordinary capital of NV and PLC in issue during the year, after deducting shares held as treasury stock. Earnings per share are calculated on the basis of the revised nominal share values which have been applied since 22 May 2006 and which resulted in a one-to-one equivalence of ordinary shares of NV and PLC as re- gards their economic interest in the Group. For further information please refer to note 22 on page 109.

The calculations of diluted earnings per share are based on: (i) conversion into PLC ordinary shares of the shares in a group company which are convertible in the year 2038, as described in Corpo- rate governance on page 42; (ii) conversion of the €0.05 NV preference shares, details of which are set out below and in note 22 on page 109; (iii) the effect of share-based compensation plans, details of which are set out in note 29 on pages 117 to 121; and (iv) the forward equity contract described in note

29 on page 121. On 15 February 2005, Unilever converted its €0.05 NV preference shares into ordinary €0.51 NV shares. The conversion was made using shares already held by Unilever for the purposes of satisfying the Group’s share-based compensation plans. Unilever bought further ordinary shares in the market during 2005 to the extent required to restore the hedging position. Until the date of conversion, the €

0.05 preference shares were potentially dilutive for the purposes of the calculation of fully diluted earnings per share, as shown below. At midnight on 13 July 2005 the €0.05 NV preference shares were cancelled.

Calculation of average number of share units

Millions of share units

Average number of shares

1,310.2 1,310.2 Less shares held by employee share trusts and companies

(111.9) (134.7) Combined average number of share units for all bases except diluted earnings per share

2,913.0 2,890.2 Add shares issuable in 2038

70.9 70.9 70.9 Add shares for conversion

7.1 56.6 Add dilutive effect of share-based compensation plans and forward equity contract

18.3 16.0 14.9 Adjusted combined average number of share units for diluted earnings per share basis

Calculation of earnings

€ million € million Net profit attributable to shareholders’ equity

€ million

3,766 2,755 Less preference dividends

n/a (28) Net profit attributed to ordinary capital for basic earnings per share calculation

n/a

3,766 2,727 Adjusted net profit attributed to ordinary capital for the diluted earnings per share calculation*

3,769 2,748 In accordance with IAS 33, the net profit for diluted earnings per share has been adjusted for the preference dividend on shares for conversion, which in 2006 amounted to € nil (2005: € 3 million; 2004 € 21 million).

Chapter 26 / Earnings Per Share (IAS 33)

MULTIPLE-CHOICE QUESTIONS

(a) Net profit after taxation (including discon- 1. Entity A has an ordinary “A” class, nonvoting

tinued operations).

share, which is entitled to a fixed dividend of 6% per (b) Net profit from continuing operations. annum. The “A” class ordinary share will

(c) Net profit before tax (including discontinued (a) Be included in the “per share” calculation

operations).

after adjustment for the fixed dividend. (d) Retained profit for the year after dividends. (b) Be included in the “per share” calculation

Answer: (b)

for EPS without adjustment for the fixed dividend.

7. Potential ordinary shares issued by a subsidiary (c) Not be included in the “per share” calcula-

should be included in the diluted EPS calculation as tion for EPS.

they could potentially have an impact on the net profit (d) Be included in the calculation of diluted

for the period and the number of shares to be included EPS.

in the calculation.

(a) True

Answer: (c)

(b) False

2. Earnings per share is calculated before account-

Answer: (a)

ing for which of the following items? (a) Preference dividend for the period.

8. An enterprise need disclose diluted EPS only if it (b) Ordinary dividend.

differs from basic EPS by a material amount. (c) Taxation.

(a) True

(d) Minority interest.

(b) False

Answer: (b)

Answer: (b)

9. If a bonus issue occurs between the year-end and 3. Ordinary shares issued as part of a business com-

the date that the financial statements are authorized, bination are included in the EPS calculation in the

then

case of the “purchase” method from (a) EPS both for the current and the previous (a) The beginning of the accounting period.

year are adjusted.

(b) The date of acquisition. (b) EPS for the current year only is adjusted. (c) The end of the accounting period.

(c) No adjustment is made to EPS. (d) The midpoint of the accounting year.

(d) Diluted EPS only is adjusted.

Answer: (b)

Answer: (a)

4. When an enterprise makes a bonus issue/stock 10. If a new issue of shares for cash is made between split/stock dividend or a rights issue, then

the year-end and the date that the financial statements (a) The previous year’s EPS is not adjusted for

are authorized, then

the issue. (a) EPS for both the current and the previous (b) The previous year’s EPS is adjusted for the

year are adjusted.

issue. (b) EPS for the current year only is adjusted. (c) Only a note of the effect on the previous

(c) No adjustment is made to EPS. year’s EPS is made.

(d) Diluted EPS only is adjusted. (d) Only the diluted EPS for the previous year is

adjusted.

Answer: (c)

Answer: (b)

11. The weighted average number of shares out- standing during the period for all periods (other than

5. If a stock option is converted on March 31, the conversion of potential ordinary shares) shall be 20X1, then

adjusted for

(a) The potential ordinary shares (stock option) (a) Any change in the number of ordinary are included in diluted EPS up to March 31,

shares without a change in resources. 20X1, and in basic EPS from the date con-

(b) Any prior-year adjustment. verted to the year-end (both weighted ac-

(c) Any new issue of shares for cash. cordingly).

(d) Any convertible instruments settled in cash. (b) The ordinary shares are not included in the

diluted EPS calculation but are included in

Answer: (a)

basic EPS. (c) The ordinary shares are not included in the basic EPS but are included in diluted EPS. (d) The effects of the stock option are included only in previous year’s EPS calculation.

Answer: (a)

6. In calculating whether potential ordinary shares are dilutive, the profit figure used as the “control number” is

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12. Where ordinary shares are issued but not fully paid, then the ordinary shares are treated in the cal- culation of basic EPS

(a) In the same way as fully paid ordinary shares. (b) As a fraction of an ordinary share to the ex- tent that they are entitled to participate in dividends.

(c) In the same way as warrants or options and are included only in diluted EPS. (d) Are ignored for the purposes of basic and di- luted EPS.

Answer: (b)