Unilever PLC

Thank you and good morning and welcome to Unilever's first quarter training update. As this is only a sales update, we expect prepared remarks to be less than 30 minutes, followed by Q&A of around 30 minutes. 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 statement and non-GAAP measures? And with that, let me hand straight over to Adam.

Thanks, Richard, and good morning, everybody.

We've delivered a strong start to the year. Our focus on operational excellence is driving competitiveness, and we're now at 57% of our business winning share on a moving annual total basis. And of course, while competitiveness is very important, it does need to translate into growth. And I'm pleased that this quarter it's contributed to growth of 5.7% with 4.7% from volume and 1% from price. This was led by emerging markets with both China and India performing strongly. North America grew well despite a strong comparator and Latin America has actually shown tremendous resilience in a very difficult environment. COVID restrictions continue, on the other hand, to impact sales in Europe and Southeast Asia, where we saw declines. We're also making good progress on our strategic change agenda. The priority growth segments of prestige beauty and functional nutrition are the two categories where we've been the most acquisitive in recent years, and they're performing well. Prestige grew by 20% and we continue to grow quickly and add scale in functional nutrition, including the acquisition of Onnit announced earlier this week. Together, these two businesses, Prestige and Functional Nutrition, contributed over 50 basis points to reported Group USG this quarter. For the tea business, we're moving at pace. We're on track to complete the very complex global operational separation this year, and we're delighted to welcome John Davidson to Unilever as CEO of the tea company. John is a highly credentialed and experienced CEO. He has a strong track record of managing consumer goods businesses through different stages of their life. John will lead the tea business into its next phase, when we will decide on the most value-creating pathway for this business. And that includes potentially an IPO, a demerger, a joint venture or a disposal. We also shared in January that we were moving several of our beauty and personal care brands under the leadership of a new management team, and we've taken that step, combining these under the name Elida Beauty. It's a collection of very well-known, mainly regional brands, across North America and Europe, and it includes brands like Q-Tips, Caress, TG, Timothee, Impulse, Montsavant, and so on. Collectively, these brands generated revenues of around 600 million euros in 2020, and they will definitely benefit from dedicated management focus as we explore different options for value creation from this standalone business. And as you'll have read, we're announcing a 3 billion euro share buyback starting next month. Those of you who follow us know that buybacks are one of the options in our capital allocation framework. We generated a record level of cash in 2020, and we're confident in our ability to generate good growth and strong cash flow this year. And with that backdrop, we see value in investing in Unilever by purchasing our own shares and so returning

3 billion euros back to shareholders.

When looking at our performance through what remains a turbulent period, we believe it's still helpful to look at the category groupings that we introduced last year and which reflect consumer and channel dynamics. We're showing five quarters here to help you understand performance in the context of the prior year comparator as well. Hygiene. which is across home care and skin cleansing, grew 5% as demand, especially for hand sanitizers, has eased from the peaks of 2020. And we also started to increase demand from prior year that started in March. Interestingly, in just one year, we've built nearly a 5% market share globally in hand sanitizers, which was up from less than 1% pre-pandemic, and all of that done at speed during the height of the crisis last year. If you look at the bottom of the chart, our in-home foods and refreshment grew double digits again as consumption remained high with restricted living continuing in many parts of the world. We expect that demand for hygiene and in-home foods will remain higher than pre-COVID levels, although we will start to lap strong comparators and we'll see some slowing as countries open up and vaccination rates pick up. Prestige Beauty grew strongly as beauty channels started to reopen while demand for other core beauty and personal gear products such as deodorants remained weak with consumers staying at home. Deals gained share in a contracting market with a high single digit decline and the other BPC categories, so that's hair, skin care, and oral care grew mid-single digit. And we expect that personal care consumption in categories like DOs, skin and hair, will rebound when social interaction returns to normal. We saw good growth in laundry. It picked up in the first quarter with particular strength in China and South Asia. Our out-of-home foods business also returned to growth. Our Chinese food service business is back actually at pre-COVID turnover levels, although many other markets continue to see restrictions and lockdowns impacting demand. And there's going to be continued recovery as out-of-home food consumption returns, as we've already seen in China. And then for the first time, we're including functional nutrition on this chart. We've called it out as one of our priority high growth segments. It's now a sizable business with annualized turnover of over a billion in 2020, although the USG numbers here still only reflect two of the acquired brands, Equilibra and Oli. But I am happy to report that Horlicks, Smarty Pants and Liquid IV, which are not yet included in USG as they were acquired less than 12 months ago, are growing strongly. Now, turning to our divisions, beauty and personal care grew 2.3%, with 1.5% from volume and 0.8% from price. As I mentioned, skin cleansing grew 5% as demand remained above pre-COVID levels, and we continue to focus our brand communication, not surprisingly, on our superior germ and virus protection credentials. Prestige grew 21%. Hourglass launched the revolutionary Red Zero lipstick. That was developed by Unilever's R&D team, and the new technology replaces carmine, which comes from crushed insects, with a vegan patent penny alternative. And this brings global attention to Hourglass's ongoing commitment to cruelty-free beauty. It's another great example of a purpose-led brand powered by Unilever's technology-based innovation and overall prestige performance was helped by restocking in beauty outlets ahead of reopening. The rest of beauty and personal care was broadly flat as personal care occasions remain impacted by restricted living, and as I've said, particularly deodorants. The rest of BPC categories grew 4%. We're seeing a step up in BPC's innovation delivery. Our strategy of fewer, bigger, better, underpinned by differentiated technology is working. For example, we introduced a new Dove hair therapy range in North America, which delivers 100% smoother hair after just one use. We've launched the world's first refillable deodorant under the Dove brand, representing a new, more sustainable form of consumption with a sleek and minimalist design and that innovation is priced at twice the price point of the current range and we are reporting vitamins minerals and supplements part of our functional nutrition portfolio within bpc and as i already mentioned this business grew very strongly foods and refreshment did have a very good quarter with nearly 10 percent usg over seven percent volume growth and good price growth at 2.3 percent In-home growth was again double-digit, as demand for home cooking and especially ice cream remained high. Ben & Jerry's continued its strong overall performance with growth over 30%. And Magnum grew double-digit as we launched our new Magnum flavor, Double Gold Caramel Billionaire, and that's across sticks and pints or mats. In the kids segment, we launched our Spider-Man lollies, which form part of the Disney range. And like all our kids' products, they meet our commitment to be at or below 110 calories per portion. We continue to reach consumers directly in their home and on their sofas through our Ice Cream Now business, which delivers ice cream to your door. And this once again doubled sales in Q1 and continues to expand its distribution reach. Hellmann's grew double digit, landing its purpose, which is to fight food waste. with the brand's first ever advertising during the US Super Bowl. And our vegan mayonnaise is now rolled out across 30 markets across retail and food service. We're extending the range to new formats like a squeeze bottle format, as well as flavored vegan variants, which are being launched across key markets. The out-of-home foods business has returned to growth versus 2020. But as you can see from the graph here at a total level, We're still tracking below our 2019 base, and we'll be working with our partners to fully leverage the sales acceleration as and when restrictions are relaxed. Out of Home Ice Cream grew following double-digit declines in the prior year, although the outlook on this year's season remains uncertain, especially in Europe. We've launched some great innovation, a new beautiful shaped Cornetto in Thailand and Turkey, and we are continuing to innovate even in our challenging markets. Home care grew 5.9% with strong volume growth and marginally negative price. Home and hygiene grew mid-single digit as demand for surface cleaners remains elevated, although we did see a year-on-year decline in March as we start to lap high growth from the start of the pandemic in 2020. We're continuing to focus on germ and virus efficacy in our innovation and communication, on major brands like SIF and Domestos. And in line with our clean futures strategy, we are discovering ways of making our home care formulations simultaneously more sustainable and more effective. Laundry grew 6%, and that was led by India and South Asia more generally as economic activity picked up, schools and offices reopening, and China also grew very strongly. Under our Purcell brand, we launched an antibacterial laundry sanitizer, and we've relaunched Comfort with the core proposition of protecting clothes from damage, and that's underpinned by a new clean future polymer technology that delivers superior clothes care. One of our most important strategic choices is to lead in the channels of the future. And of course, e-commerce will clearly remain the key channel. The pandemic has only accelerated the shift to online, and we're not seeing this trend reversing any time. Growth in e-commerce in the first quarter was again strong at 66%, with our B2B e-commerce channel doubling in size and with strong growth from omnichannel in the first quarter, e-commerce accounted for 11% of group turnover. We're continuing to develop our capabilities to make sure we keep winning in this space. First, a portfolio that's designed for the different e-commerce sub-channels. But there is a core strategy there, which is to create value density. That's not the only approach, and the example shown here is how we build laundry bundles across brands and segments that maximize value for us, buy for the consumer and buy for our customers. We need content that converts. The structural capability that we've been building now includes 36 people data centers providing real-time continuous data and digitally driven consumer insights. Those 36 people data centers sits alongside 46 digital marketing hubs in 40 countries. We're audience analytics, activation specialists, and online engagement leaders, work with our performance marketers, our content managers, and data governance experts. And in addition to manage inbound consumer interest, we have 29 digitally enabled consumer engagement centers where we take feedback and talk directly with around 3 million consumers one-on-one annually. The way we handle consumer feedback has changed a lot recently. It's not letters and phone calls. It's now done using 73% digital media. So these are the capabilities that we have built and will continue to build to ensure we generate content that converts and that it is executed flawlessly.

And with that, let me hand over to Graham.

Thanks, Alan.

In the first quarter, we delivered competitive volume red growth driven by our key emerging markets, particularly India, China, as well as North America. I was underpinned by our sustained focus on operational excellence. We're very active with pricing in many of our markets in light of commodity inflation and price growth is stepping up at 1% in the quarter. As Alan said up front, this has been a strong quarter and we're pleased to see our actions driving a good performance. Overall, we saw strong growth versus a flat base in the prior year, which was impacted by lockdowns in India, in China, partially offset by household stocking at the start of the pandemic, which we mainly saw in the US and in Europe. Looking ahead, there will continue to be volatility in how regions adapt to the pandemic and when and how they emerge from it. Vaccination rates, ongoing social restrictions and the resulting macroeconomic turbulence will continue to impact individual market growth rates both positively and negatively. Overall, however, we're well positioned for long-term growth across our markets and the measures we're taking to step up operational excellence and improve competitiveness will ensure that we continue to grow our markets. Our biggest region, Asia, saw 9.9% growth, with volumes up 8.6%. Last year, China was in severe lockdown. Conditions are now normalizing, and we've seen consumer demand recover across many categories on the back of higher GDP growth. We delivered strong double-digit growth in the quarter. Hindustan Unilever, which as you know is our Indian business, released its results in the last 20 minutes or so. and they showed that it grew over 20% as mobility increased and as we took pricing actions in several categories where we experienced sharp commodity inflation. Examples of that are in skin cleansing and in tea. The situation in India is a really good example of just how unpredictable COVID continues to be. While India posted strong growth in Q1 as restrictions eased, The region has since seen a deeply worrying spike in cases, and we've seen lockdowns return in some states and metro areas this month. So far, that's not as extreme as last year. While these rapidly changing conditions make predictions difficult, we do still anticipate good growth from India in Q2, and it will be really important to remain agile and resilient. Across Southeast Asia, our businesses have delivered competitive performances in the face of some really quite severe market contractions. Indonesia declined high single digit, driven by home and personal care categories. Thailand declined slightly as tourism, which is a really key part of the economy, remained restricted. The Philippines, however, grew high single digit, which was led by foods, as we lapped the period of really strict lockdowns in the prior year. And Turkey has responded well to a difficult local environment with very strong volume and price growth across all divisions, helped by a relaunch of Sunsilk and Comfort. Latin America grew by 7.2% with good growth across all divisions, despite that relatively strong comparator. While macroeconomic conditions in the LATAM region remain choppy, we've taken decisive pricing and product portfolio actions across the region in response to commodity inflation, sustained currency devaluation and value-conscious shoppers. In Brazil, our brands and portfolio are resilient and well-positioned in what is a difficult healthcare situation. We delivered price-led growth in the high single digits with value-orientated innovations such as dilutable laundry liquids, which perform particularly well and really resonate with consumers seeking high-performance products at affordable prices. At the same time, however, we offer premium solutions to consumers, for example, with our Rexona clinical deodorants and Magnum ice cream pints. We really have a portfolio in Brazil that covers the whole price piano, enabling us to attract the consumer, whether they're trading up or trading down. We also grew both volume and price in Argentina, despite continuing mobility and pricing restrictions, while growth in Mexico was price-led. North America saw continued strong demand for food consumed at home, while consumer usage of most beauty and personal care categories has remained more subdued. Overall, the region grew 4.3% against a strong comparator that included the impact of household stocking and increased consumer usage at the start of the pandemic last March. We continue to see signs of North America emerging strongly from the crisis. Demand for in-home foods remains high, and our out-of-home business is recovering faster than we expected. As a result, foods and refreshments posted double-digit growth. Now, we expect this to turn negative as we start to lap the higher base in the second quarter, but we do remain strong on a two-year stack basis. Our prestige beauty brands also grew double digit, helped by the gradual reopening of the health and beauty channel. And as Alan's already mentioned, our VMS business, which is building scale with a strong footprint in North America, also performed strongly. Europe saw underlying sales decline by 2.3%, with volume declining 0.7% and price down 1.6%. This can be part attributed to lapping last year's household stocking of food and hygiene products, and in part to the fact that most of Europe continued to spend Q1 under various forms of lockdown restriction. This meant the demand for in-home foods remained high, especially for in-home ice cream, which saw double digit volume growth, but with continued negative impact on food service and out-of-home ice cream, as well as our beauty and personal care categories. A continued deflation in retail environment drove price declines across the region, amplified by the lapping of the period of reduced promotional intensity in most retailers at the start of the pandemic. Turnover for the quarter came in at 12.3 billion euros, which was down 0.9% versus prior year. That was driven by a negative currency impact of 8% as currencies weakened versus the euro. As already mentioned, underlying sales growth was 5.7%, And we saw a net positive impact of 1.9% from acquisitions and disposals, with the Horlicks brand having the biggest impact on turnover. Based on spot rates, we would expect a negative currency translation impact of 3% to 4% on turnover for 2021, and around 1% more than that, so 4% to 5% on EPS. We spoke at our full year results about the 90 basis points gross margin impact that we saw in 2020 as a direct result of the pandemic. Now, at the current time, we do not expect this temporary headwind to reverse anytime soon with COVID related on costs in the supply chain and a somewhat negative margin mix, a continuing feature right now of the pandemic. We've seen the biggest impact of this in Q1 because the majority of these costs only started to be fully incurred from the second quarter of last year. Indeed, volatility continues as the key theme of 2021, and we're seeing levels of commodity inflation that we have not seen in a very long time. Most emerging market currencies are devaluing and the US dollar is also weakened somewhat versus the euro. Overall, we expect commodity inflation, including currency, to be in the low double digits in the first half, accelerating to low mid-teens in the second half. As discussed earlier in this presentation, a lot of pricing activity has already taken place across our markets, and we can expect the usual lag effect between inflation and full recovery via pricing. Let me also remind you that in the first half of 2020, we were in conservation mode with our branded marketing investment as we adjusted to the pandemic. BMI spend was down by 100 basis points in the first half of last year. We then invested disproportionately, though, from the second half onwards and continue to do so. And therefore, BMI will also be a margin headwind in the first half as we lap that low comparator. It's been a good start to the year, and we're confident that we will deliver underlying sales growth in 2021 within our multi-year framework of 3% to 5%, with the first half around the top of this range. We understand the pandemic effects make it harder to grasp the performance across the various categories and geographies of our businesses. And for this reason, by exception, we'd like to give a little bit more detailed guidance than we normally would at this time. As I just explained, we face margin headwinds in the first half from the 100 basis points of BMI conservation in the prior year, and also from the ongoing COVID on costs and the negative product mix that weren't a feature for the whole of the first half last year. We're also seeing levels of inflation that we haven't seen in about a decade, and we've stepped up pricing in the first quarter. We'll continue to take price action in countries and categories where we see that inflation, while always taking the needs of the local consumer into account. We will also continue to drive our savings programs hard in order to help offset inflation. Overall though, we're confident that we have the toolkit and the ability to navigate higher inflation through dynamic pricing actions and cost savings while continuing to invest BMI to support the power of our brands. We therefore expect full year underlying operating margin to show a slight improvement on 2020, but we do expect a decline in the first half margin.

And with that, let me hand you back to Alan to wrap up.

Thanks, Graeme. So let me summarise.

Unilever is becoming match fit. We're clear where we want to invest and grow. We continue the journey of operational excellence underpinned by our five growth fundamentals. Competitiveness is much improved with now 57% of our business winning share on a moving annual total basis. We're laser focused on translating that competitiveness into improved financial performance and into superior shareholder returns. So I'm pleased that we are announcing a share buyback program of up to 3 billion euros today. And we see room still for further improvement. There's headroom in our execution and operational excellence. You can expect to see an accelerating quality of innovation and there's growth to be had from sustainability and purpose-powered initiatives on our high potential brands. We continue to make good progress on portfolio evolution with the separation of the tea and the leader beauty businesses, while higher growth segments such as prestige and functional nutrition are performing well, and they're starting to contribute materially to accelerated underlying sales growth. In the short term, we see the potential for COVID-related volatility in several markets. Remember, the view from Delhi or Jakarta is not the same as the view from London or New York. But our experience over the last year will hold us in good stead as we manage through this pandemic. We know that during these uncertain times, the way we treat our multiple stakeholders will be remembered. That begins with our employees. It includes our consumers, customers, and business partners. We stand by our commitments to the planet and the societies and communities where we do business. And we believe that in doing so, we will be able to reward our investors. This is how we will demonstrate that our purpose-led future fit business model drives superior performance. Now, Graham and I are very happy to take your questions, and so Richard, back to you to moderate.

Thank you, Alan. As a reminder, if you want to ask a question, please press star two. Once you have pressed star two, you'll hear a beep and will be placed in the queue. If you no longer wish to ask a question, you can press star three 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 keep your questions to a maximum of two. We've got a lot of questions to get through today. So I see our first question is from John Ennis at Goldman Sachs. Go ahead, John.

Hi, good morning, everyone. I'll stick to one because I know it's a busy call. Can I ask about portfolio review and the need of beauty? I wondered if you could give some aggregated details around the historic growth rate of those brands, how you came to group them together, and then whether you could tell us, is a leader a portfolio that more brands could be added to in the future? And if so, what criteria are you looking for if you are thinking about migrating more brands to that portfolio? I'll leave it with that. Thanks.

Okay, let me take that one. So we've shared that the revenues from that portfolio of brands is around 600 million euros. We're not going to comment on the growth rate or margin in the past. The characteristics of the brands are that they're typically brands that are in non core categories like cotton swabs for Unilever or other smaller brands in our portfolio. but which have got great brand equity because typically they've been in the market for many years. At the moment, the perimeter is fixed. We've agreed which brands are in or out, and we're not looking to drip other brands in there over time. We've done the review. We've made the decision.

It's now a standalone group, and we're looking at what the best way is to build a bright future for that portfolio.

Okay, thanks, John. Thanks for keeping it short. Next question is from Guillaume Delmat at UBS. Go ahead, Guillaume.

Len and Graham, two quick questions for me, please. The first one is on pricing, because given the growing input cost and distribution cost headwind, to what extent is your margin guidance of slight improvement predicated on your ability to successfully raise prices across most regions and divisions this year. And I guess what I'm getting to is at this stage, what level of price elasticity would you expect in regions such as Europe or categories such as home care, where we've seen some deflationary pressures, negative pricing for several consecutive quarters? And then my second question is on market share developments. I mean, maybe I'm being picky here, but after a record Q4, we saw your market share gains coming down to 57% in Q1, still a good level. But wondering, is it a small source of concern for you, that sequential slowdown? And maybe if you can shed some color on the categories, regions where you've seen a slowdown in your share gains relative to Q4. And conversely, the areas where you continue to gain substantial shares. Thank you.

Great. Thanks, Guillaume.

Graham, why don't you take the pricing question and I'll come back and mark the shares.

Graham? Graham, you're on mute. Sorry, yeah, on mute.

Morning, Guillaume. Yeah, so in pricing, let me just frame what we're seeing in terms of cost inflation, first of all, we're expecting low double digit inflation across H1, and we think that'll accelerate to low to mid teens in H2. Now, importantly, pricing is just one lever of how we manage our margin. And you're right, we do expect to be able to manage that and show a slight margin improvement for the full year, although there will be a decline for the first half. Let me just spend a little bit of time, if I could, on that first half margin for everybody. First of all, we've been very, very active already in stepping up pricing. You saw pricing at 1% in Q1, and we do expect to increase that further from here. The business is very, very focused market by market. It's a very local thing, very focused on recovering those commodity costs. But price is just one of several levers that we use to cover it. We also do very active management of our pack and product mix. We're looking at promotional efficiency. We're very focused on the returns on our promotion, and we're very focused on our trade terms. And those levers are what we bucket up and call net revenue management. Overall, we have a high degree of confidence in our ability to deliver that guided margin, Guillaume, whilst properly supporting our brands as we do so. So I should say also, we really have a good track record on landing price, the commodity inflation, that we're seeing is impacting all businesses. We take our decisions on the ground in our markets. We focus on competitiveness and consumer needs. We think we have the toolkit and the ability to manage the pricing using the levers that we have and deliver the guidance that we've put out today.

Thanks, Graham. Guillaume, on market shares, I'm afraid we've confused you a little bit with the time periods. We're going to from now on talk about moving annual total market shares and not look at it quarter by quarter, market by market. The last time period when we reported our results through Q4 of last year, the moving annual total on our market shares percent winning was 53%. That's the number that's moved sequentially up now to 57%. By the way, a year ago it was 48%. As far as specific regions, the one region that we get a lot of questions about is North America. And I'm happy to report that now on a 12-week basis, on a shorter timeframe, we've seen North American competitiveness continue to step up. And the proportion of our business where we're winning share in North America has now crossed 50%. And it's been a while since we've seen that. So hopefully get used to us explaining competitiveness using moving annual total, which is a better measure, takes out volatility. And on that measure, we've stepped up from 53% to 57%, which we are quietly confident and proud of.

thank you guillaume um the next question is from celine panuti at jp morgan uh you're on saloon all right thank you very much good morning everyone so my first question um is on um asia so you had a very strong performance in india You mentioned increased mobility. I just want to understand as well if there was a bit of a restocking or catch-up because on a two-year base, it was a very high number. And can you explain what's going on in Southeast Asia in terms of the moving parts where they come or, you know, like do you expect this subdued demand in Thailand and Indonesia to continue growing? even as we go into the easy comp in the next quarters. So that's my first question. My second question is on margin. I'm coming back on that. At the gross margin level, would it be fair for the full year to expect it to be done for the year given the high raw material cost? And I think you mentioned pricing is lagging. And And if so, you know, what is going to be the driver of that margin extension, if you can talk about ANP and SG&A. Just also on your guide, you said underlying basis. I presume this is on an organic basis. And if so, can you give us what would be the FX transaction impact on reported margin? Thank you.

Okay, I'll take questions 1A and 1B. And Graham, you can take questions 2A, 2B and 3. Celine, India is very robust. We have the first quarter step up as a combination of a weak comparator, but also stepped up competitiveness. What's happening? I think an important question is what's happening in India and what's our short term outlook. Well, first of all, it is a human crisis that's unfolding there. Our first reflex is to care for our people. We literally are in the business of procuring hospital beds, oxygen supplies and ambulances for our people and their families. But in contrast to that, the business is remaining very resilient. We've taken a number of actions over the last year that have put us in a good place to manage India in the current situation. Let me give you three quick examples. First of all, we've digitized a lot of our ordering. So we've now got half a million small customers who are able to order from us online and are doing so. And that's greatly helping when our feet on the streets to take orders are restricted. Second is we've built extra capacity in our manufacturing network to respond to volatility in product demand. We've got on average about 30% more capacity close to the market. And the third is it from a go-to-market perspective, we have staged inventory closer to retail. And so despite the public health and humanitarian crisis in India, we're looking forward to continued growth in Q2. As for Southeast Asia, you're right, it is not helpful to aggregate Southeast Asia because the situation in Indonesia is dominated by very poor public health conditions, lockdowns and a lot of sickness. In Thailand, it's primarily being driven by a total collapse of the tourist industry. And Philippines and Vietnam, by contrast, are coming back to quite good growth. In aggregate, though, the effect in Indonesia and Thailand is dragging down our business there. And we're not looking for a quick turnaround in Southeast Asia. It's going to take a while for that to work through, probably recovering in the second half of this year. Graham, maybe you can say something about margin, gross margins and FX.

Yeah, sure. Celine, if I can just take the opportunity to talk about operating margin first before gross margin, just to talk about this phasing between first half and second half. So as we've said, for the full year, we're confident that we'll see a slight increase in our margin delivery full year. We do think it'll be down in the first half. Everybody's well aware and we spoke in the presentation about the impact of BMI facing last year. So there was a hundred basis points of concert last year. This is in the first, we'll see this impact in the first half. We've also got continued COVID on costs and the mix impact. And that'll be a headwind, a little bit of a headwind in the first half because it wasn't fully in the base in the first half of last year. And then, of course, we're seeing higher cost inflation and we're ramping up pricing, but there's a usual lag between pricing fully recovering costs. So you'll see at least 100 basis points in the first half of the BMI conservation unwind in the back period, plus a little bit more for the COVID base effect, plus a bit more for the lag between inflation and pricing. But those last two things are small relative to the 100 basis points. So that's the first half dynamic. Turning to gross margin. All I really say about gross margin is, as everybody hopefully is aware, through last year, we saw 90 basis points of structural impact on our gross margin from the pandemic. Now, it showed up in terms of the COVID-on costs and it showed up in terms of a slightly negative product mix because the products that we're selling more of have structurally got, generally speaking, up to a 10% lower gross margin. than the products which are, such as in BPC, where there's lower consumption at the moment. And all of that will reverse when we see and return to total normality around the world. But that's structurally sitting at our gross margin at the moment. I won't comment on the outlook for gross margin for the full year. It's very, very dynamic, but that impact you will see. I would say, however, that we continue to be extremely active with cost savings. Our cost savings in the supply chain are landing well. Our cost savings around the business are landing well. You should expect a contribution from overheads. We continue to work very hard on productivity savings and we're seeing that coming through. And all of that means we'll be able to have appropriate BMI investment behind maintaining the power of our brands going forward. So that's how I would say it. In terms of foreign exchange, can't really call out the split between underlying commodity inflation the foreign exchange impact it's obviously in combination when that lands locally i would say the foreign exchange impact is is less at the moment it's a smaller proportion of the total than the commodity underlying commodity increases are and the foreign exchange is pretty concentrated in a few markets like argentina brazil and turkey etc

Thanks, Celine, for the questions. Next, we go to Jeremy Fialco at HSBC. Go ahead, Jeremy.

Hi, good morning, Jeremy Fialco, HSBC here. Really just one question for you, which is on the hygiene categories. Clearly, you see the demand there start to soften a little bit. So I really wanted you to talk a little bit more on, first of all, where you think the demand for those categories will stabilise relative to their pre-COVID level and what some of the experience you're seeing from the countries where there is a kind of a lower incidence of COVID at the moment and then maybe more specifically to Q2 your comp there is 26% which stepped up from 7% in Q1 2020 you've done 5% in Q1 does that logically mean that you will be down a sort of low double digit percentage within that part of the business within the second quarter thanks

Yeah, let me have a crack at that, Jeremy, and then Graham, if you want to come in afterwards with any additional color. What we're seeing, Jeremy, is when we look through the category lens at our business is a regression to the mean. So we're not seeing the extremely high spike-ups that we saw this time last year, nor the extremely low figures that we were seeing in, for example, food solutions. We expect that demand for, what we're seeing is that demand for hygiene products, even as unlocking happens, is that it remains higher than pre-COVID levels. And although there will be some slowing as countries open up and vaccination rates pick up, we are not planning for material declines in the hygiene business in Q2. One thing I should say is that this is another space where we're really measuring competitiveness, and I'm happy to report that particularly our skin cleansing business is really gaining shares strongly in the hygiene propositions.

Not much to add, Alan, other than we expect that the demand for hygiene and in-home will remain higher than the pre-COVID levels. There's a stickiness to this from a consumer perspective, the overall focus on hygiene, Germany. As Alan said in the speech, take hand sanitizers as an example, where we've built a 5% share from pretty much a standing start. We think that that will be a continuing consumer habit. A lot of our innovation, is focused around that. If you think about the products we've brought in that combine care and protection under the Dove brand, for example, we've brought a lot of technology to bear there. We've always had really, really good hygiene technology and science, and this gives us a platform to bring that to market through the lens of our brand, like Lifebuoy and Dove. So lots and lots of innovation happening in the space. The 26% comp is a huge comp, obviously, to lap. And I think we'll see those dynamics coming in through the quarterly phasing. But I think the base will be elevated and will remain elevated because of the consumer behavior change that we'll see going forward. And it will be important to have those products and technologies that are able to meet that need.

Thank you. Thanks, Jeremy. So let's go straight to Warren Ackerman next at Barclays. Go ahead, Warren.

Good morning, Alan Gray and Richard Warren here at Barclays. I'm having a few issues with the audio, so hopefully you can hear me okay. So two from me. The first one is on the timing of the share buyback. You don't often see that at a Q1 sales release. So just wondering why it wasn't announced at the full year when you knew the cash flow situation was And with unification, you talked about bigger, bolder M&A, Alan. Should we read this as you don't see bigger deals on the table to add value and your portfolio transformation will be more smaller scale stuff? Just trying to read the nuance into the timing of the buyback. And the second question is on beauty and personal care. You said hair, skin, oral was up four, but you didn't. Obviously, that's a huge bucket. Could you break that out a For each of those three, please, and talk about the dynamics. Particularly hair seems to be improving. And I was struck by your comments on innovation. It sounds like innovation is stepping up in that bucket. And then on the comp for beauty and personal care, mine is 10 in Q2. It's a really easy comp coming. Should we expect to see the BPC business starting to get back to hopefully the 4% plus level or even better? Thanks.

uh thanks warren we could hear you very clearly i hope you can hear us um graham maybe you can handle share buyback timing um and i'll i'll handle bpc okay hi morning warren um we don't think about things that precisely actually i mean all these share buybacks are part of fundamental long-term capital allocation it's a big picture thought it's linked into the strength of our balance sheet our leverage levels um and the confidence that we have in our outlook and our cash flows going forward so not much other to say around that than uh You know, it's a function of all of those things and it's just a fundamental part of capital allocation. We think it's the most value creating option within the capital allocation framework at the current time. So hence the announcement.

And as far as BPC is concerned, nice easy answer for you there, which is oral care, skin care, and hair care were all more or less 4% growth. So there's no sharp differentiation in there, unlike DIOS, which was down in line with the market, or skin cleansing, which was up 5%. The innovation program is getting stronger. And yes, BPC was down a little bit last year. And so we're coming into easier cops there. But the key question there is core BPC growth returning as people return to normal levels of social activity and getting out of the house.

That's the big unlock that we're looking for.

Thank you, Warren. Next question is from Alicia Fari at Investec.

Go ahead, Alicia.

I just wanted to come back to the topic of inflation and competitiveness. What are you seeing in some of the markets where you have taken the price already? How has your competitive measurement fared in those markets? And then secondly, I appreciate that you're expecting a good quarter from India in Q2. You've got some visibility on that already. But just throughout the balance of the year, obviously, it seems like it's quite a significant crisis unfolding there. What are you kind of baking into your guidance that you've laid out this morning with regards to India? Thank you.

Okay, thanks. Well, let me deal with inflation quickly. So Yes, we've seen our ability so far to land inflation and continue the improvement of our competitiveness. I think it's important to remember this is an area where our D&E footprint is a material advantage. It's much easier for us to land pricing in emerging market trade structures than in the developed markets, Europe being particularly difficult. Of course, as Graham said, when we see inflation, our first reflex is to look at cost and mix with pricing as a last resort, given how competitive our markets are. But so far, so good, very much so. And Latin America is our lead example of that, where we've been very aggressive on pricing because of the double effect of commodities and currencies. And that's been accompanied with not just maintained, but actually stepped up competitiveness while I'm at it let me just take your second question which is it's very hard to predict market by market what the public health conditions are going to be but we have we have an optimistic forecast and for India for the rest of this year because we've got such strong operational capabilities on the ground that we have further sharpened over the last year

Thanks, Alicia. Next question from Chris Pitcher at Redburn. Go ahead, Chris.

Thank you very much. Two questions from me. Firstly, on the data centres and marketing hubs you were talking about, could you give us a sense of how much sort of fixed cost this is now embedded in your P&L and over what time period has that been put in place? And do you have the infrastructure in place now to deliver what you want. Obviously, this is an area I expect where by scale gives you a clear advantage. And then secondly, just a quick numbers question. You talk about tea growing volume and price. What would the tea business that you're selling have done in the period? Because obviously a lot of that will have come from India. Thanks.

Okay. Tea, Graham, you can handle. Let me just say a word about the data centers and marketing hubs. So I purposely in the speech gave a little bit of color around our people data centers, our digital hubs and our consumer engagement centers. And I want to complement that with a data point that between 2017 and now, our overall company overheads have gone down by 70 basis points. And within that, yes, we have chosen to invest a little bit in marketing capability. And we'll keep doing that. But this is definitely an area where we have a scale advantage is in the size of our data estate. We have the second biggest data estate on Amazon's cloud because of the huge consumer and customer database that we're building. And we're now really learning how to extract value from that and we'll continue to invest in the digital transformation of Unilever, but it won't be net incremental because we're making savings elsewhere. Graham?

Yeah, Chris, on tea, first of all, the totality of tea, I mean, you're right, our Indian tea business had very strong growth. That was largely driven by pricing, which was in turn driven by very, very high inflation in local tea prices in India, which was a consequence of crop dynamics. So there's been quite a lot going on there, very high inflation in Indian tea, very judicious and careful pricing by our business in India, and it's delivered good growth in the tea business. That, as you correctly point out, is not part of the independent tea company that we're building. I won't say anything about the growth. I don't think you'd expect me to around the independent company, other than to say it's growing nicely. But just the dynamic of that, about 90% of that business is retail tea, which is growing well. 10% of that business is food service tea, which, like the rest of food service, remains down. It's down sort of low double digits in total. That's the dynamic that we're seeing.

Great. Thank you. Thanks, Chris. Let's go straight to Jeff Stent at Exxon. Go ahead, Jeff.

Good morning. Just a very quick one. I realize this is small, but I believe you recently acquired a plasters business, so sort of sticking plasters. So if you just talk about that and why you've made that move in that category and what it kind of signals, I guess, for kind of broader acquisition interest around that space. Thank you.

Hi, Jeff. Nice to hear from you on one of these calls. So as you know, we're building out a nice health and well-being business in the West Coast of the United States. The brand you're referring to is Welly. It was founded by the same people that founded Oli and we think that it has a future in our health and wellbeing play that is not related to Band-Aids. We see an opportunity to, it's a tiny, tiny brand, but it can play a complimentary role to Oli in the health and wellbeing space.

Nothing more to read.

Thank you, Geoff. The next question goes to Bruno Montaigne at Bernstein. Go ahead with your question, Bruno.

Thank you and good morning. My first question is on the margin guidance for this year. You say margin is slightly up, but you also say that FX impacts EPS more on revenue, so there's an FX drag on profitability as well. So I just wanted to be clear when you say margin being slightly up this year, is that before the adverse impact of FX or including that adverse FX impact? And my second question is more on the medium to long-term margin guidance. I sort of feel there's two messages out there. On the one hand, you're very clearly saying growing profits ahead of sales, but on the other hand, you also make it very clear that there's the 90 basis points COVID cost in the margin. Should we therefore sort of anticipate there's really two margin messages there? One is these 90 basis points will disappear and therefore we'll have that boost margin, plus the additional sort of long-term margin guidance, or should we only focus on one out of the two? Thank you.

Graham, you're well versed in this space. Why don't you answer Bruno's question?

Yeah. Hi, Bruno. On your first question, I mean, everybody that follows us closely knows that our underlying operating margin is a current rate margin and therefore foreign exchanges is baked into there. So it includes foreign exchange. So we expect our margin to be slightly up, including foreign exchange. And then on the long term, financial framework we have where we expect our underlying operating profit in absolute terms to grow faster than sales. That is also something we expect to meet. And thank you for pointing out the 90 basis point impact of the pandemic on Unilever's structural gross margin for as long as we have the pandemic. One would expect that when the world returns to normal, whenever that is, and this impacts many, many companies in the sector, that we have to expect that that will reverse back out. So I hope everybody understands that our gross margin is structurally depressed at the moment by the impact of the COVID on cost and the negative mix. And when we don't have to have COVID on costs and when our sales mix returns to a more normal profile, that will unwind.

Thank you, Graham. Thanks, Bruno. Straight to the next question. We're kind of running on for a few minutes just so we can get a few more questions in. David Hayes at SocGen. Do you want to go ahead with your question, David?

Thanks, Richard. Good morning also. So just two quick ones from me, I think. So just going back to the market share gains, I think, Graham's question earlier. I hear you're moving to this MET, but I guess we can do the math. And it looks like the quarter on quarter sequentially that the share gains declined from 65% to 63%. I guess the first question is, is that calculation right? It looks like it is, given the chart you put out a couple of months ago. And I guess the real question behind that is, is that something we're likely to keep seeing because the bigger companies like yourselves are not going to be so advantaged from a supply chain perspective moving forward as COVID kind of eases in different places? I mean, I guess putting a number on that, do you expect to be 60% of sales plus gaining share for the whole year, or will it start to come down to sort of a more traditional level, let's call it, of 50 to 60? And then just finally on the margin, I guess it's following up on the last question. So we should think of the base margin last year, I think of it at two levels, 18.5 and 19.5, one with and without the COVID impacts that you mentioned, Graham. Should we think of the base being 18.5 still for the whole of this year, that none of that circa 100 basis points goes

and then we see what happens in in in 22 or does some of it disappear because some of it will ease as we carry on thanks so much uh graham you uh can take the margin uh question i'll take the share question um thanks david luke um on market share the calculation that you've made isn't quite right um but the more strategic point is that we can meet the top end of our guided growth range with market shares on an MET basis growing in the 55 to 60. 60, I think, remains a stretch ambition over the long-term period. We've got ourselves up to 57. We're quite happy with that. And our goal is 60. I don't think it's realistic to continue to be over 60% winning share in the types of competitive markets where we're operating right now.

And David on margin, I think your characterization of the margin is pretty spot on. We've got that COVID impact sitting at our margin. And when we say that we expect that we will be slightly up on the full year margin this year, that's against that lower 18 and a half base. because, you know, we expect we'll still be dealing with pandemic mix and pandemic on costs through this year. But as soon as I said in response to Bruno's question, you know, as soon as that starts to unwind and we normalise, we'll see that coming back into the margin.

Great. Thanks, David. Let's go straight to Tom Sykes at DB. Go ahead with your question, Tom.

Yeah, thanks, Richard. Morning, everybody. Just coming back quickly onto the buyback. I know you sort of gave it as a perhaps more ad hoc, but is there an element that buybacks could become a little bit more systematic if you are in the range or at the high end of the annual range for growth, your ROIC is high and your value share gains are high? Is that something that could become more recurrent? And then just in terms of the M&A and the growth you've generated over those for last year or so you obviously gave in the north american presentation the strong growth out of those businesses you'd acquired um could you maybe just give um some view on the longevity of and the pace of growth you're seeing in acquisitions made over the last 12 months and is there any sort of little bit more granularity you can give on on horlicks and what that might add to organic growth when it comes into the line please

Okay, Graham, why don't you talk about where buybacks fit in our ongoing capital allocation plan?

Yeah, hi, Tom. Really, our approach to buybacks is, as I said earlier, really, really an embedded part of our capital allocation toolkit. We try not to be dogmatic about it. We don't want to say we never do buybacks, and we don't want to say that we always do buybacks, but we do want to embed it within that fundamental part of capital allocation. You're absolutely right. We have a very high ROIC, so investing in Unilever is a good use of capital for value creation, provided that we're within our financial framework in terms of leverage, provided we've got confidence in our ability to keep generating strong cash flows and investing in the business in the form of our brands. in the form of our capital expenditures in our science and technology through R&D and in changing the portfolios we are doing through acquisition and disposal activity. And that's a nice segue, I think, into Alan to talk about acquired businesses.

Yeah, thanks, Graham. So we've been rather open that functional nutrition and prestige delivered 50 basis points. Horlicks continues to grow very well, double-digit volume growth. That'll start coming into USG from next quarter or this quarter that we're in Q2. And overall on our acquisitions, we're getting 50 basis points of incrementality from functional nutrition and prestige. We're getting about another 50 basis points from other recent acquisitions. So we're starting to feel quite a meaningful impact, positive impact from the more focused acquisitions that we've done in the last few years.

Thanks, Tom. Next question goes to James Edward Jones at RBC. Go ahead, James.

Yeah, morning, everyone. Another question on the market share, percentage of the businesses gaining market share, please. Given it's now part of your compensation arrangement, how confident are you about the reliability of the data? And how many different cells do you consider when you calculate it?

Right. Thanks for that, James. You can imagine that we've put quite a disciplined governance structure around the percent business winning. It is very robust. We're clear on which parts of our business we don't have coverage for. It's basically prestige, beauty, out of home, ice cream, and food service, where we struggle to have good market share data, but the rest of it is very robust. And for example, there are one or two places where COVID has prevented general trade field audits happening. And we're working with our board and the governance around that reporting on a quarterly basis. And it doesn't make a huge, it doesn't make a huge difference. If I remember correctly, there's about 450 category country cells where we measure market share. Have I got that right guys?

It covers about 70% of group turnover in total.

Last articles, 451 cells, I think was the number that covers 70% of group turnover. And it's very robust and resilient, and we have strong governance around it. James, thanks for asking.

Alan, can I just, just a point, as James said, it's in our long-term remuneration strategy and structure. It counts for 25% weight of our long-term incentive plans. Just to the point you made earlier in response to a couple of the questions about, you know, the sort of last 12-week short-term measure, And the fact that the moving annual total is a better measure, just to further demonstrate that, that long term compensation measure is actually a three year average of the MAT. So it's a three year MAT. So, you know, it just gives you the nature that we need sustained long term competitiveness for which MAT is the best measure.

And because we want to demystify this, there's actually a video on our website that really eviscerates all the detail you could ever want to know in your life about percent business winning as a metric. So have a look at that, James.

It's quite interesting.

Thank you, James. Okay, let's squeeze in one last question, which is from Carol Zota at Kepler. Go ahead, Carol.

Yes, good morning. Thanks for taking the question. I have a quick one on China. We did very well, of course, in Q1 versus EC Comp. But looking ahead, what are your expectations for this market? In particular, curious about a potential beauty push given the changes of animal testing, I think, this quarter. Thank you.

Thanks, Carl. Very strategic question there. I mean, we've seen for many years when COVID is not around the category basket that we compete in in China grows at around 6%. We're typically gaining shares. So we look for high single digit, low double digit growth from our business in China. The walls are coming down on requiring local animal testing for cosmetic products. And so right now we're building up our plans and preparing for a launch of luxury beauty into China. But the performance of Unilever in China will be more driven by our core HPC and foods divisions there. And then the thing of that is the cake and the launch of luxury into China is the icing on the cake.

Okay. Thank you, Karel. Thank you, Alan. And thank you, Graham. With that, I know we've run over a bit. Thank you for your patience with that, but we got through a lot of questions. If you have any further questions, please email the IR team and we'll set up time to talk to you today as soon as we possibly can. Other than that, enjoy the rest of the day. Stay safe and stay well. Thank you.