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Unilever PLC (UL 0.35%)
Q3 2021 Earnings Call
Oct 29, 2021, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Richard Williams -- Investor Relations

Good morning, and welcome to Unilever's Q3 Trading Update.

We're very pleased today to be back in the office for our quarterly results for the first time since early 2020. We expect today to have prepared remarks of around 30 minutes and then we'll have Q&A also of around 30 minutes. All of today's webcast is available live, transcribed on the screen as part of our accessibility program.

So first, can I draw your attention to the disclaimer to forward-looking statements and non-GAAP measures.

And with that, let me hand over to Alan.

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Alan Jope -- Chief Executive Officer

Thanks, Richard, and good morning, everyone. Welcome to our Q3 trading update.

I'm going to kick off with the Company's overall performance and share some short updates on our strategic choices, and then Graeme is going to cover the performance of our divisions and regions.

Well, our year is on track with good year-to-date underlying sales growth of 4.4%. As a result of the cost inflation that we've seen build through the year, we've significantly stepped up pricing in the third quarter, and we now have good pricing momentum. Our focus on operational discipline has been an important contributor to maintaining competitiveness and our strategic choices, which I'll talk through in a bit, are continuing to make a positive impact on our growth and business momentum. Our outlook for the full year remains unchanged. We expect full year USG to be well within our 3.5% -- 3% to 5% multi-year framework, and our full year operating margin to be around flat.

Underlying sales growth in the third quarter was 2.5%, bringing us to 4.4% USG on a year-to-date basis. Pricing stepped up significantly as we took action across almost all markets in response to the high levels of inflation that we're seeing. And this is important given that inflation will continue to be a key theme for the remainder of this and for next year. Pricing in the quarter was 4.1% and that's up from 1.6% in Q2, and we expect high pricing levels for the remainder of the year and into 2022. Volume was down 1.5%, with difficult trading and market conditions in Southeast Asia contributing nearly 1% of negative volume growth in the quarter. We also lapped last year's very strong high-single digit volume growth in North America. There is more pricing still to come, but our pricing actions are thoughtfully planned and carefully executed. We expect a net benefit to topline from the pricing actions that we're taking.

I'm pleased that on a moving annual total basis, our key competitiveness measure of business winning share remains at the healthy 54%. Now, I'm very aware that there has been a lot of comments and questions on this metric. We certainly welcome the opportunity to clarify. So, let me just say a couple of words about it.

The competitiveness in our business had been slipping for several years prior to 2020, and it has been vital that as we drive operational excellence across the business, we measure how much of our business is winning market share. Now there is no perfect single measure of competitiveness, but many companies use this metric or some variant of it. And we see it as the best overall measure of competitiveness, because the best answers the simple question of whether our growth performance is competitive or not. And because it helps drive broad-based growth across the business. All sales that are winning share contribute to the measure, obviously with large sales contributing more than small sales and this drives all of our teams to be competitive regardless of the market conditions they face. We aim to keep this metric consistently above 50% on a 12-month moving annual total basis. And if you would like to understand more about the metric, please go to our Investor Relations website, there is further explanation and more detail.

So, next, let me talk briefly about the operating environment. Although life for many of us is starting to normalize, we are operating in a global environment that is far from business as usual. And this is particularly true for Unilever because of our uniquely wide geographic reach. We continue to see inflation, with the cost of many commodities up sharply versus a year ago. This runs across agricultural commodities, petrochemical-derived materials, paper and boards, transport and logistics, energy and is even showing up in labor rates.

Many parts of the world continue to be impacted by COVID. In Southeast Asia, we've seen very strict lockdowns imposed in Indonesia, Vietnam and Thailand. COVID cases in Southeast Asia spiked during the quarter, but it's encouraging to see vaccination rates now picking up and total global cases finally beginning to come down. Supply chain disruption seems to be in the news daily, and we expect to be managing this for the balance of this year into at least the first half of next year. Staffing shortages are having an impact on logistic costs; for example, in markets like the US and the UK. But Unilever manages this type of volatility well, and our supply chain has again shown the necessary resilience to keep our on-shelf availability, the ultimate measure, at strong levels. Across our top 10 markets, our most popular SKUs have an on-shelf availability of over 96% and we've actually improved this measure by 70 basis points versus the same period in 2020. So all in all, a global operating environment that remains very volatile, but one where Unilever's resilience and agility is serving as well.

Let us get back to performance. I'd like to take a look at the quarter through the lens of the five key strategic choices that we set out at the beginning of this year. These have guided our investment priorities and, although there is still a lot more to do, we are building positive momentum in our performance.

So, let's start with portfolio, where we want to develop more of our footprint into higher growth spaces. We're building sizable businesses now in Prestige Beauty and Functional Nutrition, and these are adding to our growth. Both these businesses now have good scale; Prestige will have annualized turnover of around EUR1 billion and Functional Nutrition around $1.5 billion, within which the Vitamins, Minerals and Supplements business is well on track to turnover of over $1 billion and the balances $0.5 billion of Horlicks. Prestige grew 24% in the quarter and Functional Nutrition grew 20%. Together Prestige and Functional Nutrition contributed 60 basis points to topline in Q3 and 50 basis points on a year-to-date basis. And it's worth noting that for VMS, this still only reflects the OLLY brand, with most of the other acquired VMS businesses not yet counting toward USG because we've owned them for less than 12 months.

We're also looking to set selectively rollout out these brands internationally, especially to fast growing Asian markets such as China. We were the first company across the entire Prestige Beauty industry to receive a Chinese cosmetic license for an imported product without conducting animal testing. It happens if that was for Kate Somerville's EradiKate and we have subsequently obtained further licensees and have more Prestige product notifications in progress. We're ramping up sales of OLLY and SmartyPants in China where we see a bright future for our VMS business.

R&D and innovation is, of course, the lifeblood of our brands. We're making good progress on the way we innovate and how we bring those innovations to market at scale. We're more focused seeing fewer but bigger projects with a 30% cut in the number of projects while doubling the average project size by 2022. We've also doubled our product testing coverage, measured against competition. Over 60% of turnover now wins in blind testing, which is a significant improvement versus 47% in 2019. And when we include products that test at parity to the best competition, we are unbeaten in 94% of tests. This, combined with a much fuller and more focused innovation funnel, has seen a step-up in the performance of our innovations launched.

Some examples would be Dove Skin Cleansing with superior moisturization as well as 100% recycled packaging; the new Dirt is Good laundry technology with best-ever cleaning performance based on plant-based polymers, all in recycled packaging again; and in food, Knorr's Green Deal, affordable, healthy, fortified meal innovation. And we do see this reflected in the growth of our big brands with our three biggest brands Dove, Knorr and Dirt is Good, all growing strongly year-to-date. The way we innovate is changing, particularly in the use of our data and analytics and how we collaborate to innovate. We're increasingly collaborating with external partners. And since 2020, we have entered into over 500 IP generating partnerships in areas like plant-based proteins and the use of biotechnology for better cleaning.

Our highest priority markets are the US, India and China. Together these countries represent 35% of our turnover and their forecast account for 60% of global growth by 2030. It is in these markets that we focus our investment in innovation, in channel development, in talent, and they have a priority call on our capital allocation. Most of our acquisitions have been in these priority markets, with VMS and Prestige Beauty concentrated in the US and Horlicks in India for example. So that combines our strategic choices of evolving our portfolio into higher growth spaces, with strengthening and expanding our business in these key markets.

We've seen continued strong performance in all 3 markets in 2021 and in the third quarter. The US continues to grow on the back of very strong high-single digit comparators last year, resulting in a two-year CAGAR of around 5%. Our competitiveness in North America has now crossed the important benchmark of 50% winning share on an MAT basis. India has been growing double-digit despite the second COVID lockdown in Q2. Reported growth in India has also been helped by lapping a weak comparator from the prior year. We are emerging stronger from the pandemic with over 75% of the business there winning market share, and household penetration continuing to grow well. Mobility and consumer sentiment still remain below 2019 levels, but we are strongly positioned to grow as the Indian economy continues to recover. And our Chinese business has emerged stronger and more competitiveness -- competitive from the pandemic. Penetration on our core brands is up. We're shifting our portfolio continuously toward tailwind channels like e-commerce and we're reaching more consumers and smaller regional cities. The business is growing double-digit this year and high-single digit on a two-year CAGAR basis, and our competitiveness is up both offline and online.

So staying with that theme of e-commerce, our aggregate e-commerce business grew by 38% in the quarter, well ahead of the market, leaving year-to-date growth at 46% with strong performance across all the sub channels of e-commerce; business to consumer grew 23% in the quarter and the total e-commerce business now represents fully 12% of the Unilever Group turnover.

We continue to build our purpose-led and future-fit organization and growth culture. The step up in pricing that we delivered in the third quarter is testament to the agility and the customer centricity of our people and the performance culture that Nitin's COO role brings to our frontline teams. There is also a strong mindset to drive productivity and savings across the business, and we are on track to deliver another year of EUR2 billion of savings.

Learning and improving key capabilities across the organization remains an area of intense focus, especially digital skills and the use of technology. In April, we launched our e-commerce accelerator learning pathway, and since then, more than 15,000 certifications have been achieved globally. And I'm very happy that our already-strong employee engagement has improved further over the last few years to over 80% of our employees feeling strongly engaged with the business. This is well into the top quartile of benchmark companies and it's worth noting that engagement has strengthened considerably through COVID and the challenges of remote working.

And with that, now let me hand over to Graeme. Graeme?

Graeme Pitkethly -- Chief Financial Officer

Thanks, Alan. Good morning, everybody.

Year-to-date growth is at 4.4%, thanks to a combination of strong operational grip and our strategy driving faster competitive growth. In the third quarter, we grew 2.5% against a strong comparator of 4.4% in the prior year. Our organizational agility and discipline enabled us to deliver a significant step up in pricing in the quarter to 4.1%, and we are on track to deliver EUR2 billion of savings for another year, as Alan said.

Volumes in the quarter were down 1.5% and were particularly impacted by a difficult environment in Southeast Asia where volume declined high single-digit with very limited pricing. This had a negative impact of 1% on Group volume in this quarter.

Our markets remained very varied, with some pretty much back to normal and some in strict lockdowns, which impacts channel dynamics, cost, consumer behavior and of course, our sales mix.

Turnover for the quarter was EUR13.5 billion, which is up EUR0.6 billion versus last year, reflecting organic growth and a positive impact of 1.6% from acquisitions, mainly from Vitamins, Minerals and Supplements, as well as our new Prestige Skin Care brand Paula's Choice. Underlying sales growth was 2.5% and we saw a relatively limited impact on turnover from currencies this quarter. Based on spot rates, we still expect a negative currency translation impact of 2% to 3% on turnover for the full year, and around 1% more on EPS.

Now, we still think it makes sense this quarter to show you this chart for your reference, because it illustrates the very different dynamics we've been seeing both last year and this year as we begin to emerge from the pandemic. While consumption patterns are starting to normalize toward pre-COVID levels in many categories, there are still strong variations across different parts of the Unilever portfolio. For example, while hygiene and in-home food have seen declines in the last two quarters against very strong competitors, they remain firmly above 2019 levels. Personal care and out of home are now recovering, but they remain below their 2019 levels as restrictions remain in parts of the world and people are doing more at home and less in the office or in social venues.

Turning now to our divisions:

Beauty & Personal Care grew 2.6% with positive price of 3.9% and negative volume of 1.3%. Deodorants, skin care and hair care, all grew as we stepped up pricing and as usage occasions picked up in many countries. In the US, our first refillable deodorant is live in big customers such as Walmart and Target. We also launched a fully biodegradable shampoo formula under the Love Beauty and Planet range. This means that all of our ingredients break down into their basic component shortly after use are already in a form that's ready to return to nature, making them less of a burden on the water system, which is of course something that consumers are increasingly conscious of. Think of a formula that disappears, yet still delivers healthy and beautiful hair that stands out. Skin cleansing was down 5% as we are still lapping strong growth in the prior year when demand for hand hygiene spiked significantly. Since then, demand for products such as hand-sanitizer has slowed down considerably, but remains elevated compared to pre-pandemic levels. As already mentioned, Prestige Beauty had another strong quarter with growth of 24%.

Foods & Refreshment grew 3% in the quarter, with positive price of 3.8% and negative volume of 0.8%. Out of home, which is around 25% of our F&R division, grew 17% as more countries reopened. Out of home ice cream, representing 40% of our ice cream business globally, recovered with good price growth, but was somewhat impacted by the poor summer weather across much of Europe in August. We continue to digitize our out of home channel, for example, through our Ice Cream Now business, which is on track for EUR300 million of turnover just four years after we launched it.

Growth in food solutions continues to be driven by our large business in China, which is now well above 2019 turnover levels, with the rest of the world still below pre-COVID levels. We saw further sequential improvement in many other markets, like the US and the UK, as restaurants opened again. Investments made in a comprehensive digital selling program across all of our away from home businesses have been a key enabler of faster growth. This program is now been rolled out to 14 markets with really good results. For example, in China, digital selling is enabled our food solutions business to grow the number of active outlets from 80,000 pre-COVID to over 180,000 today. Or another example is in Brazil, where our ice cream business has been able to maintain the absolute number of outlets covered, but with a 70% smaller sales force. In-home food declined 1% versus a double-digit comparator in the prior year, but overall demand remains strong and ahead of pre-COVID levels.

Hellmann's continues to grow strongly with communication focused on reducing food waste. In the US, we partnered with 70 influencers across Instagram and TikTok to encourage consumers to open their fridges and utilize left over food in creative ways using Hellmann's meal. This campaign generated more than 330 million impressions across social, print and digital media. And we also continued to invest in sustainable packaging, with 100% recycled packaging now launched in two-thirds of our Hellmann's markets. In fact, more than 80% of all Hellmann's plastic packaging globally now comes from post-consumer recycled materials. And in China, we've launched an iconic Viennetta ice cream in a mini stick format, which taps into both new consumer channels and occasions while delivering that same indulgent Viennetta experience.

Turning to Home Care. Home Care grew 1.4%, with pricing stepping up to 4.8% and negative volume of 3.2%. Growth in Laundry was price-driven, as we took the lead on pricing in key markets such as Latin America and we are pleased with how volumes have held up in many markets. In Latin America, we launched the winning OMO formulation that kills 99.9% of viruses, while being better for the environment, thanks to its technology with concentrated active ingredients. Leveraging government incentives for sanitizing products, we've actually been able to offer this to consumers at a lower price than our regular OMO pack. And this innovation has been highly incremental with 44% of volumes coming from consumers who are new to the OMO brand. This is a great example of agile and sustainable innovation driving growth in one of our largest businesses.

Home Care volumes reflected decline in Home & Hygiene where we're still lapping a very high search demand from the prior year and the volume decline in Southeast Asia from the difficult trading and market conditions that Alan referred to earlier.

Let me turn now to our geographies conditions in Southeast Asia, obviously, also affected reported results in the Asia/AMET/RUB region where we grew 2.3% with strong pricing of over 4% but negative volume of 1.9%, mostly because of the conditions in Southeast Asia where pricing was in fact very limited. China, one of our key markets, continued its strong growth trajectory across all divisions. Now you may have heard Rohit Jawa, who heads up North Asia, talk about the initiatives taken there to come out stronger from the pandemic in our recent China deep dive where he also spoke about how the focus on their growth priorities is making the business more competitive, more agile and importantly, more digital. If you didn't catch the deep dive in China, you can certainly find a playback on our website. India, the second of our three key markets, recovered well from the second wave of COVID, although mobility still remain somewhat below pre-pandemic levels. Our Indian business grew double digit ahead of the market with strong pricing and volumes.

As I've mentioned, markets in Southeast Asia remained difficult and all our big countries in the region declined in the quarter. This was driven by negative volume due to pandemic-related restrictions across those countries. Vietnam, for example, was in a severe lockdown for much of the quarter with curfews and a great many stores shut. This severely impacted the operations of our business and our ability to meet consumer demand. However, we did leverage the easing of restrictions in Vietnam in the final days of the quarter to replenish stock levels in the trade. Thailand continues to be impacted by the lack of tourism, which is an important part of the local economy. Indonesia saw record numbers of COVID cases during the quarter and strict lockdowns in many parts of the country. We must also report, however, that our overall competitiveness in Indonesia is not where we want it to be and we're working very hard to turn this around in the quarters ahead.

Latin America grew 8.7%, all from price in response to cost inflation and currency devaluation, and we led on price across many brands. Pricing at these levels will have some impact on volumes, but overall, we expect to see a net benefit from leading on price and we will continue to do so, building on the experience that we've built in this volatile region over many decades. Pricing was particularly strong in Brazil. And Mexico grew really well with both volume and price growth.

Alan has already touched on our US performance. We delivered another quarter of growth in North America with 2% USG versus a high comparator of 9% in the prior year. And this means that our two-year CAGAR remains strong at around 5%. Our Prestige and VMS businesses continued to deliver high growth and demand for in-home foods remains strong while out of home foods continues to recover.

Europe was flat in the quarter with underlying sales growth of 0.3%, with positive price of 2.1% and negative volume of 1.9%. The UK declined as we lapped a strong comparator from the prior year. While Italy and Spain saw good growth through, although consumption there remains below pre-pandemic levels. In France, the retail environment has remained deflationary despite rising input costs.

Now, inflation is at very high levels, and we are leveraging our savings programs, our buying efficiencies and our productivity programs harder than ever. Hedging provide some shorter-term benefit, but we use this only as a way to gain a time buffer to landing savings, working the product mix and taking pricing, as these are really the key levers in managing inflation at these levels. We stepped up pricing significantly in the third quarter as you've seen. There is always a time lag between seeing inflation and landing pricing, especially at these very high levels, and when you see continued sequential increases in input costs and distribution costs.

We will take pricing where we think is the right thing to do, but we will not rush pricing or compromise the long-term health of the business. We have strong brand equities, winning products and deeply experienced pricing and capability across the business, especially in our emerging markets. This is delivering good pricing momentum, which we expect to continue in the quarters ahead. Consumer facing price is the last lever we normally use to manage inflation. But we have landed those price increases around the world; for example, in seven product categories in the US, and we've also taken eight price rises in Brazil so far this year. And this demonstrates that we can quickly and successfully land price where it is the right thing to do. In our emerging markets businesses, we find that taking several small price increases is more effective than one large price jump.

We also continue to leverage all other pricing levers; for example, mix, promotions, pack architecture and trade terms. There is, of course, some volume elasticity expected when you take steep price increases, but those elasticities differ by country and by category and are generally more impacted by relative pricing, by which I mean pricing relative to the market rather than by absolute pricing. In the US, for example, elasticity has been slightly lower than we expected and our analysis shows that consumers are now less price sensitive than they were just back in 2019. In Brazil, where pricing was double-digit, we have to date seen relatively muted volume decline. And in India, where we also took pricing, volumes of so far been holding up. Generally, we would expect to see higher elasticities in our more discretionary and expandable categories such as ice cream and snacking and lower elasticities in everyday necessity categories such as laundry, hygiene or scratch cooking.

We carefully monitor the strength of our brands, which continues to be very healthy, and competition intensity across all categories, and these are the key factors we take into account when making pricing decisions.

So, managing the triangle of inflation, pricing and elasticity remains our absolute focus for managing a healthy P&L shape through this period of cost inflation. And year-to-date, this has enabled us to contain gross margin decline to just over 100 basis points despite the very high and broad-based inflation.

Through the COVID period, we highlighted the negative impact from additional COVID-related costs and negative product mix. We're now seeing some of the negative COVID mix reverse as Personal Care usage occasions increase and Skin Cleansing is lapping strong demand in the previous year. COVID costs are reducing slowly, but a lot of our factories are still operating under heightened hygiene protocols and staff shortages even in countries where social restrictions have been eased. In the full year, we expect to see a small benefit coming back from COVID-related costs and mix.

We continually seek opportunities to make our marketing investments ever more efficient and to reach more consumers in a more effective way. We continue to invest to support the long-term health of our brands, our innovation and our products, and this is evidenced by our increased competitiveness, increased product test wins and our healthy brand power measures. Over 80% of our turnover has stable or growing brand power and our share of advertising spend relative to our share of market has been maintained well above the 100 index.

While 2020 saw significant variations between half one and half two in our BMI spend phasing, we think the absolute amount of investment for the full year was at about the right level and we're looking to maintain it at broadly similar levels this year. All of that gives us confidence that we will deliver full year margin in line with the outlook that we gave at our half-year results of around flat. It is clear that the extremely high inflation will continue into 2022 and we expect the peak inflation pressure to be in the first half.

As a business, we are fully focused on delivering 2021 and we continue to take responsible pricing action in the marketplace, while driving our productivity and savings programs harder. There are many moving parts and volatility remains high, but we will not compromise the long-term health of our brands or business. We will update you as normal on 2022 outlook with our Q4 results.

Looking to closing the year then, as Alan has said, our outlook for the full year remains unchanged. We expect full year USG to be well within our 3% to 5% multi-year framework and full year underlying operating margin to be around flat.

And with that, let me hand you back to Richard for Q&A.

Questions and Answers:

Richard Williams -- Investor Relations

Thank you, Graeme. [Operator Instructions] Our first question we have is from Pinar Ergun from Morgan Stanley. Are you there Pinar? Do you want to go ahead?

Pinar Ergun -- Morgan Stanley -- Analyst

Good morning. Thank you for taking my question.

The first one is, I would like to ask you, how should we think about the different moving parts for margins over the next 12 to 18 months? Can you please comment on things like your inflation cost outlook, pricing, productivity savings, COVID cost reducing? And importantly, how you think about managing BMI spending in the context of rising input costs?

And then my second question is, I believe last year, Unilever noted that it wanted to accelerate the pace of portfolio change and that unifying its legal structure would provide for greater flexibility to achieve that, including through equity-based acquisitions or de-mergers. Noting that the sales growth has been weaker perhaps compared to some of your peers over the last few years, I wanted to ask if you would look to exercise this optionality in the foreseeable future? Thank you.

Alan Jope -- Chief Executive Officer

Thanks, Pinar. I'll take the first question and Graeme can comment on portfolio change.

Well, the first thing is as we've guided that we will deliver a margin of around flat this year, obviously with 2.5 months to go, we are confident of delivering that. And the most important lever is pricing, and you've seen a sharp step up in the pricing that we've taken in Q3. Of course, we look to buying efficiencies. Those buying efficiencies offset roughly half of the market level inflation. So market inflation is mid to high teens, and we were able to offset about half of that through buying efficiencies. We have worked through most of our hedges; that's given us a breathing window to manage the landing of price. We -- our savings programs will reach an all-time high this year to just over EUR2 billion of savings. And as you heard Graeme mentioned, we expect in the second half of this year, some of the COVID on costs. Last year, we had 40 basis points of adverse mix from COVID, 50 basis points of adverse COVID costs. Some proportion of that will unwind in the balance of the year. And so, we're using pricing, savings, COVID cost unwind and overhead discipline to make sure that we deliver a good P&L shape. I think it's important to underscore the data point that Graeme gave in the speech that wasn't in any of the release or the slides which is that our gross margin year-to-date, we've contain the decline to around 100 basis points, and using the other levers that I've just mentioned, we will get to a margin for the year of around flat.

Graeme, portfolio.

Graeme Pitkethly -- Chief Financial Officer

Yeah. Hi, Pinar. I mean, interesting question on unification. I mean just to remind everybody, it really was very -- it was a very historic, very long term, and very strategic thing to unify the corporate structure of Unilever. It both improved and simplified our governance, giving all shareholders a single equity and an equivalent voting rights, etc., rather than being in two companies. But also, as I think you're touching on your question, Pinar, it creates more options with regard to portfolio change. And actually just to give you a specific example of that, our tea business, which is called Ekaterra, the new business that we've created in over 50 countries around the world, a new end-to-end stand-alone global business from a very integrated starting point, we have an option with that business of a demerger or an IPO, and that would have been extremely difficult or -- I mean almost impossible actually in the unified company. But that is an example of a strategic option that's been opened up for us and will be very valuable as we go through the process of thinking about the strategic future for the Ekaterra business, which is underway as we speak and going very well.

The other thing I'd say just -- since we're on the subject of M&A, I just want to reiterate the criteria we have for an investment choices. There's only five of them and they're very focused. Are categories of sufficient size? Are they intrinsically higher growth to the current Unilever's portfolio? Do they have strong potential in growth markets of the future? Can we see a route to market leadership? And are they sensitive to Unilever's leading marketing and branding expertise and our technology and innovation capabilities? So, hopefully, Pinar, that answers the question. And I've used it to extend into a broader M&A, so forgive me for that.

Richard Williams -- Investor Relations

Okay, thanks for the question. Pinar. The next question comes from Warren Ackerman of Barclays. Go ahead with your question, Warren.

Warren Ackerman -- Barclays -- Analyst

Good morning, Alan, Graeme, Richard. It's Warren here, Barclays.

So, first one is on market share. I mean, congrats on the 54%. I mean that's obviously a good number. Can you confirm whether it's a volume or value share? I mean that's accelerated I think from 52% at the end of the second quarter. If you are able to say what it was in the third quarter that would be useful. Because I think some people might be a bit surprised is accelerated given you've led pricing up and volumes are clearly weak. Are you saying that your volumes are better than the market? Just trying to square that competitiveness point would be helpful.

And then secondly on Southeast Asia, could you maybe dive a bit deeper into what's going on on the ground? I heard the point around Indonesia competitiveness and Thailand. But what is happening in some of those key markets? What's happening to your market shares? Do you think you just won't be able to take any pricing because of local competition? Or are you trying to push pricing through? Or is it the case that there's so much trading down going on in Southeast Asia it's just impossible to get pricing through despite the input cost inflation? Thank you.

Alan Jope -- Chief Executive Officer

Thanks, Warren. Very well-informed and important questions as usual. I'll take the first one and Graeme will comment on Southeast Asia.

So 54% business winning share is a value number and it is broad based. We're over 50% in each of Beauty & Personal Care, Home Care and Foods & Refreshment. A notable contributor is that we've now crossed more than 50% of our business winning share in the United States on an MAT basis, and that's a result of some good work, particularly in Skin Cleansing in the US. And we've decided not to get into 12 weekly reporting. It caused some confusion in the past. We're just trying to answer one simple question, Warren, which is our growth competitive, and we believe that MAT business winning share is the simplest single measure of whether we're growing competitively. And after too many years where we were not, we're very pleased to be up at 54% now.

Graeme, can you comment please on Southeast Asia?

Graeme Pitkethly -- Chief Financial Officer

Yes, certainly. Good morning. Warren. I hope you're well.

So first of all, let me just contextualize Southeast Asia for everybody, it's 14% of Unilever. And let me give you a broad headline. We've had limited pricing in Southeast Asia, but COVID is still having a very significant impact in markets and an ability to operate normally and as -- I hope it's clear 1% of the 1.5% volume decline in the third quarter at Unilever level was down to that.

So, let me give you a little -- Warren, a little bird's eye [Phonetic] tour of the main countries in Southeast Asia. So, Indonesia was down by high single digits. COVID cases are still very high there. We had big parts of the archipelago of Java and Bali, for example, were in total lockdown for parts of the quarter. Now, the environment is very, very difficult there. And as I sort of acknowledged in the earlier comments, we are not competitive in Indonesia, and we're working very hard over the coming quarters to address that. In particular, we got heavy local competition in Skin Cleansing and in Home Care, that's the local competitor that you're familiar with, Wings, very low prices and high promotions. That local competitor is backwards integrated in its supply chain. It owns palm oil plantations. And pricing is low. Promotion is low. And so we've been limited opportunities to price. Now, our portfolio in Indonesia, our Tier 1 and Tier 2 brands, do play at value price points, but it tends to be that local competition are offering larger packs at those same low price points. So really pricing has been the price. It's a real value play. And of course our strategy over many years in Indonesia has been to premiumize the consumer. So we have to go both up and down the price piano there. Tough competition, lots of strategic work to do on portfolio, and that will take us the next few quarters to work that one out. So, that's Indonesia.

Thailand was down mid-single digits. As I said on the -- in the prepared remarks, tourism isn't back and pricing controls remain in place in Thailand. But we are pricing and we're pulling all of the levers that we normally do on that. Philippines was down by high single digits. Vietnam was particularly badly hit in the quarter. It was down high double digits. The majority of the Company was severe lockdown. People weren't allowed to leave homes. There were curfews. Food distribution was actually done by the military that had a big impact on our distributors, which is 70% of our business. But we did see, as I said, some easement toward the very end of the quarter, and that allowed us to start to replenish distributor stocks. So, hope that's helpful, Warren. Thanks for the question.

Richard Williams -- Investor Relations

Thanks, Warren. The next question is from Tom Sykes, Deutsche Bank. Go ahead, Tom.

Tom Sykes -- Deutsche Bank -- Analyst

Yeah. Good morning, everybody. Thank you. Just in the step up from 1.6% price to 4.1% price, could you maybe let us know which of the most important factors, has it been list price or is it being the other aspects? And maybe could you say something about the level of promotions?

And then just on R&D, thank you for giving some more detail on that, but should we expect now that given the changing nature of the R&D spend and [Phonetic] fewer larger projects, does that -- can we still assume that R&D spend is going to be going up as a proportion? I never capture quite what you're doing, but is that something we still expect to occur, please?

Alan Jope -- Chief Executive Officer

Okay. Thanks, Tom. I'll take the questions on price, and Graeme, maybe you can comment on what we're doing on R&D.

So, we have used all five levers of what we call net revenue management to land price. Graeme touched on them, but let me just elaborate a little bit. The first is list price increase. The second is pack price architecture. So, the classic example of this is a smaller fill for the same price or a much bigger pack, but at a higher price. The third is managing promo levels. The fourth is trade spend. And the fifth is mix. And we're pulling all those levers. But obviously to go from one-and-change to 4.1% we've had to rely more on list price increases than we would in a normal period.

Just to give you a little bit of a flavor. In Middle East, Russia, Latin America and Africa, we've taken price increases in the kind of 6% to 10% price increase levels, a lot of that will be list price. And you can see that that's compounding in food costs with currency devaluation. And in each of those cases volumes have remained more or less flat, I mean, down not more than 1%. In South Asia and North Asia, we've grown both price and volume. Graeme has already commented on Southeast Asia where there's a strong volume decline with very little price, and that's more about market conditions. And I think the outlier is probably Europe where the price that we've indicated that we took in Europe is not so much list price increases, but more coming -- more reduction in promo intensity versus very high levels of promo a year ago.

So, what I'm trying to give you a sense of, Tom, is we really need to use a scalpel rather than a knife on pricing. We use all five levers of net revenue management. It is largely executed locally and the picture is quite different in the different parts of the world. I've tried to give you more information than we normally would on pricing by region, but it's such a critical question that I wanted to give you as full an answer as possible.

So, hope that helps, Tom. Graeme?

Graeme Pitkethly -- Chief Financial Officer

Yeah. Tom, let me just give you some additional color on R&D. I mean hopefully, you've had a chance to have a look at the specific deep dive that Richard Slater, our global head, gave a few weeks back. But I think underneath everything, the main message I want to give is there's tremendous activity and change in progress happening within Unilever's R&D. Fundamentally, our innovation strategies, our science and technology strategy has been completely reviewed and is far more focused and strategic than it was before that. That's the integration and the work that happens between the R&D teams and our divisional teams. And as you may know about 70% or 80% of our R&D resource is actually within our divisions.

Now, when we are comparing absolute levels of spend year-on-year, first thing I want to say is we have made a strategic decision to invest more in R&D and we have invested more in R&D in this year. Now whether this shows up in the headline number that gets put in our annual reporting accounts, I don't know yet, but I know that we have put that money hard at work in the R&D budgets. But the overall shape of our R&D spend looks like today relative to, say, three or four years ago is quite different, and it's for two key reasons, which Alan touched on in the remarks earlier.

The first is our use of digital technology. We now run thousands of experiments digitally instead of physically. In fact, in the last 12 months, we've performed 12,000 digital experiments and that reduces time spent on trials and the time it takes to go to market. And we also build much automated technology into our innovation centers like our materials innovation factory in the UK. It's got loads -- huge number of robots doing material chemistry work for us, and it generates lots and lots of data much more quickly than traditional methods.

The second key area, Tom, is an external partnerships. 70% of our innovation now is enabled through partnership as well as in-house expertise. And Alan also mentioned that what we're seeing is really great science come through into our innovations. Examples of that and big focus areas for us are next-generation biology, around the microbiome, around biotechnology and surfactants, for example, around sustainable superior materials and format, and hopefully, from some of the examples we gave in the prepared remarks earlier, you can see that almost everything we do has a sustainable packaging and format angle to it, which we think is really important for consumer preference in the long term.

And then finally, the third one I've mentioned is digital technology and our use of data and artificial intelligence within all of our R&D actions. And what you see coming through from that, Tom, is the step up in performance of our innovation that Alan highlighted in the prepared remarks.

Richard Williams -- Investor Relations

Okay. Thanks for that question, Tom. Our next question is from Bruno Monteyne at Bernstein. Go ahead, Bruno.

Bruno Monteyne -- Bernstein -- Analyst

Hi, good morning. My first one is on the COVID cost and mix unwind, you're think some of it is happening this year, some of it will remain for next year. Could you quantify, out of the 90 basis points you flagged earlier, how much will be left for future years, so 2022 onwards, to recoup?

And the second of all is you sort of indicated gross margin is down 100 basis points, but flat margins. So, it's about 100 basis points coming out of SG&A. I know you mentioned buying efficiencies, but those would be sitting on gross margins, so can't be that if you keep investing the same in R&D. I'm trying to think which other levers out of SG&A are you able to get the 100 basis points reduction of? Thank you.

Alan Jope -- Chief Executive Officer

Okay. Graeme, why don't you talk about COVID costs and I'll help on gross margin.

Graeme Pitkethly -- Chief Financial Officer

Yeah. Hi, there. Good morning. Bruno. Yeah, it's a short answer really. I mean, as you know, in -- and we talked about this many times, in the full year of 2020, we had 90 basis points of impact from COVID cost in our factories and from negative mix; I think it was 50 basis points and 40 basis points, respectively. Now, during Q3, we did start to see some of this unwind, but it's not significant on a year-to-date basis. In the full year, we expect there'll be some small benefit from COVID-related cost and mix, and we'll share an update on that with the Q4 results. Thanks, Bruno.

Alan Jope -- Chief Executive Officer

Bruno, on how do we balance out the gross margin gap and still deliver a flat bottom line, I mean there are all kinds of productivity savings in the overheads line that we are pushing hard on. And as Graeme mentioned, some of COVID costs will reverse out. And of course, a small amount will come from brand and marketing investment. Now on BMI, we are pre-occupied with making sure that we are adequately supporting our brands. And let me just give you a few data points on that.

More than 80% of our turnover is now coming from brands that are stable or growing their brand power. As Graeme mentioned, our share-of-spend to share-of-market remains well above 100, and that's a significant improvement from where we were two or three years ago. We think that our full-year 2020 spend of around EUR7 billion, it's about right, especially in the year where we're -- the whole market is seeing the types of inflation that we're in -- facing.

And let me give you a couple of other breakdowns on our brands. With -- our EUR13 billion brands represent half of Unilever's turnover, but 65% of our growth in Q3. And in the prepared remarks, we pointed out that our two biggest brands, Knorr and Dove, are both growing 8%. But I'd point out that Hellmann's is up 10%; Magnum is up 11%; Lux is up 8%; Vaseline is up 20%; and the list goes on. And so our biggest best brands are in really good health. We intend to continue to invest adequately. We'll watch our competitiveness of our spend like a hawk, and we keep the finger on the pulse on brand power. So hopefully that gives you some reassurance on how laser focused we are making sure that we're adequately investing in the brands. As we land, our margins at around flat for the year.

Back to you, Richard.

Richard Williams -- Investor Relations

Okay. Thanks for the question, Bruno. Straight on to our next which is John Ennis at Goldman Sachs. Go ahead, John.

John Ennis -- Goldman Sachs -- Analyst

Yeah. Good morning, everyone and thanks for taking the question. My first is on the supply chain. We're obviously seeing examples of supply chain challenges for the industry more broadly. So my question is are more investments going to be needed at Unilever to simplify supply chains in this environment, and if so how should we think about capex and investment levels over the next two to three years? And then my second question is on home care volumes. I guess, at face value at least this appears to be where you are having a bigger elasticity impact in the quarter. But you mentioned, Graeme, in your prepared remarks that you would usually expect a low elasticity in categories like laundry. So can you maybe talk us through whether this week falling performance is related to elasticity in your view or something else? And if it is elasticity, I guess why it's higher than you'd usually expect? Is it something to do with what competitors are doing in terms of pricing timing? Any color there would be helpful.

Alan Jope -- Chief Executive Officer

Yeah, John, let me take the supply chain question and Graeme can talk about home care volumes. First thing I would say is Unilever supply chain has shown extraordinary resilience over many years. So if you think about the way we're used to dealing with currency shocks in Southeast Asia or economic volatility in Latin America or social crises in the Middle East, and yet we continue to have above average for our sector on shelf availability and I gave that -- I thought it was an interesting stat that we are enjoying in our top 10 markets in our key SKUs, more than 96% on shelf availability, and that's up versus the same period last year. So start point is we've got an incredibly resilient supply chain.

One point that farmers are having to make quite often is nationalizing a supply chain is assure far way to guarantee collapse in our types of industry. It's precisely because we've got a globally network supply chain with multiple points of redundancy and backup that it is so resilient. When chemicals are not coming out of China in the early days of COVID, we were able to switch to other sources of supply, and then later as places like India became compromised, we were able to go back to our sourcing in Latin America or China. So resilience is the watchword for our supply chain. Second thing -- as measured by on shelf availability.

As far as investments concerned. Our net capex in the first half of '21 is very similar to what it was in 2020 and we expect that to more or less maintain. We think we're at about the right level of ongoing capex. Now, we earlier in the year gave an update on restructuring. We said we would have elevated restructuring in 2021 and 2022 at about EUR1 billion each year and we still anticipate that happening. There may be some delay, some rephasing from the end of '21 into 2022. I'm not sure we've got away as much restructuring this year as we would have liked because of the COVID circumstances. So some of that may spill into 2022, but the aggregate across the two years will be about the same. And then thereafter we get back to what we would call a normal level of restructuring about EUR0.5 billion a year. So hopefully that gives you a sense of the resilience of the supply chain. The levels of capex that we think we need to support the business and the approximate phasing of our restructuring, which is an ongoing process in the business. Thanks for the question, John.

And, Graeme, maybe you can talk about home care volumes.

Graeme Pitkethly -- Chief Financial Officer

Yeah. Hi. Morning, John. I think it's quite simple answer, actually, but just let me dimensionalize again for everybody. Our Home Care business grew at 1.4% in the quarter. It was minus 3.2% of volume and 4.8% from price. But I think the headline masks a couple of key drivers there. As we said on the prepared remarks, so far we are seeing relatively limited volume reaction to the pricing that we brought in the third quarter and that is also the case in home care. What you're actually seeing, John, is a combination of two things in the volume line. First of all, Southeast Asia where, as I said, we've taken limited pricing and in particular both the market dynamics in Southeast Asia because we've got a big Home Care business in Southeast Asia, but in particular in Indonesia where that battle, that competitive battle, which we're not winning, which I -- which I referred to in the discussion with Warren, that is showing up in negative volumes in Indonesian homecare. So the first one is Southeast Asia dynamic.

The second thing is, remember that our homecare numbers include our home and hygiene business and we've got very, very high comparators from last year, in particular surface cleaners and bleach. They've declined in this quarter as we lapped a very high demand in the prior year. But encouragingly they are still above 2019 levels. Thanks.

Richard Williams -- Investor Relations

Okay, thank you. Our next question is from James Edward Jones at RBC. Go ahead, James.

Alan Jope -- Chief Executive Officer

You there, James?

Richard Williams -- Investor Relations

James, you are on mute?

James Edwardes Jones -- RBC Capital -- Analyst

Can you hear me?

Richard Williams -- Investor Relations


James Edwardes Jones -- RBC Capital -- Analyst

Thank you. [Indecipherable] mix unlike many of the other companies you follow. How much was mix in the quarter? And secondly, I don't really get the whole brand power thing. So 80% of brands with stable or growing brand power, which I think you said share of spend is over the share of the market, but only 54% of business is gaining share. Shouldn't there be a closer correlation between the two?

Alan Jope -- Chief Executive Officer

Graeme, do you want to talk about mix and I will talk a bit more about brand power?

Graeme Pitkethly -- Chief Financial Officer

Yeah, sure. Sure. Hi, James. Correct. There seems to be a sort of split -- two split packs across the industry on this. We import, and common with many others, we import volume and mix together. We don't split it out. So, volume and mix, our UVG number includes mix, which means that price is a more pure pricing number. Now, just one other comment on that. It doesn't mean that we have to be a little bit careful when we look at our UVG number, because there are parts of the world. I just want to comment specifically on Argentina actually. In Argentina very often when we take price it has to be accompanied by a pack change and so that shows up in mix rather than in price because we're making a pack change. And so when we look at our or UVG number in a market like Argentina, we have to remember that there is an element of pricing that sits within that. But no perfect model, I appreciate it's tricky for you guys to remember who has got it in price and who has got it in volume. But we put volume and mix together as you pointed out. James let me -- I apologize if I have confused you on brand power business winning and share expenditure of market. Let me just be very precise. So share expenditure market simply looks at our share of advertising spend as best we can measure it relative to our share of market. It's a simple ratio and at the moment it's well over 100, which is where we want it to be.

On business winning for a category country sell to count toward that 54% business winning it has to be in positive share territory. Flat does not count. So we need to see increases in the latest 52 weeks versus the prior 52 weeks to count as business winning and that's at 54%. And then brand power is a composite metric of how consumers see our brands, factors in things like awareness, saliency, relevance. And in that instance when we look at that more than 50% of our brands are gaining. Sorry. More than 80% of our brands are stable or gaining brand power. So in that instance more of more of the real estate is occupied by brands that are stable and so we look at stable and gaining and that's over 80%. So three different measures all trying to get at the same question which is, are we investing enough in our brands and are they healthy. At the moment it looks they are. Thanks James.

Richard Williams -- Investor Relations

Okay. Look, we're at time. We would just squeeze in one last quick question, which is from Celine Pannuti at JPM. Go ahead Celine.

Celine Pannuti -- JP Morgan -- Analyst

Hello. Thank you. I'll try to be brief. So my first question is on coming back on to gross margin being down around 100 for the year, the flat A&P, I think it could be another 20 BP, 30 BP benefit. So what is outside A&P and SG&A that would bridge you to around or maybe in the past when you were looking at the 2020 target [Indecipherable] I think plus-minus 20 basis point below that level of 20%. So what does [Indecipherable] mean in your language. So it's down 40 bps around.

And then a second question is on on pricing and competitiveness. I think the pricing has been quite strong, two times that of Nestle in the quarter, four times that of Procter & Gamble and your volumes are down in every category, every region against your peers still printing volume positive. So a question whether in the next one or two years, could that cost more for you to try to recover volume competitiveness. Thank you.

Alan Jope -- Chief Executive Officer

Okay. Why don't I deal with the decomposition of margin and Graeme, you can talk a little bit about our strong pricing. Celine we're not going to put a number around what we mean by around flat. It means around flat and the gross margin gap that we have to bridge will be a combination of SG&A. And as I mentioned already, we are making good progress on overheads control as well as some efficiencies in the BMI line. So -- but we would certainly not trim BMI if we felt that it was going to compromise the health of our brands. And some of the points I was making just a minute ago about brand power, competitiveness or overall share spend share of market. So I'm not going to quantify that further other than say around flat means around flat and that we are pulling levers across both overheads and BMI in order to make sure that we deliver that guided margin outcome. Graeme?

Graeme Pitkethly -- Chief Financial Officer

Hi Celine. Morning. Well, that was a really broad long-term question on price and volume. Let me put it into the shorter term first of all and just reiterate that so far volumes are holding up quite well and we think we will manage through elasticities and hopefully we've given enough color on this call to the drivers of the volume, declines that you're seeing, including Southeast Asia, including lapping very high periods for in-home food in the developed markets, the US in particular, lapping very high periods for home and hygiene and skin cleansing hand sanitizer etc. So you're seeing those impacts when you sort of generalize that volumes are down in all categories, etc., but hopefully we're giving you enough color to see what the drivers of that are.

On your question around individual competitors and longer-term dynamics, I just want to take the opportunity to say two things really. First of all Unilever's footprint is uniquely strong in emerging markets. 60% of our business is emerging markets and it is the foundation stone and advantage of Unilever. Pricing is a way of life in those markets and we have managed price and volume very effectively for decades in doing that. So this is not new for us. And I don't expect that we will see some long-term strategic impairment through the relatively short-term dynamic that we're seeing right now of extraordinary inflation. Yes, it will take time to land price and recover that. But it will go forward. And just to remind you that the emerging markets are margin accretive for Unilever. So the faster we grow them the more are bottom line benefits.

And the second thing is what you're seeing in comparing one company with another today is very much geographic footprint. 20% of Unilever is in North America and you understand the categories that we run in North America. The competitor you mentioned and also Nestle have more like 40%, 45% of their businesses in North America. So I think the dynamics that you're seeing in 2220, 2021 top line momentum you're seeing the benefits of geographic footprint in particular category exposure with a particular comment around the business and scale of business in the US. It's very much why we've called it out as a strategic priority for the company and you've seen the investments we've been making there. And you see the step up in performance that we've got, but that's the largest dynamic that you, that you see there Celine. Thanks.

Richard Williams -- Investor Relations

Okay. Thanks, Celine. Now Alan just nodded to me that he can fit in another couple of minutes. So maybe we just take one more question. Martin Deboo from Jefferies, if you are still there, do you want to ask your question?

Martin Deboo -- Jefferies -- Analyst

I am still here, Richard and thank you very much. I'd like to ask something that isn't about price elasticity. Alan, a few minutes ago you reeled off some very compelling stats on growth rates of the biggest brand, loan write them down. But I formed a view rightly or wrongly that your top five or 10 brands probably have an average growth rate if high single-digit double digit. So, the implication of year-to-date, growth of 4%-something is you've got a tail of brands that must have quite aggressive decline rates. And the general question, I'd like to ask coming out of that is what's your tolerance level for the sort of skew between high growth and low growth brands and shouldn't you be more ruthless with the tail, if that's the pattern you're seeing?

Alan Jope -- Chief Executive Officer

Yeah. Actually let me even broaden out one step further, Martin. I know you're a scholar of the sector. If you really look across multiple categories over the last couple of years, what we are observing is that the kind of -- there is truth to the fact that small insurgent brands, whether they're owned by multinationals or owned by local firms have been gaining share and so have the biggest and best brands and we can see that in our own portfolio. And there is one standout contributor at the moment to some of our brands that are dragging down growth which is Lifebuoy which joined EUR1 billion last year but is down high double digits year on year, simply because of the comparator, it's up double digits on a two-year basis still, but is down versus 2021. Now are we taking action on the portfolio? Yes we are. You've seen the separation of T, some of the brands in there are dragging us down. And you know we've created a stand-alone unit called lead of beauty for some of our TIL BPC brands and what we've learned in the past is that when we put dedicated focus on some of these underperforming middle tier brands, they can respond. So that's the overall landscape.

And the final point I would make is big brands are also a huge asset in the e-commerce channel, and you'll have seen in our results that e-commerce is growing 38%. It is 12% of the company and it's a myth that the infinite shelf of e-commerce favors middle and small sized brands. E-commerce is very favorable to relevant big brands they get first on to the search and shopping list.

So a little bit of a long answer, but we see strength in our biggest brands and our newer more insurgent brands. There is some in the middle that need attention and we're taking action, for example, at Elida Beauty. E-commerce is amplifying the strength of our big brands and Lifebuoy particular challenge this year, simply because of the comparator.

Thanks very much, Martin. Back to you, Richard.

Richard Williams -- Investor Relations

Okay. Yes. Thank you, Martin for that last question. Thank you, Alan. Thank you, Graeme. We'll bring the call to a close there. If you have any further questions please email us in the IR team and we'll set up a time to speak to you and come back to you. So. Enjoy the rest of the day, stay safe, stay well. Thanks very much.

Duration: 68 minutes

Call participants:

Richard Williams -- Investor Relations

Alan Jope -- Chief Executive Officer

Graeme Pitkethly -- Chief Financial Officer

Pinar Ergun -- Morgan Stanley -- Analyst

Warren Ackerman -- Barclays -- Analyst

Tom Sykes -- Deutsche Bank -- Analyst

Bruno Monteyne -- Bernstein -- Analyst

John Ennis -- Goldman Sachs -- Analyst

James Edwardes Jones -- RBC Capital -- Analyst

Celine Pannuti -- JP Morgan -- Analyst

Martin Deboo -- Jefferies -- Analyst

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