Unilever PLC (ULVR) Earnings Call Transcript & Summary

Good morning. It is my pleasure to now welcome the Unilever team to the virtual stage. With us this year are Graeme Pitkethly, CFO since 2015 and a regular at the Paris conference; as well as Nitin Paranjpe, COO since 2019, and prior to that, President of the Food & Refreshment and the Home Care division. Needless to say, since incoming CEO, Alan Jope, stood on the podium in Paris a year ago, putting purpose-led organic top line growth at the very heart of his strategy, a lot has happened both internally and externally. I would now like to hand over to our 2 speakers to tell us just how Unilever is navigating the challenges and opportunities the business is currently facing. Over to you, Graeme.

Thank you, Eva. Good morning, good afternoon, good evening, everybody, wherever you might be dialing in from. It's good to be back at the Deutsche Bank conference. I'm Graeme Pitkethly, I'm the CFO of Unilever. And I'm really pleased to be joined on the webcast today by Nitin Paranjpe, who's our Chief Operating Officer. We've named this presentation #comeoutstronger. But that's not to demonstrate our Twitter credentials but it is because this is exactly how we are communicating with the entire Unilever organization. It is in fact, our mantra within the business during this time. Before we get started, let me just quickly draw your attention to the usual disclaimer relating to forward-looking statements and non-GAAP measures. We've got 3 main themes today. The first theme is Unilever pre COVID-19, focusing on our footprint, our recent performance and progress with regards to the 5 growth fundamentals that we set out publicly back in January. The second theme is why we believe that Unilever remains solidly positioned with a resilient portfolio. And the final theme, which Nitin will cover in detail, is a look into the future and how we will continue to strengthen our business and grow our competitiveness while living with COVID-19 and beyond. Now Unilever's global footprint is very broad, having been built up over more than 100 years. We reach 1/3 of the world's population with our products available in 190 countries. We run the business of Unilever through 3 divisions, giving us true breadth and depth in essential products for daily use. We have 60% of our footprint in the emerging markets. And despite COVID-19 impacting these markets in the short term, we remain very confident about the near- and longer-term potential of those markets, and I'll share a little more later on why we think that is. Our brands are large and very well-known. In fact, 14 Unilever brands feature in Kantar's 2020 top 50 most chosen consumer brands report with the next closest FMCG company having just 6 brands in the global top 50. Unilever, in fact, has the top 4 brands gaining presentation in the world. And our brands, Dove and Vim, are 2 of only 4 brands which have grown consumer reach points consistently every single year since the first edition of the Kantar report in 2013. 12 of our brands have sales of over EUR 1 billion per year with the mega brands, Dove and Knorr, well over EUR 4 billion each. And it's through our strong brands that we have helped 1.3 billion people to improve their health and hygiene as part of our Sustainable Living Plan, which is now in its 10th year. Our leadership reflects our wide and diverse reach. 50% of our managers are female and 90% of our leaders are locals from the country in which they lead. And this means that we really know and understand our consumers wherever in the world we operate. We have a true understanding of what it means to be Brazilian, Turkish, Vietnamese or Indonesian, for example. We know what those consumers want, and we know how to best serve their needs with our brands and our products. With this solid foundation in place, we see the pandemic as an opportunity for Unilever to live our purpose, to build new muscles and to come out stronger, just as the hashtag says. In January this year, we shared with you how we are going to accelerate growth through the 5 growth fundamentals. These fundamentals are our blueprint for excellent execution everywhere in Unilever, and we're seeing positive results coming through. Household penetration in our top 62 sales is up by 400 basis points between Q4 and Q1, resulting in improving market shares. Importantly, this is not just COVID-related because we were seeing this improvement even before the crisis fully took hold in March. The specific growth hotspots that we called out in 2019 all continue to improve. U.S. ice cream, hair care and dressings are each showing value share gains resulting from the investments we've made and from sharper execution. And e-commerce is accelerating, admittedly with some help from COVID-related changes in shopper behavior. Let me move on now to how COVID-19 has impacted Unilever and how we are positioned to come out stronger. We explained during our first quarter trading update that the impact of the pandemic has varied quite widely across our categories and channels. The biggest effect has been the channel disruption for 3 of our fundamentally strong and strategically important businesses. Out-of-home ice cream, a business of approximately EUR 3 billion of annual sales, relies heavily on summer leisure and tourism. And while some lockdown restrictions have been lifted, many tourist hotspots remain closed. And of course, there have been unprecedented reductions in international travel. In a normal year, the second and third quarters generate nearly 70% of our out-of-home ice cream sales, and we're not yet seeing a recovery in this channel. All markets are different. But we've typically seen out-of-home ice cream sales decline by 50% or more when tourism and leisure destinations are closed. Our EUR 2.5 billion food service business is also reliant on the out-of-home channel. We are typically seeing sales decline by 65% when a lockdown happens and restaurants, hotels and office buildings have closed. In China, the restaurant trade is now open again, but there is still stock from Chinese New Year and the channel is operating at about 50% capacity. And finally, in our Prestige beauty business, 2/3 of our sales are made in health and beauty stores, many of which remain closed. There has been an uptick in e-commerce sales for Prestige, but this is not sufficient to fully offset the impact of the door closures. Despite these challenges, there are also clear increases in consumption in some categories. This is certainly the case with hygiene and in-home food, both of which have been experiencing strong market growth. We carried out some early consumer research across 20 countries. And around 60% of consumers are reporting increased usage of surface cleaners and about 45% increases for savory as in-home meeting occasions have rocketed. In the U.K. alone, Kantar predicted 364 million more eating occasions per week for adults at home. We are strongly positioned in these categories, holding leading positions in 9 of 12 top markets in home hygiene and 25 of the top 27 markets in savory and dressings. E-commerce also accelerated in the first quarter ahead of the market, even with a drag on growth from food service e-commerce. Our B2B and omni-channel e-commerce businesses both grew by over 50% in Q1, excluding food service. In line with the 5 growth fundamentals, we are continuing to double down to ensure that our innovations and products are right for the e-commerce channel. This is very important because we believe that online shopping is unlikely to go backwards once social restrictions are no longer in place. As we said at Q1 though, the duration and severity of this cycle also varies by country, taking into account the particular country policy response to the crisis. While we all came into the crisis together, we believe that countries will exit at different times and often in very different situations. Let me also just remind you of our strong cash and liquidity position. The companies that come out stronger will be those that are financially stable and have levers to pull within their balance sheet and P&L to manage the short term. We are well set up with strong credit ratings, EUR 11 billion of cash and undrawn facilities, which is 2.8x the amount of debt we have maturing in 2020. We have no material covenants. And in March, we issued EUR 2 billion of bonds. Alongside competitive growth, absolute profit and cash make up our 3 simple but important KPIs and indeed are the cornerstone of how we are performance-managing our business. At times like this, we know that focusing on absolute profit and cash management makes for better and more effective competitive decisions than percentage margins do. To convert absolute profit to cash, we've set up specialist teams to manage receivables with heightened rigor. Whilst we bring in the cash on time, we will also pay our suppliers on time, and in the case of selected smaller suppliers, even early to ensure that they are able to keep trading effectively and remain healthy. We're also reevaluating all of our spend across the business to ensure that it's relevant and appropriate, including our operational costs, our CapEx and restructuring. This has resulted in both redeployment and rephasing of investment and savings so far. To say a word on our cash returns to shareholders. As you all know, Unilever is run on a multi-stakeholder model, considering our people, our consumers, our customers, society and the planet. And of course, when we consider our stakeholders, this includes our shareholders. We know that many of our investors value Unilever for its dividend yield, which is well above 3% at the moment, and our payout ratio of over 60%. [indiscernible] our dividend in Q1, building on the consistency of 40 years of dividend payments and our existing financial strength. On that point, I'd just like to quickly thank the many shareholders who have been in touch with us recently to offer support for our approach through this difficult period. It really is welcomed, and we value your engagement and your support. As the crisis has progressed around the world, we've been able to form a somewhat clearer picture of the trends and our positioning. As you know, we're organized in 3 divisions: Home Care, Beauty & Personal Care and Foods & Refreshment. The impacts from COVID-19 are unequal across the 3 divisions and new groupings have formed, which are particularly relevant for understanding our performance positioning. We have a EUR 7 billion hygiene segment made up of our home cleaning and skin cleansing businesses. Viewed through this lens, we find that we are one of the top hygiene players in the world. This is a key strength in the near term with evidence of increased consumer use. And we're investing strongly behind our hygiene brands, cementing the loyalty that already exists for them. Our in-home Food & Refreshment business, made up of savory, dressings, ice cream and tea, is strong, particularly in the short to medium term. With so many more people at home and likely to be so for some months at least, we think that the growth rates of these markets, especially in the developed world, will accelerate. Our laundry business remains strong during and after this pandemic despite its reliance on emerging markets. In our Personal Care business, categories such as deodorants, care and skincare are likely to see a short-term lockdown impact as people have fewer personal care occasions without getting ready to go to work or to socialize. However, given the basic need of these products as well as our over-index in emerging markets for Personal Care, we are sure they will come back strongly once consumers start to go out again and as economies recover. As I already mentioned, our Prestige business has seen some negative impacts from the crisis as department and health and beauty stores are shut. And out-of-home center businesses are going to remain challenged in the short term despite being strong and strategic long-term businesses to be in, creating value. Together, these businesses are around EUR 6 billion of turnover. Going into some more detail around these segments and the emerging markets. Our out-of-home ice cream business has grown by EUR 1 billion since 2011, an average USG of 4%. And over this same time period, our Food Solutions business has averaged 5% underlying sales growth, 3x the growth rate of total foods and is the leader in restaurants, hotels, institutions and workplaces. In Prestige, we have built a business of EUR 600 million in just 4 years, delivering double-digit growth in 2019 in markets growing at about 8% globally. And we strongly believe that our Prestige business is well positioned and will continue to improve the structural growth potential of our BPC division. This EUR 6 billion portion of our EUR 52 billion business remains a fundamentally strong source of value for the long term, and we are willing to take the short-term pain here in return for that. The in-home food and ice cream business in developed markets is nicely countercyclical. It is about EUR 7 billion of turnover and comprises a varied product set, including soups, meal, meal kits, mayonnaise and packaged ice cream. The lockdown has created a need for consumers to cook more at home. And we believe that even as restrictions are lifted, there will remain a trend for cocooning, where consumers want to stay at home either to stay safe or to save money. Our portfolio is well positioned to serve this trend. In addition to the staple products I just highlighted, our plant-based products, such as Hellmann's Vegan Mayo, The Vegetarian Butcher and our vegan ice cream ranges, remain very on trend and are growing. Let me turn now to the lens of our geographies. Making up 60% of our turnover and slightly more of our profits, the emerging markets will continue to be a source of unique strength for Unilever. Over the last 20 years, average emerging market underlying sales growth has been about 8% with volume of around 4% and price also around 4%. This time period covers several crisis events. Volume growth is real growth. And while some of the price growth in emerging markets is devalued away, certainly not all of it is. Looking to the future, it's certainly not easy to predict long-term growth rates. But we're doing a lot of work to assess the prospects for our largest geographies. And our detailed scenario planning so far suggests the recovery in emerging markets could be faster than that of many developed markets, given the important role of the informal economy, underlying demographics and likely policy responses. We believe that our South Asian and Southeast Asian business portfolios will show a lot of resilience, although Latin America, less so. As the recovery begins, our Beauty & Personal Care business will accelerate fast, given its strong foothold in the emerging markets. Positive demographics will be supportive to growth. In major emerging markets, around 60% of the population is under 30 compared to just 40% in developed markets. Per capita consumption in our categories remains very low, not just compared to developed markets but even between particular emerging markets. That is the very core of the opportunity that our footprint represents. Our 4 largest emerging market businesses are India, Brazil, China and Indonesia. These are the absolute powerhouses of Unilever and together represent over 25% of our turnover. We reach a huge number of households in these countries. In fact, in fabric solutions, we reach 2.6x the number of households than our next largest competitor does. And in shampoo, we reach 1.6x the number of households. We are the largest FMCG company in India, where we reach 9 out of 10 households. Our average growth rate has been 9% over the last decade. And although Indian market growth is recently much slower, we are confident in the competitiveness of our business as we continue to win market share with 80% of our sales gaining penetration. In Brazil, we hold a strong #1 position, over 40% share in our categories, and it is Unilever's third-biggest business worldwide, delivering a little over EUR 3 billion in revenue every year with a 7% CAGR. Over the last few years, we have built a fantastic B2B business in Brazil called Compra, which is enabling us to have direct access to far more consumer data than ever before. Turning to China. We take a lot of pride in being a Chinese company in China. 97% of our managers are Chinese, and we have been the top FMCG employer of choice in China for each of the last 3 years. We built the business organically and through acquisition and is now around EUR 3 billion, having grown at 7% per year on average in the last 10 years while increasing profitability by over 1,000 basis points. And finally, Indonesia has seen 9% average growth and has a huge stable of local and global brands that have a place in every household in the country. We hold strong leadership positions in our top emerging markets. And we have a track record of maintaining these positions over the last decade through economic crises and as the sources of competition have increased. We've set out just a few of these leading positions on this chart. If you take just a couple of these, in fabric solutions in Brazil, we've grown to EUR 1.1 billion of measured retail sales value with a mid-60s value share. And our India skin cleansing business, as another example, has now broken through the EUR 1 billion retail sales mark. As a final EM data point, in 85% of our largest emerging market sales, our brands hold either #1 or #2 market position. And with that, let me hand over now to Nitin to cover more of the nitty-gritty of how we're managing our business and the new normal of the future. Over to you, Nitin.

Thank you. Thank you, Graeme, and good morning, and good afternoon to all of you. Before I move on to the future normal and how Unilever will update to that, I want to touch this very briefly on how we are running the business on the ground at a time like this. The first thing for me to reiterate is that we entered the crisis with a clear evidence, early evidence but a clear evidence, that our strategy is focused on the 5 growth fundamentals and the key cells was beginning to show results. While that needs to continue, the significant changes that COVID has brought about requires a new level of agility. And so we've made several changes, both in the way of our internal working but also in terms of the key business metrics that we are collectively chasing. We form targeted squads to help us focus on new requirements as they arise, including recession-ready portfolios or squads working across categories on hygiene innovation. We've shortened our planning cycles, and we are now forecasting weekly using analytical tools to understand the changing demand signals. We've also dramatically reduced complexity by focusing on producing only A and B SKUs, those with the highest rotations and turnover. And it is this action that has helped us compensate for the significant productivity loss in our factories on account of social distancing and other safety protocols and enabled us to maintain consistent supply through the crisis. The same is true with innovation, where we cut the tail by 20%, allowing us to focus on the new emerging demand spaces. Take hygiene, for example. We had a very small hand sanitizer business. And in a truly remarkable example of speed and teamwork, our sanitizer capacity was stepped up by a factor of 600 over the last few months. Now speed and agility also requires a simple and a clear decision-making framework. In our case, we've been explicit that our general managers in our countries are vested with decision drivers, to make the choices and tradeoffs required to maximize value for Unilever. They are closest to our consumers and are closest to the decisions that have been taken on the ground by the government and are hence best-placed to make those calls. Last but not the least, we have quickly clarified the business metrics that we would collectively drive. We have reaffirmed the importance of competitive growth, a key measure of our #comeoutstronger theme but with a special emphasis on volume. And we've moved from driving operating margin to absolute profit and cash. It is this clarity that is helping us make the right decisions during a very volatile period that we find ourselves in. Now it's clear that we are going to be living with COVID for some time, at least until a vaccine becomes widespread. And that's far from certain when it's going to happen. And it's also far from certain whether we will ever go back to the way things were before. Based on all the work we have done, we believe that the likelihood of a global recession is quite high. In addition, we see significant channel and category shifts on account of consumer attitude and behavior changes. We've been able to see how this is evolving almost on a daily basis through our social listening capability of our people data centers. E-commerces will continue to accelerate. In fact, in the United States, we saw that in 10 weeks, the e-comm retail penetration increased the same as it had in the previous 10 years. That is absolutely staggering, and we see this sort of growth in e-comm in many other markets. Now the impending recession will also mean that consumers will continue to seek out value channels to make smart shopping decisions. But contrary to the trend of the last few years, away-from-home is likely to be in decline for a while as consumers cocoon. A Kantar study from China indicated that 50% of the consumers plan to reduce leisure activities and have concerns about dining out. And therefore, we are not assuming a V-shaped recovery for the restaurant trade or indeed for our Food Solutions business in China or elsewhere. Now while some behaviors that we have seen, such as excess stocking, will go away, there are many new behaviors that will stick. And we've grouped these behaviors into 4 key trends. First, the focus on hygiene, which will continue and will possibly expand as consumers focus on strengthening immunity and protecting their well-being. Our brands, like Lifebuoy, Cif, Domestos and the newly acquired Horlicks brand to name just a few, are likely to be in demand as consumers turn to brands that they trust to insulate themselves against the virus. Scratch cooking and in-home ice cream will also benefit from the cocooning trend that people seek to spend more time at home. This will be partly driven by the ongoing concern about the risk of infection but also on account of the economic uncertainty ahead of us. A recession is bound to see consumers adapt their buying habits, switching channels, brands or pack sizes. And of course, we are likely to find a world of e-everything. Whether it is the ice cream on demand or grocery shopping brought to your door or brands communicating digitally through online experiences, all of this will happen. This is an area where our investment in building our digital marketing capability over the last few years will really pay off. Now as I mentioned earlier, the 5 growth fundamentals were beginning to show results. We believe that these remain highly relevant. The fundamentals of marketing don't and shouldn't change during the crisis of a recession. In fact, the latest data that I saw on Friday provide further evidence that taken together, the focus on the 5 growth fundamentals is delivering results. Our volume shares continue to move in the right direction. And the percentage business winning is improving. But we've also had to make some tweaks. We know from previous work that brands which grow volume during recession tend to grow value share 1.4x faster than those which didn't over the subsequent 5 years. Hence, protecting volumes during recession is an important determinant of long-term competitive growth. And that's why we are putting volume growth and shares under a sharper focus going forward, along with value share. Now recessions also see consumers change their buying behavior. And hence, getting our value propositions right across price tiers becomes absolutely critical. And finally, the crisis provides all of us an opportunity to cut the tail of innovations and redeploy our resources to address the new demand spaces, the new pain points. Let me say a few words on penetration, purpose and innovation in particular. First, penetration. Now the importance of driving penetration can be hardly overstated. And while there are many factors which influence penetration, in a likely recession, the role of price, value and affordability is absolutely paramount. We are seeing rapid rise in unemployment across markets. And even for those with jobs, we know that some consumers will choose to save more. So while there will always be some who will be willing to treat themselves even in tough times, most people will look to shop smart, looking at price but also looking at value and affordability. When it comes to price, we must be present with brands across price -- the price piano. Take for example in Indonesia, where in the hair category, we have Love Beauty and Planet and TRESemmé in the premium tier. We have CLEAR in the mass tier and Lifebuoy in the value or more value offerings. In Brazil, we have Omo, which plays in the master premium segment, while Brilhante plays in the value tier. Now affordability consideration also means that consumers may look to change pack sizes. And therefore, even premium brands, such as Surf Excel in India, have benefited in the past by making themselves accessible through formats like small packs, which are shown here, so that consumers who normally buy a bottle can trade down without having to compromise on quality. Equally, we know that over half the small, low-unit pack sizes are bought by low-income consumers who are desirous of experiencing high-quality, premium offerings occasionally. Now when I look at our portfolio to date, we have about 20% of our portfolio in what I would call the value segment. We have 45% of our portfolio in the mid-tier segment and about 35% in our premium segment. Given that many branded players don't play in the value segment at all, this is a reasonably good start. But we know that we can do better on having value and more value and affordable brands and packs available more broadly. Therefore, we've set up a squad, a squad to identify and plug gaps market-by-market on low-unit price packs and lower-tier brands as needed. Let me move to innovation, that our focus must be on fewer, more targeted innovations, which are developed and launched faster. I'm confident that we can do this well because we have numerous examples over the last few months alone. Now cutting the tail of our innovation projects to allow us to focus on the ones that really matter has been something that was identified and was a key thrust area even before COVID. The crisis only increases the imperative. We've already cut 20% of the tail, enabling us to redirect our resources on the ones that really matter. But in addition, we have subjected all our innovation plans to what I call the COVID lens. That means assessing the relevance of these propositions and pivoting some of them to address the growing demand spaces, understanding the current needs, the current pain points that consumers are experiencing. Therefore, more of our innovations are evolving towards hygiene, focused on in-home meeting, delivering better value to address the recessionary condition and are designed for the relevant channel, be it the discounted channel or the e-commerce channel, which will be in significant growth. And all of this needs to be done fast and in an impactful scale. Within hygiene, we have gone from 2 sites to over 60 sites that produce hand sanitizers in just 5 months and therefore unlocked capacity 600x. Amongst others, this has meant that we could produce a hand sanitizer under a Proline brand in Unilever Turkey in time for the recent Eid festival or launch Lifebuoy sanitizer in Vietnam in just 25 days or indeed donate thousands of liters of sanitizers to hospitals and institutions across the world. In the U.S., we've had Suave, our hair and body care brand -- our value hair care and body care brand, extend into hand sanitizers, launching with a new spray format. That's what we've managed to do. And this gives me great confidence that we will be able to step up our innovation and focus it where it matters. Now a word on brand purpose. That brands with purpose will grow is core to our belief system. The current crisis provides us yet another opportunity and yet another opportunity for authentic, purpose-led brands to make a real difference. Our big purpose-led brands must reassure consumers not only of their functional benefits, but importantly, by addressing issues that consumers care about. And I repeat, we must do so authentically. That is absolutely key. Brands like Lifebuoy, brands like Domestos, have been communicating around hygiene and have also been providing relevant information around COVID and how people can protect themselves. But there are other examples as well, examples where our brands have modified and tweaked some of their communication to make it a little more relevant for today's situation, such as the ongoing heightened focus on hygiene. Take Dove Men+Care. That's one such example, championing handwashing while also providing home parenting tips and resources. With that, let me come to an end by reiterating why I believe we will come out stronger. Now in the near term and for the future normal, we believe that our broad-based portfolio is extremely well positioned. We have our strong Food Solutions business, our out-of-home ice cream business and our Prestige beauty businesses. These might be challenged in the short term, but they're fundamentally solid and strong businesses and will continue to play a key role in Unilever's growth in the medium and longer term. We will give you an extra color on the performance of these businesses in our next set of results so that you can better understand the impacts that are taking place. Now we hold strong leading position in the emerging markets, and we are absolutely focused on maintaining or improving competitiveness there as we move through and out of this crisis. Our focus on the 5 growth fundamentals has already been showing positive results, and we will continue to focus on them and do that response -- with responsiveness and agility. We've sharpened our performance management framework to focus on driving competitive, volume-led growth, absolute profit and cash, we believe, the right metrics for the times that we find ourselves in. And lastly, we have pushed decision-making even closer to the markets. We have empowered our general managers to act swiftly to make the tradeoffs that are needed to address the opportunity and maximize value for Unilever. That's what we are doing to live out our vision at Unilever, our vision which remains unchanged, our aspiration to be the global leader in sustainable business, serving all of our stakeholders and delivering financial results in the top 1/3 of our industry. And so we will not just live with COVID but also exit the crisis whenever that might be, building trust and earning loyalty of our consumers and to come out stronger. And with that, let me open it up for some questions.

Can I maybe kick off by asking two questions? We obviously live in unprecedented times, and you have showed that the organization has proved to be very agile, putting the lens on COVID. When we are out of the crisis, do you think the organization has it in it to keep that agility and focus going? Because you yourself said at the start of this year, that needed introspection, that was something that was probably not quite there in the past. And then secondly, to Graeme's comment about the organization focusing on profit rather than profitability, can you maybe talk a little bit about the building blocks and how your brand equity investments fit into that?

Thanks, Eva. Let me try and tackle both of those and then hand to Nitin if he wants to build on any of them. It's a really good question, that first one, about what is it that you want to keep and what do you get this sort of sustained value from the action, the focus, the agility, the speed, the simplification that we're achieving through operating through the crisis. Because there's no doubt that one of the challenges that ourselves and any company of our size and space is how do you focus on the big things that really matter? How do you make sure that you keep yourselves simple? How do you make sure that decisions are taken in the right place and that lines of communication are as flat and as short as we possibly can be? And what we're learning is that although we have moved to flatten our organization with Connected 4 Growth and the move to empower the front line of our organization already, what we've learned through the crisis is that there's more that you can do. We're extremely flat in our communication, extremely fast in decision-making at the moment. And that's certainly something that we would want -- we can do. We're asking ourselves, and we've got a team set up on this actually, what is it that we're experiencing today that we must ensure is retained within the organization going forward? A couple of final reflections. Just -- and Nitin mentioned it in the presentation. But what's really clear is that the 5 growth fundamentals are absolutely the right thing. They were very much working for the business before the pandemic. And they are working even more for the business through the pandemic. So we're really super clear that the 5 growth fundamentals are the right things for us. And a little bit around the 5 lenses through which we're managing the company right now: people, supply-demand, community and cost and cash. They are very, very useful lenses to manage the business with. But Nitin, maybe I'll just hand to you to talk a little bit about what you're seeing through the markets organization that you manage.

Yes. I -- frankly, I think, Graeme, you touched upon the key messages. And the big lesson for all of us in this crisis has been the power of simplicity, clarity and the ability to empower the front line and how that stimulates an incredible amount of energy and drive speed and agility in the organization, allowing our people to take decisions based on the values of this organization. And more often than not, those would be right and fast. The question which you posed is absolutely correct. There is a real risk that as we get back into the ways we were working before, if ever there is the time like that, we could revert to old habits. And that's why we, as the top leadership team but also in our conversations with the markets organization, are trying to codify what is it that we have found which has unexpectedly been a positive working from home in this manner, and there are a few things, and how do we make sure we retain those as we move back. I don't know whether we will succeed. But you can be absolutely certain that we are determined to hold on to the many positives that we are seeing at this moment as we get back. Because it shows us that each one of us lives with some self-limiting beliefs, and it requires a bold crisis to force us to behave differently. And when you do so, you discover many positive benefits.

Eva, on the second part of your question on profitability and the drivers of that, there's loads that I could talk about. I mean in the interest of time, I won't go through all of it. But obviously, there are certain on-costs within the -- within just production at the moment, there's a little bit of operating deleverage as volumes drop. But as Nitin explained, by focusing on the A and B SKUs, we've sort of quietened the demand signal within our operating environment. There's on-cost, of course, from having to make sure that our factories, production facilities, route to market are all conducted safely with social distancing. There's on-cost from operating with PPE and making sure that everything is safe and secure there. In terms of commodities, commodities are -- you can expect that the commodity outlook might be a little bit a little bit more subdued over the coming years. But we still think sort of mid-single digits is our outlook for the year because for us, it's a combination of underlying commodity prices and foreign exchange movements, of course. And then what we are finding is there's just tremendous resilience within our P&L structure. But it is right to go after all costs and all activity, as we said, and we're taking those actions across all lines of the P&L. We're going after overheads to make sure that we are able to invest strongly behind our brands. That's our critical focus at the moment, doing everything that we can in terms of discretionary costs. Obviously, some costs, like travel and et cetera, are much more variable. But we're also going after some of our other costs within overheads to make sure that we can invest, eyeing that competitive growth imperative that Nitin mentioned. And with regard to sustainability investment, no change there. We're keeping an eye on it. And we're coming to the end of the Sustainable Living Plan. But watch this space because we're going to be explaining what comes next over the course of the coming months. But no change there.

Great. There are two questions online that I would like to take, if you don't mind. The first one is a question on the Indian business. Could you elaborate a little bit how that is doing and how the business has been selling after the lockdown ended? And the other one is not unrelated. So it's in that it tries to drill a little bit into the underlying performance of the emerging markets businesses, given that some of them have been struggling even before COVID. You've been talking about the quick recovery. Will it be enough to offset probably likely weakness in developed markets?

Thanks, Eva. I'll comment quickly in generality on India, then I'll hand it to Nitin because he knows that business so well, having run it for 7 years and he's been based there through the crisis. But just generally, the economy has been hit quite badly in the short term, and they had a very strong lockdown. I think it's about the 10th most impacted country in the world in terms of confirmed cases. The GDP, we estimate, is down about 15% in the second quarter and unemployment has spiked, it's up close to 120 million and continuing to rise. Against that, we think that we've got, overall, a very competitive business. First of all, our competitiveness, as I said, in the presentation, we have almost 80% of the business winning share and 80% of the business gaining penetration, which is really the most important measure. And that comes through from a portfolio and a channel architecture in India, which is fundamentally quite well positioned and very resilient. We've got about 70% of the business in what you could call COVID-essential categories. We've got, what we think, is a very attractive acquisition in the wellness and nutrition space with Horlicks. So I think we feel positive and good about the business in India. Nitin, do you want to talk about -- on the ground?

Yes. I think first is I think it's quite interesting in terms of the question saying how has it been faring after the lockdown has ended? In some ways, the lockdown is only being partially lifted. And there are many pockets of India which still have varying degrees of lockdown. But it is true that the extreme lockdown that existed for many, many weeks, that no longer exists. I think this business did exceptionally well during the period of the lockdown, where in terms of first managing people, which is our top priority, but also then making sure that our supply was -- we were able to continue supply. We had to deal with many challenges of many of our distributors, labor having gone back to the villages as it became a challenge continuing to live in urban centers, et cetera. But the speed at which this business is coming back with production getting back to near normalcy, our distributors that are back into action. We had digitized a large part of our business and the investments that we have made in the front end in terms of improving efficiency and effectiveness are all bearing fruit. You heard Graeme talk about the strength at which we entered the crisis in the Indian business. I think this business believes that as it goes through it, it will come out only stronger competitively with respect to our share positions, with respect to penetration and therefore will be better placed as this economy rebounds as it will over a period of time. But the impact on the Indian economy has been very, very significant. And while things will come back and given the demographic profile, we should see a quicker recovery and we are confident of doing well in that. It's not going to be in the immediate quarter or so. It will take some time.

On the EM question, Eva, on the sort of EM/DM dynamic, I mean, we spent quite a lot of time on that in the presentation. But just to reiterate, 60% of our turnover, we've got 16 emerging markets that are each more than EUR 0.5 billion of turnover and 22 that are over EUR 100 million of turnover. All of the medium- and long-term macro trends that we see in all of the scenario modeling we've done give us confidence that EMs remain a growth tailwind for the company. And we're highly competitive in those emerging markets. As I said before, we don't manage them as an aggregate. They are all individual countries with different characteristics. And those different characteristics are likely to become more different as we go through and live with the crisis and then emerge from the crisis. And I think our organizational design, the historical strength of those businesses, their local talent, the leadership they have in those businesses are the things that give us the confidence around our continued strength there, which you see in the 10-year data, 8% growth, 4% from volume and 4% from price that we don't give away all of in terms of foreign exchange devaluation. And then what is true though is that the EMs will be hit stronger in the short term, I think, through the crisis. And that's where you see the natural resilience of our portfolio. Because over the next -- in the short term, for sure, it is our -- it's the parts of our business that have been a little bit slower growth and certainly we would've not been as competitive. For example, our Foods & Refreshment business in developed markets, that is going to be the strongest part of our business in the immediate short term, and you're seeing that sort of natural resilience in the portfolio there. Looking beyond the next couple of years, you'll start to see that emerging market performance come through again very strongly, particularly in categories like Beauty & Personal Care.

Great. I can see the clock ticking heavily into overtime territory. So thank you, both of you, for this very interesting presentation, and looking forward to hearing an update in a few weeks' time.

Thanks, Eva.

Thank you.

Bye-bye.