Our clear Purpose helps us to remain distinct in the eyes of consumers, retailers and suppliers.

It also means we can set an ambitious Vision – to double the size of the business whilst reducing our environmental footprint and increasing our positive social impact.

To meet our growth ambition we invest in people whose talent will help us win through our brands and innovation, unrivalled execution in the market place and a relentless focus on continuous improvement for greater efficiency.

Our environmental and social ambitions are driven through the Unilever Sustainable Living Plan (USLP), which has economic benefits and operates across all our brands, markets and our entire value chain.

Even when markets are tough we cannot ignore sustainability. If we did, this would diminish the future resilience of Unilever for its long-term shareholders.

We would miss out on the growing consumer preference for goods that do not damage the environment or exploit people.

Our entire business would rely on increasingly rare and expensive raw materials, pushing up our costs. Without more efficient use of energy our production costs would increase while we would miss considerable savings from more sustainable packaging and less waste.

We would also risk the disapproval of governments, regulators and NGOs, and our brands – Unilever’s crown jewels – could suffer reputational damage, representing serious economic loss to the business.

That’s why sustainability is at the heart of everything we do to ensure we have a viable long-term business that is attractive to investors.

OVERVIEW

Tough economic and financial headwinds with continued competitive intensity made 2014 one of the most challenging years that the industry and Unilever have faced for some time. A slowdown in the growth of emerging markets proved a testing environment while consumers in developed markets continued to show caution. Volatile currencies were a further negative.

However, Unilever’s business model and strategy proved robust, delivering a competitive performance with underlying sales growth ahead of the market and solid margin expansion. Our growth model is based on a leaner, more agile Unilever and consistency of delivery in this more volatile market is key. The Boards remain convinced that a clear, purpose-driven business model is the best way for Unilever to continue generating sustainable, long-term returns for all stakeholders, including our shareholders, as proved by a year of strong, dependable cash flow and steadily increasing dividends. The full year dividend paid in 2014 rose to €1.12, a 7% increase on 2013.

HIGHLIGHTS

For me, the Boards’ highlights of 2014 were:

DEEP UNDERSTANDING OF THE BUSINESS

Investing in people and in innovation is crucial in this tough environment. To that end, the Boards were pleased to spend time at Unilever’s new state-of-the-art training facility in Singapore, and to see first-hand the high-quality innovations being developed for the Refreshment category at Unilever’s global R&D laboratory in Colworth, UK.

The volatile currency environment made our review of the Group’s treasury operations particularly pertinent. The Boards also spent time assessing the quality of talent management and Unilever’s competitive environment. Broad exposure to senior managers in 2014 allowed the Directors to gain a deeper understanding of the business and helped in the wider strategy discussions.

STRATEGIC DISCUSSIONS

The Boards held in-depth discussions with management on strategy and portfolio development with particular attention to changing market dynamics especially in emerging markets. Despite the short-term challenges, the Boards believe the growth story in these markets remains intact. The challenges in developed markets are no less important; one response to which is our new Baking, Cooking and Spreading Business Unit in Europe and North America.

The Boards also reviewed the progress made under the Unilever Sustainable Living Plan (USLP). The Directors are confident that the USLP remains hugely relevant in addressing today’s global challenges and will continue to be a long-term driver of profitable growth for Unilever.

BOARD COMPOSITION AND SUCCESSION

We continue to work on succession planning for both the Boards and management, and thorough processes are in place.

Our Directors bring complementary and relevant skills to the Boards. In addition to wide global experience, these skills include expertise on finance and accounting, consumer markets, science and technology, customers and marketing as well as government and legal experience.

I’m delighted that Feike Sijbesma has joined the Boards with effect from 1 November 2014. Feike, who has a wealth of experience as a sustainable business leader and in finance, food and nutrition, has already added considerably to the Boards’ discussions.

DIVERSITY

Over 40% of our Non-Executive Directors are now women. This is not surprising for a Group that has long understood the importance of diversity within the workforce and wider value chain. The progress made in employee diversity over recent years has been among the best in our sector and led to widespread external recognition.

UNILEVER’S AUDITOR

Our shareholders appointed KPMG as our new auditor at the AGMs in May 2014 and a smooth and well managed transition has been completed.

BOARD EFFECTIVENESS

Our Board evaluation in 2014 was externally facilitated and the results were discussed at the November 2014 Board meeting. The Boards continue to function well with good leadership and competent and engaged members. Good progress has been made on the actions agreed in previous evaluations. The actions agreed by the Boards in the 2014 evaluation included the continued focus on overall strategy, portfolio management, and succession and induction planning.

SHAREHOLDER AND STAKEHOLDER ENGAGEMENT

In May 2014 we bought out certain third party rights that were convertible in 2038 into over 70 million PLC ordinary shares. This simplified Unilever’s capital structure and enhanced core earnings per share. In addition, in 2014 we rolled out a new employee share scheme to align our employees’ interests with those of shareholders.

Unilever values open, constructive and effective communication with shareholders. In 2014, I again met with principal shareholders in Europe and the US. Together with management, we explained our strategy to shareholders through meetings, conferences and at our annual investor event.

In line with the focus on simplification in the business, the Boards have decided to simplify the 2015 AGMs. We will revert to holding the NV and PLC AGMs on consecutive days and will host our AGMs at Unilever offices in the Netherlands and the UK. More information can be found within the NV and PLC AGM Notices which will be published on 17 March 2015.

STRATEGIC REPORT

The Boards’ objective is to meet high standards of disclosure and we consider this Annual Report and Accounts to provide a fair, balanced and understandable account of Unilever’s year in 2014 with the information required to assess performance, business model and strategy.

This 2014 Annual Report and Accounts is published in a two-part format: a stand-alone Strategic Report and a separate Governance and Financial Report.

Among many other things, this Strategic Report explains how Unilever fulfils its core Purpose of making sustainable living commonplace for consumers, society and people and how that delivers sustainable value for shareholders.

Finally, on behalf of the Boards, I would like to thank all Unilever’s 172,000 employees for their hard work in delivering good results in a challenging environment.

Michael Treschow

Chairman

		For more information on Board evaluation and shareholder engagement, see pages 42 and 45 of the Governance and Financial Report.

Q: WHAT DO YOU SEE AS THE PRINCIPAL CHALLENGES FOR UNILEVER IN THE YEAR AHEAD?

A: Operating in an environment of almost unprecedented volatility and complexity will remain a big challenge for everyone. Few people predicted that in 2014 we would see such a sharp slowdown in some of the major world economies or the escalation of geopolitical conflicts or the outbreak of pandemics like Ebola and oil prices ending the year at less than US $50 a barrel. We must be prepared for a similarly unpredictable year in 2015.

The key is to have a model that responds to people’s needs and concerns, and an organisation that is both resilient and agile in the face of growing economic and geopolitical uncertainty. We achieved that again in 2014 and I want to thank – and recognise – the supreme efforts of our 172,000 colleagues and the many more partners around the world.

Q: WHAT IS YOUR OUTLOOK FOR 2015?

A: We expect the economic pressures to continue. Consumer demand in emerging markets is likely to remain subdued for some time to come. There is still little sign of a recovery in Europe and, while conditions in North America have improved, any increase in consumer demand is likely to be slow and shoppers will remain focused on value.

We are also prepared for managing any continuing volatility on the world’s currency markets and for what could be fluctuations in commodity costs as a result of the reduction in oil prices. At the same time, we expect the levels of competitive activity – both from global competitors and, increasingly, from local players – to remain high in 2015.

Despite these pressures, we are confident that with the many positive changes we have already made to Unilever we are well placed to continue delivering our objectives of volume growth ahead of our markets, steady and sustainable improvements in core operating margin, and strong cash flow.

Paul Polman

Chief Executive Officer

OPERATIONAL HIGHLIGHTS

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 (KPIs) – four financial and six non-financial – as shown below. Our financial KPIs are described in more detail in the Financial review starting on page 31.

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.

Insight requires close engagement with consumers, often over prolonged periods, and allows us to identify future trends to gain a competitive edge.

That knowledge helps us to target our subsequent R&D activities and our investments in innovation. Unilever has filed more than 200 new patent applications in 2014 and our Partner To Win 2020 programme, also launched in 2014, creates a new platform for us to work with our suppliers in the development of product and packaging innovations that capture consumers’ interest and attention.

Bringing these innovations to market as physical products is a core function of Unilever’s supply chain, which employs about 110,000 of our 172,000 people. 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. In sourcing large amounts of raw materials we also have a direct impact on the environment. By sourcing sustainably, we can protect scarce resources, ensure security of supply for our business and reduce price volatility while protecting the environment and enhancing people’s lives, which is at the heart of our Unilever Sustainable Living Plan (USLP). More detail can be found on page 11.

By the time manufacturing is under way Unilever’s marketing teams have worked with our category experts to define the complete marketing mix, including communications, that makes our brands come alive. Communicating the benefits of our products and brands to consumers is increasingly complex, with digital communications and social media creating new and more direct ways to engage alongside traditional media.

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, be they stores or the fast-growing e-commerce channel.

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.

 www.unilever.com/sustainable-living

OUR MARKETS

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.

POLITICS AND COMMODITIES

The FMCG market is also sensitive to geopolitical events which can hold back growth such as the current situation in Russia and Ukraine where sanctions and political tensions are having an impact on the market.

A further area of exposure is raw material and commodity prices, which drive the industry’s cost base. Across many emerging markets, devaluing currencies have imported inflation into local raw material production.

Elsewhere the oil price has been trending down, compounding price deflation in Europe.

COMPETITION

Some of the largest FMCG companies, along with Unilever, include: Nestlé, Procter & Gamble, L’Oréal, Danone, Kraft Foods and Colgate-Palmolive. All have identified emerging markets as a major growth opportunity in years to come.

Of growing influence in the FMCG markets are discount stores which are providing fierce competition to the incumbent supermarket chains, most notably in the US and Europe.

WORLD POPULATION GROWTH BY 2050

The expected rise in world population highlights the fact there will be 3 billion middle class consumers in the world as a source of growth for FMCG companies, but also the pressure being placed on raw materials and sustainability.

POPULATION TRENDS

The FMCG market is driven in part by global population trends and demographic changes within countries.

World population is expected to rise to 8 billion by 2025 and, by then, more than 4 billion will be part of the ‘consuming class’. For the first time the number of people with discretionary income will exceed the number struggling to meet basic needs – a trend described by management consultancy McKinsey as possibly the biggest opportunity in the history of capitalism.

ENVIRONMENTAL PRESSURES

Population growth also places a strain on the world’s natural resources – the raw materials that the FMCG industry relies on to make its products.

FMCG companies are among the world’s largest buyers of commodities such as agricultural products, natural oils and fats, coffee, tea, paper and board.

Cultivation of commodities such as palm oil has contributed to deforestation which has been a major factor behind climate change. This in turn has reduced the availability of raw materials, increasing their price and FMCG production costs.

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.

KEY INPUTS

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.

Foods is a €12.4 billion category, home to Unilever’s largest brand, Knorr, and several €1 billion-plus brands including Hellmann’s and Family Goodness (Rama/Blue Band).

The category accounts for 25% of Group turnover and 45% of operating profit and its strategic role is to accelerate growth while maintaining above average cash and profit. To that end we continued the sale of non-core businesses, such as Ragu and Bertolli pasta sauces in North America, and the meat snacks business under the Bifi and Peperami brands in Europe, while positioning the remaining business for organic growth and expansion, especially in emerging markets.

While the category improved profitability, sales were affected by a continued deterioration in market conditions, particularly for margarine where the decline in bread consumption has had an impact on the spreads markets in Europe and North America, which remain challenging.

The underlying picture saw improved competitiveness though, with global market share gains in savoury, dressings and margarine, as well as strong performance in our Food Solutions business, which is focused on serving professional, out-of-home channels.

In savoury, Knorr continued to expand its presence in emerging markets accounting for 50% of sales, with the brand enjoying double-digit growth in South Asia, North Africa, the Middle East and Turkey. Also brands like Royco and Bango, catering to local market needs, registered good growth.

Knorr continues to spearhead the sustainability agenda in Foods, with more than 90% of our 13 most used vegetables sustainably sourced. ‘Knorr Landmark Farms’ use and promote advanced sustainable farming practices; there are 45 in operation globally, almost twice the number than in 2013, demonstrating the brand’s commitment to sustainable agriculture.

SUSTAINABLE AGRICULTURE

AND THE DEVELOPMENT OF

SMALLHOLDER FARMERS

In 2014 Unilever enhanced its Unilever Sustainable Living Plan (USLP) by introducing new pillars to its goal of enhancing livelihoods. These were: fairness in the workplace, where we will advance human rights across our operations and extended supply chain; opportunities for women, where we will empower 5 million women by 2020; and inclusive business, where we will have a positive impact on the lives of 5.5 million people by 2020.

This latter commitment includes improving livelihoods of smallholder farmers and links directly to our USLP goal of reducing our environmental impact through sustainable sourcing.

Around half of Unilever’s raw materials come from farms or forests so sustainable agriculture is a strategic priority.

Smallholder farmers produce 70% of the world’s food and make up 85% of the world’s farmers. Most grow their crops on less than two hectares and are often cut off from training so lack knowledge of how to maximise incomes by improving their agricultural practices. Many of our smallholder farmers are women.

Through our own supply chain, our suppliers and our NGO partners, we are providing help and training to 800,000 smallholders to enable them to adopt sustainable practices. This helps them to increase yields, increase profits, invest and become more competitive

The tax Unilever pays is an important part of its wider economic impact and plays a key role in the development of countries where we operate. We are supportive of international tax reform and believe public trust in tax systems for companies is essential. We have published a set of global tax principles covering issues including transfer pricing, use of tax havens and relationships with tax authorities that represent good corporate practice. They also balance the interests of our various stakeholders.

We believe we can create a brighter future for our children. Project Sunlight is a growing community of people who believe it is possible to build a world where everyone lives well and lives sustainably. The campaign continues to engage people in programmes that can help to contribute to a #brightfuture – almost 180 million ‘acts of sunlight’ were pledged by the end of December 2014.

  www.projectsunlight.com

For instance in Sekondi, Ghana, a three-day workshop by the Unilever Ghana Foundation taught 60 women how to think and act like entrepreneurs, coached them in bookkeeping procedures, and cash and working capital management. This brings to more than 700 the number of women trained in Ghana and supports Unilever’s commitment to empower 5 million women by 2020.

To date we have trained and recruited more than 3,400 women from nearly 1,100 villages in Pakistan as part of the Guddi Baji (‘Good Sister’) programme. This initiative helps increase sales as well as generating sustainable incomes for women through the sale of Unilever hygiene and personal care brands and through the provision of beauty services to other local women.

In India, recruiting and training more women entrepreneurs (Shakti Ammas) were central to our rural expansion in 2014, reaching more remote villages.

Our programmes also help young women and men. Our Wall’s team has developed a youth employment programme, known as ‘Feet on the Street’, to help tackle the youth jobless rate in Europe while driving our growth agenda by bringing ice cream to the streets. Wall’s provides tools and equipment, such as trikes or push carts and freezers, to enable a micro-entrepreneur to run his or her own mini-business selling ice cream and also to provide young people with their first job experience. In Portugal, Spain and Italy, 250 seasonal jobs were also created to enhance livelihoods while boosting ice cream sales. Our ambition is to have 50,000 micro-entrepreneurs by 2020 with a potential contribution to turnover of more than €100 million.

Future Leaders League started with teams from ten countries competing in 2013. In 2014 this was increased to teams from 22 countries.

UNILEVER 2020

Critical to our success are leaders equipped to deliver our Vision and USLP. Our new leadership programme, UL2020, based at the Four Acres site, is designed to meet this need by developing leaders with the insight and imagination to anticipate the challenges and opportunities in the world of 2020.

Guided and supported by some of the world’s top thought leaders, UL2020 identifies some of Unilever’s most critical challenges and asks small, diverse leadership teams to create solutions. These projects, called Purpose to Impact Initiatives, are structured programmes that deliver individual and wider business development consistent with our commercial and social aims.

Recent programmes have focused on topics such as the Muslim consumer opportunity, leveraging mobile for our business, and linking business development and job creation. UL2020 is unlocking groundbreaking ways of working and new leadership skills, while delivering results that help to define our future.

The Marketing Fit To Win programme put in place the DOIT approach which aims to drive greater interdependence and improved collaboration within the Marketing function. All our marketeers attended DOIT workshops to understand roles and relationships better. This is key to tackling barriers and achieving faster, brand-led growth.

In the supply chain we have taken a broad approach to building capabilities for our employees. This includes a host of skills development programmes for blue and white collar employees. Training in core skills is mandatory across 130 roles. Skill assessments are completed every two years and the data is used to understand and address specific gaps across roles, capabilities and geographies.

We also ran a Manufacturing Leadership Development programme to improve the skills of our factory leaders who fulfil pivotal roles.

BESAFE PROGRAMME

By the end of 2014 we had rolled out the first phase of our BeSafE programme to 84% of our manufacturing sites and 38% of our non-manufacturing sites globally.

DIVERSITY

Women are Unilever’s core consumers, controlling nearly two thirds of consumer spending, so it’s important that we represent them in our workforce. In fact, 2014 marks five years since we began the process of building an agile and diverse Unilever and making sure we have the right gender balance throughout the organisation.

By the end of 2014, over 43% of our managers were women, up from 38% in 2010. The hard work we are doing to retain more women in our workforce by promoting flexible working, women’s networks, job shares and maternity and paternity support is paying benefit and will remain a focus area.

As at 31 December 2014, around 117,559 (68%) of our global workforce of 172,471 employees were male and 54,912 (32%) female.

However, challenges remain. We have not made sufficient progress among the top 110 executive managers in the business, a group where just under 20% are women. If you include employees who are statutory directors of the corporate entities whose financial information is included in the Group’s 2014 consolidated accounts in this Annual Report and Accounts, the number increases to 592 males and 157 (21%) females.

We are pleased though that 36% (five out of 14) of the Board are female which is over 40% of the Non-Executive Directors.

MENTAL HEALTH AND RESILIENCE

In 2014 we paid particular attention to mental health initiatives. The rising incidence of mental ill health in the UK is reflected in our absence data. Help and support on nutrition, sleep, exercise and mindfulness all improve the day-to-day well-being of employees. A robust framework with support tools is now in place and is being rolled out across the organisation.

HUMAN RIGHTS

In 2014 we published our Human Rights Policy Statement which contains overarching principles which are embedded into our policies and systems. A full version of the document can be read at www.unilever. com/humanrightspolicystatement.

We believe that business can only flourish in societies where human rights are protected and respected. We recognise that business has the responsibility to respect human rights and has the ability to contribute to a positive impact on human rights.

This is an area of growing importance to our employees, shareholders, customers, consumers, the communities where we operate and civil society groups.

We promote human rights by upholding values and standards in our operations, with suppliers and through initiatives such as the UN Global Compact.

OUR TRACK RECORD

Underpinning our financial performance are our strong brands, with 13 €1 billion brands at our core, accounting for 53% of turnover, and 57% of our business is in the emerging markets which offer the greatest long-term growth opportunity. We have a ‘grow everywhere’ mindset with action in place to evolve our brand portfolio into more premium segments of existing markets, enter new geographies, and seek new consumers to add to the 2 billion we serve every day.

Our growth model is enabled by a leaner, fitter, more agile Unilever, with costs being reduced through our supply chain efficiency programmes. These have been boosted by our low-cost business model initiative, which has delivered €450 million of savings since 2011.

Our supply chain was recognised in 2014 by Gartner as No.1 in the FMCG industry and the overall No.1 supply chain in Europe. Our go-to-market performance has sharpened. The on-shelf availability of our brands has improved 2.2% in 2014 with more than 8.5 million shops now enrolled in our Perfect Stores programme.

Our award-winning marketing expertise has positioned us well in the most popular media channels, be they traditional print and broadcast, online video and social media, or creating our own content for distribution through mobile devices in emerging markets.

PORTFOLIO EVOLUTION

Personal Care is now our largest category at 37% of sales. Unilever has been reclassified to the Personal Products subsector from the Food Products subsector by the Industry Classification Benchmark Panel. The reclassification provides a more accurate stock market definition for our business, reflecting our strategy to evolve the portfolio to ensure Unilever continues to deliver sustainable long-term returns for our shareholders.

Our long-term track record of delivery for shareholders continued during 2014 despite some significant challenges in the business environment. These included continued weak consumer demand in developed markets, slowing demand in emerging markets and currency devaluations in many countries. The resilience of our business and the broad nature of our brand portfolio and geographic reach enabled us to deliver a year of steady progress in slower markets.

In a lower growth environment we stepped up our cost savings initiatives. We accelerated Project Half for Growth which is simplifying the business and reducing costs, particularly in overheads. As a result we were able to continue to invest in sustained brand and marketing investment and deliver underlying sales growth ahead of our markets and a further improvement in core operating margin.

We took action to reshape our portfolio to ensure we have the right mix of brands to address growth opportunities today and in the future.

Continuing our policy of enhancing earnings for shareholders with a more simple capital structure, we announced in May 2014 the £715 million purchase of rights left in family trusts by Lord Leverhulme. These were convertible in 2038 into 70,875,000 Unilever PLC ordinary shares and were bought for the equivalent of £10.09 per share. We estimate that annualised core earnings per share will be enhanced by 2% as a result.

In March 2014 Unilever announced the issuance of our first ever green sustainability bond which raised £250 million. The fixed rate notes pay a coupon of 2% and are due for repayment in 2018. The proceeds are being deployed on projects which support the achievement of the goals of the USLP in reducing greenhouse gas emissions, water usage and production of waste.

FINANCIAL OVERVIEW 2014

CONSOLIDATED INCOME STATEMENT

Turnover at €48.4 billion decreased 2.7%, including a negative impact from both foreign exchange, of 4.6%, and acquisitions net of disposals of 0.9%. Underlying sales growth was 2.9% (2013: 4.3%), balanced between volume growth of 1.0% (2013: 2.5%) and pricing of 1.9% (2013: 1.8%). Emerging markets, consistent at 57% of total turnover, were down 2.2% at reported exchange rates, with underlying sales growth of 5.7% versus 8.7% in the prior year. Developed markets underlying sales declined by 0.8%. Globally, our markets grew by around 2.5% with flat volumes.

Core operating margin was up 0.4 percentage points to 14.5%. Gross margin declined by 0.2 percentage points to 41.4%. This was driven by increased costs in emerging markets, largely currency related, partly offset by pricing, savings and margin-accretive innovation. Commodity costs increased around 4%, at constant exchange rates, as devaluing currencies have imported inflation into local raw material production partially offset by cost savings.

Significant efficiencies in the cost of producing advertising allowed us to increase our share of spend while maintaining brand and marketing investment at 14.8%. Overheads were reduced by 0.6 percentage points largely due to saving initiatives such as Project Half for Growth and some favourable one-off items such as property sales in India.

Operating profit was €8.0 billion, compared with €7.5 billion in 2013, up 6%. The increase was driven by non-core items which were a net credit of €960 million (2013: €501 million). Included within non-core items was the gain on disposal of the Ragu and Bertolli pasta sauces business and the Bifi and Peperami brands. We sold the SlimŸFast business and recognised an impairment charge of €305 million on the related assets within non-core items.

  Highlights for the year ended 31 December

The cost of financing net borrowings in 2014 was €383 million versus €397 million in 2013. The average interest rate on borrowings was 3.5% and the average return on cash deposits was 3.8%. Pensions financing was a charge of €94 million versus a charge of €133 million in the prior year.

The effective tax rate was 28.2%, higher than 26.4% in 2013 due to the impact of business disposals. Our longer term expectation remains around 26%.

Net profit from joint ventures and associates, together with other income from non-current investments, contributed €143 million compared to €127 million in 2013. Diluted earnings per share for the full year was up 8% at €1.79. Core earnings per share were €1.61, up 2% from €1.58 in 2013 after a 9% currency headwind.

The independent auditors’ reports issued by KPMG Accountants N.V. and KPMG LLP, on the consolidated results of the Group, as set out in the financial statements, were unqualified and contained no exceptions or emphasis of matter. For more details see pages 79 to 83 of the Governance and Financial Report.

The consolidated financial statements have been prepared in accordance with IFRS. The critical accounting policies and those that are most significant in connection with our financial reporting are set out in note 1 on pages 88 and 89 of the Governance and Financial Report and are consistent with those applied in 2013.

PERSONAL CARE

FOODS

KEY DEVELOPMENTS

KEY DEVELOPMENTS

REFRESHMENT

HOME CARE

KEY DEVELOPMENTS

KEY DEVELOPMENTS

CASH FLOW

		Net cash flow from operating activities and free cash flow were down by €0.8 billion mainly due to tax on disposal profits which were €0.8 billion versus €0.2 billion in 2013. Year-end working capital was in line with the prior year. Our net capital expenditure of €2.0 billion, or 4.2% of turnover, reflects the investment in capacity to support our growing business.

The net outflow from investing activities was €0.8 billion lower than the previous year. While net capital expenditure and interest were broadly unchanged, the net inflow of acquisitions, disposals and other investing activities increased €0.8 billion compared with 2013. The increase was principally driven by the disposal of the Ragu and Bertolli pasta sauces business partially offset by the acquisition of Qinyuan and Talenti Gelato & Sorbetto.

Net cash outflow from financing activities was €0.2 billion lower than the prior year. Of the €5.2 billion outflow, €3.2 billion was used to fund our dividend payments and €0.9 billion to purchase the rights left in trust by the first Viscount Leverhulme. The prior year included €2.5 billion in relation to the acquisition of an increased stake in Hindustan Unilever Limited as well as an increase in borrowings of €1.3 billion, which was flat in 2014.

BALANCE SHEET

In the year to December 2014, Unilever’s combined market capitalisation rose from €83.8 billion to €93.9 billion.

Goodwill and intangible assets increased by €1.3 billion mainly due to business acquisitions and currency movements. All material goodwill and indefinite-life intangible assets have been tested for impairment. An impairment charge of €0.3 billion was recognised assets related to the SlimŸFast business as part of the disposal. Increases in other non-current assets of €1.0 billion were driven by capital expenditure and favourable currency movements.

Current assets were up €0.2 billion largely due to the impact of currency. Cash and cash equivalents on the balance sheet amounted to €2.2 billion compared to €2.3 billion at the end of 2013. Closing net debt was €9.9 billion versus €8.5 billion as at 31 December 2013. The increase was driven by payment of dividends, the repurchase of the Leverhulme Estate shares and adverse currency movements, offset by free cash flow generated by operations and net cash inflow from acquisitions and disposals.

Current liabilities were €2.3 billion higher mainly driven by an increase in current financial liabilities of €1.4 billion due to bonds maturing in 2015 and by the impact of currency and other underlying movements of €0.9 billion.

Non-current liabilities (excluding pensions) were broadly flat with increases as a result of currency offset by a decrease in financial liabilities due to the bond movements noted above. During the year the following bonds matured and were repaid: (i) US $750 million 3.65%, (ii) Renminbi 300 million 1.15%, and (iii) £350 million 4.00%. On 20 February 2014, we issued Renminbi 300 million 2.95% fixed rate notes due February 2017. On 19 March 2014 we issued £250 million 2% fixed rate notes due December 2018.

The net movement in assets and liabilities for all pension arrangements during the year was as follows:

The overall net liability for all pension arrangements was €3.6 billion at the end of 2014, up €1.6 billion from the end of 2013. The increase in the net obligation reflects the impact of changes in actuarial assumptions, largely due to decreases in the discount rates, partially offset by returns on plan assets. Cash expenditure on pensions was €0.7 billion, the same as in the prior year.

FINANCE AND LIQUIDITY

We concentrate cash 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 on pages 114 to 119 of our Governance and Financial Report.

Approximately €1.7 billion (or 81%) 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 free of tax. In a few countries 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 amount of cash held in these countries was €452 million (2013: €243 million, 2012: €220 million). 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 2014 were US $6,550 million.

CONTRACTUAL OBLIGATIONS AT 31 DECEMBER 2014

Further details are set out in the Governance and Financial Report in the following notes to the consolidated financial statements: note 10 on pages 105 and 106, note 15C on pages 112 and 113, and note 20 on pages 124 to 125. 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.

AUDIT FEES

Included within operating profit is €14 million (2013: €21 million) paid to the external auditor, of which €14 million (2013: €16 million) related to statutory audit services. Remuneration of the external auditor in respect of 2014 was payable to KPMG while in respect of 2013 it was payable to PricewaterhouseCoopers.

NON-GAAP MEASURES

Certain discussions and analyses set out in this Annual Report and Accounts 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, 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.

Non-GAAP financial measures as reported by us may not be comparable with similarly titled amounts reported by other companies.

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 (USG)

Underlying sales growth (USG) refers to the increase in turnover for the period, excluding any change in turnover resulting from acquisitions, disposals and changes in currency. 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.

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

UNDERLYING VOLUME GROWTH (UVG)

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 to USG due to changes in prices.

The relationship between the two measures is set out below:

CORE OPERATING PROFIT AND CORE OPERATING MARGIN

Core operating profit and core operating margin mean operating profit and operating margin, respectively, before the impact of business disposals, acquisition and disposal related costs, impairments and other one-off items, which we collectively term non-core items, due to their nature and frequency of occurrence.

The reconciliation of core operating profit to operating profit is as follows:

Further details of non-core items can be found in note 3 on page 92 of the Governance and Financial Report.

CORE EARNINGS PER SHARE

The Group also refers to core earnings per share (core EPS). In calculating core earnings, net profit attributable to shareholders’ equity is adjusted to eliminate the post tax impact of non-core items. Refer to note 7 on page 102 of the Governance and Financial Report for reconciliation of core earnings to net profit attributable to shareholders’ equity.

FREE CASH FLOW (FCF)

Within the Unilever Group, free cash flow (FCF) is defined as cash flow from operating activities, less income taxes paid, net capital expenditures and net interest payments and preference dividends paid. 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. Free cash flow 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 FCF to net profit is as follows:

DEAR SHAREHOLDERS,

I am pleased to report that our Remuneration Policy was adopted at the 2014 NV and PLC AGMs with strong levels of support and remains unchanged for 2015.

REMUNERATION POLICY – AVAILABLE ON OUR WEBSITE

To simplify this year’s report we have chosen not to repeat our Remuneration Policy, which is available on our website. To reflect the reward decisions taken for 2015 by the Compensation Committee we have updated the supporting information in the remuneration policy table and other contextual information.

  www.unilever.com/ara2014/downloads

BUSINESS PERFORMANCE AND REMUNERATION OUTCOMES FOR 2014

ANNUAL BONUS – A YEAR OF RESILIENT PERFORMANCE

During the year Unilever faced an increasingly challenging external environment. In addition to fierce competition, we also saw weakening consumer demand across many parts of the world and increasing external volatility. The business responded to the combination of these events with resilience by heightening focus on cost control and margin improvement. Although our overall underlying sales growth lowered to 2.9% we continued to outperform our markets, as we have done consistently since Paul Polman’s appointment as CEO. Through rigorous control of overheads, we delivered a core operating margin improvement of 0.4 percentage points despite adverse currency movements. With the quality of these results in mind, the Committee exercised its judgement to uplift the annual bonus outcome from 68% to 80% of target and decided to pay a bonus of 132% of salary (66% of maximum) to the CEO, Paul Polman, and a bonus of 88% of salary (59% of maximum) to the CFO, Jean-Marc Huët. The Committee believes that these awards fairly reflect the performance delivered in 2014. This consistency in performance delivery, now established over the last six years, shows that Unilever is building a more resilient company. We are better able to withstand the challenges of an increasingly uncertain business environment because we are moving towards a business model with long-term sustainability at its core.

GSIP AND MCIP – STRONG FINANCIAL PERFORMANCE OVER THE LAST THREE YEARS

Over the past three years, Unilever has again delivered very strong financial performance. Underlying sales growth during this period was 4.7% per annum. Core operating margin improvement over the period was an average of 0.37 percentage points per year, demonstrating management’s drive for consistent top and bottom line growth. Unilever has also generated very strong operating cash in the period, with cumulative operating cash flow of €15.5 billion. Total shareholder return (TSR) over this three-year period was below the performance of our peers, and, as a result, no part of the GSIP and MCIP awards related to TSR will vest. The Committee believes the outcomes of the long-term share incentive plans represent a fair reflection of Unilever’s underlying performance over the last three years. On the basis of this performance, the Committee determined that the GSIP awards to the end of 2014 together with MCIP awards, which were granted to Executive Directors for the first time in 2012, will vest at 121% of initial award levels (ie 61% of maximum for GSIP and 81% of maximum awards for MCIP, which is capped at 150%).

EXECUTIVE DIRECTORS TURN DOWN SALARY INCREASES FOR 2015

In our 2011 Directors’ Remuneration Report, the Committee drew shareholders’ attention to our concern that the CEO’s salary was positioned at the lower end of market practice compared to similar sized UK and European companies. At that time the Committee stated that it would look to make further increases, as appropriate, to address this over the next few years. Since then, largely at the CEO and CFO’s own insistence, we have consistently awarded less of a salary increase than we believed was merited by the performance of the Executive Directors. Having held their salaries steady for longer than intended and in view of the sustained track record of performance delivery, the Committee recommended, and the Boards approved, salary increases for the CEO and CFO with effect from January 2015. In making these recommendations the Committee considered the strong performance of Unilever and alignment, both to increases in pay for the broader employee population and externally. The CEO and CFO have turned down the salary increases recommended by the Committee for 2015.

STRATEGIC LINKAGE OF REWARD TO BUSINESS PERFORMANCE

As in previous years, the Committee continues to use performance-based incentives to drive the business towards delivering sustainable long-term value for shareholders. For 2015, the Committee has decided to focus on the importance of cash generation in an environment of lower global growth rates by replacing underlying volume growth with growth in free cash flow (FCF) as a performance measure for the annual bonus, in alignment with our strategy as set out earlier in this Report. FCF is a widely reported metric used to evaluate Unilever’s in-year performance. For our shareholders, cash is an important driver of value creation, allowing us to pay attractive and sustainable dividends while continuing to invest in the business.

The performance measures for our long-term share incentive plans remain unchanged for the 2015-2017 performance cycle. Even though FCF is our primary cash measure, we use operating cash flow (OCF) as the cash measure in our long-term incentive plans as it better represents underlying long-term performance at constant exchange rates. To better describe long-term management performance, OCF is also adjusted to exclude the impact of cash inflows and outflows resulting from M&A activity and the impact of pension contributions and interest costs on external borrowings.

For reasons of commercial sensitivity, our practice is to disclose the target ranges for performance measures together with the outcomes of incentive plans at the end of the respective performance period.

In 2015 the Committee plans to undertake a further review of our remuneration framework to ensure that it continues to be fully aligned with Unilever’s business strategy and enables us to respond quickly to the rapidly changing markets in which we operate. Specifically, we will be looking for opportunities to simplify reward arrangements and also to strengthen the linkage between executive pay and the creation of sustainable longer-term shareholder value. To the extent that changes are proposed, the Committee will consult with key shareholders to get their feedback in advance of recommending changes to shareholders.

Paul Walsh

Chairman of the Compensation Committee