Unilever 2013 Annual Report Download - page 9

TRANSFORMATION TO A ONSISTENT,
OMPETITIVE, PROFITABLE AND
RESPONSIBLE ROWTH OMPANY
2013 was another year of turbulence
in many parts of the world. Widespread
citizen protests in countries as far apart
as Brazil, Turkey and Egypt, the devastating
typhoon in the Philippines, and the
significant weakening of many emerging
market currencies were all reminders of
today’s increasingly ‘VUCA’ world – volatile,
uncertain, complex and ambiguous. While
emerging markets slowed, there were only
limited signs of recovery in Europe and
the US, with little improvement in either
consumer confidence or unemployment.
While today’s VUCA world is certainly
more difficult to navigate, it does present
opportunities if managed well. This is the
thinking behind the Unilever Sustainable
Living Plan (USLP) and our vision to double
the size of the business while reducing our
environmental footprint and increasing our
positive social impact. This Annual Report
seeks to highlight the integral link between
our long-term business purpose of making
sustainable living commonplace and
Unilever’s overall results.
2013 RESULTS
2013 was another year of top and bottom
line growth. Underlying sales growth was
once again ahead of the market, at 4.3%,
and our core operating margin was up
0.4percentage points, to a record 14.1%,
though weaker currencies impacted on our
reported turnover and earnings. The quality
of results was equally good, with 55% of our
business winning share. Growth was driven
by Personal Care and Home Care, which
continue to outperform the markets and
our competitive set. Most of the growth
came from emerging markets, which now
account for 57% of our business.
ATEORY PERFORMANE
In 2013, Personal Care, our largest
category, showed strong broad-based
momentum. The acquisitions of Alberto
Culver, Sara Lee, Kalina and Toni & Guy
have helped to transform the portfolio.
Dove had a particularly impressive year.
Home Care also delivered strong
underlying growth. The implementation
of low-cost business models and higher
margin innovations, including concentrated
detergents, helped to drive better gross
margins in laundry, and household cleaners
benefited from growth in new territories –
Domestos toilet cleaner was our fastest
growing global brand.
Foods has been a major cash contributor
for Unilever, allowing us to finance faster
expansions in Home Care and Personal
Care. Although we saw solid performances
in savoury and dressings, with both Knorr
and Hellmann’s building share, sales
declined in spreads due to falling markets
in Europe and North America. While we are
encouraged by the early signs of recovery in
our spreads business, we haven’t yet seen
the broader improvements we were
expecting and it remains an important
focus for us. As part of our strategy of
making Foods fit for growth, we sharpened
the portfolio further in 2013 with the
divestment of a number of less strategic,
underperforming brands, like Wish-Bone,
Skippy and Unipro.
It was a mixed year for Refreshment,
with solid growth in tea but a contrasting
performance from ice cream where two
of our biggest markets – the US and Italy
– struggled. We continued to expand
into the profitable out-of-home ice
cream sector with brands like Cornetto,
Ben & Jerry’s, Magnum and Fruttare.
Additionally, we expanded our low-cost
business models and further sharpened
our choices in capital expenditure. In tea,
we have renewed our focus on driving the
core business through our Lipton brand
and we were pleased to welcome the
premium T2 business to our portfolio.
FINANIAL PERFORMANE
Over the last five years, we have
established a simple framework for
driving long-term success – to grow ahead
of our markets, expand our margin and
deliver strong cash flow. We achieved this
again in 2013, despite further investments
in advertising and promotion to strengthen
the business. Gross margin expansion of
1.1 percentage points was the best for ten
years, while free cash flow of €3.9 billion
reflected improved margins as well as
tight capital management.
We used the strong balance sheet position
to increase our holdings in Hindustan
Unilever in 2013, from 52% to 67%, and
we bought out the remaining holding in
Unilever Pakistan. Our pension fund deficit
decreased from €3.3 billion at the end
of 2012 to €2.0 billion at the end of 2013,
reflecting mainly strong investment returns.
A STRONER ORANISATION
A VUCA world requires continued
investment in our long-term pillars of
growth: brands, people, and operations.
We increased investment further in
manufacturing, with the construction
of five plants currently under way, as well
as continuing to upgrade our IT systems.
Employee engagement scores rose again
and our commitment to building world-
class leaders was re-affirmed with
the opening of our state-of-the-art
management development centre in
Singapore.
We made changes to strengthen the
organisation in 2013, integrating R&D into
our category structure, sharpening and
streamlining our marketing organisation.
We also embarked on a major simplification
exercise, Project Half for growth, which
aims to rework our most complex
processes and systems to free up time and
resource to put behind our principal growth
opportunities.
LOOKIN FORWARD
2014 will be as challenging as 2013,
with continuing volatility in the external
environment. We will position Unilever
accordingly and drive out complexity and
cost to fund growth opportunities. The
good news is that we have no shortage
of opportunities: increasing our presence
in places like Africa, returning our Foods
business to competitive growth and
extending our categories into more
premium spaces. We are making good
progress in driving bigger innovations
faster across the world but we need to
continue to set the bar higher.
Once again, we will remain focused on
delivering profitable volume growth ahead
of our markets, steady and sustainable
core operating margin improvement and
strong cash flow.
A BETTER WORLD, A BETTER BUSINESS
 THE USLP AS A DRIVER OF ROWTH
Every year, the USLP becomes more firmly
embedded in all aspects of the business.
As this Annual Report highlights, the USLP
is driving waste and inefficiencies out of
the system and helping us transform the
supply chain. Suppliers and customers are
increasingly keen to work with us under
the USLP and, by helping to grow our
business in a responsible and equitable
way, the USLP is benefiting all our
stakeholders, including our shareholders.
It is in stimulating the growth of our
brands that the USLP really comes to life.
By developing strong social missions our
brands are showing that they can make a
real difference to people’s lives while at the
same time growing our business. There
were many inspiring examples in 2013,
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