Unilever : 2018 Q4 full announcement

2018 FULL YEAR RESULTS

CONTINUED PROFITABLE GROWTH IN VOLATILE MARKETS

Performance highlights (unaudited)

Underlying performance			GAAP measures
vs 2017	vs 2017
Full Year Underlying sales growth (USG)(a) USG excluding spreads(a) Underlying operating margin Underlying earnings per share Free cash flow	18.4% €2.36 €5.0bn	2.9% 3.1% 90bps 5.2% €(0.4)bn	Turnover(b) Turnover excluding spreads(b) Operating margin Diluted earnings per share Net profit	€51.0bn €49.6bn 24.6% €3.48 €9.8bn	(5.1)% (2.3)% 810bps 62.0% 51.2%
Fourth Quarter USG(a)	2.9%	Turnover(b)	€12.2bn	(5.3)%
Quarterly dividend payable in March 2019 €0.3872 per share

• (a) These amounts do not include price growth in Venezuela for the whole of 2018 and in Argentina from 1 July 2018. See pages 6 - 7 for further details.

• (b) IAS29 'Financial Reporting in Hyperinflationary Economies' has been adopted in Argentina and accordingly 2018 turnover previously reported has been restated (see note 1).

Full year highlights

• • Underlying sales growth excluding spreads was 3.1% with 2.1% volume and 1.0% price

• • Price growth in Argentina is excluded from underlying sales growth from July due to hyperinflationary status. Reported growth would otherwise have been 3.4% (3.6% excluding spreads)

• • Underlying operating margin increased 90bps with 50bps from gross margin

• • Underlying EPS increased 5.2%; constant underlying EPS was up 12.8%

• • Turnover was impacted by an adverse currency impact of 6.7% and the disposal of spreads

• • Operating margin up 810bps and diluted EPS up by 62%, driven by a €4.3 billion profit on the disposal of spreads

Alan Jope: Chief Executive Officer statement

"2018 was a solid year for Unilever, with good volume growth and high-quality margin progression.

Looking forward, accelerating growth will be our number one priority. With so many of our brands enjoying leadership positions, we have significant opportunities to develop our markets, as well as to benefit from our deep global reach and purpose-led brands.

We will capitalise on our strengthened organisation and portfolio, and our digital transformation programme, to bring higher levels of speed and agility. Strong delivery from our savings programmes will improve productivity and fund our growth ambitions.

In 2019 we expect market conditions to remain challenging. We anticipate underlying sales growth will be in the lower half of our multi-year 3-5% range, with continued improvement in underlying operating margin and another year of strong free cash flow. We remain on track for our 2020 goals."

31 January 2019

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 tax rate, free cash flow (FCF), net debt, return on invested capital (ROIC) and underlying earnings before interest, taxation, depreciation and amortisation (UEBITDA) are non-GAAP measures (see pages 6 to 10)

FULL YEAR OPERATIONAL REVIEW: DIVISIONS

(unaudited)

€bn

%

%

%

€bn

%

%

%bps

Unilever

12.2

2.9

0.8

2.1

51.0

2.9

1.9

0.9

90

Beauty & Personal CareFoods & RefreshmentHome Care

5.4 4.2 2.6

3.0 1.3 5.3

1.3 (0.1) 1.2

1.7 1.4 4.1

20.7 20.2 10.1

3.1 2.0 4.2

2.5 1.3 2.3

0.6 0.7 1.9

80 80 80

* Wherever referenced in this announcement, USG and UPG do not include price growth in Venezuela for the whole of 2018 and in Argentina from 1 July 2018.

See pages 6 - 7 for further details.

As previously announced the disposals of our spreads businesses were completed on 2 July 2018. The table below provides information on 2018 performance excluding sales related to spreads.

Full Year 2018

(unaudited)	Turnover	USG	UVG	UPG
€bn	%	%	%
Unilever excluding spreads	49.6	3.1	2.1	1.0
Foods & Refreshment excluding spreads	18.8	2.3	1.6	0.8

Our markets: Market conditions have been challenging throughout the year, particularly in the second half where currency devaluations and rising commodity costs put pressure on consumer demand. The economic crisis in Argentina led to the economy being classified as hyperinflationary.

Unilever overall performance: In 2018 we again delivered profitable growth with another year of strong gross margin progression and double digit growth of constant underlying earnings per share. Underlying sales excluding spreads grew 3.1% with 2.1% from volume. Price growth in Argentina which was excluded from USG from 1 July 2018 would have contributed 50bps. The deterioration in the conditions for consumers in Argentina resulted in a full year underlying volume decline of -10% which had a -30bps impact on Unilever volume growth. Emerging markets grew by 4.6% with 2.8% from volume driven by another year of strong growth in Asia AMET RUB. Sales in developed markets grew modestly, helped by a stand out year for ice cream in Europe as well as the continued transformation of our portfolio towards faster growing segments. Turnover decreased 5.1% which included an adverse currency impact of 6.7% and the disposal of spreads which was completed on 2 July 2018.

Underlying operating margin improved by 90bps to 18.4%. The improvement was high-quality with gross margins up 50bps driven by margin-accretive innovation and continued strong delivery from our '5-S' savings programmes. Brand and marketing investment was 10bps lower, whilst absolute spend in local currencies increased by €60 million, even after productivity gains from zero based budgeting. Overheads were down 30bps. Constant underlying earnings per share increased 13% and underlying earnings per share increased 5.2% after an adverse impact of 7.6% from currencies. Over €10 billion was returned to shareholders through share buy-backs and dividends.

Beauty & Personal Care

Underlying sales grew 3.1% with 2.5% from volume. Our biggest brand Dove delivered another year of broad-based growth. Skin care grew strongly helped by innovations including a new Vaseline range with clinical strength moisturisation, as well as new brands such as Love, Beauty & Planet which is helping us to address the fast growing naturals trend. Growth in skin cleansing was helped by innovations on the core such as the relaunch of Lifebuoy with active silver, new premium formats including Dove exfoliating body polishes as well as our new cleansing brands such as Korea Glow which launched in the fourth quarter. Deodorants delivered good volume growth helped by strong performance on Dove but pricing in deodorants was muted. The newly acquired Schmidt's grew strongly. Sales in oral care were flat due to ongoing competitive pressures. Prestige performed well with double digit growth on Hourglass, Ren, Living Proof and Kate Sommerville as well as improved momentum on Dermalogica and Murad. Dollar Shave Club grew double digits and continued to build scale in the US.

Underlying operating margin increased 80bps mainly reflecting brand and marketing efficiencies as a result of our zero based budgeting programme.

Foods & Refreshment

Underlying sales excluding spreads grew 2.3% with 1.6% from volume. Ice cream had another strong year helped by innovations on our premium brands which included a new Magnum praline variant and a non-dairy range of Ben & Jerrys. The launch of Kinder® ice cream and good weather helped to deliver strong ice cream growth in Europe. Sales in tea grew modestly: our emerging markets growth was driven by good performance on our core brands like Brooke Bond in India whilst in developed markets challenges in black tea offset good growth from Pukka and our new organic Lipton range. In savoury, Knorr was helped by good performance of cooking products in emerging markets and more organic and natural innovations such as a new 'soup in glass' range. In dressings campaigns centred around Hellmann's purpose to fight food waste helped to increase brand equity, but sales were held back by promotional intensity particularly in the US. Our actions to transform the portfolio are working: strong innovations including Knorr rice and pasta pots as well as our new brands Red Red, PrepCo and Mãe Terra helped us build scale in the fast growing snacking segment and we annouced an agreement to buy Horlicks in India, Bangladesh and 20 other markets.

Underlying operating margin increased 80bps as a result of strong gross margin improvement and lower overheads despite an adverse impact from the spreads disposal.

EVIEW: DIVISIONS (continued)OPERATIONAL REVIEW: DIVISIONS (continued)

Home Care

Underlying sales grew 4.2% with 2.3% from volume. Home and hygiene grew strongly led by Sunlight which was helped by a new communication focussed on building functional awareness as well as the continued success of Domestos toilet blocks. In fabric sensations, Comfort was helped by market development in India and China as well as the launch into Germany. Fabric solutions also grew strongly helped by our strategy to encourage consumers in emerging markets to uptrade to premium formulations like Surf Excel Matics in India and innovations such as Omo eco active with recycled packaging, plant extracts and naturally derived fragrances. Seventh Generation grew well.

Underlying operating margin increased by 80bps driven by lower overheads and also helped by zero based budgeting driven brand and marketing efficiencies.

FULL YEAR OPERATIONAL REVIEW: GEOGRAPHICAL AREA

(unaudited)

€bn

€bn

%

%

%

%

%

%bpsUnileverAsia/AMET/RUBThe AmericasEurope

12.2 5.6 4.0 2.6

2.9 6.0

- 0.8

0.8 2.8 (1.1) (0.5)

2.1 3.1 1.1 1.3

51.0 22.9 16.0 12.1

2.9 6.2

- 0.7

1.9 4.3 (0.5) 0.7

0.9 1.8 0.5 (0.1)

90 130 (70) 200

Fourth Quarter 2018

Full Year 2018

(unaudited)

Turnover €bnUSG %UVG %UPG %

Turnover €bn

USG %UVG %

UPG %

Emerging marketsDeveloped marketsNorth AmericaLatin America

7.3 4.9 2.2 1.8

4.5 0.4 0.4 (0.4)

1.3

- 0.3 (2.6)

3.2 0.4

29.7 21.3

- 2.3

9.0 7.0

4.6 0.5 0.9 (1.0)

2.8 0.7 0.7 (1.7)

1.7 (0.2) 0.2 0.7

The table below provides information on 2018 performance excluding sales related to spreads.

Full Year 2018

(unaudited)

Turnover €bnUSG %UVG %UPG %

Developed markets excluding spreadsEurope excluding spreads

North America excluding spreads

20.4 11.3 8.8

0.7 0.9 1.0

0.8 1.0 0.7

(0.1) (0.1) 0.3

Asia/AMET/RUB

Underlying sales grew 6.2% with 4.3% from volume. India had another strong year with good momentum across all divisions translating into double digit growth and we also saw continued good growth in Pakistan and Bangladesh. South East Asia grew modestly with performance in Indonesia improving throughout the year helped by a stronger innovation plan and improving market conditions. Our business in China benefited from premium innovations and strong e-commerce growth but this was partly offset by challenges on Blueair due to improved air quality. Sales in Turkey were up double-digit with positive volumes despite a challenging fourth quarter, demonstrating our ability to manage through significant currency volatility.

Underlying operating margin improved by 130bps with a significant improvement in gross margin as well as lower brand and marketing spend.

The Americas

Underlying sales in North America grew 0.9%. Strong performances in deodorants, skin cleansing and home care were offset by continued competitive pressures in dressings and tea. Underlying sales in Latin America declined by -1.0%. Brazil grew modestly with strong growth in the second half as we recovered from the truckers' strike that impacted sales in the second quarter. Mexico was strong, with broad-based growth across categories and good performance on Quala. These results were more than offset by volume decline in Argentina of -10% for the year with no offsetting price growth included in underlying sales growth from July onwards.

Underlying operating margin reduced by 70bps primarily reflecting lower gross margins in Latin America due to currency driven commodity inflation and an adverse impact from applying hyperinflationary accounting.

Europe

Underlying sales grew 0.7%, all from volume. Sales were helped by strong growth in ice cream which benefited from a strong innovation plan as well as good weather. Central and Eastern Europe continued to perform well and the UK sustained its return to growth. In Germany, good ice cream growth was mostly offset by a decline in savoury and dressings. Market conditions in France were extremely challenging and sales declined across all categories except ice cream.

Underlying operating margin improved by 200bps driven by a significant improvement in gross margin and lower overheads.

ADDITIONAL COMMENTARY ON THE FINANCIAL STATEMENTS - FULL YEAR

Finance costs and tax

Net finance costs were €481 million in 2018 compared €877 million in 2017 which included a one-off cost of €382 million for the buyback of the Unilever NV preference shares. Cost of financing net borrowings was €57 million higher than 2017. The increase was primarily driven by an increase in debt which was partially offset by lower interest and no longer having the benefit in finance income from a one-off in Brazil relating to the interest element of an indirect tax amnesty programme. The average interest rate on net debt reduced to 2.2% from 2.7% in 2017. The pensions financing charge was €25 million, down from €96 million in 2017 reflecting a lower pension deficit at the beginning of 2018.

The underlying effective tax rate was 25.7% a small reduction versus 26.0% in the prior year. The effective tax rate was 21.1% due to a benefit from the disposals of our spreads businesses.

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

Net profit from joint ventures and associates contributed €185 million compared with €155 million in 2017, mainly due to the Portugal portion of profit on disposal of spreads and growth in profits from the Pepsi Lipton joint venture. Other income from non-current investments was €22 million versus €18 million in the prior year.

Earnings per share

Underlying earnings per share increased by 5.2% to €2.36, after a negative currency impact of 7.6%. Constant rate underlying earnings per share increased by 12.8% primarily driven by underlying sales growth, improved underlying operating margin and our share buyback programmes. These underlying measures exclude the post-tax impact of business disposals, acquisition and disposal-related costs, restructuring costs, impairments, one-off items within operating profit and any other significant unusual items within net profit but not operating profit.

Diluted earnings per share were up 62.0% at €3.48. In addition to the underlying improvement, this increase was mainly driven by a €4.3 billion gain on disposal for the spreads business.

Free cash flow

Free cash flow of €5.0 billion was impacted by currency devaluation and higher working capital including a €0.4 billion increase relating to the disposal of spreads. This was offset by an increase in the proceeds on disposal in net cash flow from investing activities.

Net debt

Closing net debt was €20.8 billion compared with €20.3 billion as at 31 December 2017 mainly reflecting the cost of acquisitions whilst the proceeds from the spreads disposals were returned to shareholders through a share buyback programme of €6 billion.

Pensions

Pension liability net of assets increased to €0.9 billion at year-end from €0.6 billion as at 31 December 2017. The increase in the net pension liability arose in the fourth quarter driven by the impact of adverse equity markets on pension assets.

Return on invested capital

Return on invested capital of 18.8% is a reduction of 40bps versus the prior year due to increased goodwill and an adverse impact from hyperinflationary accounting in Argentina.

Finance and liquidity

In 2018, we announced the issuance of the following bonds:

• • 5 February 2018: Triple-tranche €2.0 billion bond, comprising of fixed rate notes of €500 million at 0.5% due August 2023, €700 million at 1.125% due February 2027 and €800 million at 1.625% due February 2033

• • 19 March 2018: Quadruple-tranche $2.1 billion bond, comprising of fixed rate notes of $400 million at 2.75% due March 2021, $550 million at 3.125% due March 2023, $350 million at 3.375% due March 2025 and $800 million at 3.5% due March 2028

• • 31 August 2018: Two-tranche €1.3 billion bond, equally split between 0.5% fixed rate notes due January 2025 and 1.375% fixed rate notes due September 2030

• • 4 September 2018: Triple-tranche $1.5 billion bond, comprising of fixed rate notes of $500 million at 3.0% due March 2022, $500 million at 3.25% due March 2024, and $500 million at 3.5% due March 2028. The $500 million 3.5% fixed rate notes due March 2028 have the same terms (other than the price to public and issue date) as the $800 million 3.5% fixed rate notes issued in March 2018

In June 2018 €750 million floating rate notes matured and were repaid. In December 2018, £250 million 2% fixed rate notes matured and were repaid.

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