Unilever PLC

Good morning and welcome to Unilever's full year results and strategic update. We expect prepared remarks today to be around 45 minutes, followed by Q&A of around 45 minutes. All of today's webcast is available live transcribed on the screen as part of our accessibility programme. First, I draw your attention to the disclaimer to forward-looking statements and non-GAAP measures. And with that, let me hand straight away over to Alan.

Thanks, Richard. We're here to talk about our full year results and our 2021 results have been good. We've delivered our fastest growth in nine years. It's been driven in line with our strategic priorities and we've managed margins to around flat with underlying earnings per share up 5%. But before we get into the detail, I do want to touch on a few topics that are top of mind for many of our investors and have been top of mind for the board and me over the last weeks. And we'll come back to some of these in more detail later. Let me start by sharing unambiguously that I am dissatisfied with the recent value creation that Unilever has delivered for our investors. We have the potential to do a lot more with the portfolio that we have. And my leadership team and I are 100% focused on doing just that, delivering value for our shareholders. Our first priority, of course, and the thing that the vast majority of people in Unilever are focused exclusively on is organic growth. That is our day job. At the same time, though, it's important to chart the long-term direction of the company. And after months of careful review, our board concluded that accelerating the shift of Unilever's portfolio into consumer health and wellbeing would position the company for faster growth in the coming decades. And it's this conclusion that lay behind the confidential discussions that we were having with GSK and Pfizer. That being said, we've listened carefully to our shareholders and we've heard the message that there's currently no support for a move the size of the GSK consumer health business. We remain resolved in the direction of our portfolio evolution, but we will not be proposing transformational acquisitions for the foreseeable future. They are off our agenda. Instead, we intend to improve Unilever's value creation in the following ways. First, we'll continue to accelerate organic growth, investing in our biggest and best brands, which are in great health, stepping up the benchmark quality of our products, and continuing to strengthen our innovation. We will build our position in the growth markets of the future, starting with the U.S., India, and China. And e-commerce remains both an overarching priority and a part of the business that continues to grow very well. Secondly, a powerful new organization model will be a further accelerant. An operating model that moves away from a heavy matrix is simpler, more focused, and provides greater accountability. It is designed for growth, but does so at materially lower cost. And thirdly, we will continue to reshape our portfolio, but through bolt-on acquisitions and selective disposals. We've built substantial, fast-growing new businesses in prestige beauty and in functional nutrition, and this will continue to be the direction of travel for our portfolio. Our capital allocation will be disciplined, and we will maintain Unilever's historically high levels of return on invested capital. We exited 2021 with growth momentum and we expect that to continue. Our goal is to keep growth at least in the top half of our 3% to 5% multi-year range. 2022 has started well, but the biggest challenge we'll face this year is navigating a further step up in input cost inflation. We have been leading on pricing, and it's working. We will invest competitively in advertising, in R&D, and in operational CapEx. As a result, our margin will be down in 2022, though, as Graham will show later, the empirical experience we have is that we can expect a restoration of margin quickly, with the majority coming back in 2023. Right, so this is how we'll run today. First, I'll give a quick overview of 2021 before Graham takes you through the details of the results. I'll then give a strategic progress update, which will include portfolio evolution and some more details on the new operational model that we announced last month. It's a major change for Unilever. Graham will then close with the outlook for 2022 and beyond. So let's take a quick look at 2021. We delivered Q4 underlying sales growth of 4.9%, driven by price with volumes flat. And that resulted in a full year of 4.5% underlying sales growth, well into the upper end of our multi-year framework of 3% to 5%. Volume growth for the full year was 1.6%. Pricing stepped up to its highest level in a decade as we responded to the significant inflation that we're seeing across commodities and other input costs. We believe that landing price at speed is the right thing to do. It's critical to preserving our ability to continue to invest in our brands. At the same time, we maintain good levels of competitiveness, ending the year at 53% business-winning value share, posting a second full year of growth that is competitive. Underlying operating margin for the year was 18.4%, which is down 10 bps versus last year, and in line with our guidance of around flat. Underlying earnings per share were up 5.5% in current currency and 7.8% in constant currency. Free cash flow remained strong at $6.4 billion, albeit down year-on-year versus a record delivery in 2020, where, remember, we focused the business on cash in a period of great uncertainty. And Graham will give more details on this later. I do want briefly to put our 2021 delivery in the context of recent years. At 4.5% underlying sales growth, 2021 was the highest we've delivered in nearly a decade. Of course, this was helped by the relatively low comparator in 2020 as we managed the business through the pandemic. But on a two-year basis, growth is back above 3% and has been accelerating during the year led by pricing. And that's despite some parts of the business, for example, food solutions, still not having fully recovered versus 2019. As you know, restoring Unilever's competitiveness has been a key focus for us over the last three years. Competitiveness had fallen to a level that was unacceptable. And through our sharp five-point strategy and more focus on business fundamentals, we have made a good progress with 53% of our business winning share in both 2020 and 2021. Growth remains our priority, but margin progression is, of course, also an important component of value creation. Underlying operating margin was around flat in 2021, despite the inflationary conditions. So overall, good progress in 2021. Our growth momentum is building. We stepped up pricing significantly in a heavily inflationary environment while delivering strong earnings, and we maintained our restored competitiveness. But we know there is more to do, and further accelerating growth remains our number one priority. I'll come back to this when I talk about our strategy later in the presentation. Now over to Graeme for a few more details on 2021. Graeme.

Thanks, Alan. Good morning, everyone. First of all, let me cover underlying sales growth. While the 2021 quarterly growth numbers were clearly impacted by the comparator, growth progressively stepped up on an average two-year stack basis and is accelerating. We continue to land pricing as inflationary pressures increase through 2021, and we expect further increases in 2022. I'll give you more on that later in the outlook section. We have started seeing some volume elasticity, especially in our markets where pricing has been significant. But these are well within our expectations. While volume growth for the year was positive, there are a few puts and takes within that number. For example, the recovery of food solutions, where volumes grew at over 20%. And in contrast, Southeast Asia, where lockdown restrictions, as we talked about in our last results call, had a 1% negative impact on reported volume growth just in Q3 alone. Turnover of the year was 52.4 billion euros, and that's up 3.4% versus 2020. As already mentioned, underlying sales growth contributed 4.5%, and we saw a positive impact from acquisitions and disposals of 1.3%, with Liquid IV, Horlicks, Smarty Pants, and more recently, Paula's Choice being the main contributors to that. Currency had a negative impact of 2.4% as the US dollar and some emerging markets currencies weakened against the Euro. Based on spot rates, we would now expect a positive currency translation impact of around about 2% on turnover and on EPS for 2022. Turning to our divisions, beauty and personal care grew 3.8% in 2021, with 0.8% from volume and 3% from price, with pricing stepping up across all categories. In 2021, we saw a growth step up in categories most impacted by social restrictions during 2020. That's categories like deodorants, hair and skincare. These grew 4% in the year and are now flat on a two-year CAGR basis. Social occasions in many of our markets remain below pre-COVID levels, with people continuing to work from home and restrictions being reintroduced in some places. We continue to innovate at a greater pace and with greater scale in BPC, with innovations landing on our global brands. For example, Dove, where we launched a range of both liquid and foaming hand washes, which are enriched with Dove moisturizers to mitigate against dryness after regular washing, while still providing germ protection in seconds. Or Rexona, where we rolled out patented technology to the core ranges of the Rexona brand, offering the first ever 72-hour protection in the core of the brand. Skin cleansing declined versus strong double-digit growth in the prior year, but remained significantly ahead of 2019 levels with a two-year CAGR of 6%. And Prestige Beauty continues to be a big growth contributor for beauty and personal care, growing strongly in 2021 and in fact by double digits on a two-year CAGR basis. Growth in food and refreshment was 5.6% in 2021, well balanced between volume and pricing. Our in-home portfolio was flat against a high growth comparator, leaving the two-year CAGR at 6%. This was driven by strong core brand growth and by innovation, such as Magnum Double Gold Caramel Billionaire, our Knorr Zero-Salt wheels, and the Knorr Rindamass product, which we launched in Latin America. Out of Home, which includes our food solutions and out of home ice cream business, grew by over 20%, but is still down 4% on a two-year CAGR basis. The recovery of our food solutions business accelerated throughout the year as restaurants, offices and schools reopened, and we saw our two largest food solutions markets, which are China and the US, return to pre-pandemic turnover levels in the second half. Home care grew 3.9% in 2021, with price growth of 3.1% and volume growth of 0.7%. Pricing stepped up significantly in the second half to over 6%, with limited price growth in the first half. Laundry grew by 6% in the year, bringing the two-year CAGR to 4%, and while home and hygiene declined versus a very strong comparator, it does remain up 6% on that two-year CAGR basis. We're rolling out our clean future technology now across our home care markets with formulations and products that deliver superior performance whilst also being kinder and friendlier to the planet. For example, our SIF antibacterial range, which is scientifically proven to kill 99.9% of bacteria and viruses with a cleaning agent that is 100% naturally derived. Now let me turn to our regions. Our biggest region, Asia Amit Rub, which is nearly 50% of our business, grew 5.8% in the full year with a mix of both price and volume. India performed strongly, growing by over 13%. We stepped up pricing in India during the year while maintaining positive volume. China saw good volume-led growth of over 14%, with strong growth across all divisions, although we're currently seeing a slowdown in market growth driven by online channels. In Southeast Asia, Indonesia remains a challenged business for us with disappointing performance. Competitors there are backwards integrated into the supply chain, and they're therefore less exposed to inflation than Unilever is. Although that's a tough competitive dynamic, we're also clear that we have not been on top of our game in Indonesia when it comes to innovation and driving market development through marketing fundamentals. We have put strong plans in place to address this, but it will take time. Other Southeast Asian markets like Vietnam recovered in Q4 following the severe lockdowns in the third quarter, although the local economies still remain overall quite impacted by the pandemic restrictions. In Turkey, we saw another year of strong growth with both price and volume up for a second year running. Latin America grew by 9% in the year, all from price. Pricing in LATAM stepped up significantly through the year and we're exiting Q4 at 14% price growth with some elasticity impact on volumes now showing. We have a really strong track record of landing pricing in the region, and we will continue to take price, but we will not compromise on the long-term health of the business. Our largest market, Brazil, grew double digit from price with volumes slightly down. North America grew 3.4% versus a very strong comparator, and we saw our growth return to competitive levels in our biggest market, which is the US. We are landing pricing with our customers and consumers and managing volumes well. Higher demand for in-home foods and ice cream has continued throughout the year, and our health and well-being and prestige beauty businesses are now strong vectors to North America's growth, contributing over 2% USG in the full year for North America. Europe was flat in the year with only slightly positive volume in price. The pricing environment in Europe remains difficult. In 2021, our list price increases were still relatively limited despite high levels of inflation, and France in particular remains a key area of pricing challenge. The UK, which is our biggest market in Europe, declined versus a strong comparator. European out-of-home ice cream improved, but still remains well below pre-COVID levels as travel restrictions hit the critical summer ice cream season in 2021. Underlying operating margin for the year was 18.4%. That's down 10 basis points from last year. Our gross margin was down 120 basis points. Despite stepping up pricing significantly, this wasn't enough to fully offset the high-cost inflation we're seeing across our raw materials, packaging, and distribution costs globally. We have been leading on pricing in most markets, and those increases are landing on the shopper shelf. Pricing is a relative exercise and competition is following with a degree of lag. Volume elasticities are so far settling at around the levels we would expect for this level of relative pricing. And we're pleased to have maintained competitiveness while taking these pricing actions. Within gross margin, there was a 30 basis point benefit from the unwind of some of the additional COVID costs and negative mix that we had in 2020. Branded marketing investment in constant currencies was 7 billion euros, so in line with the investment levels of prior years. BMI as a percentage of turnover was down 90 basis points, but if we look one level further down on BMI, we see a considered and responsible approach by our markets, focusing on local market dynamics and taking opportunities to invest competitively at greater efficiency. For example, we stepped up BMI spend in North America, including in our fast-growing health and well-being portfolio. Overheads were down 20 basis points through productivity programs and turnover leverage. Underlying earnings per share, as Alan said, were up by 5.5% in current currency and by 7.8% in constant currency. Operational performance was the main driver of earnings growth, while a reduction in the number of shares from buybacks contributed 90 basis points. An increase in minority interests in India were part offset by lower finance costs and higher income from non-current investments. Looking at 2021 through the lens of our multi-year financial framework, we delivered growth well within our multi-year framework of between 3% and 5%. Underlying operating margin was down 10 basis points, and cash was once again strong at 6.4 billion euros, but down versus the record delivery from last year, which saw lower capex spend and a big focus on working capital. For 2021, we have declared a 3% increase to the dividend, taking it to 4.4 billion euros for the year. Looking at other long-term financial metrics, we delivered another year of €2 billion savings through the various programs that run across all lines of the Unilever P&L. This includes cost of goods savings such as ingredient agility and product logic, savings from our buying scale, and the payback from our restructuring investments. Restructuring was €0.6 billion, which was below the run rate of the last few years because of delays in projects due to COVID disruption and to create the space needed to implement the new operational model in 2022. We still expect to spend 2 billion euros across 2021 and 2022, including the restructuring investment to create and land the new operational model. And thereafter, from 2023 onwards, we expect to return to the pre-2017 restructuring levels of around 1% of turnover. Return on invested capital for the year was 17.2%, in line with our guidance of mid to high teens. The decrease was due to goodwill and intangibles from the Horlicks and Polish Choice acquisitions, partly offset by an increase in profit. Leverage at 2.2x remains broadly in line with our target of around 2x. So summarising 2021, we improved our growth momentum during the year, but we are clear that there's still more to do. Pricing stepped up significantly in a high inflationary environment, and we're pleased to have delivered strong earnings and maintained competitiveness at the same time. And with that, I'm going to pass you back to Alan.