Coronavirus Update

Unilever PLC 2020 Full Year Results

This content has been sourced from: https://www.investegate.co.uk/unilever-plc--ulvr-/...

Performance highlights (unaudited)

Underlying performance

GAAP measures

 

 

vs 2019

 

 

vs 2019

Full Year

 

 

 

 

 

Underlying sales growth (USG)

 

1.9%

Turnover

€50.7bn

(2.4)%

Underlying operating profit

€9.4bn

(5.8)%

Operating profit

€8.3bn

(4.6)%

Underlying operating margin

18.5%

(60)bps

Operating margin

16.4%

(40)bps

Underlying earnings per share

€2.48

(2.4)%

Diluted earnings per share

€2.12

(0.9)%

Free cash flow

€7.7bn

€1.5bn

Net profit

€6.1bn

0.8%

Fourth Quarter

 

 

 

 

 

USG 

 

3.5%

Turnover

€12.1bn

(4.2)%

Quarterly dividend payable in March 2021  €0.4268 per share*

* See note 10 for more information on dividends.

Full year highlights

· Underlying sales growth of 1.9%, with 1.6% volume and 0.3% price

· Turnover decreased 2.4%, primarily driven by a negative impact of 5.4% from currency related items

· Underlying operating profit decreased 5.8%, but increased by 0.7% at constant exchange rates

· Underlying earnings per share decreased 2.4%, but increased 4.1% at constant exchange rates

· Diluted earnings per share of €2.12

· Free cash flow up €1.5 billion to €7.7 billion, reflecting our objective to protect cash

· Dividend maintained through the year and increased in the fourth quarter by 4% to €0.4268 per share

· Unified the group legal structure under a single parent company

 

Alan Jope: Chief Executive Officer statement

 

" In a volatile and unpredictable year, we have demonstrated Unilever's resilience and agility through the Covid-19 pandemic. I would like to thank the Unilever team, whose dedication and hard work has delivered a strong set of results under the most difficult of circumstances.

Early in the year, we refocused the business on competitive growth, and the delivery of profit and cash as the best way to maximise value. We have delivered a step change in operational excellence through our focus on the fundamentals of growth. As a result, we are winning market share in over 60% of our business in the last quarter, on the basis of measurable markets. The business also generated underlying operating profit of €9.4 billion and free cash flow of €7.7 billion, an increase of €1.5 billion.

We progressed our strategic agenda, building on our existing sustainability commitments with ambitious new targets and actions, most recently with our plans to help build a more equitable and inclusive society. We completed the unification of our legal structure under a single parent company and we continue to work on separating out the tea business as we evolve our portfolio.

Today we are setting out our plans to drive long term growth through the strategic choices we are making and outlining our multi-year financial framework. While volatility and unpredictability will continue throughout 2021, we begin the year in good shape and are confident in our ability to adapt to a rapidly changing environment ."

4 February 2021

 

FUTURE STRATEGY AND MULTI-YEAR FINANCIAL FRAMEWORK

 

As one of the world's largest consumer goods businesses, Unilever serves consumers through our purposeful brands. Our vision is to be the global leader in sustainable business. We will demonstrate how our purpose-led future fit business model drives superior performance, consistently delivering financial results in the top third of our industry.

Our differentiating strengths

Unilever's success over the last 130 years and its future success are shaped by the strengths that give us competitive advantage. We have a powerful portfolio of leading category and brand positions, with 2.5 billion people using our products every day. We have a strong presence in the markets that will drive global growth in the years ahead and our global leadership in sustainability and commitment to sustainable business is widely recognised.

Our strategic choices

We have made five strategic choices that we believe will support our future growth and help us realise the potential of the business.

1.  Develop our portfolio into high growth spaces, positioning Unilever in the categories that will drive future growth. This will be our guiding strategy behind the choices we make for organic investment and for our acquisitions and disposals.

2.  Win with our brands as a force for good, powered by purpose and innovation. Purpose-led brands have been at the heart of Unilever throughout our history and purpose continues to dominate our thinking and our portfolio today as it becomes even more relevant to consumers. We will underpin our focus on purpose with differentiated science and technology that ensures our brands and products have superior quality and efficacy.

3.  Accelerate in the USA, India and China and leverage our emerging markets strength. Unilever has strong brand and category leadership positions in the USA, India and China, with around 35% of our turnover coming from those three countries alone, and we believe we can bring sharper focus in those geographies and build even stronger positions. There is also significant opportunity beyond these markets and we will continue to build on our strong operating businesses in the world's fastest growing economies.

4.  Lead in the channels of the future. Position our business for success in the channels of the future, focusing particularly on e-commerce and digitising the distributed trade, underpinned by advanced shopper insight as the consumer and customer landscape continues to evolve.

5.  Build a purpose-led, future-fit organisation and growth culture. Driving growth through capacity, capability and culture, while continuing to generate fuel for growth.

Multi-year financial framework

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

· Underlying sales growth ahead of our markets, delivering USG in the range of 3% to 5%

· Profit growth ahead of sales growth, on a comparable basis

· Sustained strong cash flow over the long term

· Savings of €2 billion per annum from our well-established 'Fuel for Growth' savings programmes

· Restructuring investment of around €1 billion for 2021 and 2022; lower thereafter

· ROIC in the mid-to-high teens

· Net Debt to Underlying EBITDA at around 2x

 

FULL YEAR OPERATIONAL REVIEW: DIVISIONS

 

 

Fourth Quarter 2020

Full Year 2020

(unaudited)

Turnover

USG

UVG

UPG

Turnover

USG

UVG

UPG

Change in underlying operating margin

 

€bn

%

%

%

€bn

%

%

%

bps

Unilever

12.1

3.5

3.3

0.2

50.7

1.9

1.6

0.3

(60)

Beauty & Personal Care

5.2

1.5

1.2

0.3

21.1

1.2

1.2

-

(100)

Home Care

2.5

4.7

6.2

(1.4)

10.5

4.5

5.1

(0.6)

(30)

Foods & Refreshment

4.4

5.4

4.3

1.0

19.1

1.3

0.1

1.1

(50)

 

 

Our markets: The operating environment in our markets has been volatile since the Covid-19 pandemic began in early 2020. In the fourth quarter, we continued to see changes in consumer behaviour and channel dynamics. Strict lock-downs in China and India led to market declines in the first and second quarters respectively, with both markets subsequently returning to growth during the year. China has normalised in many categories, while economic activity in India picked up particularly in the final quarter. In North America and Europe, elevated demand for food consumed at home has continued to drive market growth, whilst consumer usage of most beauty and personal care categories remains subdued. In Latin America markets were broadly flat for the year and several South East Asian markets contracted.  

Unilever overall performance: We focused on driving competitive growth through execution against our five growth fundamentals, responding with agility to changing dynamics driven by the pandemic, and delivered a step up in competitive performance.

For the full year we grew underlying sales by 1.9%, with volumes growing 1.6% and 0.3% from price. In the fourth quarter underlying sales growth was 3.5%, with volumes of 3.3% and 0.2% from price. Growth was driven by hand and home hygiene products, laundry and in-home food and refreshments. Food solutions and out of home ice cream sales declined, impacted by channel closures. As people stayed at home and had fewer opportunities to socialise, they spent less time on personal grooming which impacted sales in much of the Beauty and Personal Care business, except for hygiene products where demand was high. Category demand patterns varied throughout the year and by market, driven by the differing status of lock-down restrictions. E-commerce grew by 61%, as we captured demand in online channels, and is now 9% of Unilever.

Emerging markets grew 1.2% as China and India returned to growth, after strict lock-downs in the first half of the year. China returned to growth in the second quarter as restrictions were eased, delivering high single digit growth in the second half. Latin America grew mid-single digit and Indonesia grew slightly, though declined in the final quarter. Developed markets grew 2.9%, led by strength in North American in-home foods. Europe declined for the full year, but grew in the final quarter.

Turnover decreased 2.4%, including a positive impact of 1.2% from acquisitions net of disposals and a negative impact of 5.4% from currency movements.

Underlying operating profit was €9.4 billion, a decrease of 5.8% including a negative impact from currency of 6.5%. Underlying operating margin decreased by 60bps. Gross margin reduced by 50bps, including a negative impact of 9 0bps from additional costs needed to adapt and run our supply chain and adverse mix from Covid-19. While brand and marketing investment was conserved in the first half during the early lock-down periods, we invested strongly behind our brands in the second half and, for the full year, brand and marketing investment was up €160 million at constant exchange rates. Overheads increased by 10bps, reflecting adverse currency mix and turnover growth.

We delivered free cash flow of €7.7 billion, an increase of €1.5 billion driven by favourable working capital movement, as we increased focus on receivables and re-phased capital expenditure in light of Covid-19.

Beauty & Personal Care

Beauty & Personal Care underlying sales grew 1.2% driven by volume, with flat price. Skin cleansing saw mid-teens volume-led growth for the year, driven by the important role of hand hygiene in combatting the spread of Covid-19. Our Lifebuoy hygiene brand grew by over 50%, launching 'H is for Handwashing' an educational campaign to teach children the importance of handwashing with soap. Lock-downs and restricted living in our markets led to lower demand for skin care, deodorants and hair care, which each saw volume and price declines, most significantly in the second quarter. Skin care declined high-single digit and deodorants declined mid-single digit. In hair care, growth in wash and care partially offset a decline in styling products, leading to a low-single digit decline overall. Oral care grew with price growth more than offsetting negative volumes driven by supply disruption related to lock-downs in key markets in the second quarter. Our Prestige Beauty business was impacted by door closures in the health and beauty channel, but achieved a shift to over 50% e-commerce, overall declining low-single digit.

Underlying operating margin in Beauty & Personal Care declined by 100bps, with a reduction in gross margin driven by adverse mix and additional costs related to Covid-19. This was partially offset by a reduction in brand and marketing investment, as we conserved spend during lock-down periods, before significantly stepping up investment in the second half.

Home Care

Home Care underlying sales grew 4.5%, with 5.1% from volume and negative pricing of 0.6%. O ur home and hygiene brands delivered high-teens volume-led underlying sales growth. Demand for products with germ-killing and antibacterial benefits has been elevated throughout the year. Domestos grew over 25% as we launched the brand in China and introduced spray and wipe formats. Our living hygiene range of local brands grew over 50%, led by Lysoform's educational campaigns in Italy. Within the fabric category, fabric solutions declined slightly, driven by lower consumer prices as we passed on some of the benefits of reduced commodity costs in the second half of the year. Capsules and liquids continued to grow. Low-single digit growth in fabric sensations was led by Indonesia and by Turkey, where our relaunched Snuggle (Yumos) brand performed well.

Underlying operating margin in Home Care declined by 30bps, driven by increased brand and marketing investment as we invested strongly behind our brands in the second half of the year. Overheads and gross margin improved, helped by lower material costs, despite Covid-19 related costs and negative price.

Foods & Refreshment

Foods & Refreshment underlying sales grew 1.3%, with 0.1% from volume and 1.1% from price. Our retail foods business grew double digit, as restricted living led to more in-home eating occasions for consumers. Food solutions declined by 30% as out of home channels remained closed for much of the year. Hellmann's grew high-single digit, supported by its Stay In(spired) campaign, and our plant-based brand The Vegetarian Butcher grew over 70%. Despite significant decline in the out of home business due to channel closures, ice cream grew slightly overall as we rapidly shifted resources towards the in-home business. Ben and Jerry's performed strongly, teaming up with Netflix on its new 'Netflix and Chill'd' variant. Tea grew low single digit.

Underlying operating margin in Foods & Refreshment declined by 50bps. The decline was driven by lower gross margin, due to adverse mix impacts from out of home channel closures, costs related to Covid-19 and higher commodity costs in the second half of the year.

 

FULL YEAR OPERATIONAL REVIEW: GEOGRAPHICAL AREA

 

 

 

Fourth Quarter 2020

Full Year 2020

(unaudited)

Turnover

USG

UVG

UPG

Turnover

USG

UVG

UPG

Change in underlying operating margin

 

€bn

%

%

%

€bn

%

%

%

bps

Unilever

12.1

3.5

3.3

0.2

50.7

1.9

1.6

0.3

(60)

Asia/AMET/RUB

5.6

2.6

2.1

0.5

23.4

0.4

-

0.4

(70)

The Americas

3.9

6.5

6.0

0.5

16.1

6.2

5.1

1.1

(20)

Europe

2.6

0.8

1.8

(1.1)

11.2

(1.0)

0.2

(1.2)

(120)

 

 

Fourth Quarter 2020

Full Year 2020

(unaudited)

Turnover

 

USG

UVG

UPG

Turnover

USG

UVG

UPG

 

€bn

%

%

%

€bn

%

%

%

Emerging markets

7.0

3.5

2.5

1.0

29.3

1.2

0.2

1.0

Developed markets

5.1

3.6

4.6

(1.0)

21.4

2.9

3.7

(0.8)

North America

2.4

7.1

8.5

(1.3)

10.1

7.7

8.1

(0.4)

Latin America

1.5

5.8

2.8

2.9

6.0

4.1

0.9

3.2

 

 

Asia/AMET/RUB

Underlying sales grew 0.4% with flat volume and 0.4% from price. Volumes were impacted by lock-downs imposed across the region, particularly in China and India. Restrictions were put in place in China from January, with growth declining sharply in the first quarter. China returned to growth in the second quarter as restrictions were eased, with low-single digit underlying sales growth for the full year and high-single digit in the fourth quarter. India declined low-single digit, with a high-single digit decline for the first half related to lock-down restrictions partially offset by a return to growth in the third quarter and further acceleration to high-single digit growth at the end of the year. In South East Asia, Indonesia declined slightly in the fourth quarter although grew slightly over the year, whilst the Philippines and Thailand declined. Turkey saw growth in both volume and price, driven by Home Care and ice cream.

Underlying operating margin declined by 70bps driven by negative gross margin due to adverse mix and costs related to Covid-19. This was partially offset by lower brand and marketing investment as we conserved spend through lock-down periods in the first half of the year, before significantly stepping up investment in the second half.

The Americas

Underlying sales growth in North America was 7.7% with 8.1% from volume and negative pricing of 0.4%. There was a negative impact of 2.4% from our food solutions and Prestige Beauty businesses which were impacted by channel closures. Growth was driven by strong consumer demand for in-home foods and ice cream, as well as hygiene products. Foods & Refreshment excluding food solutions grew 16.1%, with strong performances from Knorr, Hellmann's and Ben & Jerry's.

Latin America grew 4.1% with volume growth of 0.9% and positive pricing of 3.2%. Brazil grew low-single digit for both the full year and fourth quarter, with underlying volume and price growth. Demand was stimulated for part of the year by emergency pandemic cash payouts to citizens, which reduced during the fourth quarter. Home and personal care categories drove volume growth in Argentina, with Rexona's clinical aerosol deodorants offering performing well, while Mexico declined low-single digit.

Underlying operating margin declined by 20bps. A decline in gross margin from high material inflation as Latin American currencies devalued, was partially offset by lower overheads.

Europe

Underlying sales declined 1.0% with positive volumes of 0.2% and a decline of 1.2% from price, although growth returned in the final quarter. A continued deflationary retail environment drove price declines. Positive volumes were driven by Home Care, as hygiene products saw double digit growth across most markets. Ice cream sales declined, with out of home sales impacted by lock-downs and reduced tourism, particularly in Southern Europe. The UK grew mid-single digit, benefiting from increased demand for in home eating and Home Care products, which more than offset negatively impacted categories.

Underlying operating margin reduced by 120bps driven by gross margin which was impacted by negative pricing and adverse mix.  

 

ADDITIONAL COMMENTARY ON THE FINANCIAL STATEMENTS - FULL YEAR

Finance costs and tax

Net finance costs decreased €122 million to €505 million in 2020. The decrease was largely driven by lower cost of debt and interest on tax credits in Brazil. This was partially offset by a decrease in income on cash as interest rates fell. The interest rate on average net debt fell to 2.2% from 2.5% in the prior year.

The underlying effective tax rate was 23.0% compared with 25.5% in 2019. The decrease was primarily driven by structural reductions in Indian and Indonesian tax rates; tax settlements and other one-off benefits; and replacement of Indian distribution tax with a dividend withholding tax. The effective tax rate was 24.6% compared with 27.9% in 2019.

Joint ventures, associates and other income from non-current investments

Net profit from joint ventures and associates was €175 million, consistent with the prior year. Other income from non-current investments was €3 million.

Earnings per share

Underlying earnings per share decreased to €2.48, including a negative impact of 6.5% from currency. Constant underlying earnings per share increased by 4.1%. The increase was mainly driven by operating performance, lower tax and finance costs, partially offset by an increase in profit attributable to minority interests following the Horlicks acquisition in India.

Diluted earnings per share were down 0.9% at €2.12.

Free cash flow

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 we increased our focus on receivables. Capital expenditure declined following re-phased investment in light of Covid-19, and there was a reduction in cash tax paid partly driven by tax on disposal of Spreads in the prior year.

Net debt

Closing net debt was €20.9 billion compared to €23.1 billion as at 31 December 2019 driven by higher free cash flow and currency impact. Net debt to underlying EBITDA was 1.8x as at 31 December 2020 versus 1.9x in the prior year.

Pensions

Pension assets net of liabilities were in surplus of €0.3 billion at 31 December 2020 versus a deficit of €0.2 billion at the end of 2019. Strong positive investment performance was offset by an increase in liabilities as interest rates fell over the year. There were refinements in assumption methodologies to reflect changes being made more generally by corporates and their advisers in setting discount rates and future inflation rates, specifically in the UK, which resulted in a €0.9 billion lower liability .

Return on invested capital

Return on invested capital was 18.0%, compared to 19.2% in the prior year. This reflects higher goodwill and intangible assets from the Horlicks acquisition and lower underlying operating profit after tax.

 

Finance and liquidity

In 2020, we issued the following bonds:

· 25 March 2020: €1,000 million fixed rate notes at 1.25% due March 2025, and €1,000 million fixed rate notes at 1.75% due March 2030

· 14 September 2020: $500 million fixed rate notes at 0.375% due September 2023, and $500 million fixed rate notes at 1.375% due September 2030

In April 2020, €300 million 0.0% fixed rate notes matured and were repaid. In May 2020, $800 million 1.8% fixed rate notes and $150 million 5.15% fixed rate notes matured and were repaid. In July 2020, $500 million 2.1% fixed rate notes matured and were repaid. In August 2020, €750 million 1.75% fixed rate notes matured and were repaid. In October 2020, a make-whole call was exercised for $550 million 1.375% fixed rate notes due July 2021 and the notes were fully repaid.

As at 31 December 2020 Unilever had undrawn revolving 364-day bilateral credit facilities in aggregate of $7,965 million with a 364-day term out.

 

  COMPETITION INVESTIGATIONS

 

As previously disclosed, Unilever is involved in a number of ongoing investigations and cases by national competition authorities, including those within Italy, Greece, South Africa and Turkey. These proceedings and investigations are at various stages and concern a variety of product markets. Where appropriate, provisions are made and contingent liabilities disclosed in relation to such matters.

Ongoing compliance with competition laws is of key importance to Unilever. It is Unilever's policy to co-operate fully with competition authorities whenever questions or issues arise. In addition, the Group continues to reinforce and enhance its internal competition law training and compliance programme on an ongoing basis .

 

NON-GAAP MEASURES

Certain discussions and analyses set out in this announcement 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. Wherever appropriate and practical, we provide reconciliations to relevant GAAP measures.

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

 

Annual Average rate in 2020

Annual Average rate in 2019

Brazilian Real (€1 = BRL)

5.781

4.367

Chinese Yuan (€1 = CNY)

7.862

7.725

Indian Rupee (€1 = INR)

84.100

78.812

Indonesia Rupiah (€1 = IDR)

16557

15863

Philippine Peso (€1 = PHP)

56.447

58.112

UK Pound Sterling (€1 = GBP)

0.888

0.880

US Dollar (€1 = US $)

1.135

1.120

(continued)

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, changes in currency and price growth in excess of 26% in hyperinflationary economies. Inflation of 26% per year compounded over three years is one of the key indicators within IAS 29 to assess whether an economy is deemed to be hyperinflationary. We believe this measure provides valuable additional information on the underlying sales performance of the business and is a key measure used internally. The impact of acquisitions and disposals is excluded from USG for a period of 12 calendar months from the applicable closing date. Turnover from acquired brands that are launched in countries where they were not previously sold is included in USG as such turnover is more attributable to our existing sales and distribution network than the acquisition itself. The reconciliation of changes in the GAAP measure turnover to USG is provided in notes 3 and 4.

 

Underlying price growth (UPG)

Underlying price growth (UPG) is part of USG and means, for the applicable period, the increase in turnover attributable to changes in prices during the period. UPG therefore excludes the impact to USG due to (i) the volume of products sold; and (ii) the composition of products sold during the period. In determining changes in price we exclude the impact of price growth in excess of 26% per year in hyperinflationary economies as explained in USG above. The measures and the related turnover GAAP measure are set out in notes 3 and 4.

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 on USG due to changes in prices. The measures and the related turnover GAAP measure are set out in notes 3 and 4.

Non-underlying items

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

· Non-underlying items within operating profit are: gains or losses on business disposals, acquisition and disposal related costs, restructuring costs, impairments and other items within operating profit classified here due to their nature and frequency.

· Non-underlying items not in operating profit but within net profit are: net monetary gain/(loss) arising from hyperinflationary economies and significant and unusual items in net finance cost, share of profit/(loss) of joint ventures and associates and taxation.

· Non-underlying items are: both non-underlying items within operating profit and those non-underlying items not in operating profit but within net profit.

Underlying operating profit (UOP) and underlying operating margin (UOM)

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

 

€ million

Full Year

(unaudited)

2020

2019

Operating profit

8,303

8,708

Non-underlying items within operating profit (see note 2)

1,064

1,239

Underlying operating profit

9,367

9,947

Turnover

50,724

51,980

Operating margin (%)

16.4%

16.8%

Underlying operating margin (%)

18.5%

19.1%

 

Underlying earnings before interest, taxation, depreciation and amortisation (UEBITDA)

Underlying earnings before interest, taxation, depreciation and amortisation means operating profit before the impact of depreciation, amortisation and non-underlying items within operating profit. We use UEBITDA in assessing our leverage level, which is expressed as net debt / UEBITDA. The reconciliation of operating profit to UEBITDA is as follows:

 

€ million

Full Year

(unaudited)

2020

2019

Operating profit

8,303

8,708

Depreciation and amortisation

2,018

1,964

Non-underlying items within operating profit

1,064

1,239

Underlying earnings before interest, taxes, depreciation and amortisation (UEBITDA)

11,385

11,911

Underlying effective tax rate

The underlying effective tax rate is calculated by dividing taxation excluding the tax impact of non-underlying items by profit before tax excluding the impact of non-underlying items and share of net (profit)/loss of joint ventures and associates. This measure reflects the underlying tax rate in relation to profit before tax excluding non-underlying items before tax and share of net profit/(loss) of joint ventures and associates. Tax impact on non-underlying items within operating profit is the sum of the tax on each non-underlying item, based on the applicable country tax rates and tax treatment. This is shown in the following table: ME

 

€ million

Full Year

(unaudited)

2020

2019

Taxation

1,923

2,263

Tax impact of:

 

 

Non-underlying items within operating profit(a)

272

309

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

(146)

(196)

Taxation before tax impact of non-underlying items

2,049

2,376

Profit before taxation

7,996

8,289

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

1,064

1,239

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

36

(32)

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

(175)

(176)

Profit before tax excluding non-underlying items before tax and share of net profit/(loss) of joint ventures and associates

8,921

9,320

Underlying effective tax rate

23.0%

25.5%

(a)  See note 2.

(b)  2019 excludes €3 million gain on disposal of spreads business by the joint venture in Portugal which is included in the share of net profit/(loss) of joint ventures and associates line. Including the gain, total non-underlying items not in operating profit but within net profit before tax in 2019 was €35 million. See note 2.

 

Underlying earnings per share

Underlying earnings per share (underlying EPS) is calculated as underlying profit attributable to shareholders' equity divided by the diluted average number of ordinary shares. In calculating underlying profit attributable to shareholders' equity, net profit attributable to shareholders' equity is adjusted to eliminate the post-tax impact of non-underlying items. This measure reflects the underlying earnings for each share unit of the Group. Refer to note 6 for reconciliation of net profit attributable to shareholders' equity to underlying profit attributable to shareholders equity .

Constant underlying EPS

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

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

 

€ million

Full Year

(unaudited)

2020

2019

Underlying profit attributable to shareholders' equity (see note 6)

6,532

6,688

Impact of translation from current to constant exchange rates and translational

 

 

hedges

472

2

Impact of price growth in excess of 26% per year in hyperinflationary economies

(31)

-

Constant underlying earnings attributable to shareholders' equity

6,973

6,690

Diluted average number of share units (millions of units)

2,629.8

2,626.7

Constant underlying EPS (€)

2.65

2.55

 

Net debt

Net debt is a measure that provides valuable additional information on the summary presentation of the Group's net financial liabilities and is a measure in common use elsewhere. Net debt is defined as the excess of total financial liabilities, excluding trade payables and other current liabilities, over cash, cash equivalents and other current financial assets, excluding trade and other current receivables, and non-current financial asset derivatives that relate to financial liabilities.

The reconciliation of total financial liabilities to net debt is as follows:

 

€ million

As at

As at

(unaudited)

31 December

31 December

2020

2019

Total financial liabilities

(27,305)

(28,257)

Current financial liabilities

(4,461)

(4,691)

Non-current financial liabilities

(22,844)

(23,566)

Cash and cash equivalents as per balance sheet

5,548

4,185

Cash and cash equivalents as per cash flow statement

5,475

4,116

Add bank overdrafts deducted therein

73

69

Other current financial assets

808

907

Non-current financial asset derivatives that relate to financial liabilities

21

114

Net debt

(20,928)

(23,051)

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

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

 

€ million

Full Year

(unaudited)

2020

2019

Cash flow from operating activities

10,933

10,641

Income tax paid

(1,875)

(2,532)

Net capital expenditure

(932)

(1,429)

Net interest paid

(455)

(548)

Free cash flow

7,671

6,132

Net cash flow (used in)/from investing activities

(1,481)

(2,237)

Net cash flow (used in)/from financing activities

(5,804)

(4,667)

Return on invested capital (ROIC)  

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

 

€ million

Full Year

(unaudited)

2020

2019

Operating profit

8,303

8,708

Non-underlying items within operating profit (see note 2)

1,064

1,239

Underlying operating profit before tax

9,367

9,947

Tax on underlying operating profit(a)

(2,154)

(2,536)

Underlying operating profit after tax

7,213

7,411

Goodwill

18,942

18,067

Intangible assets

15,999

12,962

Property, plant and equipment

10,558

12,062

Net assets held for sale

27

81

Inventories

4,462

4,164

Trade and other current receivables

4,939

6,695

Trade payables and other current liabilities

(14,132)

(14,768)

Period-end invested capital

40,795

39,263

Average invested capital for the period

40,029

38,639

Return on invested capital

18.0%

19.2%

(a)  Tax on underlying operating profit is calculated as underlying operating profit before tax multiplied by the underlying effective tax rate of 23.0% (2019: 25.5%) which is shown on page 9.

 

CAUTIONARY STATEMENT

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

Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Among other risks and uncertainties, the material or principal factors which could cause actual results to differ materially are: Unilever's global brands not meeting consumer preferences; Unilever's ability to innovate and remain competitive; Unilever's investment choices in its portfolio management; the effect of climate change on Unilever's business; Unilever's ability to find sustainable solutions to its plastic packaging; significant changes or deterioration in customer relationships; the recruitment and retention of talented employees; disruptions in our supply chain and distribution; increases or volatility in the cost of raw materials and commodities; the production of safe and high quality products; secure and reliable IT infrastructure; execution of acquisitions, divestitures and business transformation projects; economic, social and political risks and natural disasters; financial risks; failure to meet high and ethical standards; and managing regulatory, tax and legal matters.   A number of these risks have increased as a result of the current Covid-19 pandemic. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Further details of potential risks and uncertainties affecting the Group are described in the Group's filings with the London Stock Exchange, Euronext Amsterdam and the US Securities and Exchange Commission, including in the Annual Report on Form 20-F 2019 and the Unilever Annual Report and Accounts 2019 .