Making sustainable living commonplace
Unilever has a simple purpose – to make sustainable living commonplace. We see it as the best, long-term way for our business to grow.
Review of 2014
Unilever continued to grow ahead of its markets in 2014 and re-affirmed its reputation for consistent top and bottom line growth, ensuring continued returns for investors.
In a volatile environment consistency of results is key. Our model calls for consistent, competitive, profitable and responsible growth. With 2.9% underlying sales growth, and good profit progress, this is the fifth consecutive year of top and bottom line growth. This was achieved despite a challenging external environment.
Our business is growing ahead of our markets with 60% gaining share and we believe this growth is also competitive. The Unilever Sustainable Living Plan helps to ensure growth is responsible. The consistency of our delivery is underlined by the fact that our average growth over the last five years is 4.9%, making us one of the most reliable performers in our industry.
How we performed
Our performance can be assessed using our operational highlights, key performance indicators and progress against the Unilever Sustainable Living Plan, as shown below.
Turnover was €48.4 billion, down 2.7% with a negative impact from foreign exchange of 4.6%, and net acquisitions and disposals of 0.9%. Underlying sales grew 2.9%.
Gross margin declined 0.2 percentage points driven by currency-related cost increases in emerging markets, partly offset by pricing, savings and mix such as margin accretive innovations.
Core operating margin rose by 0.4 percentage points despite maintaining brand and marketing investment at 14.8% of turnover, as overheads were reduced by 0.6 percentage points.
Key performance indicators
We report our performance against ten key performance indicators – four financial and six non-financial.
Underlying sales growth‡
Underlying sales growth over five years has averaged 4.9%.
Core operating margin‡
Core operating margin has steadily increased over five years from 13.6% to 14.5%.
Underlying volume growth‡
Underlying volume growth averaged 2.9% over five years.
Free cash flow‡
2013: €3.9 billion
Over the last five years Unilever has generated free cash flow of €17.7 billion.
- These measures 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 in the Strategic Report Download the PDF 4.5MB.
2013: 98.85kg◊ Ø
CO2 from energy per tonne of production.
2013: 2.12m3 ◊ Ø
Water per tonne of production.
2013: 2.96kg◊ Ø #
Total waste (sent for disposal) per tonne of production.
Total recordable accident frequency rate
2013: 1.03◊ Ø
Per 1 million hours worked.
The percentage of persons of each sex who were Unilever managers.
Overall engagement score among managers who participated in our Global People Survey in 2014.
- PricewaterhouseCoopers (PwC) assured. For details and the basis of preparation see Annual Report and Accounts 2014 Downloads.
- Measured 1 October – 30 September.
- Prior year restated to include additional waste identified.
Unilever Sustainable Living Plan
We cannot achieve our Vision to double our size unless we find new ways to operate that decouple growth from our environmental impact, while using growth as an enabler for positive social impact. Launched in 2010, the Unilever Sustainable Living Plan (USLP) is our blueprint for sustainable growth. It is helping to drive profitable growth for our brands, save costs and fuel innovation.
The USLP sets out three big, ambitious goals. Underpinning these goals are nine commitments supported by targets spanning our social and environmental performance.
We are making good progress with our first goal: to help more than a billion people improve their health and well-being by 2020, reaching 397 million by the end of 2014.
The progress on our second goal is more mixed. We have achieved zero non-hazardous waste to landfill from our factories, and continue to make significant reductions in the greenhouse gas (GHG) and water impacts of our manufacturing. But the consumer element of our target to halve the water and GHG impacts of our products remains a challenge.
On waste reduction, new technology such as the roll-out of compressed deodorant sprays and our new Dove Body Wash bottles has enabled reductions.
On our third goal, we are also making good progress. We are now sourcing more than half our agricultural raw materials sustainably and have reached around 800,000 smallholder farmers with help and training. We have created 70,000 women micro-entrepreneurs distributing our products in India while making progress on our new commitments to enhance livelihoods across the value chain.
More on our performance against our targets can be found in our online Sustainable Living Report 2014 to be published in May 2015. Sustainable living
By 2020 we will help more than a billion people take action to improve their health and well-being.
Health and hygiene
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.
Around 397 million people reached by end 2014 through our programmes on handwashing, save drinking water, sanitation, oral health and self-esteem
By 2020 we will double the proportion of our portfolio that meets the highest nutritional standards, based on globally recognised dietary guidelines. This will help hundreds of millions of people to achieve a healthier diet.
33% of our portfolio by volume met highest nutritional standards in 2014
By 2020 our goal is to halve the environmental footprint of the making and use of our products as we grow our business.
Halve the greenhouse gas impact of our products across the lifecycle by 2020.
Our greenhouse gas impact per consumer use has increased by around 4% since 2010
Halve the water associated with the consumer use of our products by 2020.
Our water impact per consumer use has reduced by around 2% since 2010
Halve the waste associated with the disposal of our products by 2020.
Our waste impact per consumer use has reduced by around 12% since 2010
By 2020 we will source 100% of our agricultural raw materials sustainably.
55% of agricultural raw materials sustainably sourced by end 2014
By 2020 we will enhance the livelihoods of millions of people as we grow our business.
Fairness in the workplace
By 2020 we will advance human rights across our operations and extended supply chain.
By March 2015 our key strategic suppliers (around 200 large companies) will meet our responsible sourcing policy's mandatory criteria
Opportunities for women
By 2020 we will empower 5 million women.
We trained 70,000 women micro-entrepreneurs to sell our products in rural India by end 2014
By 2020 we will have a positive impact on the lives of 5.5 million people.
In partnership with our agricultural suppliers and other partners, we helped 800,000 smallholder farmers gain access to training and support by end 2014
Our Nutrition, Water and Greenhouse Gases commitments, and Health and Hygiene targets for handwashing and safe drinking water, are independently assured by PwC. For details and the basis of preparation see Annual Report and Accounts 2014 Downloads.
Our other commitments and targets are subject to internal verification. For details of the definitions and reporting periods used in the preparation of these commitments and targets see our Sustainable Living Report 2014 to be published in May 2015 at Sustainable living.
Our water metric measures the water we add to the product plus the water used by consumers with our products in seven water-scarce countries. From 2014 we are reporting against our five water-using sub-categories (laundry, hair care, oral care, skin cleansing and household care) in these countries. Of Unilever’s 12 sub-categories, these five represent 99% of our absolute water impact (as measured by our metric).
Our value chain
Unilever's value chain – the process by which we create brands, products and ultimately shareholder value – begins with acquiring insight into consumers' needs, which vary considerably between developed and emerging markets.
That knowledge helps us to target our subsequent R&D activities and our investments in innovation.
Bringing these innovations to market as physical products is a core function of Unilever's supply chain. It also involves working with suppliers around the world.
Unilever itself manufactures the majority of its products and we maintain an international network of 240 manufacturing sites.
By the time manufacturing is under way Unilever's marketing teams have worked with our category experts to define the complete marketing mix.
Our logistics operations move Unilever products to retailers and our go-to-market teams ensure that we get enough of the right products in the right price bracket in the right sales channels for consumers to buy.
Our categories and brands
Unilever's portfolio has four categories: Personal Care, Foods, Refreshment and Home Care. We have 13 brands with sales of more than €1 billion.
Where we operate
Unilever's products sell in more than 190 countries and are used by 2 billion consumers every day. Our business is organised across three geographies: the Americas; Europe; and markets comprising Asia, Australasia, Africa, Middle East, Turkey, Russia, Ukraine and Belarus.
Our business model
Our business model and strategy come together to deliver value for shareholders. Here we explain their elements and how they are combined.
Our core purpose
Making sustainable living commonplace
Our business model starts with our core Purpose which is a clear expression of what we believe to be the best long-term way for Unilever to grow. It is a simple Purpose to help us meet changing consumer preferences and the challenges of a volatile, uncertain, complex and ambiguous world.
Brands, Operations, People
Our business model works by combining three key inputs and filtering them through the lens of the Unilever Sustainable Living Plan (USLP). Our brands have significant value and succeed through products that meet the needs of consumers. Our people identify social and consumer needs to grow our brands, market them and manufacture and distribute them. Our operations are the essential supply chain functions and assets of raw material supply, factories, logistics, go-to-market expertise and marketing. We invest financial capital to support all these assets and activities.
How we drive profit
Profitable volume growth, cost leverage + efficiency, innovation + marketing investment
Unilever aims for a virtuous circle of growth. Profitable volume growth is driven by investment in innovation and brands to deliver products which 2 billion consumers use every day. We can leverage this scale to spread fixed costs and improve profitability while further investing in the business. This investment funds R&D and innovation to create new and improved products backed by marketing to create even stronger brands. This drives profitable volume growth and the virtuous circle continues.
Our strategic focus
OUR STRATEGIC VISION
- Double the size of our business
- Reduce our environmental footprint
- Increase our positive social impact
Read more about our strategic vision
Our Vision provides leadership and direction for Unilever and the people operating our business model. We aim to double the business with innovative brands backed by marketing and brilliant execution and a best-in-class supply chain. We will achieve our social and environmental ambitions through the USLP which helps to identify areas of opportunity for brand-led growth, cost savings and future profit.
OUR STRATEGIC CHOICES
- Personal Care
- Home Care
- Emerging markets
Read more about our strategic choices
These are the choices Unilever makes to maximise value from our business model and drive returns to shareholders. We operate across four categories and focus resources on growing our brands in each of them around the world. We are committed to growing in emerging markets which retain good long-term growth prospects.
- Sales growth
- Margin improvement
- Earnings per share
- Free cash flow
OUR KEY RISKS
- Brand preference
Read more about our key risks
Our business faces risks which we actively mitigate through our various operations. Our success is at risk if our brands and products do not remain of value and relevance to consumers. It is also at risk if we fail to maintain a skilled workforce.
Long term, Unilever is at risk if we do not find more sustainable ways of doing business to ensure growth, mitigate cost pressures and support the good reputation of the Group and our brands. A more comprehensive definition of our principal risks can be found on pages 36 and 37 of the Strategic Report Download the PDF (4.5MB).
Unilever Sustainable Living Plan
The USLP is our key differentiator – how we will achieve sustainable growth by improving the health and well-being of more than a billion people, reducing the environmental footprint of the making and use of our products, and enhancing the livelihoods of millions of people across our value chain.
Unilever operates in fast moving consumer goods (FMCG) markets which involve the manufacture, distribution and marketing of branded products addressing a broad range of everyday needs including food, refreshment and home and personal care.
The top 25 companies in the FMCG market have global sales of approximately US $870 billion.
The market is characterised by high levels of competition between brands and FMCG companies are among the world's biggest advertisers, accounting for about a fifth of all advertising expenditure.
Our Strategic Report comments on themes including: consumer confidence; changing consumer habits; politics and commodities; competition; population trends; digital media and advertising growth; environmental pressures; health, hygiene and nutrition; and the role of women.
How we deliver value
Our Strategic Report outlines how Unilever has performed for the benefit of our consumers, wider society, our people and our shareholders in 2014.
These areas are introduced below; for further information see the full Strategic Report Download the PDF(4.5MB) .
In 2014 many consumers have faced tough conditions as economic uncertainty has held back growth around the world, both in the developed markets and in emerging markets. Meanwhile consumption continues to be linked to many of the world's biggest problems – deforestation, climate change, water scarcity, malnutrition and unhealthy diets.
However, each of our categories continues to innovate to meet the challenges posed by these trends and changing consumer preferences, such as products that are sustainably sourced. Whether it's laundry products which use less water or compressed cans for deodorant packaging with 25% less aluminium, consumers are reacting positively to our innovations.
Acting alone Unilever can only do so much to make sustainable living commonplace. Acting in partnership with others it can help bring about transformational change at a societal level to tackle the world's major social, environmental and economic issues. By adopting a leadership role, and working with governments, NGOs, suppliers and others, we are influencing change on a bigger scale, with a much bigger prize for the business on offer. We are deepening our efforts in three areas where we have scale, influence and resources to create transformational change: deforestation; sustainable agriculture and smallholder farmers; and water, sanitation and hygiene.
Delivering our business goals requires Unilever to recruit, develop and retain the right talent. We are determined to help all our people to be the best they can be, to help fulfil their potential and the potential of the business.
Training and development are crucial at all levels and we strive to create a working environment that respects the human rights and interests of all our employees. Ensuring gender equality is a fundamental part of our approach while our Purpose of making sustainable living commonplace is a commitment that our people can engage with every day and make a reality through their work.
Annual Report and Accounts 2014
Strategic Report 2014
Governance and Financial Report 2014
Annual Report on Form 20-F 2014
For additional downloads, please visit the Annual Report and Accounts 2014 Downloads section.
Composition of the Unilever Annual Report and Accounts 2014
Our Annual Report and Accounts 2014 is in two parts:
Our Strategic Report
The Strategic Report contains information about us, how we make money and how we run our business. It includes our strategy, business model, markets and Key Performance Indicators, as well as our approach to sustainability and risk.
Governance and Financial Report
The Governance and Financial Report contains detailed corporate governance information, how we mitigate risk, our Committee reports and how we remunerate our Directors, plus our Financial Statements and Notes.
Legal notice relating to material on this page
The material on this Unilever Annual Report and Accounts Overview webpage (the Material) relates to the year ended 31 December 2014 and is provided for general information only. The Material does not (i) form part of the Unilever Annual Report and Accounts 2014 (Strategic Report and Governance and Financial Report) or Annual Report on Form 20-F 2014; or (ii) contain sufficient information to allow as full an understanding of the results and the state of affairs of Unilever as the Unilever Annual Report and Accounts 2014 or Annual Report on Form 20-F 2014. As such this Material should not be relied upon or used as the basis for making voting or investment decisions without consulting the full Unilever Annual Report and Accounts 2014 or Annual Report on Form 20-F 2014 and other more complete or up-to-date sources of information. Information relating to Unilever’s results for current and prior periods do not necessarily reflect future trends, nor do they provide indicators of results for like periods. This Material is not intended to be and shall not be deemed to be an invitation or inducement to invest in or otherwise deal in any securities of the Unilever Group or in any other investment, nor to provide or constitute any advice or recommendation in connection with any investment decision, nor to constitute an offer to provide services in any jurisdiction in which the Unilever Group is not permitted to do so under any applicable law or regulation.
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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 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; inability to find sustainable solutions to support long-term growth; customer relationships; the recruitment and retention of talented employees; disruptions in our supply chain; the cost of raw materials and commodities; the production of safe and high quality products; secure and reliable IT infrastructure; successful execution of acquisitions, divestitures and business transformation projects; economic and political risks and natural disasters; financial risks; failure to meet high and ethical standards; and managing regulatory, tax and legal matters. 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 Group's Annual Report on Form 20-F for the year ended 31 December 2014 and the Annual Report and Accounts 2014.
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