Unilever PLC

Hello and welcome to Unilever's Half One 2023 results webcast. For those participating on the conference call, you may indicate your desire to ask a question at any time during the presentation by clicking on the raise hand icon at the bottom of your screen. If you would like to withdraw your question, please click on the hand icon again. When it is your turn to ask a question, your name will be called out and you may go ahead with your question. If you require assistance at any time, please put a message in the chat box. We would like Now to hand over to Richard Williams, Unilever's Head of Investor Relations, to begin the presentation. Thank you.

Good morning and welcome to Unilever's half-year results update. All of today's webcast is available live transcribed on the screen. First, can I draw your attention to the disclaimer relating to forward-looking statements and non-GAAP measures. Now to start today, our new CEO, Hein Schumacher, will share some initial impressions and then he will hand over to Graham to update you on our performance and to take you through the results. Graham will also share the outlook. We will then leave time to take your questions. With that said, it's my pleasure to hand over to you, Hein.

Thank you, Richard, and good morning, everyone, and thank you for joining us today. I'm Hein Schumacher, and by way of introduction, I thought I would share a little bit about myself and why I joined Unilever and some of my first impressions. I took up the position of CEO of Unilever three weeks ago, so it's still early days. Why Unilever? Well, look, firstly, it is a great industry and I've spent my whole career in or around consumer goods and in roles that took me from Europe to North America, China and Southeast Asia. And I love the speed with which you see results, the intense competition in consumer goods, the importance of quality and innovation, and the fact that everything needs to come together seamlessly to succeed. It all needs to tick and tie. and the inescapable truth that in the end, obviously, the consumer has the final say. And across my career, I've accumulated a lot of experiences which are relevant to the significant opportunity we have had, and that is to step up our performance and realize the full potential of Unilever. And I am in no doubt that Unilever's strong fundamentals give us an excellent platform from which to do it. I believe we have a fantastic portfolio of brands. We have an unmatched geographic footprint and reach in emerging markets. We have talented people who are committed to delivering top-class performance. And we are leaders in addressing the key sustainability issues which are going to shape a large part of the industry's future. My first impressions and experiences since joining Unilever have only confirmed this. And in my first weeks, I visited our priority markets, the US, India, and China. I've been in our R&D laboratories with our scientists. In fact, I spent quite a bit of time there. I've been in brand discussions with our marketers and looked at how our brands show up in key retail channels. And I've lifted the lid on some of the opportunities and issues that we face in digital and sustainability. And while doing this, I've met a good cross-section of our key talent. I've also seen how our new organization is taking shape. It is embracing agility and demanding accountability and bringing the category focus and expertise that's required in this industry. All in all, I've been impressed by a lot of what I've seen. But at the same time, it's clear that there is a real opportunity to step up our performance and competitiveness and drive significant value creation ahead. And there are some areas which I already think warrant further focus and attention. Let me give you a flavor. First, I would want to get much closer to the way that we resource our big brands and land innovations, which really move the needle with consumers and drive category value. We need to be sure that we are investing in these consistently. and that these are supported by a high-quality, focused and science-backed innovation pipeline, hence the importance in my induction of R&D. Secondly, I want to see more of our products performing better than the competition. Our brands should be winning superiority tests week in, week out. And when they are not, we should be taking decisive action. And as I said, in this industry, the consumer always has the final say. And that means it's paramount to invest behind holistic product quality. Thirdly, it's critical that we finish the job of fully embedding our new organization. We have made great progress, but there is opportunity to push the principles of the new operating model further and strengthen, in particular, the performance culture, which is, in my experience, a hallmark of truly successful companies. And fourthly, I'd like us to sharpen our focus on our sustainability agenda. And to be clear, I am highly supportive of Unilever's sustainability leadership. As the world faces mounting environmental and social challenges, this is an important differentiating strength for our business, and it will continue under my tenor. Nevertheless, it's important that we focus our efforts more on our big priorities, like reducing greenhouse gas emissions, our plastic packaging, These are the most material to our business, and these are the areas where we can have the most positive and differentiating impact. So to reiterate, this is only a flavor on what's on my mind, and just after three weeks in the role, and I'm in the initial stages of really getting into the issues and connecting the dots. I will continue to listen and to learn, but I'm already clear that we need to move with pace as we set the plans that will help to unlock the potential of this business. And from here, I'm going to visit more of our key markets, listen to consumers, customers, and other key stakeholders along the way. And I will work with my executive team and beyond, of course, to agree the actions required to raise our game. I will share a more complete set of observations and thoughts when we present our quarter three results in October. And in the meantime, the priority for the business is to execute our growth plans brilliantly and to build on the momentum of the recent quarters. And with that, let me hand over to Graham, who will take you through the first half year results.

Thanks, Hein. Good morning, everybody. Unilever's progress in the first half of 2023 builds on the growth we delivered in 2022 and reflects stronger investment behind our brands and in building new capabilities. It also reflects the impact of the portfolio shift that we've made over recent years to position the company in faster growing segments. We've seen growth across all business groups driven by price with volume continuing to hold up well. The growth was driven by the billion plus euro brands with increased brand investment funded by an improvement in gross margin, which, although still below the levels of a few years ago, now starts to reflect our disciplined approach to pricing and savings delivery. As we pass the first anniversary of the new organization, we're seeing the benefits in terms of sharper strategies and choices, and we will continue to improve and refine the organization as Heinous just mentioned. We delivered Q2 underlying sales growth of 7.9%, driven by 8.2% price, with volumes down 0.3%. This resulted in first half growth of 9.1%, with price up 9.4% and volumes down 0.2%. As we expected, price growth is moderating as the year goes on, although the business groups are at different stages of the inflationary cycle, as we will see shortly. The results reflect a good job in continuing to manage inflation with responsible pricing, a good trajectory on volume and cost coverage starting to show in the build back of our gross margin. The black mark is on our headline percent business winning measure. Overall, the volume performance was good and reflected continued improvement from the first quarter, which as we said in our last call, had the benefit of some volume tailwinds in personal care. We saw a good balance of price and volume in beauty and well-being and in personal care, which are exiting the inflation phase. In contrast, nutrition and ice cream remain at an earlier stage in the inflationary cycle due to their ingredient profiles and have a greater footprint in Europe, where it is harder to increase price to cover cost inflation. And from a geography perspective, this resulted in all regions reporting volume growth this period, with the exception of Europe. Now, our business winning measure at the half year was still below 50%, as we had signalled to you, but at 41% has dropped quite a bit over the past quarter, which is frankly disappointing. Our focus is on building this measure back up from here. Before unpacking the movement in the headline business winning measure further, I do want to remind you that there are many strategically important parts of our business, for example, prestige beauty, health and well-being, out of home ice cream and food solutions, where we are very confident that we are outperforming our markets. These businesses account for around 15% of our turnover and are not captured in our percent business winning measure. There's a lot of conscious choice driving the drop in business winning, but also some consumer shifts and pockets of competitive weakness that we are addressing, for example, in Indonesia. In unpacking it, let me focus on three blocks. The first is choices that the business groups have made to improve the structural health of their portfolios. Significant SKU rationalization programs have helped us to simplify the business and improve the health of each business group's portfolio. Across the business groups, we have taken out 17% of our SKUs in the last 12 months and 25% over the last 18 months. This is very necessary action, but does have a short-term impact on our market share measure. The second block is pricing dynamics. We've continued to face cost of goods inflation, particularly in nutrition and in ice cream, requiring further pricing, which has resulted in some short-term turnover losses. Whilst most price agreements have been reached, there are some ongoing negotiations in Europe that have resulted in pockets of lost turnover in a couple of markets. We've made good progress here, but there's a little more to do, and we take the pain in the business-winning measure. And thirdly, we've seen some consumer shifts to parts of the market where Unilever is underrepresented. There is a trend to value as consumers look to balance the household budget. This can be seen in the growth of unbranded loose tea in India and the growth of very low-priced laundry brands in Brazil. These are very low profitability segments where we choose either not to play or to play very selectively. Therefore, we look to limit our losses while maintaining our investment levels so that we are well-placed to capture the return to our brands as economies improve. We've also seen growth of the premium segment in U.S. personal care categories such as deodorants and skin cleansing. This is a price segment with an average index of between 140 and 200, where we are underrepresented today. This super premium opportunity shows the somewhat bipolar nature of the market just now, with both value and super premium segments growing at the same time. All that said, of course, 41% is not a good position, and so across the business, we're fully focused on building back from here. Turning to financial highlights, underlying operating margin was 17.1%. That's an increase of 10 basis points versus the same period last year. The shape of the improvement was healthy, driven by gross margin, with an increase in brand investment and reduced overheads as a percent of turnover. I'll give more details on this in a few minutes. Underlying earnings per share was up 3.9% versus last year, and free cash flow remained strong at 2.5 billion euros, up 0.2 billion on the comparable period last year. Let me now share some more details of that first half performance. Firstly, let me start with brands and innovation. Our 14 billion plus euro brands now make up over 55% of our turnover and delivered underlying sales growth ahead of the Unilever average at 10% in the quarter and 11% in the first half. We've made good progress against our strategic objective to move the portfolio into higher growth spaces. The Prestige Beauty and Health and Wellbeing brands delivered another quarter of double digit organic growth. And we recently announced the acquisition of Yasso, which is a premium U.S. frozen Greek yogurt brand comprising a range of low-calorie yet indulgent products. This acquisition is expected to close in the third quarter. And we also completed the disposal of the Suave brand in the U.S. in May. Coming to our priority geographies, the US reported 7.4% growth in the half. Price growth moderated in the second quarter, but volumes picked up with Prestige Beauty and Health and Wellbeing both contributing strongly. India grew by 9.1% with a good balance of price and volume. India growth remains competitive in a dynamic market, and whilst all business groups grew, we saw a particularly strong performance from home care in India. China growth picked up in the quarter as we expected. After the 1.8% reported in quarter one, growth accelerated in the second quarter to land a half year at 7.9%, driven by volume, with strong growth in food solutions and in out-of-home ice cream. Emerging markets as a group represented nearly 60% of our first half turnover and grew at 10.6%, led by price, but with positive volume. I'll give a little more color on performance from some of the key markets in a moment. Digital commerce continues to reshape our markets as consumers seek the distinct buying experiences offered by different channels. We saw 16% growth in digital commerce in the first half to now represent 16% of our turnover. The pace of change here is very fast and adapting to emerging channels like short video and group buying with products that are optimized for that specific consumer channel remains a key focus for us. Now, the new organization has been in place for one year now, so this is a good moment to reflect briefly on the progress that we've made. We've spoken before about the benefits we've seen in terms of faster decisions, for example, on SKU rationalization, putting greater focus on our core brand propositions, and responding to both opportunities and reacting to performance gaps. As the new structures and ways of working bed down, we see increasing evidence of sharp strategic choices and trade-offs, reflecting a more category-focused approach. More resources are flowing faster to strategic priorities, and we have greater domain expertise, giving us the platform for continuing to drive higher performance. We also see bigger and bolder investment decisions now that the old geography to category matrix structure has been removed. For example, personal care has entered into a sponsorship agreement with FIFA, starting with the Women's World Cup this year and running until 2027. This will enable our personal care brands to connect with a large and highly engaged audience, and it would have been very difficult for a global investment of this scale to be made under the complexity of the old organization. So we're continuing to refine and improve the organization, particularly to increase both the clarity of accountability and to place a higher proportion of our resource base directly into the hands of the five business groups. Let me take a moment now to review innovation with some examples of our major programs. All of the business groups are focused on delivering superior products which are differentiated, that grow their markets, and that win with the customer and the consumer. Liquid IV in beauty and well-being has been growing strongly through increased distribution and awareness, with excellent performance in the recent Amazon Prime Day event. We've extended the Liquid IV range now, developing and launching three variants of sugar-free hydration multiplier with new proprietary technology, meeting the needs of consumers without compromising on flavor or on performance. Plans to roll out Liquid IV to more geographies are well-defined and will start in the second half. Liquid IV has more than quadrupled its turnover since acquisition and is now three times larger than the number two hydration powder in the US market. In home care, our top-performing fabric cleaning capsules in plastic-free packaging have now been launched in European markets, offering superior product performance, lower cost, and more sustainable packaging. Axe has launched the Axe Fine Fragrance Collection. This is a long-lasting, cologne-quality scent offered as a premium range of body sprays, deodorant sticks, and body washes. Hellmann's continues to benefit from the Make Taste Not Waste campaign and has extended into the fast-growing Intense Flavor segment with Hellmann's Spicy. And in ice cream, this season's new variants of Magnum, Star Chaser, and Sun Lover are helping us premiumize and drive growth. And last but not least, in this list of examples, Vaseline has extended the successful GlutaHigher range into the anti-aging segment in Thailand. The full GlutaHigher range is driving premiumization and accelerating growth in Southeast Asia, contributing to double-digit growth for the Vaseline brand globally. Underlying sales growth in the quarter was 7.9%, with price growth at 8.2%, and volume slightly down at minus 0.3%. This brings the half year to 9.1%, with price growth at 9.4%, and volume minus 0.2%. Now, this chart provides a longer-term view of growth, showing the contribution of price and volume. And what we can see is that price is moderating as we start to lap increases taken last year, and that volumes are recovering. But as expected, the volumes are not going in a straight line. All of the business groups contributed to first half growth, but with very different price and volume dynamics, as I mentioned earlier. Let me now give you a little bit more detail on the performance of each business group. I'll start with beauty and well-being. Beauty and well-being reported 8.8% growth in the quarter, with a good balance between 4.9% volume and 3.7% of price. Prestige Beauty and Health and Wellbeing both delivered double-digit growth, with Liquid IV, Oli, Dermalogica, Paula's Choice, Hourglass and Living Proof all performing strongly. The Tatcha brand continues to grow rapidly in China, and Nutrafol, which we acquired a year ago, continues to perform very strongly. Nutrafol will be included in our underlying sales growth measure from the third quarter onwards. The four largest brands, Liquid IV, Nutrafol, Dermalogica and Polish Choice, added around €350 million to turnover in the first half, underlining the impact of shifting our portfolio into these higher growth spaces. Sunsilk grew well in here, helped by the success of the core relaunch, while Tresemme continued to benefit from the full-range relaunch across shampoos, conditioners, styling and treatments, building on salon credentials and professional expertise. CoreSkin grew through Vaseline, where, as I said earlier, Glutahyia continued to perform well in Southeast Asia. And we saw another quarter of decline in the Carver brand in North Asia as we continue with the channel reset for this brand. Turning now to personal care, personal care delivered 9% growth in the quarter with 5.4% price and 3.4% volume. The step down from the first quarter reflected the anticipated easing in price growth whilst volume growth was maintained. Deodorants delivered another quarter of strong growth driven by Europe and the Americas. Rexona continues to benefit from our 72-hour non-stop protection technology. And Dove deodorant grew well on the back of a global relaunch. Both of these are very large and multi-year innovation programs. Skin cleansing continued to perform well and volumes improved as pricing moderated. The Luxe brand delivered good growth on the back of the superior product relaunch, which offers clinically proven skincare benefits. Oral care growth improved in the second quarter, driven by both CloseUp and Pepsident, helped by premium innovations in Southeast Asia. Home care growth was 6.7%, with price up 9% in the quarter and volumes minus 2.1%. Price growth eased in home care as we lap high prior year comparators and volumes, whilst negative, are being closely managed and are recovering. Fabric cleaning grew well and we saw double-digit growth from the Omo brand, helped by strong performance in South Asia, whilst home and hygiene made progress with a good performance from Dishwash. Nutrition grew 8.9%, led by price at 11.8%, reflecting the need to respond to continued material commodity cost inflation. Volume was down 2.6%, which is a resilient performance given the higher pricing. Knorr grew well despite weak volumes in Europe, and overall brand performance was powered by continuing strong growth in Unilever Food Solutions, which benefited from a return to out-of-home eating in China. Dressings continued double-digit growth as the Hellmann's brand built upon its successful Super Bowl campaign in the U.S., whilst in Brazil, Hellmann's is partnered now with the NBA. The spicy mayo innovation continues to drive growth for the Hellmann's brand. Finally, ice cream grew 5.6%, with price up 12.1% and volumes down 5.8%, as continued cost inflation remained a key factor in ice cream. Out-of-home ice cream grew double digit with positive volume growth as the channel continued to recover momentum after the pandemic. In-home ice cream growth was however low due to reduced consumption in response to pressure on household budgets and share gains from both lower price competitors including private label. Emerging market growth was ahead of the business group average in ice cream, despite the impact of poor weather and the disruption from the earthquakes in Turkey, which is a very large ice cream market for Unilever. Let me move now to give you a little bit of geographic detail. The Asia Pacific Africa region delivered underlying sales growth of 8.3% in the quarter, comprising 6.5% price and 1.8% volume. The market in India continues to grow in value and volumes are also now recovering, with rural volumes moderately positive over the last three months. We are seeing the return of smaller players in the Indian market and a tick up in media intensity, which are further signs of recovery. with a good balance between price and volume. The Southeast Asian markets continue to see stable economic growth and to navigate inflation relatively well. Vietnam is benefiting from inward investment and Thailand from the return of tourism. In general, we saw good performances from our businesses in Southeast Asia, with the exception of Indonesia, which reported declines in price and volume in the quarter. Here the work to return our Indonesian business to competitive performance continues with price points and promotional strategies reset and with stock and trade now back to the right levels. With some impact on the reported results of Indonesia in the short term. Year-to-date share trends in soy sauce, surface cleaning, oral care, skin cleansing, and bouillon are showing improvement in Indonesia, and that should move into MET share improvement as the year progresses. We have a strong innovation program planned for the second half, and we've been managing trade stocks very carefully so that new products get rapid distribution when we launch them. The recovery in China is mixed, held back by weak consumer confidence and higher unemployment. This translates into mixed FMCG market growth rates. Home care is back to good growth, personal care is in low growth, and beauty and well-being is still in decline, showing the different stages of market recovery. We are seeing significant channel shift in China, particularly to short video commerce away from both big format stores and what you could term as traditional e-commerce. Unilever performed well in this environment with double digit growth driven by food service and ice cream, both benefiting from the return to out of home channels. In Turkey, new economic policies have been accompanied by currency weakness and the impact of two earthquakes continues to be felt. The increase in the minimum wage has helped protect consumers, and our markets are relatively healthy despite high inflation levels. Poor weather in Turkey in April and May led to a late start to the ice cream season, but nonetheless we delivered strong growth, driven by price, but with positive volume. African economies continue to suffer inflationary pressures, depreciating currencies, and foreign exchange shortages. We're seeing the acceleration of value brands in Africa, channel switching, reduced purchasing of non-essentials, and the growth of multi-use all-rounder products in home care. Unilever's Africa business navigated this volatility to deliver double-digit growth driven by price. In Latin America, Brazil is emerging from the inflationary cycle relatively early with inflation under control, positive GDP growth, low unemployment and consumer confidence at its highest levels since 2019. Consumers remain under pressure and we continue to see down trading to value tiers and channel switching by savvy shoppers. Unilever delivered 14.3% growth in the quarter with 2.8% from volume. Price growth fell to 11.1% as we lap high price increases in the prior year. In North America, the U.S. market continues to grow whilst inflation eases. However, sentiment is dropping and consumers are starting to show signs of caution. Private label growth has picked up across the market, but particularly in ice cream and in dressings. In this context, Unilever delivered 6.7% growth in the quarter, balanced between price and volume growth. Europe remains very challenging, with high inflation putting consumers under real pressure to adapt their shopping habits. We've seen a broad-based increase in private label share, which is now above pre-pandemic levels, and continued growth of value brands and discounter channels. Shoppers are buying less, with smaller basket sizes, and are both down trading and shopping less often. Inflation has been particularly high for food products, and this has led to further price increases in nutrition and ice cream. Unilever grew 4.3% in the quarter but this was driven all by price which was up 15.5% and offset by a 9.7% reduction in volume. Now this reduction is not just price elasticity but also reflects the impact of the SKU portfolio rationalisation that I mentioned earlier that took place across the business groups and the impact of one or two pockets of extended price negotiation in Europe. Turning to our turnover result, turnover for the first half was 30.4 billion euros, up 2.7% against last year. The underlying sales growth of 9.1% was offset by acquisitions and disposals, with this being the last period where the exit from tea impacts the turnover numbers. Currency impact was a negative 3.2%, which comprises a negative impact of minus 5% from the euro strengthening against key currencies and 1.9% growth from hyperinflationary markets. Based on spot rates, we now expect an exchange rate effect of around minus 6% on full-year turnover, excluding that hyperinflationary adjustment. Underlying operating margin improved 10 basis points to 17.1% in the first half. Gross margin improved by 30 basis points and branded marketing investment was up €0.4 billion in constant exchange rates, an increase of 30 basis points. The majority of this increased investment was in consumer-facing media. Overheads improved by 10 basis points, reflecting the top-line leverage. We continued to invest in R&D, which was up 30 million euros in constant exchange rates, and we see a drag on overheads as the percent of turnover from the higher overheads profile of Prestige Beauty, Health and Wellbeing, and Food Solutions, which are all growing much faster than the Unilever average. Let's go into a little bit more detail on the gross margin. This chart shows the movement in gross margin for the first half since 2019. Under the line, we show the directional impact of some key drivers. Gross margin has started to improve in the first half of 2023, driven by pricing starting to cover more of our input cost inflation, but particularly by mixed improvement and portfolio changes. We saw cost of goods inflation very much in line with our expectations for the first half. Net material inflation finished up at 1.6 billion euros and increases in production and logistics costs reflected the impact of increased wages and energy costs. The inflation in nutrition and ice cream remained high, whereas beauty and well-being and personal care have seen a levelling off with home care somewhere in between. For the second half, continue to expect to see inflation at 0.4 billion euros with commodity prices down. That gets offset by higher conversion costs in our suppliers and it leaves the net inflation almost all down to transactional foreign exchange. Overall price coverage has moved up to 88% so we're still not completely recovering the impact of the cost of goods inflation. Net material inflation coverage is now covered above 100%. But as I just mentioned, if we factor in wage and energy costs, then we've not yet got to full cost coverage. The mixed improvement, which was good, came from strategic action with regard to unprofitable business and SKU reduction. This was the most important driver. We also saw some benefit from portfolio mix, with the impact of the exit from tea and the acquisition of Nutrafol both favourable to gross margin. The chart shows that we still have some way to go to repair gross margin to pre-COVID levels. Underlying earnings per share was up 3.9% in current currency, despite an adverse foreign exchange impact of minus 5.3%. We expect the currency impact on full-year underlying earnings per share to be minus 7% to minus 8%. Constant underlying earnings per share was up 9.2%, largely driven by the higher operating profit, which resulted from the higher underlying operating margin combined with the top-line leverage. Whilst minorities increased, this was offset by the impact of our share buyback program. In terms of capital allocation... We continue to invest in our business as the first priority. I've already covered BMI and R&D, and we expect CapEx to be around 3% of turnover in the full year. Portfolio reshaping continues with bolt-on acquisitions and selective disposals. As I said in the first half, we saw the acquisition of Yasso and disposal of Suave, both in the U.S. And we remain committed to returning capital to shareholders through the combination of an attractive dividend and the ongoing share buyback program where we completed the third tranche a few weeks ago. Let me close up with our 2023 full year outlook. We now expect online sales growth to be above 5%. Price growth will moderate throughout the year. We will seek to continue our top-line momentum by investing for growth in BMI, in R&D, and in CapEx, whilst further embedding the new operating model. Net material inflation for the year is expected to be around $2 billion in total, and of this, $0.4 billion will fall in the second half. And finally, we continue to expect a modest improvement in underlying operating margin for full year 2023, with an increase in gross margin, funding increased investment behind our brands. With that, let me hand you back to Richard for the Q&A.

Thank you, Graham. As a reminder, if you want to ask a question, please click on the raise hand icon at the bottom of your screen. If you'd like to withdraw your question, please click on the hand icon again. When it's your turn to ask a question, I'll call out your name and then please just go ahead. And finally, please keep your questions to a maximum of two. So our first question is from Olivier Nicolai from Goldman Sachs. Do you want to go ahead with your question, Olivier?

Thank you very much, Charles. Good morning, Heiner. Just a couple of questions. First of all, you've talked about your impression as a new CEO of Unidover. I understand you've been only in the seat for a few weeks. But what do you think is Unidover's key competitive advantage in the midterm? And second question, I think one of the big debates at the moment is about pricing. So what do you think happened to pricing in H2 in the context of moderation of input cost inflation and also more pressure from retailers in emerging markets and also in developed countries? Thank you.

Thank you, Olivier, for your questions, and good morning. Let me first go into the question on key competitive advantage, and I'll have a brief remark on pricing, and then Graham can give you a bit more details. But when it comes to key competitive advantages, and I think I mentioned a few that are particularly striking for me. I think, first of all, Look, it is our portfolio of brands. We have 14 brands of more than €1 billion, and they are growing ahead of average. And actually Unilever is quite focused in the sense that our top 30 brands represent 75% of our turnover. I believe that we have a phenomenal footprint, 60% of our business being in emerging markets and, and I think that's important, in large emerging markets. And we're present obviously in many countries which make the business overall very resilient. The attraction to talent continues to be, I would say, very, very strong. If you look at our followership on platforms like LinkedIn, I believe we're still globally in the top five with more than 19 million followers to date. And it shows in the number of open applications and so forth that we receive. And finally, the leadership on sustainability issues, and I elaborated a little bit on that in my opening speech. I think it is truly important. This is, of course, something that we all face, and I believe we have taken a strong leadership position in that. So these are fundamentals, and they are important in the long term, but I would say many of these are also benefiting us in the short run. And I'm happy overall with the changes that have been made to the organization. I think the organization brings a good amount of clarity, fosters fast decision-making, and gives good transparency per category in which we operate. Look, I think from where we are, where we operate, as well as how we operate and how we structure ourselves, I would say these are some of our key strengths. Now, on your second question on pricing, and as Graeme has already said, pricing is moderating. Inflation is moderating throughout this year, and we're seeing that also. We're seeing that in the second half of this year progressing. However, and that is a word of caution here, there are pockets, and particularly on agricultural commodities, where we're seeing high volatility. If you think about a drought in southern Europe, if you think about geopolitical events, for example, pressure on grain and the related volatility that that might likely bring, You know, there might still be certain pockets and primarily in food where we would see continued inflation and hence a need for us over time to price. But Graham, do you have any other comments to make?

Yeah, I'll have a crack at it, Hein. Morning, Nikolai. Let me give you an aggregate comment, Nikolai, and then try and break it down a little bit further. So, you know, in aggregate, obviously, we expect that the price growth will continue to moderate throughout the year. Most of the pricing in Q2 that you see reflected was actually carryover from previous quarters, and that carryover pricing will start to fall as the year progresses. That's the macro comment. But as I said, as I just said earlier, the business groups are all in different stages of the inflation cycle. And really, if you want to look a little bit into the future, or maybe the best thing to say is pull the future into the present, it's good to look at beauty and well-being and personal care, where we've started to see that pricing moderate because the inflation has been less, and we've started to see the volumes pick back up. And the first half results were really nicely balanced between price and volume in both areas. in both beauty and well-being and in personal care. Although, as Hein just touched on, we do still see pressures in commodities, in nutrition and ice cream in particular. Those two categories, two business groups rather, have got quite a big European footprint. So 60% of our European business, and our European business is 20% of Unilever, 60% of Europe is nutrition and ice cream. And that's where we... And that's where the challenge of pricing and the challenge of the consumer is most sharp. And you see that really from the European pricing result in the second quarter where we raised UPG delivery in Europe was 15.5%, but it came with 9.7%. negative volume. We were later to take pricing in Europe. We have higher ice cream and nutrition exposure, as I said. Also, the actions to simplify the portfolio and rationalize SKUs, the 17% reduction that's taken place over the last 12 months was an even higher number than that. And we're still not there. If you look at the decline in gross margin and decline in operating margin, it's much higher in Europe than it is across the Unilever average. And the European margin remains low overall relative to the Unilever average. So one further comment, maybe North America. We got positive volumes in North America. That was assisted, of course, by prestige and beauty and well-being. We would expect that to continue looking forwards. Latin America started to moderate price, but it's still quite high at 11.1% in the first half. But again, we delivered positive volume in Latin America. We would expect that to continue. We would expect Southeast Asia to put up a good balance between price and volume. South Asia and India in particular... is one call out. There are two particular categories in our Indian business. That's fabric cleaning and skin cleansing. They make up about 40% of the Indian business. And there, there's a lot of local competition and pricing is very directly connected to commodity pricing. And as commodity falls, we expect pricing to have to adjust downwards. It may go flat and it may go negative. That is particularly an Indian feature and I wouldn't read that across the full breadth of the Unilever portfolio, but you may have noticed that in the Hindustan Unilever comments earlier this week.

Okay, thank you. Thanks for the question, Olivier. Let's go straight to our next questioner, which is Rashad Kawan from Morgan Stanley. Go ahead with your question.

Can you guys hear me?

We can. Yeah, we can.

Yep. Perfect. Thanks for taking my question and congrats on the results. A couple from me. The first one on margins, you're still guiding towards a modest margin improvement despite the strong first half margin performance, and I'd say significantly lower. And in mind, the second half, I know you're talking about stepping up BMI spend further, but is there a level of conservatism still built into that guide? And then the second question, very resilient volume dynamics in the quarter. I think it's particularly surprising in the context of a 17% reduction in SKUs that you flagged. Are you seeing an increased take-up from the SKUs that you still have on the shelf? Was there any kind of one-off items to flag in the quarter that would have impacted volumes? Thank you.

Thank you, Rashad, for your question. I note the first question on margin improvement and the second on volumes, both related to the first half and the second quarter. Graham? Sure, thanks, Hein.

Morning, Rashad. I guess the first thing to say is we're pleased with the quality of the margin delivery in the first half, with the gross margin stepping forward by 30 basis points and the increased investment in BMI of 400 million euros. We're starting to see the start of gross margin recovery driven by strong mix improvement. The price coverage of cost inflation... is still less than 100 percent it sits at 88 percent in aggregate but it does vary by by business group and that remains our focus for the second half we are very focused on gross margin recovery to fuel the incremental investment in brand and marketing investment and in r d investment and it's worth highlighting that our gross margin still remains quite significantly below our historical level uh it's 270 basis points now below the point it was at the end of the first half of 2019. So you're right, our guide is to continue to expect modest UOM improvement for the full year. A couple of factors to bear in mind with that. The operating margin for Unilever in the second half is typically lower than the first half. We do believe that pricing will continue to moderate. We need to build on the success we've had in managing volume and be very, very careful with managing the price volume dynamic. And we do want to continue to step up investment behind our brands. So although we are seeing a step down in the overall level of inflation, There's still quite a lot of volatility and uncertainty out there, in particular in nutrition and ice cream. And I spoke earlier about the big European footprints of those businesses. So we do want to remain cognizant that it's an uncertain outcome, drive the gross margin, drive the investment, and just guide to, as we said, a modest increase in the operating margin.

Thanks, Graham.

Okay, thank you, Rashad. Let's go straight to our next questioner, which is Jeff Stent at XN. Go ahead, Jeff.

Good morning. Two questions, if I may. The first one for Hein, just on sustainability. Do you believe that Unilever has commercialized its efforts in sustainability as much as it could have done, i.e. it's actually used it to drive revenues as opposed to just sustainability to be a good sort of corporate citizen. And the second one for Graham. Graham, it's a market you know very well, Indonesia, but I'm kind of losing count now of how many quarters we're here talking about. Oh, it's bad, but we're doing X, Y, Z, and it should get better. How confident are you that this is actually the low point and we should be getting back to good growth from here? Thank you.

Thank you, Jeff, for your question. I'll take the first one. Graham, you take the second one. I mean, on sustainability, look, as I said, I think it is very important. And actually, it is high on my list of priorities. You know, the Unilever purpose... which I think is very clear. It's something that I absolutely endorse, to make sustainable living commonplace. And that means that the more we convert our leadership and sustainability into our commercial offerings, obviously that is a positive. At the same time, I believe that there is opportunity to focus our efforts on those areas where we can truly have a differentiating and a significant impact. And I mentioned a few, you know, the reduction, obviously, of greenhouse gases and the related effects. efforts that we're that we're making on packaging as well as the restoration of and the protection of nature so you know i believe a strong level of focus in what we do whilst continuing to drive the the company purpose and seeing where that comes together that for me is the priority and uh you know that's that's what i see as the as the road ahead of us I won't comment too much on, let's say, on what happened to date, but I do believe in these two effects actually coming together going forward. Graham?

Morning, Jeff. So, I mean, you're right, Indonesia, you know, a market very close to my heart and one I know well. And let me tackle head on your question. I don't want you to take the sense that this is a sort of manana story with regard to Indonesia. Very, very conscious of the fact. that it's taking a while to turn it around. But I'm very, very close to the actions that are happening within the marketplace and the actual scale of the challenge. So please don't take that our comments in Indonesia are the same as they've been for the last two quarters. I really want to give you the sense that we're starting to see things turn around and the results of our action are starting to bear fruit. But please take that we're not at all satisfied with the situation. Our overarching goal is to return Unilever Indonesia to competitiveness. That's the absolute focus, and it's the focus for all five of our business groups. Indonesia is in a very fortunate situation in that it's a key strategic market for all five business groups. So the level of care, attention, and detail that it's getting from around the business is really quite profound. So what's happening in terms of signals about our actions actually starting to work for us? I take a lot of positivity from the clear signs of improvement in sequential market share reading upticks. This is in the sort of year-to-date market share in oral care, which is a very big business for us with very high market share in Indonesia. That's the Pepsodent brand. In skin cleansing. in soy sauce, in bouillons, that's Bango and Royco, the two of those, and in surface cleaning. So we're starting to see it in the year-to-date rates, and with the passage of time and continuation of that direction, we'll start to see that coming into the MAT numbers. What have we done? We've reset prices very significantly. We've had no option but to do that. You know all about the competitive environment there. and in particular with Wings who are backward integrated and have many, many benefits from the commodity run up. We've had to face into the challenge of that, reset pricing, reset promotional strategies. We had too much stock in trade, in the general trade and in the mini market channel and that was giving rise to quite a bit of channel conflict and confusion in the reseller and wholesale markets. So we've reset prices, rationalized pricing, we've put in place a pricing control tower on the ground in Indonesia. so we can manage that prices land effectively in the marketplace. And I think that's all good news. But it's not there yet, and I don't want to give you the sense that we're anything but frustrated with the time it's taking to get Indonesia moving. But we are seeing that, you know, that return to competitiveness start to pull through. The areas where we're not seeing it so far are in beauty and well-being. in particular but we have major brand relaunches coming up in that space in the balance of the year and good innovation going in so as i said lots of attention lots of action principally around pricing around inventory around our control over the business and also around innovation i don't want to i don't want to sort of make any excuses here but just in the results of indonesia that you saw for the last quarter there are a couple of things that i would like to call out in the marketplace household consumption is still negative because of inflation so the actual consumer is not in a great place. Consumers are down trading, they're either buying cheaper or less volume and that of course plays into the hands of some of our lower priced competition. And there was also some softening of market volumes. There were a couple of B2B e-commerce players, I think it was GDID and from memory Mitra Tokopedia, just two examples, who have exited the business because these platform models have proven to be very high cash burn and not very profitable. So I'll leave it there, Jeff, but message received. Thanks. Thanks, Jeff.

Oh, sorry, Hein.

Thank you, Graeme. Just to confirm and to build a little bit on that, I mean, Indonesia is a super important market for us. I'll be visiting Indonesia in the next couple of weeks. And exactly what Graeme is saying is working with local management to see whatever we can do to obviously get the business back to the business-winning share that we have enjoyed. Yeah, know the market quite well, have been there quite a few times, but looking forward to work with the company over there to do that. Okay, thanks, Hein.

To our next questioner, which is Warren Ackerman from Barclays. Go ahead with your question, Warren.

Warren here at Barclays. Two also from me. The first one is on market share and SKUs. When do you think share winning will return to above 50%? I think that was supposed to be in the second half. Obviously, that's been pushed back. By how long has it been pushed back? And then can you talk about the 25% SKU cuts over 18 months? I mean, that's a massive number. What's the baseline in SKUs? I mean, I thought the target was a 20% reduction by 25. It sounds like you're well ahead of that. And maybe could you give some examples of how the new organization is has helped accelerate SKU reduction and what it all means for mix. So one on market share and SKUs. And then secondly, probably for Graham, how do you see the shape of volume mix evolving in H2 and into next year? Because I guess this quarter we're seeing a very bifurcated performance, very strong beauty well-being, very weak Europe and ice cream. How does that look in the back half? And I guess how confident are you that Volmix gets back to 2% to 3% next year as that reinvestment steps up? Thank you.

Thank you, Warren. I think most of these questions I would like Graham to shed his light on a bit, but let me just open with a quick comment on business winning. Look, I mean, first of all, the 41% I think is disappointing. And as I said, we're looking forward to, you know, to drive improvement there along the lines, some of the lines that I mentioned in my opening. Now, that being said, it is important to note that business Business winning is only one metric that we look at as competitiveness. You know, it's not the perfect metric. I don't believe there is any perfect metric for a multi-category and multi-country FMCG. I mean, you need to look at it in conjunction with each other. And there's quite a few businesses that are strategic for us that are excluded from the metric. Now, that said, the 41% that we measure consistently is disappointing, and we need to improve from there. Graeme, on the SQU reduction and related chair performance.

Yeah, let me... Hi, Warren. Let me just build on where you left things off there, Hein. Warren, we're going to be all guns focused on building back that percentage winning from here. We're not going to commit to a moment where we cross 50%, because as you can see from the comments we've made and the results, there's a lot of conscious strategic action in there. But there are also areas where the consumer has gone temporarily to places where we don't want to play. I'd put that in the strategy bucket as well, for example, Brazilian fabric cleaning and India tea are examples of that. But there are also areas where we're not competitive enough. Let's be clear on that. And that's high in my absolute focus. We've got the business groups focused on 30, 60, 90 day plans. We're well aware of what's needed to turn some of these cells around. So it's a combination of conscious choice and understanding where the market has moved to, which is part of strategy. and areas where we need to be more competitive. You know, that's a simple question about pricing, about innovation, about execution, etc. So that's the mix of it. But, you know, look for... We're not happy at 41%. We need to drive it up in the third quarter and in the fourth quarter. But I won't commit to when we cross that 50%. I do just want to come back to one point around it, which is there's that... And I mentioned it in the presentation. There's a big part of our business, very strategic to us, Prestige Beauty Health and Wellbeing, Out of Home Ice Cream, and Unilever Food Solutions. And I'm not just cherry-picking these. These are, and you will recognize, critical channels for Unilever. You'll recognize them in the business group strategies that you've heard about. It's where we've put a lot of our capital allocation to build businesses. And we are very confident that those businesses are growing fast. faster than the rate of market growth and are therefore competitive. It's not an excuse. I'm not saying we're going to redefine anything. And we're focused on driving that percent business winning population up from here. But there are parts of our business which are very competitive that are not in that measure. Now, the SKU reduction, these are big numbers. You're right. And it comes through the new organization. We're down currently about 86,000 SKUs from about 104,000, 106,000 I think it was at the start. 25% SKU reduction over the last 18 months. 17% over the last 12 months. And it's very difficult, obviously, to measure what the turnover impact and market share impact specifically of those things are. Because they're net reductions as we launch new SKUs and take old SKUs out. It's a net reduction that I'm quoting. And obviously there's... turnover that moves across the new SKU, and it's almost impossible to put a precise number on it. But we think that the 17% reduction equates to about 2% to 2.5% of our turnover at a global level. So it's quite significant, which is why we call it out for you in terms of the percent winning measure. It is coming as a consequence of the new organisation. I'll just give you a few examples. In personal care, Very quickly, we've discontinued 60-odd small local brands and taken 5,000 SKUs out. In nutrition, in the US dressings category, we've taken out some very low-profitability SKUs around Hellman's and Sir Kensington's, a smaller premium brand. In the Knorr business in the US, the sides business, we've cut 30% of the SKUs that had pretty low gross margin. And in ice cream, we've done a lot of SKU reduction around the tubs business in Europe. In home care and fabric cleaning in particular, we've done a lot of SKU rationalization in Europe. And you've seen it reported that we're exiting the fabric cleaning business in Nigeria, again, for profitability and simplification reasons. So that hopefully gives you a good picture on that, Warren. In terms of the shape of volume and mix going forward, I think we'll continue to see more of the same. Beauty and well-being and personal care continuing to have good balance. I think you're right in your characterisation of what we're looking for. We're looking, when we come out of this period of incredible inflation after the pandemic. We're all looking to deliver a good mid-single-digit growth number with a decent proportion of that, maybe half of it coming from volume. That's what everybody, I think, is shooting for. I think in home care, where volumes are still negative, you'll see them start to pick up. The big question mark is in nutrition and ice cream, where we're continuing to see inflation, and that's earlier in the journey. But I hope that's helpful on where we think volumes are going to get to.

Nothing to add. Thank you. Okay. Thanks. Thanks for the question, Warren. Look, we're just about at the hour, but we've still got a few questions or so. We'll perhaps run on for a few minutes just so we can get maybe two or three more questions in. So the next question from Celine Panuti at J.P. Morgan. Go ahead, Celine.

Good morning.

Good morning. Morning, Celine.

And my first question, maybe for Ayn, you said that you want to focus more resource on big brands and innovation, which, however, I mean, big brands are doing quite well, as you alluded in terms of the numbers. So I think it's rather the non-billionaire brands that have not well, have you been able to what is the performance and what remedy should be applied for this? question is trying to understand a bit the volume. So this order, your volume was minus 2, which I think was the same as Q1. In Q1, you said that X1 of the underlying was minus 2. So is it right that the underlying volume performance is picking up pace? And given that you have even easier comparative in H2, I'm a bit surprised by your guidance implying low single-digit in H2 when you're picking up and pricing is positive. And then, William, could you give us the number for North America excluding less grants, please?

Celine, thank you for your questions and good morning. Before I go and answer your question, there was a bit of a breakup in the last question. Can you please repeat your last question because I wasn't sure. I got the volume question.

A bit about North America, Celine.

And then North America. Can you repeat that piece, please?

Just if the number in North America volume was positive, how much of that was driven by prestige and wellness?

Okay, thank you. I mean, first on your question on the big brands. I mean, as I said, I like the relative focus that we have. Top 30 brands in the company representing around 75% of the turnover. And we have 14 brands of a billion euro sales. And actually, you know, between the 14 and the 30, there's quite a few. And I think Graham mentioned a few, particularly in the prestige beauty and in health and well-being space. They're well on its way. So growing what we own, representing organic growth opportunities, that is really what drives me. Now, of course, there are always going to be a number of brands and businesses that are somewhat at the edges of the company, and we need to see if we can grow them further. And yes, you are right. They are growing at this moment already a bit faster than the company average, which I think confirms that view of growth. driving significant scale is something that Unilever can do like no other. One of our key strengths is obviously our reach in emerging markets, our distribution capability, and therefore scaling up things that we own, acquisitions that we've made in the recent past. Once again, I think that is an important driver. Now, with all that said, I think there are opportunities to unlock further value. Also on the big brands, by making sure that we have science-backed multi-year innovation programs behind them by ensuring that we have strong quality and driving holistic superiority of these brands versus our competitors. I think there are some opportunities to further solidify these fundamentals and strongly focusing on these fundamentals only to drive success. Now, these are just some of the comments. As I said, I will be coming back with a more elaborate view when we do the presentation of our quarter three results. On the volume question and the question North America, Graham.

Yes, good morning, Celine. Hi. Let me just quickly just pick up on Heinz' point there. I actually think the new organization is the thing that you're seeing driving some of these choices and resource allocation very well just with the benefit of the history of the old organization. and now the new organization working, I think that's a big driver of getting the resources where they actually move the needle in the big positions. Turning to your question on volume, you're absolutely right. I'll just confirm your feeling there. um what was volume was minus 0.2 in q1 minus 0.3 in q2 but the q1 number was flattered we we called it out as being somewhere i think between you know one and a half two percent negative because we had the benefit of um service recovery and pipeline fill in our deodorants business and also frankly we're seeing deals pick up to pre-pandemic levels as people are are and and there was quite a bit of buy-in there so you are seeing sequential volume improvement um as you as you as you summarized there In terms of our guidance and where that sits within that, you know, basically view it as setting a floor of 5%. We've tried to architect it off our 3% to 5% long-term range, and we're saying that we're comfortable we'll at least be there as a floor. Please don't read into it that mathematically we think the second half is going to fall off a cliff because we don't think it will. But we just wanted to basically set a floor there. And as we've said, there is still quite a bit of uncertainty and volatility around this sort of pricing and volume dynamic. And that's maybe the reason for setting a floor rather than giving a more precise number for you there. In terms of North America and Prestige Beauty and Health and Wellbeing, I'm not going to give you the specific growth rates for those businesses, but I do want to size them for you. So both of these businesses are now big-scale businesses, and they're growing very, very quickly, so it's hard to estimate where they'll finish the year. My rough mathematics take me to around about 3.5 billion of business. So this is significant business when you think of it in terms of the size of our ice cream business, for example. It's nearly half the size of ice cream now in prestige, beauty, and health and well-being. So scale businesses. 80% of those businesses are in the United States. 20% of our U.S. business now is those businesses. And 25% of our beauty and well-being business is those businesses. So I'm giving you a lot of data points to triangulate on here. Those two businesses are growing in the high teens and have done so for the last 10 quarters, all volume. So without giving you the precise data, hopefully you'll be able to work it backwards from there.

Okay, thanks, Celine. Let's go straight to Guillaume Delmat at UBS for our next question. Go ahead, Guillaume.

Thank you very much, Richard, and good morning, Han and Graham. A couple of questions for me, please. The first one for Han. I mean, still very early days, but based on your initial impressions, would it be fair to assume that from a strategy standpoint, we should be expecting more of a evolution rather than a revolution to be announced at the end of October? So in other words, you know, maybe new areas of focus, greater emphasis on superiority, but no drastic changes, be it from a portfolio standpoint or even a cost structure standpoint. And then my second question for Graham, is on the consumer environment. Because, Graham, you highlighted many pockets of weaknesses in India, Brazil, North America, Europe, with changes in consumer behavior. Do you expect these trends to accelerate going forward? And if so, under this scenario, what do you think Unilever should do? I mean, is it about investing in price competitiveness? Is it launching more? affordable offering. So any column that would be helpful. Thank you.

Thank you, Guillaume. And I'll take the first question. As you said, the second one more for Graham. Look, I think on your question for what to expect in October, as you say, I mean, it's a relatively short period of time, but I'm keen to share my observations at the end of October of my induction period, as well as a number of steps going forward. And at this point, I don't want to jump yet to any conclusions, but I'm in the process of formulating my considered views as I get to know the business. Now, does that all mean that things will just stay the same? I think in my opening speech, I've also said, look, there are some very important and strong...

coming out so i just wonder if we could really dig into whether it is um you know some underlying softness there if there's some temporary um issues just anything you're able to share on that market would be very helpful thank you graham can you talk a little bit more about the one of the comments made earlier on the softening consumer sentiment in the u.s

I will, Hein. Morning, Alicia. A couple of comments that I picked up from our business reviews this quarter and then a little bit of detail around the U.S. consumer. Consumer spending we see as being resilient. But we are cognizant there's been a very rapid drop in excess savings, which were largely a consequence of the pandemic support, of course. And by our measure, they've gone from a peak of about $2.1 trillion to around about half. half a trillion dollars now. So that's a factor. We're still factoring in the potential for a mild recession in Q4 or maybe Q1 of 24. We think we've got quite a well-positioned portfolio for a recession, but we do need to watch out in our ice creams and our dressings portfolio. Inflation continues to be... You know, it's the lowest annual rate, 4% in May, so it's dropping, but it is a significant contributor to relatively poor consumer sentiment, and we still see a very strong labour market powering overall spending. What does that mean for the consumer? We're seeing a tick-up in volume on deal in the US. We're seeing... Some cut back in consumer volume or discretionary spend. Private label continues to make small share gains in the US, small relative to Europe, but that's particularly felt by us in ice cream and in dressings. In ice cream, consumers are trading down and there's relatively high price elasticity around that. So we're not really seeing any evidence of destocking across our portfolio. We also read those comments and we go looking for it within our business, but we're not really seeing anything across our categories, Alicia.

Thank you, Graeme. I think that sort of summarizes the morning session. Thanks, everyone, at least from my side, for dialing in and obviously asking questions and the interest in the company. So in the next couple of weeks, we will be rolling up our sleeves. I will be rolling up my sleeves to work on the plans Looking forward to reconnect, obviously, in October. And as I said, I feel the company has good fundamentals, but at the same time, there is lots to do. There is always lots to do. And I'm very eager to get going on that. I'm looking forward to meet with many of you, obviously, in the future. But until then, I wish you a good summer. And back to you, Richard.

Okay, thank you. So we'll bring the call to a close. Thank you, everybody, for your questions. We didn't quite get through everybody. So if you've got further questions, please email the IR team and we'll set up a time to speak to you this morning. Thanks for the questions. Thank you, Hein. Thank you, Graham. And enjoy the rest of the day, everybody.

Thanks, everybody.

This now concludes today's call. Thank you all for joining and have a nice day.