Unilever PLC

Good morning and welcome to Unilever's Q3 Trading Update. We're very pleased today to be back in the office for our quarterly results for the first time since early 2020. We expect today to have prepared remarks of around 30 minutes and then we'll have Q&A also of around 30 minutes. All of today's webcast is available live transcribed on the screen as part of our accessibility program. So first, can I draw your attention to the disclaimer to forward-looking statements and non-GAAP measures? And with that, let me hand over to Adam.

Thanks, Richard. And good morning, everyone. Welcome to our Q3 trading update. I'm going to kick off with the company's overall performance and share some short updates on our strategic choices. And then Graham's going to cover the performance of our divisions and regions. Well, our year is on track with good year-to-date underlying sales growth of 4.4%. As a result of the cost inflation that we've seen build through the year, we've significantly stepped up pricing in the third quarter and we now have good pricing momentum. Our focus on operational discipline has been an important contributor to maintaining competitiveness, and our strategic choices, which I'll talk through in a bit, are continuing to make a positive impact on our growth and business momentum. Our outlook for the full year remains unchanged. We expect full year USG to be well within our three and a half, three to five percent multi-year framework, and our full year operating margin to be around flat. Underlying sales growth in the third quarter was 2.5%, bringing us to 4.4% USG on a year-to-date basis. Pricing stepped up significantly as we took action across almost all markets in response to the high levels of inflation that we're seeing. And this is important given that inflation will continue to be a key theme for the remainder of this and for next year. Pricing in the quarter was 4.1%, and that's up from 1.6% in Q2, and we expect high pricing levels for the remainder of the year and into 2022. Volume was down 1.5%, with difficult trading and market conditions in Southeast Asia contributing nearly 1% of negative volume growth in the quarter. We also lapped last year's very strong high single digit volume growth in North America. There is more pricing still to come, but our pricing actions are thoughtfully planned and carefully executed. We expect a net benefit to Topline from the pricing actions that we're taking. I'm pleased that on a moving annual total basis, our key competitiveness measure of business winning share remains at a healthy 54%. Now I'm very aware that there's been a lot of comment and questions on this metric. We certainly welcome the opportunity to clarify. So let me just say a couple of words about it. The competitiveness in our business had been slipping for several years prior to 2020, and it has been vital that as we drive operational excellence across the business, we measure how much of our business is winning market share. Now, there's no perfect single measure of competitiveness, but many companies use this metric or some variant of it, and we see it as the best overall measure of competitiveness because it best answers the simple question of whether our growth performance is competitive or not, and because it helps drive broad-based growth across the business. All sales that are winning share contribute to the measure, obviously with large sales contributing more than small sales, and this drives all of our teams to be competitive regardless of the market conditions they face. We aim to keep this metric consistently above 50% on a 12-month moving annual total basis. And if you would like to understand more about the metric, please go to our investor relations website. There's further explanation and more detail. So next, let me talk briefly about the operating environment. Although life for many of us is starting to normalize, we are operating in a global environment that is far from business as usual. And this is particularly true for Unilever because of our uniquely wide geographic reach. We continue to see inflation with the cost of many commodities up sharply versus a year ago. This runs across agricultural commodities, petrochemical derived materials, paper and boards, transport and logistics, energy, and is even showing up in labor rates. Many parts of the world continue to be impacted by COVID. In Southeast Asia, we've seen very strict lockdowns imposed in Indonesia, Vietnam, and Thailand. COVID cases in Southeast Asia spiked during the quarter, but it's encouraging to see vaccination rates now picking up and total global cases finally beginning to come down. Supply chain disruption seems to be in the news daily, and we expect to be managing this for the balance of this year into at least the first half of next year. Staffing shortages are having an impact on logistic costs, for example, in markets like the US and the UK. But Unilever manages this type of volatility well. and our supply chain has again shown the necessary resilience to keep our on-shelf availability, the ultimate measure, at strong levels. Across our top 10 markets, our most popular SKUs have an on-shelf availability of over 96%, and we've actually improved this measure by 70 basis points versus the same period in 2020. So all in all, a global operating environment that remains very volatile, but one where Unilever's resilience and agility is serving as well. Let's get back to performance. I'd like to take a look at the quarter through the lens of the five key strategic choices that we set out at the beginning of this year. These have guided our investment priorities, and although there's still a lot more to do, we're building positive momentum in our performance. So let's start with portfolio, where we want to develop more of our footprint into higher growth spaces. We're building sizable businesses now in Prestige Beauty and Functional Nutrition, and these are adding to our growth. Both these businesses now have good scale. Prestige will have annualized turnover of around a billion euros, and Functional Nutrition around one and a half billion, within which the vitamins, minerals, and supplements business is well on track to turnover of over one billion, and the balance is half a billion of Horlicks. Prestige grew 24% in the quarter, and Functional Nutrition grew 20%. Together, Prestige and Functional Nutrition contributed 60 basis points to top line in Q3 and 50 basis points on a year-to-date basis. And it's worth noting that for VMS, this still only reflects the Ollie brand, with most of the other acquired VMS businesses not yet counting towards USG because we've owned them for less than 12 months. We're also looking to selectively roll out these brands internationally, especially to fast-growing Asian markets such as China. You know, we were the first company across the entire prestige beauty industry to receive a Chinese cosmetic license for an imported product without conducting animal testing. It happens that that was for Kate Somerville's Eradicate, and we have subsequently obtained further licenses and have more prestige product notifications in progress. We're ramping up sales of Ollie and Smarty Pants in China, where we see a bright future for our VMS business. R&D and innovation is, of course, the lifeblood of our brands. We're making good progress on the way we innovate and how we bring those innovations to market at scale. We're more focused, seeing fewer but bigger projects with a 30% cut in the number of projects while doubling the average project size by 2022. We've also doubled our product testing coverage, measured against competition. Over 60% of turnover now wins in blind testing, which is a significant improvement versus 47% in 2019. And when we include products that test at parity to the best competition, we're unbeaten in 94% of tests. This, combined with a much fuller and more focused innovation funnel, has seen a step up in the performance of our innovations launched. Some examples would be Dove Skin Cleansing with superior moisturization as well as 100% recycled packaging. The new Dirt is Good laundry technology with best ever cleaning performance based on plant-based polymers, all in recycled packaging again. And in food, Knorr's Green Deal, affordable, healthy, fortified meal innovation. And we do see this reflected in the growth of our big brands with our three biggest brands, Dove, Knorr, and Dirt is Good, all growing strongly year to date. The way we innovate is changing, particularly in the use of our data and analytics and how we collaborate to innovate. We're increasingly collaborating with external partners. And since 2020, we have entered into over 500 IP generating partnerships in areas like plant-based proteins and the use of biotechnology for better cleaning. Our highest priority markets are the US, India, and China. Together, these countries represent 35% of our turnover, and their forecasts account for 60% of global growth by 2030. It is in these markets that we focus our investment in innovation, in channel development, in talent, and they have a priority call on our capital allocation. Most of our acquisitions have been in these priority markets with VMS and Prestige Beauty concentrated in the US and Horlicks in India, for example. So that combines our strategic choices of evolving our portfolio into higher growth spaces with strengthening and expanding our business in these key markets. We've seen continued strong performance in all three markets in 2021 and in the third quarter. The US continues to grow on the back of very strong high single-digit comparators last year, resulting in a two-year CAGR of around 5%. Our competitiveness in North America has now crossed the important benchmark of 50% winning share on an MAT basis. India has been growing double digit despite the second COVID lockdown in Q2. Reported growth in India has also been helped by lapping a weak comparator from the prior year. We are emerging stronger from the pandemic with over 75% of the business there winning market share and household penetration continuing to grow well. Mobility and consumer sentiment still remain below 2019 levels, but we're strongly positioned to grow as the Indian economy continues to recover. And our Chinese business has emerged stronger and more competitive from the pandemic. Penetration on our core brands is up. We're shifting our portfolio continually towards tailwind channels like e-commerce, and we're reaching more consumers in smaller regional cities. The business is growing double digit this year and high single digit on a two-year CAGR basis. And our competitiveness is up both offline and online. So staying with that theme of e-commerce, our aggregate e-commerce business grew by 38% in the quarter, well ahead of the market, leaving year-to-date growth at 46%, with strong performance across all the sub-channels of e-commerce. Business-to-consumer grew 23% in the quarter, and the total e-commerce business now represents fully 12% of the Unilever Group turnover. We continue to build our purpose-led and future fit organization and growth culture. The step up in pricing that we delivered in the third quarter is testament to the agility and the customer centricity of our people and the performance culture that Nitin's COO role brings to our frontline teams. There's also a strong mindset to drive productivity and savings across the business. And we're on track to deliver another year of 2 billion euros of savings. Learning and improving key capabilities across the organization remains an area of intense focus, especially digital skills and the use of technology. In April, we launched our e-commerce accelerator learning pathway. And since then, more than 15,000 certifications have been achieved globally. And I'm very happy that our already strong employee engagement has improved further over the last few years. to over 80% of our employees feeling strongly engaged with the business. This is well into the top quartile of benchmark companies. And it's worth noting that engagement has strengthened considerably through COVID and the challenges of remote working. And with that, now let me hand over to Graham. Graham.

Thanks, Alan. Good morning, everybody. Year to date growth is at 4.4%, thanks to a combination of strong operational grip and our strategy driving faster competitive growth. In the third quarter, we grew 2.5% against a strong comparator of 4.4% in the prior year. Our organisational agility and discipline enabled us to deliver a significant step up in pricing in the quarter to 4.1% and we're on track to deliver 2 billion of savings for another year as Alan said. Volumes in the quarter were down 1.5% and were particularly impacted by a difficult environment in Southeast Asia where volume declined high single digit with very limited pricing. This had a negative impact of 1% on group volume in this quarter. Our markets remain very varied, with some pretty much back to normal and some in strict lockdowns, which impacts channel dynamics, cost, consumer behavior, and of course, our sales mix. Turnover for the quarter was €13.5 billion, which is up €0.6 billion versus last year, reflecting organic growth and a positive impact of 1.6% from acquisitions, mainly from vitamins, minerals and supplements, as well as our new prestige skincare brand Paula's Choice. Underlying sales growth was 2.5% and we saw a relatively limited impact on turnover from currencies this quarter. Based on spot rates, we still expect a negative currency translation impact of 2-3% on turnover for the full year and around 1% more on EPS. Now we still think it makes sense this quarter to show you this chart for your reference because it illustrates the very different dynamics we've been seeing both last year and this year as we begin to emerge from the pandemic. While consumption patterns are starting to normalise towards pre-COVID levels in many categories, there are still strong variations across different parts of the Unilever portfolio. For example, while hygiene and in-home food have seen declines in the last two quarters against very strong comparators, they remain firmly above 2019 levels. Personal care and out of home are now recovering, but they remain below their 2019 levels as restrictions remain in parts of the world and people are doing more at home and less in the office or in social venues. Turning now to our divisions, beauty and personal care grew 2.6% with positive price of 3.9% and negative volume of 1.3%. Deodorants, skin care, and hair care all grew as we stepped up pricing and as usage occasions picked up in many countries. In the US, our first refillable deodorant is live in big customers such as Walmart and Target. We also launched a fully biodegradable shampoo formula under the Love Beauty and Planet range. This means that all of our ingredients break down into their basic components shortly after use, are already in a form that's ready to return to nature, making them less of a burden on the water system, which is of course something that consumers are increasingly conscious of. Think of a formula that disappears yet still delivers healthy and beautiful hair that stands out. Skin cleansing was down 5% as we're still lapping strong growth from the prior year when demand for hand hygiene spiked significantly. Since then, demand for products such as hand sanitizer has slowed down considerably, but remains elevated compared to pre-pandemic levels. As already mentioned, Prestige Beauty had another strong quarter with growth of 24%. Foods and refreshment grew 3% in the quarter, with positive price of 3.8% and negative volume of 0.8%. Out of Home, which is around 25% of our F&R division, grew 17% as more countries reopened. Out of Home Ice Cream, representing 40% of our ice cream business globally, recovered with good price growth, but was somewhat impacted by the poor summer weather across much of Europe in August. We continue to digitise our Out of Home channel, for example, through our Ice Cream Now business, which is on track for €300 million of turnover just four years after we launched it. Growth in food solutions continues to be driven by our large business in China, which is now well above 2019 turnover levels, with the rest of the world still below pre-COVID levels. We saw further sequential improvement in many other markets like the US and the UK as restaurants opened again. Investments made in a comprehensive digital selling program across all of our away from home businesses have been a key enabler of faster growth. This program has now been rolled out to 14 markets with really good results. For example, in China, digital selling has enabled our food solutions business to grow the number of active outlets from 80,000 pre-COVID to over 180,000 today. Or another example is in Brazil, where our ice cream business has been able to maintain the absolute number of outlets covered, but with a 70% smaller sales force. In-home food declined 1% versus a double-digit comparator in the prior year, but overall demand remains strong and ahead of pre-COVID levels. Hellman's continues to grow strongly with communication focused on reducing food waste. In the US, we partnered with 70 influencers across Instagram and TikTok to encourage consumers to open their fridges and utilise leftover food in creative ways using Hellman's Mail. This campaign generated more than 330 million impressions across social, print, and digital media. And we also continue to invest in sustainable packaging, with 100% recycled packaging now launched in two-thirds of our Hellmann's markets. In fact, more than 80% of all Hellmann's plastic packaging globally now comes from post-consumer recycled materials. And in China, we've launched an iconic Viennetta ice cream in a mini stick format, which taps into both new consumer channels and occasions while delivering that same indulgent Viennetta experience. Turning to home care, home care grew 1.4% with pricing stepping up to 4.8%, a negative volume of 3.2%. Growth in laundry was price-driven as we took the lead on pricing in key markets such as Latin America, and we are pleased with how volumes have held up in many markets. In Latin America, we launched a winning OMO formulation that kills 99.9% of viruses while being better for the environment thanks to its technology with concentrated active ingredients. Leveraging government incentives for sanitizing products, we've actually been able to offer this to consumers at a lower price than a regular Omo pack. And this innovation has been highly incremental with 44% of volumes coming from consumers who are new to the Omo brand. This is a great example of agile and sustainable innovation driving growth in one of our largest businesses. Home care volumes reflect a decline in home and hygiene, where we're still lapping a very high surge demand from the prior year, and a volume decline in Southeast Asia from the difficult trading and market conditions that Alan referred to earlier. Let me turn now to our geographies. Conditions in Southeast Asia obviously also affected reported results in the Asia Amit Rub region, where we grew 2.3% with strong pricing of over 4%, but negative volume of 1.9%, mostly because of the conditions in Southeast Asia, where pricing was in fact very limited. China, one of our key markets, continued its strong growth trajectory across all divisions. Now, you may have heard Rohit Jawa, who heads up North Asia, talk about the initiatives taken there to come out stronger from the pandemic in our recent China Deep Dive, where he also spoke about how the focus on their growth priorities is making the business more competitive, more agile, and importantly, more digital. If you didn't catch the Deep Dive in China, you can certainly find a playback on our website. India, the second of our three key markets, recovered well from the second wave of COVID, although mobility still remains somewhat below pre-pandemic levels. Our Indian business grew double digit, ahead of the market, with strong pricing and volumes. As I've mentioned, markets in Southeast Asia remain difficult and all our big countries in the region declined in the quarter. This was driven by negative volume due to pandemic-related restrictions across those countries. Vietnam, for example, was in a severe lockdown for much of the quarter, with curfews and a great many stores shut. This severely impacted the operations of our business and our ability to meet consumer demand. However, we did leverage the easing of restrictions in Vietnam in the final days of the quarter to replenish stock levels in the trade. Thailand continues to be impacted by the lack of tourism, which is an important part of the local economy. Indonesia saw record numbers of COVID cases during the quarter and strict lockdowns in many parts of the country. We must also report, however, that our overall competitiveness in Indonesia is not where we want it to be and we're working very hard to turn this around in the quarters ahead. Latin America grew 8.7%, all from price in response to cost inflation and currency devaluation, and we led on price across many brands. Pricing at these levels will have some impact on volumes, but overall we expect to see a net benefit from leading on price, and we will continue to do so, building on the experience that we've built in this volatile region over many decades. Pricing was particularly strong in Brazil, and Mexico grew really well with both volume and price growth. Alan's already touched on our U.S. performance. We delivered another quarter of growth in North America with 2% USG versus a high comparator of 9% in the prior year. And this means that our two-year CAGR remains strong at around 5%. Our Prestige and VMS businesses continue to deliver high growth and demand for in-home foods remains strong whilst out-of-home foods continues to recover. Europe was flat in the quarter, with underlying sales growth of 0.3%, with positive price of 2.1% and negative volume of 1.9%. The UK declined as we lapped a strong comparator from the prior year, while Italy and Spain saw good growth, although consumption there remains below pre-pandemic levels. In France, the retail environment has remained deflationary despite rising input costs. Now, inflation is at very high levels, and we are leveraging our savings programs, our buying efficiencies, and our productivity programs harder than ever. Hedging provides some shorter-term benefit, but we use this only as a way to gain a time buffer to landing savings, working the product mix, and taking pricing, as these are really the key levers in managing inflation at these levels. We stepped up pricing significantly in the third quarter, as you've seen. There is always a time lag between seeing inflation and landing pricing, especially at these very high levels, and when you see continued sequential increases in input costs and distribution costs. We will take pricing where we think it is the right thing to do, but we will not rush pricing or compromise the long-term health of the business. We have strong brand equities, winning products, and deeply experienced pricing capability across the business, especially in our emerging markets. This is delivering good pricing momentum, which we expect to continue in the quarters ahead. Consumer-facing price is the last lever we normally use to manage inflation, but we have landed list price increases around the world. For example, in seven product categories in the US, and we've also taken eight price rises in Brazil so far this year. And this demonstrates that we can quickly and successfully land price where it is the right thing to do. In our emerging markets businesses, we find that taking several small price increases is more effective than one large price jump. We also continue to leverage all other pricing levers, for example, mix, promotions, pack architecture, and trade terms. There is of course some volume elasticity expected when you take steep price increases, but those elasticities differ by country and by category, and are generally more impacted by relative pricing, by which I mean pricing relative to the market, rather than by absolute pricing. In the US, for example, elasticity has been slightly lower than we expected, and our analysis shows that consumers are now less price sensitive than they were just back in 2019. In Brazil, where pricing was double digit, we have to date seen relatively muted volume decline. And in India, where we also took pricing, volumes have so far been holding up. Generally, we would expect to see higher elasticities in our more discretionary and expandable categories, such as ice cream and snacking, and lower elasticities in everyday necessity categories, such as laundry, hygiene, or scratch cooking. We carefully monitor the strength of our brands, which continues to be very healthy, and competition intensity across all categories, and these are the key factors we take into account when making pricing decisions. So, managing the triangle of inflation, pricing and elasticity remains our absolute focus for managing a healthy P&L shape through this period of cost inflation. And year to date, this has enabled us to contain gross margin decline to just over 100 basis points, despite the very high and broad-based inflation. Through the COVID period, we highlighted the negative impact from additional COVID-related costs and negative product mix. We're now seeing some of the negative COVID mix reverse as personal care usage occasions increase and skin cleansing is lapping strong demand in the previous year. COVID costs are reducing slowly, but a lot of our factories are still operating under heightened hygiene protocols and staff shortages, even in countries where social restrictions have been eased. In the full year, we expect to see a small benefit coming back from COVID-related costs and mix. We continually seek opportunities to make our marketing investments ever more efficient and to reach more consumers in a more effective way. We continue to invest to support the long-term health of our brands, our innovation and our products. And this is evidenced by our increased competitiveness, increased product test wins and our healthy brand power measures. Over 80% of our turnover has stable or growing brand power. and our share of advertising spend relative to our share of market has been maintained well above the 100 index. While 2020 saw significant variations between half one and half two in our BMI spend phasing, we think the absolute amount of investment for the full year was at about the right level and we're looking to maintain it at broadly similar levels this year. All of that gives us confidence that we will deliver full year margin in line with the outlook that we gave our half year results of around flat. It is clear that the extremely high inflation will continue into 2022 and we expect the peak inflation pressure to be in the first half. As a business, we're fully focused on delivering 2021 and we continue to take responsible pricing action in the marketplace while driving our productivity and savings programs harder. There are many moving parts and volatility remains high, but we will not compromise the long-term health of our brands or business. We will update you as normal on 2022 outlook with our Q4 results. Looking to closing the year then, as Alan has said, our outlook for the full year remains unchanged. We expect full year USG to be well within our 3% to 5% multi-year framework and full year underlying operating margin to be around flat. And with that, let me hand you back to Richard for the Q&A.