Unilever : Q2 2021 full announcementPDF | 604KB

2021 FIRST HALF YEAR RESULTS

Performance highlights (unaudited)

Underlying performance			GAAP measures
			vs 2020				vs 2020
First Half
Underlyingsales growth (USG)			5.4%		Turnover	€25.8bn	0.3%
Underlying operating margin	18.8%		(100)bps		Operating margin	17.2%	(100)bps
Underlying earnings per share	€1.33		(2.0)%		Diluted earnings per share	€1.19	(5.0)%
Second Quarter
USG			5.0%		Turnover	€13.5bn	1.2%
Quarterly dividend payablein September 2021				€0.4268 per share

First half highlights

• Underlying sales growth of 5.4%, with 4.0% volume and 1.3% price. Price growth stepped up in Q2
• Turnover increased 0.3% including a positive impact of 1.4% from acquisitions net of disposals and negative impact of 6.1% from currency related items
• Underlying operating margin of 18.8%, a decrease of 100bps driven by investment behind our brands and input cost inflation
• Underlying earnings per share down 2.0%, including a negative impact of 6.3% from currency
• Free cash flow of €2.4 billion, compared to €2.9 billion in the first half of 2020
• Quarterly shareholder dividend of €0.4268 per share and share buyback programmeof up to €3 billion underway

Alan Jope: Chief Executive Officer statement

"Unilever has delivered a strong first half, with underlying sales growth of 5.4% driven by our continued focus on operational excellence.

We are making good progress against the strategic choices outlined earlier this year, including the development of our portfolio into high growth spaces. Prestige Beauty and Functional Nutrition grew strongly and we recently announced the acquisition of digitally-native skin care brand Paula's Choice. The operationalseparation of our Tea business is substantially complete. Our ecommerce business grew 50% and the channel now represents 11% of sales.

Competitive growth is our priority, and we are confident that we will deliver underlying sales growth in 2021 well within our multi-year framework of 3-5%, despite more challenging comparators in the second half. We have seen further cost inflation emerge through the second quarter. Cost volatility and the timing of landing price actions create

1. higher than normal range of likely year end margin outcomes. We are managing this dynamically and expect to maintain underlying operating margin for 2021 around flat."

22 July 2021

Underlying sales growth (USG), underlying volume growth (UVG), underlying price growth (UPG), underlying operating profit (UOP), underlying operating margin (UOM), underlying earnings per share (underlying EPS), constant underlying EPS, underlying effective taxrate, freecash flow (FCF) and net debtare non-GAAP measures (see pages6to 9)

FIRST HALF OPERATIONAL REVIEW: DIVISIONS

		Second Quarter 2021									First Half 2021
																														Change in
		Turnover				USG			UVG				UPG			Turnover				USG			UVG				UPG			underlying
																						operating
(unaudited)																														margin
		€bn		%		%			%			€bn		%		%			%			bps
Unilever	13.5			5.0		3.3			1.6		25.8			5.4		4.0			1.3		(100)
Beauty & Personal Care	5.4			4.2		2.1			2.0		10.4			3.3		1.8			1.4		(220)
Home Care	2.6			3.2		3.1			0.1		5.2			4.5		4.8			(0.3)		(130)
Foods & Refreshment	5.5			6.8		4.6			2.0		10.2			8.1		5.8			2.1		60

Our markets:The operatingenvironment across our markets has seen someimprovements but remains volatile. Restrictions on dailylife continuearound the world, impactingchanneldynamics, sales mix andconsumer behaviour. Although renewedrestrictions in Indiaimpactedthe market in the second quarter, theywere less severethan in the same period last year. In China, normalisation has continued, but market growthis still below pre-Covid-19levels. The North America andEuropemarkets declined in the second quarter as we lapped thesurgein demand for in-home foodand hygiene products in the same periodof 2020. In difficult macroeconomic conditions, markets are growing in Latin America but market conditions in SouthEast Asiaremain challenging. In Indonesia, large parts of the countryhave entered lock- down following a sharprisein Covid-19cases.

Unilever overall performance: We continue to be guided by our five strategic choices:

• develop our portfolio into higher growth spaces;
• win with our brands as a force for good, powered by purpose and innovation;
• accelerate in the USA, India and China and leverage our emerging markets strength;
• lead in the channels of the future; and
• build a purpose-led,future-fit organisation and growth culture.

These strategic choices and our sharp focus on operational excellence have delivered first half underlying sales growth of 5.4%, with volume growth of 4.0% and 1.3% from price. Underlying sales growth in the second quarter was 5.0%, including price of 1.6%, which accelerated through the quarter as our pricing actions landed in markets.

Emerging markets grew 8.3%, driven by continued recovery in China and strong performance in South Asia, both growing double digit. Performance in South East Asia was mixed, with Indonesia declining high single digit. Latin America grew high single digit, led by price growth. Developed markets grew 1.5%, as North America and Europe each grew low single digit. In North America, food solutions and Prestige Beauty contributed to growth as the out of home eating and health and beauty channels reopened. We saw a relative decline in food consumed at home and flat growth in hygiene products, as we lapped the spike in demand in the prior year. In Europe, volume growth was supported by a recoveryin out of home ice cream. Price declined in Europe as we lapped a period of lower promotional intensity in some markets. Ecommerce grew 50% and is now 11% of sales.

Turnover increased 0.3% including a positive impact of 1.4% from acquisitions net of disposals and negative impact of 6.1% from currency related items.

We continue to develop our portfolio into higher growth spaces. In Prestige Beauty we signed an agreement in June to acquire the leading digital-led skin care brand Paula's Choice, which has pioneered jargon-freescience, high performing ingredients and cruelty-freeproducts. Underlying sales in functional nutrition grew high single digit in the second quarter, which includes vitamins, minerals & supplements brands OLLY and Equilibra and our South Asian nutrition brands Horlicks and Boost.

The operational separation of our tea business is substantially complete and is due to conclude in October 2021. We are now focused on the next phasefor this business, which we expect to beeither an IPO, saleor partnership. This business generatedrevenues of around €2billion in 2020 andexcludes our hot tea businesses in Indiaand Indonesiaandour partnershipinterests in ready-to-drinktea.

As we announced in April, a number of smaller beauty and personal care brands have been separated with a dedicated management team under the name Elida Beauty. The brands include Q-Tips,Caress, Tigi, Timotei, Impulse and Monsavon with combined revenues of around €0.6 billion in 2020. We are exploring options for these brands with a focus on maximising value creation.

USG, UVG,UPG, UOP, UOM, underlying EPS, constant underlying EPS, underlying effective taxrate, FCF andnet debt are non-GAAP measures (see pages6to 9)

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Underlying operating margin declined by 100bps to 18.8%. After conserving spend at the peak of the global pandemic in the prior year we have stepped up investment in our brands and marketing campaigns, increasing spend by 80bps. Gross margin was 60bps lower, impacted by an increase in raw material, packaging and distribution costs globally.

There was a slightly negative incremental impact on gross margin in the first half from adverse mix related to Covid- 19 . Overheads improved by 40bps. Productivity programmes and ongoing Covid-19 related savings in areas like travel and facilities continued.

Beauty & Personal Care

Beauty and Personal Care underlying sales grew 3.3% with 1.8% from volume and 1.4%from price, with an acceleration to 4.2% underlying sales growth in the second quarter, helped by increased personalcare consumption occasions as living restrictions were eased in some of our markets.

Skin care grew double digit and deodorants returned to growth. In skin care Vaseline and Ponds each grew double digit. We launched Dove's refillable deodorant innovation in the USA, one of many Dove projects exploring sustainable packaging solutions. Skin cleansing declined as we lapped the sharp increase in demand in the prior year related to Covid-19. Hair grew mid-single digit. Wash and care and styling both grew and we saw good growth in China, India and Brazil. Premium brand Shea Moisture grew double digit in the USA. Oral care grew mid-single digit, led by volume from South Asia and Africa. Closeup's freshness innovation is driving growth in Brazil. Our Prestige Beauty brands grew double digit, with higher in-store footfall. We increased pricing in response to commodity inflation across categories, particularly in Latin America and South Asia.

Underlying operating margin declined 220bps as we stepped up brand and marketing investment compared to the prior year and as gross margin declined as a result of high cost inflation.

Home Care

Home Care underlying sales grew 4.5% with 4.8% from volume and negative price of 0.3%.

Fabric cleaning grew mid-single digit driven by recovery in India and price-led growth in Brazil. In Latin America growth was helped by our Omo dilutable laundry liquid innovation, which launched in 2020. Fabric enhancers grew mid-single digit led by China, where our Comfort fragrance boosters innovation with dual-colour beads and luxury- inspired fragrances performed well. Home & hygiene declined low single digit. There was good growth in dishwash in emerging markets, whilst household cleaners declined as we lapped a prior year spike in growth. We expanded our Lifebuoy brand into home hygiene products in the UK and Germany, launching the new Botanitech range of cleaning products with naturally-derivedingredients.

Price declinedoverall as we lappeda periodof lower promotional intensityin some markets andas the impact ofrising input costs was more mutedin fabric cleaning through the first half. Pricing was slightlypositivein the secondquarter as we started to takepricing action in markets includingBraziland Turkeyto respond to rising input costs.

Underlying operating margin declined 130bps as we increased brand and marketing investment compared to the prior year. Gross margin declined as a result of high cost inflation, whilst overheads decreased.

Foods & Refreshment

Foods and Refreshment underlying sales grew 8.1%with 5.8% from volume and 2.1% from price.

Ice cream sales grew across both in home and out of home products, with double digit performances in Turkey, China and India. Out of home ice cream in Europe grew double digit as living restrictions began to ease, although sales have not returned to pre-Covid-19levels.Magnum and Ben and Jerry's both grew double digit. Magnum launched the Miley in Layers campaign with Miley Cyrus. Ben and Jerry's has seen innovation success with its 'Topped' product range, with larger chunks and unique patterns and layers.

Food solutions grew double digit. Sales in China were above pre-Covid-19 levels, however in most other markets turnover has not yet recovered to 2019 levels as out of home channel restrictions remained in place. In-home foods grew low single digit even as we lapped a spike in demand in the prior year. Knorrand Hellmanns's grew double digit led by volume with campaigns such as Make Taste Not Waste in Hellmann's and the rollout of innovations such as Knorr's flavour rich, low salt bouillon. We took pricing action across food and ice cream to counter rising input costs.

Tea grew high single digit through both price and volume, with growth in North America, Turkey, Europeand India. Price was driven by India, following significant raw material inflation.

Underlying operating margin increased 60bps. There was an increase in brand marketing investment and a decrease in overheads as we benefitted from turnover leverage.

USG, UVG,UPG, UOP, UOM, underlying EPS, constant underlying EPS, underlying effective taxrate, FCF andnet debt are non-GAAP measures (see pages6to 9)

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		Second Quarter 2021									First Half 2021
																														Change in
		Turnover				USG			UVG				UPG			Turnover				USG			UVG				UPG			underlying
																						operating
(unaudited)																														margin
		€bn		%		%			%			€bn			%		%			%			bps
Unilever	13.5			5.0		3.3			1.6		25.8			5.4		4.0			1.3		(100)
Asia/AMET/RUB	6.1			5.7		4.5			1.2		12.1			7.7		6.4			1.2		(30)
The Americas	4.2			4.8		0.7			4.1		8.0			5.1		1.7			3.3		(190)
Europe	3.2			4.0		4.7			(0.6)		5.7			1.1		2.2			(1.1)		(130)
		Second Quarter 2021						First Half 2021
(unaudited)		Turnover			USG			UVG			UPG		Turnover				USG		UVG			UPG
		€bn		%		%			%			€bn			%		%			%
Developed markets	5.8			2.2		1.6			0.6		10.8			1.5		1.4			0.2
Emerging markets	7.7			7.2		4.7			2.4		15.0			8.3		5.9			2.2
North America	2.7			1.1		(1.1)			2.2		5.1			2.6		1.0			1.6
Latin America	1.5			11.9		4.2			7.4		2.9			9.5		3.1			6.3

Asia/AMET/RUB

Underlying sales grew 7.7% with 6.4% from volume and 1.2%from price. South Asia grew double digit as we lapped a period of strict lock-down measures in India in the prior year, although growth slowed from the first to the second quarter as regional restrictions were put in place. We increased prices across categories in response to commodity inflation. China grew double digit, with broad based growth across divisions and a recovery to pre-Covid-19 turnover levels in our food solutions business. In Turkey double digit growth was balanced between price and volume, helped by strong ice cream performance. Indonesia declined high single digit in difficult market conditions, whilst Thailand grew mid-single digit as we lapped a period of heavy decline in the second quarter of 2020.

Underlying operating margin declined 30bps as a result of increased brand and marketing investment compared to the prior year, and a lower gross margin due to higher input costs. This was mostly offset by lower overheads due to

turnover leverage.

.

The Americas

Underlying sales growth in North America was 2.6%, with 1.6% from price and 1.0% from volume. Our food solutions and Prestige Beauty businesses grew double digit as channels reopened. In-home foods declined low single digit as we lapped a period of surge demand and beauty and personal care saw low single digit growth. Underlying price growth was delivered across all divisions.

Latin America delivered underlying sales growth of 9.5%, with 6.3% from price and 3.1% from volume. Growth was balanced across all divisions. We took strong pricing action in response to high commodity inflation and currency devaluation. Brazil grew double digit and Mexico grew mid-single digit, both led by price. Argentina delivered mid- single digit volume growth.

Underlying operating margin decreased by 190bps with greater brand and marketing investment compared to the prior year and a lower gross margin due to higher input costs. The input costs were partially offset through pricing particularly in Latin America. There was a benefit in overheads.

Europe

Underlying sales grew 1.1% with volume of 2.2% and negative pricing of 1.1%. Volume growth was led by a recovery in out of home ice cream in the second quarter, particularlyin Italy and Spain, as the channel started to re-open. Food solutions returned to growth, as out of home eating outlets reopened. The UK and Germany sales declined as we lapped a spike in growth in the second quarter of 2020. Price declined and we lapped a period of lower promotional intensity in the second quarter in some markets.

Underlying operating margin declined 130bps driven by lower gross margin as high levels of input cost inflation outweighed pricing in a challenging retail environment. We increased brand and marketing investment compared to the prior year.

USG, UVG,UPG, UOP, UOM, underlying EPS, constant underlying EPS, underlying effective taxrate, FCF andnet debt are non-GAAP measures (see pages6to 9)

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ADDITIONAL COMMENTARY ON THE FINANCIAL STATEMENTS - FIRST HALF2021

Finance costs and tax

Net finance costs decreased by €96 million to €153 million in the first half of 2021. The decrease was largely driven by

1. lower cost of debt and a one-off foreign exchange gain. This was partially offset by lower interest income driven by interest on tax credits in Brazil in the prior year. The interest rate on average net debt decreased to 1.4% from 2.0% in 2020.

The underlying effective tax rate for H1 2021 decreased to 21.9% from 22.6%in H1 2020 due to favourable tax audit settlements and provision releases, as well as the restatement of deferred tax balances for changes in tax rates. The effective tax rate for H1 2021 was 22.7% compared with 22.3% in H1 2020.

Joint ventures, associates and other income from non-current investments

Net profit from joint ventures and associates was €91 million, consistent with the prior year. Other income from non- current investments was €34 million.

Earnings per share

Underlying earnings per share decreased by 2.0%, including a negative impact of 6.3% from currency. Constant underlying earnings per share increased by 4.3%. The increase was mainly driven by underlying sales growth, lower tax and finance costs, partially offset by an increase in profit attributable to minority interests following the Horlicks acquisition in India. Diluted earnings per share decreased 5.0% at €1.19.

Free cash flow

Free cash flow in the first half of 2021 was €2.4 billion, down from the €2.9 billion delivered in the first half of 2020. This was primarily a result of lower operating profit. We have maintained the enhanced working capital discipline that improved our free cash flow in 2020 at the start of the pandemic.

Net debt

Closing net debt increased to €22.4 billion compared with €20.9 billion at 31 December 2020. The increase was driven by dividends paid and our share buyback programme, partiallyoffset by free cash flow delivery.

Pensions

Pension assets net of liabilities were in surplus of €1.9 billion at the end of June 2021 versus €0.3 billion as at 31 December 2020. The increase was driven by positive investment returns on pension assets, and lower liabilities as interest rates increased.

Finance and liquidity

In February 2021$1,000million 4.25%fixed rate notes matured and were repaid. In March 2021 $400 million 2.75% fixed rate notes matured and were repaid.

On 30 June 2021 Unilever had undrawn revolving 364-day bilateral credit facilities of $7,965 million in aggregate with a 364-day term out.

Share buybackprogramme

On 29 April 2021 we announced our intention to start a share buyback programme of up to €3 billion. On 6 May 2021 we announced we would commence the first tranche of this buyback programme for an aggregate market value equivalent to €1.5 billion. As at 30 June 2021 the Group had repurchased 17,973,091 ordinaryshares. Total consideration for the repurchase of shares was €0.9 billion which is recorded within other reserves. The first tranche for an aggregate market value of €1.5 billion will end on or before 27 August 2021.

Capital Reduction

On 15 June 2021 the UK court approved a capital reduction of £18.4 billion (€20.6 billion). The impact of this was to transfer €20.6 billion from share premium to retained earnings.

USG, UVG,UPG, UOP, UOM, underlying EPS, constant underlying EPS, underlying effective taxrate, FCF andnet debt are non-GAAP measures (see pages6to 9)

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