Unilever PLC

Good morning and welcome to Unilever's full year results. 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. First, can I draw your attention to the disclaimer related to forward-looking statements and non-GAAP measures, and then straight away hand it over to you, Alan.

Thanks Richard, and good morning everybody. Before we start, I'm sure you will all have seen by now that Unilever has appointed Hein Schumacher as our new CEO, as from the 1st of July. and I'd like to use this moment to congratulate Hein on his appointment. From the limited time that we spent together over the last few months, I have every confidence that Hein will be a great leader for Unilever and that he will take the business to new heights in the coming years. I look forward to continuing to work with him on our board ahead of handing over the keys as CEO at the end of June. But meantime, it is full steam ahead to sustain the current good momentum in Unilever's business. My team and I remain fully focused on that task at hand. Right, this is how we'll run today. I'm going to give a quick overview and then Graham will take you through the details of the results. I'll then give an update of our progress against our strategy and Graham will share our outlook before, of course, we move on to take questions. 2022 was an important year for Unilever. We navigated levels of commodity cost increases that we've not seen in a generation, taking price increases responsibly to protect the shape of the P&L and thereby enabling us to continue to invest in our brands. We managed the impact on volume as well and as a result delivered growth levels not seen for over a decade. We surpassed 60 billion euros of turnover for the first time and added two more brands, Lifebuoy and Comfort, to the billion euro club, which now stands at 14 brands. And then within that group, Dirt is Good passed the 4 billion milestone and Hellmann's and Rexona passed 2 billion. The important point here is, of course, not the rather arbitrary turnover milestones, but the contribution of our biggest and best brands to Unilever's growth. The billion euro plus brands collectively grew at 11% for the year. And these brands are our first priority for innovation and for investment. Through this volatile period, we landed margin in line with guidance, we exited the global tea business, and we fundamentally rewired Unilever implementing our new organization model, which is delivering increased speed, accountability, and focus. There is more opportunity and more value creation ahead from unlocking the full potential of Unilever. 2022 represented a big step forward and we come into 2023 full of energy and ambition to accelerate the pace of our transformation. First, let's review our performance in 2022. We delivered Q4 underlying sales growth of 9.2%. That was driven by 13.3% price with volumes down 3.6%. And that resulted in full year growth of 9% with price up 11.3% and volumes down 2.1%. While the volume impact was greater than in previous quarters, it is still less than we would have modelled at these levels of price growth. We saw our measure of competitiveness, percent business winning, dip below 50% on an MET basis in Q4. This was not altogether unexpected as we've trailed clearly in our previous calls. It is a consequence of the necessary pricing action that we're taking. in the face of extraordinary inflation, and also some decisions that we're taking to streamline our product portfolio. We face further commodity cost increases in the first half of 2023, as Graham will explain. However, our brands are strong and we are investing for growth. As things stand, I expect business winning to be back over 50% in the second half of 2023. Underlying operating margin for the year was 16.1%, that's down 230 basis points versus 2021, bang in line with our guidance. Absolute underlying operating profit was up slightly at €9.7 billion, helped by favourable currency. Underlying earnings per share were €2.57, that's down 2.1% as reported. down 8.2% in constant exchange rates. Free cash flow was robust at 5.2 billion, and that's reflecting a cash conversion ratio of 97%. And after financing, an increase in our capital expenditure of 400 million euros. Let's take a closer look at these results through the lens of the five business groups. I hope you'll see how the business group structure is allowing a differentiated focus on categories that are seeing different consumer behaviours through this inflationary period. Beauty and Wellbeing reported 7.8% underlying sales growth for the year, 7.9% price and positive volume of 0.3%. Fourth quarter growth was 7.7%, that's 8.4% of price, minus 0.6% on volume. Prestige Beauty delivered another year of double-digit growth with a strong performance by Paula's Choice, which was included in underlying sales growth from the third quarter onwards. Hourglass, Tatcha, Living Proof all finished the year strongly. Health and well-being also maintained double-digit growth through the year, powered by liquid IV, although Q4 did see a slowdown in the vitamins, minerals, and supplements market globally. Skin care grew mid-single digits, with volumes only marginally down, and we saw particularly good performance from Vaseline in Southeast Asia, helped by the continuing success of the Gluta Haya innovation. Carver's performance was negatively impacted by reduced consumer demand in China and by disruptions in cross-border trade. While Carver's recent performance has been disappointing, we remain confident about the future opportunity for the AHC brand as China reopens post-COVID. Hair also grew mid-single digits with a strong performance from our largest hair care brand, Sunsilk, which benefited from its Naturals relaunch. Nexus also had a very good year and is a good example of our strategy to premiumize our portfolio in hair care and skin care. Personal care reported 7.9% underlying sales growth through the year with 12.1% price and volume lower by 3.7%. Fourth quarter growth was 9.1%, 13% of price and minus 3.5% volume. Deodorants had a particularly strong year, with positive volumes despite double-digit pricing. Rexona, Dove and Axe all contributed to this excellent performance. Rexona's 72-hour non-stop protection product is a particular highlight. It's a great example of where we have a significant product superiority, which we will continue to drive as a multi-year growth initiative. Skin cleansing grew well, with double-digit pricing partially offset by volume declines. Dove saw the introduction of the improved deep moisture body wash, while Lux introduced new bars with enhanced skincare benefits. Oral care also grew well, helped by the relaunch of Pepsodent. Dollar Shave Club, whilst marginally profitable, continued to decline in a fiercely competitive market. We've been clear that performance of Dollar Shave Club has not met our expectations, and consequently we've taken an impairment charge on DSC for our full year 2022 results. Homecare reported 11.8% underlying sales growth for the year, 15.9% price with volumes lower by 3.5%. Fourth quarter growth was 12.3% driven by 16.7% price with volumes down 3.8%. Price elasticity has remained stable and volumes have held up better than our models predicted. The Home Care Business Group has undertaken a rigorous programme to reduce complexity, and this has led to some short-term volume loss through 2022, with a greater impact in the second half. Fabric cleaning had a particularly strong year, growing double-digit overall and in all formats and all main brands. And this growth was very broad-based across geographies, with South Asia, Brazil, and Turkey all delivering double-digit growth. Fabric enhancers also grew well, helped by the ultimate care range, which protects clothes from damage, as well as leaving them smelling fantastic. Home and hygiene grew more modestly, in part due to changing consumer habits in Europe as people dialed down their need for disinfection in the post-COVID era, but also because surface and toilet cleaning is a relatively more discretionary category with higher elasticity in the face of rising prices. Nutrition. Nutrition grew 8.6% in the year, price up 10.9% and volumes down 2.1%. Fourth quarter growth was 10.1%, driven by 14.7% of price and volumes down 4.1%. And that includes the impact of lockdowns on our large food solutions business in China. Dressings grew double-digit in 2022, driven particularly by Hellman's and particularly in North America. We benefited from the continuing success of the Make Taste Not Waste campaign, and I must admit we are looking forward to seeing the business impact of this year's Hellman's Super Bowl campaign. We also took advantage of the good growth momentum to exit some unprofitable lines, which impacted the volume and market share, but strengthens the long-term health of our dressings business. Scratch cooking aids grew mid-single digit, with Knorr successfully introducing zero-salt bouillons. And despite the lockdowns in China, our global professional food solutions business delivered double-digit growth in 2022, and actually returned to pre-pandemic volumes. Ice cream grew 9% in the year, with price up 9.7, volumes down only 0.7. Fourth quarter growth was 2.9%, with pricing of 14.2, and a volume decline of 9.9%. And we really need to break down these results to understand them, and let me do that for the full year results. Our out-of-home ice cream business, which is roughly 40% of total ice cream, recovered very strongly, and that was helped by favourable summer weather in Europe, though volumes in total are not yet back to pre-pandemic levels, and that partly reflects the closure of some ice cream sales outlets. In-home ice cream, which is 60% of the total, also grew in the year with strong price growth. And this came on top of lower volumes, which reflects a step down from elevated sales during the lockdown period. Nevertheless, in-home volume and value indices are still both above 2019 levels. In the fourth quarter, in-home delivered positive underlying sales growth with lower volumes for the reasons that I've just described, as well as high levels of pricing and some choices we made to step away from unprofitable volumes. Out-of-home volumes in the fourth quarter were impacted by an early close to the season. What was happening was that shopkeepers in some markets responded to fears about rising energy costs by switching off their cabinets earlier than they otherwise would have done. In practice, the fears did not materialize, and so we don't anticipate this having a big impact on the start of the 2023 season. Magnum and Cornetto are both in great shape. They grew double digit in 2022. Magnum driven by the classic remix innovation and Cornetto benefiting from the introduction of the new premium format. Cornetto rose again an example of a successful multi-year growth initiative. we remain very optimistic about the outlook and prospects for our ice cream business. So that completes a quick run-through of the business group performances, and I'd like to hand over to Graeme, who'll cover the 2022 full-year results in a bit more detail. Graeme.

Everybody, as Alan's just said, full year underlying sales growth was 9%, driven by price at 11.3%, and with volumes modestly down by 2.1%. All five of our business groups grew, driven, as Alan said, by the billion euro plus brands. Now, prices stepped up sequentially for eight quarters in response to rising costs. Volumes have held up well overall, and we continue to carefully manage the triangle of price, margin, and competitiveness market by market. Turnover for the year was €60.1 billion, that's up 14.5% versus 2021. Underlying sales growth contributed 9%, as we've just seen, and we saw a negative impact from acquisitions and disposals of 1%, with the inclusion of prestige beauty brands Paula's Choice and Nutrafol offset by the exit of the global tea business. Currency had a positive impact of 6.2% as our basket of currencies strengthened against the euro. If we look now at performance through the regional lens, our largest region, Asia-Pacific Africa, grew by 10.3% in the year with 11.3% from price and minus 0.9% volume. In the fourth quarter, growth remained strong, driven by India, Southeast Asia and Africa. China declined due to the period of strict lockdowns, which impacted our large China food service business in particular. Indonesia saw negative volumes as we reset price and promotional strategies and reduced trade stocks in a number of categories across selected channels. The market context in Indonesia remains highly competitive, but every one of our business groups is focusing attention on this very important market. And from a base of mid-single-digit growth in 2022, we are confident that performance will continue to improve in the coming year. North America grew 7.9% with price at 9.4% and volumes down only 1.4% despite constrained supply during the year in a number of our categories. Pricing remained strong at 10.1% in the fourth quarter with volumes down 4%. This in part reflects the proactive steps we've taken in nutrition and in ice cream to remove unprofitable business as Alan just highlighted a few seconds ago. Latin America grew 14.9%, with price up 20.4%, offset by volumes which declined 4.6%. Price elasticity remains stable and lower than our historical models would have predicted. This reflects a well-positioned portfolio and the strength of both our brands and our in-market execution across the region. Europe grew 4.1% in the full year, with price up 8.3% and volume down 3.9%. The fourth quarter saw a step up in price to 13.2% and a volume decline of 6.8%. All our business groups were down in volume, with ice cream the most heavily impacted. Price elasticity in Europe has increased during the course of 2022, and we've recently seen share gains by private label in Europe in most categories as the economic situation weighs on shoppers. This brings me on then to margins. Underlying operating margin for the full year was 16.1%. That's down 230 basis points from last year and in line with our guidance. Gross margin was down 210 basis points, reflecting the fact that despite stepping up pricing and landing higher delivery from our savings programs, we were very mindful of the pressure on consumers and chose not to fully offset the extraordinary level of cost inflation through pricing. We did, however, continue to invest more behind our brands, with brand and marketing investment up €0.5 billion in constant currencies versus the prior year, and with more than 80% of that investment going directly into media. BMI as a percentage of turnover was down 10 basis points, though this is perhaps less useful as a measure when turnover has been driven so high by pricing. That said, however, media investment as a percentage of turnover was up in beauty and wellbeing, in personal care and in home care. Now, our tracking measures reassure us that our support levels are competitive and the business groups have built strong plans for 2023, which will reflect further increases in brand and marketing investment. Overheads were up 30 basis points with productivity programs and turnover leverage more than offset by further capability investments in areas like our 29 digital marketing, media, and e-commerce hubs around the world, which Alan's going to comment on a little later. We also have a mixed effect in overheads caused by the higher growth of Prestige Beauty. As well as looking at percent margins, we look at absolute profit delivery in euros. Underlying operating profit was up 0.5% at 9.7 billion. This reflects the fact that the lower underlying operating margin was offset by strong turnover growth with a little benefit from favorable currency translation. It's important to put the decline in gross margin into perspective, and this chart sets this out quite clearly. The net materials inflation, or NMI, that we've experienced this year has been the highest for decades. Inflation was already rising before the war in Ukraine, and the conflict only served to put more pressure on commodity and energy costs. The total increase in 2022 landed at 4.3 billion, only slightly below the 4.5 billion that we indicated in our first half results column. We reacted quickly to the cost inflation and implemented price increases through the year, with underlying price growth stepping up sequentially across the quarters and reaching 13.3% in the fourth quarter, contributing to a full year increase of 11.3%. Even with these increases, we fell a little short of recovering the full amount of the NMI, reaching price coverage of around 95% over the complete year. This is, however, not the whole inflation picture. You can see from the chart that we saw a further 1 billion of cost inflation in our production and logistics costs, of which 0.7 billion fell in the second half. Now, these cost lines have not moved very much historically, so we don't normally cover them in detail, but 2022 was different, and we saw significant increases in fuel, energy, and labor costs in our supply chain. This theme's relevant for 2023, and I'll come back to it a little later. Taking both NMI and production and logistics inflation into account, our price coverage to date sits at around 75%, so still some way short of the 100% needed to hold gross margin, and as a result of this, the gross margin was down by 210 basis points. This is normal in an inflationary cost environment, and we will need to see higher price coverage, together with continued delivery from our savings programmes, in order to build gross margin back up. Underlying earnings per share were down 2.1% in current currency, with a favourable foreign exchange tailwind contributing 6.1%. Constant earnings per share were down 8.2%, 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 favourable one-offs in the prior year, which led to an underlying effective tax rate of 24.1% versus 22.6% last year. Free cash flow for the year was €5.2 billion, down by €1.2 billion. This includes an increase of €0.4 billion in capex, which is now back to 2019 levels. It also reflects investments in higher inventory to support customer service levels and a higher tax outflow, including €330 million tax paid on the tea disposal. Our net debt to EBITDA ratio fell from 2.2 times at the end of 2021 to 2.1 times, which is in line with our broad leverage target. Our net debt level stands at 23.7 billion euros, down from 25.5 billion at the 2021 close. The reduction was driven by our free cash flow generation and the net inflow from M&A, partially offset by dividends, the share buybacks and an adverse currency movement. Our pension surplus fell from €3 billion at the prior year-end to €2.6 billion. The decrease was driven by negative investment returns on pension assets and foreign exchange, largely offset by lower liabilities as interest rates increased. Turning to restructuring now, we spent €0.8 billion in 2022, that's around 1.3% of turnover, and we delivered savings as expected at €2 billion. Return on invested capital ended the year at 16%, down from 17.2% at the prior year end. The main driver of this was higher goodwill and intangibles, which is a result of both a stronger dollar on balance sheet translation and the acquisitions of Paula's Choice and Nutrafol, partially offset by the disposal of our global tea business. We continue to adopt a very disciplined and focused approach to capital allocation. The first priority is to invest in the business. Brand and marketing investment increased by 0.5 billion, and R&D increased by around 50 million, both in constant currency, so on a more representative like-for-like basis. At the same time, we increased capital expenditure by 0.4 billion to 2.7% of turnover. That's back to 2019 levels, and it actually sits well above 3% if you factor in our volumes that are produced by manufacturing partners. Secondly, we made good progress in reshaping the portfolio into higher growth areas with the acquisitions of Nutrafol and the disposal of the global tea business. And thirdly, we returned cash to shareholders through both dividends and our share buyback program. We completed the second 750 million euro tranche of the three billion program in December and expect the next tranche to commence in due course. It's a good point, I think, for me to hand back to Alan to review overall progress against our strategy.