Unilever PLC

Good morning and welcome to Unilever's Q1 2022 trading statement. We expect prepared remarks to be around 30 minutes, followed by Q&A of around 30 minutes. All of today's webcast is available live, transcribed on the screen as part of our accessibility programme. First, can I draw your attention to the disclaimer relating to forward-looking statements and non-GAAP measures? And with that, let me hand over to you, Adam.

Thanks, Richard. And good morning, everyone. In the next few minutes, I'll give a quick overview of our Q1 2022 results. And I'll do that with reference to the very dynamic external environment and in the context of Unilever's continuing five strategic priorities. Then Graham will go into some more details on the results as well as share our outlook for the year. The external environment is characterized really by three big themes, and the first and most significant is inflation. As you're aware, Unilever was already seeing significant increases in input costs through 2021. Those inflationary pressures sharply accelerated at the end of last year and into the first quarter. Events in Ukraine have now led to even higher levels of inflation since February. Agricultural products, materials derived from crude oil, have been particularly badly hit, and the overall input cost inflation forecast for Unilever in 2022 has risen from 3.6 billion, which we communicated in February, to now 4.8 billion. Now, to manage this, we will continue to drive an ambitious saving program and increase prices thoughtfully. These mitigating actions are really an essential component of our ability to protect the shape of our P&L and so invest competitively in advertising, in R&D, and in CapEx. There is still significant uncertainty around our costs for the second half, and Graham's going to come back to this later. Unilever continues to condemn the war in Ukraine. Our priority has been to protect our people so that they can take care of our businesses. Our business in Ukraine has been severely restricted. We have helped many of our employees to leave the country and we're supporting both those who have left and those who remain with a variety of financial and practical measures. We've also made substantial donations of product and cash to relief efforts. We will, of course, comply with international sanctions and so suspended all imports and exports of our products to and from Russia. We've stopped all capital inflows and we've committed to not profiting from our operations in Russia. We're keeping our position under close review. And as we've said many times, our first concern is the safety of our people. COVID is still very much with us. The regional lockdowns in China are a reminder that COVID can still have an impact on both consumer demand patterns and our ability to supply products. However, the picture varies dramatically across geographies, and there are many markets which are returning to a new normal. And it's against this extraordinary backdrop that we have delivered quarter one USG of 7.3%. That comprises 8.3% price growth and minus 1% volume. We've delivered the strong price growth with only a small impact on volumes, and we think that's due to the strength of our brands. The pricing momentum established during 2021 has continued, with increases being landed across all geographies and all divisions. While we're acutely aware of the pressure on consumers, we believe that increasing prices in response to this extreme commodity cost pressure is the right thing to do. It's critical to enable us to continue to invest in the quality and performance of our brands. We continue to win competitively. 58% of our business is winning market share. And we're being careful not to push pricing levels to a point where we compromise the long-term health of the business. Our market teams are managing the cost-price competitiveness dynamic in real time, market by market, channel by channel, brand by brand, week by week. Strong execution is the mantra in our markets. Let me now get into a little bit of detail about quarter one through the lens of Unilever's five strategic priorities captured in our Compass strategy. And let's start with our brands. Our 13 1 billion euro plus brands now make up over 50% of our turnover and they delivered underlying sales growth of 8.8% in the quarter. Our growth is being underpinned by bigger, better innovation and a constant focus on product superiority validated by continuous testing. Dove has successfully introduced its new core body wash into Europe, North America. The new formulation is true to the brand's core moisturization promise and includes new ingredients which support the skin's self-moisturization process so that it transforms even the driest skin in just one shower. Knorr has introduced zero-salt stock cubes into 15 markets, cracking that technical challenge of offering a product that's rich in flavor but with zero salt. And this enables us to access the growing salt-sensitive segment of the market and meet the needs of a growing number of consumers across all ages and demographics. And the dirt is good core relaunch, offers superior cleaning at the lowest washing temperatures, and is now rolled out across 35 markets. The products are made from naturally derived cleaning actives and enzymes. The packaging is much more sustainable. It's 100% recyclable. It's got more recycled plastic. In fact, it's got up to 80% less plastic than before. Consumers are responding very well to the superior mix. The brand's winning share and brand power measures are at their highest ever levels. Our second strategic pillar is to move the portfolio into high growth spaces. In the Q4 results presentation, we shared quite a bit of detail on the growth performance of our acquired businesses. And in the first quarter, the acquisitions that we've made since 2017 grew at 14.8%. And as the chart shows, this drove 80 basis points of accretion to our USG. Prestige Beauty growth of 14% was driven by continued good performance in skincare with a step up in hair and makeup with Tatcha, Living Proof and Hourglass all growing strong double digits. In functional nutrition, Q1 USG was 18% and that reflects particularly strong growth from the Liquid IV and Oli brands. Organic portfolio evolution and the priorities that we set for innovation and ongoing investment also have a key role to play alongside acquisitions and disposals, and Graham will shortly give some examples of how organic growth is also contributing to the reshaping of Unilever's portfolio. Now, 2022 has begun well for our priority markets, the US, India, and China, and we have strong business winning reads for all three. The US grew competitively at 8.9% with volumes up 2%, and this is despite some service level challenges caused by constrained supply and particularly labor availability, and those have had an impact on production and delivery. India posted 10.4% growth with flat volumes, and this is against a backdrop of flat value market growth and negative market volume. So overall, we're growing well ahead of the market with business winning in excess of 75%. Our powerful portfolio of brands in India enables us to offer products at different price benefit levels so that we can stay relevant for our consumers. And our brands are successfully championing and opening up new demand spaces in India. For example, laundry capsules, the development of the mayonnaise market with Hellmann's. And this is all with a relentless focus on product superiority and consistently excellent operational execution. And we have been able to navigate tricky market conditions. We're well-placed for the challenges ahead. And China delivered 6.4% growth, which was volume-led. There was limited impact in Q1 from the regional lockdowns, but we are expecting a larger impact in Q2, especially from our big food solutions business in China. It's not only demand which has been impacted, but also supply. We have a couple of factories around Shanghai, and those have now been shut for several weeks. You can see that all three markets grew well, and that's on top of strong first quarter performances in 2021. Next, leading in channels of the future. Well, e-commerce grew 27% in the quarter with growth coming from all the main sub-channels. In just five years, e-commerce has grown from 2% of Unilever's turnover to 14% now in this quarter. We've invested significant resources in channel expertise, channel-specific innovation, and our tech capabilities, and we're going to continue to do so. We are increasingly designing products with the specific requirements of the e-commerce channel in mind. For example, in recent months, we've launched Persil Dilute at home. You can see the Rabine dry wash that neutralizes odors, it straightens wrinkles, restores the shape of clothes, and Dove body wash in a beautiful forever bottle with e-commerce friendly concentrated refills. As we set out at the start of the year, our new operating model will support our purpose-led FutureFit organization and culture, and the objectives of the changes are simple. They're to make Unilever simpler, faster, more agile, more focused in our categories and with greater empowerment and accountability. It's a simple model with five business groups, a lean corporate center, and a low-cost technology-driven transactional backbone called Unilever Business Operations. We've made very good progress on the implementation of the new structure. All senior leadership teams have now been appointed, and we're on track for the new organization to be fully operational on July the 1st. And now I'd like to hand over to Graham for a bit more detail on our quarter one performance. Graham.

Thanks, Alan. Good morning, everybody. We delivered 7.3% USG with strong pricing, further building on the improving growth performance that we saw in 2021. All three divisions had a solid quarter despite strong comparators, with Q1 being the highest quarter of USG and volume last year. Underlying volume growth was minus 1%, which, in the context of significant price increases, showed elasticity either within or somewhat lower than we had anticipated. There was some benefit from weaker comparators in parts of the business, such as food solutions, with the food service channel reopening. We are delivering continued good performance in business winning and our brand strength and product relevance with consumers are allowing us to price responsibly while maintaining competitiveness. This is a balance that we'll have to continue to navigate in the months ahead. The majority of the volume decline was seen in European and Latin American home care and was driven by both pricing action and high prior year comparators. COVID continues to impact our markets. In China, as Alan has said, we saw the introduction of lockdowns towards the end of the quarter. In other markets, we saw some moderation of e-commerce growth as people returned to physical store shopping. And out of home, we are seeing the benefits of people starting to travel, socialise and eat out again. If we click down into the performance through the regional lens, our largest region, Asia-Arab, grew 9.1% with 8.5% price and 0.5% volume. Priority scale markets, India and China, both performed strongly, as Alan's just mentioned. Elsewhere in the region, Indonesia is starting to turn around, growing nearly 7% with good performance from beauty and personal care and in foods from scratch cooking products. The actions we are taking to address our Indonesia performance are beginning to bear fruit, but we have more work to do over the coming quarters in terms of strengthening our brand's value proposition and focusing on the quality of our distribution in the trade. Despite increasing consumer confidence, inflation is impacting the Indonesian consumer and we are seeing continued downtrading to lower price packs. Latin America grew 10% in Q1 with 16% price and minus 6% volume. Price growth of 16% is a further step up from Q4, which was 14%, as cost inflation continues to increase in Latin America. Despite a long history of this dynamic there, the scale and breadth of the price increases is unprecedented, and while we will continue to price, we will do this responsibly, remaining mindful of the consumer and the long-term health of our businesses there. Elasticity levels have been performing in line with our expectations and reflect the strength of both our brands and our market positions across the LATAM region. North America grew by 8.5%, and we maintained a step up in competitive market performance delivered over the second half of 2021, with good levels of business winning and 2% volume growth. This was despite the constrained supply we're experiencing in North America that Alan mentioned earlier. Price actions have been executed well across our customer base, and we saw good growth across beauty and personal care, foods and refreshment, and especially in our prestige beauty and health and well-being businesses. Europe grew 0.7%, with 5% from price and minus 4% volume. Many of our markets in Europe continue to decline, and inflation is impacting consumption. We've been working intensely to take the necessary price increases with customers in Europe, and whilst many have been landed, there are still some under discussion. Individual market dynamics vary very widely in Europe, and the Netherlands, Italy and Eastern Europe grew, while the UK, Germany and France declined, reflecting a combination of weaker market growth, high prior year comparators and pricing action impacting volume as expected. Turnover for the quarter was €13.8 billion, up 11.8% versus 2021. Underlying sales growth contributed 7.3% and we saw a positive impact from acquisitions and disposals of 0.7%, with the inclusion of prestige beauty brand Paula's Choice, the main contributor to that. Currency had a positive impact of 3.5% as nearly all of our basket of currencies strengthened against the euro. Based on spot rates, we would now expect a full year positive currency translation effect of 4% and a little bit less than that on EPS for 2022. Turning now to our divisions, beauty and personal care grew 7.1% in the first quarter with 7.4% from price and a 0.3% decline in volume. Price stepped up in all categories in BPC versus full year 2021, and we expect to see a greater impact of price upon volume going forwards, with the consistent double-digit volume growth of Prestige Beauty offsetting some of this. Deodorants held volume flat as social and work occasions continued to return across our markets, offset by some consumers' downtrading. Rexona 72-hour protection provides a premium product supported by over 17 patents and 200 clinical tests. Dove deodorant has been relaunched with a mix that offers superior care and efficacy through patented antiperspirant technology with moisturizing cream and protecting oils. We relaunched Lux Bar Soap across South Asia, North Africa, and the Middle East to introduce ProGlow technology, which is clinically proven to deliver superior skincare benefits. And we've also relaunched our clear anti-dandruff shampoo in China with superior scalp care performance and a new marketing mix designed to ensure that the brand remains relevant to a younger demographic. Growth in food and refreshment was 6.5% in Q1, with a small decline of 0.6% in volume. Continued out-of-home channel recovery drove the growth in both ice cream and food solutions. Europe grew nearly 50% in out-of-home ice cream following the prior year lockdowns, and we continue to see strong ice cream performance in China. Multiple markets in food solutions are back to turnover levels that are higher than those of 2019. But we do remain a little cautious on a complete recovery due to the latest lockdowns in China where we have a large food solutions business. We're also mindful of general inflation levels having an impact on consumer discretionary spending and hence their eating out habits. Our plant-based innovations in food and refreshment are contributing to good growth and helping drive the organic portfolio change that Alan referred to earlier. With Hellman's Vegan extending its flavour range and Knorr's plant-based meat extender, Rindemass, helping consumers get more servings for their meat dishes without compromise on flavour and nutrition. And the vegetarian butcher has partnered with Domino's to bring the irresistible pepperoni pizza to markets across Europe with all of the taste and texture and experience of animal-based pepperoni. The Hellman's food waste campaign has been a very notable success, especially in the US with the hashtag MakeTasteNotWaste Super Bowl campaign featuring Gerard Mayo. The campaign drove higher earned impressions and higher engagement than the previous year's campaign, and this translated into higher brand equity, market share, and growth. Turning to home care, home care grew 9.2% in Q1 2021, with a strong price growth of 12.5% and a volume decline of 2.9%, mostly across European and Latin American home care markets. In Europe, we have a combination of declining markets and pricing action, whereas in Latin America, it is more closely linked to price increases. This quarter saw the launch of a new range of fabric conditioners, which protect consumers' clothes from damage and keep them looking better for longer. We also launched comfort fragrance beads in China. Sunlight Natural's dishwash liquid was extended into Chile and Vietnam, and this is a product that uses the world's first biosurfactant, which is 100% renewable, 100% biodegradable, and also gentle on hands. Dirt is Good, which you'll know is the Omo brand in many markets, introduced dilute at home laundry liquids containing unique and exclusive technology, which enables us to offer super concentrated products for dilution in the home. And it also allows us to reduce plastic packaging by 90% and the water in the manufacturing and distribution chain by 70%. Let me shift gears now and move to the cost environment, how inflation is impacting our business and how we are managing it. There are widespread inflationary pressures which we spoke about in detail last quarter and there has been significant change in the world since then. Recent months have seen large price movements in the key commodity markets and it is a very wide spectrum. From tea and coffee, where prices have fallen, cocoa, which is flat, to palm oil, crude oil and natural gas prices, which have increased significantly. We've highlighted on this chart some of the largest commodities for Unilever, and you can see that many of these sit at the upper end of the range of price inflation. Let me take you now one level down on the detail. On the left hand side of this busy chart, you can see our commodity basket broken down into four groupings and showing what we spend annually. On the right hand side, we show the 10 year spot price trend of the most relevant commodities within each of these groupings. The index on the far right hand side of the chart shows the average spot price in March 2022 relative to the 2020 average price, which we've rebased to 100 in each case. Palm oil, including palm kernel oil, is one of our biggest cost items. Prices sit at the upper end of the 10-year range and have accelerated since January. One of the factors driving this is substitution, which is the switch into palm oil from sunflower oil as the supply is impacted from Ukraine and Russia, which together represent 75% of global volumes. Soybean oil shows a similar picture. More widely, agricultural crop costs are impacted by the potential for reduced yields, given Russia's position as a major source of fertilisers globally. The high crude oil price has a direct impact on petrochemicals, on freight and on logistics, as well as indirect effects on many other materials, including the substitution of biofuels for mineral fuels. And in packaging, we're seeing upwards pressure on plastic packaging and crude oil, as well as higher costs of paper, pulp, and aluminium, which consume a lot of energy in production, as shown here. Now, this chart is one that we showed you in February, and it sets out the relationship between our material inflation and our gross margin. In February, we were managing a projected 3.6 billion of net material inflation over the course of the year. Inflation in the first half is largely unchanged at around €2.1 billion, and this is largely fixed now for the first half, but we do now expect much higher cost increases for the second half of 2022. Based on the latest projections, we now expect input cost inflation for H2 to be around €2.7 billion. There is still significant uncertainty around this number, given the volatility in materials prices. We've calculated the 4.8 billion, taking into account the spot prices today, the forward curve, and the coverage that we have through inventory, contracts, and hedges. We are close to fully covered in Q2, and around 45% covered for the second half. To manage this magnitude of cost challenge, we will continue to price responsibly while managing consumer demand, elasticity, and competitive dynamics. We are crafting our innovation pipeline, our product logic, our pack architecture to meet this challenge while keeping our focus around the business on service, on efficiency and on savings. Agility and strong execution will be key and we're off to a solid start, but these really are unprecedented times. So what does this mean for the outlook for 2022 and beyond? Well, with higher pricing, we now expect underlying sales growth in 2022 to be towards the top end of the previously guided range of 4.5% to 6.5%. We will navigate the inflationary pressure while investing for growth to support the long-term health of our brands. We will therefore continue to invest competitively in advertising, in R&D, and in capital expenditure. And we will implement our new operating model without losing the improved momentum we have built, maintaining our cost discipline and delivering the leaner and simpler organisation we have designed. We expect underlying operating margin for the first half to be within our guided 2022 range of between 16% and 17%. As a result of the further increase in input costs in the second half, we currently expect the full year underlying operating margin to be at the bottom end of that range. The higher growth in our latest outlook goes some way to offset the lower margin impact from the higher input costs. We will continue to drive savings hard and take action across all lines of the P&L. And if favorable exchange rates continue for the full year, then the overall impact on Euro earnings is likely to be minimal. The greatest area of volatility, of course, is around the input costs, and we will update you again with our half-year results. Looking beyond 2022, we still expect to restore margin through pricing, mix, volume leverage, and savings delivery during 2022 and 2024 as market conditions normalize. And with that, let me hand you back to Richard to get started in the Q&A.