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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

 

(Mark one)  
  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
OR
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from                  to                 

Commission file number 001-04546

UNILEVER PLC

 

(Exact name of Registrant as specified in its charter)

ENGLAND

 

(Jurisdiction of incorporation or organization)

100 Victoria Embankment, London, England

 

(Address of principal executive offices)

R Sotamaa, Chief Legal Officer and Group Secretary

Tel: +44(0)2078225252, Fax: +44(0)2078225464

100 Victoria Embankment, London EC4Y 0DY, UK

(Name, Telephone Number, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

  

Trading Symbol(s)

  

Name of each exchange on which registered

Ordinary shares, nominal value of 3 1/9 pence per share    ULVR    New York Stock Exchange*
American Depositary Shares (evidenced by Depositary Receipts) each representing one ordinary share of the nominal amount of 3 1/9p each    UL    New York Stock Exchange

*Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

Title of each class

     

2.75% Notes due 2021

3.0% Notes due 2022

2.2% Notes due 2022

0.375% Notes due 2023

3.125% Notes due 2023

3.25% Notes due 2024

2.6% Notes due 2024

3.1% Notes due 2025

3.375% Notes due 2025

2.0% Notes due 2026

2.9% Notes due 2027

3.5% Notes due 2028

2.125% Notes due 2029

1.375% Notes due 2030

5.9% Notes due 2032

  

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

The total number of outstanding shares of the issuer’s capital stock at the close of the period covered by the annual report was: 2,629,243,772 ordinary shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:

Yes         No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

Yes         No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes         No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes         No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer          Accelerated filer         Non-accelerated filer         Emerging Growth Company 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards* provided pursuant to Section 13(a) of the Exchange Act.

*The term ‘‘new or revised financial accounting standard’’ refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP

   International Financial Reporting Standards as issued by the International Accounting Standards Board    Other

If ‘Other’ has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17         Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes         No


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CAUTIONARY STATEMENT

This document may contain forward-looking statements, including ‘forward-looking statements’ within the meaning of the United States Private Securities Litigation Reform Act of 1995. Words such as ‘will’, ‘aim’, ‘expects’, ‘anticipates’, ‘intends’, ‘looks’, ‘believes’, ‘vision’, or the negative of these terms and other similar expressions of future performance or results, and their negatives, are intended to identify such forward-looking statements. These forward-looking statements are based upon current expectations and assumptions regarding anticipated developments and other factors affecting the Unilever Group (the ‘Group’). They are not historical facts, nor are they guarantees of future performance.

Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Among other risks and uncertainties, the material or principal factors which could cause actual results to differ materially are: Unilever’s global brands not meeting consumer preferences; Unilever’s ability to innovate and remain competitive; Unilever’s investment choices in its portfolio management; the effect of climate change on Unilever’s business; Unilever’s ability to find sustainable solutions to its plastic packaging; significant changes or deterioration in customer relationships; the recruitment and retention of talented employees; disruptions in our supply chain and distribution; increases or volatility in the cost of raw materials and commodities; the production of safe and high quality products; secure and reliable IT infrastructure; execution of acquisitions, divestitures and business transformation projects; economic, social and political risks and natural disasters; financial risks; failure to meet high and ethical standards; and managing regulatory, tax and legal matters. A number of these risks have increased as a result of the current Covid-19 pandemic.

These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Further details of potential risks and uncertainties affecting the Group are described in the Group’s filings with the London Stock Exchange, Euronext Amsterdam and the US Securities and Exchange Commission, including in the Annual Report on Form 20-F 2020 and the Unilever Annual Report and Accounts 2020.


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LOGO


Table of Contents

    

In this report

 

Strategic Report

How our Compass strategy is delivering value for our stakeholders

 

Introduction   Our strategy
2   At a glance   8   Our strategy
4   Chairman’s introduction   12   Our business model
6   Chief Executive Officer’s Q&A    
Our stakeholders    Performance review
14   Stakeholder review    34   Our performance
16   Our people    36   Financial review
20   Consumers    44   Our risks
24   Customers    51   Sustainability deep-dives: climate change and plastic
26   Suppliers & business partners   
28   Planet & society    60   Non-financial information statement
32   Shareholders     
 

 

Governance Report

How we’re running a responsible

and effective business

 

61   Corporate Governance
70   Report of the Audit Committee
72   Report of the Corporate Responsibility Committee
74   Report of the Nominating and Corporate Governance Committee
76   Directors’ Remuneration Report

Financial Statements

Our full financial results and

notes for the year

 

104   Statement of Directors’ responsibilities
105   Report of Independent Registered Public Accounting Firm
112   Consolidated financial statements
116   Notes to the consolidated financial statements
184   Group Companies
191   Shareholder information
192   Index
193   Additional Information for US Listing Purposes
 

 

Online

You can find more information about Unilever online at

LOGO  www.unilever.com

For further information on our sustainability performance

LOGO  www.unilever.com/planet-and-society

The Unilever Annual Report on Form 20-F 2020 along with other relevant documents can be downloaded at

LOGO  www.unilever.com/investor-relations/annual-report-and-accounts

    

Unilever Annual Report on Form 20-F 2020

This document is made up of the Strategic Report, the Governance Report, the Financial Statements and Notes, and Additional Information for US Listing Purposes.

The Unilever Group consists of Unilever PLC (PLC) together with the companies it controls. The terms ‘Unilever’, the ‘Group’, ‘we’, ‘our’ and ‘us’ refer to the Unilever Group.

Our Strategic Report, pages 1 to 60, contains information about us, how we create value and how we run our business. It includes our strategy, business model and key performance indicators, as well as our approach to sustainability and risk. The Strategic Report is only part of the Annual Report and Accounts 2020. The Strategic Report has been approved by the Board and signed on their behalf by Ritva Sotamaa – Group Secretary.

Our Governance Report, pages 61 to 103, contains detailed corporate governance information, our Committee reports and how we remunerate our Directors.

Our Financial Statements and Notes are on pages 104 to 183.

Pages 1 to 192 constitute the Unilever Annual Report and Accounts 2020, which we may also refer to as ‘this Annual Report and Accounts’ throughout this document.

The Directors’ Report of PLC on pages 61 to 75, 104 (Statement of Directors’ responsibilities), 134 (Dividends on ordinary capital), 149 to 155 (Treasury Risk Management), 176 (Post balance sheet events) and 190 (Branch disclosure) has been approved by the PLC Board and signed on its behalf by Ritva Sotamaa – Group Secretary.

Pages 193 to 203 are included as Additional Information for US Listing Purposes.

 


Table of Contents

LOGO

 

    

The events of 2020 have tested the world in ways few anticipated. They also tested the resilience of our business – our people, our operations, our financial strength. While this has not been an easy year, it’s made us a stronger business, better prepared for a fast-changing world.

We believe that the world needs businesses like Unilever more than ever. We have responded with speed and agility to protect lives and livelihoods, while growing our business. Driving a progressive agenda on issues like climate, social inequality and the future of work. And serving consumers through our purposeful brands, which are more relevant than ever.

Above all, this year has strengthened our commitment to being the global leader in sustainable business, and to showing that our purpose-led, future-fit business model delivers superior performance.

 

 

 

 


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2   Unilever Annual Report on Form 20-F 2020

 

At a glance

As one of the world’s largest consumer goods companies, we’re driven by our purpose to make sustainable living commonplace.

 

A truly global business   Strong brands with purpose
Our brands are available in over 190 countries  

Our 400+ brands help people feel good, look good

and get more out of life

 

LOGO

Our financial highlights

 

       

Turnover

    Underlying sales     Dividends paid
    growth(c)    

51bn

    1.9%     4.3bn

2019: €52bn

    2019: 2.9%     2019: €4.2bn

2018: €51bn

    2018: 3.2%     2018: €4.1bn
            
       

 

Underlying operating

   

 

Operating margin

   

 

Free cash flow(c)

margin(c)

       

18.5%

    16.4%     7.7bn

2019: 19.1%

    2019: 16.8%     2019: €6.1bn

2018: 18.6%

    2018: 24.8%     2018: €5.4bn
       

 

(a)

Based on a detailed study carried out in 2016.

(b)

Based on market penetration and consumer interactions (Kantar Brand Footprint report).

(c)

Free cash flow, underlying operating margin and underlying sales growth are non-GAAP measures. For further information about these measures, and the reasons why we believe they are important for an understanding of the performance of the business, please refer to our commentary on non-GAAP measures on page 39.

 


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Unilever Annual Report on Form 20-F 2020   3

 

 

Powered by our people    Using our scale for good
Our purposeful and inclusive culture    We have an ambitious sustainability agenda
attracts the best talent in our markets    which is delivering significant impact
LOGO   Read more about our people    LOGO   Read more about the planet &
      on pages 16 to 19          society on pages 28 to 31
    
LOGO

 

  Our three Divisions            

LOGO   Read more about our Divisions

      on pages 20 to 23

                  
    LOGO       LOGO       LOGO
  Beauty & Personal Care       Foods & Refreshment       Home Care
 

 

     

 

     

 

  What we stand for:       What we stand for:       What we stand for:
  To be the most people- and planet-           To be a world-class force           Making people’s homes a better
  positive beauty business in the world.       for good in food.       world, and our world a better home.
             
  Our largest categories:       Our largest categories:       Our largest categories:
  Deodorants, Hair care, Skin care,       Ice cream, Savoury,       Fabric solutions,
  Skin cleansing       Dressings, Tea       Home and hygiene
             
  A selection of our brands:       A selection of our brands:       A selection of our brands:
  Axe, Clear, Dove, Lifebuoy, Lux,       Ben & Jerry’s, Breyers, Brooke Bond,       Cif, Dirt is Good (Omo, Persil),
  Pond’s, Rexona, Signal, Suave,       Heart (Wall’s), Hellmann’s, Knorr,       Domestos, Seventh Generation,
  Sunsilk, TRESemmé, Vaseline       Lipton, Magnum, The Vegetarian       Sunlight
        Butcher, Unilever Food Solutions      
 

 

     

 

     

 

  €21.1bn turnover       €19.1bn turnover       €10.5bn turnover
  41% of total turnover       38% of total turnover       21% of total turnover
  52% of total operating profit       33% of total operating profit       15% of total operating profit
                  

 

(d)

Based on a total management population of 15,161 Unilever employees.

 

 

LOGO

 


Table of Contents
4   Unilever Annual Report on Form 20-F 2020

 

Chairman’s introduction

Nils Andersen reflects on a challenging year and the

key actions taken to ensure Unilever remains resilient.

 

Covid-19 cast a dark shadow over the whole of 2020 and on behalf of the Board let me start by saying that our thoughts go out to all those who have suffered from the effects of this terrible pandemic. Equally, we remain deeply thankful to all those front-line workers – including in our own business – who have worked tirelessly to help keep others safe and our economies moving forward. Despite the inevitable and widespread disruption to Unilever’s own business, the Group responded with commendable resilience and ingenuity, delivering a good set of results in very challenging circumstances. Importantly, we also took the opportunity last year to progress our strategic change agenda with shareholders overwhelmingly supporting proposals to simplify Unilever’s dual-headed legal structure.

Our performance

Given the need to manage the business dynamically in the wake of the far-reaching effects of the coronavirus pandemic, the Group took the prudent decision early in the year to focus on volume-led competitive growth, and the delivery of underlying operating profit and free cash flow, as the best means of maximising value. The results confirm that those objectives were met, with an improvement in underlying operating profit when excluding currency impact, and strong free cash flow. Responding quickly and decisively to events – combined with a sharper focus on operational basics – contributed significantly to the step-up in competitiveness, with over 60% of the business now winning market share.

Unification

On 29 November 2020, Unilever completed the Unification of its Group legal structure under a single parent company, Unilever PLC. For the first time in its history, Unilever PLC provides an equal voting basis per share for all shareholders and now trades with one market capitalisation, one class of shares and one global pool of liquidity, whilst also maintaining the Group’s listings on the Amsterdam, London and New York stock exchanges.

This was an important step for Unilever with shareholders of both parent companies, Unilever PLC and Unilever NV, voting over 99% in favour of Unification. We would like to thank our shareholders for their strong support for our proposals. There will be no changes to the operations, locations, activities or staffing levels in either the Netherlands or the United Kingdom as a result of Unification, but the changes will provide greater flexibility for strategic portfolio change and further strengthen governance. The headquarters of Unilever’s Foods & Refreshment Division continues to be based in Rotterdam and the Home Care and Beauty & Personal Care Divisions continue to be headquartered in the United Kingdom.

Remuneration

During the second half of 2020, we consulted on our proposed new Directors’ Remuneration Policy which we propose to change at the Annual General Meeting in 2021 when our current policy comes to the end of its three year term.

Subject to shareholder approval, the key change we are proposing to our Remuneration Policy is to replace the current Management Co-Investment Plan (MCIP) with a new Performance Share Plan (PSP) entirely delinked from the annual bonus. The new Policy defers half of the Executive Director’s annual bonus in shares for three years while the PSP continues to require our Executive Directors to hold their long term share awards for a minimum of five years before they can be sold.

By enhancing the impact, traction and resilience of Unilever’s incentives, the new Policy can help drive sustainable long-term growth and enable the Compensation Committee to set stretching but achievable performance targets over realistic timeframes. Further information on our proposals can be found in the Directors’ Remuneration Report on pages 76 to 103.

Corporate Governance

In December 2020, Unilever announced an intention to put its climate transition action plan before shareholders and seek an advisory vote on the company’s ambitious emissions reduction targets and the plans to achieve them. The plan will set out the company’s climate strategy to reduce emissions, both within its own operations and through the value chain. It will also explain how the company is managing risks and meeting consumer needs and concerns connected with climate change. It is the first time a major global company has voluntarily committed to put its climate transition action plan before a shareholder vote and we hope this increased level of transparency and accountability will strengthen the dialogue with our shareholders and encourage other companies to follow suit.

A continuing focus for the Board during the year was our engagement with Unilever’s workforce. Virtual meetings were set up separately with employees, or alongside one of our virtual Board meetings. These engagement sessions enable the Non-Executive Directors to meet employees at all levels of the organisation to discuss how they feel about issues important to them through open discussion. The Covid-19 pandemic obviously dominated the way our employees worked in 2020, and our Non-Executive Directors engaged on a number of related topics, bringing their reflections back into our Board discussions. Further information on our engagement with Unilever’s employees can be found on page 63. The Board also undertook a number of virtual visits to Unilever markets during the year, gaining valuable insights on these businesses and their contribution to Unilever’s overall performance and strategy.

 


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Unilever Annual Report on Form 20-F 2020   5

 

 

 

 

Vittorio Colao stepped down from the Board on 18 February 2021 following his appointment as Italy’s Minister for Technological Innovation and Digital Transition. Vittorio brought a high degree of knowledge and insight to us in over five years on our Board and chaired our Compensation Committee. I am pleased to confirm that Andrea Jung, already a member of the Compensation Committee, has taken over the role of Chair of that Committee.

Evaluation

Our Board evaluation in 2019 was externally facilitated and the results were discussed at the January 2020 Board meeting. I decided that for the 2020 Board evaluation process we would conduct an internal exercise, the results of which were discussed at the November 2020 Board meeting. The Board continues to perform effectively with competent and engaged members, and in its evaluation discussions the Board agreed, in particular, to focus in 2021 on Unilever’s:

  growth strategy
  digitisation
  channel strategy
  leadership talent and succession

Further detail on the evaluation process this year, together with the Board’s remit, operations and the topics the Board regularly discusses and debates can be found in the Governance section on page 62.

Looking ahead

Even though trading conditions will remain tough and we will be living with the effects of Covid-19 for some time to come, the Group has already shown it has the ability to withstand shocks and to emerge stronger. With its powerful category and brand portfolio, enviable position in the growth markets of the future, and recognised leadership in sustainable business, Unilever has some enduring and unrivalled strengths. Combined with its strong leadership team and outstanding workforce, I am confident that the Group is well-placed to go on delivering competitive returns while meeting the needs of its multiple – and highly valued – stakeholders.

Finally, on behalf of the Board, let me express our profound appreciation to the 149,000 hardworking women and men of Unilever – and the many more the company partners with – for their impressive efforts and commitment during a most difficult and challenging year.

 

 

LOGO

 

 

LOGO

 


Table of Contents
6   Unilever Annual Report on Form 20-F 2020

 

Chief Executive Officer’s Q&A

Alan Jope answers questions on our performance,

the impact of the pandemic and the Unilever Compass.

 

How has the Covid-19 pandemic impacted Unilever?

The first and most painful thing to say is that the pandemic has resulted in the loss of a number of Unilever colleagues across the world. Our thoughts go out to their families and friends, and indeed to all those whose lives have been impacted so tragically by this pernicious disease.

The effect of the pandemic on Unilever’s business has been significant. Widespread national lockdowns saw large parts of the portfolio – including our 1.7 billion food service business – hit by sudden and very dramatic falls in sales, in some cases by as much as 70%. The ‘stay at home’ message also led to declines across parts of our largest Division, Beauty & Personal Care, including in deodorants and hair care. In other areas, like home and hygiene and skin cleansing, there were surges in demand as consumers sought out products capable of helping in the fight against Covid-19. The in-home part of our Foods & Refreshment business also experienced an uplift in sales as people rediscovered the joys of home cooking. Across the year, we saw similarly unprecedented swings in consumer demand across geographical markets, as well as in the use of channels.

Responding to these sudden and dramatic fluctuations in demand in the midst of a global pandemic has required a herculean effort on the part of our teams, and especially from our supply chain and field sales colleagues, who kept our products reaching the shelves while having to observe strict safety protocols. I want to record my appreciation – and my admiration – for all they did in 2020 to keep our business moving forward.

While the effect of the pandemic on Unilever’s business has been slightly lower overall growth than we would otherwise have expected, I do believe we can look back on 2020 with pride, given the extent to which we limited the impact.

Are there any trends – or changes in consumer behaviour – that you expect to endure once normality resumes?

There is much talk of a ‘new normal’ but in reality what I expect to see is more of an acceleration – and a cementing – of changes that were already underway. The move to online sales, for example, is only going to increase further as a result of the experience we have been through. That applies both to the so-called pure-play eCommerce providers but also, very importantly, where physical and digital channels combine (omnichannel), which is growing rapidly. The 61% increase in our own online sales last year is a powerful reflection of this trend.

I also expect the heightened awareness around home and personal hygiene – and handwashing in particular – to be a lasting phenomenon. And while we are all desperate for lockdowns to end, our homes – and the pride we take in them – have become an even more central feature of our lives, and I believe that will continue. These are trends Unilever is well placed to help serve.

Our own research and consumer surveys suggest there has been a marked increase in conscious consumption during the pandemic, with people increasingly reaching for brands they know and trust, ones they believe will contribute more broadly and purposefully to our lives and the issues we face, including environmental challenges like climate change and plastic pollution. I very much hope – and expect – to see this trend deepen further in the years ahead.

Working practices are also sure to change in the wake of the pandemic. Here I would expect to see an even more rapid escalation of trends already underway, and in particular a fast-forwarding to more flexible, agile and people-centred approaches to work. However, even though the traditional 9 to 5, five days a week model looks increasingly outmoded, reports of the demise of office-based working are exaggerated in my view. A strong culture is the glue that binds any organisation together and that requires its fair share of physical interaction in order to learn, collaborate, swap ideas and stay attuned to the welfare and well-being of others.

As you look back, how do you reflect on Unilever’s business performance in 2020?

It was a good performance overall, achieved in some of the most volatile and unpredictable conditions imaginable. The performance reaffirmed the strength of our brands and the resilience of our portfolio, as well as revealing a far higher ability to respond with speed and agility, something I called out last year as an area for improvement.

In any crisis it is important to move quickly to reset objectives in line with changing market realities. We refocused the business on competitive growth, and on delivering underlying operating profit and free cash flow. I am pleased to say that we delivered on all three. In terms of competitiveness, more than 50% of our business won value market share last year; and the most recent readings show that figure is now even higher at over 60%. There was an improvement in underlying operating profit when excluding currency impact, and we delivered record free cash flow of 7.7 billion in the most volatile conditions.

Our underlying sales growth for the year was 1.9%, which represents a good performance in such volatile and precarious conditions. On the bottom line, underlying operating margin was down 60bps to 18.5%, although this was largely a factor of Covid-related costs and adverse product sales mix.

What were the highlights of 2020 for you?

The resolve, dedication and ingenuity of our people in the face of unprecedented challenges – combined with their willingness to pull together in a spirit of One Unilever – was undoubtedly a highlight of the year. It made me even prouder to lead the wonderful people of this great company. I can only thank them for what they have achieved over the last year for Unilever and for its many stakeholders.

 


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Unilever Annual Report on Form 20-F 2020   7

 

 

LOGO

 

Thanks to their contribution, we have not only steered Unilever successfully through the first phase of a pandemic, but we have done so while simultaneously strengthening the company’s portfolio and – with it – our ability to compete longer term. The successful completion of the Horlicks acquisition, for example, along with other acquisitions last year – including Liquid I.V. and SmartyPants Vitamins – further boost our presence in the fast-growing and strategically attractive segment of functional nutrition and wellbeing.

At the same time, we were able to give the company greater strategic flexibility to engage in even more transformative portfolio moves – should it ever wish – by successfully completing the Unification of the Group’s legal structure under a single parent company, Unilever PLC. This complex undertaking has been a long-held and much debated ambition. To see it come to fruition on the strength of the overwhelming endorsement of shareholders was certainly a highlight of 2020.

How will the new Compass strategy strengthen Unilever?

At the heart of the Unilever Compass is a belief that sustainable and purposeful business drives superior long-term performance. That message is more relevant – and more resonant – today than ever before. While Covid-19 has concentrated minds and efforts on the immediate global health crisis, it has also reminded us of the fragility of the world we all share with other big global challenges, like climate change and inequality, becoming even more pressing.

By making solutions to these challenges the focus of our attention – and the essence of our brand propositions – we connect even more directly with the billions of people around the world we serve. They want to see companies and brands step-up and actively engage in addressing today’s most urgent and deep-seated social and environmental challenges, not just pay them lip service.

The power and relevance of the Unilever Compass was captured vividly last year in the launch of some major initiatives. Clean Future, for example, commits us to replace all of the fossil fuel-derived carbon in our cleaning and laundry products with renewable or recycled carbon by 2030. And with Future Foods, we have set an ambition to transform the global food system, reduce food waste and accelerate the move to plant-based meat and dairy alternatives. These industry-leading initiatives respond directly to the wishes of consumers. They also build on earlier,

 

equally ambitious, commitments around Climate and Nature and on reducing plastics, both of which are covered in more detail in other parts of this report (see pages 28 to 29).

More recently, we have given expression to the social dimension of the Unilever Compass by setting out how we plan to use our scale and influence to build a more equitable and inclusive society. This includes ensuring we pay a living wage to everyone in our value chain by 2030 and preparing our people for the future of work through skills and flexible employment options.

What are your priorities for 2021?

Despite encouraging developments on treatments and vaccines, the Covid-19 pandemic is far from over. Our overriding priority remains, therefore, to protect lives and livelihoods. We will do that by focussing on the safety and well-being of our own people – and the many we work with in the value chain – while also continuing to play a prominent role in the wider relief effort, including in the roll-out of global handwashing campaigns.

The economic toll from the pandemic will be deep and long-lasting. We need to be prepared. We will continue therefore in 2021 to focus on competitive growth. This will be a key part of our overall 4G approach of delivering consistent, profitable, competitive and responsible growth. All four are needed to create value.

A further priority is to ensure we retain the speed and agility of response which characterised our performance in 2020. We have a wonderful portfolio of on-trend, purpose-led brands, many of which are directly helping people through the trials of the pandemic and prolonged periods of lockdown. Taking those brands to more places, more people and more quickly is a key part of our plans for 2021.

Finally, in keeping with our vision and belief that responsible and sustainable business drives superior performance, we will continue to prioritise our multi-stakeholder business model, sure in the knowledge that the best way to deliver steady, compounded value creation for shareholders is to serve the needs and interests of all of Unilever’s many stakeholders.

 

 

 

LOGO

 


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8   Unilever Annual Report on Form 20-F 2020

 

Our strategy

A belief that sustainable business drives superior

performance lies at the heart of the Unilever Compass.

 

LOGO   
   Our vision is to be the global leader in sustainable business. We will demonstrate how our purpose-led, future-fit business model drives superior performance, consistently delivering financial results in the top third of our industry.
  

 

 

Our strategic choices and actions will help us fulfil our purpose and vision

 

    

 

Develop our portfolio into high growth spaces

 

Hygiene    Skin care    Prestige beauty    Functional nutrition    Plant-based foods
                

 

Win with our brands as a force for good, powered by purpose and innovation

 

Improve the health

of the planet

  

Improve people’s health,

confidence and wellbeing

  

Contribute to a fairer,

more socially

inclusive world

  

Win with differentiated

science and technology

             

 

Accelerate in USA, India, China and key growth markets

 

Build further scale in USA,

India and China

  

Leverage emerging

market strength

       

 

Lead in the channels of the future

 

Accelerate pure-play and

omnichannel eCommerce

 

Develop eB2B

business platforms

  

Drive category leadership

through shopper insight

         

 

 

Build a purpose-led, future-fit organisation and growth culture

 

Unlock capacity through agility

and digital transformation

 

Be a beacon for diversity, inclusion

and values-based leadership

  

Build capability through

lifelong learning

         

 

Operational Excellence through the 5 Growth Fundamentals

 

1    2    3    4    5
Purposeful    Improved    Impactful    Design    Fuel
brands    penetration    innovation    for channel    for growth
                        


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Unilever Annual Report on Form 20-F 2020   9

 

 

 

LOGO

 

    

 

LOGO

 


Table of Contents
10   Unilever Annual Report on Form 20-F 2020

Our strategy continued

 

 

Our Compass sustainability commitments

will help us deliver our purpose and vision.

 

LOGO


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Unilever Annual Report on Form 20-F 2020   11

 

 

LOGO   See pages 17 to 31 for

more on our sustainability

commitments

 

LOGO

 

 

LOGO

 


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12   Unilever Annual Report on Form 20-F 2020

 

Our business model

We work to create sustained value for our

stakeholders through an adaptable and

resilient business model.

 

LOGO


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Unilever Annual Report on Form 20-F 2020   13

 

 

LOGO

 

 

LOGO

 


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14   Unilever Annual Report on Form 20-F 2020

 

Stakeholder review

The Unilever Compass and our business model are designed to

create value for our stakeholders. Understanding their changing

needs helps us to make informed strategic decisions.

Our multi-stakeholder model in action

We’ve identified six stakeholder groups critical to our future success: our people, consumers, customers, suppliers & business partners, planet & society, and shareholders. The stakeholder reviews on pages 14 to 33 explain how we’ve worked to create value for each of our stakeholders in 2020, as well as how our business benefits from these vital relationships.

The Governance of Unilever sets out the roles and responsibilities of the Board and, with the exception of specified Board responsibilities, delegates the running of Unilever to the CEO. The CFO also has certain powers in relation to financial matters set out within the Governance of Unilever. The CEO heads the Unilever Leadership Executive (ULE) which comprises the CFO, the Group Secretary and the most senior management of Unilever as set out on pages 66 to 67. The Board provides guidance and advice to the CEO and the ULE on multiple issues throughout the year. The table below highlights key Board considerations and outcomes and also where relevant the key considerations and outcomes of the ULE in line with their duties and the Board Rules outlined in the Governance of Unilever.

 

 

LOGO  Section 172

 

Under Section 172 of the UK Companies Act 2006 (‘Section 172’) directors must act in the way that they consider, in good faith, would be most likely to promote the success of their company. In doing so, our Directors must have regard to stakeholders and the other matters set out in Section 172. Pages 14 and 15 comprise our Section 172 statement, which describes how the Directors have had regard to these matters when performing their duty. In light of our purpose to make sustainable living commonplace and the Unilever Compass strategy to drive superior performance as set out on pages 8 to 9, our Directors take steps to understand the needs and priorities of each stakeholder group and do so via a number of mediums, including by direct engagement or via their delegated committees and forums. The relevance of each stakeholder may change depending on the matter at hand. In line with the UK Companies Act 2006, below we provide a high-level summary of the concerns of our stakeholders and how our Directors and ULE engaged with them and had regard to their interests when setting Unilever’s strategy and taking decisions concerning the business.

 

 

 Stakeholder  

Interests and concerns

in 2020

  How we engaged in 2020   Board and ULE considerations
and outcomes in 2020

LOGO

 

Our people

 

We stepped up our engagement with employees significantly to help our people through the pandemic.

 

LOGO   For more see

      pages 16 to 19

  Covid-19 has been the overriding concern for our people during the year as the pandemic impacted virtually every part of their lives, especially working arrangements. Through our engagement, we also consistently see that concerns such as career opportunities, wellbeing, purpose, sustainability and being a more simple and agile business remain important for our people.  

This year our annual UniVoice survey focused on our office-based employees, and more than 42,000 people responded (see pages 16, 17 and 18 for results). We continued to run monthly UniPulse surveys throughout the year for more instant feedback. Covid-19 accelerated a widescale use of new digital platforms. We held a bi-weekly ‘Your Call’ with our CEO and ULE which gave people direct access to our leadership team in rotating guest slots, including our Chairman. We consulted with our people on a new Future Reward Framework through multiple employee focus groups and surveys, as well as consultation with the European Works Council and other local employee representation bodies.

  Our Board engaged directly with employees throughout the year on issues of concern such as working in factories and at home through the pandemic, the new starter onboarding process and learning opportunities. These perspectives were taken into consideration in decision making (see page 63 for more details). The Board’s Corporate Responsibility Committee looked at a range of people-related issues in the year, including safety and our Code of Business Principles (see page 18). As part of the Unification of our legal structure, and after engaging with the Dutch Central Works Council and the European Works Council, the Board agreed to provide a guarantee to Unilever APF, the Dutch Pension Fund, to safeguard the pensions of Dutch employees.

LOGO

 

Consumers

 

Changes in consumer behaviour have accelerated, leading to new insights about the ways people shop and buy our products.

 

LOGO   For more see

      pages 20 to 23

  The pandemic has impacted consumer spending habits, particularly for discretionary purchases. This has led to a back-to-basics approach to consumption, with value for money and quality remaining key concerns, alongside sustainability as consumers have become more mindful of the impact of their spending decisions on the world. Health and wellness concerns also increased as people looked to protect themselves from the physical and mental consequences of the pandemic.  

We have many direct and indirect touchpoints with our consumers. Our People Data Centres combine social listening with traditional consumer research while our Consumer Carelines give us rich insights into the experiences of consumers when using our products – during 2020 we had around 2.5 million interactions through calls, emails, letters, social media and webchats. We also consulted with almost 1.8 million consumers this year through regular surveys using partners like Kantar, Nielsen and Ipsos. These insights help to inform our understanding of consumer trends, including those likely to continue in a post- Covid world.

  Our Board and ULE members are regularly informed of consumer trends and consider these when making decisions. For example, during a strategy focused Board meeting in October, the Board discussed how to ensure our divisional portfolios remain attractive and differentiated, the growing importance of eCommerce and large retailer omnichannel partnerships. The ULE considered a range of 3-5 year scenarios in the early months of the pandemic to understand how consumer trends might change, how to best prepare for a global recession, and where growth opportunities might be. The work informed Unilever’s portfolio and investment strategies by helping to identify growth opportunities.


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Unilever Annual Report on Form 20-F 2020   15

 

 

 Stakeholder  

Interests and concerns

in 2020

  How we engaged in 2020   Board and ULE considerations
and outcomes in 2020

LOGO

 

Customers

 

This year eCommerce exploded, as shifting shopping behaviours affected retailers of all types.

 

LOGO   For more see

      pages 24 to 25

  Covid-19 has focused all our customers on the role of eCommerce. Our retail partners are working to become more competitive in a world where shoppers move seamlessly between online and offline channels – and particularly to bring shoppers back into stores. In emerging markets, the small retailers we partner with are increasingly embracing eCommerce and looking to us for digital solutions, for example, to speed up the restocking of products.  

Our larger retail partners have direct channels into us. We actively manage these relationships through our Customer Development team. At the start of the pandemic, we used customer and shopper insights from China and Italy to help customers in other markets build a response plan and take appropriate actions. We also used our supply chain expertise to help our customers forecast and keep high-demand products in stock. When lockdowns were lifted, we worked on projects with our customers to help bring shoppers back into stores – driving growth and expansion across multiple channels.

  Our Board and ULE held various discussions around our customer development strategy. The ULE agreed to offer cash flow relief to our smallest and most vulnerable customers and suppliers. They also discussed the ongoing digitisation of our customer experience including opportunities to use digital solutions to help independent stores in our top markets manage demand and supply, payments and the overall customer relationship. The ULE approved increased investment in shopper and customer insights to create further value for customers.

LOGO

 

Suppliers & business partners

 

We worked closely with suppliers and partners to overcome unexpected challenges.

 

LOGO   For more see

      pages 26 to 27

  This year has been challenging for our suppliers and partners. Huge fluctuations in demand during the pandemic affected cash flow for many suppliers. Border restrictions hampered logistics; and new government regulations to protect employees and ensure safe working environments demanded new ways of working, often at very short notice. Our suppliers are also looking for simpler ways to engage with us, faster decisions and clearer feedback through fewer touchpoints.  

We communicated more frequently with our high-risk material suppliers this year, often daily. We built a Covid-19 information site for suppliers to share protocols and useful information to help keep them running safely. We ran workshops and webinars with key partners (including third-party manufacturers) to explain our new factory tier system based on country risk levels, as well as the protocols in place for site cleaning and employee safety. In May, we ran a ‘Your Call’ with our CEO and Chief Procurement Officer and our top 300 suppliers to share information and thank them.

  In addition to the cash flow relief noted above, the ULE agreed to a number of interventions to support our suppliers during the pandemic including three months’ salary protection for third-party employees, such as cleaners and security staff. The ULE were also briefed monthly on supply chain developments.

LOGO

 

Planet & society

 

People all over the world are speaking up and demanding that business does more for the planet and society.

 

LOGO   For more see

      pages 28 to 31

  Despite Covid-19, concern for the environment shows no sign of waning. NGOs continue to campaign to reduce the impact of plastic packaging and products on the environment as well as for stronger action on climate change, while vocal and influential activist citizens demand more from companies on these same issues. People increasingly want to know where the products they buy come from, what’s in them, how they’ll affect the environment and whether they’ve been tested on animals. Concerns around poverty, inequality and jobs have been heightened by the economic uncertainty. Racial discrimination and social injustice has also come more to the fore following the Black Lives Matter protests.  

As part of our materiality process, we analyse insights from stakeholders to make sure we’re focusing on the most important sustainability issues – see our website for more. We focus our external advocacy on the social, environmental and economic issues most important to Unilever, with ULE members leading our engagement in the areas most relevant to their field of responsibility. Our Chief Supply Chain Officer, for example, is part of the World Economic Forum (WEF) community focused on supply chains. Our CFO is Vice Chair of the Task Force on Climate-related Financial Disclosures (TCFD). And our CEO is a board member of the Consumer Goods Forum and Focusing Capital on the Long Term (FCLT Global). Vice Chair of the World Business Council for Sustainable Development (WBCSD) and a member of the WEF International Business Council.

  In December 2020, the Board agreed to put Unilever’s climate transition action plan before shareholders and seek a non-binding advisory vote on our ambitious emissions reduction targets and the plans to achieve them. The Board’s Corporate Responsibility Committee (CRC) covered a wide range of sustainability topics (see pages 72 to 73). Responsibility for managing sustainability issues day-to-day rests with the ULE. This year, they worked to develop the Unilever Compass strategy as well as our climate and nature, and social goals. Diversity and inclusion was also a focus this year and a standing item on the ULE agenda. The Sustainability Advisory Council, comprising seven external experts, continues to act as a sounding board for the Board, providing strategic steer on key sustainability issues (see page 73).

LOGO

 

Shareholders

 

In this eventful year, it’s been even more important to keep our shareholders closely informed about our business.

 

LOGO   For more see

      pages 32 to 33

  As well as their ongoing interest in our strategy and business performance, our shareholders were interested in our priorities during the Covid-19 pandemic and the potential impact of this on our business. Shareholders were also interested in the Unification of our legal structure. And they continued to be focused on our approach to sustainability, including specific issues such as plastic waste, as well as our sustainability targets and reporting. The Board’s decision to maintain our dividend, as part of our multi-stakeholder response to Covid-19, was welcomed by shareholders.  

We speak directly to shareholders through quarterly results broadcasts and conference presentations, as well as through meetings and calls about aspects of business performance and consumer trends. Senior leaders and our Board speak directly to shareholders on a broad range of issues. This year, in addition to the CEO and CFO presenting at investor conferences, our Chief Supply Chain Officer and Chief R&D Officer held a joint presentation on our supply chain and research and development activities. We also engaged in extensive dialogue on our Unification proposals ahead of the shareholder votes, consulted on our Remuneration Policy proposals and held a webcast on our approach to climate action. Due to the pandemic, all shareholder engagement was virtual from March.

  Shareholder feedback forms part of Board conversations. As he took up his role, our Chairman engaged directly with a number of shareholders; and after each quarterly market update, our CEO shares feedback from investors with the Board. Shareholder consultation on the Unification proposals took place ahead of the Extraordinary General Meetings, involving our Chairman, CEO and CFO. The Unification proposals received the overwhelming support of shareholders. As part of our Directors’ Remuneration Policy renewal planned for the 2021 AGM, the Chair of the Compensation Committee entered into more than 30 conversations with shareholders and proxy advisors. Feedback was discussed in the Compensation Committee and the Board. Subsequently, a letter was written to shareholders explaining how this feedback was taken into account before finalising the new Directors’ Remuneration Policy (pages 79 to 103).

 

LOGO

 


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16   Unilever Annual Report on Form 20-F 2020

 

LOGO

Our people

When we take care of our people, our people

take care of the business.

 

2020 was an unusually challenging year for our people. We were all affected by the pandemic in different ways. But even as lockdowns hit across the world, the tremendous efforts of people all around Unilever enabled us to continue to work quickly and safely, whether on the factory floor, on a tea estate or from a home office. We quickly tested and scaled up new ways of working – rethinking and reshaping our business for an uncertain future. And despite all the uncertainty, our people were more engaged, with engagement scores rising by 6% to 83% – well above industry benchmarks.

As well as the many ways in which we worked with speed and agility to respond to the unexpected this year, we continued to prepare our people for the future of work and nurture a culture in which our people can thrive.

Going above and beyond

Consumers all around the world were relying on us to produce the household necessities they needed most, so it was essential that we kept our factories and distribution centres operating. We are grateful to the tens of thousands of people within the company who made this happen – and who did so with a safety-first mindset.

Working safely and at speed

In the midst of Covid-19, we concentrated on business continuity, making it safe for essential staff, such as factory workers and sales teams, to return to work. We did so with extremely strict protocols to protect everyone’s physical and psychological safety, such as protective equipment, distancing regulations and frequent health checks, including on people’s mental health.

In March, we closed all Unilever offices and some 67,000 people began to work from home. Overnight our communications became 100% digital. Even with remote working systems in place, this was not without its challenges. Each person needed the right equipment and systems to perform their roles, and we rolled out global guidelines on working from home. We saw no decrease in collaboration and productivity from March to June – in fact, this rose significantly, with 20% more time spent working together internally and 19% more time in virtual external meetings.

Becoming more agile

This year has highlighted our agility in many ways, most notably in our response to Covid-19. In just three months, we moved over 9,000 people from business areas that were slowing, such as our out-of-home food business, to teams experiencing high demand like those producing personal hygiene products. More than 20,000 of our people used Flex, our internal digital talent marketplace, to match their skills and capacity with business-critical demand in other areas

of the organisation. As well as Flex, we’re using an external marketplace to quickly access skilled labour from companies in sectors facing low demand, such as aviation and hospitality.

We’re also increasingly embedding ‘Agile’ ways of working. Guided by our internal coaches and our new Agile Centre of Excellence, teams at all levels of our business are adopting new practices, including our ULE. These practices are helping us make better and faster decisions, innovate at pace and adjust quickly to changing consumer demand. A 10% jump in our October UniVoice scores on our speed of response indicates that we are making progress, although with this score still at 60%, there’s much to be done. In response, we’re simplifying everyday processes, prioritising and using technology to improve speed and efficiency.

Protecting wellbeing

Even though our UniVoice survey in October showed a 9% increase (to 82%) in people who feel Unilever cares about their wellbeing, we know we need to do more to support our people to ensure their physical and mental wellbeing. We also know that people are working longer hours and coping with more distractions at home.

This year, more of our people used our employee assistance programmes, available to every single Unilever employee and in many instances their family, with a particular increase in family members engaging with our mental health support. Our online employee support also rose by a third in the year. We started gathering insights weekly through online and SMS health checks to help us quickly identify any areas of concern, such as domestic abuse or burnout. We responded to the rise in reported domestic abuse during lockdowns by giving people specific training in how to handle this.

 

         LOGO

Our people have been our absolute priority throughout 2020, and because of them we’ve been able to meet the needs of consumers and

grow our business.

  LOGO                                              

Leena Nair

Chief HR Officer

 


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Unilever Annual Report on Form 20-F 2020   17

 

 

 

 

LOGO

  

93%

of our people are proud

to work at Unilever (based

on our 2020 UniVoice survey)

 

We also focused on giving people tools to cope with stress by strengthening our focus on wellbeing – working closely with local representatives to amplify and accelerate initiatives already in place. In 2020, this included building a company-wide mindfulness movement by training people to deliver mindfulness sessions around the world, holding our first Global Mindfulness Day in October, and taking our leaders through an extensive mindfulness training programme. And in a wider focus on mental health across the business, we‘re building a network of mental health champions, with more than 1,600 in place by the end of 2020, including a group of mental health trainers.

Safety at work

As well as ensuring Covid-safe work environments during the global pandemic, this year we continued to focus on ensuring the safety of our people and contractors in everyday work situations – from the use of mechanical equipment to road safety. In 2020, our Total Recordable Frequency Rate (TRFR) improved to 0.63 accidents per million hours worked from 0.76 (1 October 2019 to 30 September 2020), in part due to a reduction in non-manufacturing accidents on Unilever sites due to the increase in homeworking.

Sadly, during this same period, two contractors and one employee lost their lives. A contractor died in a lightning strike at one of our tea estates in Tanzania; and a contractor in Romania was killed on a construction site at a newly acquired business. One of our factory employees in India died in a road accident stepping out of a shuttle bus on his way home. When fatalities occur, our policy is to have a global stand-down across our operations to pay our respects and reflect on the learnings. We’ve put in place several new measures around field safety during thunderstorms, safe travel on buses and construction safety.

Preparing for the future of work

Agile methods are just one aspect of how we’re working in new and better ways to become more fit for the future. Our extensive online learning programmes not only enable our people to upskill and reskill for their roles at Unilever, but are helping them prepare for the changing landscape of work.

A year of learning

One important way we’re boosting our capability is by becoming a more digital business. We’re hiring more people with digital backgrounds and investing heavily in developing key skills such as agile working and data analytics in all areas of our business. The Citizen Data Scientist programme we launched in 2019, for example, has qualified more than 6,000 people in our procurement, planning, logistics and manufacturing teams in digital skills.

We refocused our learning activities in 2020 to make sure our people have the skills to fulfil critical business functions, such as supplying essential goods and adjusting to shifts in consumer demand. We also prioritised helping people adjust to the fallout of Covid-19: promoting remote working skills, supporting our leadership, and helping people deal with issues around mental wellbeing and personal resilience, for example. The numbers of people accessing learning materials during the year soared. Users of our online learning platform Degreed were up 150% on the previous year, and our UniVoice survey showed that 82% of our office employees felt well prepared to do their job.

Focused on employability

This focus on learning is a key part of our ambition to make sure all of our people can reskill, upskill, work more flexibly and otherwise adapt to the changing world of work. We are determined to help everyone at Unilever stay employable. For example, we’re pioneering new employment models, extending our 2019 UK flexible working pilot to ten more countries during the year. Offering the benefits of employment with more flexible contracts will help us attract and keep people with varying personal circumstances, both enhancing our talent pool and making us a more inclusive employer.

We’re also continuing the work we began with the European Works Council in 2019 on a Framework for the Future of Work. With many factory and office workers in trade unions or covered by collective bargaining agreements we are working with the employee representatives to bring this framework to life. The comprehensive toolkit helps people proactively reskill for new ways of working, as we adapt our business to the efficiencies created by automation and in response to shifts in consumer demand. While we paused many of our supply chain change programmes this year in response to Covid-19, we have now restarted these – with minimising redundancies and helping people shift to new types of work central to our approach.

 

 

 

LOGO

 


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18   Unilever Annual Report on Form 20-F 2020

Our people continued

 

 

As we continue to transform Unilever, our people will create future-fit plans to link their individual purpose with their career ambitions. Furthermore, we commit to reskill or upskill employees to ensure that by 2025 they have future-fit skills for roles inside Unilever or beyond. We recognise that job prospects today are limited for those without the right skills, particularly young people. That’s why we’ve also committed to help equip 10 million young people with essential skills to prepare them for job opportunities by 2030.

Managing talent

This year, due to Covid-19, we made the hard decision from June onwards to pause all salary increases, promotions and external appointments until 2021– with the exception of a limited number of business-critical roles. This was primarily to protect both our people and our business at a volatile time. Due to the uncertain economic outlook, our voluntary turnover this year was lower at 5%.

Despite our recruitment freeze in 2020, we continued to strengthen our employer brand through targeted digital communication to highlight the benefits of working for Unilever. The fact that we’re the number one FMCG graduate employer of choice in 54 countries, and have the most followers in our industry on LinkedIn confirms the power of our purpose-led vision and culture.

Nurturing our culture

Much of our strength as a business lies in our shared values and culture. In 2020, leaders all around our business worked hard to set the right tone and support our people. Every two weeks, our CEO and ULE members held a global virtual townhall, where they answered questions from our people on issues such as our Covid-19 response, the rapidly changing external context, our strategy and our quarterly results to ensure common awareness of the factors affecting our performance. This openness was mirrored at local leaderled virtual townhall meetings, and this kind of transparency is making a difference to our people. Our October UniVoice survey showed the most ever pride in working at Unilever (93%), with trust in senior management up by 8% at 80%.

We work hard to help our people live their purpose and put our people first. More than 5,000 people were given virtual instructor-led leadership training in the year, 1,800 senior leaders were supported with training for leading in a crisis, and at least 50,000 pieces of leadership learning content were consumed through our online Leadership Gym.

This year, we also simplified our performance targets and began to move to a more flexible way of setting individual goals and checking performance during the year – another example of a more agile way of working.

 

LOGO

 

 

In focus:

 

Future of the office

Covid-19 forced the transition to home working – for Unilever and businesses everywhere. Having 67,000 office-based people working from home this year has shown at scale that distributed and remote ways of working can work. With an eye on the longer-term effects of productivity, fatigue and culture, we’re developing a flexible approach to working that allows our office-based people to do their best work from the most effective place – wherever that is.

 

Working with integrity

Our focus at Unilever is very much on growth in line with our values, not on growth at any cost. So we refreshed our Code of Business Principles this year to include the provision of a living wage to our employees, ethical data use, transparency and a greater focus on safety and mental wellbeing. Our data around Code breaches provides increasing insights into exactly what the issues are, and where – and we’re focusing on understanding how to prevent behaviours that lead to breaches. We’re training our people to prevent accidental compliance breaches, and our 24/7 Speak Up platform continues to be our main mechanism for reporting concerns around business integrity. Our ongoing commitment and zero tolerance to bribery is supported through our annual Countering Corruption mandatory training and initiatives on the ground delivered to all employees. We’ve been working to simplify and improve the whistleblowing process for users – this year, we received 1,357 reports, closed 1,434 reports (including some from prior years) and confirmed 723 reports as breaches, which led to 338 people leaving the business. See page 44 for how we manage business integrity risks.

LOGO   See our website for more on business integrity

 


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Unilever Annual Report on Form 20-F 2020   19

 

 

Open to all

Making Unilever a completely inclusive place to work will make us a stronger, better business. Our priority is to ensure that the diversity of our people reflects the societies in which we live and work. So we take a holistic approach – making sure people feel welcome and are treated fairly at Unilever, regardless of their race, gender, gender identity, age, sexual orientation, religion or experience and recognising the importance of self-identification, given the broad circumstances under which discrimination can happen. This year, the Black Lives Matter movement shone a light on racial discrimination and social injustice, and we strengthened our focus on race, alongside gender, disability and LGBTQI+. There are many facets to how we’re pushing to become a more diverse organisation: leadership, training and awareness-raising, more refined employee data, recruitment and talent management, to name a few.

A beacon for diversity

We believe in a diverse yet cohesive approach to the complexity of true inclusion. While our vision and policies around diversity and inclusion are global, our local leaders create their own roadmaps for applying them. We badge our many business-wide inclusion programmes as #Unstereotype the workplace. In 2020, we started an inclusive leaders training programme. We aim to have more than 500 leaders complete the course by the middle of 2021. Each month, we report to the ULE on our progress towards inclusion, and our Global Diversity Board reviews progress three times a year. We have nearly 200 diversity and inclusion champions around the world who help us develop and deliver our programmes. This year, we strengthened our leadership focus on equity, diversity and inclusion, and established a racial and ethnic equity taskforce. This will help us deliver our racial and ethnic equity strategy, starting with the diversity of our leadership in countries with a history of racial discrimination, such as the US, UK, South Africa and Brazil.

In recent years, we’ve made good progress in our journey towards gender equality, hitting our gender balance target at management level one year early and maintaining it at 50% in 2020. This year, we launched a new coaching programme run online by specialist INSEAD coaches to help women leaders progress their careers. We now offer paid paternity leave in all of our workplaces.

We’re committed to gender equality and fairness in the workplace, based on equal pay for equal work and achieving greater gender balance. Pay and overall reward is gender neutral, with any differences between employees in similar jobs reflecting performance and skill. Gender pay gaps can develop where there is a representational imbalance between genders. Our Framework for Fair Compensation has been instrumental in helping us review the average pay differences between genders at both a country level, and at each work level within each country. We continue to improve our gender balance, and relevant gender pay gaps, at various levels and in various countries throughout the business. While there is more to do on gender balance, our efforts are being recognised. We’re proud to have won a prestigious Catalyst Award for our initiatives to create a gender-balanced and inclusive culture that breaks down stereotypes. We were also listed in Bloomberg’s 2020 Gender-Equality Index.

As part of our Framework for Fair Compensation, we are committed to pay a living wage to all our direct employees. At the end of 2020, 100% of Unilever’s direct employees globally were paid at or above a certified living wage level.

In 2018, we committed to improve the representation of people with disabilities in our business. This year, we asked our office-based employees to declare any disabilities. We plan to survey our factory-based employees in 2021 to get a more complete picture of disability across our business.

We want to make sure that people’s experience of Unilever is fair for everyone and that we’re fully including members of LGBTQI+ communities. This year, our CEO signed the Declaration of Amsterdam to reinforce our commitment to LGBTQI+ inclusion.

 

 

    2020            2019    
                  
Gender statistics                              Female                                   Male      

 

                              Female                                   Male    
Board     5          7              5          8    
      (42%)        (58%)            (38%)        (62%)  
Unilever Leadership Executive (ULE)     4          9              4          8    
      (31%)        (69%)            (33%)        (67%)  
Senior management (reporting to ULE)     16          56              15          59    
      (22%)        (78%)            (20%)        (80%)  
Management     7,636          7,525              7,620          7,408    
      (50%)        (50%)            (51%)        (49%)  
Total workforce     51,967          96,982              53,469          96,398    
      (35%)        (65%)            (36%)        (64%)  

Note: Employees who are statutory directors of the corporate entities included in this Annual Report and Accounts: 464 (67%) males and 225 (33%) females (see pages 185 to 191).

 

 

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20   Unilever Annual Report on Form 20-F 2020

 

LOGO

Consumers

People’s concerns around hygiene and health, as well

as the planet, continued to grow during the year.

 

Living differently

As the pandemic took hold around the world during the year, many people changed how they lived, worked and shopped. Almost overnight, people’s immediate personal concerns – health, hygiene and wellbeing – became a priority as people sought to protect themselves and their families from Covid-19. With countries going into lockdown and people increasingly staying at home, daily habits changed dramatically: from eating out to eating at home, from shopping in stores to shopping online, and from working in offices to working from home.

At the same time, consumers’ desire for health and wellness products continued to grow as people sought to protect their health. During the year, we acquired SmartyPants Vitamins and Liquid I.V. to build out our portfolio of brands in functional nutrition, health and wellbeing.

While the immediate focus for many was on dealing with the impact of Covid-19, concerns around waste, plastic and climate change were not diminished by the pandemic – if anything they became stronger. People continued to look for convenient and effective natural, eco-friendly and chemical-free products.

Our three Divisions worked to meet these changing consumer needs in a variety of ways in 2020: through product innovations, shifting to new distribution channels and connecting with consumers through their brands’ purpose-focused activities – often going the extra mile to do this in trying conditions.

 

 

LOGO

Putting purpose at the heart of all our brands is not only the right thing to do, we know it drives superior performance
and growth.   LOGO                                                                                       

Sunny Jain

President, Beauty & Personal Care

Beauty & Personal Care

We aim to be the most people- and planet-positive beauty business in the world.

As lockdowns affected the beauty industry more widely, they also changed consumers’ personal care habits at home. In particular, we saw declines in the use of deodorants and hair care products. During much of the year, we focused on giving people the products they needed to stay well, particularly in terms of personal hygiene.

When the pandemic started, we did not have a significant hand hygiene portfolio available in key regions like Europe and North-America to support consumers and meet their needs. We worked to build this as fast as we could. This meant expanding our hygiene offerings significantly through our big brands. Lifebuoy, one of the world’s biggest soap brands, was introduced into 58 new markets. And during the year it became Unilever’s latest billion-euro brand. Vaseline also expanded production of antibacterial hand creams to 18 markets.

Our brands also responded to Covid-19 through product donations, innovations, and communications supporting people’s hygiene and wellbeing. Lifebuoy, for example, donated more than 30 million bars of soap to refugees and other vulnerable people around the world, achieved over 60 billion impressions through their TikTok ‘do the Lifebuoy’ handwashing videos and launched a new campaign ‘H is for handwashing’ when teaching the alphabet to children. In hair care, Clear launched a 14-day programme to help boost people’s resilience during lockdown, and antiperspirant brand Rexona launched a campaign to inspire millions of people in 35 countries to ‘move more at home’. Dove, through its Courage is Beautiful campaign, and our Pepsodent and Signal oral care brands acknowledged the sacrifices of frontline workers such as health professionals.

With hair salons, spas and specialist stores temporarily closed, we shifted our focus to helping people look after themselves at home. Our All Things Hair website shared advice for how to create hairstyles at home, and Lux launched a lockdown campaign. With people shopping much more online, we shifted the focus of our Prestige Beauty brands towards eCommerce while Dermalogica introduced one-to-one virtual skin consultations.

People positive

Our brands continue to drive for a more inclusive vision of beauty. Dove’s campaign with partners for the CROWN Act (Creating a Respectful and Open World for Natural Hair) prohibiting discrimination based on hair texture and style, became law in seven US states and in September, the U.S. House of Representatives passed the bill at the federal level. Shea Moisture created a $1 million fund to support small businesses and entrepreneurs of colour. Through its Equitable

 


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Unilever Annual Report on Form 20-F 2020   21

 

 

 

Skincare for All programme, Vaseline is working to improve skincare for Black and Latinx communities in the US by partnering with Medscape and Direct Relief to train medical professionals to better treat, diagnose and care for skin of colour. We also introduced a new brand, MELÉ, in the US, co-created with dermatologists of colour for melanin-rich skin.

In South Africa, we have established an expert-led advisory board to help us develop programmes to support Black hairstylists and salon owners as one of a set of actions we are committed to including internal training on unconscious bias. During the year, we also announced our intention to build a more inclusive global skincare portfolio and committed to remove language such as ‘fair/fairness’, ‘white/whitening’ and ‘light/lightening’ from all our communications and packaging. As part of this move, we changed the name of our Fair & Lovely brand, sold across Asia, to Glow & Lovely which launched in September.

Our brands have also continued to work towards improving the health and wellbeing of millions around the world – see page 31 to read how.

Planet positive

While Covid-19 has focused attention this year on health and hygiene, issues like climate change and plastic are still extremely important – both to us and to consumers. We’re continuing on our journey to use less, better or no plastic (see pages 58 to 59 for more). For instance, Dove has introduced 100% recycled plastic bottles in North America and Europe across all ranges. We’re also making more of our brands available through refill stations, exploring through pilot projects how to make refilling our products easy and desirable. For example, we now have partnerships in Indonesia and Mexico, where Walmart customers can refill aluminium bottles with our Sedal shampoos.

We continue to advocate for a global ban on animal testing for cosmetics working with partners and we welcomed China’s decision to allow more cosmetics to be imported without a requirement for animal testing in 2021. We are now also asking for the EU to update its chemicals regulations to take a more progressive approach and allow the use of non-animal testing approaches to support the safety of chemicals. 23 of our beauty and personal care brands including Dove, Simple,

 

 

LOGO

  

 

In focus:

 

Lifebuoy acts fast

 

To help people protect against Covid-19, our biggest handwashing brand threw its weight behind new global advertising and social media campaigns encouraging better hygiene through handwashing. As well as producing 600 times more hand sanitiser in the year, Lifebuoy brought out eight new products, including masks, sanitisers and hand & surface spray, and expanded into 58 new markets.

 

 

LOGO

 

  

 

58

new markets for Lifebuoy

 

 

Suave and Sunsilk have certified approval from animal-protection organisation People for the Ethical Treatment of Animals (PETA). And this year our largest brand in Russia, Chistaya Linia, and our toothpaste brand Zendium, both received PETA approval.

Foods & Refreshment

We’re on a mission to be a world-class force for good in food.

Our ambition to give everyone access to good food and to improve the health of both people and planet took on new meaning this year, with the pandemic spotlighting the need for radical improvements to our food system. We saw many people cooking at home, stocking up and wanting to make food last longer, and looking to buy more for less as economies went through challenging times.

Healthy eating in

In response to people’s growing concerns about health and immunity, we launched products with a focus on both taste and goodness: for example, Lipton Heart Health in the US, and Pukka’s natural solutions and immunity tea selection box. Through our acquisition of GSK’s Consumer Healthcare business in South Asia, we offered 150,000 packs of Horlicks with immunity-boosting zinc for free to Indian hospitals in major cities and expanded distribution of Horlicks and Boost ranges – products catering for child and toddler nutrition, women’s wellbeing and adult wellness backed by strong research.

We adapted during the year to people’s changing preferences and the shift from eating out – which significantly impacted our foodservice business Unilever Foods Solutions – to buying more food to cook and eat at home. Our supply chain worked quickly to keep stores stocked with cupboard staples, such as home cooking ingredients, soups and pasta, despite massive challenges due to lockdown restrictions and border closures. While people bought less ice cream to eat on the go, they bought more for their homes: sales of take-home Magnum and Ben & Jerry’s jumped by 25%, for example. This was helped by the continued growth of Ice Cream Now, our fast delivery service through a host of online delivery companies, which is now available in close to 40 countries.

 

 

 

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22   Unilever Annual Report on Form 20-F 2020

Consumers continued

 

 

LOGO

Every day, millions of people enjoy our foods, tea and ice creams. It is our responsibility to make it easier for people to eat healthy, tasty and more

sustainable foods.   LOGO                                                            

Hanneke Faber

President, Foods & Refreshment

More plant-based options

In all our Foods & Refreshment categories, we’re offering more plant-based foods. The Vegetarian Butcher continues to reach more consumers, thanks to its expanding partnership with Burger King, most recently in China and Latin America, and a successful roll-out across stores in Europe. Despite the decline in people eating out, our professional foodservices division – Unilever Food Solutions – launched Pushing Plants Forward, a global platform to help chefs meet rising demand for plant-based dishes. With our biggest brands like Knorr leading the way with its 50 Future Foods campaign, we’re investing heavily in developing new plant-based protein sources and foods at our Hive Foods Innovation Centre in the Netherlands. This includes a new partnership with biotech start-up Algenuity to explore using nutrient-rich microalgae to enhance the protein and fibre of plant-based foods.

Our plant-based innovations are increasingly being recognised. Nielsen named Hellmann’s vegan mayonnaise and Ben & Jerry’s non-dairy ice creams as two of its 2020 top 25 breakthrough innovations in Europe. Unilever was again named by investor network FAIRR as a pioneer in its benchmark of the best prepared companies for the shift towards plant-based proteins, coming top out of manufacturers and second overall. And The Vegetarian Butcher’s Chickened Out Burger won a Vegan Food Award from animal rights organisation PETA.

LOGO See our website for more on plant-based foods

Every brand a movement

Our brands continued their work to inspire better eating and nutrition. Alongside the work of global names like Knorr and Hellmann’s, local brands like Indonesia’s Bango and South Africa’s Robertsons have inspired home cooks by sharing recipes through food websites, as well as through specific campaigns. Continuing its fight against food waste, Hellmann’s began a Stay-In(spired) campaign to help people make good use of cupboard staples and leftovers – sharing recipes as well as videos from customers across its social channels. This year, we committed to halving the food loss and waste in our global operations by 2025 as part of the Champions 12.3 initiative, a coalition of partners working together to reduce food waste.

Our brands continue to take action on plastic – see pages 58 to 59 for more. Hellmann’s became the first dressings brand in the US to switch to 100% recycled bottles and jars. And Bango, Indonesia’s leading soy sauce, also moved to 100% recycled plastic. We’re learning there are no easy solutions especially when it comes to the flexible packaging (sachets and pouches) for our Knorr products. This is a technical challenge made more difficult by the differences between individual markets on collection, sorting, recycling and regulation. We are committed to finding a solution and plan to accelerate our efforts in 2021.

The work of our brands reaches beyond food and nutrition to broader wellbeing, inclusion and sustainability causes. Brands like Ben & Jerry’s continued to fight for radical change beyond food and nutrition, such as racial justice, refugee and voting rights, and climate action. Tea brands Brooke Bond, PG Tips and Lipton continued to campaign for more inclusion and human connections. And reflecting its commitment to sustainability and inclusion, our premium tea brand T2 became a certified B Corporation in February 2020.

A better system from farm to fork

Around two billion people are overweight, while almost 690 million go to bed hungry – and a third of all food is lost or wasted. So we’re using our size and reach to encourage the wider food chain to become healthier and more sustainable, faster. We’re leading by example, with full nutrition labelling on almost all of our products to help people make healthier choices. And we’re working behind the scenes with industry partners and others to make it easier for people all over the world to get nutritious and delicious food that doesn’t damage the planet. For example, we worked with the World Economic Forum and other partners to convene a virtual two-day event to bring together business with academics, youth, civil society and government to discuss ways to accelerate action ahead of the UN Foods Systems Summit in 2021.

LOGO See our website for more on transforming the food system

 

 

LOGO

  

 

In focus:

 

Future foods inspired by Knorr

 

In line with its purpose to inspire people to put new foods on their plates for a greener food future, Knorr aims to launch a number of new products based on Future 50 foods over the next two years. This year, the brand also shared plant-based recipes through its Cook with Knorr series and #CheatOnMeat campaign. Working with local chefs and foodservice partners, Knorr offered live-streamed cook-alongs for people cooking more at home during lockdowns.

 

 


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Unilever Annual Report on Form 20-F 2020   23

 

 

 

Home Care

Making people’s homes a better world, and our world a better home.

With Covid-19 highlighting the importance of home for many, our purpose became even more relevant in 2020. As people stayed in to avoid infection and workplace hygiene became essential to employees returning, demand for our cleaning and disinfecting products jumped, and stayed high throughout 2020. Facing challenges like border restrictions and factory closures, we focused on making more of our most high-demand products using an expanded global network of manufacturing partners. We still have work to do, however, to get more of our hygiene products, such as disinfecting surface cleaners, to more people who need them. By rolling out our disinfecting products to new markets and developing new products under brands like Domestos and Lifebuoy, we’re helping more people keep their homes clean and safe.

Towards a Clean Future

We know that consumers want sustainable products that perform just as well as conventional ones. So in September, we announced Clean Future, our ambitious blueprint for reinventing our cleaning and laundry products to give people affordable, high-performing products that are kinder to both them and the environment.

We’re investing 1 billion over ten years in researching and developing new technologies to reduce the carbon footprint, plastic waste and water use, and increase the biodegradable and sustainable ingredients associated with our products. For example, we’ll be replacing the crude oil and other fossil fuels used to make some of our chemicals with renewable and recycled carbon. We’ll achieve all of this through partnerships and cutting-edge innovation – applying the latest science and biotechnology at scale to create cleaner, more sustainable products that clean, remove stains and disinfect at least as well as conventional products.

Clean Future is already alive in many of our products. Seventh Generation, our leading eco-friendly brand, enjoyed strong demand in 2020. Our biggest brand, Dirt is Good (Persil/Omo), is being relaunched across the world with a formula that contains plant-based stain removers and bottles made with recycled plastic. Our Sun machine dishwash range in France now contains 70% natural ingredients and is eco-labelled. Sunlight hand-dishwashing liquid in Vietnam and Chile contains a new renewable and biodegradable cleaning ingredient developed with Evonik Industries. Cif ecorefill, which saved 170 tonnes of plastic in the UK by encouraging people to reuse their spray bottles, is now available in other European countries. In India, some of our laundry powders contain soda ash made from carbon emissions captured from a nearby plant.

Consumers not only want products that are more sustainable but also more convenient and simpler to use. Our laundry capsules continue to increase in popularity, with a strong acceleration of our capsules business in Europe. Easy to use formats, such as our Cif and Domestos cleaning sprays and wipes, were chosen by more consumers who were trying to cut down the time of more frequent cleaning and were rolled out in more markets.

As part of Clean Future, we’re also working to make our sustainable products more affordable. Our ultra-concentrated dilutable laundry detergents in Brazil, Argentina and Uruguay deliver the powerful clean our consumer expects, are packaged in small bottles made with recycled plastic and cost less than undiluted detergents. This year we also brought out a new range of affordable laundry capsules in China, a new brand of value cleaning products called Sahaja in Indonesia, and reintroduced Vim budget cleaners in Turkey.

Essential pandemic support

We acted quickly this year to meet heightened consumer needs for disinfection of surfaces, dishes and laundry, even in places where the supply chain was severely challenged. In China, we fast-tracked the launch of Domestos bleach, brought out a new range of surface disinfectant called Botanicals Hygiene and added hand dishwashing and surface cleaners to our existing Omo laundry range. In Italy, Lysoform rolled out a new medical hygiene range whilst Indonesia saw the launch of Wipol disinfectant spray. We also launched new antibacterial laundry detergents in Brazil, sanitising Comfort fabric conditioners in South East Asia, and Persil laundry sanitiser in the UK. Our disinfecting products are available in 55 countries.

Our professional products range also helped the hospitality industry in over 40 markets ramp up cleaning standards to reassure customers. Our air purifying brand, Blueair, which enjoyed strong growth in 2020, launched HealthProtect, with proprietary Germshield technology which helps protect against viruses and bacteria 24/7. Blueair also donated air purifiers to schools, day care centres and children’s hospitals.

To counter the initial confusion and misinformation around how people could best protect themselves from Covid-19, our brands supported public health messages around the world. Domestos, for example, worked with leading hygiene experts to inform people in how to safely and effectively use any bleach at home.

 

             LOGO

As an industry we must break our dependence on fossil fuels, including as a raw material in

our products.

   LOGO                                                      

Peter ter Kulve

President, Home Care

 

 

 

LOGO

 


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24   Unilever Annual Report on Form 20-F 2020

 

LOGO

Customers

We’re supporting our many customers, from global

eCommerce marketplaces to small family-owned stores, as

they adapt to people’s rapidly changing ways of shopping.

 

We sell our products through approximately 25 million retail outlets, in over 190 countries. Our customers are diverse: from large traditional ‘bricks and mortar’ store partners (the largest group in terms of sales) to online-only retailers, small family-owned shops and value retailers. As the route to reach consumers, our customers are critical to our business success – and our primary aim is to help them grow sustainably alongside Unilever. With the impact of Covid-19 affecting retailers of all types in unexpected and often very challenging ways, we worked closely with our customers this year to navigate the challenges and opportunities of 2020.

Adjusting to the changing world of shopping

People’s behaviour changed everywhere in response to Covid-19, and this created a surge in demand in some product categories which suppliers did their best to keep pace with. As retailers of all types worked to keep stocks of household necessities such as hygiene and cleaning items, we supported them in a variety of ways. In March, Unilever offered cash flow relief to our smallest and most vulnerable customers and suppliers. We also acted quickly to bring in new protective protocols when visiting customers during the months of lockdown, so that we could continue to deliver products and keep shelves stocked. This sometimes meant finding new ways to get products to consumers. Unilever International, our market expansion arm which finds new categories, partnerships and channels, built new alliances with delivery firms like Uber as well as governments, institutions and NGOs to increase the availability of our hygiene projects. In Indonesia, we started a home delivery platform and fulfilled orders from eCommerce warehouses such as Shopee, Lazada,

 

LOGO

eCommerce not only helps our brands reach more people, it also gives us the opportunity to bring their unique
purpose to life.   LOGO                                                                          

Keith Higgins

Chief Customer Development Officer

 

Blibli and even small family-run stores. And we helped customers keep up with surges in demand for essential items – for example, by launching Lifebuoy hand sanitisers in 58 new markets.

With the supply chain under pressure, to help customers get key products quickly into the hands of consumers, we also simplified our range to focus on top-selling brands. In accelerating so many trends, Covid-19 has presented a unique opportunity to strategically reposition our portfolio to become more future-fit – for example, by making space for more affordable products to meet people’s needs in the recession. We’re working closely with customers across multiple channels and value retailers Aldi and Lidl to deliver products designed and priced to meet shopper preferences.

Listening to our customers has never been more important. This year we joined the Advantage Group Survey who conducted a survey of our biggest customers across 28 markets. A consistent theme was that our customers increasingly recognise us for being strategically aligned with them, particularly around sustainability initiatives. However, we also hear that we need to improve our processes to ensure that more orders get delivered on time and in full to our customers, as well as offering more shopper insights to help drive category growth and sales. In response, we’ve launched a programme to improve our service levels.

e-everything

During the lockdowns in 2020, a large part of people’s lives moved online – learning, socialising and most certainly shopping. This increase in online shopping, referred to as eCommerce penetration, grew in the US in just eight weeks by more than it had over the last ten years. Our eCommerce sales grew 61% in 2020, representing 9% of total Unilever sales at the end of the year.

As shoppers increasingly use technology for their purchases and as certain categories such as health and beauty shift online, many of our customers are looking for the right mix of channels to serve their shoppers. As people’s shopping habits changed, many of our large retail partners saw a dramatic fall in store shopper traffic in 2020. We supported their efforts to generate more online sales. For example, we’re working closely with health and beauty customers, such as Superdrug and other AS Watson brands, to find the right channel mix and to bring shoppers safely back into stores. We’re also designing products for online shopping and delivery – in 2020, we launched more than 600 new products across 18 markets that were designed for the Amazon shopping experience.

 


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Giving our customers an edge

The digitisation of shopping also brings new opportunities to understand shoppers’ preferences and to help our customers meet them. We’ve renewed our focus on shopper insights to give our customers an edge, expanding the focus of our People Data Centres from helping our brands connect with consumers to helping our customers serve their shoppers better. We’re sharing increasingly sophisticated insights with customers around shopper preferences and behaviours gained through social listening and other tools. This is helping our larger customers make data-driven decisions about how and where best to bring value to shoppers. We partnered with Walmart in the US, for example, to co-create and launch a new bath product range based on insights around people needing ‘me time’ at home during lockdown.

We also worked with our customer partners to find new sources of talent and innovation. We launched a new digital incubator with Alibaba in China that will bring together entrepreneurs, innovators and tech start-ups to create new Beauty & Personal Care brands for a flagship store hosted online. Not only should this lead to better and faster innovation, it will also create a pathway for small and medium-sized entrepreneurs to develop exciting new brands.

Digitising our customer experience

The events of 2020 also fast-forwarded the shift towards digital ordering and fulfilment, particularly for smaller stores which, in many places, were badly affected by a lack of sales and delivery staff at the height of the pandemic. The online ordering from our small retailer servicing apps and web stores skyrocketed – from roughly 350,000 stores at the end of 2019 to an additional 115,000 stores ordering online each month in 2020. By the end of the year, more than 1.4 million stores had moved to our digital small retailer servicing solutions that help in checking inventory and promotions, ordering products and making payments for products purchased. For our customers of all sizes, this shift to digital frees up our sales distributors

 

 

LOGO       

  

 

In focus:

                  
  

 

Making sustainability the

easy choice with Amazon

 

 

In September, Amazon announced its new Climate Pledge Friendly filter which identifies more than 25,000 products across a range of categories that meet certain sustainability certifications. This helps online shoppers find products with a lower environmental footprint, such as our Cif, Dove and Seventh Generation brands.

 
 

We’re also developing more products that qualify for Amazon’s ‘compact by design’ certification – lighter items that use less water and packaging, so need less energy to deliver and to use.

 

 

and representatives on the ground to do more valuable work like helping customers manage our product ranges and helping them serve their shoppers better.

In Brazil, for example, small retailers are scaling their businesses using our Compra Agora app. In Indonesia, we’ve partnered with eCommerce and delivery platform Gojek to launch GoToko, a digital marketplace platform offering comprehensive product ranges (including Unilever brands) at competitive prices. In India, we have expanded the footprint of our Shikhar eB2B platform for Unilever products to over 300,000 stores. And we’ve been partnering with Alibaba since 2016 on an eB2B platform for online ordering and payments that reached over 100,000 small family-owned stores this year. We’re also continuing to work with financial providers like Mastercard to give smaller retailers access to credit in countries such as India and Kenya – see pages 30 to 31 for more on how we’re creating economic opportunities throughout our retail value chain.

Selling with purpose

As consumers’ desire for sustainable brands continues to build, so too does our work with customers to help them meet this need in a variety of ways. We’re working with Amazon, for example, to help shoppers find sustainable brands such as Cif, Dove and Seventh Generation (see bottom left for more). In China, we developed a smart plastic recycling process with Alibaba, involving a pilot of AI-enabled deposit machines to improve efficiency. We launched an in-store refill trial with Asda in the UK, where customers can use touchless refill stations to buy and top up on home care and personal hygiene products, as well as teabags. And we kicked off the Recycled for the Planet initiative with Woolworths in Australia – an interactive shop that helps consumers to think and act more sustainably. For more on how we’re keeping plastic out of the environment, see pages 29 and 58 to 59.

We also partner with our customers on programmes to benefit their communities. In the Philippines, for example, we joined forces with online retailer Lazada to support UNICEF in five countries to raise money for children’s education programmes and partnered with Shopee to help small business owners affected by the pandemic. In the UK, our Pride 2020 range of products for Superdrug helped us raise money as part of a high-visibility Take Pride in You campaign in stores and online to support the LGBTQI+ community.

 

 

 

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26   Unilever Annual Report on Form 20-F 2020

 

LOGO

Suppliers & business partners

In supporting the resilience and growth of our suppliers

and partners around the world, we’re helping our

business succeed.

 

Our supplier ecosystem involves millions of people around the world – from large multinationals to small local producers. We also work with a wide range of business partners, including industry peers, universities and joint ventures to help unlock growth and solve issues for the benefit of our stakeholders. Without our suppliers and partners we can’t run our business. And it’s through our direct suppliers, who provide us with goods and services such as raw materials, logistics, advertising, professional services and much more, that we can most influence change and help our business grow. We partner with around 56,000 suppliers to innovate our products and support mutual and sustainable growth.

An agile pandemic response

The events of 2020 highlighted the strength and agility of our supplier partnerships. By supporting each other during the pandemic, we were able to maintain business continuity in the face of workforce shortages, closed borders and unanticipated surges and drops in demand for product categories. In March, we offered cash flow relief to our smallest and most vulnerable customers and suppliers to help them cope with financial liabilities and maintain livelihoods. We protected employment by, for example, continuing to pay service suppliers – such as cleaners – for three months despite offices being closed. We helped to keep our suppliers functioning by providing them with PPE and creating a supplier webpage with information on hygiene protocols and guidelines for safe practices in light of Covid-19. And we worked side by side with our supply partners to respond to the worldwide need for medical supplies – sourcing 250,000 Covid testing kits, 600 ventilators and millions of masks for places where they were most needed.

 

 

LOGO

Covid-19 has shown both the vulnerabilities and tremendous value of our suppliers and partners. We believe our strong partnerships pave the way to a green recovery and to a more resilient
and agile supply chain.   LOGO                                              

Marc Engel

Chief Supply Chain Officer

Our suppliers provided critical operational support as we responded to extraordinary surges in demand – increasing production volumes as much as 500 times for some personal hygiene products such as hand sanitiser. To meet the spike in demand, we adapted seven Unilever sites and added 54 new third-party manufacturing partners over four months – and worked with PaKLab, one of our existing third-party manufacturers, to develop and produce a new sanitising product for Suave. And we formed cross-industry collaborations to get essential goods to vulnerable areas at speed. For example, we provided 270,000 bottles of surface cleaner to hospitals and neighbourhoods in São Paulo, Brazil, involving Heineken donating the alcohol, partners ALPLA, WestRock and Alemolde producing packaging, and third-party manufacturers producing the cleaner itself.

With borders shut due to lockdown in many of our markets, we also joined forces with suppliers to call on governments to open borders for essential goods such as food, hygiene and cleaning products. Our strong relationships with suppliers all over the world meant that we were able to quickly shift our procurement of essential materials in response to temporary sourcing issues in some countries.

The speed and agility of our supply chain does not come at the expense of safety or product quality. Our long-established Safety & Environmental Assurance Centre (SEAC) works with teams across the business to ensure the safety and environmental sustainability of our products, and the processes used to manufacture them. We have responded to the challenge of Covid-19 by introducing more effective ways of working. We have introduced Quality Expertise ‘support centres’ to provide rapid responses to questions and launched a new digital quality platform to improve the way we collect and manage critical product safety data. And we also continue to closely monitor consumer feedback to ensure that we respond quickly to any emerging issues.

Partnering with purpose

The support of our direct suppliers, who are the gateway to the millions of people in our wider supply chain, is critical to our progress towards key aims such as reducing carbon emissions, stopping deforestation and improving diversity and inclusion. We can only achieve our ambitious goals by bringing our supply partners with us – in doing so, we believe we’re positioning both our business and theirs for growth. Our relaunched Partner for Purpose programme aims to create an open, inclusive ecosystem of supply partners to deliver our innovation, growth and sustainability priorities. As we challenge our existing suppliers to make the necessary changes to step towards our goals, we also support them as they innovate for a better future.

 


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Protecting climate and nature

We announced new goals to achieve net zero carbon emissions from all our products, from sourcing to point of sale, by 2039 and to eliminate deforestation from our supply chain by 2023. Influencing our suppliers and supporting them to make positive changes is key to achieving these goals. After all, the vast majority are emissions from our supply chain or consumers using our products. This is why we’re asking existing suppliers to adopt targets to cut emissions, and why we’re prioritising partnerships with new suppliers who already have science-based emissions targets in place. We’re also supporting suppliers through, for example, the new 1.5°C Supply Chain Leaders initiative. See page 28 for more on how we’re working with suppliers towards our climate and nature goals.

Sustainable sourcing is a cornerstone of our approach to drive sustainability throughout our supply chain, from the largest commodity suppliers to smallholder farmers. It involves raising the standard of agricultural practices to drive social, economic and environmental improvements, often through third-party certification. In 2010, we set a target to source all our raw materials sustainably – and in 2020, 67% of our agricultural raw materials were sustainably sourced compared to 14% in 2010. To maximise our impact, we focused on sustainably sourcing the 12 key crops and commodities – such as palm oil, paper and board, soy, sugar and tea – that make up around two-thirds of our agricultural raw materials. 92% of these key ingredients, including 99.6% of our palm oil, were sustainably sourced in 2020.

Our innovation partners are helping us develop more planet-friendly products and ingredients. For example, we’re working with Evonik on biodegradable cleaning ingredients and with SABIC to develop recycled plastic ice cream tubs for Magnum, rolling out 7 million across Europe in 2020. In our Home Care division, for example, we’re starting to model the impact of different product ingredients on carbon emissions to understand how to reduce our footprint most quickly.

LOGO  See our website for more on sustainable sourcing

 

 

LOGO       

  

 

In focus:

                  
   Technology for transparency  

 

To improve the visibility and traceability of our commodity supply chains, we’re using satellite imagery, geolocation data, blockchain and AI. We’re part of Global Forest Watch, a group of companies developing radar technology to detect deforestation more quickly and accurately. In 2020, we began working with US geospatial analytics specialist Orbital Insight to get data around the ‘first mile’ in our supply chains. Working with Google Cloud, we then refine this data to get accurate images of the forests, biodiversity and water cycles that intersect our supply chain.

 
 

 

LOGO

 

  

 

56,000

direct suppliers in 150 countries

 

Making our supply chain more diverse

Creating a diverse supply chain, not only reduces risk but can also unlock innovation and agility within businesses. We’re aiming to spend 2 billion annually by 2025 with suppliers that are majority-owned, managed and controlled by women, racial or ethnic minorities, LGBTQI+ or people with disabilities. We want our supplier base to reflect the diversity of our consumers – and, with this in mind, are expanding our supplier diversity programmes in North America and South Africa into other regions around the world and building on their successes and learnings.

Our well-established North American programme, for example, identifies opportunities to partner with under-represented groups in businesses. Through initiatives like making sure every tender process includes at least one diverse supplier, our North American business has more than doubled its spend with diverse suppliers since 2017 and was shortlisted for a World Procurement Supplier Diversity & Inclusion award in 2020.

LOGO  See our website for more on inclusion and diversity

Intelligent growth

The need to react quickly to the unexpected, particularly during the early stages of the pandemic, highlighted the increasing importance of technology for an agile and future-fit supplier ecosystem. As we worked alongside suppliers to respond to the surges and falls in demand across different product categories, the value of data insights, smarter sourcing and more real-time visibility of goods and logistics became very clear. This is a critical focus for us – we’re using increasingly sophisticated digital tools to identify new potential innovation partners, bring new suppliers on board, audit suppliers virtually, and monitor logistics and supply risk in real time.

 

 

 

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28   Unilever Annual Report on Form 20-F 2020

 

LOGO

Planet & society

Without natural resources and the millions of

people who source, make and sell our products,

our business simply can’t grow.

 

The interconnection between a healthy natural world and a thriving society was thrown into sharp relief in 2020. By protecting nature and improving health and livelihoods, we will have a positive impact on the planet, on people and, ultimately, on our own business.

Tackling climate change and social inequality have long been at the heart of our sustainability agenda. But more of the same isn’t going to bring emissions down in line with the Paris Agreement, or end poverty. That’s why we’ve set ambitious new targets for improving the health of the planet and contributing to a fairer and more socially inclusive world, with aggressive timelines. And we’re encouraging others – such as our suppliers and industry peers – to take bold steps, since only through working together can we make sustainable living commonplace.

Improving the health of the planet

The damaging effects of climate change and nature loss are becoming more obvious each year. As a large global company with a vision to be the leader in sustainable business, we have an opportunity to not just reduce our impact on the environment but to also have a more positive one. With this in mind, we set new targets to replace the Unilever Sustainable Living Plan (USLP) goals which concluded in 2020. While we have made notable progress in areas we control, such as our own manufacturing, we didn’t achieve as much as we hoped on some of the key environmental issues that involve our suppliers or consumers. For example, we fell short of our water target that involved reductions during consumer use. So we’re building on what we’ve learnt and widening our influence. See page 34 for details of our performance.

Net zero emissions

There’s no doubt that the world needs to decarbonise, and quickly. We intend to lead this transformation and this year announced a new target to achieve net zero emissions from sourcing to point of sale, by 2039. This means removing as much carbon from our operations and supply chain as we can, and only offsetting the remaining emissions as a last resort. In our own manufacturing operations, we’ve reduced CO2 from energy per tonne of production by 75% compared to 2008 and are finding ways to replace fossil fuel energy with renewable energy – 2020 was our first full calendar year that we operated our factories with 100% renewable grid electricity. As a result, our Scope 2 emissions fell by 61% versus last year. And this year, 52% of our total energy use in manufacturing was generated from renewable resources. Across our operations, we have reduced Scope 1 and 2 emissions from energy and refrigerant use by 60% since 2015, mainly due to our accelerated use of renewables and the phasing out of coal from our energy mix, which is now restricted to a small number of factories. We remain committed to fully eliminating coal.

 

             LOGO

We have a responsibility to help tackle the climate crisis: as a business, and through direct

action by our brands.

  LOGO                                     

Alan Jope

Chief Executive Officer

Emissions from our operations are only a small part of our overall footprint. Progress against our target to halve the greenhouse gas impact of our products across the lifecycle has been slower than expected. Since 2010, our greenhouse impact per consumer use has reduced by 10% (against a restated baseline, see page 56 for more). We are making good progress particularly in Foods & Refreshment and Home Care where we have reduced per consumer greenhouse gas emissions since 2010 by 30% and 37% respectively. The per consumer use greenhouse impact of our Beauty & Personal Care Division has increased by 10% over the same period, driven primarily by the acquisition of brands with high greenhouse gas emissions associated with consumer hot water use, including hair and bath/shower products.

We’re working beyond Unilever to get our suppliers on board as we work towards decarbonisation (see page 27). The size and scale of our 400+ brands – their production, use and influence – are some of our strongest levers in our fight against climate change. A focus on planet and people is at the core of each division’s strategy – see pages 20 to 21 for more. Our brands will invest, partner and innovate through our new 1 billion Climate & Nature Fund over the next ten years to remove carbon emissions from the making and use of our products and from the environment. To support consumers who want to lead lower carbon lives, we have also committed to communicate the carbon footprint of every product we sell.

In September we also announced a transformational Clean Future programme for our cleaning and laundry products that will invest an additional 1 billion over the next ten years to remove all fossil-fuel derived carbon from products by moving to 100% renewable or recycled carbon. See page 23 for more.

To help the world move faster towards decarbonisation, we’ve joined the 1.5°C Supply Chain Leaders initiative and endorsed a new SME Climate Hub launched in September. Through this platform, we’ll work with other leading multinationals to help small and medium-sized organisations – both in our supply chain and beyond – put climate strategies into place to reach net zero emissions by 2050.

We continue to report in line with the recommendations of the Task Force on Climate-related Financial Disclosures – see pages 51 to 57 for more. In 2021, we will publish our climate transition action plan

 


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Unilever Annual Report on Form 20-F 2020   29

 

 

and seek a non-binding advisory vote from shareholders on our emissions reduction targets and our plans to achieve them.

LOGO  See our website for more on climate action

A waste-free world

We’re working to reduce plastic pollution through targets focused on an absolute reduction, using more recycled and less virgin plastic, improving the recyclability of our plastic and collecting more plastic than we sell. These build on the progress we’ve made towards our long-held commitment to send zero non-hazardous waste to landfill from our factories, which we maintained again in 2020. Hazardous waste from our factories increased by 23% due to the classification of personal protective equipment in many countries as hazardous, coupled with the closure of waste handling sites. We have made solid year-on-year progress towards our target to halve the waste associated with the disposal of our products – by the end of 2020 we had reduced this by 34%.

The pandemic has brought new challenges in tackling plastic pollution. It is imperative we, and the rest of industry, stay the course. In many cases our brands are stepping up their efforts. Dove has launched new 100% recycled plastic bottles in North America and Europe, Magnum introduced 7 million ice cream tubs made from food-grade recycled plastic, and laundry brand Seventh Generation now has a zero-plastic range.

This isn’t a problem we can solve alone. We are working across our value chain on key issues such as packaging design, collection and new business models. In India, for example, we’re working with the United Nations Development Programme to protect the livelihoods of informal waste collectors and to collect, segregate and recycle plastic packaging. Our CEO co-sponsors the Consumer Goods Forum Plastic Waste Coalition of Action. In March, we signed the European Plastics Pact to accelerate progress towards the reuse and repurposing of plastic. In June, we renewed our strategic partnership with the Ellen MacArthur Foundation, and in October, we signed a manifesto supporting a UN treaty to eliminate plastic pollution from oceans by 2040. See pages 58 to 59 for more about our work on plastic.

LOGO  See our website for more on plastic

 

 

LOGO       

  

 

In focus:

                  
   Brands taking a stand on climate  

 

Our brands are working in a variety of ways to help us move towards our climate commitments. Laundry brand Seventh Generation is investing in initiatives to reduce its carbon emissions. Foods & Refreshment brands like Knorr and more recent acquisitions like The Vegetarian Butcher are working to lower emissions by inspiring more plant-based eating. And Love Beauty and Planet is giving $40 (per tonne of carbon) to a carbon tax fund supporting programmes reducing carbon emissions and landfill waste.

 
 

 

 

LOGO

 

  

 

€1bn

Climate & Nature Fund announced

in June 2020

 

Protecting and regenerating nature

With an agricultural footprint of more than 3 million hectares, we have a responsibility to preserve land for future generations. We’re aiming to achieve this through sustainable sourcing of our key commodities, regenerative agriculture practices and a deforestation-free supply chain, enabled by greater transparency.

We’ve been at the forefront of efforts to tackle commodity-driven deforestation over the last decade. This year, we announced our aim to reach a deforestation-free supply chain by 2023, following on from the original Consumer Goods Forum industry target of zero net deforestation by 2020. To achieve this, we’re focusing our efforts on crops with a high risk: palm oil, soy, paper and board, tea and cocoa. We introduced a new sourcing policy for these materials that clearly lays out our requirements and expectations of our suppliers. We are making progress, particularly with palm oil and soy suppliers. Working with fewer palm oil mills, for example, allows us to better manage traceability and risk. So we’re refining our palm oil mill network from 1,600 to 500 mills by 2023. See page 27 for how we’re using technology to improve the transparency of our supply chain.

While sustainable sourcing and ensuring a deforestation-free supply chain is critical, lasting improvements to the soil and ecosystems we depend on simply won’t happen without more regenerative agricultural practices. To this end, we plan to launch new Regenerative Agriculture Principles in 2021. We’ll use these to set up best practice pilot projects with suppliers to support improvements in soil health, biodiversity, water quality and climate resilience.

Consumers want confidence that the products they’re buying come from suppliers with high environmental and social standards – and being transparent about our supply chain is key to this. We publish lists of our direct suppliers for soy, tea, paper and board – as well as both direct and indirect suppliers for palm (refineries, crushing facilities and mills) and cocoa (cooperatives). We also report publicly on the issues we face with palm oil suppliers so that others can see and act on these insights. This year we suspended 158 palm oil suppliers due to grievances for non-compliance against our palm oil sourcing policy.

Bringing smallholders and farmers on this journey with us is crucial – not just to protect the land and water and ensure the quality of our products, but also to improve social equity and the livelihoods of millions. Since 2011, across all our smallholder programmes, we’ve helped over 832,000 smallholder farmers access initiatives aiming to improve their agricultural practices. And we’re extending our support to help smallholders to diversify their incomes and tackle climate change.

LOGO  See our website for more on protecting nature

 

 

 

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30   Unilever Annual Report on Form 20-F 2020

Planet & society continued

 

 

Protecting water

Access to safe water is a basic human right. It’s become even more critical this year, with the importance of good hygiene in protecting against Covid-19. And water scarcity and climate change are, of course, inextricably linked. While we fell some way short of our 2020 targets for water connected to the consumer use of our products, we made good progress in reducing the water used in manufacturing, cutting this by 49% since 2008 and hitting our 2020 target two years early. We’re continuing to produce and promote products that use less water. And to protect aquatic ecosystems, we’re developing more biodegradable products and are aiming to make our product formulations biodegradable by 2030.

We also work to promote good water management, particularly in water-stressed areas. This year, we announced that we’ll aim to establish water stewardship programmes around 100 sites in water stressed areas by 2030 and have joined the Alliance for Water Stewardship. We’ll build on our success in managing water in our factories to embed good community water management practices in water-stressed countries using what we’ve learned from our Prabhat water stewardship programme in India, which since 2013 has conserved over 50 billion litres of water so far. And, as part of the 2030 Water Resources Group hosted by the World Bank, we’re also working with governments and other stakeholders to improve water resilience across India, Brazil, South Africa, Vietnam and Bangladesh.

LOGO  See our website for more on water stewardship

A fairer and more inclusive world

Our business relies on the millions of people who work in our value chain – including farmers, factory workers, small shop owners, waste recyclers and others. We can only create widescale change by giving people opportunities to improve their livelihoods. So we work to improve people’s health, confidence and wellbeing; to create opportunities for all; and to respect and promote human rights.

This year was hard for many in our value chain, but it reinforced the importance of collaborating with others. We continued to work to eradicate forced labour, particularly in the palm oil industry, including through the Consumer Goods Forum – and to push for fair opportunities and access to rights for all through the Business for Inclusive Growth (B4IG) coalition.

Promoting human rights

Respecting and promoting human rights is a non-negotiable part of working with Unilever. Safe working conditions became even more critical in 2020, particularly for frontline factory workers in our own operations and extended supply chain who were critical in meeting changes in demand due to Covid-19.

We’re continuing to roll out our Responsible Sourcing Policy (RSP), which sets standards on human and labour rights, to all Unilever suppliers – in 2020, 83% of our procurement spend was through suppliers meeting these requirements. While this falls short of our 2020 target, partly due to slower progress during the pandemic,

we remain committed to increasing supplier compliance. We plan to relaunch our RSP in 2021 with an expanded focus on climate and nature. We’re also rolling this out to our suppliers beyond tier 1 (those that directly invoice us), preparing them for our future requirements and encouraging the embedding of rights into more flexible employment models such as the gig economy.

We work with third parties to remediate and improve any poor practices identified through screening or auditing. During 2020, we launched a virtual auditing programme to continue monitoring human rights in our extended supply chain. Those who are unwilling or unable to comply with the RSP – or the Responsible Business Partner Policy which applies to partners who are not suppliers – are subject to delisting.

While there’s still much to be done, we are moving in the right direction – as shown by our joint first ranking in the Corporate Human Rights Benchmark and first ranking in agricultural products industry.

LOGO  See our website for more on human rights

Raising living standards

Paying all workers fairly for the work they do is a fundamental human right. In January 2021, we announced a goal that everyone who directly provides goods and services to Unilever will earn at least a living wage or a living income by 2030. We will specifically focus on the most vulnerable workers in manufacturing and agriculture, working with stakeholders to raise living standards through supplier selection practices, collaboration and advocacy wherever we operate.

We have been working to improve the incomes of small-scale retailers in our distribution network for a number of years. While we missed our original target to reach 5 million small retailers, in 2021 we set a new goal building on the lessons we learned to help 5 million small and medium-sized enterprises in our retail value chain grow their business through access to finance, technology and digital skills by 2025.

LOGO  See our website for more on raising living standards

Opportunities for all

To be a truly inclusive business, we need to make sure women, especially women from under-represented groups, have the same access as men to opportunities. We continue to invest in women’s livelihoods to benefit families and communities, and to grow our business.

A number of our brands, including Sunsilk, TRESemmé, Radiant and Glow & Lovely have developed their brand purpose around skills and confidence-building, particularly focused on women. Glow & Lovely continued to offer scholarships, education and training to Indian women. And our Sunlight dishwashing brand continued its work in Indonesia with UN Women, through the WeLearn online learning platform for women entrepreneurs. Through their efforts, we’ve enabled over 2.6 million women to access initiatives aiming to develop their skills – short of our 5 million goal.

 


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Unilever Annual Report on Form 20-F 2020   31

 

 

Many of the small shops who sell our products are run by women – and, building on initiatives like our Shakti programme, we’re now offering interest-free credit for small shop owners. Our Jaza Duka partnership with Mastercard has helped 20,000 shop owners in Kenya, many of whom are women, access credit through a digital platform.

Our brands are also taking decisive actions to tackle racial discrimination and social injustice. In the US, our brands rallied around a Unilever-led United For America campaign to help the hardest-hit US communities in the wake of the Covid-19 pandemic. This included a United For America X Luminary Fellowship Program, rolled out across several cities, to help women-owned businesses adapt and keep people employed. 80% of the fellowships will go to businesses owned by women of colour. SheaMoisture expanded its support for Black women in the US, announcing a fund for activists promoting social change.

The size of our supply chain gives us the chance to have a significant impact on the lives of under-represented groups through our spending decisions. See page 27 for more on our new diverse supplier commitment. As the world’s second largest advertiser based on our media spend, we can also challenge stereotypes through our advertising. That’s why we have committed to increase the number of advertisements that feature diverse groups of people.

LOGO  See our website for more on inclusion and diversity

Better health and hygiene

Since 2010, Lifebuoy and Domestos have worked extensively to improve hygiene and sanitation for millions of people around the world. Lifebuoy has reached over 1 billion people with its handwashing campaigns – and Domestos, working with UNICEF, has helped more than 29 million people access better sanitation and hygiene (2012 to 2020). This year, we also committed 100 million for donations of soap, sanitiser, bleach and food to help those affected by the pandemic. With the UK’s Foreign, Commonwealth & Development Office, we launched a global handwashing campaign aimed at reaching one billion people, including the donation of over 20 million hygiene products for those with poor sanitation or health systems.

LOGO  See our website for more on health and wellbeing

Healthier eating

Through our biggest food brands like Knorr and Hellmann’s, we continued to promote healthy and affordable diets. We achieved our ambition of doubling the proportion of products meeting the Highest Nutritional Standards (based on globally recognised dietary recommendations), now at 61% of our Foods portfolio. We also continued to reduce the sugar and salt in our products. To continue to raise our ambition levels, a new commitment was agreed to double the number of products sold with micronutrients as well as nutritious ingredients like vegetables, fruit and beans. And we’re adding more plant-based products across our Foods portfolio – we aim to achieve annual sales of 1 billion in plant-based meat and dairy alternatives over the next five to seven years. See page 22 for more.

         LOGO

Our Compass strategy puts sustainability at the heart of our business. We’re setting out to prove that sustainability not only benefits people and planet, but that it also drives superior business

performance.

  LOGO                                                              

Rebecca Marmot

Chief Sustainability Officer

Fortifying our most popular and affordable products is another key area of focus. In 2020, we hit the milestone of providing 100 billion servings of food containing the key micronutrients iron, iodine, zinc and vitamins A and D – halfway to our goal of 200 billion by 2022. Our 2020 acquisition of GSK’s Consumer Healthcare business in South Asia gives us important new products aimed at improving child nutrition and women’s wellbeing, such as the Horlicks range. In recognition of our commitment to nutrition, Hindustan Unilever Limited was ranked joint first in the Access to Nutrition India Spotlight Index 2020.

Our Foods & Refreshment brands continued to encourage nutritious choices through clear labelling, balanced portions and nutritious cooking campaigns, which also supported the many people cooking more at home during the pandemic – see page 21 for more.

LOGO  See our website for more on improving nutrition

 

 

  Sustainability rating

 

  

 

Performance in 2020

 

 S&P Dow Jones Sustainability Index

 Sector: Personal Products

 

  

Score: 90/100 – Industry Leader ‘Gold Status’

 

 CDP    Climate score: A (A List)
 Sector: All sectors    Water score: A (A List)
   Palm oil score: A-
   Soy score: A-
    

Timber score: A-

 

 GlobeScan Sustainability Leaders Survey    Ranked 1st overall

 Sector: All sectors

 

    
 S&P Global Ratings    ESG score: 89/100

 Sector: Consumer Products

 

    
 Sustainalytics    ESG risk rating: Medium

 Sector: Personal Products

 

   ESG management score: Strong
 

 

 

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32   Unilever Annual Report on Form 20-F 2020

 

LOGO

Shareholders

In a volatile and unpredictable year, we have demonstrated

our resilience and agility while delivering a step-up in

competitive performance.

 

This year, we drew on our market agility and our five growth fundamentals to navigate the uncertainty and volatility of the Covid-19 pandemic. Our immediate response to the impact of Covid-19 was to focus on protecting our people, safeguarding supply, responding to new patterns of demand, supporting our communities, and preserving our cash and balance sheet strength.

We demonstrated the resilience of our business in 2020 and unlocked new levels of agility in responding to unprecedented fluctuations in consumer demand and channel dynamics. Our focus on operational excellence and the fundamentals of growth delivered an improvement in competitiveness. And we continued to strengthen our business by unifying our dual-headed legal structure, which will give us more strategic flexibility for portfolio evolution, remove complexity and further strengthen our corporate governance.

Our performance in 2020

In the early days of the pandemic, we decided the best way to manage our business was to refocus on competitive growth and delivering underlying operating profit and free cash flow. We’ve performed well against these objectives – with more than 60% of our business winning market share in the last quarter in the markets that we measure.

Our 2020 profitability was healthy, despite the additional Covid-19 costs. Underlying operating profit of 9.4 billion declined by 5.8% but rose by 0.7% at constant exchange rates. Underlying operating margin fell by 60bps driven by gross margin which declined by 50bps. This includes a negative impact of 90bps from Covid-19, reflecting additional costs in adapting our supply chain and adverse mix.

Meanwhile, our focus on protecting cash and keeping our operations running efficiently led to 7.7 billion of free cash flow. This increase of 1.5 billion was driven by favourable movements in working capital, as we increased our focus on payments from our customers (receivables) and rephased our capital expenditure in light of Covid-19.

We grew underlying sales by 1.9% in 2020, with volumes growing 1.6% and 0.3% from price. Category and demand patterns varied throughout the year and by market, driven by the differing status of lock-down restrictions.

 

 

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1.9%

underlying sales growth in 2020

 

Our turnover decreased by 2.4%, primarily driven by a negative currency impact of 5.4%, with a positive impact of 1.2% from acquisitions net of disposals. Our eCommerce sales grew by 61% as we captured demand in online channels – and is now 9% of Unilever’s sales. See pages 36 to 37 for more on Divisional, category and market performance.

Our strategic choices for future success

In early 2021, we set out in detail the Unilever Compass strategy to deliver our vision. It guides our decisions and actions in five key areas: portfolio, brands, markets, channels and culture. All of this is underpinned by our focus on creating value through our multi-year financial framework.

1. Developing our portfolio into high growth spaces

We hold clear global leadership positions in six categories; and in a seventh, we lead in terms of volume sold but not yet value. More than 50% of our global turnover comes from our 13 biggest brands, each generating more than 1 billion of sales in 2020.

We’re building on this by continuing to evolve our portfolio in higher growth areas such as hygiene, prestige beauty, plant-based foods and functional nutrition – this will continue to influence the choices we make for organic investment as well as acquisitions and disposals. In 2020, we continued to expand our portfolio in functional nutrition through the acquisition of iconic health food drinks brands Horlicks and Boost as well as SmartyPants Vitamins and Liquid I.V. (see page 20 for more).

During the year, we also conducted a strategic review of our global tea business – which includes brands such as Lipton, Brooke Bond and PG Tips – concluding that we would separate out the tea business as we evolve our portfolio (with the exception of our business in India and Indonesia and the partnership interests in the ready-to-drink tea joint ventures).

 


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2. Winning with our brands as a force for good, powered by purpose and innovation

We have a long track record as a leader in sustainability. We’re continuing to lead the way in sustainable business – ramping up our commitments on climate, nature and creating a fairer world (see pages 10 to 11 for more). We’re embedding these commitments at the heart of our divisional, category and brand agendas.

Our purposeful brands are key to delivering our sustainability ambitions and they are starting to cut through. Consumers now see 60% of our brands as more purposeful, taking meaningful, tangible action on issues that they care deeply about. We’re innovating to ensure our brands also excel through their quality and efficacy. See the consumer review on pages 20 to 23 for more examples of brands with purpose and innovation.

3. Accelerating in the USA, India, China and key growth markets

We have strong brand and category positions in major markets such as the US and China and a market leadership position in India – together these three countries represent nearly 35% of our turnover today and are forecast to account for over half of global GDP growth by 2030. Beyond these three key markets lies much opportunity in key growth markets of the future – for example our strong operating businesses in Brazil, Indonesia, Philippines, Thailand and Mexico, each deliver more than 1 billion in sales every year – and we’re continuing to build on our unrivalled route-to-market strength in these and other expanding markets.

 

 

LOGO       

  

 

In focus:

                  
   Our multi-year financial framework  

 

We will deliver long-term value creation by continuing to evolve our portfolio and driving earnings growth, a strong cash flow and a growing dividend. We expect to do this through:

  Underlying sales growth ahead of our markets, delivering

USG in the range of 3% to 5%

  Profit growth ahead of sales growth, on a comparable

basis

  Sustained strong cash flow over the long term

  Savings of 2 billion per year from our well-established

Fuel for Growth savings programmes

  Restructuring investment of around 1 billion for 2021 and

2022; lower thereafter

  ROIC in the mid-to-high teens

  Net debt to underlying EBITDA at around 2x

 
 

 

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€7.7bn

free cash flow in 2020

 

4. Leading in the channels of the future

We’re designing for growth channels like eCommerce through focused channel teams working to make sure we have the right portfolio and execution with strategies based on deep shopper insights. Our eCommerce focused innovations include smart packaging solutions designed for home delivery.

The right portfolio for eCommerce must be supported by operations built for this channel, from demand-anticipating algorithms to fast order fulfilment, and we’re becoming more agile throughout our supply chain and operations. The explosion of eCommerce is also transforming the decades-old distributive trade and bringing new opportunities for our eB2B programmes. See the customers, suppliers and business partners review on pages 26 to 27 for more.

5. Building a purpose-led, future-fit organisation and growth culture

Our people are key to delivering our strategy, so we’re focusing on our capacity, capability and culture. Agile ways of working and digital transformation are allowing us to find new capacity and refocus our people on the highest value work. We’re equipping our employees with the skills they’ll need to adapt to a changing world of work and to continue to grow our business. See pages 16 to 19 for more on our people.

We’re continuing to unlock fuel for growth through our established savings programmes like 5S (a holistic programme covering pricing, product sourcing and product design) and zero-based budgeting, as well as our organisational change programmes.

In 2021 and beyond, we will continue to demonstrate how sustainable business drives superior performance – building on our strengths that position us well for the consumer and demographic trends of the future, and delivering on our strategic choices to create long-term value for all our stakeholders.

 

 

 

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34   Unilever Annual Report on Form 20-F 2020

 

Our performance

We measure our success by tracking both non-financial

and financial key performance indicators.

Non-financial performance

 

      Target    2020    2019    2018

Improving health & wellbeing

           

Health & hygiene Target: By 2020 we will help more than a billion people to improve their health and hygiene. This will help reduce the incidence of life-threatening diseases like diarrhoea(a)

   1 billion    On ground
reach:
625 million
   On ground
reach:
615 million
   On ground
reach:
570 million
         

TV reach:

715 million

  

TV reach:

710 million

  

TV reach:

670 million

Nutrition Target: By 2020 we will double (i.e. up to 60%) the proportion of our portfolio that meets the Highest Nutritional Standards, based on globally recognised dietary guidelines

   60%    61%    56%à    48%

Reducing environmental impact

           

Greenhouse gases Target: Halve the greenhouse gas impact of our products across the lifecycle (from the sourcing of the raw materials to the greenhouse gas emissions linked to people using our products) by 2030 (greenhouse gas impact per consumer use; 2010 baseline)(c)(d)

   (50%)    (10%)    (8%)(b)à    (3%)(b)

Target: By 2020 CO2 emissions from energy from our factories will be at or below 2008 levels (£145.92) despite significantly higher volumes (reduction in CO2 from energy in kg per tonne of production since 2008)*

   £145.92    36.94    50.76à    70.46D

Water Target: Halve the water associated with the consumer use of our products by 2020 (water impact per consumer use; 2010 baseline)(c)

   (50%)    0%    1%à    (2%)

Target: By 2020 water abstraction by our global factory network will be at or below 2008 levels (£2.97) despite significantly higher volumes (reduction in water abstraction in m³ per tonne of production since 2008)*

   £2.97    1.52    1.58à    1.67D

Waste Target: Halve the waste associated with the disposal of our products by 2020 (waste impact per consumer use; 2010 baseline)(c)

   (50%)    (34%)    (32%)    (31%)

Target: By 2020 total waste sent for disposal will be at or below 2008 levels (£7.91) despite significantly higher volumes (reduction in total waste in kg per tonne of production since 2008)*

   £7.91    0.34    0.30à    0.23(e)

Sustainable sourcing Target: By 2020 we will source 100% of our agricultural raw materials sustainably (% of tonnes purchased)

   100%    67%    62%à    56%

Enhancing livelihoods

           

Fairness in the workplace Target: By 2020 we will advance human rights across our operations and extended supply chain, by:

                   

•  Sourcing 100% of procurement spend from suppliers meeting the mandatory requirements of the Responsible Sourcing Policy (% of spend of suppliers meeting the Policy)

   100%    83%    70%    61%D

•  Reducing workplace injuries and accidents by 50%, from 2.10 accidents per 1 million hours worked in 2008 (reduction in Total Recordable Frequency Rate of workplace accidents per million hours worked since 2008)*

   1.05    0.63    0.76(f)à    0.69D

Opportunities for women Target: By 2020 we will empower 5 million women, by:

                   

•  Promoting safety for women in communities where we operate (number of women)

           

•  Enhancing access to training and skills (number of women)

   5 million    2.63  million(g)    2.34 million    1.85  millionD

•  Expanding opportunities in our value chain (number of women)

                   

•  Building a gender-balanced organisation with a focus on management (% of managers that are women)*

   50%    50%    51%    49%D

Inclusive business Target: By 2020 we will have a positive impact on the lives of 5.5 million people by:

                   

•  Enabling 5 million small-scale retailers to access initiatives aiming to improve their income (number of small-scale retailers since 2015)

   5 million    1.83 million(g)    1.81 millionà    1.73 million

•  Enabling 500,000 smallholder farmers to access initiatives aiming to improve their agricultural practices (number of smallholder farmers since 2011)

   0.50 million    0.83 million(g)    0.79 millionà    0.75 million

 

*

Key Non-Financial Indicators.

PwC assured in 2020. For details and 2020 basis of preparation see www.unilever.com/investor-relations/annual-report-and-accounts

à

PwC assured in 2019. For details and 2019 basis of preparation see www.unilever.com/planet-and-society/sustainability-reporting-centre/reporting-archive

D

PwC assured in 2018. For details and 2018 basis of preparation see www.unilever.com/planet-and-society/sustainability-reporting-centre/reporting-archive

(a)

The number of people reached through TV advertisements and programmes aimed at encouraging health and hygiene behaviour change (‘TV reach’) includes Signal, Dove and Lifebuoy.

(b)

We have restated the change in our GHG emissions ‘per consumer use’ for prior years as a result of incorporating new data relating to the usage of our products, which changed the estimated GHG emissions in our 2010 baseline. See page 56 for more information.

(c)

Brackets around our GHG, waste and water footprints indicate that we have reduced our footprints by the numbers quoted.

(d)

Target approved by the Science Based Targets initiative.

(e)

Restated from 0.20 kg/tonne of production due to a classification error during the data reporting process.

(f)

2019 Total Recordable Frequency Rate (TRFR) included for the first time all acquisitions which operate as decentralised business units, as we now have processes in place to collect the data. Had we included these acquisitions in 2018, our reported TRFR would have been approximately 6% higher.

(g)

Around 592,000 women have accessed initiatives under both the Inclusive business and the Opportunities for women pillars in 2020.


Table of Contents
Unilever Annual Report on Form 20-F 2020   35

 

Financial performance

 

                                                                                      
     2020     2019     2018  

Group

      

Turnover growth
Turnover growth averaged (0.9)% over five years

     (2.4%     2.0%       (5.1%

Underlying sales growth*
Underlying sales growth averaged 2.9% over five years

     1.9%       2.9%       3.2%  

Underlying volume growth*
Underlying volume growth averaged 1.3% over five years

     1.6%       1.2%       1.9%  

Operating margin

     16.4%       16.8%       24.8%  

Underlying operating margin*

     18.5%       19.1%       18.6%  

Free cash flow*

     €7.7 billion       6.1 billion       5.4 billion  

Cash flow from operating activities

     €10.9 billion       10.6 billion       9.6 billion  

Net cash flow (used in)/from investing activities

     (€1.5) billion       (2.2) billion       4.6 billion  

Net cash flow (used in)/from financing activities

     (€5.8) billion       (4.7) billion       (12.1) billion  

Divisions

                        

Beauty & Personal Care

                        

Turnover

     €21.1 billion       21.9 billion       20.6 billion  

Turnover growth

     (3.4%     6.0%       (0.3%

Underlying sales growth

     1.2%       2.6%       3.4%  

Operating margin

     20.4%       20.7%       20.2%  

Underlying operating margin

     21.7%       22.7%       22.0%  

Foods & Refreshment

                        

Turnover

     €19.1 billion       19.3 billion       20.2 billion  

Turnover growth

     (0.8%     (4.6%     (9.9%

Underlying sales growth

     1.3%       1.5%       2.2%  

Operating margin

     14.4%       14.6%       36.0%  

Underlying operating margin

     17.0%       17.5%       17.7%  

Home Care

                        

Turnover

     €10.5 billion       10.8 billion       10.1 billion  

Turnover growth

     (3.4%     6.9%       (4.2%

Underlying sales growth

     4.5%       6.1%       4.7%  

Operating margin

     11.9%       12.7%       11.7%  

Underlying operating margin

     14.5%       14.8%       13.3%  

 

*

Key Financial Indicators.

Underlying sales growth, underlying volume growth, underlying operating margin and free cash flow are non-GAAP measures. For further information about these measures, and the reasons why we believe they are important for an understanding of the performance of the business, please refer to our commentary on non-GAAP measures on pages 39 to 43.

 

 

LOGO

 


Table of Contents
36   Unilever Annual Report on Form 20-F 2020

 

Financial review

 

 

2020 performance

The Group generated turnover of 50.7 billion, operating profit of 8.3 billion, net profit of 6.1 billion and free cash flow of 7.7 billion.

Turnover declined by 2.4%. This included an unfavourable currency impact of 5.4% driven by weakening of currencies in our key markets such as Brazil, Argentina and India. Underlying sales growth contributed 1.9% to turnover. Covid-19 had a significant impact on consumer behaviour and on the performance of a number of our categories. There was growth in hand and home hygiene, laundry products and in-home food and refreshment. However sales in personal care except for hygiene products were adversely impacted. Food solutions and out of home ice cream sales declined, impacted by channel closures. Overall acquisition and disposal activities made a positive contribution of 1.2% to turnover mainly from the health food drinks portfolio acquired from GlaxoSmithKline. This included brands such as Horlicks and Boost. This acquisition along with the acquisitions of Liquid IV and SmartyPants Vitamins in the USA, increased Unilever’s presence in functional nutrition. More details on acquisitions and disposals are in note 21 on pages 162 to 165.

Emerging markets underlying sales grew by 1.2%. In China and India sales were severely impacted by strict lockdowns at the beginning of the year but returned to growth in the second half. Latin America grew mid-single digit and Indonesia grew slightly. Developed markets underlying sales grew by 2.9% led by a strong performance in North America in-home foods. Europe declined by 1.0% for the full year due to a continued deflationary retail environment and a decline in out of home

ice cream, but returned to growth in the final quarter. Globally, eCommerce grew by 61% during the year and now accounts for 9% of Unilever sales.

Operating profit was 8.3 billion which included 1.1 billion of non-underlying items, primarily restructuring costs. Restructuring costs are comprised of supply chain optimisation projects to improve gross margin and improve network agility, and organisational change projects to reduce overheads. The Supply Chain investments were concentrated in the manufacturing and logistics networks, particularly in Europe and the Americas.

Underlying operating profit was 9.4 billion, a decrease of 5.8%. This included an unfavourable currency impact of 6.5%. Underlying operating margin decreased by 60bps. Gross margin decreased by 50bps which included a negative impact of 90bps from the additional costs needed to adapt and run our supply chain plus an adverse product mix impact as a result of changes in consumer behaviour relating to Covid-19. Brand and marketing investment as a percentage of turnover was flat year on year. While investment was conserved in the first half during the early lockdown periods, we invested strongly behind our brands in the second half. Overheads increased by 10bps reflecting an adverse currency impact.

Free cash flow was 7.7 billion in 2020 compared to 6.1 billion in the prior year. The improvement was led by favourable working capital movements as well as lower capital expenditure following re-phased investment to preserve cash and supply flexibility in light of Covid-19.

 

 

Highlights for the year ended   
                     Beauty &  Personal Care                                 Foods & Refreshment                                                 Home Care                                                     Group  
      2020      2019             2020      2019             2020     2019             2020      2019  
Turnover ( million)      21,124        21,868                19,140        19,287                10,460       10,825                50,724        51,980  
Underlying sales growth (%)      1.2        2.6                1.3        1.5                4.5       6.1                1.9        2.9  
Underlying volume growth (%)      1.2        1.7                0.1        (0.2              5.1       2.9                1.6        1.2  
Underlying price growth (%)             0.9                1.1        1.7                (0.6     3.1                0.3        1.6  
Operating profit ( million)      4,311        4,520                2,749        2,811                1,243       1,377                8,303        8,708  
Underlying operating profit ( million)      4,591        4,960                3,257        3,382                1,519       1,605                9,367        9,947  
Operating margin (%)      20.4        20.7                14.4        14.6                11.9       12.7                16.4        16.8  
Underlying operating margin (%)      21.7        22.7                17.0        17.5                14.5       14.8                18.5        19.1  
Return on assets (%)      140        124                69        61                129       99                102        89  
Free cash flow ( million)                                                                                   7,671        6,132  


Table of Contents
Unilever Annual Report on Form 20-F 2020   37

 

 

Divisional review

Beauty & Personal Care

Turnover declined by 3.4% including an unfavourable currency impact of 5.4%. Underlying sales growth was 1.2% and there was a positive contribution of 0.9% from acquisition and disposal activities.

Skin cleansing saw mid-teens volume-led growth which was driven by the important role of hand hygiene in combatting the spread of Covid-19. Our Lifebuoy hygiene brand grew by over 50%, launching ‘H is for Handwashing’, an educational campaign to teach children the importance of handwashing with soap. Lockdowns and restricted living in our markets led to lower demand for skin care, deodorants and hair care, which each saw volume and price declines. Skin care declined high-single digit and deodorants declined mid-single digit. In hair care, growth in wash and care partially offset a decline in styling products, leading to a low-single digit decline overall. Oral care grew with price growth more than offsetting negative volumes driven by supply disruption related to lockdowns in key markets. Our Prestige Beauty business was impacted by health and beauty salon and retail closures, and declined low single digit. Prestige eCommerce performed strongly and over 50% of Prestige Beauty sales are now through eCommerce.

Underlying operating profit decreased by 369 million. This was due to a 169 million impact from the decline in turnover and 200 million from increased costs related to Covid-19 and an adverse product mix impact partially offset by a reduction in brand and marketing investment, as we conserved spend during lockdown periods, before significantly stepping up investment in the second half. Non-underlying items were 280 million, 160 million lower than prior year due to lower restructuring costs. Operating profit decreased by 209 million.

Foods & Refreshment

Turnover declined by 0.8% including an unfavourable currency impact of 4.2%. Underlying sales growth was 1.3% and there was a positive contribution of 2.3% from acquisitions and disposals.

Our retail foods business grew double digit, as restricted living led to more in-home eating occasions. Hellmann’s grew high-single digit, supported by its Stay In(spired) campaign, and our plant-based brand The Vegetarian Butcher grew by over 70%. Food solutions declined by 30% as out of home channels remained closed for much of the year. Despite significant decline in the out of home business due to channel closures, ice cream grew slightly overall as we rapidly shifted resources towards the in-home business. Ben and Jerry’s performed strongly, teaming up with Netflix on its new ‘Netflix and Chill’d’ variant. Tea grew low single digit.

Underlying operating profit decreased by 125 million. This was due to a 35 million impact from the decline in turnover and 90 million from increased costs related to Covid-19, an adverse product mix impact and higher commodity costs in the second half of the year. Non-underlying items were 508 million primarily related to restructuring and were 63m lower than prior year. Operating profit decreased by 62 million.

Home Care

Turnover declined by 3.4% including an unfavourable currency impact of 7.5% partially offset by underlying sales growth of 4.5%.

Our home and hygiene brands delivered high-teens volume-led growth as we responded to increased demand for products with germ-killing and antibacterial benefits. Domestos grew by over 25% as we launched the brand in China and introduced spray and wipe formats. Our living hygiene range of local brands grew over 50%, led by Lysoform’s educational campaigns in Italy. Within the fabric category, fabric solutions declined slightly, driven by lower consumer prices as we passed on some of the benefits of reduced commodity costs in the second half of the year. Capsules and liquids continued to grow. Low-single digit growth in fabric sensations was led by Indonesia and by Turkey, where our relaunched Snuggle (Yumos) brand performed well.

Underlying operating profit decreased by 86 million. This was due to a 54 million impact from the decline in turnover and 32 million from increased brand and marketing investment as we invested strongly behind our brands in the second half of the year. Overheads and gross margin improved, helped by lower material costs, despite Covid-19 related costs and negative price. Non-underlying items were 276 million, 48 million higher than prior year due to higher restructuring costs. Operating profit decreased by 134 million.

 

 

 

LOGO

 


Table of Contents
38   Unilever Annual Report on Form 20-F 2020

Financial review continued

 

 

Cash flow

Cash flow from operating activities increased by 0.3 billion primarily as a result of a 0.7 billion favourable working capital movement, partially offset by a decrease in operating profit of 0.4 billion. The working capital movement was driven by a focus on receivables with a cash inflow of 1.1 billion as well as a cash inflow from payables, partially offset by a cash outflow for inventories of 0.6 billion due to additional safety stock of high priority products and raw materials during the Coivid-19 pandemic.

 

     

            € million

2020

   

         million

2019

 
Operating profit      8,303       8,708  
Depreciation, amortisation and impairment      2,018       1,982  
Changes in working capital      680       (9
Pensions and similar obligations less payments      (182     (260
Provisions less payments      (53     7  
Elimination of (profits)/losses on disposals      60       60  
Non-cash charge for share-based compensation      108       151  
Other adjustments      (1     2  
Cash flow from operating activities      10,933       10,641  
Income tax paid      (1,875     (2,532
Net capital expenditure      (932     (1,429
Net interest and preference dividends paid      (455     (548
Free cash flow*      7,671       6,132  
Net cash flow (used in)/from investing activities      (1,481     (2,237
Net cash flow (used in)/from financing activities      (5,804     (4,667

 

*

Certain measures used in our reporting are not defined under IFRS. For further information about these measures, please refer to the commentary on non-GAAP measures on pages 39 to 43.

Income tax paid decreased by 0.7 billion compared to the prior year partly due to the Spreads disposal in the prior year and the impact of currency.

Net cash flow used in investing activities was 1.5 billion compared to 2.2 billion in the prior year. Capital expenditure decreased following re-phased investment to preserve cash and supply flexibility in light of Covid-19.

Net out flow from financing activities was 5.8 billion compared to 4.7 billion in the prior year. In 2020 borrowings net of repayments was 1.1 billion higher than in the prior year.

Balance sheet

 

     

            € million

2020

    

         million

2019

 
Goodwill and intangible assets      34,941        31,029  
Other non-current assets      16,561        17,347  
Current assets      16,157        16,430  
Total assets      67,659        64,806  
Current liabilities      20,592        20,978  
Non-current liabilities      29,412        29,942  
Total liabilities      50,004        50,920  
Shareholders’ equity      15,266        13,192  
Non-controlling interest      2,389        694  
Total equity      17,655        13,886  
Total liabilities and equity      67,659        64,806  

Goodwill and intangible assets were 34.9 billion, an increase of 3.9 billion compared to the prior year mainly as a result of acquisitions which contributed 6.6 billion, partially offset by a

currency impact of 2.5 billion. The Main Horlicks Acquisition was the primary driver of the increase in goodwill and intangible assets. Total consideration paid was 5,294 million of which 449 million was paid in cash and 4,845 million paid in shares of Hindustan Unilever Limited. Intangible assets and goodwill arising from this acquisition were 3.3 billion and 2.0 billion respectively. See note 21 on page 162 to 165 for more.

Other non-current assets decreased by 0.8 billion as a result of re-phased capital expenditure investment and the impact of currency. Current assets decreased by 0.3 billion driven by the 1.8 billion decrease in trade and other current receivables offset by an increase in cash and cash equivalents of 1.4 billion due to stronger than expected cash delivery and additional bond issuance to build up cash ahead of 2021 bond maturities.

Non-controlling interest increased by 1.7 billion relating to the Main Horlicks Acquisition which was partly settled through the issue of new shares of Hindustan Unilever to GlaxoSmithKline.

Movement in net pension liability/asset

The table below shows the movement in net pension liability/ asset during the year. Pension assets net of liabilities were in surplus of 0.3 billion at the end of 2020 compared with a deficit of 0.2 billion at the end of 2019. Strong positive investment performance was offset by an increase in liabilities as interest rates fell. There were refinements in assumption methodologies to reflect changes being made more generally by corporates and their advisers in setting discount rates and future inflation rates, specifically in the UK, which resulted in a 0.9 billion lower liability.

 

     

        € million

2020

 
1 January      (196
Current service cost      (223
Employee contributions      17  
Actual return on plan assets (excluding interest)      1,494  
Net interest cost      (9
Actuarial loss      (1,246
Employer contributions      398  
Currency retranslation      78  
Other movements(a)      (26
31 December      287  

 

(a)

Other movements relate to special termination benefits, changes in asset ceiling, past service costs including losses/(gains) on curtailment, settlements and other immaterial movements. For more details see note 4B on pages 123 to 129.

Finance and liquidity

Approximately 3.0 billion (or 54%) of the Group’s cash and cash equivalents are held 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 in notes 16, 16A, 16B and 16C on pages 149 to 155. The remaining 2.5 billion (or 46%) 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 which are in some cases subject to withholding or distribution tax. This balance includes 98 million (2019: 146 million, 2018: 154 million) of cash that is

 


Table of Contents
Unilever Annual Report on Form 20-F 2020   39

 

 

held in a few countries where 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 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 2020 were $7,965 million.

Contractual obligations at 31 December 2020

 

      € million
2020
      million
Due
within
1 year
      million
Due in
1-3
years
      million
Due in
3-5
years
      million
Due in
over
5 years
 
Bonds      22,902        1,639        4,690        4,988        11,585  
Commercial paper, bank and other loans      2,280        2,271        8               1  
Interest on financial liabilities      3,235        429        755        616        1,435  
Lease liabilities      2,098        442        644        421        591  
Other lease commitments      158        69        56        24        9  
Purchase obligations(a)      400        343        47        7        3  
Other long-term commitments      1,156        501        493        147        15  
Other financial liabilities      236        117        45        74         
         
Total      32,465        5,811        6,738        6,277        13,639  

 

(a)

For raw and packaging materials and finished goods.

Further details are set out in the following notes to the consolidated financial statements: note 10 on pages 137 to 139, note 15C on page 147 and 148, and note 20 on page 161. 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.

Guaranteed US debt securities

At 31 December 2020 the Group had in issue US$11.5 billion (2019: US$12.35 billion; 2018: US$12.5 billion) bonds in connection with a US shelf registration. See page 203 for more information on these bonds and related commentary on guarantor information.

Non-GAAP measures

Certain discussions and analyses set out in this Annual Report and Accounts (and the Additional Information for US Listing Purposes) include measures which are not defined by generally accepted accounting principles (GAAP) such as IFRS. We believe this information, along with comparable GAAP measurements, is useful to investors because it provides a basis for measuring our operating performance, and our ability to retire debt and invest in new business opportunities. Our management uses these financial measures, along with the most directly comparable GAAP financial measures, in evaluating our operating performance and value creation. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP. Wherever appropriate and practical, we provide

reconciliations to relevant GAAP measures.

Explanation and reconciliation of non-GAAP measures

Unilever uses ‘constant rate’ and ‘underlying’ measures primarily for internal performance analysis and targeting purposes. We present certain items, percentages and movements, using constant exchange rates, which exclude the impact of fluctuations in foreign currency exchange rates. We calculate constant currency values by translating both the current and the prior period local currency amounts using the prior year average exchange rates into euro, except for the local currency of entities that operate in hyperinflationary economies. These currencies are translated into euros using the prior year closing exchange rate before the application of IAS 29.

The table below shows exchange rate movements in our key markets.

 

      Annual
average
rate in 2020
     Annual
average
rate in 2019
 
Brazilian real (1 = BRL)      5.781        4.367  
Chinese yuan (1 = CNY)      7.862        7.725  
Indian rupee (1 = INR)      84.100        78.812  
Indonesia rupiah (1 = IDR)      16557        15863  
Philippine peso ( 1 = PHP)      56.447        58.112  
UK pound sterling (1 = GBP)      0.888        0.880  
US dollar (1 = US$)      1.135        1.120  

In the following sections we set out our definitions of the following non-GAAP measures and provide reconciliations to relevant GAAP measures:

  underlying sales growth;
  underlying volume growth;
  underlying price growth;
  non-underlying items;
  underlying earnings per share;
  underlying operating profit and underlying operating margin;
  underlying effective tax rate;
  constant underlying earnings per share;
  free cash flow;
  return on assets;
  net debt; and
  return on invested capital.

Underlying sales growth

Underlying Sales Growth (USG) refers to the increase in turnover for the period, excluding any change in turnover resulting from acquisitions, disposals, changes in currency and price growth in excess of 26% in hyperinflationary economies. Inflation of 26% per year compounded over three years is one of the key indicators within IAS 29 to assess whether an economy is deemed to be hyperinflationary. We believe this measure provides valuable additional information on the underlying sales performance of the business and is a key measure used internally. The impact of acquisitions and disposals is excluded from USG for a period of 12 calendar months from the applicable closing date. Turnover from acquired brands that are launched in countries where they were not previously sold is included in USG as such turnover is more attributable to our existing sales and distribution network than the acquisition itself.

 

 

 

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Table of Contents
40   Unilever Annual Report on Form 20-F 2020

Financial review continued

 

The reconciliation of changes in the GAAP measure of turnover to USG is as follows:

 

2020 vs 2019 (%)    Beauty &
Personal Care
    Foods &
Refreshment
                Home
Care
    Total
            Group
 
Turnover growth(a)      (3.4     (0.8     (3.4     (2.4
Effect of acquisitions      0.9       2.7       0.2       1.4  
Effect of disposals      -       (0.4     (0.2     (0.2
Effect of currency-related items,      (5.4     (4.2     (7.5     (5.4
of which:                                 
       

Exchange rate changes

     (5.6     (4.6     (7.8     (5.7
   

Extreme price growth in hyperinflationary markets(b)

     0.2       0.5       0.3       0.3  
Underlying sales growth(b)      1.2       1.3       4.5       1.9  
         
2019 vs 2018 (%)                             
Turnover growth(a)      6.0       (4.6     6.9       2.0  
Effect of acquisitions      0.9       0.6       0.3       0.7  
Effect of disposals      -       (7.5     -       (3.0
Effect of currency-related items,      2.4       1.0       0.4       1.5  
of which:                                 
       

Exchange rate changes

     1.7       (3.5     (0.3     (0.7
   

Extreme price growth in hyperinflationary markets(b)

     0.6       4.7       0.7       2.2  
Underlying sales growth(b)      2.6       1.5       6.1       2.9  
         
2018 vs 2017 (%)                             
Turnover growth(a)      (0.3     (9.9     (4.2     (5.1
Effect of acquisitions      3.9       0.8       0.5       2.0  
Effect of disposals            (7.2     (0.2     (3.0
Effect of currency-related items,      (7.2     (5.8     (8.8     (7.0
of which:                                 
       

Exchange rate changes

     (8.1     (47.7     (9.1     (29.4
   

Extreme price growth in hyperinflationary markets(b)

     1.0       79.1       0.4       31.7  
Underlying sales growth(b)      3.4       2.2       4.7       3.2  

 

(a)

Turnover growth is made up of distinct individual growth components, namely underlying sales, currency impact, acquisitions and disposals. Turnover growth is arrived at by multiplying these individual components on a compounded basis as there is a currency impact on each of the other components. Accordingly, turnover growth is more than just the sum of the individual components.

(b)

Underlying price growth in excess of 26% per year in hyperinflationary economies has been excluded when calculating the underlying sales growth in the tables above, and an equal and opposite amount is shown as extreme price growth in hyperinflationary markets.

 

Underlying price growth

Underlying price growth (UPG) is part of USG and means, for the applicable period, the increase in turnover attributable to changes in prices during the period. UPG therefore excludes the impact to USG due to (i) the volume of products sold; and (ii) the composition of products sold during the period. In determining changes in price we exclude the impact of price growth in excess of 26% per year in hyperinflationary economies as explained in USG above.

Underlying volume growth

Underlying volume growth (UVG) is part of USG and means, for the applicable period, the increase in turnover in such period calculated as the sum of (i) the increase in turnover attributable to the volume of products sold; and (ii) the increase in turnover attributable to the composition of products sold during such period. UVG therefore excludes any impact on USG due to changes in prices.

The relationship between USG, UVG and UPG is set out below:

 

      2020 vs
2019
             2019 vs
2018
             2018 vs
2017
 
Underlying volume growth (%)      1.6        1.2        1.9  
Underlying price growth (%)      0.3        1.6        1.2  
Underlying sales growth (%)      1.9        2.9        3.2  

Refer to page 36 for the relationship between USG, UVG and UPG for each of the divisions.

Non-underlying items

Several non-GAAP measures are adjusted to exclude items defined as non-underlying due to their nature and/or frequency of occurrence.

  Non-underlying items within operating profit are: gains or losses on business disposals, acquisition and disposal related costs, restructuring costs, impairments and other items within operating profit classified here due to their nature and frequency.
  Non-underlying items not in operating profit but within net profit are: net monetary gain/(loss) arising from hyperinflationary economies and significant and unusual items in net finance cost, share of profit/(loss) of joint ventures and associates and taxation.
  Non-underlying items are both non-underlying items within operating profit and those non-underlying items not in operating profit but within net profit.

Refer to note 3 for details of non-underlying items.

 


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Unilever Annual Report on Form 20-F 2020   41

 

 

Underlying operating profit and underlying operating margin

Underlying operating profit and underlying operating margin mean operating profit and operating margin before the impact of non-underlying items within operating profit. Underlying operating profit represents our measure of segment profit or loss as it is the primary measure used for making decisions about allocating resources and assessing performance of the segments.

The Group reconciliation of operating profit to underlying operating profit is as follows:

 

      € million
2020
     million
2019
     million
2018
 
Operating profit      8,303       8,708       12,639  
Non-underlying items within operating profit (see note 3)      1,064       1,239       (3,176
Underlying operating profit      9,367       9,947       9,463  
Turnover      50,724       51,980       50,982  
Operating margin      16.4     16.8     24.8
Underlying operating margin      18.5     19.1     18.6

Further details of non-underlying items can be found in note 3 on page 121 of the consolidated financial statements.

Refer to note 2 on page 119 for the reconciliation of operating profit to underlying operating profit by Division. For each Division operating margin is computed as operating profit divided by turnover and underlying operating margin is computed as underlying operating profit divided by turnover.

Underlying earnings per share

Underlying earnings per share (underlying EPS) is calculated as underlying profit attributable to shareholders’ equity divided by the diluted average number of ordinary shares. In calculating underlying profit attributable to shareholders’ equity, net profit attributable to shareholders’ equity is adjusted to eliminate the post-tax impact of non-underlying items. This measure reflects the underlying earnings for each share unit of the Group. Refer to note 7 for reconciliation of net profit attributable to shareholders’ equity to underlying profit attributable to shareholders equity.

Underlying effective tax rate

The underlying effective tax rate is calculated by dividing taxation excluding the tax impact of non-underlying items by profit before tax excluding the impact of non-underlying items and share of net profit/(loss) of joint ventures and associates. This measure reflects the underlying tax rate in relation to profit before tax excluding non-underlying items before tax and share of net (profit)/loss of joint ventures and associates.

Tax impact on non-underlying items within operating profit is the sum of the tax on each non-underlying item, based on the applicable country tax rates and tax treatment.

This is shown in the table:

 

      € million
2020
     million
2019
 
Taxation      1,923       2,263  
Tax impact of:                 

Non-underlying items within operating profit(a)

     272       309  

Non-underlying items not in operating profit but within net
profit(a)

     (146     (196
Taxation before tax impact of non-underlying      2,049       2,376  
Profit before taxation      7,996       8,289  

Non-underlying items within operating profit before tax(a)

     1,064       1,239  

Non-underlying items not in operating profit but within net profit before tax(b)

     36       (32

Share of net (profit)/loss of joint ventures and associates

     (175     (176
Profit before tax excluding non-underlying items before tax and share of net profit/(loss) of joint ventures and associates      8,921       9,320  
Underlying effective tax rate      23.0     25.5

 

(a)

Refer to note 3 for further details on these items.

(b)

2019 excludes 3 million gain on disposal of spreads business by the joint venture in Portugal which is included in the share of net profit/(loss) of joint ventures and associates line. Including the gain, total non-underlying items not in operating profit but within net profit before tax in 2019 was 35 million. See note 3.

Constant underlying earnings per share

Constant underlying earnings per share (constant underlying EPS) is calculated as underlying profit attributable to shareholders’ equity at constant exchange rates and excluding the impact of both translational hedges and price growth in excess of 26% per year in hyperinflationary economies divided by the diluted average number of ordinary share units. This measure reflects the underlying earnings for each ordinary share unit of the Group in constant exchange rates.

The reconciliation of underlying profit attributable to shareholders’ equity to constant underlying earnings attributable to shareholders’ equity and the calculation of constant underlying EPS is as follows:

 

      € million
2020
     million
2019
 
Underlying profit attributable to shareholders’ equity(a)      6,532       6,688  
Impact of translation from current to constant exchange rates and translational hedges      472       2  
Impact of price growth in excess of 26% per year in hyperinflationary economies(b)      (31     -  
Constant underlying earnings attributable to shareholders’ equity      6,973       6,690  
Diluted average number of share units (millions of units)      2,629.8       2,626.7  
Constant underlying EPS ()      2.65       2.55  

 

(a)

See note 7.

(b)

See pages 39 and 40 for further details.

 

 

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42   Unilever Annual Report on Form 20-F 2020

Financial review continued

 

 

Free cash flow

Free cash flow (FCF) is defined as cash flow from operating activities, less income taxes paid, net capital expenditure and net interest payments. It does not represent residual cash flows entirely available for discretionary purposes; for example, the repayment of principal amounts borrowed is not deducted from FCF. FCF reflects an additional way of viewing our liquidity that we believe is useful to investors because it represents cash flows that could be used for distribution of dividends, repayment of debt or to fund our strategic initiatives, including acquisitions, if any.

The reconciliation of cash flow from operating activities to FCF is as follows:

 

      € million
2020
     million
2019
     million
2018
 
Cash flow from operating activities      10,933       10,641       9,612  
Income tax paid      (1,875     (2,532     (2,294
Net capital expenditure      (932     (1,429     (1,424
Net interest payments      (455     (548     (461
Free cash flow      7,671       6,132       5,433  
Net cash flow (used in)/from investing activities      (1,481     (2,237     4,644  
Net cash flow (used in)/from financing activities      (5,804     (4,667     (12,113

Net debt

Net debt is a measure that provides valuable additional information on the summary presentation of the Group’s net financial liabilities and is a measure in common use elsewhere.

Net debt is defined as the excess of total financial liabilities, excluding trade payables and other current liabilities, over cash, cash equivalents and other current financial assets, excluding trade and other current receivables, and non-current financial asset derivatives that relate to financial liabilities.

 

      € million
2020
     million
2019
 
Total financial liabilities      (27,305     (28,257
   
Current financial liabilities      (4,461     (4,691
   
Non-current financial liabilities      (22,844     (23,566
Cash and cash equivalents as per balance sheet      5,548       4,185  
   
Cash and cash equivalents as per cash flow statement      5,475       4,116  
   
Add bank overdrafts deducted therein      73       69  
Other current financial assets      808       907  
Non-current financial assets derivatives that relate to financial liabilities      21       114  
Net debt      (20,928     (23,051

 

Return on invested capital

Return on invested capital (ROIC) is a measure of the return generated on capital invested by the Group. The measure provides a guide rail for long-term value creation and encourages compounding reinvestment within the business and discipline around acquisitions with low returns and long payback. ROIC is calculated as underlying operating profit after tax divided by the annual average of: goodwill, intangible assets, property, plant and equipment, net assets held for sale, inventories, trade and other current receivables, and trade payables and other current liabilities.

 

      € million
2020
     million
2019
 
Operating profit      8,303       8,708  
Non-underlying items within operating profit (see note 3)      1,064       1,239  
Underlying operating profit before tax      9,367       9,947  
Tax on underlying operating profit(a)      (2,154     (2,536
Underlying operating profit after tax      7,213       7,411  
Goodwill      18,942       18,067  
Intangible assets      15,999       12,962  
Property, plant and equipment      10,558       12,062  
Net assets held for sale      27       81  
Inventories      4,462       4,164  
Trade and other current receivables      4,939       6,695  
Trade payables and other current liabilities      (14,132     (14,768
Period-end invested capital      40,795       39,263  
Average invested capital for the period      40,029       38,639  
Return on average invested capital      18.0     19.2

 

(a)

Tax on underlying operating profit is calculated as underlying operating profit before tax multiplied by underlying effective tax rate of 23.0% (2019: 25.5%) which is shown on page 41.

 


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Unilever Annual Report on Form 20-F 2020   43

 

 

Return on assets

Return on assets is a measure of the return generated on assets for each division. This measure provides additional insight on the performance of the divisions and assists in formulating long-term strategies with respect to allocation of capital across divisions. Division return on assets is calculated as underlying operating profit after tax for the division divided by the annual average of: property, plant and equipment, net assets held for sale (excluding goodwill and intangibles), inventories, trade and other current receivables, and trade payables and other current liabilities for each division. The annual average is computed by adding the amounts at the beginning and the end of the calendar year and dividing by two.

 

2020    € million
Beauty &
Personal Care
    € million
Foods &
Refreshment
   

        € million
Home

Care

   

        € million

 

Total

 
Underlying operating profit before tax      4,591       3,257       1,519       9,367  
Tax on underlying operating profit      (1,057     (748     (349     (2,154
Underlying operating profit after tax      3,534       2,509       1,170       7,213  
Property plant and equipment      3,763       4,895       1,900       10,558  
Net assets held for sale      2       10       15       27  
Inventories      1,817       1,894       751       4,462  
Trade and other receivables      2,057       1,864       1,018       4,939  
Trade payables and other current liabilities      (5,649     (5,428     (3,055     (14,132
Period end assets (net)      1,990       3,235       629       5,854  
Average assets for the period (net)      2,523       3,614       906       7,043  
Division return on assets      140     69     129     102
2019                                 
Underlying operating profit before tax      4,960       3,382       1,605       9,947  
Tax on underlying operating profit      (1,265     (862     (409     (2,536
Underlying operating profit after tax      3,695       2,520       1,196       7,411  
Property plant and equipment      4,382       5,336       2,344       12,062  
Net assets held for sale      5       63       10       78  
Inventories      1,793       1,698       673       4,164  
Trade and other receivables      2,817       2,484       1,394       6,695  
Trade payables and other current liabilities      (5,941     (5,588     (3,239     (14,768
Period end assets (net)      3,056       3,993       1,182       8,231  
Average assets for the period (net)      2,985       4,146       1,204       8,335  
Division return on assets      124     61     99     89

Other information

Accounting standards and critical accounting policies

The consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU and IFRS as issued by the International Accounting Standards Board. The accounting policies are consistent with those applied in 2019 except for the recent accounting developments as set out in note 1 on pages 116 to 118. The critical accounting estimates and judgements and those that are most significant in connection with our financial reporting are set out in note 1 on pages 116 to 118.

Auditor’s report

The Report of Independent Registered Public Accounting Firm issued by KPMG LLP on the consolidated results of the Group, as set out in the financial statements, was unqualified and contained no exceptions or emphasis of matter. For more details see pages 105 to 111.

2019 financial review

The financial review for the year ended 31 December 2019 can be found on pages 24 to 32 of our Annual Report and Accounts on Form 20-F filed with the United States Securities and Exchange Commission on 9 March 2020.

 

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44   Unilever Annual Report on Form 20-F 2020

 

Our risks

 

Our risk appetite and approach to risk management

Risk management is integral to Unilever’s strategy and to the achievement of Unilever’s long-term goals. Our success as an organisation depends on our ability to identify and exploit the opportunities generated by our business and the markets we are in. In doing this we take an embedded approach to risk management which puts risk and opportunity assessment at the core of the Board agenda, which is where we believe it should be.

Unilever’s appetite for risk is driven by the following:

  Our growth should be consistent, competitive, profitable and responsible.
  Our actions on issues such as plastic and climate change must reflect their urgency, and not be constrained by the uncertainty of potential impacts.
  Our behaviours must be in line with our Code of Business Principles and Code Policies.
  Our ambition to continuously improve our operational efficiency and effectiveness.
  Our aim to maintain a single A credit rating on a long-term basis.

Our approach to risk management is designed to provide reasonable, but not absolute, assurance that our assets are safeguarded, the risks facing the business are being assessed and mitigated, and all information that may be required to be disclosed is reported to Unilever’s senior management including, where appropriate, the CEO and CFO.

Our overall risk appetite and approach to risk management has not changed as a result of the Covid-19 pandemic. However, the Covid-19 pandemic has increased the potential impact and likelihood of certain of our principal risks, see pages 46 to 50 for further details.

Organisation

The Board has overall accountability for the management of risk and for reviewing the effectiveness of Unilever’s risk management and internal control systems. The Board has established a clear organisational structure with well-defined accountabilities for the principal risks that Unilever faces in the short, medium and long term. This organisational structure and distribution of accountabilities and responsibilities ensure that every country in which we operate has specific resources and processes for risk reviews and risk mitigation. This is supported by the ULE, which takes active responsibility for focusing on the principal areas of risk to Unilever. The Board regularly review these risk areas, including consideration of environmental, social and governance matters, and retain responsibility for determining the nature and extent of the significant risks that Unilever is prepared to take to achieve its strategic objectives.

Foundation and principles

Unilever’s approach to doing business is framed by our Purpose and values (see pages 10 and 11). Our Code of Business Principles sets out the standards of behaviour that we expect all employees to adhere to. Day-to-day responsibility for ensuring these principles are applied rests with senior management across divisions, geographies and functions. A network of Business Integrity Officers and Committees supports the activities necessary to communicate the Code, deliver training, maintain processes and procedures (including support lines) to report and respond to alleged breaches, and to capture and communicate learnings.

 

We have a framework of Code Policies that underpins the Code of Business Principles and sets out the non-negotiable standards of behaviour expected from all our employees.

For each of our principal risks we have a risk management framework detailing the controls we have in place and who is responsible for managing both the overall risk and the individual controls mitigating that risk. Unilever’s functional standards define mandatory requirements across a range of specialist areas such as health and safety, accounting and reporting and financial risk management and are key controls in mitigating these risks.

Our assessment of risk considers both short-and long-term risks, including how these risks are changing, together with emerging risk areas. These are reviewed on an ongoing basis, and formally by senior management and the Board at least once a year.

Given the significant change in the operating environment as a result of Covid-19 and to ensure the implications on our principal risks were clearly understood and the appropriate mitigation plans were put in place, an additional formal review of our risks was undertaken by senior management and the Board this year.

Processes

Unilever operates a wide range of processes and activities across all its operations covering strategy, planning, execution and performance management. Risk management is integrated into every stage.

Assurance and re-assurance

Assurance on compliance with the Code of Business Principles and all of our Code Policies is obtained annually from Unilever management via a formal Code declaration. In addition, there are specialist awareness and training programmes which are run throughout the year and vary depending on the business priorities. These specialist compliance programmes supplement the Code declaration. Our Corporate Audit function plays a vital role in providing to both management and the Board an objective and independent review of the effectiveness of risk management and internal control systems throughout Unilever.

Board assessment of compliance with the risk management frameworks

The Board, advised by the Committees where appropriate, regularly review the significant risks and decisions that could have a material impact on Unilever. These reviews consider the level of risk that Unilever is prepared to take in pursuit of the business strategy and the effectiveness of the management controls in place to mitigate the risk exposure. Since March 2020 these have all taken into consideration the impact of Covid-19 on the risks and decisions being undertaken.

The Board, through the Audit Committee, have reviewed the assessment of risks, internal controls and disclosure controls and procedures in operation within Unilever. They have also considered the effectiveness of any remedial actions taken for the year covered by this Annual Report and Accounts and up to the date of its approval by the Board.

Details of the activities of the Audit Committee in relation to this can be found in the Report of the Audit Committee on pages 70 to 71.

Further statements on compliance with the specific risk management and control requirements in the UK Corporate Governance Code and the US Securities Exchange Act (1934) and the Sarbanes-Oxley (2002) Act can be found on page 69.

 


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Unilever Annual Report on Form 20-F 2020   45

 

 

Viability statement

The Directors have reviewed the long-term prospects of the Group in order to assess its viability. This review incorporated the activities and key risks of the Group together with the factors likely to affect the Group’s future development, performance, financial position, cash flows, liquidity position and borrowing facilities as described on pages 1 to 43. These factors have also been carefully assessed in light of the Covid-19 pandemic. In addition, we describe in notes 15 to 18 on pages 143 to 160 the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposures to credit and liquidity risk.

Assessment

In order to report on the long-term viability of the Group, the Directors reviewed the overall funding capacity and headroom available to withstand severe events and carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. This assessment also included reviewing and understanding the mitigation factors in respect of each principal risk. The potential financial impact of the Covid-19 pandemic on both our overall funding capacity and our principal risks has also been considered given the wide range of potential outcomes. The risks are summarised on pages 46 to 50.

The viability assessment has three parts:

  First, the Directors considered the period over which they have a reasonable expectation that the Group will continue to operate and meet its liabilities;
  Second, they considered the current debt facilities and debt head room over the viability period, assuming that any debt maturing can be re-financed at commercially acceptable terms; and
  Third, they considered the potential impact of severe but plausible scenarios over this period which included the potential ramifications that Covid-19 could have across the different areas of the Group, including:
    assessing scenarios for each individual principal risk, for example the termination of our relationships with the three largest global customers; the loss of all material litigation cases; a major IT data breach, reputational damage from not progressing against our plastic packaging commitments, and the lost cost and growth opportunities from not keeping up with technological changes;
    assessing extreme scenarios that could arise specifically from the significant impact of Covid-19 on the macro economic conditions in which the Group is operating for an extended period of time, for example the collapse of the Group’s out-of-home business; and
    assessing scenarios that involve more than one principal risk, including the following multi-risk scenarios, including assumptions on how the impact of Covid-19 could exacerbate the negative consequences of more than one principal risk:
 

 

 Multi-risk scenarios modelled

 

   Level of severity reviewed    Link to principal risk
Contamination issue with one of our products leading to lower sales of products of this brand and the temporary closure of our largest sourcing unit.    A fine equal to 1% of Group turnover was considered along with damage to our largest brand and disruption to supply chain.   

  Safe and high-quality products

  Brand preference

  Supply chain

Major global incident affecting one or more of the Group’s key locations resulting in an outage for a year in a key sourcing unit and significant water shortages in our key developing markets.    The complete loss of all of our turnover in our largest geographic market was considered along with destruction of a key sourcing unit and reduced demand for our products that require water.   

  Economic and political instability

  Supply chain

  Climate change

Lack of progress against our plastic packaging ambitions and the loss of our three largest customers.    Significant reputational damage was considered with the impact of losing our three key customers.   

  Plastic packaging

  Brand preference

  Customer

Collapse of the global out-of-home business as a result of Covid-19, combined with liquidity issues arising from a deterioration in the financial markets.    The complete closure of our foods and ice cream out of home business combined with the withdrawal of our standby facility.   

  Treasury and tax

  Economic and political instability

 

Findings

  Firstly, a three-year period is considered appropriate for this viability assessment because it is the period covered by the strategic plan and it enables a high level of confidence in assessing viability, even in extreme adverse events, due to a number of factors such as:
    the Group has considerable financial resources together with established business relationships with many customers and suppliers in countries throughout the world;
    high cash generation by the Group’s operations and access to the external debt markets;
    flexibility of cash outflow with respect to significant marketing programmes and capital expenditure projects which usually have a two to three year horizon; and
    the Group’s diverse product and geographical activities which are impacted by continuously evolving technology and innovation.
  Secondly, the Group’s debt headroom and funding profile has been assessed and further challenged in light of expected impacts of Covid-19. None of the future outlooks considered resulted in significant liquidity headroom issues, primarily because:

 

    the Group has a healthy balance of short-term and long-term debt programmes, with repayment profiles ensuring short-term commercial paper maturities do not exceed 0.5 billion in any given week and long-term debt maturities do not exceed 4 billion in any given year; and
    the Group has $7.965 billion of committed credit facilities with a maturity of 364 days which are used as back up for our commercial paper programmes.
  Thirdly, for each of our 14 principal risks, worst case plausible scenarios have been assessed together with multiple-risk scenarios. None of the scenarios reviewed, which have been adjusted for the expected long-term economic downturn arising from the impact of Covid-19, either individually or in aggregate would cause Unilever to cease to be viable.

Conclusion

On the basis described above, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.

 

 

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46   Unilever Annual Report on Form 20-F 2020

Our risks continued

 

Principal risk factors

 

Our business is subject to risks and uncertainties. On the following pages we have identified the risks that we regard as the most relevant to our business. These are the risks that we see as most material to Unilever’s business and performance at this time. There may be other risks that could emerge in the future. Our principal risks include risks that could impact our business in the short-term (i.e. the next two years), medium term (i.e. the next three to ten years) or over the longer term (i.e. beyond ten years).

Our principal risks have not changed this year. Albeit the Covid-19 pandemic has increased the potential impact and likelihood of certain of these risks. We identified the following areas as the ones with the most impact on our risk profile:

  The safety of those who continue to operate in our workplaces as well as the mental and physical wellbeing of employees facing an extended period of working from home continues to be of paramount importance;
  Continuity of supply: maintaining manufacturing operations whilst adhering to changing local regulations and meeting enhanced health and safety standards has proven possible but has required significant management. In addition, ensuring the operation of a global logistics network for both input materials and finished goods has presented challenges and requires continuous focus and flexibility;
  Product relevance: we have seen significant shifts in demand across different product categories and increased volatility in demand as consumer behaviour changes as the pandemic evolves. Further changes are likely as we enter a global recession;

 

Channel capabilities: social distancing requirements and the restrictions on many individuals’ movements has driven a rapid increase in on online shopping and thus we are having to develop our capabilities in this area rapidly; and

 

  IT availability, capability and resilience: given the change in ways of working there is an increased reliance on our systems thus keeping the IT infrastructure operating effectively and having the ability to resolve issues remotely is critical. This is particularly complex given our reliance on a variety of third parties in this space.

As Covid-19 has rather overshadowed the external environment this year we have not identified any other factors that have had a significant impact on the level of risk associated with each of our principal risks. However, while Covid-19 has significantly impacted the business this year, it also has the characteristics of an emerging risk and it is difficult for us to predict how things will unfold in 2021, both with respect to the short and long-term implications for our business.

If the circumstances in these risks occur or are not successfully mitigated, our cash flow, operating results, financial position, business and reputation could be materially adversely affected. In addition, risks and uncertainties could cause actual results to vary from those described, which may include forward-looking statements, or could impact on our ability to meet our targets or be detrimental to our profitability or reputation.

 

 

 Risk

 

  

Risk description

 

      

 Level of risk 

 

Brand preference    Our success depends on the value and relevance of our brands and products to consumers around the world and on our ability to innovate and remain competitive.     

 

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Increase

  

 

Consumer tastes, preferences and behaviours are changing more rapidly than ever before. We see a growing trend for consumers preferring brands which both meet their functional needs and have an explicit social purpose.

  
   Technological change is disrupting our traditional brand communication models. Our ability to develop and deploy the right communication, both in terms of messaging content and medium is critical to the continued strength of our brands.     
   We are dependent on creating innovative products that continue to meet the needs of our consumers and getting these new products to market with speed.     
    

The Covid-19 pandemic has driven significant changes in consumer habits and demand which is requiring a continuing and rapid evolution of our brands.

 

        
Portfolio management    Unilever’s strategic investment choices will affect the long-term growth and profits of our business.     

 

LOGO

 

No change

    

 

Unilever’s growth and profitability are determined by our portfolio of divisions, geographies and channels and how these evolve over time. If Unilever does not make optimal strategic investment decisions, then opportunities for growth and improved margin could be missed.

 

    


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Unilever Annual Report on Form 20-F 2020   47

 

 

 Risk

 

  

Risk description

 

      

 Level of risk 

 

Climate change    Climate change and governmental actions to reduce such changes may disrupt our operations and/or reduce consumer demand for our products.     

 

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No change

  

 

Climate change is occurring around the world which may impact our business in various ways. It could lead to water shortages which would reduce demand for those of our products that require a significant amount of water during consumer use. It could also lead to an increase in raw material and packaging prices or reduced availability. Governments may take action to reduce climate change such as the introduction of a carbon tax or zero net deforestation requirements which could impact our business through higher costs or reduced flexibility of operations.

  
    

Increased frequency of extreme weather (storms and floods) could cause increased incidence of disruption to our manufacturing and distribution network. Climate change could result therefore in making products less affordable or less available for our consumers resulting in reduced growth and profitability.

 

        
Plastic packaging    We use a significant amount of plastic to package our products. A reduction in the amount of virgin plastic we use, the use of recycled plastic and an increase in the recyclability of our packaging are critical to our future success.     

 

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Both consumer and customer responses to the environmental impact of plastic waste and emerging regulation by governments to tax or ban the use of certain plastics requires us to find solutions to reduce the amount of plastic we use; increase recycling post-consumer use; and to source recycled plastic for use in our packaging. We are also dependent on the work of our industry partners to create and improve recycling infrastructures throughout the world.

  
    

Not only is there a risk around finding appropriate replacement materials, due to high demand the cost of recycled plastic or other alternative packaging materials could significantly increase in the foreseeable future and this could impact our business performance. We could also be exposed to higher costs as a result of taxes or fines if we are unable to comply with plastic regulations which would again impact our profitability and reputation.

 

        
Customer    Successful customer relationships are vital to our business and continued growth.     

 

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Maintaining strong relationships with our existing customers and building relationships with new customers who have built new technology-enabled business models to serve changing shopper habits are necessary to ensure our brands are well presented to our consumers and available for purchase at all times.

  
   The strength of our customer relationships also affects our ability to obtain pricing and competitive trade terms. Failure to maintain strong relationships with customers could negatively impact our terms of business with affected customers and reduce the availability of our products to consumers.     
    

The Covid-19 pandemic has driven a rapid increase in online shopping which means we need to accelerate development of eCommerce capabilities.

 

        

 

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Table of Contents
48   Unilever Annual Report on Form 20-F 2020

Our risks continued

 

 Risk

 

  

Risk description

 

      

 Level of risk 

 

Talent    A skilled workforce and agile ways of working are essential for the continued success of our business.     

 

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Increase

  

 

With the rapidly changing nature of work and skills, there is a risk that our workforce is not equipped with the skills required for the new environment.

  
   Our ability to attract, develop and retain a diverse range of skilled people is critical if we are to compete and grow effectively. This is especially true in our key emerging markets where there can be a high level of competition for a limited talent pool.     
   The loss of management or other key personnel or the inability to identify, attract and retain qualified personnel could make it difficult to manage the business and could adversely affect operations and financial results.     
  

The wellbeing of our employees is vital to the success of our business. Covid-19 has had a significant impact on their wellbeing, therefore helping our employees manage the impact of Covid-19 on their lives and their ability to work effectively requires continued focus.