How we’re running a responsible

and effective business

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.

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.

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.

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.

Leena Nair

Chief HR Officer

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.

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.

  See our website for more on business integrity

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).

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.

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.

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

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.

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.

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.

See our website for more on transforming the food system

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,

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

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.

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.

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.

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.

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.

We have a responsibility to help tackle the climate crisis: as a business, and through direct
action by our brands.

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

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.

 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.

 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.

 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.

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.

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).

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.

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.