Unilever PLC

LSE:ULVR

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen. I will shortly be handing over to Unilever to begin this conference call. [Operator Instructions] I'm now delighted to hand over to Richard Williams at Unilever. Please begin your presentation.

[Richard Williams, Head of Investor Relations]

Thank you. Good morning, and welcome to Unilever's full year results and strategic refresh. As in previous quarters, we're presenting to you from our prospective homes. So hopefully, technology will run smoothly again. We expect prepared remarks to be longer today at around 60 minutes, followed by around 30 minutes or so of Q&A. All of today's webcast is available live, transcribed on the screen as part of our accessibility program. 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.

[Alan W. Jope, CEO & Executive Director]

Well, good morning, everybody, and welcome to our full year results update. As usual, Graeme and I will take you through the results. And as Richard said, this is going to be a slightly longer presentation than we customarily do because we'll also take the opportunity to share with you our strategy refresh. It's a good time to do so now that we've closed out 2020 and completed the unification of our legal structure. But first, back to 2020. Well, I think it's stating the obvious to say it was far from business as usual. Typically, we would start this presentation by sharing our underlying sales growth, underlying operating margin earnings and cash. But in this year of incredible volatility and uncertainty, we prioritized 3 things: that was volume-led competitive growth, absolute profit and cash delivery. First and foremost, we said we would deliver competitive growth. We wanted to ensure more than ever growth ahead of our markets. So no matter whether some of our categories were enjoying super growth or were in decline, we wanted more than our fair share. And I'm very pleased that we are now decisively back to more than 50% of our business winning value share on a moving annual total basis, and actually, over 60% of the business winning in the fourth quarter, with volume shares indicating over 70% gaining share. And this is a clear step change in our competitiveness from only a year ago. It demonstrates how Unilever's focus on operational rigor and excellence is working. We also focused on absolute profit and cash delivery, so underlying operating profit was EUR 9.4 billion, up 0.7% at constant rates. And our free cash flow for the year was EUR 7.7 billion, which is a record cash delivery, up a full EUR 1.5 billion versus last year. Now as Unilever watchers, you'll know that when we talk about operational excellence, we mean is our focus on these 5 growth fundamentals [ shifts ] January. And we'll spend more time on these later, but we are pleased how this framework has delivered that change in competitiveness that we're now seeing. At the same time, we continued to drive forward our strategic agenda. We are the world's leader sustainable business and have progressed our sustainability agenda during 2020, with initiatives that are more tightly linked than ever to our category and brand growth agendas. So for example, our Clean Future agenda in Home Care or our Future Foods ambition. As you know well, we simplified our legal structure, unifying under a single parent company, Unilever PLC. We're now a simpler business with better governance and greater strategic flexibility for portfolio change. And at the same time, we've continued to shape our portfolio towards high-growth spaces through acquisitions in 2020, in particular, in the functional nutrition space like Liquid I.V. and SmartyPants, and of course, the completion of Horlicks earlier in the year. And we continue to work intensively on separating out the majority of our tea portfolio from the rest of the business, and this is progressing well. We're working on various options for the business, including an IPO or a demerger, partnerships or a disposal. And as we said on our quarter 3 call, we are evaluating options for some of our smaller BPC brands as we continue to actively manage the portfolio. The brands in question are predominantly sold in Europe and/or North America. At the moment, they're being transitioned to the leadership of a new management team in the company, and that will give them dedicated focus to step up their growth and value creation.You might have seen a bit of circulation on this in recent days in the media. And I want to be clear that no final decisions have been made about the long-term future of those brands. And with that, let me hand over to Graeme for more detailed take on our results. Graeme?

[Graeme David Pitkethly, CFO & Executive Director]

Thanks, Alan. Good morning, everybody. Volume-led competitive growth with over 60% of our business winning value share translated into underlying sales growth of 3.5% in the fourth quarter and that brings the full year USG to 1.9%. Across our markets, the pandemic continued to cause volatility with restrictions, lockdowns and channel closures returning in many countries in the fourth quarter. While restrictions in other countries have been eased, we expect this volatility to continue into 2021 as governments balance opening economies to support livelihoods with public health protection. I'll touch on some specifics when we get to the regional updates. Now as in previous quarters, we've broken down our portfolio into groupings that reflect changing consumer behaviors and channels during the pandemic. Across the year, we've seen huge swings in demand, and many of those big trends have continued into the fourth quarter. While demand for hygiene products, that's skin cleansing and home and hygiene, remained well above pre-COVID levels, demand for hand sanitizer started to normalize in Q4 and versus the exponential growth that we saw in the second quarter. With many consumers experiencing restricted living and lockdowns, our in-home Foods & Refreshment business saw strong growth across the year and again grew double-digit in the fourth quarter. In contrast, our Food Solutions and out-of-home ice cream businesses declined significantly. And after a slight recovery following the easing of restrictions in Q3, many countries saw a resumption of channel closures during the fourth quarter. Turning to the divisions. Beauty & Personal Care grew 1.2% in the full year with double-digit growth in skin cleansing. We responded really quickly to changing consumer demands and launched hand sanitizers into over 60 markets. That helped to deliver strong and competitive growth. Lifebuoy, which is our latest billion euro brand, grew over 50% in the full year and the back of COVID-19-focused communications, such as the #fightbacteriaandviruses, and the launch of our H is for Handwashing campaign to raise awareness of hand washing and hygiene with children. Dove, our biggest brand, grew mid-single digit, helped by innovations in the antibacterial segment, combining efficacy against germs with the unique care of Dove. Our Prestige Beauty business was impacted by door closures in the health and beauty channel with countries going back into lockdown in the fourth quarter. Prestige e-commerce continued to perform really strongly, however, outperforming the market significantly. And over 50% of our Prestige beauty sales are now through e-commerce. The rest of BPC declined as consumers stayed at home, meaning fewer usage occasions in categories such as hair care and deodorants. However, in markets where such restrictions have been eased, such as China, India and parts of Latin America, growth has returned. Our Food & Refreshment division grew 1.3% driven by price and had a strong finish to the year with underlying sales growth of 5.4%. Our retail foods business grew 12% as restricted living led to more in-home meeting occasions for consumers, with Knorr growing double-digit and dressings performing well. We've launched Hellmann's for the first time in Germany and in India. In ice cream, we rapidly pivoted resources to more in-home consumption through innovations such as the Ben & Jerry's Netflix & Chilll'd variant, and we've again doubled the size of our e-commerce Ice Cream Now business. Strong in-home ice cream growth of 17% was offset by a decline of over 20% in the out-of-home business. Overall, ice cream sales were level year-on-year, which is a really great result in the face of such channel volatility. Food Solutions declined by 30% as restaurants and hospitality businesses were closed for much of the year. During the fourth quarter, the market continued to recover in China, with dining resuming in many places. However, conditions in developed markets worsened in the fourth quarter as countries went back to lockdown, driving a 25% decline in Food Solutions sales. We expect to see similar conditions into the first quarter of 2021. Home Care grew 4.5% in the full year driven by volume. Pricing was marginally negative as we passed on lower commodity costs in the second half, mainly in fabric solutions. Home and hygiene grew high teens with continued high demand for household cleaning products as both penetration and frequency of purchase increased significantly. Domestos stores grew over 25% as we introduced bleach-based spray innovations and launched Domestos into new markets like China. Laundry grew 1%. Fabric solutions was flat as the pandemic continued to impact washing occasions. In India, frequency of washing workwear and school wear decreased by about 10% as schools and offices were closed. Fabric sensations recovered well in the second half, led by China. E-commerce grew by 61% in the full year as we responded quickly to the rapid shift of consumer spending online. E-commerce now makes up 9% of Unilever's business. E-com growth was strong across all of our regions. In Brazil, we expanded our [ e-B2B ] Compra Agora business, and in the U.S., we more than doubled the size of our e-com turnover. In China, of course, the most advanced e-com market globally, we grew by over 50%, taking online to more than 1/3 of our turnover in China. We also saw strong growth across all e-com channels. Omnichannel e-com grew around 100%, while pure-play grew around 50%. e-B2B also performed strongly, up 65%. Turning to the geographies. In ASIA/AMET and NAMETRUB, underlying sales grew 0.4% in the full year driven by price. USG in the fourth quarter was 2.6% as India continued its post lockdown recovery, with good growth in Beauty & Personal Care. However, Southeast Asia declined, mainly driven by the Philippines and Thailand, where tough restrictions on movement and tourism remain in place. China returned to high single-digit growth in the second half as the economy opened up and a more normal life returned for Chinese consumers. The recovery we've seen in China has been encouraging and is ahead of the market. Turkey had a strong performance in a difficult environment with volume-led growth driven by Home Care and ice cream. While market conditions vary enormously between individual countries, we are winning competitively across our key markets of Asia/AMET/RUB. In Latin America, underlying sales grew 4.1% in the full year, driven by price. Once again, our performance has been competitive in a very choppy economic environment. Growth in Brazil was resilient, but slowed in the fourth quarter as government consumer subsidies reduced. Argentina impressively grew both volume and price despite the reintroduction of living restrictions. Volumes declined significantly in the year in Mexico, Colombia and Ecuador due to restricted living. But as these eased in the fourth quarter, we saw this trend slow. North America had a strong growth year with USG of 7.7% driven by volume. Strong consumer demand for in-home foods and ice cream continued into the fourth quarter, while demand for home and hygiene products, especially hand sanitizers, settled down from the peaks seen in the second quarter. Full year growth includes a negative impact of around 2.4% in North America from our Food Solutions and Prestige beauty businesses, which were impacted by channel closures. Excluding this, underlying sales for our U.S. retail business grew double digit. Our competitiveness in North America remains lower than the company average, and we are focused on addressing this. We were, therefore, pleased to see our competitiveness improve sequentially with a particularly strong step-up in Q4. And e-com, which is largely an untracked channel, grew by over 100% in the full year. So we enter 2021 with good momentum in North America. In Europe, underlying sales were down 1% in the year, driven by a continued deflationary environment. The U.K. and Germany grew strongly through demand for in-home food, ice cream and hygiene products. Italy and Spain, however, declined due to our large out-of-home ice cream presence in those countries. We delivered strong and improved competitiveness across the Europe region. Turnover for the full year was EUR 50.7 billion, a decline of 2.4% driven by currency. Underlying sales growth was up by 1.9%. Acquisitions and disposals increased turnover by 1.2% as we completed the acquisition of the Horlicks and Boost Health Food Drinks brands from GSK. Currency movements versus the euro reduced our turnover by 5.4%. Based on spot rates, we would expect a negative currency translation impact of around 4% on turnover for 2021 and a bit more on EPS. Underlying operating margin was 18.5%, down 60 basis points. This was driven by gross margin, which declined by 50 basis points due to COVID on costs and adverse mix as we've flagged to you in our results updates during the year. COVID costs such as factory hygiene protocols and temporary labor reduced gross margin by 50 basis points, while our particular COVID-driven sales mix created a drag of a further 40 basis points on the gross margin. Looking forward, gross margin will continue to be impacted by COVID on costs in 2021, and we will begin to lap the adverse sales mix only from the second quarter. The margin impact of country, category and pack mix will be substantially determined by the progress of the pandemic and the related lockdowns. Brand and marketing investment increased by EUR 160 million in the full year at constant exchange rates. After a 100 basis point conservation in spend over the first half through the initial lockdowns, we stepped up investment in BMI strongly in the second half behind brand campaigns and product innovation that had been tailored to be specific to the new environment. That includes more hygiene-based communication and in-home consumption opportunities. Examples of this are the Hellmann's stay in (spired) campaign. As a result, BMI spend was up by 100 basis points in the half. Underlying earnings per share decreased 2.4% due to negative currency impact of 6.5%. Constant underlying earnings per share were up 4.1%. Operational performance contributed 0.5% to earnings, while lower finance costs had a positive impact of 1.9%, reflecting a lower cost of debt. A lower underlying effective tax rate of 23% and compared with 25.5% in 2019 and contributed 3% to earnings growth. The decrease was primarily driven by tax settlements and the replacement of the Indian distribution tax with a dividend withholding tax. We expect our tax rate for 2021 to be around 25%. Minorities had a negative impact of 1.6% on EPS due to higher minority interest in India following the Horlicks acquisition, which was, of course, part settled using equity in Hindustan Unilever. Alan mentioned that we focused the business in 2020 on delivering cash in an uncertain year, and this certainly helped us deliver record free cash flow of EUR 7.7 billion, an increase of EUR 1.5 billion compared to 2019. This reflects favorable working capital movements as we significantly increased focus on receivables. At the same time, we re-phased our CapEx investment in light of COVID-19 and there was a reduction in cash tax paid, partly driven by tax on the disposal spreads in the prior year. Our cash conversion was strong at 129%, and our net debt is sitting at 1.8x underlying EBITDA. Return on invested capital was 18%. This reflects higher goodwill and intangible assets from the Horlicks acquisition and lower underlying operating profit after tax. And with that, let me hand you back to Alan.

[Alan W. Jope, CEO & Executive Director]

Thank you, Graeme. Let me just summarize. In a year that saw unprecedented uncertainty and volatility, we're pleased with our performance, thanks to our resilient portfolio, and frankly, newfound levels of agility and responsiveness in Unilever. We've delivered a clear step-up in competitiveness, together with strong profit and cash delivery despite making the choice to continue to invest strongly in our brands. We also continued our strategic progress and entered 2021 in good shape. While volatility and unpredictability will definitely continue through this year. We are confident in our ability to adapt to this rapidly changing environment. Now let's move on to the second part of this morning's presentation. Our strategy refresh and financial framework. Over recent months, we've spent a good deal of time sharpening our strategy to ensure that the choices we make and the actions we take best position us for success. We're going to take you through that thinking now, starting with our vision and our differentiating strengths, moving to a scorecard of our delivery against the strategy that we set out in 2017 and sharing the strategic choices that we're making for future growth. Graeme will then talk you through a bit more detail on our multiyear financial framework before we open to questions. Let me start with Unilever's vision, which is simply to be the global leader in sustainable business and to demonstrate how our sustainable business model drives superior financial performance, consistently delivering results in the top 1/3 of our industry. It's a vision that's bold and ambitious. It differentiates us in a way that is increasingly being linked to superior performance and returns. And it energizes and engages our people who are excited to work at a company which puts winning at the heart of our sustainability agenda. And what I want to do this morning is give you a sense of how we intend to pursue that vision, creating long-term value for all of our stakeholders. For many decades, Unilever has been recognized as a company with great brands, a far-reaching global footprint and a determined belief in doing business the right way. And that's just true now as it was 50 or 100 years ago, but it's even more important today. We think Unilever has 3 differentiating strengths, which the data clearly tells us, create competitive advantage: the first is our powerful portfolio of leading brands and category positions. Secondly, our strong presence in the growth markets of the future; and thirdly, our position as the global leader in sustainable business. Let's start with the first of those strengths, our portfolio of leading category and brand positions, which is why around 2.5 billion people use a Unilever brand every day worldwide. We have clear global leadership in 6 categories and in a seventh, we're the volume leader, but not yet the value leader. And together, these 7 category represent 2/3 of our global revenues. And it's a similar picture in our brand footprint where more than 50% of our global turnover come from our 13 biggest brands, which generate more than EUR 1 billion of sales each in 2020. The biggest, like Dove or Knorr, generate EUR 4 billion to EUR 5 billion of turnover. In addition, 81% of our brands sit in category country sales, where we are #1 or #2 in the market. Now that's a reflection not only of the quality of our product performance, but also the strength of our marketing, where we've been voted by the Effie index as no less than the world's most effective marketer for the last 4 consecutive years. To be honest, I take great pride in this portfolio of brands, mostly global, a few local jewels, purpose-led, future-fit. It's a portfolio that any marketer worth their salt would dream to have access to. 14 of these are in the top 50 consumer brands with the highest household penetration globally according to Kantar, and that places Unilever as the highest-ranked company in terms of these big, big worldwide consumer brands. Now speaking of unparalleled reach, Unilever's second differentiating strength is our strong presence in the geographies that will be the engines of global growth in the years ahead. We have the largest consumer footprint of any FMCG manufacturer with more than 40 billion consumer reach points. This is the number of households that buy our brands, our penetration times the number of times that our brands are chosen by shoppers frequency weighted by population. It's a Kantar metric. We have unmatched capability in driving market development, complemented by extremely strong distribution networks, long-standing customer relationships and very deep consumer insights. And in addition, our frontline businesses are completely managed by strong local leadership in China, for example, 98% of our managers are Chinese. We're a Chinese company, and that keeps us close to the market and close to changing consumer habits. So drilling into the growth markets of the future, I think you'll find this an interesting chart. These 10 countries are expected to contribute 2/3 of global GDP growth over the next decade. And that's shown in trillions of absolute growth in the blue bars. Any global future-fit FMCG business really has to have a strong presence in those countries to compete successfully in the future. And the purple bars show Unilever's revenues in billions in these critical growth markets. And at the top is our ranking amongst the 18 companies in our peer group that we use. So we have a #1 position in 5 of the 10 markets: India, Indonesia, Turkey, Pakistan and the U.K. We have a strong #2 in Brazil and Vietnam. And where our competitive position is not #1 or 2 in the United States or Canada, for example, we do have scale and have set them as strategic priorities. So we think we're well positioned to capture future growth, and we think this footprint is a significant strategic advantage. Our third differentiating strength is global leadership and sustainability. Being a genuinely sustainable business is not easy. It takes long-term commitment and deep expertise that only come with time and with effort. And so we see our leading position on this unique strength as we enter an era defined by the expectations of consumers that businesses must play a positive role in society as an important advantage. Our sustainability leadership is reflected in many rankings, whether it's being voted as the global leader in sustainable business in GlobeScan Survey of Experts for the tenth year in a row, may I say, or whether it's being named by Dow Jones as an industry sustainability leader since 2014 or by the Climate Disclosure Project for our climate actions. Our work to be a sustainable business leader is widely recognized. Just take one example here. This is a chart that demonstrates the leadership position in GlobeScan. This is expert polling, which puts us ahead of many other companies and leading brands that we, frankly, greatly admire and are proud to sit alongside. There is clear, growing and compelling evidence that sustainable business drives superior growth. Now the growth equation is quite straightforward. It's that measurable brand purpose grows measurable brand power. And brand power, in turn, drives market share and growth. And you can see the incredibly strong correlations here across thousands of data points, as showing that brands, which are playing a positive role in society that are more powerful, brands that carry more brand power deliver greater volume market share. And both these correlations have got an R square at over 0.7. And we see this in our own brands. We now have a robust empirical methodology to track the relationship between measured brand purpose and brand growth at a brand country sell level. And in aggregate, Unilever's brands, which are seen by the consumer as more purposeful, grew USG more than 2x faster than the rest of the portfolio. This trend is corroborated externally with Kantar data across multiple sectors, showing that brands that were stronger on purpose grew twice as fast as brands that were seen as average on purpose, and that's, by the way, over a 12- year period. On cost and on risks, the picture is equally clear. Throughout our operations and supply chain, sustainable practices save us money. Since 2008, we've avoided some EUR 1.2 billion of costs as a result of sustainable sourcing and eco-efficiencies in our factories. And finally, we know that our leadership in sustainability acts as a magnet for talent. It's a driving force behind our status as the #1 employer of choice in 54 out of the 75 markets where we measure, including almost all the markets where we have a formal graduate recruitment program, and in our biggest countries, the U.S., India, China, Indonesia and Brazil. So in summary, we do have extraordinary category and brand positions, a tremendous geographical presence in the right growth markets for the future and clear and long-standing sustainability leadership. And these we believe are strong foundations for future growth. Let's focus just briefly on how we've performed against the last strategy, the one we set out in 2017, before moving on to execution and our future strategic direction. The 2017 scorecard represents a strong foundation, whether it's been creating a simpler, faster organization, unifying our legal structure or moving faster on portfolio evolution, we've done what we said. And on the financial metrics, we accelerated margin progression, delivering over EUR 6 billion in savings over the period, achieving over 100% cash conversion and maintaining a high ROIC, whilst continuing to reshape our portfolio through acquisitions and disposals. Margins have improved by nearly 300 basis points, which puts us at an even stronger premium on future top line growth as a value creation lever. And while we're happy with our margin progression, the outcome on top line growth has not been as strong as we wanted. In 2017, we set out a multiyear range for underlying sales growth of 3% to 5%. And while we've come just within that range, as I've said before, it's not where we want to be. Our single-minded focus as a management team remains on accelerating top line growth. Let me touch on 2 steps that we've already taken: simplifying our organization and creating a blueprint for operational excellence. Until early 2019, we had a structure where all global functions, all the divisions and all the market clusters reported into the CEO. And I believe this is too broad a span, so we brought back the COO role, introduced a flatter organization and removed the regional layers. So the divisions still report to me, but we now have 15 market performance management units directly under our COO, Nitin. And this has become our mechanism for swift and disciplined translation of strategy into action as well as the rigorous vehicle for landing our 5 growth fundamentals into our markets. Speaking of which, the 5 growth fundamentals have brought real focus across the business on our empirically proven drivers of growth in consumer goods. And they're working. The percentage of our turnover, that's increasing household penetration, has grown to 60%. We know there's an absolute correlation between household penetration, volume market share and growth. We also know that brands that take volume share in an economic downturn typically grow 1.4x faster than the rest of the market over the next 5 years. And that's why we're so laser-focused on household penetration and volume-led share growth. Innovation has been another priority where we're stepping up. As the COVID pandemic rapidly changed consumer habits in 2020, we delivered innovation at speeds across many brands in our portfolio that we've not seen before. We know we can do even more in this space with an innovation program that is increasingly focused on fewer innovations that are more rigorously tested and with greater incrementality to our portfolio. We've also increased our focus on execution in the channels of the future, designing products for those channels and organizing our business behind them, and e-commerce is a great example. As Graeme outlined, it was a strong growth space for us last year. It grew by over 60% in 2020. And I just want to repeat the point in case you missed it, that we sell over 50% of our Prestige beauty portfolio through those e-commerce channel. In addition, nearly 60% of our brands are now seen as more purposeful by consumers, and our brands with purpose are really starting to cut through. Finally, as well as delivering savings, cash, of course, has been a critical focus under our fuel for growth fundamentals. And this savings in cash delivery is another sign of Unilever's growing operational grip. So this is the data that demonstrates both the issue we were trying to address and the progress that we've made. So look back at 2018 and into 2019, frankly, our competitiveness was not where it needed to be in order to drive market share and top line growth. If you fast forward to 2020, and in particular, the quarters that made up the second half, you see a completely different picture. The chart on the left represents our competitiveness over 3 years to the end of 2020 on an MAT basis. And the chart on the right reflects the quarterly positions since late 2019. At the end of December, as Graeme mentioned, some 65% of our turnover is now winning market share by value. We think this reflects a more disciplined, a more execution-led organization, the company-wide focus on the 5 growth fundamentals and the sustained investment behind winning brand mixes. We've talked to you before about targeting a position where 60% of our turnover is winning market share by value, and that hasn't changed as a target. It's holding the position consistently for an extended period of time. That's important. And so while we're pleased with the progress we've made, the real key now is to sustain it. So having outlined Unilever's differentiated strengths, and shown, and I hope how our focus on execution has been increasing our competitiveness. Let's focus now on some of the future-facing strategic choices that we have made. The first of these choices is to develop our portfolio into high-growth spaces, positioning the company for faster growth. And our strategy here is quite clear. We will continue to evolve our portfolio towards higher growth segments in Home Care, Beauty, Personal Care and Foods, both the choices we make for organic investment and in the acquisitions and disposals that we pursue. The places where we choose to deploy our capital will be guided by these clear investment criteria. Are the spaces we're focusing on a sufficient size? Are they intrinsically higher growth? Do they have strong potential in the growth markets of the future? Can we see a route to market leadership? And finally, are they in product categories that are sensitive to Unilever's marketing and technology know-how? As we apply to these -- these criteria to our portfolio, some categories really start to emerge as where you should see us expect to focus the lion's share of our capital deployment in the years ahead both organically and via acquisitions. And those are hygiene, both hand hygiene and surface hygiene, across Home Care and BPC; a perennial priority, skincare; Prestige beauty; functional nutrition and plant-based foods. Now let me share how we think about our investment choices across Unilever because it's not a simple 3 division view. Whilst organizationally, Unilever has run as 3 divisions, from a strategy and investment view, it is a continuum. Some key opportunities, like hygiene on the left or functional nutrition, do straddle the borders of our different divisions. Our clear to play investment criteria have led to 2 categories, spreads and tea, falling out of our focus. They don't meet those criteria. And you will see us continue to reshape our portfolio where we think parts don't meet the specific criteria that was set out. On the other hand, hygiene, skincare, Prestige beauty, functional nutrition and plant-based food is where our investment focus will be in the years ahead. In hygiene, the opportunity is chiefly going to be via organic growth through our existing powerful product and brand portfolio. In health and well-being, it will be partly through organic growth, but also through the good use of our capital through acquisitions. And as you can see here, this is very much a continuation of what we've been doing in recent years. Of the EUR 16 billion of capital that we've deployed in acquisitions over the last 5 years, over 70% of that has gone into the priority focus areas in skincare, Prestige beauty and functional nutrition, so quite concentrated. And let me just reiterate, as we will do at this point, [ inorganic policy change ] we'll be guided by strict criteria and rational economic choices, we know there is significant value at stake. And we'll continue to be disciplined in our approach looking at the portfolio in its entirety as we judge how best to create and enhance value. Actually, we're very proud of the progress we've been making on building our Prestige beauty and functional nutrition businesses. Our Prestige unit is now the best-performing luxury beauty business in the market with the rollout of acquired brands like Dermalogica and Tatcha, building our scale to what is now a EUR 700 million business. And the same is true of functional nutrition, which, through our vitamins, minerals and supplements brands like OLLY and Liquid I.V. and the acquisition of Horlicks, has put us on course. And this business will be well over EUR 1 billion in 2021. So although at around EUR 2 billion revenues on an annualized basis, these 2 businesses are only 4% of our turnover, we anticipate them to contribute disproportionately to our growth in the future. The second strategic choice that we're making, and I'll cover it more briefly is to win with our brands as a force for good, powered by purpose and innovation. I've already shared how brand purpose drives brand power and growth. And we're only seeing that trend accelerating. Faced with the huge social and environmental crisis in the world, we know that sustainability matters more to young people than ever before, and that young people, in particular, feel strongly that it's time for businesses and brands to show more responsibility. Actually, Gen Z and Millennials are already the majority of the adult population globally, and they simply care more about the positive impact of the brand choices that they're making. As we continue to grow our brands with purpose, you're going to see more of them take a leadership position, driving meaningful, tangible action on issues that our company. Our consumers care deeply about: improving the health of the planet through our Clean Futures pledge to move to fossil-free chemistries in our Home Care brands; or to ensure 100% of our plastic packaging is reusable, recyclable or compostable; by improving people's health confidence and well-being, such as through the actions that Dove's taken to reach 65 million young people with our Self-Esteem campaign and an aim to reach 250 million young people by 2030; or by contributing to a fair or more socially inclusive world, whether that's through Ben & Jerry's campaigning for racial justice and refugees' rights, or indeed, our broader #UNSTEREOTYPE campaign to brake gender stereotypes and advertising. All these actions are differentiated through the science and technology that we deploy in our brands, brands that are winning not only through their purpose, but also through their superior quality and efficacy. And that's where they're fighting in the COVID virus or delivering on other points of superiority. Supporting this, you will see a sequential step-up in our investment in R&D over the next 3 years with our recently opened foods innovation center at Wageningen in the Netherlands as a good example of that commitment to stepping up our R&D spend. So this is how we'll win with brands as a force for good, powered by purpose and innovation. The third strategic choice we're making is to accelerate in the U.S., India, China and the other key growth markets of the future that I mentioned earlier. We really have strong brand and category positions in the U.S. and China. And you know our leadership position in India. Together, these 3 countries alone represent nearly 35% of our turnover today. They're forecast to account for 60% of global economic growth by 2030, and so this is certainly a strategic imperative for us. In the U.S., we have strong market positions across many categories from deodorants, skin cleansing, hair care to ice cream, dressings and tea. And we're improving our competitiveness in these positions. We've already made strides in areas such as hair care and dressings, and 2/3 of our business in the U.S. is now winning market share online. Much of the future-fit business that we're building in Prestige beauty and in functional nutrition,is in the U.S. I don't think I need to say too much about India. We're the -- by far, the #1 player. Hindustan Unilever is a phenomenal business that reflects our long history our unique network and strong consumer relationships in the country. Some incredible 84% of our business in India is winning volume share, with the most recent addition to our portfolio, Horlicks, doing very well since we took it over. And we see a significant opportunity to develop that market further. Our momentum in China has been steady and strong. We've created a EUR 3 billion and profitable business, and we have great opportunity to accelerate through partnerships with the likes of Alibaba and JD and a distribution model that's increasingly taking us deeper into the smaller cities of China. Beyond these 3 key markets lies much more opportunity with business propositions that we have in Brazil, in Indonesia, in the Philippines, in Turkey and Thailand and in Mexico, each delivering more than EUR 1 billion of sales a year. And I think you know about our strong presence in many other important emerging markets for the future. These are Unilever powerhouses, where we will continue to build on our unrivaled route to market strength. The fourth strategic choice that we're making is to lead growth in channels of the future. As you know, COVID-19 has only accelerated the adoption of e-commerce. But increasingly, we're having to manage e-commerce by subchannel as we see the different needs of pure-play and omnichannel as well as the fragmentation of digital models, the rise of social commerce, fast delivery, live streaming e-commerce. And it's not only transforming our B2C relationships. It's also transforming the decades-old distributor trade to open new opportunities in e-B2B. There are over 14 million small stores in Asia and LatAm alone. We directly cover 5 million of these stores today, and we reach the balance through wholesale or other indirect routes. By the end of 2020, our eB2B program has already reached 1.5 million stores, and that number is growing by the month. So to continue to drive that growth, we are ensuring that our innovation and merchandising strategies are very deeply rooted in shopper insights, shopper insights that bring category value growth through category development and through channel-relevant assortments. Our fifth and final strategic choice is to build a purpose-led, future-fit organization and growth culture. Agile ways of working are allowing us to redeploy both temporary and permanent resource to support our strategic priorities. By leveraging automation and by driving digital transformation, we can release capacity in areas of the business that focus on repeatable transactions. Our FLEX platform, for example, has helped us just in the last year to reprioritize 500,000 worker hours towards more than 3,000 business-critical projects and has enabled many employees to choose flexible employment models that suit their personal life choices. At the same time, we want to ensure we continue to foster a truly inclusive and diverse culture. We're working to eliminate the institutional and unconscious biases that limit some employees' ability to achieve their full potential. We've really been recognized for our progress on gender, and we're extending that focus to race disability and the LGBTQI+ community. Alongside this, we recognize that changes to the world of work requires to equip our employees with new skills. The WEF's 2020 Future of Job Reports show that 40% of core skills will change in the next 5 years, and fully 50% of all employees will need reskilling. So we continue to build capability, raising the ceiling on the strategic skills that we need to grow the business. We saw a 60% uplift last year in use of our online learning platform called Degreed, 4 million hours of learning. That's an average of more than 30 hours for every single Unilever employee. We are already a learning organization at scale. And I won't labor the point, but an ongoing mindset of organizational efficiency as well as effectiveness has become just part of how we do business. So here they are, the 5 strategic choices in summary, actions on our portfolio, markets, brands, channels and people. They are underpinned, of course, by our rediscovered passion and provide clarity for you on the distinct choices that we are making to accelerate growth. You'll be hearing a lot more about them in the weeks, months and years to come. And I think I need to take a break now and hand over to Graeme, who will cover our multiyear financial framework. Graeme, back to you.

[Graeme David Pitkethly, CFO & Executive Director]

Yes. Thanks, Alan. Take a break after that long shift. Before I go into our multiyear financial framework, let me start by breaking down the 3 big levers that we'll use to step up our top line growth. Firstly, there is tremendous opportunity to grow our markets through market development. Now we do this by introducing consumers to a product that they didn't previously use, fabric conditioners, hand dishwash, or surface cleaners are good examples. We'd also do it by increasing usage frequency or by encouraging them to trade up into newer, more premium formats, such as moving from a dishwash bar soap into dishwash liquid or packaged tea rather than loose tea. This type of market development can result in significant incremental growth in our categories. Secondly, competitive growth. As Alan showed, we've delivered a step change in driving operational excellence through our continuing focus on the 5 fundamentals of growth. And as a result, we're winning market share in over 60% of our business in the last quarter. And finally, we'll step up our top line growth by continuing to evolve our portfolio towards higher-growth segments in hygiene, in skincare, Prestige beauty, functional nutrition and plant-based foods. So looking forward on a multiyear basis, we expect our underlying sales growth to be ahead of our markets, delivering in the range of 3% to 5%. We will deliver profit growth ahead of that underlying sales growth on a comparable basis and a sustained strong cash flow over the long term. We are very disciplined on cash, and that won't change. 2020 was an exceptional cash year with delivery of EUR 7.7 billion, but the progress made on working capital too, for example, from an already strong position, can be sustained through focus. We will continue to deliver long-term value creation by driving earnings growth, together with a growing dividend. Moving to other long-term financial metrics. We have a healthy pipeline of savings programs that provide fuel for growth, and we expect to continue to deliver savings of EUR 2 billion per annum from our well-established initiatives, such as 5S, ZBB and our technology-enabled restructuring programs. We will invest EUR 1 billion per annum in our assets, capabilities and organization over the next 2 years to strengthen our foundations for the future and ensure that we remain future-fit. I'll come back to this. ROIC is one of the targeted metrics in our long-term incentive plans. And as you saw from our 2017 scorecard, we have a good track record. We expect to deliver ROIC in the mid- to high-teens over the medium term as we will balance the capital cost of shifting our portfolio towards higher-growth segments with the discipline to maintain a high ROIC. For leverage, we expect to keep our leverage at around 2x EBITDA over the long term. Over the last 3 years, we have reshaped our organization by investing behind modernizing and optimizing our supply chain, that includes 24 site closures; major overhead transformation programs, for example, addressing the stranded costs from the sale of our spreads business; and organization redesign to bring our marketers closer to our markets and our consumers and accelerating the transition to digital ways of working across Unilever. Together, this investment delivered incremental savings of EUR 1.5 billion with an average cash payback of 3 years. Over the next 2 years, we will invest to ensure that our organization remains future-fit and becomes increasingly digitized, driving process harmonization, new data structures and building analytics capability to enable faster, better decision-making, and importantly, free up the burden of frontline teams working on back-office processes. This will increase the focus on consumers, customers and growing the business while continuing to drive efficiency savings. We expect to deliver incremental savings of EUR 1.3 billion from this investment with an average cash payback of 3 years. Moving to our capital allocation framework. Because of our high ROIC, our first priority will continue to be operational investment, investing back in our business, creating the platform and the momentum for future growth. The second set of choices for capital allocation are about reshaping our portfolio through acquisitions, disposals or partnerships as we continue to evolve towards the higher-growth spaces that Alan described in Home Care, Beauty, Personal Care and Foods. And the third allocation is about returning value to our shareholders, whether through dividends or share buybacks, which continue to be one of a suite of tools within our capital allocation framework, which aims to keep our leverage at about 2x EBITDA. I'll now hand you back to Alan to wrap up.

[Alan W. Jope, CEO & Executive Director]

Coming off mute there. Thanks, Graeme. Well, 2020 was certainly a volatile and unpredictable year in which Unilever demonstrated its resilience and found a new type of agility through the COVID-19 pandemic. We've delivered a step change in operational excellence through the focus on the fundamentals of growth. We've progressed our strategic agenda through building our existing sustainability commitments and completing the unification of our legal structure. Our purpose is to make sustainable living commonplace, and our vision is to be the global leader in sustainable business. And that differentiates us from our peers. We will demonstrate how sustainable business drives superior performance. We'll do it by leveraging our 3 differentiating strengths that position us well for the consumer and demographic trends of the future. And we've set out plans to drive long-term growth through the 5 strategic choices that we've made. By doing so, we will deliver long-term value for all our stakeholders. Thanks for your attention during this longer than usual presentation. That's the end of our prepared remarks, finally. And we'll now take questions. Richard, back to you.

[Richard Williams, Head of Investor Relations]

Thank you, Alan. Thank you, Graeme. So we're now running over to Q&A. [Operator Instructions] So our first person we have in the queue is Warren Ackerman from Barclays. Do you want to go ahead with your question, Warren?

[Warren Lester Ackerman, Head of European Consumer Equity Research]

Yes, Richard. Hopefully, you can hear me okay. The audio is a bit crackly. So my -- firstly, on competitiveness. I was struck by the value share picking up from 51% to 65% in December. Can you outline where those gains are coming from by geography and category? And does it include e-commerce? The reason for the question is, when I look at Colgate and P&G growing 8% over the last quarter, and you doing sort of 3.5%, obviously, you have different portfolios, but there is quite a gap. And then when I look at Beauty & Personal Care growing 1.2% for the year, 1.5% in the quarter, is that competitive growth in that division in your view? And then secondly, just around margin. Lots of moving parts. Just wondering whether, Graeme, you can touch on some of those for 2021. Specifically, I think in input costs, R&D step-up you talked about, gross margin advertising. You're saying margins will be up medium, so can you confirm that you expect margins to be up in 2021 against 18.5% base?

[Alan W. Jope, CEO & Executive Director]

Graeme, [ you take margin question ], so on competitiveness, Warren, let me just say that it's very broad-based. Most of our markets or an increasing number of our markets are starting to fold e-commerce into market share reporting, it's not universal. And I think it's fair to remind what Graeme pointed out, which is the one place where competitiveness is not yet above 50% is in the United States. And some of the comparisons with the competitors that you mentioned are largely due to differences in geographic footprint. So we're 18% in the U.S., which has enjoyed very good growth over the last 12 months. Some of our peers, it's up to close to 50% of their businesses in the U.S. So I think, at the moment, we can explain all of the difference in headline growth through different category country portfolio differences. Our step-up in business winning share is very broad-based across divisions and across geographies with work still to do in the U.S. itself. Although in the U.S., the very rapid growth that we are seeing in things like vitamins, minerals and supplements, that's not captured in the market share that we're reporting. And similarly, our Prestige business, is more or less flat for the year, down 2%. And to be honest, that compares with a peer set that is typically down somewhere between 10% and 30%. So our Prestige business has done rather better. But the majority of the difference in headline number is due to footprint. And as I've said now, competitiveness is broad-based with work still to do in the U.S.

[Graeme David Pitkethly, CFO & Executive Director]

Warren, picking up your question on the margin average going forward. Let me just spend a little bit of time on the drivers in 2020 for a second. As we said, within gross margin, which was down by 50 basis points, there was a 90 basis point impact from COVID it. That was the 2 buckets, 50 basis points is direct on costs, so things like PPE, distancing and safety protocols on our sites, alternative sourcing, temporary labor to cover absenteeism, et cetera. That was almost EUR 0.25 billion all in. And we also had 40 basis points of adverse mix from the [ categories ], and those which are constrained through channel closure. A couple of examples of that. Our skin cleansing business has a gross margin which is about 10% lower than the rest of Beauty & Personal Care. So as skin cleansing surges relative to the rest of BPC, that gives us negative mix. And similarly, our in-home ice cream business has a gross margin is about 10 percentage points lower than out-of-home ice cream. And therefore, as we saw a switch from out-of-home to in-home that gives us negative mix. And all in, that's been negative 40 basis points of mix. And we also -- I should remind everybody, we made EUR 100 million of donations of product in 2020 and had about a 10 basis point impact on margin. But looking forward, what would we expect to see? Well, we would expect the COVID-related impact on cost and the adverse mix to continue into 2021, and particularly, the mix will be impacted by the category demand patterns. So as the pandemic progresses, in particular, as lockdown and restricted living changes, we may see some shifts in that, but we're expecting we'll see that continue into 2021. We'll also be lapping a softer base, of course, in the first half. At the BMI level, I should say, we conserved a lot of BMI during lockdowns because there weren't places to advertise. And then when we innovated and created the mixes, which were specific to COVID, we really strongly stepped up investment behind our brands in the second half. So although absolute BMI spend was up EUR 160 million versus 2019, it was down 100 basis points in the first half but up 100 basis points in the second half. We're really investing very strongly behind the brands now in the second half and Q4 in particular. Now in terms of what all that adds up to for -- well, sorry, let me just comment a little bit on commodity outlook as well because I think that's relevant for you. We are seeing quite a bit of commodity inflation and a larger foreign exchange impact as we go into 2021, particularly in Latin America, in Turkey, in India and in South Africa. And we've got some commodity inflation coming through, in particular, tea in India, in palm oil, in liquid oils and in food ingredients. So we've got some inflationary pressures coming forward. And we do expect mid- to high single-digit commodity inflation in the first half. So we have to be at the top of our game in pricing going forward. So now what all that adds up to, I'm not going to give an outlook on margin specifically for 2021 other than to say that in accordance with the multiyear framework, we would expect that our profit grows faster than our top line growth.

[Alan W. Jope, CEO & Executive Director]

Thanks, Graeme. I just want to follow-up on 2 data points that I should have given Warren. The first is our coverage on market share is 70%. So there are parts of the business like Food Solutions, out-of-home ice cream, some part of the luxury portfolio where it's hard to get data in some of the tail countries. But we got about 70% coverage. And the second is just to confirm, in the latest 12 weeks, we're over 60% winning value share in all 3 divisions, in BPC, in Home Care and in F&R. Just a couple of data points there. Richard, back to you.

[Richard Williams, Head of Investor Relations]

Okay. Thank you. Thanks, Warren. So next question is from Alan Erskine at Crédit Suisse.

[Alan Erskine, Research Analyst]

Hope you can hear me. Can I just sort of follow-up on Warren's question? I mean, you talk about improving competitiveness. But at the end of the day, you reported 1.9% USG for the year. And if I've done my math correct, Argentina pricing was 30, 40 basis points of that, which is clearly below the 3% to 5% run rate you think the group is capable of and below most of your peers. I think the obvious conclusion to draw here is that the net impact of COVID and the lockdowns has been a negative for you. So given that we do expect some sort of return to normalization in FY '21, I just want to confirm that your multiyear 3% to 5% goal applies to '21. My second question is with regards to functional nutrition. I mean, I would make a distinction between Horlicks, which is essentially a malted beverage, and some of the more functional VMS acquisitions that you've made. And my question is given -- you have a bit of a mixed record where you've gone outside your core areas. I think things like Blueair and Dollar Shave Club. What gives you the right to win in the VMS space?

[Alan W. Jope, CEO & Executive Director]

Graeme, do you want to talk about the top line outlook in the closer end period? And I'll come back on VMS.

[Graeme David Pitkethly, CFO & Executive Director]

Yes. Alan, well, obviously, the -- I mean, the principal driver of headline growth at the moment, obviously, is a particular geographic and category makeup of each of the companies in our peer group. And Alan, that's absolutely why back in the first quarter, we withdrew our guidance and reset. And we're very clear on how we measure the performance of the company. We measure that performance through competitive growth, and that's delivered for us. We've stepped up our competitiveness significantly during the course of the year, as Alan's presentation described, and we exit 2020 in a much improved position competitively than we did before. And I don't really know what else to say about that other than we've done what we said we would do. Clearly, the best way to determine the performance of a company in this volatile situation is through the competitiveness of your business. We measure it scrupulously. That's what we told our business to focus on, and that's what our business has delivered. And the particular top line outcome that happens as a consequence of that in any single year is -- has everything to do with the particular categories and geographic footprint that you have and nothing to do with the underlying performance of the business, provided you're comfortable that your growth has been competitive and ours has.

[Alan W. Jope, CEO & Executive Director]

Thanks, Graeme. Alan, on the functional nutrition, we absolutely do not see Horlicks as a malted beverage. I think that was one of the problems the business had. Since we've taken it over, it's growing double digits. And one of the reasons is that we're doing exactly what I said we would do in the criteria for the businesses that we're going into, which is we are applying marketing and technology know-how. So we were able to fortify Horlicks with zinc and offer it on an immunity platform, which, of course, is highly relevant in the current circumstances with excellent science behind it and even better marketing, if I may say. And we see huge runway for Horlicks as a carrier for the micro nutrition needs of emerging markets in India and beyond. And then if you just think about the VMS business, so Equilibra, OLLY Liquid I.V., SmartyPants, those businesses, since we've taken them over. I mean, we're several years into Equilibra now, it beat the odds in Europe. It grew mid-single digits in Europe last year. All the others are growing -- I'm embarrassed to say, very high double digits, in fact, it's -- we're seeing super growth. And the founders are still with us, and they see Unilever's nutrition [ knowledge ] and Unilever's ability to bring operating efficiencies as an absolute gold mine to continue the growth and step up the profitability of these VMS businesses. So the criteria that we laid out on the areas that we would prioritize, where we bring knowhow certainly apply on both Horlicks and VMS. And they share very common characteristics, just different delivery mechanisms for different markets. And if you had to pick one part of the business, I'm optimistic about delivery of super growth, it would be that one.

[Graeme David Pitkethly, CFO & Executive Director]

Alan, could I just add on the points that Alan gave around where we've stepped out beyond our categories? Alan, you could say exactly the same about our Prestige beauty business, and we think we've created what is currently a very successful Prestige beauty business. It's performing better as far as we can tell than any other Prestige beauty business in the world right now. And so yes, I'd just point that out.

[Richard Williams, Head of Investor Relations]

Okay. Thank you. Thanks, Alan. The next question is from Bruno Monteyne at Bernstein.

[Bruno Monteyne, Senior Analyst]

My first question is on India. Clearly, there's new alliances between technology companies and the retailers, and they're all giving access to the final mile of the informal trade in India through e-commerce, similar to add up in China. Do you see that as a potential risk that sort of giving those new platforms that will allow other international brands to catch up with your deep penetration in India? Or do you not see that as a problem? And the second one is you talk about the purposeful brand, and I recognize a lot of what you say there. But then -- so other counter data also suggest that if you ask any consumer in this 3-brand average panel, can you list us any brand that are more responsible to the environment others? Only about 20% of consumers were able to name a brand. And so to the top brand only have 5%, 6%. So while they care and they say they care, they seem to have very little unaided collection of the brands that deliver for them. Do you recognize that data? Do you see that changing? And does it give you any concern?

[Alan W. Jope, CEO & Executive Director]

Graeme, do you have any preference? Do you want to take the first one and I'll take the second one?

[Graeme David Pitkethly, CFO & Executive Director]

I'll take the first one. Yes. Bruno, the -- I mean, you know the strength of our route-to-market distributive trade not just in India, but in many parts of our sort of growth market footprint. We've talked about it many, many times. As Alan said in the presentation, we -- there are about 14 million outlets within that universe globally. We reach 5 million of them directly. We have salesmen calling, having a conversation, having a relationship with those stores. But we see both risk, yes, but also tremendous opportunity in the application of digital and digitizing that part of our business. And we've been very, very active with that. So when we talk about our e-commerce growth at 61%, 1/3 of that business is what we call eB2B. And that, Bruno, is exactly the digitization of that distributive relationship that you're talking about. Now it grew at over 65% in 2020, that aspect of our business. A lot of that was in Latin America with our Compra Agora platform that we've rolled out now to 10 or so countries. But in aggregate, of the 5 million stores that we directly call on today, we have digitized 1.5 million of those stores already. And as Alan said in his presentation, we're adding to that very, very quickly. So we see it, I think, more through the lens of opportunity than we do as risk. And of course, you wouldn't expect us to be sitting back passively, not seizing all of the opportunity that digital and the power of data represents as we apply that to what is a tremendous asset of Unilever.

[Alan W. Jope, CEO & Executive Director]

Bruno, on purposeful brands and consumer awareness, I'm just going to take a second to share why we're so confident on our assertion that purpose drives growth. So 2, 3, 4 years ago, we used qualitative criteria in the company to identify what we called our sustainable living brands. So we checked across what the brand was doing, what it was seeing, how it was perceived by consumers. And we would conclude for example, Dove and Ben & Jerry's, yes, they qualify as sustainable living brands. Then we took that those brands, and we quite simply added up how they were growing versus the rest of the portfolio. But we felt slightly uncomfortable that, that was insufficiently consumer-led. And we wanted to hold ourselves to a higher standard. So for the last couple of years, we've had in place tracking in 571 category countries sells around the world, where one of the questions that we ask for all brands that the consumer is aware of, us and the competitors, we ask a question about whether that brand makes a meaningful contribution to planetary or societal well-being. And that methodology gives us a consumer-led view at a market level, so not general aggregates, on amongst brands that they're aware of how purposeful or sustainable are they seem. And the data is so compelling, in truth, we've underplayed it slightly in this presentation. The difference between -- and growth between the brands that the consumers see as being sustainable versus not is dramatic. And then you layer on top of that, the 12-year longitudinal study of tens of thousands of brands that Kantar have looked at across multiple sectors. And they've concluded that those brands are growing at double rate of the brands that are not purposeful. And as far as our consumers aware of it, there was a chart I flicked over quite quickly that shows lower intrinsic interest amongst older age groups, Baby Boomers and Gen X, but huge levels of interest amongst the majority adult population in the world, which is Millennials and Genzennials. So we think not only is this driving performance. Not only is it already highly relevant, but it's going to increase in relevance over time. So we see no evidence whatsoever of consumers unable to distinguish brands based on purpose.

[Graeme David Pitkethly, CFO & Executive Director]

Alan, can I just come back to the first question quickly for Bruno, because I realized I didn't answer his final point about risk of increased competition as the distributive trade digitizes. I think, Bruno, the key thing to remember is that it's the consumer who decides and our brands are incredibly strong in these markets. We have incredibly strong businesses and incredibly strong brands. Across Unilever, the brand power of Unilever's brands is holding or growing in more than 80% of the company. It's also important to note that the way we do this is by focusing on the ultimate customer who's the small holder. And we have strong existing relationships there. And we can help that small holder to grow their business through assortment, through promotions, through recommendations and what the consumer wants in terms of basket and correlation between brands. So I think that's a very significant advantage.

[Richard Williams, Head of Investor Relations]

Thanks, Graeme. The next question is from Celine Pannuti at JPMorgan. Go ahead, Celine.

[Celine A.H. Pannuti]

Yes. I -- so my first question is on midterm. And maybe if I reflect on some of the comments before in terms of you not being able to go to the 3% -- deliver on the 3% to 5% despite being more competitive, as you believe. Is it in the end an issue about your category growth exposure? So could you talk about the growth that you see in those, I think, 5 subcategories you are mentioning versus the remainder of -- and the core of the Unilever business. And given that you've done some portfolio changes over the past couple of years, and that has not helped, does it mean that we should expect an accelerated portfolio shift maybe through M&A. So that's my first question. And my second question, more on the [ short end ] side. I was surprised about pricing, that came below my expectation, in fact, across many geographies. So can you talk about the pricing environment, especially in the light of what you said, higher raw material cost, how confident are you that you will be able to reverse that weakening pricing momentum?

[Alan W. Jope, CEO & Executive Director]

Great. Let me take the first one, Graeme, and you can comment on pricing. Celine, let me try to answer your question in the following way, which is over the 3 years leading up to 2020, our best estimate is that the market was growing somewhere 2.5% to 3%. We also know algorithmically that every 10 basis points -- sorry, 10 percentage points step-up in competitiveness. is worth about 100 basis points of growth. So our history has been that, growing 3% in markets -- growing at 2.5% to 3%. All else being equal, the step-up in competitiveness, we would have added at least 100 basis points of growth. Now the environment in 2020, of course, was completely turned on its head. We saw collapses in certain categories and super growth in others. Similarly, geography, so if you've landed from Mars, and look at our growth last year, you would say, "Oh, it's great that U.S., U.K. and Australia, your high-growth markets." Actually, for the long term, the U.S. will be an important contributor, but places like India and China, of course, become more important. So what you see -- I would be very careful of drawing conclusions from aggregated chaos which is what 2020 is, but rather look at our performance -- competitive performance when markets resume a more normal growth pattern, where we are very confident that we would, all else being equal, with the current levels of competitiveness, be well into the range that we're guiding. That's why we're confident to bring back that range guidance. As far as the 5 subcategories that we called out, we're not going to go into a decomposition of their growth levels. But they are at least twice the average of the rest of Unilever. So let me just pause there. Graeme?

[Graeme David Pitkethly, CFO & Executive Director]

Celine, let me first of all pick up what happened in pricing in 2020 and give you some of the dynamics there. So the first thing to note is that pricing was relatively low in Home Care, principally because the commodity environment in 2020 for fabric solutions, for the laundry business, was relatively benign. And of course, it's a very dynamic and quite a high commodity-driven category. And therefore, we didn't price because we didn't see the cost inflation. And then if I go a little bit by geography, in Europe, the -- pricing in Europe has been difficult for everybody for a long time, given the retail environment, et cetera. But in H2, promotional intensity did step back up after promotions were pulled at the height of the pandemic. We also had a little bit of a channel impact as we shifted from -- it's the same product, but we shift from out-of-home ice cream to in home ice cream. That price dynamic doesn't sit actually in -- it sits in pricing rather than in volume. Because, of course, we put volume and mix together as one metric. Then in the AAR region, Turkey and India actually had positive pricing. Southeast Asia, though, had negative pricing. Quite a few dynamics there. But again, there's quite a big fabric solutions business, there pricing turned negative in the second half because we passed on the reduced commodity costs to invest in competitiveness. That was one dynamic. And then there's one I'd say in particular, which is promotional intensity in Thailand. Thailand is a very challenged market from a market growth perspective. There is no real value portfolio in Thailand. And therefore, as you're making products affordable, it does show up in terms of promotional intensity. And then in North America, there weren't many promotions through much of the year, but they have been coming back into the -- at the end of the year. And we did invest a little bit in competitiveness through promotions in the fourth quarter. And yes, I mean, pricing in Argentina, of course. But I'd highlight that our volumes were positive in Argentina. And if I add all that up and look forward, and I'll not repeat the comments I made earlier about the outlook for currency depreciation and rising commodity prices in a few areas, it does mean that we're going to have to be at the top of our game on pricing. And our markets are absolutely on top of that as we look into 2020. And I think we've got a great track record. I mean, we grew pricing by 1.6%, I think, in '19, 1.2% in '18 and by 2% in '17. The key, as you know, to landing pricing is brand power, is strong brands. And as I said, in response to Bruno's question, 80% of our brands have got stable or increasing brand power. So that's a great platform if you need to price.

[Richard Williams, Head of Investor Relations]

Okay. Thank you, Celine. The next question is from David Hayes at SocGen.

[David Hayes, Equity Analyst]

So my 2 questions, firstly on portfolio management and then another question on ESG. So on portfolio management, just to kind of follow-up some of the discussion we've heard post-unification and so forth. Obviously more ambition for change. But 3 questions. One, can you kind of quantify that a little bit as you look at the vision for the group? Some of your peers historically have talked about up to 10% of sales being bought and sold. Is there any kind of indication you can give on kind of the ambition of change over the next 2 or 3 years? And I guess related to that, the metrics you've outlined for the medium term. You talked about return on invested capital being mid- to high single-digit -- sorry, mid- to high teens, but it's already high teens. So is that [ mostly ] including M&A? Or do you see other reasons why that ROIC might come down into mid-teens? And the second question on ESG. I think you're doing this presentation in the first quarter on more detail on your plans around ESG. You talked about R&D spend going up. But can you give us a little preview in terms of what incremental spend you might incur as you push forward on ESG? And whether that impacts the margin in the next couple of years or so.

[Alan W. Jope, CEO & Executive Director]

Graeme, do you want to have a crack at the portfolio point and ROIC, in particular? And I'll come back on the bundle of questions that were folded together under the headline of ESG there?

[Graeme David Pitkethly, CFO & Executive Director]

Sure. David, so I think we've been really clear -- much clearer than we've ever been before now on the areas we will deploy capital for portfolio change. And the critical role that portfolio change has in accelerating the growth momentum of the company, and for the long term, making our value creation algorithm, which requires a step-up in growth from 3% into that 3% to 5% range. But once that's achieved, there's a virtuous circle that takes place and the business becomes very value creating. And Alan touched on it in his remarks, but growing the business now off a higher margin base is much more strongly value-creating going forward. So we feel good about that. And obviously, we've got strong cash flow. And as we said, our priority is to invest in the business because of the high ROIC, and thereafter, change the portfolio with discipline and with focus, using the areas that we've called out, not just focusing on acquisitions but potentially disposals as well using both levers. And all of that, historically, just to pick up on a point that Celine made earlier, it's not true to say that our M&A capital hasn't given a growth result. There's about 70 basis points. Of growth from the acquisition and disposal activity that's taking place over the course of the last 5 years. So you see that working. On your point on ROIC in particular, we're not signaling anything really with mid- to high teens. It's simply the current 18% that we're at doesn't have the full year of the impact on the invested capital base of the Horlicks acquisition. The full impact of that comes in, in 2021 and will be about a 1% negative. And technically, we were told that high-teens cutoff is about 17%, and therefore, mid- to high teens is still an excellent ROIC and pretty much, at least top half, maybe even top quartile of the table in terms of ROIC across the peer group. So yes, we're not -- we just think on a multiyear framework, mid- to high teens is the appropriate expression.

[Alan W. Jope, CEO & Executive Director]

Let me take the points that you [ bundled under ] the banner of ESG. The first, I think there's a dangerous supposition around in some places that somehow or other -- our sustainable business model is a cost to the business. We don't see that at all. We see doing business sustainably as a very strong business case. I won't labor the point on growth, already went into that in a bit of depth with Bruno. But we are unequivocally clear that purposeful brands are growing faster. Secondly, on cost, we think we've taken out EUR 1.2 billion of cost by sustainable sourcing, for example -- and there's an interesting pattern here, which is very often, there is a short-term premium which results in a long-term discount. Let me give you a couple of examples. We made a commitment to move to renewable electricity in our operations. We achieved it a year early. There was initially an on cost. But as the market has swung, we found tremendous savings from the procurement contracts that we have around green electricity. Same on sustainable agriculture. Initially, there's often an on cost. But because yields go up with sustainable practices, typically, over time, it's a cost advantage. So there is sometimes an early hump that we need to get over. We're in that mode right now with renewable plastics. So post consumer-use plastic carries at that 1% to 5% to 10% premium. It varies around the world. Over time, as the collection and recycling systems get put in place that will drop below virgin plastic costs. So there's a growth benefit. There's a cost benefit. There's definitely a risk-benefit diversifying and making sure that we've got sustainable supplies, has been very important for us over the last year. And then the final point I won't labor, which is our sustainability agenda is a magnet for the best talent in the world. So I find it hard to answer the question, what's the cost of sustainability because we see it as a benefit where sometimes there are initial cost premia that we need to work our way through. As far as your question about investing in R&D, we have called out a number of areas, I'm obviously not going to be too explicit here, where we're doing [indiscernible] best advantage of corporate level technology. They do all relate to the biotech and [ innovative ] revolutions. And each of the next 3 years, we will step up our investment in R&D to take advantage of that. And when we go through later this year, we'll decide whether or not we're going to put numbers against that R&D step up. At the moment, we're just indicating the direction, not the magnitude.

[Richard Williams, Head of Investor Relations]

Thanks, Alan. Thanks, David. So we've got a lot of people wanting to ask questions. We'll try and squeeze in 1 or 2 more. So next question, Martin Deboo at Jefferies. Go ahead, Martin.

[Martin John Deboo, Equity Analyst]

Two quick ones from me. I just want to go into what you're seeing in FY '21 again. It's come up a few times. Let me offer you -- are you saying that FY '21 is year 1 of the new multiyear guidance framework? Or are you effectively extending your FY '20 guidance position because it's just simply too difficult to say and too difficult to call? That's the first question. Secondly, just to come back on David Hayes' question on portfolio and what strategic choices made. And you said at Englewood Cliffs that you expected the rate of disposals to accelerate and the rate of acquisitions to slow, which could be interpreted as a shift from a net acquirer to a net disposer posture. I feel I'm hearing something different today. Am I -- can you just clarify what you're saying about the portfolio? Those are the 2 questions.

[Alan W. Jope, CEO & Executive Director]

Let me answer the second question, and then I'll carry on and answer the second one -- the first one, unless Graeme wants to jump in on 2021. So I think the first thing I would say is we are very clear, Martin, on the criteria that we're using for acquisitions and disposals. I think we've laid those out more transparently today than we ever have. Secondly, we're not guided by targets for how much we're going to acquire, how much we're going to dispose. We will be extremely economically rational on those decisions. In Englewood Cliffs, we called out that disposals could play an important part of -- a more important part shifting the portfolio. And you saw shortly after that quite a decisive move on most of our tea business, where that work is going on. We continue to look in the portfolio at opportunities for disposal. Last year was definitely a slowdown on the number of acquisitions. But don't forget, the scale was impacted by Horlicks, and then we were very focused on functional nutrition for the others. I'm not afraid to say that we were pipped at the post on some Prestige beauty targets that we were going after. But frankly, the valuations just run beyond what we thought was financially responsible. So the focus remains crystal clear. What the message we were trying to land was we're open to disposals where we see it as value creating, and we will be -- continue to be very choiceful on acquisitions. I think if you take a long period of time, we'll probably be a net acquirer, not a net disposer. But we're not -- we don't have in-year targets for how much we will acquire or dispose. On '21 guidance, I think we've issued now multiyear. We've issued multiyear guidance. I see 2021 as the first year of that. And that was notwithstanding, of course, it remains highly volatile. But yes, 2021 is the first year of that multiyear framework that we laid out.

[Richard Williams, Head of Investor Relations]

Okay. Thanks, Martin. So the next question to Jeremy Fialko, HSBC. Go ahead, Jeremy.

[Jeremy David Fialko, Head of Consumer Staples Research of Europe]

Just a couple of questions. First of all, on e-commerce. I think historically, you've talked about slightly under-indexing relative to your kind of offline market shares. Could you just give us an update on that, where you're over and underindexing? And if there are any big differences between sort of geographies and category? And then secondly, one of the things you haven't mentioned in your framework is the return of surplus capital, but obviously, you do have a net debt-to-EBITDA target, which you are slightly below. So maybe you could just talk a little bit about the kind of return on capital and when that would start to come on the agenda.

[Alan W. Jope, CEO & Executive Director]

I think those fall quite naturally, Graeme, maybe you can take the second one on capital allocation. Let me address e-commerce. Jeremy, we had a really very strong year on e-commerce last year with 61% growth overall. Half our Prestige beauty business is now in e-commerce. Omnichannel doubled in size. We grew 100%. We grew 100% in North America in e-commerce. We're gaining shares in e-commerce. And we're inventing a new type of B2B e-commerce that Graeme touched on. The headline answer, though, is that in omnichannel, our market shares online and off-line are very similar, so bricks and mortar/.com, very similar. In pure play, so Ali, Amazon, JD, our overall market shares, and I'm really aggregating here in a way that I maybe shouldn't, are slightly behind our off-line market shares. And so we've got the whole organization deployed against designing for channel. And that really boils down to value density. And parts of the reason why functional nutrition, why are concentrated eco products and why Prestige beauty do so well in e-commerce is precisely because they bring that value density that works for pure-play as well as the omnichannel mechanisms. So yes, we're quite -- we're making very good progress on e-commerce with a sheer gap to fill in pure play. Graeme, capital?

[Graeme David Pitkethly, CFO & Executive Director]

Yes. Jeremy, so obviously, we had a very strong cash performance this year. We've got very high cash conversion in the business. We're converting profit into cash in a healthy way. We ended, as we said, at 1.8x EBITDA of leverage. We're pretty comfortable with that, to be honest. And we do aim for around 2x, that's over the long term, but we're happy to swing above and below that to a reasonable degree. As we said on the section of capital allocation earlier, given the high ROIC of the business, really, our first priority is to invest back into the business. And in 2021, for example, we'll have -- we've got some rephased CapEx from 2020 that will go back into 2021. And I've already flagged the restructuring investment for 2021 and 2022. That's examples of that. Now things like buybacks, they remain a really critical part of our capital allocation toolkit, and it sits alongside that first call, which is after investing in the business, which is to pay an attractive and growing dividend. That's all part of an approach of returning [ the dough ] to shareholders. We don't have anything to say around -- currently in relation to share buybacks, and we'll just wait and continue to see how the cash position develops as we go forward.

[Alan W. Jope, CEO & Executive Director]

Richard, I know that we're a bit over time. But I really want to send a signal of being available for a discussion of our business to our investor and analyst community. So let's squeeze in 1 or maybe 2 more questions.

[Richard Williams, Head of Investor Relations]

Yes. Sure. Okay. So next question then is from Jeff Stent at Exane.

[Jeffrey Patrick Stent, Research Analyst]

Two questions, if I may. The first one is you're targeting profit growth ahead of sales growth on a comparable basis. If you could just confirm that does mean underlying EBIT. So that's the first question. And the second question is, will, going forward, you'd be reporting like-for-like EBIT growth given that I'm assuming it's now one of your kind of key focus, is -- are you going to start reporting it to the market?

[Alan W. Jope, CEO & Executive Director]

Graeme, I'll let you take on Jeff's questions there. Pretty straight forward answers, I think.

[Graeme David Pitkethly, CFO & Executive Director]

Jeff, on the profit growth ahead of sales growth comparable, what we mean there is our underlying operating profit, pretty much underlying EBIT, on a comparable basis, means on the same basis, as the sales growth still [ constantized ] and excluding the impact of acquisitions and disposals. And yes, we will report that and we'll report the growth on that measure.

[Alan W. Jope, CEO & Executive Director]

Let me just double-check that. I mean, so the short answer is yes, Jeff. Does that answer your question properly? I'll take that as a yes, it does. Okay.

[Richard Williams, Head of Investor Relations]

Okay. Next question from James Targett at Berenberg, Go ahead, James?

[James Targett, Analyst]

Just one quick one for me left, actually. Just on pet care, obviously noticed you'll move into the market. Where does it fit into -- this category fit into your kind of first initiative on portfolio evolution. Just it's going to be a niche play here? Or is there something you could scale up organically or through M&A?

[Alan W. Jope, CEO & Executive Director]

James, let me take that one. I don't think we could be clearer than we've been this morning on where our strategic priority areas are. Alongside that, we're constantly experimenting in the business and trying of things here and there. I would put the pet care extension down to a fun experiment to see how it goes. It is definitely not a particularly strategic move. We've called out the strategic moves.

[Richard Williams, Head of Investor Relations]

Thanks, Alan. Thanks, James. Trying to quickly get through some Tom Sykes at DB. You can go ahead with the question.

[Thomas Richard Sykes]

So just to a bit more detail if possible on the COVID-related costs and how quickly these may come down, whether it's possible to sort of say what EM and DM within that? And is this going to be vaccine-related or was there a relationship between some of the surge categories that you had and some of the on costs there, which perhaps as some of those slowed down, some of the COVID-related costs may actually -- may come down as well. And sorry, just on your comments on BMI. Obviously, there was the catch-up in the second half, but I'm not 100% sure of clarity on whether that is a higher run rate of BMI going forward now, which you're then expecting the benefits from more? Or are we not -- should we not consider the second half as the run rate, please?

[Alan W. Jope, CEO & Executive Director]

Graeme, why didn't you take Tom's question on COVID costs? And I'd encourage to be quite transparent on the sort of the nature and the timing of those COVID costs? And I'll come back on BMI.

[Graeme David Pitkethly, CFO & Executive Director]

Sure. Tom, yes, I'll [ bounce ] a bit of detail later, if I may. So overall, it had a minus 50 basis points impact on our gross margin in 2020. I couldn't give you a DM and EM split, but pretty much all of our markets because we manufacture mostly locally across our huge factory footprint, I think you can assume that it's been equivalent across all markets and not necessarily EM or DM-focused. The particular timing of it was particularly determined by the particular strength of lockdown and the progress of the virus in various places. But I'll give you the components. The big-ticket items are things like hygiene and safety on-site, cost somewhere between EUR 60 million and EUR 70 million last year. Premium rate transportation was about EUR 60 million. Over-time and contract label for employees was also a $50 million, $60 million item. We spent around about EUR 20 million on masks and PPE. So it all adds up, and that's how you get to the 50 basis points. That will continue for us long as we are having to operate our manufacturing in a safe way and so long as the virus is there. The critical [ data, ] I think of the mix of our business in 2021 will simply be the progress of the virus and the need to operate safely. But there is an on cost of operating safely. And as I said in the prepared remarks, I think we also had a 10 basis point impact as the cost to Unilever of the donation, the EUR 100 million of product value donations that we made during the course of 2020. On your question about vaccine, we are -- in all of our sites, we provide testing, very, very active testing. But we wouldn't propose to have any form of mandatory vaccine as a business, we wouldn't do that. But we would encourage all of our employees to get vaccinated just as soon as they can within the particular geographies and countries in which they're operating.

[Alan W. Jope, CEO & Executive Director]

It's a perfect bridge from COVID costs into BMI actually because with 50 bps of COVID cost and 100 bps when you factor a negative mix as well, obviously, it would have been both tempting and very easy for us to peer back on second half brand investment. But we decided not to. We decided to take all the money that we'd stored up in the first half through the lockdown -- the severe lockdowns and really reinvest it back to secure the health of our brands. And I want to just be sure to clarify that, that benefit accrues over time. It's not as simple as you spend a lot of money in the second half, you get growth in the second half. So that's sustained long-term investment in our brands. And we will continue to do that. So we are absolutely committed to investing competitively in our brands in the coming years. What competitively means does change, though. So it changes as a consequence of market rates. It changes as a consequence of competitive activity. And it changes as we shift our media mix into more and sometimes less efficient but more effective channels. So you can take it to the bank that we will spend competitively. Frankly, I see it unlikely that, that will be in a downward direction. And our intent is to relentlessly continue to step up the investment in our brands, whilst delivering the top line, bottom line and cash guidance that we've given.

[Richard Williams, Head of Investor Relations]

Okay. Maybe we can just squeeze in one more, Alan, which is from John Ennis at Goldman. Go ahead, John.

[John Mark Ennis, Equity Analyst]

I've just got one follow-up on pricing. Do you guys think that you priced in line with the market in the second half? Or has there been any element of deliberately delaying some pricing to help support volume share? That's the one for me, please.

[Alan W. Jope, CEO & Executive Director]

Yes. Short answer on that. Absolutely not. We have not sought to be more competitive through the delaying pricing at all. If anything, as Graeme hinted, there has been growing impetus [ for the business ] to make sure that we and the steadily rising agricultural commodity prices that we get on the front foot on recovering that. So if anything, the [ Clarion Cole ] and the company has been more in line with, let's recover FX and cost than let's go slow in pricing to try and gain volume share. We gain volume share through all the other actions on physical availability and prioritizing some of the Tier 3 brands in our portfolio when the economies are slow in big markets like in Latin America. Right. Richard, I think we've reached the end of our remarks and Q&A. Let me just say one sentence of wrap up, and then I'll hand back to you, Richard, just to formally close, which is we've laid out today a set of results for 2020 that we are proud of. In particular, our step-up on competitiveness and the strong profit and cash delivery is exactly what we asked our organization to do. It is underpinned by a strong operational grip on the business that's coming through from our growth fundamentals. And we've taken time today to lay out our strategic priorities for the future around categories, around geographies, around channels and a little bit of a lifting of the lid on what we're doing on a fully digital and agile culture. It is all underpinned by a belief that sustainable business is a path to superior financial performance. Thank you for your attention, and we look forward to the individual engagement in the coming days and weeks. Richard?

[Richard Williams, Head of Investor Relations]

Okay. Thanks, Alan, and thank you, everybody. We're bringing the call to a close. We've got through a lot of questions, not quite everybody. So if you've got further questions, please e-mail the IR team, and we'll arrange a time for a call today and get back to you. So thank you, everybody. Enjoy the rest of the day. Stay safe and say well. Thank you.

[Operator]

This now concludes today's call. Thank you all very much for joining. You may now disconnect your lines.