Unilever PLC

Thank you. Good morning. Welcome to Unilever's first quarter trading update. We hope that you're staying safe and keeping healthy in these uncertain times. Given the exceptional circumstances created by the COVID-19 outbreak, we're presenting our trading update to you from our respective homes in line with the physical distancing protocols. So please bear with us if things are not quite as smooth as you normally expect. Alan will begin with an overview of how we're managing the business through the impact of the COVID-19 pandemic before passing to Graham to cover the results and performance in our divisions and regions. Alan will then wrap up with some comments on our outlook for 2020. We'll keep the prepared remark to somewhere around 30 to 40 minutes, leaving plenty of time for Q&A. All of today's webcast is available live transcribed on the screen as part of our accessibility program. First, I draw your attention to the disclaimer to forward-looking statements and non-GAAP measures. And with that, let me hand over to you, Adam.

Thanks, Richard, and good morning, everybody. Well, one of the unusual features of this crisis is how it feels like the world is at a complete standstill, and yet things are changing at extraordinary speed. The rate of change that we're witnessing is faster than I think any of us have ever known. And it's in that context of rapid and unpredictable change that we're sharing these results for quarter one and also our assessment of how things are likely to play out in the future. It's also in this context that we're discovering the true responsiveness of Unilever and the value of our closeness to consumers and markets in the many countries around the world where we do business. If we could have the next slide, please. First and foremost, this is a human crisis and we're deeply saddened by the terrible impact that the pandemic is wreaking on lives and livelihoods everywhere. And I speak on behalf of everyone at Unilever in extending our deepest sympathies to all those who have been affected and are struggling. Equally, we stand in awe and express our gratitude to all of those who are working heroically at the frontline to slow down the spread of this COVID-19 disease. It's also a global crisis, which is manifesting very differently and at a different pace in different countries. And that's going to be a theme throughout this morning's discussion, that the response to the pandemic cannot be looked at in some kind of global aggregate In particular, the consumer reaction in different countries is varying. For example, in a lack of stocking up in the developing world to enormous panic buying in the United States. Governments are taking unprecedented action to protect lives and economies with lockdowns and curfews in most countries. And that's having a knock-on effect on the economy. Whole industries are facing a crisis of survival and we're starting to understand the shifts in consumer behavior that this pandemic will bring. At Unilever, our priority has of course been to safeguard the welfare of our people, ensure the resilience of our supply chain, and to protect our communities while we meet people's essential product needs for the type of hygiene and food brands that we make and sell. Our portfolio of trusted brands, our financial strength, and the quality of our leadership teams on the ground are the things that will see us through this crisis and into the changing world that will come afterwards. In frankly, very difficult circumstances, we've seen the best of agility and speed of action that Unilever is capable of. Our response has been structured around these five work streams, and that served as the foundation for managing our business through the crisis. People, supply, demand, looking after the community and guarding our cash. We're seeing the power and agility of the flattened Unilever organization structure. We've got short chains of command to our markets through the 15 performance manage units that report to Nitin. And this proximity to our markets has meant that we can respond quickly with the right balance of good execution of global direction, coupled with high quality decisions that are being taken by experienced and qualified people on the ground, close to the market. looking at people first. Of course, the health and safety and wellbeing of our workforce is our top and number one priority. As we moved quickly to protect lives and livelihoods, since the initial outbreak in China, we put in place measures to help minimize the risks to our employees and their families from coronavirus and the COVID-19 disease. We acted quickly to remove uncertainty for our workforce with a blanket, mandatory, indefinite work-from-home order for all of our office-based roles, and that went out very early on March 13th. we introduced new protective standard operating procedures in our manufacturing and for our field sales teams. We also guaranteed jobs and incomes for April, May, and June, and made a conscious decision to include the people who work to keep our facilities secure, our premises maintained, or who run our cafeterias, and who are so much a part of the Unilever team, even if they're not directly in Unilever's payroll. We're also drawing on our adaptability by quickly redeploying teams from parts of the business with low demand to help in areas that are seeing high demand. And this has been enabled by a digital internal talent marketplace called Flex that matches employees who have capacity with opportunities to do interesting new types of work. And so far, we redeployed over 3,000 people, for example, in our food service operations, which have been hit hard to support the foods retail business. On supply, maintaining the supply and distribution of our essential food and hygiene products, is of course critical both to the consumers but also to the countries that we work in and has been recognised as such by governments. Government lockdowns, I think we're in the wrong there, government lockdowns and the virus bring new challenges for our operations such as physical distancing in factories, the need to wear special protective clothing and equipment, changing people's work procedures, and very much increased hygiene protocols. And in many locations, even traveling to work for our factory teams has been difficult. It's even required special permits to allow people to commute. And indeed, the illness itself, compounded by discipline self-isolation, has meant that we have run our factories sometimes with reduced operator levels. And we've managed to do all of this effectively and at speed. In fact, our skill and reputation in many countries has enabled our leadership teams to quickly engage with government to ensure we can keep making and supplying our essential products to customers. At times, we've even had to intervene on behalf of our suppliers so that they can continue to operate. I do think our teams have done a magnificent job keeping the factories running, opening up new capacity where it's most needed. There have been times where our factories have had to close, but none for more than a few days. And as of today, we're running at an average of around 85% of normal output across our 221 sites. Now, despite these challenges, many of our factories have actually broken production records as they focus on our key SKUs and respond to strong demand for specific products such as in our hygiene and in-home cooking food categories. Prior to the COVID-19 outbreak, hand sanitizer was an absolutely tiny part of our business. Yet over the last two months, we have opened up more than 30 new production lines, including many third parties, to make hand sanitizers. And in the UK, we converted one of our plants in just three days to support this effort. Our first priority has been to serve frontline healthcare facilities with sanitizers, where we've been making extensive donations. Our procurement team have and have had to establish new sourcing routes to secure the supply of thousands of key ingredients and materials. And where it's necessary, we've secured alternative supplies for some materials to ensure resilience. Again, we've worked closely with our retail partners, and an important part of managing supply has been to prioritize production of key SKUs, and that's allowed us to increase output tonnage through long production runs of those key SKUs. Consumer behavior change driven by COVID-19 has led to changing short-term demand patterns, and this slide shows some of the biggest effects. But these are global macro trends, and the micro trends locally are just as important. People are, of course, buying more hygiene products for hands and for household surfaces. And this is one of the changes we expect to see continue beyond the immediate crisis. In some markets, particularly in the USA, but to a much lesser extent in the UK and parts of Europe, we've seen some household stocking of food and hygiene products. And of course, that's a short-term effect. We've seen out-of-home food channels effectively close down during lockdowns. Restaurants, canteens, travel hubs, leisure sites, tourist destinations. And this has had a big impact on us. It's a significant challenge for our ice cream business and our food solutions business. Though the amount of in-home cooking has obviously increased as a partial offset. Also been big changes in the channel footprint. Local stores have become the global default point of purchase, and e-commerce grocery sales have rocketed. For example, in the US, we've seen our e-commerce sales doubling in Q1. And as a total company, e-commerce sales increased by 36% in the first quarter. And this change to online shopping and online media consumption is another factor that we think is going to the lasting impact, as we saw with SARS and the swine flu epidemics, which really were points of inflection for the consumption of digital media and online shopping in China and in Hong Kong. You know, at these times, consumers do seek the reassurance of big, familiar, trusted brands and high quality products. We always see this in the crisis. But in this case, in the aftermath, we do anticipate some trading down to more value price brands because we are facing an inevitable economic downturn. Unilever is generally well positioned for these changes given our strong brands, our strong category positions, our strong local businesses, and a portfolio that does cover the full spectrum of price points. Many of our categories and brands have moved quickly to re-plan their innovation. Some we've postponed, some we've accelerated so that we adjust to consumer buying in different channels and we rework brand communication to make sure that it remains relevant. For example, in home and hygiene, we accelerated the launch of botanical hygiene that you can see here in China. It's a new brand that combines advanced technology with the wisdom of nature. It gives strong reassurance on germ kill. In Italy, we launched a new professionals cleaning range of the Lysoform brand, specially targeted for professional channels. And in Brazil, we teamed up with Heineken who were able to provide the necessary alcohol material to produce a special hand sanitizer, which was distributed to 210 favela areas around Sao Paulo. And of course, our responses go beyond the hygiene space. Dove is highlighting the beautiful courage of frontline health workers Importantly, supporting with much needed donations. This is actually more about brand do and not just brand say. And the Lipton stay home, stay connected message is encouraging people to have a virtual cuppa together. Early in the pandemic, we changed our monthly operational forecasting cycle to a weekly basis so that we can reflect and respond to the rapid changes in consumer demand. And we've been using our digital people data centers to pick up changing consumer sentiment early. When we tap our unique local depth of consumer insight and, frankly, a newly discovered organizational agility, we think it's the potential to permanently unlock new sources of growth for Unilever. We've been guided through these early days of the COVID-19 pandemic by Unilever's multi-stakeholder model, and that's included a commitment to use our scale as a force for good in the community. Yes, our public service messaging is a proven way of building consumer behavior change, and it develops and grows our markets. And we make no apology for that because it's what the world needs right now. These behavior change programs and the substantial product donations that we've been running at scale and in partnership with the World Health Organization, the UK Department for International Development, and so on, they've been an important part of our community response. And as we announced last month, we're also making available 500 million euros of short-term cash flow relief to support livelihoods across our extended value chain, primarily through early payment to our most vulnerable small and medium-sized suppliers to help them stay in business. Of course, we can only make these moves because of the strength of our balance sheet and confidence in our cash generation capability. And it's enabled us to move quickly to take some of the actions I just described for our consumers, for our communities, for our customers, for suppliers, and also to protect our wider workforce. Unilever entered this period with a robust balance sheet and a strong liquidity position. Nevertheless, we've moved at speed to review all sources and uses of cash so that we can continue to invest in our brands and reallocate funds towards the best opportunities to protect and grow the business. And Graham's going to describe some of the actions that we're taking to proactively manage profits and cash. So these five work streams, they've served to guide our immediate response to the pandemic, but actually it's our portfolio our financial strength, and above all, the quality of Unilever's people, which gives us the confidence that we're well positioned, not just to weather this immediate crisis, but as we're already seeing early signals of, to come out of it stronger. And with that, let me hand over to Graeme to talk in a bit more detail about the division and regional performance. Graeme.

Thanks, Alan. Morning, everybody. Well, in Q1, underlying sales growth was 0.0%. That was 0.2% from volume and negative 0.2% from price. The first point I want to land is that after the first two months of the year, we were very much on track with our plans, with the five growth fundamentals starting to deliver, including improving brand awareness, improving household penetration and improving market share. Now, it's hard to be precise about the impact of COVID-19. The virus, as it spread during March, most countries were impacted and rapid changes in consumer behavior have caused quite significant volatility in each market. The four key factors that adversely impacted the quarter were first a decline in our global food solutions business as restaurants, canteens and cafes were closed. Secondly, a decline in out-of-home ice cream, as many of our classic out-of-home retailers like leisure sites, travel hubs, beaches and tourist destinations were closed. Thirdly, a significant slowdown in the Chinese market during the lockdown period there, which lasted for much of the first quarter. And finally, a total lockdown in India at the very end of March, which actually stopped production and shipping for a number of days. Now, each of these four factors individually, had an approximate 1% drag to group growth in the first quarter. And this was partially offset by household stocking at the end of the quarter, mainly across developed markets, as Alan mentioned, in the USA, where we saw pretty dramatic pantry loading, in the UK and in Germany with a smaller amount in Latin America. And we estimate that together this contributed positively about 2% of growth in the first quarter at group level. Now, given the impact that COVID-19 had in different countries at different times, rather than describe Q1 in a lot of detail, we thought it would be more helpful for you to understand the ongoing impacts by category, by channel, and by country. For example, Our out-of-home ice cream sales are about 3 billion euros annually, of which nearly 70% is generated in the second and third quarters, with the second quarter the biggest. All the markets are different, but we've typically seen out-of-home ice cream sales decline by 50% or more when a country moves into lockdown and tourist and leisure destinations are closed down. We also have a two and a half billion euro global food service business, which is also heavily impacted as cafes, restaurants and canteens close. And we're typically seeing sales declines of around two thirds when a lockdown happens in our food service channels. Looking at the impacts of the pandemic on categories and channels, we see five groups. First of all, household stocking in the short term. This is a pull forward in demand due to stockpiling ahead of lockdowns, for example, of dried foods and hygiene products. This is a change in buying patterns rather than a step up in consumption. Secondly, increased consumption from consumer usage, for example, increased cooking at home and stepped up demand for hand washing and hygiene or cleaning products. Thirdly, decreased consumer usage in some of the more discretionary areas, such as hair washing and styling, a reduction in skincare occasions, and in deodorants. For example, we know that those working from home under normal circumstances typically have 11 fewer personal care occasions every week. Fourth, we see channel switching, with the best example being shoppers moving from offline to online channels. In China, for example, e-commerce grew by 34% in the quarter, whilst the offline business was in double-digit decline. And finally, measures in place to contain the pandemic have meant that some channels are mostly closed, which, as I said, impacted both out-of-home consumption of food and refreshment occasions, but also retail outlets in the health and beauty channel where we sell our prestige beauty portfolio. Let's look now at the impact of the pandemic through a geography lens. We know that the impact from country lockdowns is greater than the category and channel shifts that I've just described. Impacts vary as countries go through the cycle from pre-quarantine to physical distancing to shelter at home or even curfews. And finally, of course, through to recovery. And it's key to note that while there are many similarities in the impact of COVID-19 restrictions by country, the duration and severity of the cycle differs quite significantly by country or even by state or by city. So in our first quarter, Africa and parts of Latin America were only just beginning to be impacted by the outbreak of the pandemic. India went into a nationwide shutdown in the last week of March, although there were some lockdowns in some areas from mid-March. Restrictions in China began to be eased at the end of March, and although some restrictions have now been reintroduced and selected big cities, Chinese consumers are not yet going back to how things were before. There's a new normal emerging, such as the attitude of consumers to return to out-of-home dining. Although the restaurant opening rate continues to increase and is currently sitting at around about 60%, the capacity utilization is capped at somewhere between 50 and 70% to ensure that physical distancing is maintained in those restaurants. Let me turn now to the divisions. Overall, beauty and personal care grew by 0.3% with 0.7% from volume. Negative pricing of 0.5% was primarily led by India following price reductions in skin cleansing in the previous quarter. On this slide, we've shown which of the different product categories in the beauty and personal care division have been impacted by the short term pull forward in demand due to household stocking and also the changes in consumer usage. By this, I mean how many times a consumer is washing her hair, using deodorant or cleaning their hands. Skin Cleansing saw mid single digit volume led growth as we responded to the critical need for hygiene products to prevent the spread of COVID-19. From a channel perspective, travel restrictions adversely impacted the Carver portfolio within skincare. Similarly, our overall prestige portfolio is being heavily impacted by the closure of much of the beauty channel, which normally makes up about two-thirds of our sales. Foods and refreshments underlying sales declined by 1.7%, with negative volumes of 1.8% and pricing of 0.1%. Again, we show here the key categories within food and refreshments where we've seen both household stocking and changes in consumer usage. The two major impacts to call out are those I've previously mentioned, the decline in out-of-home ice cream consumption and in global food service sales. In the quarter, the largest volume decline was in ice cream, which was down 8% overall. the result of there being little seasonal sell-in for out-of-home ice cream in our key markets across Europe, in Turkey and in Mexico. Distributors have quite naturally been reluctant to commit to buying ice cream stock with an uncertain holiday and tourism season ahead. And as I said earlier, the next six months normally accounts for around 70% of our annual out-of-home ice cream sales. Also, as mentioned earlier, there was a sharp decline in food service as restaurants, canteens and cafes were closed for most of the quarter in China, but also in March in the other large food service markets, such as the US, Germany and the UK. Increased in-home consumption and household stocking in some markets, particularly in the USA and Europe, contributed to volume-led growth in savory and in dressings. Knorr saw low single-digit growth, whilst Hellman's grew by double digits. Tea declined by low single digits, impacted by India and out-of-home channel closures. The strategic review of our tea business is well underway, and all options to maximize value are being considered. Home care underlying sales grew by 2.4%, with 2.6% from volume and negative price of 0.2%. Our home and hygiene brands, including SIF surface cleaners and Domestos bleach products, benefited from increased demand for household cleaning with double-digit underlying sales growth. As an example of our brands rapidly adapting communications to ensure that they are fully relevant in today's changed world, Domestos is teaming up with cleanfluencers to spread the message about home hygiene. In China, we accelerated the launch of the new germ-killing botanical hygiene range, which Alan mentioned, addressing demand for natural cleaning supported by advanced and effective technology. In laundry format, premiumization, in particular liquids and capsules, continues to be a driver of volume-led growth in fabric solutions. Clean and green home care brand, seventh generation, grew by double digits. And let me turn now to the regions. In Asia-Arab, underlying sales declined by 3.7%, led by a volume decline of 3.4% and a price decline of 0.3%. Most of the emerging markets that we operate in were only at the early stages of the pandemic by the end of our first quarter. China was the exception, and it suffered a significant decline as the lockdown measures to contain COVID-19 restricted out-of-home eating and shopping trips for much of the quarter. Government restrictions were beginning to be eased at the end of the quarter, but it will take some time for consumer behaviours to normalise if and when they do. While government measures were only put in place at a national level in the last week of March in India, there was significant disruption in the early lockdown, despite our goods being classified as essential. The duration and impact of the crisis in South Asia will be key. Indonesia and Vietnam performed strongly, although the Philippines declined across divisions following the early introduction of restrictive physical measures, and our factories were in fact closed for a number of days. Thailand was also negatively impacted with reduced tourism. There was limited impact from COVID-19 in the quarter in Africa. Turning to Latin America, Latin America grew by 4.9%, with 3.1% from price and 1.7% from volume. Across the region, there was relatively limited impact in the quarter from COVID-19, with a small positive impact from household stocking in late March and a negative impact from out-of-home ice cream. We believe that much of Latin America is in the early phase of the COVID-19 cycle. Conditions in the region generally remain challenging with volatile currencies, particularly the devaluation in the Brazilian real estate. Growth in Brazil was helped by continued strength in deodorants and in fabric solutions. In Argentina, we saw strong positive volume across home care and in beauty and personal care, whilst also managing price in what's a continued hyperinflationary situation. North America grew by 4.8%, with 5.6% from volume and a decline of 0.7% from price. This was driven by the strongest growth quarter in the US since 2012, with our mainstream retail business growing at 7.2% as our supply chain responded rapidly to the dramatic increase in demand in March. Household stocking led to a substantial uplift across most categories, while food service, ice cream, and our prestige portfolio were negatively impacted in March as physical restrictions began. Hygiene products such as soap-based products and in-home cooking products under Knorr and Hellmann's brands grew strongly. Both before and during the impact of COVID-19, our competitive turnaround in all three of our hotspot sales in the US has continued. In dressings, we've now been gaining value share for the last three quarters. In US ice cream, although underlying sales growth declined, which is following the market, we have gained share for the last two quarters. And in our key US hair business, we saw mid-single-digit growth in the quarter, with our market share performance back to flat and a strong turnaround from the share loss earlier in 2019. Turning now to Europe, we delivered underlying sales growth of 1.4%, with volume growth of 3.1%, and price down by 1.7%, reflecting a tough pricing environment. Across Europe, ice cream sales declined without the normal retail sell-in ahead of the Easter holiday, which normally marks the beginning of the European ice cream season. The UK and some other countries benefited from household stocking in March, although this pull forward in demand was already beginning to unwind before the end of the month. We saw increased consumer demand for hygiene products and foods, given the significant upswing in in-home eating. Turnover for the quarter was €12.4 billion. Underlying sales growth was flat, Acquisitions and disposals increased turnover by 0.6%, with acquisitions contributing 0.8%. On the 1st of April, Hindustan Unilever successfully completed the merger with GlaxoSmithKline Consumer Healthcare Limited. In early April, we also entered into agreements to buy out the 30% minority share of our subsidiary in Malaysia. Net currency-related items reduced turnover by 0.4%. Currencies have been very volatile in recent weeks, but based on today's spot rates, we would expect a negative currency translation impact of around 3% on turnover and a little more on EPS in 2020. Turning to the balance sheet, Unilever, of course, is a very robust balance sheet and a strong liquidity position. We have a smooth profile of long-term debt maturities and substantial credit lines available. We do not have any material covenants in place, whether for bonds or for bank borrowings. At the end of 2019, our cash and undrawn facilities totaled €11.2 billion, which is 2.8 times the amount of debt maturing in 2020. We have U.S. and European commercial paper programs of around 2 billion of outstandings at the end of March, backed up by around 7 billion of committed facilities. These were renewed this year for a period of one year with a one-year extension option. Only two weeks ago, we secured additional funding in the debt capital markets. This was a prudent move to take advantage of relative market stability at that time and to bolster our headroom and our financial flexibility there. We were in the market to raise 1 billion euros. We were very significantly oversubscribed. And so we decided in the end to issue 2 billion euros. Our strong balance sheet is reflected on our credit ratings, which are currently A1 or single A for long-term debt and P1, A1 for short-term debt. We aim to maintain a strong balance sheet, which we consider to be the equivalent of credit ratings of at least A2 or single A. Within this context, we have maintained our quarterly dividend. Even though our cash position is strong, uncertainty demands that we put rigorous focus on managing our resources and uses of cash and that we are super disciplined in controlling operational costs. First of all, we're managed and focused on managing our receivables. We're also re-evaluating all spend to ensure it's relevant and appropriate in this situation, including operational costs, capex and restructuring investments. Some costs have declined quite naturally, such as travel and in-person market research. We've introduced a worldwide hiring freeze. We have a freeze on all non-essential spending, such as things like consultancy, et cetera. Other savings are readily accessible because advertising production has stopped and media rates have declined so that we can increase our advertising reach for the same level of spend. Nevertheless, we're still reviewing all discretionary marketing spend to ensure it's both effective and appropriate. And above all, we're dynamically reallocating our BMI in response to the crisis. For example, we're shifting BMI that might have been spent on outdoor advertising and supporting out-of-home campaigns and dialing up investment behind areas of the highest return on investment, for example, in skin cleansing, in home and hygiene brands. We're moving at great speed to make sure our brand communications are appropriate for the times that we're in. As examples, we've switched Persil's positioning from Dirt is Good, which encourage children to get out and play, to Home is Good, and a message of thank you for staying indoors. As you know, we have a robust pipeline of savings programs that includes our 5S Savings Initiatives, ZBB, Run Power Grow, and our Change programs. And while these programs continue, we're modifying them to support our focus on protecting cash in times of uncertainty. And I'll now hand back to Alan to cover our priorities for 2020.