Unilever PLC

Thank you. Good morning and welcome to Unilever's full year results and strategic refresh. As in previous quarters, we're presenting to you from our respective homes, so hopefully technology will run smoothly again. We expect prepared remarks to be longer today at around 60 minutes, followed by around 30 minutes or so of Q&A. All of today's webcast is available live transcribed on the screen as part of our accessibility program. First, can 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, good morning, everybody, and welcome to our full year results update. As usual, Graham and I will take you through the results. As Richard said, this is going to be a slightly longer presentation than we customarily do because we'll also take the opportunity to share with you our strategy refresh. It's a good time to do so now that we've closed out 2020 and completed the unification of our legal structure. But first, back to 2020. Well, I think it's statingly obvious to say it was far from business as usual. Typically, we would start this presentation by sharing our underlying sales growth, underlying operating margin, earnings and cash. But in this year of incredible volatility and uncertainty, we prioritised three things. That was volume-led competitive growth. absolute profit and cash delivery. First and foremost, we said we would deliver competitive growth. We wanted to ensure more than ever growth ahead of our markets. So no matter whether some of our categories were enjoying super growth or were in decline, we wanted more than our fair share. And I'm very pleased that we are now decisively back to more than 50% of our business winning value share on a moving annual total basis. And actually over 60% of the business winning in the fourth quarter. with volume shares indicating over 70% gaining share. And this is a clear step change in our competitiveness from only a year ago. It demonstrates how Unilever's focus on operational rigor and excellence is working. We also focused on absolute profit and cash delivery. So underlying operating profit was 9.4 billion, up 0.7% at constant rates. And our free cash flow for the year was 7.7 billion. which is a record cash delivery up a full one and a half billion versus last year. Now, as Unilever watchers, you'll know that when we talk about operational excellence, we mean is our focus on these five growth fundamentals shared last January. And we'll spend more time on these later, but we are pleased how this framework has delivered that change in competitiveness that we're now seeing. At the same time, we've continued to drive forward our strategic agenda. We are the world's leader in sustainability business and have progressed our sustainability agenda during 2020 with initiatives that are more tightly linked than ever to our category and brand growth agendas. For example, our clean future agenda and home care or our future foods ambition. As you know well, we simplified our legal structure unifying under a single parent company. Unilever PLC. We're now a simpler business with better governance and greater strategic flexibility for portfolio change. And at the same time, we've continued to shape our portfolio towards high growth spaces through acquisitions in 2020, in particular in the functional nutrition space like Liquid IV and Smarty Pants, and of course, the completion of Horlicks earlier in the year. And we continue to work intensively on separating out the majority of our T portfolio from the rest of the business, and this is progressing well. We're working on various options for the business, including an IPO or a demerger, partnerships or a disposal. And as we said on our quarter three call, we are evaluating options for some of our smaller BPC brands as we continue to actively manage the portfolio. The brands in question are predominantly sold in Europe and or North America. At the moment, they're being transitioned to the leadership of a new management team in the company and that will give them dedicated focus to step up their growth and value creation. You might have seen a bit of speculation of this in recent days in the media and I want to be clear that no final decisions have been made about the long-term future of those brands. And with that, let me hand over to Graham for a more detailed take on our results. Graham.

Thanks, Alan. Good morning, everybody. Volume-led competitive growth with over 60% of our business winning value share translated into underlying sales growth of 3.5% in the fourth quarter. And that brings the full year at USG to 1.9%. Across our markets, the pandemic continued to cause volatility with restrictions, lockdowns and channel closures returning in many countries in the fourth quarter. While restrictions in other countries have been eased, we expect this volatility to continue into 2021 as governments balance opening economies to support livelihoods with public health protection. I'll touch on some specifics when we get to the regional updates. Now, as in previous quarters, we've broken down our portfolio into groupings that reflect changing consumer behaviours and channels during the pandemic. Across the year, we've seen huge swings in demand and many of those big trends have continued into the fourth quarter. While demand for hygiene products, that's skin cleansing and home and hygiene, remained well above pre-COVID levels, demand for hand sanitiser started to normalise in Q4 versus the exponential growth that we saw in the second quarter. With many consumers experiencing restricted living and lockdowns, our in-home food and refreshments business saw strong growth across the year and again grew double-digit in the fourth quarter. In contrast, our food solutions and out-of-home ice cream businesses declined significantly, and after a slight recovery following the easing of restrictions in Q3, many countries saw a resumption of channel closures during the fourth quarter. Turning to the divisions, beauty and personal care grew 1.2% in the full year with double digit growth in skin cleansing. We responded really quickly to changing consumer demands and launched hand sanitizers into over 60 markets. That helped to deliver strong and competitive growth. Lifebuoy, which is our latest billion euro brand, grew over 50% in the full year and the back of COVID-19 focused communications such as the hashtag fightbacteriaandviruses and the launch of our H is for Handwashing campaign to raise awareness of handwashing and hygiene with children. Dove, our biggest brand, grew mid-single digit, helped by innovations in the antibacterial segment, combining efficacy against germs with the unique care of Dove. Our prestige beauty business was impacted by door closures in the health and beauty channel, with countries going back into lockdown in the fourth quarter. Prestige e-commerce continued to perform really strongly, however, outperforming the market significantly, and over 50% of our prestige beauty sales are now through e-commerce. The rest of VPC declined as consumers stayed at home, meaning fewer usage occasions in categories such as hair care and deodorants. However, in markets where such restrictions have been eased, such as China, India and parts of Latin America, growth has returned. Our food and refreshment division grew 1.3% driven by price and had a strong finish to the year with underlying sales growth of 5.4%. Our retail foods business grew 12% as restricted living led to more in-home eating occasions for consumers with Knorr growing double digits and dressings performing well. We've launched Hellmann's for the first time in Germany and in India. In ice cream, we rapidly pivoted resources to more in-home consumption through innovations such as the Ben & Jerry's Netflix and chilled variant. And we've again doubled the size of our e-commerce ice cream now business. Strong in-home ice cream growth of 17% was offset by a decline of over 20% in the out-of-home business. Overall, ice cream sales were level year-on-year, which is a really great result in the face of such general volatility. Food solutions declined by 30% as restaurants and hospitality businesses were closed for much of the year. During the fourth quarter, the market continued to recover in China, with dining resuming in many places. However, conditions in developed markets worsened in the fourth quarter as countries went back to lockdown, driving a 25% decline in food solution sales. We expect to see similar conditions into the first quarter of 2021. Home care grew 4.5% in the full year, driven by volume. Pricing was marginally negative as we passed on lower commodity costs in the second half, mainly in fabric solutions. Home and hygiene grew high teens, with continued high demand for household cleaning products as both penetration and frequency of purchase increased significantly. Domestos grew over 25% as we introduced bleach-based spring innovations and launched Domestos into new markets like China. Laundry grew 1%. Fabric solutions was flat as the pandemic continued to impact washing occasions. In India, frequency of washing workwear and school wear decreased by about 10% as schools and offices were closed. Fabric sensations recovered well in the second half, led by China. E-commerce grew by 61% in the full year as we responded quickly to the rapid shift of consumer spending online. E-commerce now makes up 9% of Unilever's business. Econ growth was strong across all of our regions. In Brazil, we expanded our eB2B Compra Agora business, and in the U.S., we more than doubled the size of our e-com turnover. In China, of course, the most advanced e-com market globally, we grew by over 50%, taking online to more than one-third of our turnover in China. We also saw strong growth across all e-com channels. Omnichannel e-com grew around 100%, while PurePlay grew around 50%. EB2B also performed strongly, up 65%. Turning to the geographies, in Asia, Amit and Namit Rub, underlying sales grew 0.4% in the full year, driven by price. USG in the fourth quarter was 2.6% as India continued its post-lockdown recovery with good growth in beauty and personal care. However, Southeast Asia declined, mainly driven by the Philippines and Thailand where tough restrictions on movement and tourism remain in place. China returned to high single-digit growth in the second half as the economy opened up and a more normal life returned for Chinese consumers. The recovery we've seen in China has been encouraging and is ahead of the market. Turkey had a strong performance in a difficult environment with volume-led growth driven by home care and ice cream. While market conditions vary enormously between individual countries, We are winning competitively across our key markets of Asia Amit Rub. In Latin America, underlying sales grew 4.1% in the full year, driven by price. Once again, our performance has been competitive in a very choppy economic environment. Growth in Brazil was resilient, but slowed in the fourth quarter as government consumer subsidies reduced. Argentina impressively grew both volume and price, despite the reintroduction of living restrictions. Volumes declined significantly in the year in Mexico, Colombia and Ecuador due to restricted living, but as these eased in the fourth quarter, we saw this trend slow. North America had a strong growth year with USG of 7.7% driven by volume. Strong consumer demand for in-home foods and ice cream continued into the fourth quarter, while demand for home and hygiene products, especially hand sanitizers, settled down from the peaks seen in the second quarter. Full-year growth includes a negative impact of around 2.4% in North America from our food solutions and prestige beauty businesses, which were impacted by channel closures. Excluding this, underlying sales for our US retail business grew double-digit. Our competitiveness in North America remains lower than the company average, and we are focused on addressing this. We were therefore pleased to see our competitiveness improve sequentially with a particularly strong step up in Q4, and e-com, which is largely an untracked channel, grew by over 100% in the full year. So we enter 2021 with good momentum in North America. In Europe, underlying sales were down 1% in the year, driven by a continued deflationary environment. The UK and Germany grew strongly through demand for in-home food, ice cream and hygiene products. Italy and Spain, however, declined due to our large out-of-home ice cream presence in those countries. We delivered strong and improved competitiveness across the Europe region. Turnover for the full year was 50.7 billion euros, a decline of 2.4% driven by currency. Underlying sales growth was up by 1.9%. Acquisitions and disposals increased turnover by 1.2% as we completed the acquisition of the Horlicks and Boosts health food drinks brands from GSK. Currency movements versus the Euro reduced our turnover by 5.4%. Based on spot rates, we would expect a negative currency translation impact of around 4% on turnover for 2021 and a bit more on EPS. Underlying operating margin was 18.5%. down 60 basis points. This was driven by gross margin, which declined by 50 basis points due to COVID on costs, an adverse mix, as we flagged to you in our results updates during the year. COVID costs, such as factory hygiene protocols and temporary labor, reduced gross margin by 50 basis points, while our particular COVID-driven sales mix created a drag of a further 40 basis points on the gross margin. Looking forward, gross margin will continue to be impacted by COVID on cost in 2021, and we will begin to lap the adverse sales mix only from the second quarter. The margin impact of country, category and pack mix will be substantially determined by the progress of the pandemic and the related lockdowns. Brand and marketing investment increased by €160 million in the full year at constant exchange rates. After a 100 basis point conservation in spend over the first half through the initial lockdowns, we stepped up investment in BMI strongly in the second half behind brand campaigns and product innovation that had been tailored to be specific to the new environment. That includes more hygiene-based communication and in-home consumption opportunities. Examples of this are the Hellman's Stay Inspired campaigns. As a result, BMI spend was up by 100 basis points in half. Underlying earnings per share decreased 2.4% due to negative currency impact of 6.5%. Constant underlying earnings per share were up 4.1%. Operational performance contributed 0.5% to earnings, while lower finance costs had a positive impact of 1.9%, reflecting a lower cost of debt. a lower underlying effective tax rate of 23% compared with 25.5% in 2019 and contributed 3% to earnings growth. The decrease was primarily driven by tax settlements and the replacement of the Indian distribution tax with a dividend withholding tax. We expect our tax rate for 2021 to be around 25%. Minorities had a negative impact of 1.6% on EPS, due to higher minority interests in India following the Horlicks acquisition, which was of course part settled using equity in Hindustan Unilever. Alan mentioned that we focused the business in 2020 on delivering cash in an uncertain year, and this certainly helped us deliver a record free cash flow of 7.7 billion euros, an increase of 1.5 billion compared to 2019. This reflects favourable working capital movements as we significantly increased focus on receivables. At the same time, we re-phased our CapEx investment in light of COVID-19 and there was a reduction in cash tax paid, partly driven by tax on the disposal of spreads in the prior year. Our cash conversion was strong at 129% and our net debt is sitting at 1.8 times underlying EBITDA. Return on invested capital was 18%. This reflects higher goodwill and intangible assets from the Horlicks acquisition and lower underlying operating profit after tax. And with that, let me hand you back to Alan.

Let me just summarise. In a year that saw unprecedented uncertainty and volatility, we're pleased with our performance thanks to our resilient portfolio, and frankly, newfound levels of agility and responsiveness in Unilever. We've delivered a clear step up in competitiveness, together with strong profit and cash delivery, despite making the choice to continue to invest strongly in our brands. We also continued our strategic progress and entered 2021 in good shape. While volatility and unpredictability will definitely continue through this year, we are confident in our ability to adapt to this rapidly changing environment. Now, let's move on to the second part of this morning's presentation, our strategy refresh and financial framework. Over recent months, we've spent a good deal of time sharpening our strategy to ensure that the choices we make and the actions we take best position us for success. We're going to take you through that thinking now, starting with our vision and our differentiating strengths, moving to a scorecard of our delivery against the strategy that we set out in 2017, and sharing the strategic choices that we're making for future growth. Graham will then talk you through a bit more detail on our multi-year financial framework before we open to questions. Let me start with Unilever's vision, which is simply to be the global leader in sustainable business and to demonstrate how our sustainable business model drives superior financial performance, consistently delivering results in the top third of our industry. It's a vision that's bold and ambitious, It differentiates us in a way that is increasingly being linked to superior performance and returns. And it energizes and engages our people who are excited to work at a company which puts winning at the heart of our sustainability agenda. And what I want to do this morning is give you a sense of how we intend to pursue that vision, creating long-term value for all of our stakeholders. For many decades, Unilever has been recognized as a company with great brands, a far-reaching global footprint, and a determined belief in doing the business the right way. And that's as true now as it was 50 or 100 years ago, but it's even more important today. We think Unilever has three differentiating strengths, which the data clearly tells us create competitive advantage. The first is our powerful portfolio of leading brands, and category positions. Secondly, our strong presence in the growth markets of the future. And thirdly, our position as the global leader in sustainable business. Let's start with the first of those strengths, our portfolio of leading category and brand positions, which is why around two and a half billion people use a Unilever brand every day worldwide. We have clear global leadership in six categories, and in a seventh, we're the volume leader, but not yet the value leader. And together, these seven categories represent two thirds of our global revenues. And it's a similar picture in our brand footprint where more than 50% of our global turnover come from our 13 biggest brands, which generate more than 1 billion euros of sales each in 2020. The biggest like Dove and Knorr generate 4 to 5 billion euros of turnover. In addition, 81% of our brands sit in category country sales. where we are number one or number two in the market. Now, that's a reflection not only of the quality of our product performance, but also the strength of our marketing, where we've been voted by the EFI index as no less than the world's most effective marketer for the last four consecutive years. To be honest, I take great pride in this portfolio of brands, mostly global, a few local jewels, purpose-led, FutureFit, it's a portfolio that any marketer worth their salt would dream to have access to. 14 of these are in the top 50 consumer brands with the highest household penetration globally according to Kantar and that places Unilever as the highest ranked company in terms of these big worldwide consumer brands. Now, speaking of unparalleled reach, Unilever's second differentiating strength is our strong presence in the geographies that will be the engines of global growth in the years ahead. We have the largest consumer footprint of any FMCG manufacturer with more than 40 billion consumer reach points. This is the number of households that buy our brands or penetration times the number of times that our brands are chosen by shoppers frequency weighted by population. It's a Cantor metric. We have unmatched capability in driving market development, complemented by extremely strong distribution networks, long-standing customer relationships, and very deep consumer insights. And in addition, our frontline businesses are completely managed by strong local leadership. In China, for example, 98% of our managers are Chinese. We're a Chinese company, and that keeps us close to the market and close to changing consumer habits. So drilling into the growth markets of the future, I think you'll find this an interesting chart. These 10 countries are expected to contribute two thirds of global GDP growth over the next decade. And that's shown in trillions of absolute growth in the blue bars. Any global future fit FMCG business really has to have a strong presence in those countries to compete successfully in the future. And the purple bars show Unilever's revenues in billions in these critical growth markets. And at the top is our ranking amongst the 18 companies in our peer group that we use. So we have a number one position in five of the 10 markets, India, Indonesia, Turkey, Pakistan and the UK. We have a strong number two in Brazil and Vietnam. And where our competitive position is not number one or two in the United States or Canada, for example, We do have scale and have set them as strategic priorities. So we think we're well positioned to capture future growth. And we think this footprint is a significant strategic advantage. Our third differentiating strength is global leadership and sustainability. Being a genuinely sustainable business is not easy. It takes a long-term commitment and deep expertise that only come with time and with effort. And so we see our leading position on this unique strength as we enter an era defined by the expectations of consumers that businesses must play a positive role in society as an important advantage. Our sustainability leadership is reflected in many rankings, whether it's being voted as the global leader in sustainable business in Globescan survey of experts, for the 10th year in a row, may I say, or whether it's being named by Dow Jones as an industry sustainability leader since 2014, or by the Climate Disclosure Project for Climate Actions. Our work to be a sustainable business leader is widely recognized. Just take one example here. This is a chart that demonstrates the leadership position in Globescan. This is expert polling. which puts us ahead of many other companies and leading brands that we frankly greatly admire and are proud to sit alongside. There is clear growing and compelling evidence that sustainable business drives superior growth. Now, the growth equation is quite straightforward. It's that measurable brand purpose grows measurable brand power. And brand power in turn drives market share and growth. And you can see the incredibly strong correlations here across thousands of data points showing that brands which are playing a positive role in society, more power, brands that carry more brand power deliver greater volume market share. And both these correlations have got an R squared of over 0.7. And we see this in our own brands. we now have a robust empirical methodology to track the relationship between measured brand purpose and brand growth at a brand country sell level. And in aggregate, Unilever's brands, which are seen by the consumer as more purposeful, grew USG more than two times faster than the rest of the portfolio. This trend is corroborated externally with Kantar data across multiple sectors, showing that brands that were stronger on purpose grew twice as fast as brands that were seen as average on purpose. And that's, by the way, over a 12-year period. On costs and on risks, the picture is equally clear. Throughout our operations and supply chain, sustainable practices save us money. Since 2008, we've avoided some 1.2 billion euros of costs. The same coefficients in our factory And finally, we know that our leadership in sustainability acts as a magnet for talent. It's a driving force behind our status as the number one employer of choice in 54 out of the 75 markets where we measure, including almost all the markets where we have a formal graduate recruitment program. And in our biggest countries, the US, India, China, Indonesia, and Brazil. So in summary, we do have extraordinary category and brand positions, a tremendous geographical presence in the right growth markets for the future, and clear and long-standing sustainability leadership. And these, we believe, are strong foundations for future growth. Let's focus just briefly on how we've performed against the last strategy, the one we set out in 2017, before moving on to execution and our future strategic direction. The 2017 scorecard represents a strong foundation, whether it's been creating a simpler, faster organisation, unifying our legal structure, or moving faster on portfolio evolution. We've done what we said. And on the financial metrics, we accelerated margin progression, delivering over €6 billion in savings over the period, achieving over 100% cash conversion, and maintaining a high ROIC, whilst continuing to reshape our portfolio through acquisitions and disposals. Margins have improved by nearly 300 basis points, which puts an even stronger premium on future top line growth as a value creation lever. And while we're happy with our margin progression, the outcome on top line growth has not been as strong as we wanted. In 2017, we set out a multi-year range for underlying sales growth of 3% to 5%. And while we've come just within that range, as I've said before, it's not where we want to be. Our single-minded focus as a management team remains on accelerating top-line growth. Let me touch on two steps that we've already taken, simplifying our organization and creating a blueprint for operational excellence. Until early 2019, we had a structure where all global functions, all the divisions and all the market clusters reported into the CEO. And I believe this is too broad a span. So we brought back the COO role, introduced the flatter organization and removed the regional layers. So the divisions still report to me, but we now have 15 market performance management units directly under our COO Nitin. And this has become our mechanism for swift and disciplined translation of strategy into action, as well as the rigorous vehicle for landing our five growth fundamentals into our markets. Speaking of which, the five growth fundamentals have brought real focus across the business on our empirically proven drivers of growth in consumer goods, and they're working. The percentage of our turnover that's increasing household penetration has grown to 60%. We know there's an absolute correlation between household penetration, volume market share and growth. We also know that brands that take volume share in an economic downturn typically grow 1.4 times faster than the rest of the market over the next five years. And that's why we're so laser focused on household penetration and volume-led share growth. Innovation has been another priority where we're stepping up as the COVID pandemic rapidly changed consumer habits in 2020. We delivered innovation at speeds across many brands in our portfolio that we've not seen before. We know we can do even more in this space with an innovation program that is increasingly focused on fewer innovations that are more rigorously tested and with greater incrementality to our portfolio. We've also increased our focus on execution in the channels of the future, designing products for those channels and organizing our business behind them. And e-commerce is a great example. As Graham outlined, it was a strong growth space for us last year. It grew by over 60% in 2020. And I just want to repeat the point in case you missed it, that we sell over 50% of our prestige beauty portfolio through this e-commerce channel. In addition, Nearly 60% of our brands are now seen as more purposeful by consumers. And our brands with purpose are really starting to cut through. Finally, as well as delivering savings, cash, of course, has been a critical focus under our fuel for growth fundamentals. And this savings and cash delivery is another sign of Unilever's growing operational grip. So this is the data that demonstrates both the issue we were trying to address and the progress that we've made. So look back at 2018 and into 2019 and frankly our competitiveness was not where it needed to be in order to drive market share and top line growth. If you fast forward to 2020 and in particular the quarters that made up the second half and you see a completely different picture. The chart on the left represents our competitiveness over three years to the end of 2020 on an MET basis and the chart on the right reflects the quarterly positions since late 2019. At the end of December, as Graham mentioned, some 65% of our turnover is now winning market share by value. We think this reflects a more disciplined, a more execution-led organisation the company-wide focus on the five growth fundamentals, and the sustained investment behind winning brand mixes. We've talked to you before about targeting a position where 60% of our turnover is winning market share by value, and that hasn't changed as a target. It's holding the position consistently for an extended period of time that's important. And so while we're pleased with the progress we've made, the real key now is to sustain it. So, Having outlined Unilever's differentiated strengths and shown, I hope, how our focus on execution has been increasing our competitiveness, let's focus now on some of the future-facing strategic choices that we have made. The first of these choices is to develop our portfolio into high-growth spaces, positioning the company for faster growth. And our strategy here is quite clear. We will continue to evolve our portfolio towards higher growth segments in home care, beauty, personal care and foods. Both the choices we make for organic investment and in the acquisitions and disposals that we pursue. The places where we choose to deploy our capital will be guided by these clear investment criteria. Are the spaces we're focusing on a sufficient size? Are they intrinsically higher growth? Do they have strong potential in the growth markets of the future? Can we see a route to market leadership? And finally, are they in product categories that are sensitive to Unilever's marketing and technology know-how? As we apply these criteria to our portfolio, some categories really start to emerge as where you should see us expect to focus the lion's share of our capital deployment in the years ahead, both organically and via acquisitions. And those are hygiene, both hand hygiene and surface hygiene across each home care and BPC, a perennial priority skin care, prestige beauty, functional nutrition and plant based foods. Now, let me share how we think about our investment choices across Unilever, because it's not a simple three division view. Whilst organisationally Unilever is run as three divisions, from a strategy and investment view, it is a continuum. Some key opportunities like hygiene on the left or functional nutrition do straddle the borders of our different divisions. Our where to play investment criteria have led to two categories, spreads and tea falling out of our focus. They don't meet those criteria and you will see us continue to reshape our portfolio where we think parts don't meet the specific criteria that was set out. On the other hand, hygiene, skincare, prestige, beauty, functional nutrition and plant-based food is where our investment focus will be in the years ahead. In hygiene, the opportunity is chiefly going to be via organic growth through our existing powerful product and brand portfolio. In health and well-being, it will be partly through organic growth, but also through the good use of our capital through acquisitions. And as you can see here, this is very much a continuation of what we've been doing in recent years. Of the 16 billion euros of capital that we've deployed in acquisitions over the last five years, over 70% of that has gone into the priority focus areas in skincare, prestige, beauty, and functional nutrition. So quite concentrated. And let me just reiterate... As we all do at this point, that will be guided by strict criteria and rational economic choices. There's significant value at stake and will continue to be disciplined in our approach, looking at the portfolio in its entirety as we judge how best to create and enhance value. Actually, we're very proud of the progress we've been making on building our prestige, beauty and functional nutrition businesses. Our prestige unit is now the best performing luxury beauty business in the market with the rollout of acquired brands like Dermalogica and Tatcha, building our scale to what is now a 700 million euro business. And the same is true of functional nutrition, which through our vitamins, minerals and supplements brands like Olli and Liquid IV and the acquisition of Horlicks has put us on course. And this business will be well over a billion euros in 2021. So although at around 2 billion revenues on an annualized basis, these two businesses are only 4% of our turnover, we anticipate them to contribute disproportionately to our growth in the future. The second strategic choice that we're making, and I'll cover it more briefly, is to win with our brands as a force for good, powered by purpose and innovation. I've already shared how brand purpose drives brand power, and growth, and we're only seeing that trend accelerating. Faced with the huge social and environmental crises in the world, we know that sustainability matters more to young people than ever before, and that young people in particular feel strongly that it's time for businesses and brands to show more responsibility. Actually, Gen Z and Millennials are already the majority of the adult population globally, and these simply care more about the positive impact of the brand choices that they're making. As we continue to grow our brands with purpose, you're going to see more of them take a leadership position, driving meaningful, tangible action on issues that our consumers care deeply about, improving the health of the planet through our Clean Futures pledge to move to fossil-free chemistries in our home care brands, or to ensure 100% of our plastic packaging is reusable, recyclable, or compostable. by improving people's health, confidence and well-being, such as through the actions that Dove's taken to reach 65 million young people with our self-esteem campaign and an aim to reach 250 million young people by 2030 or by contributing to a fairer, more socially inclusive world, whether that's through Ben and Jerry's campaigning for racial justice and refugees' rights or indeed our broader Unstereotype campaign to break gender stereotypes and advertising. All these actions are differentiated through the science and technology that we deploy in our brands. Brands that are winning not only through their purpose, but also through their superior quality and efficacy. And that's whether fighting in the COVID virus or delivering on other points of superiority. Supporting this, you will see a sequential step up in our investment in R&D over the next three years with our recently opened Foods Innovation Centre at Wageningen in the Netherlands as a good example of that commitment to stepping up our R&D spend. So this is how we'll win with brands as a force for good, powered by purpose and innovation. The third strategic choice we're making is to accelerate in the US, India, China and the other key growth markets of the future that I mentioned earlier. We really have strong brand and category positions in the US and China, and you know our leadership position in India. Together, these three countries alone represent nearly 35% of our turnover today. They're forecast to account for 60% of global economic growth by 2030, and so this is certainly a strategic imperative for us. In the US, we have strong market positions across many categories, from deodorants, skin cleansing, hair care, to ice cream, dressings, and tea. And we're improving our competitiveness in these positions. We've already made strides in areas such as hair care and dressings. And two-thirds of our business in the U.S. is now winning market share online. Much of the future fit business that we're building in prestige beauty and in functional nutrition is in the U.S. I don't think I need to say too much about India. We're by far the number one player. Hindustan Unilever is a phenomenal business that reflects our long history, our unique network and strong consumer relationships in the country. Some incredible 84% of our business in India is winning volume share, with the most recent addition to our portfolio, Horlicks, doing very well since we took it over. And we see a significant opportunity to develop that market further. Our momentum in China has been steady and strong. We've created a 3 billion euro and profitable business and we have great opportunity to accelerate through partnerships with the likes of Alibaba and JD and a distribution model that's increasingly taking us deeper into the smaller cities of China. Beyond these three key markets lies much more opportunity with business propositions that we have in Brazil and Indonesia and the Philippines. in Turkey and Thailand and in Mexico, each delivering more than a billion euros of sales a year. And I think you know about our strong presence in many other important emerging markets for the future. These are Unilever powerhouses where we will continue to build on our unrivaled route to market strength. The fourth strategic choice that we're making is to lead growth in channels of the future. As you know, COVID-19 has only accelerated the adoption of e-commerce. But increasingly, we're having to manage e-commerce by sub-channel, as we see the different needs of pure play and omni-channel, as well as the fragmentation of digital models, the rise of social commerce, fast delivery, live streaming e-commerce. And it's not only transforming our B2C relationships, it's also transforming the decades-old distributive trade to open new opportunities in eB2B. You know, there are over 14 million small stores in Asia and LATAM alone. We directly cover 5 million of these stores today, and we reach the balance through wholesale or other indirect routes. By the end of 2020, our eB2B program has already reached 1.5 million stores and that number is growing by the month. So to continue to drive that growth, we're ensuring that our innovation and merchandising strategies are very deeply rooted in Shopper Insights. Shopper Insights that bring category value growth through category development and through channel relevant assortments. Our fifth and final strategic choice is to build a purpose-led future fit organization and growth culture. Agile ways of working are allowing us to redeploy both temporary and permanent resource to support our strategic priorities. By leveraging automation and by driving digital transformation, we can release capacity in areas of the business that focus on repeatable transactions. Our Flex platform, for example, has helped us just in the last year to reprioritize 500,000 worker hours towards more than 3,000 business critical projects. And it has enabled many employees to use flexible employment models that suit their personal life choices. At the same time, we want to ensure we continue to foster a truly inclusive and diverse culture. we're working to eliminate the institutional and unconscious biases that limit some employee's ability to achieve their full potential. We've really been recognised for our progress on gender and we're extending that focus to race, disability and the LGBTQI plus community. Alongside this, we recognise that changes to the world of work require us to equip our employees with new skills, The West 2020 future of job reports show that 40% of core skills will change in the next five years and fully 50% of all employees will need re-skilling. So we continue to build capability, raising the ceiling on the strategic skills that we need to grow the business. We saw a 60% uplift last year in use of our online learning platform called DeGreed. Four million hours of learning That's an average of more than 30 hours for every single Unilever employee. We are already a learning organisation at scale. And I won't labour the point, but an ongoing mindset of organisational efficiency as well as effectiveness has become just part of how we do business. So here they are, the five strategic choices in summary. Actions on our portfolio, markets, brands, channels and people. They are underpinned, of course, by our readers. I provide clarity for you on the distinct choices that we're making to accelerate growth. You'll be hearing a lot more about them in the weeks, months, and years to come. And I think I need to take a break now and hand over to Graham, who will cover our multi-year financial framework. Graham, back to you.

Yeah, thanks, Alan. Take a break after that long shift, though. Before I go into our multi-year financial framework, let me start by breaking down the three big levers that we'll use to step up our top line growth. Firstly, there's tremendous opportunity to grow our markets through market development. Now, we do this by introducing consumers to a product that they didn't previously use. Fabric conditioners, hand dishwash, or surface cleaners are good examples. We'd also do it by increasing usage frequency or by encouraging them to trade up into newer, more premium formats, such as moving from a dishwash bar soap into dishwash liquid or packaged tea rather than loose tea. This type of market development can result in significant incremental growth in our categories. Secondly, competitive growth. As Alan showed, we've delivered a step change in driving operational excellence, to our continuing focus on the five fundamentals of growth. And as a result, we're winning market share in over 60% of our business in the last quarter. And finally, we'll step up our top line growth by continuing to evolve our portfolio towards higher growth segments in hygiene, in skincare, prestige beauty, functional nutrition, and plant-based foods. So looking forward on a multi-year basis, we expect our underlying sales growth to be ahead of our markets, delivering in the range of 3% to 5%. We will deliver profit growth ahead of the underlying sales growth on a comparable basis and a sustained strong cash flow over the long term. We are very disciplined on cash and that won't change. 2020 was an exceptional cash year with delivery of 7.7 billion, but the progress made on working capital, for example, from an already slumped position, can be sustained through focus. We will continue to deliver long-term value creation by driving earnings growth together with a growing dividend. Moving to other long-term financial metrics, we have a healthy pipeline of savings programmes that provide fuel for growth and we expect to continue to deliver savings of €2 billion per annum from our well-established initiatives such as 5S, ZBB and our technology-enabled restructuring programmes. We will invest 1 billion per annum in our assets, capabilities, and organization over the next two years to strengthen our foundations for the future and ensure that we remain future fit. I'll come back to this. ROIC is one of the targeted metrics in our long-term incentive plans. And as you saw from our 2017 scorecard, we have a good track record. We expect to deliver ROIC in the mid to high teens over the medium term, as we will balance the capital cost of shifting our portfolio towards higher growth segments with the discipline to maintain a high ROIC. For leverage, we expect to keep our leverage at around two times EBITDA over the long term. Over the last three years, we have reshaped our organization by investing behind modernizing and optimizing our supply chain, that includes 24 site closures. Major overhead transformation programs, for example, addressing the stranded costs from the sale of our spreads business and organisation redesign to bring our marketers closer to our markets and our consumers and accelerating the transition to digital ways of working across Unilever. Together, this investment delivered incremental savings of 1.5 billion euros with an average cash payback of three years. Over the next two years, we will invest to ensure that our organization remains future fit and becomes increasingly digitized, driving process harmonization, new data structures, and building analytics capability to enable faster, better decision making, and importantly, free up the burden of frontline teams working on back office processes. This will increase the focus on consumers, customers, and growing the business, while continuing to drive efficiency savings. We expect to deliver incremental savings of 1.3 billion euros from this investment with an average cash payback of three years. Moving to our capital allocation framework, because of our high ROIC, our first priority will continue to be operational investment, investing back in our business, creating the platform and the momentum for future growth. The second set of choices for capital allocation is are about reshaping our portfolio through acquisitions, disposals or partnerships as we continue to evolve towards the higher growth spaces that Alan described in home care, beauty, personal care and foods. And the third allocation is about returning value to our shareholders, whether through dividends or share buybacks, which continue to be one of a suite of tools within our capital allocation framework, which aims to keep our leverage at about two times EBITDA. I'm going to hand you back to Alan to wrap up.

Coming off mute there. Thanks, Graeme. Well, 2020 was certainly a volatile and unpredictable year in which Unilever demonstrated its resilience and found a new type of agility to the COVID-19 pandemic. We've delivered a step change in operational excellence through the focus on the fundamentals of growth. We've progressed our strategic agenda through building our existing sustainability commitments and completing the unification of our legal structure. Our purpose is to make sustainable living commonplace and our vision is to be the global leader in sustainable business and that differentiates us from our peers. we will demonstrate how sustainable business drives superior performance. We'll do it by leveraging our three differentiating strengths that position us well for the consumer and demographic trends of the future. And we've set out plans to drive long-term growth through the five strategic choices that we've made. By doing so, we will deliver long-term value for all our stakeholders. Thanks for your attention during this webinar. longer than usual presentation. That's the end of our prepared remarks, finally, and we'll now take questions. Richard, back to you.

Thank you, Alan. Thank you, Graham. So we're now running over to Q&A. As a reminder, if you want to ask a question, please press star 2. Once you've pressed star 2, you'll hear a beep and will be placed in the queue. If you no longer wish to ask a question, press star 3 to exit the queue. If you're listening to the conference call on the speakerphone, please use the handset while asking your question. And finally, please, please, we've got a lot of people on, keep your questions to a maximum of two. So our first person we have in the queue is Warren Ackerman from Barclays. Do you want to go ahead with your question, Warren?

Yeah, thanks, Richard. Morning, Graham, Alan. Hopefully you can hear me okay. The audio is a bit crackly. So my two are firstly on competitiveness. I was struck by the value share picking up from 51% to 65% in December. Can you outline where those gains are coming from by geography and category and does it include e-commerce? The reason for the question is when I look at Colgate and P&G growing at 8% in the last quarter and you doing sort of three and a half, obviously different portfolios, but there is quite a gap. And then when I look at beauty and personal care growing 1.2% for the year, 1.5% in the quarter, is that competitive growth in that division in your view? And then secondly, just around margin, lots of moving parts, just wondering whether, Graeme, you can touch on some of those for 2021, specifically, I think, in input costs, R&D stuff that we talked about, gross margin advertising. you're saying margins will be up medium. So can you confirm that you expect margins to be up in 2021 against the 18.5% base? Thank you.

Great. So on competitiveness, Warren, let me just say that it's very broad based. Most of our markets or an increasing number of our markets are starting to fold e-commerce into market share reporting. It's not universal. And I think it's fair to remind what Graham pointed out, which is the one place where competitiveness is not yet above 50% is in the United States. And some of the comparisons with the competitors that you mentioned are largely due to differences in geographic footprint. We're 18% in the US, which has enjoyed very good growth over the last 12 months. Some of our peers, it's up to close to 50% of their businesses in the US. I think at the moment, we can explain all of the difference in headline growth through different category, country, portfolio, Our step up in business winning share is very broad based across divisions and across geographies with work still to do in the US itself. Although in the US, the very rapid growth that we are seeing in things like vitamins, minerals and supplements, that's not captured in the market share that we're reporting. And similarly, our prestige business is more or less flat for the year, down 2%. And to be honest, that compares with a peer set that is typically down somewhere between 10% and 30%. So our prestige business has done rather better. But the majority of the difference in headline number is due to footprint. And as I've said, now, competitiveness is broad-based with work still to do in the USA.

Warren, picking up your question on the margin, I was going forward. Let me just spend a little bit of time on the drivers in 2020 for a second. As we said, within gross margin, which was down by 50 basis points, there was a 90 point impact from COVID. That was two buckets. 50 basis points is direct on costs of things like PPE, distancing and safety protocols on our sites, alternative sourcing, temporary labor to cover absenteeism, et cetera. That was almost a quarter of a billion all in. And we also had 40 basis points of adverse mix from the surge category seeing and those which are constrained through charnel closure. A couple of examples of that, our skin cleansing business, as a gross margin, which is about 10% lower than the rest of beauty and personal care. So as skin cleansing surges relative to the rest of BPC, that gives us negative mix. And similarly, our in-home ice cream business as a gross margin is about 10 percentage points lower than out-of-home ice cream. And therefore, as we saw a switch from out-of-home to in-home. you know, that gives us negative mix and all in that's been negative 40 basis points of mix. And we also, I should remind everybody, we made 100 million of donations of product, you know, in 2020, and that about a 10 basis point impact on margin. Looking forward, what would we expect to see? Well, we would expect the COVID-related impact, the on costs and the adverts mix to continue into 2021. And particularly the mix will be impacted by the category demand patterns. So as the pandemic progresses, in particular as lockdown and restricted living changes, we may see some shifts in that, but we're expecting we'll see that continue into 2021. We'll also be lapping a softer base, of course, in the first half. At the BMI level, I should say, we conserved a lot of BMI during lockdowns because there weren't places to advertise. And then when we innovated and created the mixes, which were specific to COVID, we really strongly stepped up investment behind our brands in the second half. So although absolute BMI spend was up 160 million euros, versus 2019, it was down 100 basis points in the first half, but up 100 basis points in the second half. We're really investing very strongly behind the brands now in the second half and Q4 in particular. Now, in terms of what all that adds up to for, well, sorry, let me just comment a little bit on commodity outlook as well, because I think that's relevant for you. We are seeing quite a bit of commodity inflation and a larger foreign exchange impact as we go into 2021, particularly in Latin America, in Turkey, in India and in South Africa. And we've got some commodity inflation coming through, in particular tea in India, in palm oil, in liquid oils and in food ingredients. So we've got some inflationary pressures coming forward. We do expect mid to high single digit commodity inflation. in the first half. So, we have to be at the top of our game in pricing going forward. Now, what all that adds up to, I'm not going to give an outlook on margins specifically for 2021, other than to say that, in accordance with the multi-year framework, we would expect that our profit grows faster than our top line grows.

Thanks, Graham. I just want to follow up on two data points that I should have given, Warren. The first is our coverage on market shares is 70%. So parts of the business like food solutions, out-of-home ice cream, some part of the luxury portfolio where it's hard to get data and some of the tail countries. But we've got about 70% coverage. And the second is just to confirm, in the latest 12 weeks, we're over 60% winning value share in all three divisions, in BPC, in home care, and in F&R. Just a couple of data points there.

Richard, back to you. Okay, thank you. Thanks, Warren. So next question is from Alan Erskine at Credit Suisse. Go ahead, Alan.

Good morning, guys. Hope you can hear me. I just want to follow up on Warren's question. I mean, you talk about improving competitiveness, but at the end of the day, you reported 1.9%. USC for the year. And if I'm correct, Argentinian pricing was 30, 40 basis points of that, which is clearly below the three to five run rate you think the group is capable of and below most of your peers. I think the obvious conclusion to draw here is that the net impact of COVID and the lockdowns has been a negative for you. So given that we do expect some sort of return to normalization, I just want to confirm that your multi-year three to five goal applies to 21. My second question is with regards to functional nutrition. I mean, I would make a distinction between Horlicks, which is essentially a malted beverage, and some of the more functional BMS acquisitions that you've made. And my question is, given, you know, you have a bit of a mixed record where you've gone your core areas, I'm thinking of things like Bluer and Dollar Shave Club. What gives you the right to win in the VMS space? Thanks a lot.

Thanks, Alan. Do you want to talk about the top line outlook in the closer in period and I'll come back on VMS.

Yeah. Morning, Alan. Well, you know, obviously, I mean, the principal driver of headline growth at the moment, obviously, is a particular geographic and category makeup of each of the companies in our peer group. And, you know, Alan, that's absolutely why back in the first quarter, we withdrew our guidance and reset and were very clear on how we measure the performance of the company. We measure that performance through competitive growth. And that's delivered for us. We've stepped up our competitiveness significantly during the course of the year, as Alan's presentation described, and we exit 2020 in a much improved position competitively than we did before. And I don't really know what else to say about that other than we've done what we said we would do. Clearly the best way to determine the performance of a company in this volatile situation is through the competitiveness of your business. We measure it scrupulously. That's what we told our business to focus on and that's what our business has delivered. And the particular top line outcome that happens as a consequence of that in any single year has everything to do with the particular categories and geographic footprint that you have and nothing to do with the underlying performance of the business, provided you're comfortable that your growth has been competitive

Thanks, Graham. Alan, on the functional nutrition, we absolutely do not see Horlicks as a malted beverage. In fact, I think that was one of the problems the business had since we've taken it over. It's growing double digits. And one of the reasons is that we're doing exactly what I said we would do in the criteria for the businesses that we're going into. which is we are applying marketing and technology know-how. So we were able to fortify Horlicks with zinc and offer it on an immunity platform, which of course is highly relevant in the current circumstances, with excellent science behind it and even better marketing, if I may say. And we see huge runway for Horlicks as a carrier for the micronutrition needs of emerging markets in India and beyond. And then if you just think about the VMS business, so Equilibra, Oli, Liquid IV, Smarty Pants, those businesses, since we've taken them over, I mean, we're several years into Equilibra now. It beat the odds in Europe. It grew mid-single digits in Europe last year. All the others are growing, I'm embarrassed to say, very high double digits. In fact, we're seeing super growth and the founders are still with us and they see Unilever's nutrition knowledge and Unilever's ability to bring operating efficiencies as an absolute gold mine to continue the growth and step up the profitability of these VMS businesses. The criteria that we laid out on the areas that we would prioritize where we bring know-how certainly apply on both Horlicks and VMS. And they share very common characteristics, just different delivery mechanisms for different markets. And if you had to pick one part of the business that I'm optimistic about delivery of super growth, it would be that one.

Can I just add on the points that Alan gave around where we've stepped out beyond our categories? Alan, you could say exactly the same about our prestige beauty business. And we think we've created what is, you know, currently a very successful prestige beauty business. It's performing better as far as we can tell than any other prestige beauty business in the world right now. And so, yeah, I'll just point that out.

Okay, thank you. Thanks, Alan. The next question is from Bruno Montane at Bernstein. Go ahead, Bruno. Good morning, and thank you. My first question is on India. Clearly, there's new alliances between technology companies and the retailers, and they're all giving access to the final mile or the informal trade in India through e-commerce, similar to what happened in China. Do you see that as a potential risk that sort of giving those new platforms that will allow other international brands to catch up with your deep penetration in India? Or do you not see that as a problem? And the second point is, you talk about the 34 brands, and I recognize a lot of what you say there. But then some other counter data also sort of suggests that if you ask any consumer in the street or in an average panel, can you list any brands that are more responsible to the environment than others? Only about 20% of consumers were able to name a brand, and the top brand only had 5, 6%. So while they care, they say they care, they seem to have very little unaided collection of the brands that deliver for them. Do you recognize that data? Do you see that changing? And does it give you any concern? Thank you.

Great. Do you have any preference? Do you want to take the first one? I'll take the second one.

I'll take the first one, yeah. Hi, Bruno. It You know the strength of our route to market distributive trade, not just in India, but in many parts of our growth market footprint. We've talked about it many, many times. As Alan said in the presentation, there are about 14 million outlets within that universe globally. We reach 5 million of them directly. We have salesmen calling, having conversation, having a relationship with those stores. But we see both risk, yes, but also tremendous opportunity in the application of digital and digitizing that part of our business. And we've been very, very active with that. So when we talk about our e-commerce growth at 61%, a third of that business is what we call eB2B. And that, Bruno, is exactly the digitization of that distributive relationship that you're talking about. Now, it grew at over 65% in 2020, that aspect of our business. A lot of that was in Latin America with our Compra Agora platform that we've rolled out now to 10 or so countries. But in aggregate, of the 5 million stores that we directly call on today, we have digitized 1.5 million of those stores already. And as Alan said in his presentation, we're adding to that very, very quickly. So we see it, I think, more through the lens of opportunity than we do as risk. And of course, you wouldn't expect us to be sitting back passively, not seizing all of the opportunity that digital and the power of data represents. as we apply that to what is a tremendous asset of Unilever.

Bruno, on purposeful brands and consumer awareness, I'm just going to take a second to share why we're so confident on our assertion that purpose drives growth. Two, three, four years ago, we used qualitative criteria in the company to identify what we called our sustainable living brands. So we checked across what the brand was doing, what it was saying, how it was perceived by consumers. And we would conclude, for example, Dove and Ben & Jerry's, yes, they qualify as sustainable living brands. Then we took those brands and we quite simply added up how they were growing versus the rest of the portfolio. But we felt slightly uncomfortable that that was insufficiently consumer-led and we wanted to hold ourselves to a higher standard. So for the last couple of years, we've had in place tracking in 571 category country sales around the world where one of the questions that we ask for all brands that the consumer is aware of, us and the competitors, we ask a question about whether that brand makes a meaningful contribution to planetary or societal well-being. And that methodology gives us a consumer-led view at a market level, so not general aggregates, on amongst brands that they're aware of, how purposeful or sustainable are they seen? And the data is so compelling. In truth, we've underplayed it slightly in this presentation. The difference in growth between the brands that the consumers see as being sustainable versus not is dramatic. And then you layer on top of that the 12-year longitudinal study of tens of thousands of brands that Kantar have looked at across multiple sectors, and they've concluded that those brands are growing at double the rate of the brands that are not purposeful. And as far as are consumers aware of it, there was a chart I flicked over quite quickly that shows lower intrinsic interest amongst older age groups, baby boomers and Gen X, but huge levels of interest amongst the majority adult population in the world, which is millennials and Gen Zennials. So we think not only is this driving performance, not only is it already highly relevant, but it's going to increase in relevance over time. So we see no evidence whatsoever of consumers unable to distinguish brands based on purpose.

Alan, can I just come back to the first question quickly for Bruno, because I realized I didn't answer his final point about risk of increased competition. as the distributive trade digitizes. I think, Bruno, the key thing to remember is that it's the consumer who decides. And our brands are incredibly strong in these markets. We have incredibly strong businesses and incredibly strong brands. You know, across Unilever, the brand power of Unilever's brands is holding or growing in more than 80% of the company. It's also important to note that the way we do this is by focusing on the ultimate customer, who's the smallholder. and we have strong existing relationships there. And we can help that smallholder to grow their business through assortment, through promotions, through recommendations and what the consumer wants in terms of basket and correlation between brands. So I think that's a very significant advantage.

Thanks, Graham. The next question is from Celine Panuti at JPMorgan. Go ahead, Celine.

Yes, thank you. Good morning, everyone. So my first question is on mid-term, and maybe if I reflect on some of the comments before in terms of you not being able to go to the three, to deliver on the three to five despite being more competitive as you believe. Is it in the end an issue about your category growth exposure? So could you talk about the growth that you see in those, I think, five subcategories you are mentioning versus the remainder and the core of Unilever business? And given that you've done some portfolio changes over the past couple of years, that has not helped. Does it mean that we should expect an accelerated portfolio shift maybe through M&A? So that's my first question. My second question, more on the shortened side, I was surprised about pricing that came below my expectation, in fact, across many geographies. So can you talk about the pricing environment, especially in the light of what you said, higher raw material cost? How confident are you that you will be able to reverse that weakening pricing momentum? Thank you.

Great. Let me take the first one, Graham, and you can comment on pricing. Hi, Celine. Let me try to answer your question the following way, which is over the three years leading up to 2020, our best estimate is that the market was growing somewhere 2.5% to 3%. We also know algorithmically that every 10 percentage points step up in competitiveness is worth about 100 basis points of growth. So our history has been that growing 3% in markets, growing at 2.5% to 3%, all else being equal, the step up in competitiveness, we would have added at least 100 basis points of growth. Now, the environment in 2020, of course, was completely turned on its head. We saw collapses in certain categories and super growth in others. Similarly, geography. So if you'd have landed from Mars and look at our growth last year, you would say, oh, it's great that US, UK and Australia are your high growth markets. Actually, for the long term, the US will be an important contributor, but places like India and China, of course, become more important. So what you see, I would be very careful of drawing conclusions from aggregated chaos, which is what 2020 is, but rather look at our performance, competitive performance when markets resume a more normal growth pattern. where we're very confident that we would, all else being equal, with the current levels of competitiveness, be well into the range that we're guiding. That's why we're confident to bring back that range guidance. As far as the five subcategories that we called out, we're not going to go into a decomposition of their growth levels, but they are at least twice the average of the rest of Unilever. So let me just pause there. Graeme?

Hi Celine, let me first of all pick up what happened in pricing in 2020 and give you some of the dynamics there. So the first thing to note is that pricing was relatively low in home care, principally because the commodity environment in 2020 for fabric solutions for the laundry business was relatively benign. And of course, it's a very dynamic and quite a high commodity driven category and therefore you know, we didn't price because we didn't see the cost of inflation. And then if I go a little bit by geography, you know, in Europe, the, you know, pricing in Europe has been difficult for everybody for a long time, given the retail environment, et cetera. But in H2 promotional intensity did step back up after promotions were, you know, pulled at the height of the pandemic. We also have a little bit of a channel impact, you know, is we shift from, if it's the same product that we shift from out-of-home ice cream to in-home ice cream, that price dynamic doesn't fit actually in, it sits in pricing rather than in volume because of course we put volume and mix together as one metric. Then in the AAR region, Turkey and India actually had positive pricing. Southeast Asia, though, had negative pricing. Quite a few dynamics there. But again, there's quite a big fabric solutions business there. Pricing turned negative in the second half because we passed on the reduced commodity costs to invest in competitiveness. That was one dynamic. And then there's one I'd say in particular, which is promotional intensity in Thailand. Thailand is a very challenged market from a market growth perspective. There is no real value portfolio in Thailand. And therefore, as you're making products affordable, it does show up in terms of promotional intensity. And then in North America, there weren't many promotions through much of the year, but they have been coming back into the, you know, at the end of the year. And we did invest a little bit in competitiveness through promotions in the fourth quarter. And yeah, I mean, pricing in Argentina, of course, but I'd highlight that our volumes were positive in Argentina. And if I add all that up and look forward, and I'll not repeat the comments I made earlier about the outlook for currency depreciation and rising commodity prices in a few areas, it does mean that we're going to have to be at the top of our game on pricing. And our markets are absolutely on top of that as we look into 2020. And I think we've got a great track record. I mean, we grew pricing by 1.6%, I think, in 2019, 1.2% in 2018, and by 2% in 2017. The key, as you know, to landing pricing is brand power, is strong brands. And as I said in response to Bruno's question, 80% of our brands have been stable or increasing brand power. So that's a great platform if you need to price.

Okay, thank you, Celine. The next question is from David Hayes at SoxGen. Go ahead, David.

Thanks, Richard. Morning all. So my two questions, firstly, on Portfolio management and then another question on ESG. So on portfolio management, just to kind of follow up some of the discussion we've heard, post-unification and so forth, obviously more ambition for change. But two questions. One, can you kind of quantify that a little bit as you look at the vision for the group? Some of your peers historically have talked about up to 10% of sales being bought and sold. Is there any kind of indication you can give on the kind of the ambition of change over the next two or three years? And I guess related to that, the metrics you've outlined for the medium term, you talk about return on invested capital being mid to high teens, but it's already high teens. So is that metric including M&A, or do you see other reasons why that ROIC might come down into mid-teens? And the second question on ESG, I think you were doing this presentation earlier, in the first quarter on more detail on your plans around ESG. You talked about R&D spend going up, but can you give us a little preview in terms of what incremental spend you might incur as you push forward on ESG and whether that impacts the margin in the next couple of years or so? Thanks so much.

Graham, do you want to have a crack at the portfolio point? and Roic in particular. And I'll come back on the bundle of questions that were folded together under the headline of ESG there.

Sure. Hi, David. Morning. So I think we've been really clear, you know, much clearer than we've ever been before now on the areas where we'll deploy capital for portfolio change. and the critical role that portfolio change has in accelerating the growth momentum of the company and for the long term making our value creation algorithm, which requires a step up in growth from 3% into that 3% to 5% range. But, you know, once that's achieved, there's a virtuous circle that takes place and the business becomes very value creating. And, you know, Alan touched on it in his remarks, but growing the business now, of a higher margin base is much more strongly value creating going forward. So we feel good about that. And obviously we've got strong cash flow. And as we said, our priorities to invest in the business because of the high ROIC and thereafter, you know, change the portfolio with discipline and with focus using the areas that we've called out, not just focusing on acquisitions, but potentially disposals as well using both levers. And, you know, all of that historically, just to pick up on a point that Celine made earlier, you know, it's not true to say that our M&A capital hasn't given a growth result. There's about 70 basis points of growth from the acquisition and disposal activity that's taken place over the course of the last five years. So you see that working. On your point on ROIC in particular, we're not signaling anything really with mid to high teens. It's simply that the current 18% that we're at doesn't have the full year of the impact on the invested capital base of the Horlicks acquisition. The full impact of that comes in in 2021 and will be about a 1% negative. And, you know, technically we were told that high teens cutoff is about 17% and therefore mid to high teens is, you know, still an excellent ROIC and, you know, you know, pretty much, you know, at least top half, maybe even top quartile of the table in terms of ROIC across the peer groups. So, yeah, we just think on a multi-year framework, mid to high teens is the appropriate expression.

Let me take the point that you under the banner of ESG. The first, I think there's a dangerous... supposition around in some places that somehow or other our sustainable business model is a cost to the business. We don't see that at all. We see doing business sustainably as a very strong business case. I won't labour the point on growth. I already went into that in a bit of depth with Bruno, but we're unequivocally clear that purposeful brands are growing faster. Secondly, on cost, We think we've taken out 1.2 billion euros of cost by sustainable sourcing, for example. And there's an interesting pattern here, which is very often there is a short-term premium, which results in a long-term discount. Let me give you a couple of examples. We made a commitment to move to renewable electricity in our operations. We achieved it a year early. There was initially an on-cost, but as the market has swung, we've found tremendous savings. from the procurement contracts that we have around green electricity. Same on sustainable agriculture. Initially, there's often a non-cost, but because yields go up with sustainable practices, typically over time is a cost advantage. So there is sometimes an early hump that we need to get over. We're in that mode right now with renewable plastics. So post-consumer use plastic, carries at the 5-10% premium, it varies around the world. Over time, as the collection and recycling systems get put in place, that will drop below virgin plastic costs. So there's a growth benefit, there's a cost benefit, there's definitely a risk benefit. Diversifying and making sure that we've got sustainable supplies has been very important for us over the last year. And then the final point I won't labour, which is our sustainability agenda as a magnet for the best talent in the world. So I find it hard to answer the question, what's the cost of sustainability, because we see it as a benefit, where sometimes there are initial cost premia that we need to work our way through. As far as your question about investing in R&D, we have called out a number of areas, obviously not going to be too explicit here, where we're doing for advantage of corporate level technology. They do all relate to the biotech and in revolutions. And each of the next three years, we will step up our investment in R&D to take advantage of that. And when we go through later this year, we'll decide whether or not we're going to put numbers against the R&D step up At the moment, we're just indicating the direction, not the magnitude.

Thanks, Adam. Thanks, David. So we've got a lot of people wanting to ask questions. We'll try and squeeze in one or two more. So next question, Martin Deboe at Jefferies. Go ahead, Martin. Yeah, morning, everybody. Two quick ones from me. I just want to go into what you're saying on FY21 again. It's come up a few times. Are you saying that FY21 is year one of the new multi-year guidance framework, or are you effectively extending your FY20 guidance position? It's just simply too difficult to say and too difficult to call. That's the first question. Secondly, just to come back on David Hay's question on portfolio and what strategic choices made. You said at Englewood Cliffs that you expected the rate of disposals to accelerate and the rate of acquisitions to slow, which could be interpreted as a shift from a net acquirer to a net disposer posture. I feel I'm hearing something different today. Am I? Can you just clarify what you're saying about the portfolio? Those are the two questions. Thanks.

Let me answer the second question and then I'll carry on and answer the first one unless Graham wants to jump in on 2021. So I think the first thing I would say is we're very clear, Martin, on the criteria that we're using for acquisitions and disposals. I think we've laid those out more transparently today than we ever have. Secondly, we're not guided by targets for how much we're going to acquire, how much we're going to dispose. We will be extremely economically rational on those decisions. In Englewood Close, we called out that disposals could play a more important part of shifting the portfolio. And you saw shortly after that quite a decisive move on most of our tea business where that work is going on. We continue to look in the portfolio at opportunities for disposal. Last year was definitely a slowdown on the number of acquisitions, but don't forget the scale was impacted by Horlicks and then we were very focused on functional nutrition for the others. I'm not afraid to say that we were pipped at the post on some prestige beauty targets that we were going after but frankly the valuations just ran beyond what we thought was financially responsible. So the focus remains crystal clear. The message we were trying to land was we're open to disposals where we see it as value creating and we will continue to be very choiceful on acquisitions. I think if you take a long period of time we'll probably be a net acquirer, not a net disposer. But we don't have in-year targets for how much we will acquire or dispose. On 2021 guidance, I think we've issued now multi-year guidance. I see 2021 as the first year of that. And notwithstanding, of course, it remains highly volatile. But yes, 2021 is the first year of that multi-year framework that we laid out.

Okay, thanks, Martin. So the next question to Jeremy Fialco at HSBC. Go ahead, Jeremy.

Hi, thanks for squeezing me in. Just a couple of questions. First of all, e-commerce. I think historically you've talked about slightly under-indexing relative to your kind of offline market shares. Could you just give us an update on that, where you're over and under indexing, and if there are any big differences between geographies and category? And then secondly, one of the things you haven't mentioned in your framework is the return of surplus capital, but obviously you do have a net debt to EBITDA target, which you are slightly below. So maybe you could just talk a little bit about the return of capital and when that will start to come on the agenda. Thanks.

Thanks, Jeremy, and good morning. I think those fall quite naturally, Graham. Maybe you can take the second one on capital allocation. Let me address e-commerce. Jeremy, we had a really very strong year on e-commerce last year with 61% growth overall. Half our prestige beauty business is now in e-commerce. Omnichannel doubled in size. We grew 100%. We grew 100% in North America in e-commerce. We're gaining shares in e-commerce. And we're inventing a new type of B2B e-commerce that Graham touched on. The headline answer, though, is that in omni-channel, our market shares online and offline are very similar. So bricksandmortar.com is very similar. In pure play, so Ali, Amazon, JD, our overall market shares, and I'm really aggregating here in a way that I maybe shouldn't, are slightly behind our offline market shares. And so we've got the whole organization deployed against designing for channel, and that really boils down to value density. And part of the reason why functional nutrition, why our concentrated eco-products and why Prestige Beauty do so well in e-commerce is precisely because they bring that value density that works for PurePlay as well as the omni-channel mechanisms. So yeah, we're making very good progress on e-commerce with a share gap to fill in PurePlay. Graham, capital?

Yeah, hi, Jeremy. So, obviously, we had a very strong cash performance this year. We've got very high cash conversion in the business. You know, we're converting profit into cash in a healthy way. We ended, as we said, at 1.8 times EBITDA of leverage. We're pretty comfortable with that, to be honest, and we do aim for around two times. That's over the long term, but we're happy to swing above and below that to a reasonable degree. As we said on the section of capital allocation earlier, given the high ROIC of the business, really our first priority is to invest back into the business. And in 2021, for example, we've got some re-phased capex from that will go back into 2021. And I've already flagged the restructuring investment for 2021 and 2022. That's examples of that. Things like buybacks, they remain a really critical part of our capital allocation toolkit. And it sits alongside that first call, which is after investing in the business, which is to pay an attractive and growing dividend. That's all part of an approach of returning capital to shareholders. We don't have anything to say around currently in relation to share buybacks. And we'll just wait and continue to see how the cash position develops as we go forward.

Okay, thanks very much.

Richard, I know that we're a bit over time, but I really want to send a signal of being available for discussion of our business to our investor and analyst community. So let's squeeze in one or maybe two more questions.

Yeah, sure. Okay. So next question then is from Jeff Stent at Exxon. Go ahead.

Good morning, gents. Two questions, if I may. The first one is you're targeting profit growth ahead of sales growth on a comparable basis. If you could just confirm that that does mean underlying EBIT. So that's the first question. And the second question is, you know, will going forward you'd be reporting like-for-like EBIT growth. Given that I'm assuming it's now one of your key focuses, are you going to start reporting it to the market? Thank you.

Graham, I'll let you take on Jeff's questions there. Yeah, hi, Jeff.

Hello, Jeff. On the profit growth ahead of sales growth comparables, What we mean there is our underlying operating profit, pretty much underlying EBIT, on a comparable basis means on the same basis as the sales growth, so constantised and excluding the impact of acquisitions and disposals. And yeah, we will report that and we'll report the growth on that measure.

Let me just double check that. So the short answer is yes, Geoff. Does that answer your question properly? We'll take that as a yes, it does. Okay.

Okay. Next question from James Target at Berenberg. Hi, James.

Hi, good morning. Just one quick one from me left, actually. Just on pet care, I've noticed your move into the market. Where does this category fit into your kind of first initiative or portfolio evolution? Is this going to be a niche player here or is this something you could scale up organically or through M&A?

Thanks. James, let me take that one. I don't think we could be clearer than we've been this morning on where our strategic priority areas are. Alongside that, we're constantly experimenting in the business and trying things here and there. I would put the pet care extension down to a fun experiment, see how it goes. It is definitely not a particularly strategic move. We've called out the strategic moves.

Thanks, Alan. Thanks, James. Trying to quickly get through some. Tom Sykes at DB. Do you want to go ahead with the question?

Yeah, thanks, Richard. Morning, everybody. So just a bit more detail, if possible, on the COVID-related costs and how quickly those may come down, whether it's possible to sort of say what EM and DM within that, and is this going to be vaccine-related, or was there a relationship between some of the surge categories that you had and some of the on-costs there? which perhaps if some of those slow down, some of the COVID-related costs may actually come down as well. And sorry, just on your comments on BMI. Obviously, there was the catch up in the second half, but I'm not 100% sure of clarity on whether that is a higher run rate of BMI going forward now, which we're then expecting the benefits from, or should we not consider the second half as the run rate, please?

Graham, why don't you take Tom's question on COVID costs? And I'd encourage to be quite transparent on that, on the nature and the timing of those COVID costs. And I'll come back on BMI. Sure.

Hi, Tom. Yeah, I'll plant a bit of detail here for me. So, you know, overall it had a minus 50 basis points impact on our gross margin in 2020. I couldn't give you a DM and EM split, but, you know, pretty much all of our markets Because we manufacture mostly locally across our huge factory footprint, I think you can assume that it's been equivalent across all markets and not necessarily EM or DM focused. The particular timing of it was particularly determined by the particular strength of lockdown and the progress of the virus in various places. But I'll give you the components. The big ticket items are things like hygiene and safety on site. It cost somewhere between 60 and 70 million euros last year. Premium rate transportation was about 60 million euros. Overtime and contract label for employees was also a 50, 60 million dollar item. We spent around about 20 million euros on masks and PPE. So it all adds up and that's how you get to the 50 basis points. That will continue for so long as we are having to operate our manufacturing in a safe way and so long as the virus is there. The critical deterrent, I think, of the mix of our business in 2021 will simply be the progress of the virus and the need to operate safely. But there is an on cost of operating safely. And as I said in the prepared remarks, I think we also had a 10 basis point impact of the cost to Unilever of the donation, the 100 million of product value donations that we made during the course of 2020. On your question about vaccine, We are, in all of our sites, we provide testing, very, very active testing. But, you know, we wouldn't propose to have any form of mandatory vaccine as a business. We wouldn't do that. But we would encourage all of our employees to get vaccinated just as soon as they can within the particular geographies and countries in which they're operating.

It's a perfect bridge from COVID costs into BMI, actually, because with 50 bps of COVID costs and 100 bps when you factor in negative mix as well, obviously it would have been both tempting and very easy for us to peer back on second half brand investment. But we decided not to. We decided to take all of the... money that we'd stored up in the first half through the lockdown the severe lockdowns and really reinvest it back to secure the health of our brands and I want to just be sure to clarify that that benefit accrues over time it's not as simple as you spend a lot of money in the second half you get growth in the second half so that's a sustained long term investment in our brands and we will continue to do that so we are absolutely committed to investing competitively in our brands in the coming years. What competitively means does change, though. So it changes as a consequence of market rates. It changes as a consequence of competitive activity. And it changes as we shift our media mix into more and sometimes less efficient but more effective channels. So you can take it to the bank that we will spend competitively. Frankly, I see it unlikely that that will be in a downward direction. And our intent is to relentlessly continue to step up the investment in our brands whilst delivering the top line, bottom line and cash guidance that we've given.

Okay. Maybe we can just squeeze in one more, Alan. which is from John Ennis at Goldman. Go ahead, John.

Yeah, good morning, everyone, and thanks for squeezing me in. I've just got one follow-up on pricing. Do you guys think that you've priced in line with the market in the second half, or has there been any element of deliberately debating some pricing to help support volume share? That's the one from me, please.

Yeah, short answer on that, absolutely not. We have not sought to be more competitive through the link. pricing at all. If anything, as Graham hinted, there has been growing impetus in the business to make sure that we're seeing the steadily rising agricultural commodity prices that we get on the front foot on recovering that. So if anything, the clarion call on the company has been more in line with let's recover FX and costs. than let's go slow on pricing to try and gain volume share. We gain volume share through all the other actions on physical availability and prioritizing some of the tier three brands in our portfolio when the economies are slow in big markets like in Latin America. Right, Richard, I think we've reached the end of our remarks and Q&A. Let me just say one sentence of wrap up and then I'll hand back to you, Richard, just to formally close, which is we've laid out today a set of results for 2020 that we are proud of. In particular, our step up on competitiveness and the strong profit and cash delivery is exactly what we asked our organization to do. It is underpinned by by a strong operational grip on the business that's coming through from our growth fundamentals. And we've taken time today to lay out our strategic priorities for the future around categories, around geographies, around channels, and a little bit of a lifting of the lid on what we're doing on a fully digital and agile culture. It is all underpinned by a belief that sustainable business is a path to superior financial performance. Thank you for your attention and we look forward to the individual engagement in the coming days and weeks, Richard.

Okay, thanks, Alan, and thank you, everybody. We'll bring the call to a close. We've got a lot of questions, not quite everybody, so if you've got further questions, please email the IR team and we'll arrange a time for a call today and get back to you. So thank you, everybody. Enjoy the rest of the day. Stay safe and stay well. Thank you.