Martin Deboo: Yes, good morning everybody. I got one on Q4 volumes and one on FY ’23 margins. On Q4 volumes, you’ll be aware there was a lot of apprehensiveness coming into the quarter on that. Can you just sort of disentangle the minus 3.6% a bit more for us? How much was underlying consumer price elasticity? How much was planned SKU rationalization? And then was there any trade destocking effect in there given your peers have pulled that out. On FY ’23 margins, guidance of modest improvement relative to lower level of NMI in H1 than you expected, capture of the bulk of the €600 million savings. And I would also assume positive gross margin category mix. So that seems worth a lot to me at the gross level. So why the caution on margins?
Is it that you expect pricing to come off more quickly than you expected? Or is it that you’re pumping in a lot of investment? You’ve talked about investment directionally, but I’m wondering if you can be a bit more precise on that. Those are the questions. Thanks.
Alan Jope: Hi, Martin, I’ll take the first one, and I’ll let Graeme comment on the second one. So Q4 volumes, you’ll have noticed that a large proportion of the volume deterioration was in Ice Cream and Nutrition. Now at a macro level across the company, the majority of the negative UVG is a straightforward response to the pricing that we’ve been taking. In Nutrition and Ice Cream, it was complemented by some strategic choices to exit unprofitable business. So we’ve talked, Graeme’s shared an insight on in Nutrition, in particular, Dressings North America at a time when Almonds is absolutely flying, we took the opportunity to ease back on some frankly, structurally unprofitable business in our preferable brands in Dressings North America.
Also Nutrition was impacted by Unilever Food Solutions in China where there was obviously a marked slowdown as COVID restrictions were actually enhanced in Q4. Ice Cream, a slightly different story, where we exited some tubs, unprofitable tubs business in Europe, so sort of a low value in-home. And we also were up against difficult comps in in-home Ice Cream volumes in Q4 of 2021, which were partially offset by an acceleration of our out-of-home business in 2022, but not fully. So you see in the numbers that the UVG was particularly pronounced in Ice Cream, somewhat in Nutrition. And it’s a combination of primarily price elasticity, a little bit of exiting bad business and some year-on-year effects for Food Solutions and Ice Cream. Graeme, do you want to talk about the other part of Martin’s question?
Graeme Pitkethly: Yes. Hi, Martin, on the ’23 margin, let me — I think my first reflection is we’ve got a pretty good grip on this. We were one of the first to call out the original inflationary environment. And our estimate for net material inflation in ’22 proved to be pretty accurate. We landed at €4.3 billion, and I think we guided to €4.5 million. So we feel we’ve got our hands around it. It is, however, inherently more uncertain in the second half than it is on the first half. And as we’ve said, we currently see a drop from €2 billion of NMI inflation to €1.5 billion in the first half, but we do see continued inflation in production and logistics of about €0.5 billion. So that’s the bit that we have got a good grip on where we have the visibility.
Second half, not so much visibility, but we do expect, as I said, it to be materially lower in the second half. I think the key thing to bear in mind, Martin, is that at this point, we are only at 75% price coverage to get our gross margin and our margin — bottom-line margin will be driven by gross margin improvement. We’re only at the 75% point as we exit the year. So we’re still some way adrift from the 100% that’s needed to get the gross margin moving forward. We will have the benefit of continued high savings programs, again, €2 billion plus of savings. Obviously, the mix of that changes over time. Within that, we’ve got — and you mentioned the €600 million savings from the Compass organization, that’s landing well. And we’ve got a big contribution for that factored into those savings plans.
We will get some benefit in gross margin from mix. We’re driving mix hard. Alan just mentioned it there in the context of net revenue management. We do need to push mix harder. And one final point, and I touched on this, we will continue to invest behind resetting the company to a higher growth profile. We’re guiding to a higher growth profile today, and that requires investment. And when we manage all that to get to what we think will be a modest improvement in the bottom-line UOM for the year. Bear in mind that we’ll have transactional currency headwinds — sorry, against that. We think that currently sits at 20 to 30 basis points. So as I said in the prepared remarks earlier, we’re going to have to pedal a bit faster than you see in current exchange rates in order to deliver that number, because we are going to face 20 to 30 basis points of headwind to the margin from transactional foreign exchange.
Richard Williams: Thank you, Graeme. Let’s go to Warren Ackerman at Barclays for the next question. Go on Warren.
Warren Ackerman: Yes, good morning everybody. It’s Warren here at Barclays. Good morning, Alan. Good morning, Graeme. First one for me is on market share. You said 47% on your 12-month MAT. I think you also said it wouldn’t go back above 50% until the second half of ’23. Is that a concern where we’ve got maybe three quarters in a row below that kind of 50% threshold. I wonder whether you can kind of dig into that. Where are you losing? Why are you confident it improves about 50%? And how does it all marry with your brand equity health scores, which I think at the CMD, you were talking about 80%. Just trying to sort of triangulate all of that? And then the second one is really around Europe, in particular. I know you’ve called out some moving parts already, but with volumes down almost 7% as pricing has really stepped up there.
Can you maybe sort of dig into what you’re seeing on the ground, maybe by country, what’s the U.K. looking like versus Northern Europe, Southern Europe? Any kind of de-listings you’ve seen as that price has really stepped up? And are you expecting pricing to step up further as you finalize negotiations with retailers and could that volume even get worse? So I’m just trying to sort of work out at what point do you start to worry where the volumes are down kind of mid to high single-digit that you might need to look at other kind of bit more draconian measures around factory utilization or dialing up promos? Yes, those are my two.
Alan Jope: Insightful questions. Warren, I’ll let Graeme talk about Europe. Let me just say a word or two about market share. First of all, our percent business winning is well above 50% in three of the five business groups. So in Health & Wellbeing in — sorry, Beauty & Wellbeing, in Personal Care and in Home Care, our market share percent business winning is above 50, it’s below 50 in Nutrition and Ice Cream. And those are particularly impacted by two big cells. One is U.S. Dressings and the other is India Tea. And the India Tea position is that that market has shifted into very, very, very low price, low margin powdered tea where we choose not to compete. In the Premium Tea segment, in fact, we’re gaining share, but there’s a shift within the market to very low cost teas, where we frankly see no margin to be made and don’t want to participate.
And then I think we’ve talked a lot about cleaning up our U.S. Dressings portfolio and accepting some short-term dips in market share. Our brands are in terrific shape. You’ve seen the step-up, a very substantial step-up in constant currency. In fact, it looks like an even bigger step-up when you look in current money in the brand and marketing investment. Our brand health measures are very strong. And our biggest and best brands was 12 no 14 as two new brands who joined our top 14 €1 billion brand portfolio. Those are growing 11%. And so all I can say is that even on an MAT basis, the quarterly percent business winning is quite volatile with different cells coming in and moving out. And as we continue to make progress in Indonesia, as we continue to make progress in North America, I think we’ll see that business winning figure repair from where it is right now.
And in truth, Warren, we just don’t want to be too optimistic on when exactly it might repair, but the underlying signs are all very positive. Graeme, Europe.
Graeme Pitkethly: Yes, good morning, Warren. I think the first thing to say about Europe is that the current pricing environment is a bigger step change versus history than we’ve seen. I think you need to bear and this applies to everybody, I guess, European elasticity in the context of taking price for the first time in many, many years. It’s gone into price inflation from a situation where it was in long-term deep price deflation for many, many years. So the net move from deflation to inflation is bigger than it is in other region. It really is quite a step change. We had really strong growth in Ice Cream and Nutrition in Europe, modest growth in PC, a slight decline in home care and a slight decline in Beauty & Wellbeing, which is quite small for us in Europe.
And we did see positive volume growth in Ice Cream where we took a lot of price in dressings and in Unilever Food Solutions. So it’s quite a mixed picture across the piece. I would point out in terms of retailer negotiations and retailer dynamics, all very positive, to be honest, never easy in Europe, but we’re working very constructively with the grocers in Europe. They’re very demanding in terms of the information that’s required around granular cost inflation data at an SKU by SKU level. We’re not really seeing any destocking in our categories, but that’s going okay so far, never easy, but we’re working very, very collaboratively with them. One thing to point out, I mentioned in the prepared remarks that the material inflation that we’re seeing for the first half falls disproportionately in Nutrition and Ice Cream.
And both of those business groups have got a higher footprint in Europe. So it is a focus area for us. And certainly, we’re concentrating on that. And then finally, just to come back to something Alan referred to earlier on promotional spend in Europe, we are seeing far less volume on deal in Europe compared to normal. That’s obviously quite understandable when we’re trying to land price increases with our retailers and our retailers are moving prices. So hopefully, that gives you a little bit more color on the European situation.
