Unilever PLC

Thank you. Good morning and welcome to Unilever's half-year results update. We expect prepared remarks to be around 30 minutes, followed by a Q&A of around 30 minutes. All of today's webcast is available live, transcribed on the screen. First, can I draw your attention to the disclaimer related to forward-looking statements and non-GAAP measures? And with that said, straight over to Alan.

Thanks, Richard, and good morning, everybody. This is how we're going to run today. I'll give a quick overview of the first half of 2022 and an update against our performance on our strategic priorities. Then Graham will take you through the details of the results and we'll share our outlook. Unilever's first half performance does build on the growth that we delivered in 2021. We've been quick to price in response to significant commodity inflation, and that's given us the ability to continue to invest in our brands. Our big brands, priority markets, and key channels have again performed well in line with our strategy, as I'll cover in a minute or two. We've continued to improve the growth exposure of our portfolio, most recently by successfully completing the disposal of the Ecotera tea business and with the acquisition of Nutrafol. And on July the 1st, we implemented our new organization model that does dramatically simplify Unilever and will support higher performance through increased speed, accountability, and category focus. That being said, the external environment remains very challenging. Input cost inflation continues to run at record levels. Graham will show how costs are still significantly up versus a year ago. And even though a few commodities spot prices have eased in recent weeks, we're likely to see peak cost inflation sometime in the second half of the year. The threat of recession is starting to impact consumer confidence and change spending patterns and behaviors. And the pandemic is still with us with spikes in infection rates in several countries and the rolling lockdowns that we all know about in China. However, against this difficult backdrop, we believe Unilever is well positioned. Our brands are in good health with more than 80% of our turnover with either stable or growing brand power. And this is critical as we reset pricing. And in dealing with inflation, we're drawing on our deep experience across many of our markets. We have a playbook which has been fine-tuned in high inflation markets over the years. It starts with precision pricing taken quickly and single-mindedly to protect the shape of the P&L and retain our ability to invest behind our brands. This is the correct strategy, even if it results in low single-digit volume declines in the short term. The new Unilever organization is now up and running. It's a major change for the company, and we're already seeing some of the benefits, for example, in the speed of very recent decision-making around pricing. So far, we're seeing volume elicits that have been better than we expected, and competitiveness has broadly held up well. So against this backdrop, we've delivered second quarter USG of 8.8%. That's 11.2% from price and minus 2.1% volume. And that takes first half USG to 8.1%, of which price is 9.8% volume minus 1.6%. The pricing momentum established during the second half of 2021 and early 2022 has continued, and we've landed increases across all geographies and divisions. We continue to win competitively with 53% of our business winning share. As expected, this is down from the 58% we reported in Q1. We are careful not to push pricing levels to a point where we compromise the long-term health of the business. But as we said before, we are prepared to accept a short-term hit to competitiveness in some places as we lead on pricing. Underlying operating margin was 17%, and that's a reduction of 180 basis points versus the same period last year, and within the 16% to 17% guidance that we gave with our first quarter results. Underlying earnings per share is €1.34, which is an increase of 1% versus last year, and free cash flow remains strong at €2.2 billion. Graeme will give more details on that. Let me now get into some detail on the first half performance through the lens of Unilever's five strategic priorities from our Compass Growth Strategy. And I'll start with brands and innovation. Our 1 billion plus euro brands now make up over 50% of our turnover and delivered USG of 10% in the quarter and 9.4% in the first half. Our growth is being underpinned by bigger, better innovation and a relentless focus on functional product superiority. And our brand investment was up an absolute euro in the first half as planned. Ensuring that brand support is at competitive levels remains a priority as we navigate the second half and into 2023. Our second strategic pillar is to move the portfolio into higher growth spaces. The Ecaterra disposal completed on the 1st of July for €4.5 billion, and this is the culmination of a huge amount of work to establish the world's largest pure play tea business. We wish Ecaterra every success under its new owners. We announced the acquisition of Nutrafol in the quarter and the transaction completed early in July. It's an exciting brand and business which we welcome into our health and well-being portfolio. It's the number one dermatologist recommended hair growth brand in the United States, underpinned with extremely robust clinical evidence and without the challenging side effects that accompany some of the other solutions on the market. Sales are almost entirely online with the largest proportion direct to consumer. Unilever Ventures was a minority investor in Nutrafol prior to the acquisition, and I must say it's great to see this investment mature into a fully-fledged part of Unilever's portfolio. Prestige delivered second-quarter growth of 14%, helped by the launch of Tatcha into the UK, the return of consumers to offline channels, and the expansion of some of our prestige brands in China. Health and wellbeing delivered 28% growth with another particularly strong quarter for liquid IV. Let's now look at our priority geographies, the US, India, China, and our key emerging markets. The US maintains strong growth momentum at 8.7%, and that was driven by price with volumes very slightly negative. Growth in the US continues to benefit from our portfolio changes with prestige beauty and health and well-being contributing strongly. As we anticipated with the Q1 results presentation, we've continued to see ongoing customer service challenges in the U.S. caused primarily by labor availability. The situation is improving quickly, but it will continue into the third quarter. E-commerce growth has moderated in the U.S. as consumers return to physical stores, and we see a greater number of consumers researching online and then purchasing offline, and that emphasizes the growing importance of digital channels in the path to purchase. India has already reported post-19.5% growth, price up 11.8% and volumes up 6.8%. This growth is broad-based and it's driven by strong competitiveness and a portfolio that's been built with brands competing up and down the price tiers. The Indian markets are growing in value, but market volumes are declining. This consumption weakness is due to the impact of inflation on Indian consumers, particularly those in rural areas. We are confident of HUL's ability to continue to grow ahead of the market, and we see that reflected in very strong market share performance. China declined by 9.3% in the quarter, with volumes down 10.5%. This, of course, reflects the impact of the lockdowns on both consumer and last-mile deliveries, mostly in April and May. Our competitiveness in China remains strong, and we did begin to see some easing of the restrictions in June. 17.4 billion of our first half turnover, nearly 60%, came from emerging markets. However, EMs is not really a particularly helpful aggregation. It comprises markets with very different structures and different consumer dynamics. So we thought it might be helpful if we shared performance in some of our key emerging markets in a little bit more detail. In Turkey, consumers are adjusting to the reality of extremely high inflation. Despite higher prices, we see consumer demand and market volumes holding up due partly to pantry loading. We're ensuring that we adjust our portfolio to offer the right product formats and pack sizes and strengthen our position in the right channels to navigate these conditions successfully. Not surprisingly, we see good growth, for example, in the discounter channel in Turkey. Our business is performing well so far with 44% USG and 15% volume growth in the quarter. In line with our treatment of other hyperinflationary countries, the underlying price growth in Turkey was capped from the second quarter. In Southeast Asia, we see a range of slightly different conditions. For example, in Vietnam, the economy and consumer confidence are both relatively strong, and we're seeing a continued shift to multi-channel shopping and premium propositions like Pond's Age Miracle. In Thailand, the market remains overall flat, with positive price being balanced by negative volumes. The removal of government support packages put in place during the pandemic is having some impact on consumption. And associated with this, we see a shift towards modern trade from smaller traditional outlets. The country desperately needs the economic boost of a return to full tourism levels. Overall, our business in Southeast Asia grew 8% in the quarter with only a small decline in volume. In Indonesia, we see growing consumer confidence as people get back to more normal lifestyles. With the high inflation levels, some consumers are trading down to cheaper brands in home care, much less so in beauty and personal care or in foods and refreshment. We're taking action to ensure that our brands cover all relevant price points. From a channel perspective, the mini-market proximity store channel continues to grow, as does e-commerce in the major cities, and we're now seeing smaller independent outlets returning to growth. So we saw 10% growth in Indonesia in the quarter. It was led by price with volumes down. Indonesia is a market where we continue to work to restore competitiveness. We're seeing benefits from increased investment in, for example, the configuration and reach of our distribution network, from higher levels of marketing support, and from some important changes to our pack price architecture. But there is still more to do on competitiveness in Indonesia. In Latin America, we're seeing inflation have a direct impact on consumption with consumers shopping around to find the best deals. This is reflected in very clear channel shifts to cash and carry and to wholesalers and to street markets. And that's coupled with greater shopping frequency, smaller basket sizes, and some switching to lower price points. Our LATAM USG was just under 17% in the quarter. Price up by over 21% was partially offset by volumes down four. This high level of price increases is necessary to protect the ability to invest in our brands. And the impact on volumes was very much in line with our expectations. We continue to pay very close attention to competitiveness. And I'd also like to give a quick mention to Africa, which has continued its run of strong delivery with 14% USG in the quarter. Relevant and impactful innovation remains critical to success in emerging markets during these tougher economic times, and you can see some examples at the bottom of the chart. They cover premium solutions that provide functional superiority, such as the color and fiber protection offerings from our premium laundry care brands, and premium propositions like Pond's Age Miracle that I already mentioned. But also the need to ensure that our brand portfolio and pack price architecture cover all the relevant price points. And you can see the example here of Dishwash in Indonesia. And finally, propositions which unlock new ways to offer great value to consumers. And Omo Dilutable is a great example of that. So while the emerging markets are living through more difficult economic times, they're certainly not one homogeneous group. The right local insights offer great opportunities for brands to meet those needs with great products that deliver great value and not just lowest possible price. So next leading in channels of the future, e-commerce grew 25% in the first half with growth coming from omni-channel retailers and our B2B platforms. Pure play was flat and that reflects primarily the impact of the COVID lockdowns in China. Worth noting that in just five years, e-commerce has grown from 2% of Unilever's turnover to 14% in the first half. We do continue to invest in channel expertise and the right technology and in channel-specific innovation. And a couple of examples, in recent months we've launched these Dove premium hair treatment masks and the clear scalp care range, which is aimed to meet the needs of the younger male consumer in China, as well as Lifebuoy bundled products in the UK. And they're all designed to increase the value density and achieve high transaction value for our online channels. Now, at the start of the year, we set out our intention to implement a new organization and operating model, and the new model went live on the 1st of July. It marks a significant moment for our company. The objectives of the change are to make Unilever simpler, faster, more agile, even more focused in our categories, and with greater empowerment and accountability. It is a simple model with five business groups, a lean corporate center and a low-cost technology-driven transactional backbone, Unilever Business Operations. The new business groups are now in place. They're fully responsible for their portfolios from strategy to monthly performance. And Unilever Business Operations is now responsible for all our transactional processes that benefit from Unilever's scale, the power of one. We'll update you on the distinct strategies for the business groups and Unilever business operations later in the year. It is still early days for the new model, but I'm already impressed by the difference in the focus, the energy, the urgency that this change is creating. Our task for the coming months is to bed in the structure, refine it, help our people adjust to the new ways of working, and we are being cautious to avoid declaring victory too early in what is a substantial change for the company. We'll be sharing the restatement of our financials through the lens of the new business groups in September, and our third quarter results will be presented on this new basis. So let me not repeat the full summary of our first half performance. We're starting to see the consistency of growth that Unilever looks to deliver. It's coming in line with the strategic priorities that we identified early last year. And the underlying growth potential of our portfolio has been transformed through judicious disposals and focused acquisitions. Of course, we cannot know exactly what lies ahead, but I am confident that Unilever is a very different business than it was before the pandemic. Stronger, faster, hungrier, more fit to compete. And with that, over to you, Graham, for more details on the first half performance.

Thanks, Alan. Good morning, everybody. Our focus on operational excellence and our five strategic choices continue to drive competitive growth. After posting growth of 7.3% in the first quarter, we grew by 8.8% in the second quarter, putting the half at 8.1% USG. Of this, price growth was 9.8%, volume growth was minus 1.6%. And we feel that this is a good performance in what are very challenging inflationary conditions, and in line with our shorter-term strategy that Alan has just outlined. We delivered broad-brace growth across all three of our divisions. Pricing has stepped up sequentially now over the last six quarters in response to the rise in commodity inflation. If we aim off for the specific impact of the lockdowns in China, volumes are tracking pretty much as we anticipated when we presented the Q1 results, and better, in fact, than our historical price elasticity models had predicted for us. If we click down now into performance through the regional lens, our largest region, Asia-Amit-Rub, grew 9% in the second quarter, with 11.9% from price and minus 2.6% volume. The China lockdown impact was negative 160 basis points on volume, and we saw continued strong volume growth in India, as Alan's described earlier. So quite a few moving parts to the reported minus 2.6% volume for Asia. Latin America stepped up from 9.8% growth in Q1 to 16.8% in Q2, with 21.7% price and minus 4% volume. Elasticity levels have been performing in line with our expectations and very much reflect the strength of both our brands and our in-market execution across the LATAM region. North America grew 8.9% despite the constrained supply we're experiencing. We saw good growth across foods and refreshment and beauty and personal care, and especially in prestige and health and well-being. Europe grew 4.6% with 6.5% price and minus 1.8% volume. Whilst there are local nuances, the UK, France and Germany all delivered low single-digit growth with pricing largely offset by lower volumes. Food solutions posted strong double-digit growth and ice cream growth was strong as the out-of-home channel reopened. Turnover for the half year was 29.6 billion euros, up 14.9% versus 2021. Underlying sales growth contributed 8.1%, and we saw a positive impact from acquisitions and disposals of 0.6%, with the inclusion of prestige beauty brand Paula's Choice being the main driver of that. Currency had a positive impact of 5.6% 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 around 4.5% on turnover for the full year 2022. Turning now to our divisions, beauty and personal care grew 8.0% in the second quarter with 10.5% from price and a 2.3% decline in volume. Price stepped up in all categories versus the first quarter and we expect to see continued impact of price on volume going forwards with the growth of prestige, beauty and health and well-being offsetting some of this. Deodorants delivered double-digit growth with volume flat as social and work occasions continued to return across our markets. Rexona 72-hour protection continues to perform strongly, and Axe is benefiting from the success of a full brand restage with longer-lasting fragrances and superior odor protection for body sprays. Skincare grew low single digit on the back of a strong prior year. Ponds delivered double digit growth in India, partially offset by more muted growth in the US and a decline in China. Hair care grew mid-single digits, driven by strong performances in India and North America, and helped along by the success of Sunsilk Active Infusion, which is our best-ever blend of vitamins, oils, and proteins to improve the health and look of skin and hair, supported by the Sunsilk brand mission, which is to open up possibilities for girls everywhere. And with a mission to tap into new growth channels, Unilever International has forged a partnership with Intercontinental Hotels Group to supply their guest bathrooms with larger packs of personal care products in a move that will significantly reduce IHG's single-use plastics footprint. Growth in food and refreshment was 8.1% in Q2, with a small decline of 1.2% in volume. Continued out-of-home channel recovery drove growth in both ice cream and food solutions. Out-of-home ice cream benefited from strong price and volume growth as the ice cream season in the Northern Hemisphere got off to a flying start. Magnum and Cornetto were both strong, supported by the Magnum Classics Remixed and Cornetto Soft innovations. Performance in the US, and especially in Ben & Jerry's, was constrained by supply issues which are continuing into the third quarter. Hellman's delivered double-digit price-led growth in the quarter with a step up from Q1. Hellman's brand purpose to reduce food waste is gaining real traction, and the new Turn Nothing Into Something campaign is driving growth whilst having a positive impact on food waste. Sales at our food solutions business, which serves professional chefs, are now 6% higher than pre-pandemic in 2019, and that is despite the impact of the lockdowns in China in the second quarter. Looking forward, though, we are aware that inflation could have an impact on consumer discretionary spending and hence eating out habits, and we're going to closely watch and follow that. Home care grew 12.2% in Q2, led by price growth of 16.6% and a volume decline of negative 3.8%, mostly across the European and Latin American home care markets. Fabric cleaning delivered strong double-digit growth, with volumes holding up well, helped by strong contributions from the brands Omo and Radiant. South Asia and Turkey both delivered positive volumes, coupled with double-digit price increases, supported by the category format shifting ever more towards liquid detergents. Fabric enhancers accelerated in the second quarter with a strong performance by Comfort in Brazil and China, with the latter helped by the success of Comfort fragrance beads. We also saw good growth from the professional channel with the launch of Omo Perfect White, timed to coincide with the return of travelers to hotels. This range is super concentrated, meaning less plastic packaging per wash and is unbeatable stain removal for the common stains found in the hospitality industry, whilst also needing less energy and water in the wash cycle. So Omo Perfect White is really a quadruple win for guests, for the hospitality operators, for Unilever and for the planet. Home and hygiene growth was more muted as consumers used less hygiene and disinfection products than they were last year. Let me shift gears now to the cost environment, specifically how inflation is impacting our business and how we're managing it. Now, we spent quite some time in previous quarters discussing the particular cost pressures that we're facing. This chart shows that these cost pressures remain despite some recent falls in the spot prices of palm kernel oil and aluminium, which demonstrates the continued volatility we're seeing in the global commodity markets. In April, we projected €4.8 billion of net material inflation over the course of the year. Just as a reminder, net material inflation is the absolute impact that we see after savings, after buying efficiencies, after product logic changes, etc. Our latest view of net material inflation is a little lower at around €4.6 billion, with nearly €2 billion already baked into the first half and around €2.6 billion projected for the second half. Now, of this second half spend, 80% is now covered through contracts and inventories and hedging, reducing the levels of uncertainty for the second half, but also meaning that it takes a little time for spot price falls, if they're sustained, to enter fully into our cost base. We are expecting to hit peak year-on-year inflation in the second half, and therefore we will continue to price responsibly while managing consumer demand elasticity and competitive dynamics. This then brings me on to margins. Underlying operating margin for the half year was 17%, down 180 basis points from last year and within our guided range. Gross margin was down 210 basis points, reflecting the fact that despite stepping up pricing significantly, it was not sufficient to fully offset the cost inflation. Branded marketing investment in constant currencies was 3.7 billion euros, and that's up 0.2 billion euros versus the prior year. High levels of turnover growth, of course, mean that BMI as a percentage of turnover was down 40 basis points, but this is a less useful measure when turnover growth has been driven so high by pricing. Our internal analysis reassures us that our support levels are competitive, and we remain focused on this as the year progresses. Overheads were up by 10 basis points with productivity programmes and turnover leverage more than offset by some investment behind our strategic priorities. Constant rate earnings per share were down 3.9%, mainly due to the lower operating margin, higher financing costs and tax, partially offset by the impact of the share buyback programme. The higher tax rate reflects changes in profit mix and some favourable one-offs in the prior year, which led to an underlying effective tax rate of 24.4% versus 21.9% in the prior year. The main reasons for the increase are changes in the profit mix, as I said, and favourable one-off settlements. Underlying earnings per share were up by 1% in current currency, with a favourable currency tailwind contributing 4.9%. Based on spot rates, we would now expect a full-year positive currency translation effect on earnings of around 4%. We continue to adopt a disciplined approach to capital allocation, and that has three key elements to it. First, we continue to invest in our business operations. This includes CapEx, which is now increasing post-COVID as we had anticipated, but also into BMI and into R&D. Now, I know that the latter two are included in the operating margin, but I call them out here to emphasize their fundamental importance to our business model. A key theme underpinning our CapEx is the investment in digital, whether that be in our supply chain, our marketing, or in our relationship with customers and platforms. This digital investment is enabling us to better understand consumer needs, to better serve customers, and to run an efficient supply chain. We are making significant investments in our supply chain networks in our priority markets, with India and US network resets and a new multi-category site in China underway. And we're also investing to increase capacity for premium ice cream in Europe and in North America. secondly from a capital allocation perspective portfolio alan covered this earlier so i'll not repeat the details but we continue to use bolt-on acquisitions and selective disposals to reposition our portfolio towards higher growth and finally returns to shareholders in addition to the ongoing attractive dividend that we pay we're also well advanced in our 3 billion euro share buyback program over 2022 and 2023 with the first 750 million tranche now completed and it's our intention to launch a second tranche of 750 million early in the third quarter. Free cash flow in the half was 2.2 billion euros, that's down 0.2 billion euros versus the prior year, which reflected higher capex and cash tax, partially offset by improved operating profit and working capital. Our net debt to EBITDA ratio increased from 2.2 at the end of 2021 to 2.3 times in line with our broad leverage target. Our net debt level stands at 27.1 billion euros, up from 25.5 billion at year end. The increase was driven by the dividends paid, our share buyback programme and an adverse currency movement, partially offset by free cash flow delivery. The cash proceeds from the T disposal are in the bank, but they were received after the quarter closed, so they're not yet reflected in any of these numbers. Our pension surplus increased from 3 billion euros at the full year end to 5 billion euros today. The increase was driven by lower liabilities as interest rates partially offset by negative investment returns on pension assets. So what does this mean for the outlook for 2022 and beyond? With higher pricing, we now expect underlying sales growth in 2022 to be above the top end of the previously guided range of 4.5% to 6.5%. That'll be driven by price with some further pressure on volume. We will navigate the inflationary pressure while investing for growth to support the long-term health of our brands. We will continue to invest competitively in advertising, in R&D, and in capital expenditure. And we will embed 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 full year 2022 to be 16% within our guided range of between 16% and 17%. We will continue to drive savings very hard and take actions across all lines of the P&L. And if exchange rates continue around the same levels for the full year, then we expect overall euro earnings to be largely unchanged. Looking beyond 2022, we expect to improve margin in 2023 and 2024 through pricing, mix, volume leverage, and savings delivery, and as market conditions normalize. And as I've said before, we will not be setting a margin target. That concludes the prepared remarks, and with that, let me hand you back to Richard for Q&A.