Unilever PLC

Good morning and welcome to Unilever's half one results announcement. We expect prepared remarks today to take about 25 minutes, leaving around 30 minutes for Q&A. All of today's webcast is available live transcribed on the screen. And in a moment, I will hand over to Fernando to take you through the details of the results. I will then return to give a brief update on the growth action plan and some of our key priorities as we move into the second half of the year. After that, we will take questions. First, though, let me set out some of the performance highlights from the first half as I see them. Our focus has been and remains on delivering high-quality sales growth and expanding gross margin, and thereby enabling a step up in investment behind our brands. With that in mind, we made progress over the first half. Our underlying sales grew 4.1%. Volume growth was broad-based and accelerated to 2.6%, with four of five business groups delivering positive volumes in quarter two. Growth was led by our power brands, with underlying sales growth of 5.7% and volumes up 4%. Focusing on these 30 brands is a core part of our plans, and so we are encouraged by the progress here. Gross margin expansion was strong, up 420 basis points to 45.7%. We recorded lower material costs, which helped, but we are also on track to achieve net cost productivity through tight cost control in our operations. Both these impacts supported the gross margin development in the first half. This allowed for nearly 700 million euro in extra brand and marketing investment, which went behind an increasingly strong and focused innovation program. Gross margin expansion also resulted in accelerated profit growth. Underlying operating profit increased 17.1% to 6.1 billion, with underlying operating margin up 250 basis points to 19.6%. Over the last quarter, we have continued to implement our growth action plan at pace. As well as stepping up financial performance, the plan also incorporates sustainability leadership in our four priority areas, climate, plastics, nature and livelihoods. And we made progress against all of these in the first half. On climate, our Scope 3 emissions targets for 2030 were validated by the Science-Based Targets Initiative, or SBTI, and we are making steady progress towards delivery. On nature, a series of newly agreed regenerative agriculture projects is expected to bring an incremental hectarage of 335,000 this year, keeping us on track towards our goal of 1 million hectares. On plastics, working with USAID, we were behind the launch of a new public-private collaboration, the Circle Alliance, to scale solutions for reducing plastics and tackling waste. And on livelihoods, over 20% of our procurement spend is now with suppliers who have signed our Living Wage Pledge, putting us on track to reach 50% by 2026. We have also been working to progress the two important announcements we made in March, separating ice cream and improving our productivity. There is lots to do, but the simple message today is we are on track with both. As we go through the presentation, we will review the numbers for the first half and the progress against our priorities in more detail. And whilst I do believe we have made progress against our stated ambitions, I am the first to acknowledge that we still have a lot to do to implement the changes that are needed to achieve a level of consistent performance. On competitiveness, for example, even though we do see some green shoots in the latest readings, we know this will take time and that it must remain an area of absolute focus. In addition to that, and as we said last quarter, we are making key changes in our ice cream business, with initial focus on North America and in Europe to drive sustainably better performance. For the first half, this has led to better service to our customers, better pricing, and better competitiveness. But despite that, however, the business still had a disappointing quarter. And while market factors help to explain a lot of this, the performance reinforces the importance of continuing to make these operational improvements. We will do just that. We will now go deeper on the results themselves, so I hand over to Fernando to take you through.

Thank you, Jaime. Underlying sales growth in the first half was 4.1%, with second quarter at 3.9%, both with a strong volume contribution. We delivered our third consecutive quarter of positive improving volume growth. Underlying volume growth was 2.9% in quarter 2, up from 2.2% in quarter 1, and 1.8% in quarter 4 of 2023. As expected, given the reversal in commodity cycle during the last year, price growth has significantly slowed down to 1% in the last quarter. Let's take now a closer look by business group. Beauty & Wellbeing delivered a strong first half with underlying sales growth of 7.1%, underpinned by 5.5% volume growth. This is the third consecutive quarter in which Beauty & Wellbeing volume has been above 5%. The strong performance has been anchored in our Beauty & Wellbeing power brands that deliver double-digit growth. Sunseal and Dove fueled hair care growth, while Vaseline and Pons were strong contributors in skin care. For the 14th consecutive quarter, our combined health and well-being and prestige beauty businesses delivered double-digit growth. Health and well-being was particularly strong in this quarter. while Prestige Beauty felt the impact of a slowdown in the beauty market in the U.S. Personal care grew 5.6%, with a good balance between volume and price growth. DAF, Unilever's largest brand, achieved double-digit growth across its female and male franchises, on the back of a strong innovation across both deodorants and skin cleansing, like the premium range of serum-infused body washes in the U.S., Deodorants, once again, deliver double-digit growth, with strong contributions from the multi-year innovation platforms of Rixona and Axe on top of that. Although tempered by market challenges in Indonesia, deflation in India, and subdued performance of our antibacterial brand Lifebuoy, skin cleansing still deliver positive volume and price growth. Oral care continued to grow mid-single digit, with positive volume and price led by close-up and Pepsodent. Home care grew 3.3%, with volume up strongly at 4.6%. The impact of commodities deflation in the basket of home care materials led to negative price of 1.3% in several emerging markets, particularly in laundry powders. Fabric cleaning grew low single-digit, and home and hygiene grew strongly high single-digit, with very positive contributions from Europe in both. Our premium innovations in Europe like Persil Wonder Wash, Comfort Elixir and Domestos Power Foam are all off to a promising start, and we are reinforcing our investment plans to accelerate momentum even more. Nutrition returned to positive volume growth in quarter two, which helped to deliver 3.2% underlying sales growth in the first half. Growth was driven by our power brands, including Nora and Hellmann's, which represent two-thirds of nutrition turnover and grew a combined 5.2%. Both brands deliver positive volume growth, with Knorr leveraging local top dishes for its cooking aids offering and Hellmann's successfully expanding its flavor mayonnaise ranges. Once again, Unilever Food Solutions delivers strong performance with high single-digit growth, led by its China operation on the back of a successful digital B2B selling program. Ice cream grew 0.6%, with price growth of 1.6%, partially offset by negative volume. We are disappointed with the ice cream performance that has been clearly below our ambition. Despite the operational progress we have made in areas like customer service, competitive pricing, and execution of our innovation, these operational improvements have reflected in improved competitiveness in the US and several of our European markets. However, Performance has been seriously affected by shortfalls in China, where we face both tougher market conditions and competitive pressure, and shortfalls in Europe, where poor weather negatively weighed on the start of the summer season. We are responding to the challenges in China with the shift of our portfolio to premium, and with distribution expansion into provinces where we foresee high consumption potential. In Europe, we keep tightening our operational grip while innovating in our biggest and more premium brand with the launch of three new variants of Magnum Pleasure Express. We run the business entirely through the lens of our five business groups. However, we believe it is important to provide also some color on performance in our different geographies. During the first half of the year, we deliver broad-based volume and price growth with positive contribution from all regions. We show strong performance in developed markets, reflecting the return to volume growth in Europe and our continuous solid performance in North America, despite the weakening of consumer sentiment there. A stronger innovation pipeline and increased level of grant investments are evidence of our commitment to accelerate performance in these important hard currency markets. In Latin America, one of Unilever's strongholds, performance remains strong, with 7% volume growth in the first half and a positive, if even more subdued, contribution from pricing to total USG of 8.8%. We expect consumption slowdown in Argentina, but the strengths of our brands and operations in Latin America region make us confident about our prospects there. In Asia-Pacific Africa, our biggest region, important to highlight the sequential improvement of our business in India. Our volume growth in India accelerated to 3.8% in Q2, as we consolidated the share gains achieved over the last three years. Growth in Southeast Asia also sequentially improved in Q2, despite the sales decline in Indonesia. Our long-standing issues in Indonesia have been exacerbated by the reaction of groups of consumers against multinational brands in response to the geopolitical situation in the Middle East. Fixing Indonesia will require significant portfolio initiatives and the reset of our route-to-market strategy. It will take time, and we do not expect to see significant benefit of operational changes in 2024. Last but not least, Africa and the Middle East deliver another period of strong performance, with double-digit underlying sales growth and both positive volume and positive price. Let me return now to the performance at the group level. Turnover for the first half was 31.1 billion euros, up 2.3% versus the previous year. Underlying sales growth of 4.1% was the main contributor. Net impact of acquisition and disposal was negative 0.7%. Acquisitions added 0.5%, driven by Yasso and K18, both performing in line with acquisition business cases. This was more than upset by a disposal impact of minus 1.2%, driven by Suave, Dollar Shave Club, and one month of Elida Beauty, which sale was completed on the 1st of June 2024. Currency had an adverse impact in the half of minus 1.1%, which was a considerably smaller impact than the one in 2023 when the euro strengthened against most currencies. During the first half of 2024, We expanded our gross margin by 420 basis points to 45.7%, building upon the improvement of 330 basis points achieved in the second half of 2023. We continue to make progress in transforming Unilever into a structurally higher gross margin business by driving volume leverage, positive mix, transformational procurement initiatives, and net productivity gains in production and logistic cost. In the first half of 2024, we also saw the combined benefit of deflation in some components of our commodity basket and the price in carryover from a period of higher commodity inflation. This strong gross margin expansion gave us flexibility to both increase investment in our brands and expand underlying operating margin. We increased brand and marketing investment by 180 basis points to 15.1% of turnover, an increase of almost 700 million euros, behind a much more focused innovation program and behind our 30 power brands in which we have allocated 85% of the incremental investment. Our underlying operating profit was 6.1 billion euros, up 17.1%. The underlying operating margin improved 250 basis points to 19.6% on the back of the strong gross margin expansion plus a tight control of overheads. Underlying earnings per share were €1.62, up 16.3%. Our operational performance, the combination of sales growth and strong margin expansion, contributed 20.4% to underlying EPS growth. and increasing finance costs had an adverse effect of minus 1%. As expected, higher interest rates impacted the cost of service in our debt, while interest income and interest credit from pensions were lower than in the prior year. Net finance cost as a percentage of average net debt were 2.9% in the first half, and we now expect net finance cost to be around 3% of average net debt for the full year. Tax was a drag of 3.2% on underlying EPS, as our underlying effective tax rate increased to 26%. This was driven primarily by lower benefits from tax settlements and other one-off items. We expect our underlying tax rate to remain at around 26% for the full year. The impact of our shared buyback program made a positive contribution of 1%. Negative currency effect in EPS was similar to the one experienced at turnover level at around 1% and explains the difference between constant underlying EPS growth at 17.3% and current at 16.3%. Our free cash flow in the first half was 2.2 billion euros, down 300 million versus previous year. The increase in operating profit was more than offset by a higher seasonal outflow in working capital, a step up in capital expenditure, and higher income tax paid against the prior year comparator that benefited from some refunds in India. For the full year, we will work towards maintaining the levels of negative working capital with which we operated in recent years. We continue to expect capital expenditure at around 3% of turnover in the full year. As a result of the strong first half performance, the Unilever board has decided to increase the quarterly interim dividend by 3%. The first increase since quarter four 2020. In February of this year, we announced a share-buy-back program of up to €1.5 billion to be conducted during 2024. The first tranche of €850 million commenced in May and is expected to complete on or before 30 August 2024. Turning now to the outlook for the remainder of the year. We continue to expect underlying sales growth for 2024 to be within our multi-year range of 3% to 5%, with the majority of growth coming from volume. We expect underlying operating margin for the full year to be at least 18%, with increasing investment behind our brands. Year-on-year margin progression in the second half is expected to be smaller than the one in the first half, given the stronger comparators and some increases in replenishment costs of our key materials, given the moderate return of commodity inflation. With that, over to you, Jaime.

Thank you, Fernando. I want to come back to the Growth Action Plan, or GAP, which we see as key to improving our performance and restoring competitiveness. In the nine months since it was launched, we have been implementing the plan at pace across all 10 action areas. As a reminder, those action areas fall under three broad priorities. One, to deliver faster, high-quality growth. Two, to create a more streamlined and productive business. And three, to embed within Unilever a sharper performance culture. During previous results announcements, we have gone a little deeper on progress in specific areas. And today, I want to touch on two areas that are key to driving faster growth. I also want to say something further about productivity. On faster growth, we've been clear that this will come primarily from an increased focus on our power brands. In practice, this means stepping up investment. And you see that with today's announcement and with the details Fernando shared earlier. BMI is up 180 basis points, with 85% of the incremental increase going behind power brands. But increased focus also means ensuring these brands are unmissably superior and that we scale innovations more effectively. The two elements are closely linked, of course. Let me take them in turn, starting with unmissable superiority. The concept here is as clear as it is compelling, namely that brands need to win, not just on product superiority, but across multiple drivers of consumer preference. In our case, that means winning on product, but also on packaging, proposition, promotion, place, and price. The causal link between improvements in these six P's and stronger brand performance is clear. We have validated it now in more than 119 strategic sales. That process involved taking 21 proven drivers of market shares. Everything from better quality perception to average price index to measuring the breadth and depth of distributed assortment. and then deploying these input metrics across the six P's using both market and proprietary data. The insights are very powerful and with this improved understanding of what drives market share changes and by monitoring developments continuously over time, we are able to move with speed and precision in taking the actions needed. Making our brands unmissably superior like this is a necessary but not the only condition for faster growth. We also need to get better at scaling our innovations. We have the brand strength and the R&D capabilities needed to do this. Our focus, therefore, has been on leveraging these strengths more effectively, specifically working on the big science and technology platforms that span our portfolio, like biotechnology. to ensure that we land innovations that are not only bigger in themselves, but that drive category growth. Also here, we are making progress. The first half saw a number of examples of market-making innovations across all business groups, with common themes around meeting consumer needs, premiumization, and differentiated technology. You see just some of them on the screen here. Persil Wonderwash, as Fernando mentioned already, is a particularly good example. One, it's technology-based. The product is developed with our patented Pro-S technology. Two, it's differentiated. This is the first ever detergent for short cycle washes. And three, it's scalable. Already launched and doing well in the UK, France and China, the product is on track to be rolled out across other key markets over the next 18 months. Of course, we have a lot still to do and it will take time for the benefits to come through. But based on the work we have done to date, I'm confident of meeting our ambition of doubling the average size of our innovations overall and driving a select number of top innovation projects to over 100 million euro in 2025 and beyond. We will come back to progress across all elements of the Growth Action Plan later in the year, but I wanted to touch on these two areas today because of their importance in driving our overriding priority of faster, higher quality growth. In March, we announced two significant measures to accelerate the Growth Action Plan and strengthen Unilever's position further over the long term. First, the launch of a company-wide productivity drive. We are currently consulting on the details of the changes we want to make with employee representatives. However, I am confident that the proposals will more than offset the operational dis-synergies arising from the separation of ice cream. More significantly, these measures will help to simplify Unilever. They will foster quicker decision-making, higher levels of accountability, and they will put operational power more directly in the hands of those in frontline roles. As such, we see them as an important part of the cultural change program we have embarked on, which also includes other measures we've taken, such as strengthening the link between performance and reward. The other part of the announcement in March concerned the separation of ice cream. We remain convinced that this is in the best long-term interest of both Unilever and ice cream. So there is a huge amount of work ongoing, including the legal entity setup, designing the standalone operating model, preparing the carve-out financials and so forth. This work is on track and we are confident that separation will be complete by the end of 2025. And with that, let me sum up. There is a lot to do, but we can point to progress over the first half of this year. For one, the growth action plan is now firmly established across the business. The benefits are building steadily, not least in the performance of our power brands and the expansion of gross margin. And two, we are on track in progressing the two measures we've announced to accelerate the growth action plan and strengthen Unilever over the long term. A comprehensive productivity program and the separation of ice cream. Taken together, we are confident that these steps will help to transform Unilever over time into a consistently higher performing business. Thank you for your attention. We look forward now to taking your questions.