Unilever PLC

Good morning and welcome to Unilever's third quarter trading update. As at H1 we are presenting our results to you from our respective homes so please bear with us if things are not as smooth as we'd hope. I know it's a busy results day for many of you so we'll aim to keep the prepared remarks for around 30 minutes and have Q&A at the end. Alan will give an overview of the business and performance before passing to Graham to cover our divisions and regions in more detail. Alan will then wrap up with some concluding remarks. All of today's webcast is available live, transcribed on the screen as part of our accessibility program. First, I draw your attention to the disclaimer to forward-looking statements and non-GAAP measures. And with that, let me hand over to Alan.

Well, thanks, Richard, and good morning, everyone. Overall growth in the quarter, as you will have read, was 4.4%, 3.9% from volume, and 0.5% from price. Consider this to be a strong performance. Our portfolio's resilience, our ability to respond with speed and agility to rapidly changing consumer behavior and country and channel dynamics has served us well. The emerging markets grew 5.3% as China recovered, and India and Brazil both returned to growth. Our developed markets grew by 3.1%, and that was led by ongoing strength in North America. Now, Graham will explain more about the individual country and regional performances. That will give you more insight, and it's more reflective of how we run the business than these developed and emerging market aggregates. Year to date, our underlying sales growth is now 1.4%. This headline growth figure obviously masks huge volatility across our categories, channels, and geographies. And as we look to the coming quarters, we think that the operating environment will remain unpredictable. And in truth, I continue to be perplexed by talk of a quick recovery. Public health stats in most countries are getting worse, not better. The start of October saw the highest number of new cases reported in a single week, over 2 million, with notable increases in Africa and Europe, and with Argentina and other parts of South and Central America still experiencing very high numbers of cases. Those of you in the UK and parts of Europe will currently be witnessing the reintroduction of lockdown. So we hope for the best, but we're certainly not relying on it. The resilience of our portfolio, the agility of our business and the speed with which we take action, excuse me, will continue to be key. Our focus remains volume-led competitive growth and delivering absolute underlying profit and free cash flow. We've seen and responded to these continuing changing dynamics across categories, channels, and geographies. The shift to online continues to accelerate, and e-commerce represents 9% of our business in the year to date, 10% in the quarter, and that's up from 6% in 2009. E-commerce sales grew 76% in quarter three, and that includes the headwind from food service e-commerce. I won't go through all the shifts we're seeing as they're very much in line with what we shared at the half year. However, I do want to say as a context for everything else that we talk about, that we remain very, very focused on driving operational excellence through the five growth fundamentals that you see here in which we set out at the start of the year. Over 50% of our business is winning value market share, but this is not yet where we want it to be. Our goal is 60% of our business winning share. And as we explained with our first half results, we're ruthlessly focused on these five drivers of competitive growth, and that includes stepping up BMI investment where required. At the same time, we have continued to drive our strategic change agenda, taking action to strengthen Unilever's business for the longer term. In this quarter, our proposal to simplify our dual-headed legal structure have received very strong support from both NV and PLC shareholders, with over 99% of both sets of shareholders voting in favour of unification. The GroenLinks Private Members' Bill, which I'm sure you have all heard about, was finally tabled in the Dutch Parliament, a bill which, if it were enacted, would seek to impose an exit tax on companies leaving the Netherlands under certain circumstances. The table bill contains a number of amendments to the previous proposals, which we've been reviewing carefully. Despite the amendments that have been made, we've received legal advice that if the bill were enacted in its current form with retroactive effect and applied to unification, it should infringe EU laws, the Dutch UK tax treaty and other tax treaties with states in which Unilever shareholders reside. It's not clear when or if indeed at all the bill will be enacted, nor in what form. As we have previously stated, the Board's intent to proceed with their proposals, provided that unification in the Board's view remains in the best interests of Unilever, its shareholders and other stakeholders as a whole. And the Board will continue to update shareholders as appropriate. Sustainability is not surprisingly being embedded into every part of the business, and you can see it reflected much more directly in our divisional category and brand agendas. In September, we launched our clean future strategy in home care, which aims to eliminate fossil fuel derived carbon from our cleaning products by 2030, replacing that carbon with renewable or recycled sources. We intend not only to transform our own business, but in this case to help shift the whole industry. And this commitment came just on top of our ambitious proposals to help fight climate and nature change and protect and regenerate nature, which we announced in June. And of course, as part of reshaping our portfolio, we continue to work to implement the separation of our tea business, a process that's expected to conclude by the end of 2021. And with that, let me hand over to Graham to cover our performance in more detail. Graham.

Thanks, Alan, and good morning, everyone. On this chart, we've again broken down our portfolio performance to show how the pandemic has impacted consumer behaviors and the channel dynamics across our markets. The category groupings on this slide are the same as we first presented at our half-year results and are a pretty good way of understanding our performance. The Q3 growth rates demonstrate the huge variations in demand that have continued during this quarter, albeit at less extreme levels than those that we experienced during Q2. Consumer demand remained elevated for hand and home hygiene products to combat the spread of COVID-19, and we were able to drive strong growth of 19% in our hygiene portfolio, which comprises our skin cleansing and home cleaning businesses. Our in-home food and refreshment business grew by 12% as we tapped into the opportunity presented by the continued shift to eating at home. Conversely, lockdowns and related channel closures continue to negatively impact our food service and out of home ice cream businesses, but at lower levels compared to the second quarter. Together, these businesses declined by 16% in the quarter. Within beauty and personal care, Skin cleansing grew by 20% as demand for hand hygiene products such as liquid hand wash and hand sanitizers remained high. We've responded by launching hand sanitizers in 65 new markets since March. And while we believe that heightened hygiene concerns will continue, we shouldn't expect a repeat of the exponential growth in hand sanitizers that we saw in the second quarter. Lifebuoy, which is a brand now in 55 countries, is growing share in 93% of its markets, and as of September, became our latest 1 billion euro brand in Unilever. Lifebuoy delivered growth of 67% in the year to date, and has a compound annual growth rate of around 13% across the last decade. At the end of this quarter, we launched the first ever hand sanitizer from Dove. This product is clinically proven to moisturize skin for up to eight hours while being 99.99% effective against both virus and bacteria. Now this is an innovation that took six months from concept to launch and solved a really big technical challenge of how to keep the alcohol and moisturizing care ingredients separated within the formula. Our patented microemulsion technology means that we're able to offer hygiene reassurance through a high alcohol content whilst at the same time providing moisturization to mitigate damage to the skin and improve skin condition. Our Prestige portfolio grew by 8% as we refilled the health and beauty channel, although footfall does remain somewhat subdued. The business has been pivoting to e-commerce, which continues to grow, but not enough overall to offset the impact of retail door closures. The rest of BPC continues to see lower consumer usage due to restricted living conditions and consequently fewer personal care occasions. Sales declined by 2%, which is an improvement compared to the second quarter, as many countries eased their lockdowns. Hair grew overall as a decline in the hairstyling segment was offset by growth in our wash and care products. Our in-home food and refreshment portfolio grew by 12% as in-home eating occasions continued at elevated levels. And we tapped into this trend through our Knorr at-home toolkits and Hellmann's Stay Inspired and Staycation messaging to drive incremental penetration and sales. We have been actively shaping our portfolio, our innovation and our brands behind these growth opportunities, shifting the portfolio to tailwinds and boldly healthier choices to encourage diets with a more diverse range of vegetables. Examples of this are plant-based and meat replacements under the vegetarian butcher brand, which we've now launched in over 20 markets and Hellmann's Vegan Mayonnaise, which is now available in 30 markets. We continue to modernize our scratch cooking ranges and renovate the Knorr portfolio through healthier recipes and a new visual identity with the Knorr Promise, which means sustainable sourcing, 100% natural and 100% recyclable. This is a great example of closing the brand do versus brand say gap. Sales of ice cream grew by 3% in aggregate. That was driven by both volume and price. We've pivoted our portfolio to ensure that our out-of-home products are also available in in-home relevant formats, such as multi-packs. In-home ice cream grew by 16%, led by Ben & Jerry's and Magnum, which has more than offset the 13% decline in out-of-home ice cream sales. The food service channel remained either fully or partially closed in many of our markets, and food service sales declined by 21%. The sequentially improving trend has plateaued. Although China food service returned to growth in August following the lifting of restrictions on restaurants, the outlet open rate is not expected to recover to pre-COVID levels, given that some outlets have gone out of business. In Europe, whilst restaurants began to reopen during the quarter and sales benefited from consumers holidaying at home, the outlook has turned more negative since then, as many countries are closing restaurants again due to escalating infection rates. Turning to home care, our home and hygiene brands delivered underlying sales growth of 18% as consumer demand for household cleaners to combat the spread of COVID-19 continued, with germ killing and antibacterial benefits particularly sought after by consumers. Domestos continues to grow double digits, and we have now launched the brand in China, as well as extending the brand to bleach-braced spray and wipe formats. Laundry sales grew by 4%. Fabric solutions grew low single digits, although price declined as we passed through reduced commodity costs, particularly in our European and Southeast Asian markets. Fabric sensations grew low single digits as we launched new comfort fragrance boosters in China. These are jewel color beads with luxury inspired fragrances. In our biggest laundry market, which is Brazil, Omo Concentrate has been a growth driver and is a great example of our home care clean future strategy in action. This is a six times concentrated laundry liquid that can be easily diluted at home. Consumers are reassured with the value proposition as the pack is 20 to 30% cheaper than a standard three liter pack. And the six times concentrated formula is being rolled out across our brands in Latin America as part of recession proofing our portfolio. This is an example of how we crack the code of delivering superior performance alongside sustainability and consumer value. Now, before I cover our geographies, I would like to say a few words about how COVID-19 continues to influence the operating environment for our business. We've moved out of response mode and into a mode of living with COVID. In many markets, there is now a disconnect between the progress of the pandemic and the level of economic activity, given differing government responses with choices having to be made about whether to open up the economy to protect livelihoods for people on a daily wage or to lock down the economy to fight the virus and protect health. The different policy responses, which include emergency stimulus and consumer handouts, have impacted our performance in the quarter, for example, in Brazil and the United States. Although this is a top line trading update, we also thought it would be helpful to remind you about some of the levers of gross margin. As we explained in our half year results, COVID on costs and adverse mix have been having a negative impact on gross margin. We shared the second quarter figures with you in July and since then, currencies have devalued further in several markets and inflation has returned to some of our commodities. Let me turn now to the regions in a little bit more detail. In Asia Amit Rup, underlying sales grew 4.5% with 3.7% from volume and 0.7% from price as lockdown restrictions eased across much of the region compared to the first half of the year. China grew by double digits led by beauty and personal care categories and a return to growth in food service. After a strict lockdown earlier in the year, India saw a pickup in economic activity, even though cases of COVID-19 continued to increase. India grew by low single digits, driven by growth in food and refreshment, and in hygiene. Turkey grew with the easing of lockdown restrictions, and Indonesia declined by low single digits. In Southeast Asia, Thailand declined, reflecting reduced tourism and heightened promotional intensity, whilst Vietnam saw mid single digit growth. Turning to Latin America, Latin America grew by 6.5% with volume growth of 2.1% and positive pricing of 4.2%. After a negative second quarter impacted by COVID-19, Brazil grew by high single digits in the third quarter. Growth was led by food and refreshment, with demand being supported by government consumer subsidies. These are not expected to continue at the same level in Q4. In Argentina, growth was driven by home and personal care categories, including strong growth from our newly launched dilutable laundry liquid. And reported growth was also helped in Argentina by a soft comparator in the prior year. Underlying sales growth in North America was 9.1% with 8.6% from volume and 0.5% for price. Regional growth includes the negative impact of around 1.5% from our food service business, which was impacted, of course, by channel closures. In the USA, food and refreshment grew by 18%, excluding food service. Sales of food and refreshment for consumption in the home continued to be a big driver of growth alongside hand hygiene, although the latter is not expected to remain at the very high levels that we've seen over the last six months. Our green cleaning brand, Seventh Generation, and more recently acquired health and wellness brand, Oli, each contributed strong double digit underlying sales growth. In Europe, underlying sales declined 0.8% with positive volumes of 1.3% offset by a 2.1% decline from price. Price declines were driven by a step up in promotional intensity across the region as the depth and volume of promotions increased. In Italy and Spain, countries with big summer tourism seasons, out of home ice cream contributed to a double digit decline in both countries. The UK, in contrast, grew by mid-single digits as demand for in-home foods and hygiene products remained high. Our food service business in Europe continued to be challenged, albeit less than in Q2 as restaurants began to reopen during Q3. However, as I mentioned earlier, many countries across Europe are currently closing restaurants again. Turnover for the third quarter was 13 billion euros. That's a decline of 2.4% versus prior year, driven by currency. Underlying sales growth increased, as you know, by 4.4%. Acquisitions and disposals increased turnover by 1.3%, with acquisitions contributing 1.4%. Net currency-related items reduced turnover by 7.7%. Based on spot rates, we would expect a full-year negative currency translation impact of around 5% on turnover and around 6% on EPS in 2020. We will need to navigate through currency depreciation, rising commodity prices, and a wider landscape of pressure on consumer spending power going forwards. And with that, I'll hand back to Alan to wrap up.

We've moved from response mode to now living with COVID-19, but the environment that we're operating in remains highly unpredictable and we believe an economic downturn is inevitable. We think that planning for a quick macroeconomic recovery is too optimistic and we don't expect to see an acceleration in the near future. Even though the spread and impact of the pandemic varies considerably across the world, a clear pattern is emerging in terms of the way countries are responding. There's a period of intense lockdown, which is followed by an easing of restrictions, which is in turn followed by a reimposition of restrictions as cases begin to spike again. And we see this pattern repeated on just about every continent. Very few major countries seem to have found a stable new normal outside of China. So we're focusing on the variables that we can control and we'll continue to show the true strength of Unilever in the most demanding conditions through firstly, the resilience of our business. Secondly, the speed and agility of our response to rapidly changing consumer behavior and channel dynamics. And thirdly, by strengthening the strategic future of the company. We'll continue to drive operational excellence through the five growth fundamentals that seem to be working, and we're investing to further strengthen our competitiveness. In the second half of the year, we're investing heavily in marketing support for our brands and behind an innovation program that is tailored to the changing environment as consumers learn to live with COVID. Our focus remains volume-led competitive growth delivering absolute underlying profit and free cash flow. So thanks for your attention. That's the end of our prepared remarks. And we'll now get into Q&A. I'm slightly ahead of schedule, Richard.

Back to you. Okay, thank you, Alan. As a reminder, if you want to ask a question, please press star two. Just note that we've changed our teleconference arrangement. So once you've pressed star two, you won't hear a noise this time, a beep or a message, but you'll be placed straight in the queue to ask a question. If you're listening to the conference call on a speakerphone, please use the handset while asking your question. And finally, please keep your questions to a maximum of two. So our first question would be from Richard Taylor from Morgan Stanley. Are you there, Richard?

Yeah, I'm here. Good morning, everyone, and thanks very much for the questions. I've just got two strategic ones, I suppose. So you said, Alan, that you've moved from response mode to living with COVID-19. It would be really helpful if you could give us a sense for how you're investing to structurally improve the business in a kind of post-COVID-19 world and a post-unification world. So that's the first one. And then thanks so much for the detailed update on unification. That's really helpful. It sounds like you're making very good progress, supported by shareholders. But I'd like to ask a kind of broader question on it. I think you said previously on your prior attempt at unification that it enabled both more flexibility on portfolio optimization, but also major M&A. It enables that, given that the current structure is an impediment to it. So, and I think I'm right in remembering that last year you said that your M&A strategy is evolving somewhat from focused on bolt-ons to bigger than bolt-on. So if you could give us a bit of colour on both what unification means for M&A, but also that portfolio optimisation, that'd be really helpful. Thank you.

Thanks, Richard. I'll take your first question about investing for a post-COVID world. And then I'll let Graham tell you that we don't have many any pending major acquisitions. But Graham, you can handle that as you see fit. So on investing for post-COVID-19, let me just say the following, Richard, which is we are continuing to, in fact, stepping up the investment behind our big brands, our big innovation and in our big countries. And as we've maintained all along. If we can continue to drive strong efficiency programs, it generates more than enough fuel for us to be competitive in those key markets, on our key big brands, and in our key channels with key customers. So we're going to be continuing to step up our brand investment. I think another one that's important to point out is as we deepen our action on sustainability, there are a number of places where we are making shifts that might have a short term on cost. Things like moving to renewable agricultural materials, things like moving to recycled plastic, the transition we've talked about from fossil fuel based carbon to renewable and recycled sources of carbon in our home care business. And we think that the shape of our P&L is going to be able to accommodate those investments. Usually there's a short term cost for long term benefit. And then the final point is this vexing question of the balance between BMI that we spend in traditional media behind our brands versus the investment we have to make in people. for a more manpower-intensive marketing world where digital programs take more resource. So I think you'll see continued investment in our brands, continued investment in sustainability, and some investment in future-facing skills, especially in the digital and marketing spaces. Graham, unification.

Hi, Richard. Morning. So, yeah, I mean, unification, you summarized it well, it creates greater portfolio optionality, really strategic optionality for Unilever. But as Alan said, we don't want anybody to think that we're signaling major acquisition. through the through the unification in fact the the more um sort of short-term uh relevant strategic unlock is actually around significant de-mergers of the business such as we did with spreads and it's also relevant in the case of the tea separation that is underway well underway now uh in the in the portfolio because as a unified company we have the option to do major demergers and spins of the businesses direct to shareholders. So that's just one example of an unlock that's there. In terms of M&E philosophy then, what we've said remains the same really from this time last year, the investor event. We expect to have a sort of slower pace perhaps of acquisition. within that bolt-on strategy, we'd like to do slightly larger acquisitions and maybe fewer small acquisitions, but we definitely expect to have a pivot towards more disposal activity as a way of reshaping the portfolio. And just to remind you, the whole basis and role of M&A in the context of portfolio shift is to move our portfolio into higher growth segments. A couple of great examples of that are what we've done with Prestige, which is now over 850 million, as you saw in the prepared remarks, growing at 8%. very competitive growth. So that business is performing really well. And also what we've done in the space of wellbeing, functional nutrition, and VMS, vitamins, minerals, and supplements, where we've obviously made a major acquisition last year with Horlicks, but also what we've done with Oli and more recently Liquid IV. So again, they're examples of the higher growth spaces that we want to move the portfolio towards through M&A.

Okay, thanks, Graham, and thanks, Richard. So the next question is from Celine Panuti at J.P. Morgan. Go ahead, Celine.

Good morning. Good morning, everyone. So my first question is on the outlook, I suppose. I wanted to understand a bit whether you didn't feel comfortable to provide an outlook for 2020, what were the reasons behind that, given the strong Q3 and an easy comparative in Q4, and whether there were any one-offs that helped Q3. Notably, I saw that Latin America was very strong, and you said that the market was growing, difficulty in Latin America, so whether you feel that you have benefited more in the third quarter there. And my second question is going to be as well about the margin point that you made, Graham, during your remarks. I would like to understand, so you mentioned what has continued to impact H2, as you said, at H1 stage. At the same time, you have a better volume-led growth. I think the operational leverage from out-of-home should be less impactful than in Q2. So all in all, in the mix, it feels like things have also improved for you. Could you shed light on that? Thank you.

Graham, I'm tempted to ask you to tackle both areas of expertise, but you take the first one and I'll go to the second one.

Okay, on the question of, you know, outlook for 2020, you know, Celine, we never really give any form of short-term outlook because, you know, we've always had just a broad multi-year range of top-line growth and we certainly wouldn't change that practice now given all the volatility that we see around the world. What we've really tried to do instead of that is try to give you a real click down in terms of operational performance in the business and a lot of granularity around how to think about our performance. We hope that's helpful, first of all, but we also want everybody to recognize that the 4.4% top line is a tremendous reflection of the resilience of our portfolio and the breadth of our portfolio. But if you go just one level lower, you see you're dealing with incredible ranges of growth, you know, plus 20% in skin cleansing to minus 20% in food service. And with the dynamism and the impact of lockdowns and progression of the virus, we really do feel that the right thing to do is to continue giving you that additional granularity and not try and add all that up to one aggregate number because there are so many big moving parts underneath. On Q3 one-offs, again, many, many moving parts. One-offs, they feel slightly less relevant in the context of all the things that are happening around our category and geography portfolio. But, you know, one I would call it, I did mention it and you referred to it, which is Latin America. I think we've had a great performance in Latin America. It's super competitive. I think we've got almost 90% of our business winning volume share and over 80% of our business in LATAM. winning value shares. So I think it's a really, really strong performance overall. But in Brazil, to the subject of one of us, which is 40% of LATAM, we have benefited from some emergency cash transfers that have been made to citizens. And we don't expect that those payouts, we think they'll continue, but not at the same levels that were there in Q4. The other thing in Latin America context is, And I referred to it, and I'm sure Alan will pick it up in the gross margin point, but foreign exchange is really starting to be quite strongly negative in this quarter. We expect that to be the case in the fourth quarter and into the first half. It's quite clustered in about seven markets, Brazil, Argentina, Mexico, Turkey, India and Indonesia. I've missed one out, but that's six of the seven. So, and those currency devaluations have been sort of 20 to 30%, and that's definitely a feature in Latin America. So, you know, many, many moving parts there, but not much in terms of one-offs, just in terms of, you know, the economies in Latin America, you know, really starting to go into quite significant decline.

Alan? I think the seventh might have been South Africa, was it, Graham?

It was South Africa, thanks.

So on the margin outlook, Selina, obviously we don't want to be over-prescriptive here, but your starting hypothesis is right, which is in our business, volume growth gives us a great operating leverage, but I wouldn't read exclusively into that because we are definitely carrying some COVID costs to the business. I think we've spent somewhere like 30 million euros or 40 million euros already on masks and PPE in the factories. So there's all manner of COVID costs there. Secondly, the mix that Graham's showing you on that football field chart is slightly unfavorable for margin. For instance, in-home ice cream is less profitable than out-of-home ice cream. Thirdly, I think we've signaled very clearly that we tightened our belt on BMI and Q2. when a lot of markets were shut down and we intend to spend behind our brands at really a proper level in the second half. And finally, as Graham said, Forex and commodities are moving in slightly unfavorable ways at the moment. And so when you add all those together, I wouldn't be over-exuberant in what you read into our second half margins.

Thank you, Celine. Next question from Warren Ackerman at Barclays. Go ahead, Warren.

Good morning, gentlemen. It's Warren here at Barclays. Well done on the print today. So two from me. The first one is on market share and the second one is on geographies. On the market share and competitiveness, I think I heard 50% value share last quarter. Now I'm hearing above 50%. Am I overreading that? And can you talk a little bit about the category growth versus market share and the key hotspots you've highlighted? And kind of how does e-commerce play into all of that, given it's hard for us to read? And what I'm trying to get to really is the 60% objective, Alan. You know, what gaps need to be addressed to go from the 50 to above 50 now to then ultimately 60? And then secondly, just on some of the big markets, we've obviously touched on Brazil, but I mean, U.S. momentum has been maintained in Q3. I was wondering whether you could touch on the US, China and Indonesia. India has been covered off by Hindustan results. You talked about Brazil, but the other three big geographies of your top five. Thank you.

All right. I'll go first, Graham. You maybe can talk about some of those big markets. So, Warren, I think the easiest way to answer your question is to say We've described a dynamic that we really believe in, which is when we focus on driving penetration growth of our brands, it leads to volume share growth. And if we manage the value dynamic around that properly, that converts into value share growth. And we're now at around 60% of our business growing penetration. We're also at around 60% of our business growing volume share. and the percent of our business where we're growing value share is hovering above 50%, I would not describe Q3 as a significant strengthening versus where we were in the end of Q2, which explains the slightly frustrated tone in my voice and also the opportunity that we have to keep moving and progressing in that space. Hot spots were very helpful for us when we were losing overall share and it was being driven by a few spaces. I think it's now a redundant concept. As you know, we've got a very broad portfolio across categories, brands and geographies. And we won't get from just above 50 to 60 by concentrating on just three or four hotspots. We'll need to keep working on implementing the five growth fundamentals broadly across the business in all categories, all geographies. You know, touch wood, it seems to be working for us on driving penetration, resulting in volume share. And we've seen the value share improvement, but there's upside there still. We're going to chat about US, China, India, India.

Yeah, hi Warren. Let me give you on each of those a little bit of a flavour of market dynamic and then how we're performing within that and why. So let me start maybe with China. Obviously the first of the markets to be hit by COVID-19, strong lockdown in January, but we saw market growth improve slightly in Q3. over over q2 our business in china grew by double digits that was led by beauty and personal care and also as i said in the speech we had a return to growth in food service as that out of whole channel uh fully opened up um Just obviously, about a third of our business in China is now in the e-commerce channel, and that's growing at more than 50%. So, you know, China really the sort of e-commerce innovator and learning space for the rest of Unilever. um the us market uh it's still in strong growth and it continues to be driven by that elevated demand for in-home food and ice cream products um and our business in um in north america is you know grew by over nine percent for the second time with a little bit of an impact negatively about one and a half percent from from our food solutions business, but again, you know, food and refreshments continues to be the driver there. In common with most suppliers, I think, you know, the challenge in the US has been one of keeping up with the volume demand. And, you know, we really do a lot of work in the supply chain there to make sure that we're able to maintain our customer service levels and get our product flowing into stores for that elevated demand. India, you know about the market, as you saw from HUL, there's been a pickup in economic activity and the marketplace in India after a very strong lockdown in the first half. And it looks like we're over the hump now in India in terms of the economy and the market growth numbers. Our business in India did really well to grow at low single digits this quarter. And that again was driven by hygiene products and our food and refreshment portfolio in India, which is now very, very strong with the acquisition of Horlicks. And we're very excited about the prospects for foods in India going forward. And then Southeast Asia really is a very, very mixed bag. The Indonesian market specifically, big one for us, that contracted in the third quarter and so did our business. We declined by low single digits there. Thailand, just to round out Southeast Asia, it declined quite strongly as well but that was from reduced tourism and quite a bit of promotional intensity it's a market that was all about premiumization which has now moved very quickly to to to value um and uh you know in in a market like that value comes through increased promotions and then conversely vietnam saw mid single digit growth uh and and and went along very very strongly so you know the theme here is um lots of different dynamics um lots of uh uh challenges and opportunities in all of the markets we're really pleased that we've simplified the front line of our business uh and empowered them to get on with the business of dynamic pricing innovation executional uh performance in the marketplace and that's pulling through very well as alan said in continued progress with our competitiveness and ultimately it is through that competitiveness lens that we are measuring our overall performance for this year.

OK, thanks, Warren. Straight to Guillaume Delmat at UBS for the next question.

Good morning, Alan, Graham and Richard. Two questions for me as well, please. The first one is on pricing and particularly pricing in mature markets, because Q3 was your seventh consecutive quarter of negative pricing there. And I think if I look on an annual basis, the last time we saw positive pricing in the developed world was 2012. So essentially my question here is, why do you have this chronic almost inability to get some positive pricing in mature markets? And would you say it's a function of high price elasticity in your categories? Or is there something you can do to fix it with, I don't know, more net revenue management or more disposals? And then my second question is to go back on reinvestment. Because at the moment, we're seeing several of your large competitors really leveraging the strong top line to materially step up their investments. It sounds like you will adopt a similar approach, at least in the second half. So again here, wondering what are the implications at a BMI level? Should we expect BMI to increase again as a percentage of sales? and whether you would be looking at extending this reinvestment approach beyond the second half of 2020. Thank you.

Okay. Graham, shall I have a crack at the first one, and you can have a go on BMI? Sure. Okay. Right, Guillaume, first of all, thanks. You're right. I mean, the start point is that it is challenging to – land price in notably the European market. I think it's much less evident in North America and the underlying slow growth in the European market makes it a difficult environment to land pricing. However, the solution to that is definitely not anything to do with management or organization. Nor is it a consideration in our acquisition and disposal program. It's really about strength of brands and strength of innovation. And so it does directly link to your second point. As we build strong brands and you look at our strongest brands, they are able to take price. But in the case of Europe, it's always through innovation. The ability to pass along pricing driven by commodity costs or in the rare case of FX in Europe, particularly Western Europe, is negligible. And so we're dependent on strong brands and strong innovation programs. And that's why we've got our five growth fundamentals, because putting purpose in our brands makes them stronger. Driving mental and physical availability in our brands makes them stronger, improves penetration. And a strong innovation program that's more focused on fewer bigger activities gives us that leverage. So I don't want to underestimate the difficulty of taking price in Europe, but the solution is strong brands and strong innovation, which is exactly what we're working on. It is not organizational or portfolio. Actually, Graham, it's a related point really about reinvestment. So perhaps you can talk about that.

Yeah, certainly, Alan. Guillaume, I'll maybe spend a little bit of time on this because I think it's super important to get a clear understanding. Let me start with what happened in the first half of 2020 because when we say we kept our powder dryer, we dialed back a bit. I'd like to give you a little bit more detail about how thoughtful and how dynamic that really was. What we did was we very dynamically adapted and reallocated our BMI spend in response to the crisis in the first half across our wide range of geographies and categories and our media mix. We stepped up teams to have a weekly review of BMI spend in the first half. as the situation was so dynamic. And of course, we didn't spend BMI because some activities were simply canceled or postponed. For example, we spend a lot of our brand investment in public relations and sponsorships, et cetera. Events weren't taking place, so you don't spend there. Advertising production, the ability to make copy, to make films. and content that was obviously constrained in some places. A lot of the content that we produced was done virtually. A great example of that actually was some Rickson advertising in Latin America. And similarly, they weren't able to do in-person market research or research that involves store visits. And you saw all of that sort of dial back. We also very actively, and I'm still talking the first half year, we reviewed every single asset we had for its relevance. We had to be on message and we had to make sure that our advertising was appropriate for a world in crisis. And I think we did a really, really good job of being dynamic, of being agile in the first half and spending sensibly, particularly with assets that were appropriate for the times. So what then to the second half as we have a more stable environment? So we are investing heavily in marketing, let's be clear, to support our brand campaigns in the third quarter. There was a big step forward in the absolute quarter on quarter, and I mean against Q3 of 2019, a big step up in BMI investment in Q3. And I think we will spend even more of an absolute step up. Q4 versus Q4 in the fourth quarter that is coming up. And I think we'll continue to do that because we've got great assets, great innovations to invest behind. Against all of that, in the same way that all banks and equity houses aren't equal, I think it's worth noting that all consumer companies aren't equal. And the effectiveness of what we spend on our brands is more effective than anyone else. We were named, again, the world's most effective marketer in 2020 in the EFI indices. We very actively assess the quality of what we spend our money on, how good a campaign is. We are rigorous with use of digital mandatories, as we call them, for digital advertising. We have stronger safeguards than anybody in making sure that when we spend digitally, it's not in fraudulent media activities that our advertising shows up in safe environments in the digital world. And most importantly, that it's viewed by humans and not by robots. Just to give you a couple of stats to reassure you, about the quality of the spend that we make. Brand power, which is a critical metric in how consumers view your brand. 82% of Unilever's brands are either stable or increasing their brand power. If you want to go to a relatively useful, but sometimes not metric, which is share of spend, Across the entire marketplace, total media investment has come down as we measure it across 54 countries. But overall Unilever's share of spend is of course above 100. It's broadly stable and we're in the number one position versus our peers for advertising spend in BPC and the number two position in both food and refreshment and home care. So sorry for the long answer, but I really did want to make sure that you understand um you know at one or two click downs of detail um you know how we think about spending behind our brands and how effective we are in that space okay thank you guillaume um next question is from david hayes at sock gen go ahead david thanks richard morning all morning gentlemen um so two for me one on supply chain and one on um

an acquisition strategy again, I guess. So firstly on the supply chain, you talked about a lot of the dynamics in the second quarter to the third quarter improvement in emerging market volume, particularly Latin America, we can see. Is there an element of that swing back, which is shipment levels and effectively a lot of these markets, maybe Brazil, India, I guess is an obvious one as well, where you weren't able to ship in the second quarter and all you've done is seen a catch up on that and then it normalizes in the fourth quarter. Is that a dynamic we should think about or is that an irrelevance? And the second question, just coming back to your comments earlier about post-unification and the strategic and the acquisitions or strategy outlook for the next couple of years, it sounded like your view was net-net. You're looking to sell more than buying to get the portfolio to the ideal vision as you would like it over the next couple of years. Is that a fair conclusion? Is this about creating value through disposals, or should we be thinking that that will still be invested and create more value on the acquisition side of the ledger? Thank you so much.

Graham, I think you should clarify on M&A, just help David out there. I'll say a bit about supply chain. David, the headline on supply chain is that more or less we're shipping to match demand. And so there are not big inventory swings between sell-in and sell-out, quarter to quarter, month to month. In fact, during this period, we have seen less peaking at quarter end or at month end. And so we've got a very good reflection of sell through in our sell in. I think the one area that that's a bit challenged is there are one or two catchphrases in North America where, as Graham mentioned, the demand is ahead of our ability to supply. We're not used to double digit growth on staple categories in North America. So we're not at the levels of customer service there that we would like, and there's probably a little bit of trapped demand there. But I'll just use this moment to give you some fun facts. Unilever runs 221 factory sites with more than 3000 production lines In addition, we've got 840 third-party manufacturers that make about 16% of our volume. And we service that through a network of 48,000 different suppliers. And I share that with you just to, I suppose, with a little bit of pride in my voice about the incredible job that our frontline supply chain teams have done in maintaining supply. We've really been able to keep up with demand in the most difficult circumstances. And so I say that with some pride, but it is to support the point that we're really selling to demand and there's not huge inventory shifts quarter to quarter. Graham?

Hi, David. On the question of the balance of acquisition and disposal activity, it really is both, David. Although I do think we'll see, relative to the past, a balance across to maybe a little bit more disposal activity, but certainly we're going to continue to change the portfolio through acquisitions. You know, we generate such strong cash flow in the business, but very high cash conversion. You know, we pay up, you know, capital allocation is really clear. We invest in the business. We invest in CapEx. We invest in making sure that we've got the capabilities. We invest behind our brands. But, you know, that after paying our healthy dividend, leaves us with excess cash flow, which we then deploy within the portfolio through acquisition. And I think we'll continue to do that. We have done a lot, though. I mean, it's worth, I mean, you know this, but, you know, we've been very active since 2015. I think we've done 36 acquisitions and about a dozen disposals. So, you know, broadly speaking, about 50 odd transactions, some of them very large. I mean, Horlicks was a 5.5 billion euro acquisition. Carver in Korea was a 2.3 billion acquisition. We've done about six, which were more than a billion, but some of them got down into relatively small businesses. And I think what we will see is we would like to do transactions of a slightly larger average size, I think, and less of them. But it's very difficult to predict as opportunities come along and we look to reposition the portfolio. We'll just continue to act on it. I think on the disposal side, however, we've been very active over the years in disposing tail brands, principally from within our foods portfolio. I think we will do the same now, pruning the portfolio a little bit in BPC. We've got a number of smaller brands there that we may look to divest of just to tidy up the portfolio, allow us to be a little bit more focused and a little bit bigger in some of our activities. And then, of course, the other thing to mention on disposals is the ability to do things in a more creative way, to do, as I mentioned earlier, IPOs, spins of our business, and even partnerships of part of our business, where we believe that through a partnership or through further separation, we can provide greater focus to a particular business and so increase its performance and therefore its value creation. So that's a sort of broad job around how we think about that balance of acquisition and disposal, David.

Thanks for your question, David. Let's now go to Tom Sykes at DB. Welcome, Tom. Go ahead with your question.

Thank you very much, Richard, and good morning, everybody. Just previously, you've given the sort of cohorts of value, mid-tier and premium. And I was just wondering if you could maybe speak about the sort of volume pricing effects with that lens on whether there's any sort of effects of trade down at the moment and Obviously, some people have made some comments that normally in a weaker environment, value does okay and premium does okay. How vulnerable is the mid-tier, if at all, in your view, please?

Graham, you want to take that? Yeah, sure. Hi, Tom. So, yeah, actually, we think across the broad suite of our portfolio that, you know, given the trade-down environment that is likely to be a feature going forwards, we think we're pretty well positioned, actually. Broadly speaking, if you look across the top 60 or 70 cells in Unilever that covers half the business and use that as a proxy for the totality of the business, in those cells, we've got broadly speaking, 20% of that business in the value segment, 45% in the mid-tier segment, and 35% in the premium segment. Now that 20% is more than most. I mean, a lot of branded consumer players don't play at all in value, so it's a really good starting position for us, but we're not sitting on our laurels with that. We have stood up specific squads around the business since the first quarter, And they're working very actively in a very quick way to specifically identify and plug gaps in our portfolio, market by market, address whether we need to introduce low unit price packs or low tier brands, ways of getting affordability into the marketplace. On the question of the impact of that on mix and trading down overall, I think it's really important to emphasize that consumers are looking for value and affordability. They're not looking for cheapness. That's the first point. And the second one is that value does not equate to lower margin. In most parts of Unilever's world, the value parts of our portfolio on a bottom line basis are not dilutive to our margin. And the reason is they tend to come in with a lower gross margin, but they need lower support in terms of brand and marketing investment. So it's quite possible to be, you know, all the way down, you know, creating good absolute profit growth and value creation there. from that value segment. So we don't fear it at all. We see it as a tremendous opportunity. And if you think about our businesses around the world that have experienced deep crises over the last few years, for example, Argentina are a great example in Brazil. You know, we have reset our portfolio in Brazil over the last four or five years and reset our channel exposure in order to make sure that we are positioned for the value channel. So we know a lot about it. And in fact, it is, you know, that Latin American team who knows so much about it are very prevalent in those squads that I mentioned in going around the business and working out how we make sure we're able to play very effectively in that value space. On the question about the mid-tier, no, I don't think there is any great exposure to the mid-tier. Although you don't want, you know, your mid tier is really important. It's the belly of your business, but you do need to have exposure at the top of the price piano and the bottom of the price piano. You don't want to have, you know, all of your business sitting in that middle sector. And that's the position that, you know, we nicely find ourselves in.

Okay, thanks, Tom. We're going to run on for another 10 minutes. The engagement is great and we welcome it. So we've got a few more questions. So let's go to Alan Erskine at Credit Suisse.

Good morning, gentlemen. Yeah, a couple of questions for me. The first one is, we've heard a couple of consumer companies report this week, and they've talked about promotional activity in some categories returning to normal, but in other categories where demand has remained elevated, actually trade spend is down. So I'm intrigued at the step-up in promotional activity that you reference in Europe. Could you dig a little bit deeper into that? Is it category specific? Has it continued into Q4? And is it also one of the possible drives on margin that you mentioned a few others earlier on? My second question is on innovation. Alan, you highlighted earlier that innovation is a way of improving pricing power. at the last capital markets day, you talked about the need to step up innovation and to do so in a more bigger and differentiated way. So I'd love to hear any big innovations that you're landing at the moment in the market or about to land, just to give us some confidence that that pipeline has been filled and is going to And then thirdly, a small one, and apologies if you mentioned this, but have you given percent of sales e-commerce in the third quarter?

Thank you. Okay. I'll tell you what, the e-commerce one's easy, and I'll talk a little bit about that. And then, Graham, you pick up your choice of promo activity or innovation, and then I'll come back on whichever one you don't handle. Feel free to do both. So, Alan, the story on e-commerce is that it grew 76% in Q3. It represents now 9% of the company on a year-to-date basis and 10% in the quarter. The rank order of size within e-commerce is that the biggest segment for us is pure play, followed by B2B, followed by omnichannel, followed by direct-to-consumer and other. Actually, I think this is something we haven't shared before. is from a market shares perspective, the two biggest B2C segments, we have more or less fair share in omnichannel. So bricksandmortar.com, we have similar offline shares to online shares. And in pure play, our online shares are lagging our overall market shares. And so we've got a big initiative in the company around e-commerce where it really begins with the consumer insights and the marketing and activities, coupled with R&D to develop products that have got the value density to make the economics of e-commerce work, coupled with then a very agile element of our supply chain capable of responding to the rapid shifts in demand that you get in pure play e-commerce. coupled with marketing teams that understand how to run marketing programs that link big data direct to e-commerce selling and which are operating on a minute-to-minute campaign evolution, not an hour-to-hour, week-to-week, or month-to-month. So there's a little bit of a story on e-commerce, and it varies enormously by... category and geography. So in China, about a third of our business is now in e-commerce. And it's, of course, a very big proportion of, for example, our prestige beauty business, our luxury business, and relatively smaller in food and refreshment and home care. Though as we introduced, for instance, concentrated laundry detergent in North America under seventh generation, eight times concentrated, or some of these things like SIFEco refills, which are more concentrated, we're starting to see more growth in the home care side of the business as well. So that's a little bit of a tour around e-commerce. Graham, you want to talk about promo or innovation?

I'll take promo, Alan, thanks. I think the important point to land is that the increase in promotion in Europe and the return of higher trade investment and the trade dynamic is a return back to normal. What happened in the first quarter and second quarter is that because of the focus on making stores safe, simplifying ranges, getting supply in place, feeding the community and supplying the community, retailers, the promotional environment got dialed back because ultimately there's an element of complexity around running promotional dynamics within the trade. That has now normalised this quarter and we expect that that will continue indeed into Q4 and beyond because, to put it one way, our normal joint business plans that we have with all of our customers are now back in action again, having been effectively suspended over Q1 and Q2 as everybody was managing the peak of the crisis. So in that sense, there's no additional pressure from that, no drag on margin. I don't think we see any of that dynamic coming through because it is just a swing back to normal. The one exception to that, I mentioned it earlier, is a market like Thailand. where when it swings quickly to value and you see down trading, that happens through a very quick step up in promotion. That's a different dynamic to the one that I've just described in Europe. In terms of what will impact the margin going forward, what are the features of our margin? First of all, as Alan described earlier, we're going to spend more BMI. We're going to step up and continue to step up. As we've said, we've got increases now in some commodity prices, principally agricultural commodities. We've got foreign exchange devaluation that we're going to have to handle in seven or so markets in the emerging world. And we've got some ongoing mix negativity and ongoing cost of operating our factories in a safe environment and managing reduced, you know, personnel on lines, dealing with absenteeism, temporary labour, etc. All of that, which we call our sort of COVID on costs. So they're the main things which are going to be a feature of the margin going forward. Alan, I'll go back to you on innovation because you're a marketeer and I know it gives you so much energy to talk about it.

Thanks, Graham. I would say, Alan, that our innovation program is way more focused versus where we were at the start of the year. We've got 34% fewer projects in the funnel and some actually fantastic stuff that's hit the market. I can't say too much about what's coming. But if you look at what's already on the market, groundbreaking technology on Rexona, Rexona Clinicals, which provides unparalleled efficacy on sweat and odor protection, is doing exceptionally well and allowing us to premiumize. We've got a whole slew of successes on skin cleansing, including Lifebuoy achieving a the latest 1 billion euro brand in Unilever, gaining penetration in 100% of the markets that we operate in and gaining market share in 95%, growing faster than any other major antibacterial business in the world. And interestingly, Lifebuoy is the first brand to prove efficacy, not just against viruses, but against the specific SARS-CoV-2 virus. I won't go into all the details on sanitizers, but don't take lightly the innovation that Graham mentioned where Dove is now about to launch the first sanitizer that is clinically proven to moisturize. So we've managed to separate in the formulation high alcohol content that kills the germs and deliver a moisturizing benefit that lasts, I can't remember, eight hours or 12 hours. But it's an amazing product. And Vaseline, for instance, launched our antibacterial range in the UK in 14 days, start to finish. How about that? Then on home care, we see actually our home and hygiene business doing very well. We're taking Domestos into all kinds of new formats and different types of technologies. And we're launching it into a number of new countries, including, by the way, China. So taking Domestos into China. And maybe on the rest of Homecare, I'd talk about how e-commerce ready it is with things like the Citheco refill, tablets that we're now selling for door-to-door delivery, or letterbox delivery, I should say. And a really big innovation in Latin America is we've used technology to create concentrates that you dilute. So it's a three times concentrated liquid in Argentina that the consumer dilutes into a big bottle. Sounds pretty straightforward, actually quite difficult to do technically, off to a strong start. And then finally in F&R, I think there's two really big trends that we're seeing in our innovation there. One is everything that's vegan. So whether it's vegan mayonnaise or vegan magnum doing extremely well. But the other end of the spectrum are our indulgence products. So if you haven't tried the magnum pint, the double salted caramel magnum pint, get wired into one of those. It is an unbelievable product selling very, very well. And similarly, Ben and Jerry's doing very well on the indulgence side of things. So there's a few examples of our Innovation, I think the two things I would say characterize it. One is it's more focused than it has been in the past. And the second is we're bending over backwards to make sure it's relevant for COVID times. Most of what you've heard is innovation that resonates with the heightened consumer needs around hygiene, e-commerce, plant-based eating, et cetera. Okay, thanks, Alan. Thank you, Alan.

Thank you very much. I think we're going to have to end the call there. We still got a number of questioners. Sorry about that. We're just out of time. If you would like to get in touch with us, we're not in the office. So drop an email through to the IR team and we'll be happy to handle your questions and set up a time to speak. Thanks very much. Thanks, Alan. Thanks, Graham. And have a nice day, everyone.