Unilever PLC Q3 FY2025 Earnings Call

Hello, and welcome to Unilever's Third Quarter Trading Statement for 2025. Thank you for being with us today. I am joined here by Srini Phatak. Srini's appointment as Chief Financial Officer was confirmed by the Board last month, following an extensive search process. Srini's vast experience and expertise are great assets for Unilever, and I am really delighted we will keep building on the strong partnership that we have formed. In a moment, Srini will take you through the detail of the third quarter results. First of all, let me highlight the key elements of our performance as I see it. We have delivered a good quarter with 4% underlying sales growth and acceleration of volume growth to 1.7% for Unilever, excluding Ice Cream, despite subdued markets. Growth was broad-based across all business groups, with each of them delivering underlying sales growth above 3%. This performance keeps Unilever on track to meet our full year outlook and is evidence of our powerful innovation, improved execution and significant shift into premium segments and fast-growing channels. It is also fully in line with the priorities we have set for the business. For example, our major growth engines, Beauty & Wellbeing and Personal Care delivered particularly strong performances. Our power brands continued to outperform, delivering 4.4% growth in the quarter with volumes up 1.7% for total group and 2.2% excluding. We also saw a continuation of sustained strength in developed markets, particularly North America. Volume-led growth in that region was 5.5%, and it was driven by Personal Care and improved performance in Prestige Beauty, and once again, exceptional delivery in Wellbeing. Europe grew underlying sales by a competitive 1.1% despite a strong comparator. Structurally, our business in Europe continued to improve and strengthen. Our emerging market business stepped up with 4.1% underlying sales growth led by a return to growth in Indonesia and China. Overall, emerging markets grew well despite the short-term impact of the goods and service tax reforms in India and some challenges in Latin America. We have delivered these results while preparing our Ice Cream business for the demerger, which we expect to be completed before the end of the year. The timeline is being revised as a result of the U.S. government shutdown impacting the work of the SEC. Srini will say more about the final stages towards the merger in a moment. In summary, a positive set of results this quarter that reaffirm our confidence in the steps we have taken to make Unilever a true marketing and sales machine. They will continue to guide and inform our actions over the quarters ahead. With that, I will hand over to Srini to take you through the third quarter results in detail. And after that, I will come back to say something about the remainder of the year and beyond and also provide a brief wrap-up. We will then take questions. First of all, over to Srini.

Thank you, Fernando. Unilever's underlying sales growth in third quarter was 3.9% with broad-based progress across the business groups. Underlying price growth was 2.4% and volume contributed 1.5%. This resulted in a two-year compounded annual volume growth rate of 2.6%. We expect the Ice Cream demerger to be completed in 2025. In this context, excluding Ice Cream, our underlying sales grew 4%. Volume in the quarter was 1.7% compared to 1.1% in the previous quarter. All the four business groups delivered positive volume growth with a two-year compounded annual volume growth rate of 2.4%. Our Power Brands, which represent over 75% of our turnover, grew 4.4% in the third quarter, including 1.7% from volume. Power Brands, excluding Ice Cream, delivered 2.2% volume growth, in line with our medium-term volume ambition. Strong performances included double-digit growth from Vaseline, Liquid I.V., Nutrafol, Cif, and Domestos and high single-digit growth from Comfort, OLLY, and Cornetto. Dove, our biggest brand, keeps outperforming the market with a 6% underlying sales growth in the quarter and 8% year-to-date. Before turning to the business groups, let me first provide some color on our performance across different geographies. Developed markets continue to perform strongly. North America grew underlying sales by 5.5% with 5.4% from volume, reflecting the continued benefits of our multiyear portfolio transformation. Growth was driven by strong performances in our Personal Care and Wellbeing brands, underpinned by premium innovations. This marks the fifth consecutive quarter of robust volume-led growth in North America, supported by share gains across key categories and sustained brand investment. Europe grew underlying sales by 1.1% with a 0.6% decline in volume and 1.7% growth from price. Our performance was broad-based and robust given high comparators of over 6% growth. We gained share across major markets, power brands, and multiyear premium innovations, including the rollout of Wonder Wash and Cif Infinite Clean, which continued to perform well. Asia Pacific Africa delivered 6.8% underlying sales growth with 3.5% from volume and 3.1% from price. This is a clear acceleration versus the first half, reflecting an improved performance in key markets and stronger execution across categories. Indonesia returned to growth as we saw the benefits of the extensive business reset we have undertaken. Strengthened brand plans, sharper channel execution, and renewed customer partnerships are driving improving trends. Sequential improvements in run rate position Indonesia for sustained progress into 2026. In China, while the market environment remains subdued, we delivered low single-digit growth, supported by innovations within our key brands and interventions in pricing. The macro environment in India continues to be favorable. Earlier in the year, personal income tax and interest rates were lowered. In September, the government reduced GST or sales taxes to 5% on around 40% of our portfolio, making the affected products roughly 10% cheaper. While these changes are expected to improve consumption through higher disposable income and improved sentiment, quarter 3 sales were temporarily impacted as trade reduced inventories and consumers delayed purchases in anticipation of lower prices. Trading conditions are expected to normalize from November onwards. Underlying performance was driven by premium portfolios in Beauty & Wellbeing and Personal Care. Turning to Latin America, underlying sales declined by 2.5% in the third quarter with a 7.3% decline in volume, partly offset by 5.2% from price. Markets across Latin America are experiencing a broad-based softening, reflecting continued macroeconomic pressure on category growth and consumer demand. In Brazil, our focus remains on restoring competitiveness in laundry, where we are seeing early signs of progress. In deodorants, we continued to gain share in a declining market, impacted by a temporary shift in product formats. Our Foods business delivered double-digit growth in Hellmann's, supported by the continued success of its flavored mayonnaise range. In Argentina, the macroeconomic backdrop remains unstable amid ongoing political uncertainty. We expect to see improvement in the region during 2026. Beauty & Wellbeing underlying sales growth was 5.1%, driven by strong volume growth of 2.3% and 2.7% from price. Our volume momentum remains very solid with a two-year CAGR of 4%. Dove Hair, Vaseline, Hourglass, K18, Liquid I.V., and Nutrafol all delivered double-digit volume-led growth, reflecting the strength of our premium innovations and disciplined execution. Hair Care was broadly flat. Growth in our premium portfolio was offset by declines in Clear and Sunsilk, which were impacted by soft market conditions in China and Brazil and by lower TRESemmé volumes in the U.S., where we have pricing and promotional corrections in place to support improvement. Core skin grew mid-single digit, led by Vaseline, which delivered double-digit growth in both sales and volume. Growth was supported by premium innovations such as the new Cloud soft light moisturizer in India. Prestige Beauty grew mid-single digit, led by volume as the category showed gradual recovery. Performance remained mixed with Hourglass and K18 continuing to grow double digit, while Paula's Choice and Dermalogica returned to low single-digit growth after declines in the first half. Wellbeing continued its exceptional run, delivering strong double-digit growth. Power Brands, Nutrafol and Liquid I.V. sustained their outstanding performance, supported by a deep innovation funnel, increased brand investment, and selective international expansion. Personal Care underlying sales growth was 4.1%, driven by 1% volume and 3.1% price. The two-year compounded annual volume growth rate of 2% reflects the continued resilience across our core categories, supported by strong growth in Asia Pacific, Africa, and in North America, which was driven by Dove. Premium innovations in deodorants and skin cleansing continued to lead growth with the rollout of whole body deodorants and the expansion of premium body wash driving strong consumer engagement and share gains. Deodorants grew low single digit, led by Dove in North America. Growth was partly offset by weaker performance in Latin America, reflecting a decline in category volumes and a temporary shift in product formats. Skin cleansing grew low single digit with commodity-related pricing weighing on volumes. Dove continued to perform well, supported by its premium innovations and the launch of a limited-edition seasonal body wash range. Lifebuoy grew low single digit. Oral Care delivered high single-digit growth led by our power brands, CloseUp and Pepsodent, with strong momentum in Asia Pacific Africa. In September, we further strengthened our Personal Care portfolio with the completion of the acquisition of Dr. Squatch, expanding our presence in the fast-growing premium male grooming segment in North America. Home Care underlying sales grew 3.1% in the third quarter with 2.5% from volume and 0.6% from price. Volume growth stepped up versus the previous quarter, driven by sustained performance in Europe and improving trends across several key markets in Asia Pacific Africa. Fabric cleaning was flat overall. Europe grew mid-single digit as the rollout of Wonder Wash continued to drive volume growth and strengthen our competitiveness. Wonder Wash will reach 30 markets by the end of the year. This was partially offset by a decline in Brazil, where the market conditions remained soft and we implemented corrective pricing actions. Home & Hygiene grew mid-single digit with balanced contributions from both price and volume. Growth was led by Cif and Domestos, both delivering double-digit performances. Cif Infinite Clean, a multipurpose cleaner powered by probiotics, has now been rolled out across major European markets and is delivering strong early results. Fabric enhancers grew high single digit. Comfort delivered strong volume-led growth, supported by the continuous success of its Crystal Fresh technology. Foods delivered growth ahead of the market with underlying sales of 3.4% with 1.3% from volume and 2.1% from price. Growth was broad-based across regions, led by strong brand execution. Condiments delivered mid-single-digit growth with positive volume and price. Hellmann's maintained its strong momentum with mid-single-digit growth led by volume. This was supported by competitive growth in developed markets and by a particularly strong double-digit growth in Brazil, where Hellmann's is growing from strength to strength. Cooking Aids grew low single digit with positive volume and price. Knorr and Unilever Food Solutions both delivered low single-digit growth amidst subdued market conditions. Ice Cream's underlying sales grew 3.7% in the third quarter with flat volume and 3.7% from price. Volumes were flat against a mid-single-digit comparator last year with a two-year compounded annual volume growth rate of 3.4%. Growth continues to be competitive, reflecting strong innovation, ongoing operational improvements, and disciplined execution across regions. Cornetto led with high single-digit growth, while Ben & Jerry's grew mid-single digits, supported by the launch of new Sundae flavors and a larger shareable pack format that is expanding the consumption occasions. Now let me take you through the latest update on the Ice Cream demerger. All the preparatory work for the demerger remains on track with the shareholder circular published on 2nd October and the approval of share consolidation received on 21st October. Due to the U.S. government shutdown, the SEC is currently unable to declare the U.S. registration statement effective, resulting in revisions to the original timeline. We remain committed to and are confident of implementing the demerger in 2025, and we will share further updates as soon as practicable once there is greater clarity on the timing. Let me also now explain how the demerger and the share consolidation will work in practice. As part of the demerger, shareholders will receive one share in the Magnum Ice Cream Company for every five Unilever shares they hold. Following the demerger, we will carry out a consolidation of Unilever shares to maintain comparability between Unilever's share price and key per share metrics before and after the demerger. This is a standard technical adjustment in transactions of this nature, and the final ratio will be confirmed shortly after TMICC shares begin trading. Importantly, Unilever is expected to pay quarter 4 dividend in full, ensuring continuity for our shareholders through the completion of the Ice Cream demerger. Turnover for the third quarter was EUR 14.7 billion, down 3.5% year-on-year. Underlying sales growth of 3.9% was more than offset by a negative currency impact of 6.1%. We now expect an adverse currency impact on full-year turnover of around 6% and a 30 basis points on the underlying operating margin. Portfolio changes also reduced reported turnover with an impact of negative 1% from net disposals. Acquisitions contributed 0.5%, led by strong double-digit growth from K18 and Wild and supported by the addition of Dr. Squatch following the completion of its acquisition in September. This was more than offset by a negative 1.6% impact from portfolio disposals, including The Vegetarian Butcher, which was completed in September.

Thank you, Srini. Let me conclude by saying something about how we see the remainder of the year. In short, our outlook is unchanged, and that applies both including and excluding Ice Cream. In either case, we expect underlying sales growth to be within our 3% to 5% multiyear range. Growth in the second half will be ahead of the first half despite some softness in certain markets, notably Latin America. Overall, we expect we will continue to outperform our markets with a strong competitive performance in developed markets and an improved performance in emerging markets. Volume growth in quarter 4 should be at least in line with quarter 3. On the bottom line, we continue to expect an improvement in underlying operating margin for the full year, with second half margins of at least 18.5% or at least 19.5%, excluding Ice Cream. Of course, we will continue to monitor external events closely in what remains an uncertain environment. Finally, on the back of a strong quarter, we are looking ahead to the rest of the year and into 2026 with confidence and resolve. Unilever is changing fast, and the strategic priorities we have set out. The portfolio is stronger with more beauty, more wellbeing, more personal care. This quarter saw Beauty & Wellbeing up 5.1% and Personal Care up 4.1%. The shift to premium and digital commerce is accelerating, both organically and through M&A as per the recent acquisitions of Wild and Dr. Squatch. Our anchor markets are delivering superior growth. Our U.S. business has now posted five consecutive quarters of strong volume-led growth. The performance expectations we are placing on people within the company are higher with clear accountability and real differentiation in our incentive outcomes. And our commitment to make Unilever a marketing and sales machine permeates everything we are doing from the acceleration of desire at scale in elevating our brand portfolio to the significant investment we are making to step up execution and excellence in every part of the business. In short, we are crystal clear on what we need to do and where we want to invest. We will not be diverted from these priorities. As we look ahead, it is clear that some markets and categories will remain soft for a while, but we have put Unilever on a stronger footing and are increasingly confident in our ability to continue outperforming markets, whatever the conditions. With that, thank you for listening, and we are looking forward to taking your questions.

Thank you for listening, and we are looking forward to taking your questions.

Our first question comes from Warren Ackerman at Barclays.

Warren here at Barclays. I have two questions and one housekeeping item. First, could you confirm, Fernando, that you are also expecting a 2% volume growth into '26? Regarding my first question, North America has shown remarkable growth, which is very impressive. Can you discuss the performance of the Prestige and Wellbeing unit in North America? There are some concerns among investors that Liquid I.V. might be plateauing, but we’ve noticed a recovery in the Prestige segment. Can you elaborate on the status of Paula's Choice and Dermalogica and your outlook for North America? For my second question, regarding Latin America, the macroeconomic situation is challenging, but there appear to be some self-inflicted issues with Brazilian laundry powder and deodorants. Could you provide some insight into the actions you're taking and the lessons learned? I've heard you've been in the region yourself. Is there a concern that perhaps too much pricing has been implemented in Latin America to address hard currency foreign exchange issues? What assurance can you provide that we won't face similar challenges in other emerging markets? Additionally, as we look ahead in Latin America, could you clarify your growth expectations for '26?

Thank you, Warren, and good morning, everyone. Let me start with North America, where we have experienced five consecutive quarters of volume growth at 4%, despite facing tougher market conditions. This reflects the significant transformation we've made in our portfolio, including implementing a U.S. for U.S. innovation model and strengthening relationships with key retailers. As I mentioned in the last call, we have achieved #1 rankings in Personal Care and Foods, and #3 in Beauty in a recent survey of the top 130 U.S. retailers, demonstrating our market presence in that region. Regarding Beauty & Wellbeing, the performance has been quite strong, particularly with Wellbeing showing exceptional growth in the U.S., driven by Liquid I.V. and Nutrafol, with both brands nearing the $1 billion revenue mark this year. Prestige Beauty has also shown improvement, delivering mid-single-digit growth after a flat first half. We are seeing good results in our premium offerings, while brands like Paula's Choice and Dermalogica have returned to low single-digit growth. Our core skincare brands, such as Dove and Vaseline, performed solidly. However, we have faced challenges in hair care due to our decision to delist certain brands like AXE Hair and Love Beauty and Planet, which we deemed unsustainable. Turning to Latin America, we experienced a weak quarter due to various factors, including deteriorating market conditions, broad-based price increases, and currency depreciation. Household debt and high-interest rates in Brazil, declining remittances in Mexico, and low consumption in Argentina are contributing to these challenges. As a result, we have seen significant volume declines. While we recorded a 7% growth in volume for the first half of '24, this decreased to 3% in the second half and we expect negative performance in the third quarter. In Brazil's laundry category, we recognize that we overstepped in pricing, but we are correcting that and seeing improvements in sellout. The market is shifting towards liquids, and we plan to introduce our successful European Wonder Wash mix in the third quarter, which should enhance competitiveness. In deodorants, we have gained approximately 200 basis points in market share, although shifting our focus to contact applicator formats has negatively impacted overall market growth due to the higher revenue per use of aerosols. We have clear strategies in place to address these issues and avoid repeating mistakes in the future. As for the outlook in Latin America, we anticipate improvements by 2026, though I am hesitant to commit to specifics at this point. Long-term, we believe it remains achievable to deliver 2% market volume growth, even though we’re currently closer to the 1% range. We are visibly outperforming markets in Europe and the U.S., and we are making significant progress in developing regions, particularly in Asia.

Our next question comes from Guillaume at UBS.

Two questions for me, please. The first one is on pricing. I mean, we're having a relatively benign commodity cost environment. You also flagged a relatively weak consumer environment in some key countries like Brazil, where you mentioned some pricing adjustments. So given this backdrop, do you expect price growth to remain at current levels or to actually come down over the coming quarters? So any color on your price growth outlook would be very helpful. And then my second question is on Europe. I mean, volume growth turned slightly negative in the quarter. Could you talk a little bit about the drivers behind this? Is it just down to this very elevated base of comparison? And so nothing to see here, volume to return to positive territory from next quarter? Or on an underlying basis, are you maybe seeing some changes in category growth or in consumer behavior?

Thank you, Guillaume, and Srini will help me with the pricing question. In Europe, we have positive volume when you exclude Ice Cream in the quarter. So against a very tough comparator, we delivered 7% volume growth in Europe in the same quarter last year. So the comparator was very, very tough. I believe you read the same information that we read, and you see that we are gaining significant share in Europe, particularly in Home Care and Personal Care, which are two of our most sizable businesses in Europe. So our innovation in the premium segment is really working very, very well there. We are very confident about our prospects in Europe, but the comparator was very, very tough. Our share gain is solid. It is broad-based. In the top five markets in Europe, we are gaining share. We are very pleased overall with the performance that we have structurally in Europe. In the case of pricing, and Srini will help me with that, it's true commodity cost is relatively benign with the exception of a few family of materials, palm oil in particular is increasing significantly. This has significant implications in HPC liquids, home care, personal care, and beauty liquids, and also in skin cleansing bars. Aluminum is going up. But I feel it's important also for you to remember that wage inflation is significant. You see wage inflation in Europe and the U.S. in the territory of 4%, and we need to cover that also. Srini?

So, two additional elements to that, Guillaume. Clearly, the inflationary pressures, as Fernando said in skin cleansing are higher. However, when you look at something like home care, it's quite benign, with crude sitting at around the $60 mark. Having said that, when we really look at the total net material inflation, which is a composition of the materials and forex devaluation, that's another important element to see that in all the emerging markets, the currencies have devalued, and therefore, there is imported inflation. Give or take, we see that net material cost should be about EUR 0.5 billion for this year, and we expect similar levels for next year given the information that we have now. This will really warrant sensible pricing. This is lower than what we have seen the historical average of EUR 200 million to EUR 300, but it's a little better than that, but obviously much lower than what we experienced through the COVID period. So, in essence, if you really think about those levels of inflation, there is price in the market, and there is price clearly in some categories. The only last color is that when it comes to beauty, given the value chain, I think the bigger impact for us will really come from price and mix together because with premium innovations and what we are bringing to the market, we have the propensity and the ability to price up, and we will do that in a sensible manner.

Our next question comes from Olivier at Goldman Sachs.

Just two questions, please. First on within Hair Care and particularly in the U.S., TRESemmé has been struggling for a couple of quarters. Is that still expected to continue into Q4? Or has it improved already by the end of Q3? And how much of an impact has it had on price/mix in the U.S.? And then just lastly on Liquid I.V., could you perhaps give us a bit of an update on the global rollout of the brand and how many countries you're expecting to launch it, not necessarily obviously in Q4, but also into 2026? And which geographies will be the priority?

Thank you, Olivier. Regarding Hair Care in the U.S., this year, we entered with two significant relaunches. One was the Dove hair one and the other one was TRESemmé, both imply significant repositioning of growth brands. In the case of Dove hair, it has been an incredible success, growing double digits in the U.S., with a significant repositioning in terms of pricing, much closer to the average of the market. In the case of TRESemmé, that didn't work in the same way. But we have corrected that. And in the third quarter, TRESemmé is back to growth with a particularly good performance in styling. So we are confident in the trend that we are seeing in TRESemmé and in hair care in the U.S. The main issue in the U.S., I would say, when you look at hair care performance, has been the delisting of some brands, but this has been a conscious decision. In the case of Liquid I.V., excellent performance in the U.S., as I mentioned before, the brand is really approaching the EUR 1 billion mark with double-digit growth in another quarter. The brand has been rolled out now to eight markets, particularly in Western Europe and Australia. We are starting to introduce the brand in Urban India. The initial results are very, very good. Of course, Canada was launched last year also.

Our next question comes from David Hayes at Jefferies.

So, two questions from us as well. First, regarding margin levels in India and Indonesia, you're observing improvements, but you've made significant investments that have impacted profitability. Should this approach be expanded to other markets? Reflecting on the previous discussion about hard currency, margins in 2019 were considered too high by two former CEOs. Why is that now considered the correct level? Is there a need for actions in other markets to stimulate volume growth as seen in those areas? Secondly, following your remarks from a few weeks ago in Boston about the eight power brands for the One Unilever markets, you noted limited support for the other brands. Can you provide more details on whether there will be no advertising and promotion spending beyond those eight brands in those markets? What percentage of sales remains unsupported, and how do you anticipate this will affect growth for those brands?

Thank you, David. I'll take Power Brands, and then Srini will talk about regarding margin. Power Brands in One Unilever market represent around 80% of the revenue. We want to take that into 90%, 95%. This doesn't mean that we will not use other levers of support for our local brands in these markets or that we will let these brands die. But definitely, we don't want complexity in our strategic move that we are doing. Our performance in One Unilever market has been very strong, consistently strong during this year. We have delivered another quarter of 4.9% with good volumes, and excellent performance in most of the geographies. And definitely, we are really concentrating our efforts in rolling out our strongest brands, usually three in beauty, two in Personal Care, one in Home Care, and one in Foods in most of these markets, and this is a conscious decision that we are making. Of course, when there are local jewels, we will protect them. We will support them. We will use our drivers of demand in all these cases. Margin?

So, David, I think it's important to appreciate what is different in the way we are thinking about our profit and profitability. The six or seven levers that we are today exercising are significantly different. We've talked about the importance of volume growth that the 2% volume growth of the anchor actually then starts to provide leverage for us across the value chain, and that starts to become an important contributor. Given the work that we have done, whether it's in terms of the portfolio mix, the geography mix, the channel mix, or the format mix, mix is actually becoming a component, which gives about 25 to 30 basis points on a regular basis for us. In the past, we have spoken to you about how we have reshaped the whole supply chain space, how we are actually buying, whether it's technology or game theory. Project Lighthouse is consistently enabling us to beat the market inflation by about 1%. When we look at the controlled cost element to it, again, serious amount of work is happening in terms of reshaping the network of manufacturing and logistics, and we can go on. You've also seen how we have reshaped our overall overheads trajectory, where we have actually completed, we are well ahead on our productivity program. And actually, now we are driving productivity as a habit and culture in the organization where our costs will be lower than our revenue growth on a consistent multiyear basis. And we are deploying capital—more than 55% to 60% of our capital today has gone towards savings initiatives, and we are actually looking at a lot more backward integration projects. So when we add up all of these elements, and also given the relative strength of our brands, this is what enables us to drive our margins differently. Equally, it’s important to highlight that the margin profile, now we will be talking about businesses, excluding Ice Creams, and Ice Creams at an aggregate was margin dilutive for us. So when we really look at Beauty, Personal Care, and Foods, they have very strong and healthy margins. Given the footprint of Home Care and the positioning, it is a little lower, but all of them are actually contributing in a sensible way. We're also really very focused on hard currency earnings because that's again a multiyear clear objective. And there, when you look at it, we are also pulling all levers, including below-the-line items such as taxation and pension, interest costs. All elements of the value chain today are in play. And I think what gives us this when we have a consistent business that is delivering day in and day out, margin expansion becomes very integral to the way we really think about growth and we think about profit. So a lot more confidence today in Unilever to continue to build our margins, drive hard currency earnings, and get hard currency earnings hopefully on a multiyear basis, which are ahead of our sales ambition.

Next question comes from Sarah Simon at Morgan Stanley.

Just a question on the U.S. So we're starting to hear some sort of negative commentary from some of the consumer-oriented companies about the effect of the government shutdown. Just wondering if you are seeing any of that in your businesses?

Thank you, Sarah. We have not seen any significant impact of the government shutdown at this stage in the consumer sentiment. Of course, we follow similar services you follow. I feel the Michigan University consumer sentiment service shows relatively low levels in the last metric, and we see a clear bifurcation in the market there between households that own stocks and households that don't own stocks. So that is—I believe this explains probably the resilience of our premium portfolio in the U.S. And as you could see in our performance, we continue delivering significant volume growth in the U.S. We are very pleased with our performance there, but it's very clear that we are outperforming markets by a mile there.

Our next question comes from Tom at Deutsche Bank.

Just you mentioned in the presentation, the growth of digital commerce and the channel shift in retail seems to be happening at an accelerated pace. Why would you be well positioned versus that channel shift, please? And any sort of details you could give me? We've got a bit more of an idea of what's happening in the U.S., but some sort of views on the pace of that channel shift in Europe, perhaps in India and some of your other larger markets would be great, please. And just a quick one just on China. Maybe any details on the improvement there and any impact of timing of Chinese New Year on Q4 growth, please?

Yes. Digital commerce is 17% of our revenue. I can give you some data. We are growing Amazon at 15%. We are growing Walmart.com at 25%. We are growing Flipkart in India at 30%. We are growing TikTok globally at 70%. So our portfolio is much better suited now after the kind of reset we have done with disposals of value brands and with significant acquisitions in the premium segments, digitally native brands that are operating with a lot of success there. And I believe one of the reasons that we are delivering the type of growth that we are delivering in the U.S. is that that's the portfolio with the highest exposure to e-commerce that we have globally. But we see similar trends in other markets. Of course, China and India—quick commerce is accelerating a lot. Our quick commerce business in India is more than doubling this year. So we believe that our portfolio is well suited. Our capabilities are significant in that space. A lot of capabilities that were acquired to the business through the acquisitions we have done are really helping us in all these markets. So we are very, very happy with the development of e-commerce, particularly in Beauty & Wellbeing in which the level of e-commerce is approaching 27%, 28% for our total business. China, Srini, do you want to talk about that?

So, on a China perspective, actually, it's quite encouraging for us. In the sequence of improvements, we had said that Indonesia will do much better, and it is doing much better. China, we said just given the macroeconomic conditions, we said we are making some fundamental changes to our business model and go-to-market, updating our capabilities in e-commerce and also actually driving the ongoing premiumization of the portfolio, particularly in Beauty & Wellbeing, Vaseline and Home Care. What's really encouraging is that in quarter 4, all four of our business groups, excluding Ice Creams, given where we are, have actually returned to positive growth, both from value and on volume terms. And just given the fundamental work that we have done, it positions us well going forward. Of course, as Fernando referred to, there is more work to be done in some of the channel shifts which are happening, notably Douyin and what does it really mean to compete. And that's where we are spending a lot of time and effort to really make it strategic, make it important, and really play the full six pieces to win in that channel. But overall, I think given where we are, we are confident in our progress going forward.

Next question comes from Jeff Stent at BNP.

Three questions, if I may. The first one is, could you just shed a little bit more color on Mexico, which I think was down high single digits. What's happening there beyond the macro? And then secondly, do you still expect to grow hard currency earnings this year?

Yes. Mexico, we have seen soft markets there. If you look at the performance of the main retailer in Mexico, I feel in the last two quarters was around 1% and 4%. And that has basically reflected the fact that remittances reduction are having a significant impact in the economy. Tariffs have created uncertainty, and the GDP growth expected there is around 0.4% the last number I have seen there. So our competitiveness is strong in Mexico. So we don't have significant issues there, but we have seen margins really softening. And there are some significant promotional periods in Mexico, particularly during July. It's called July 3. Most of the retailers have significant activities, and the pickup in that period has been relatively poor. So the macro in Mexico is not very good. We don't have any fundamental structural issue in our portfolio in Mexico. Our performance has been good. We have a great food business with Knorr there. We have an excellent deodorant business, and they are very, very solid in shares, but the market has been soft.

So, Jeff, an important element for us is the gross margin trajectory and investment behind our brands. On both these elements, we are making solid progress. In fact, we had said that the 45% gross margin, all businesses included at the end of last year was really the base for us. All three quarters, we have made continued progress. I've already explained to you some of the levers and the drivers in this respect. We are continuing to invest significantly behind our brands. We have said that we will continue to increase absolute spends every year. Even this year, we'll be actually increasing our absolute spends and our percentage of BMI will be in the range of 15% to 16%. What's really helping us is the significant amount of work that we've done in terms of productivity across the value chain. Our program on productivity, we've already confirmed about EUR 650 million of savings. We are looking to push that harder and get more out of that. We're going to be very disciplined in terms of our costs, which are within our control. That's going to become an important lever for us. We have done significant work and found efficiencies in the tax line, and we've also had benefits coming through from our interest line. In summary, all these put together, we are confident of really having positive hard currency earnings in the current year.

Our final question comes from Ed Lewis at Rothschild.

Yes. Just a couple of questions really just on Indonesia and China. Fernando, could you just put in sort of context how you feel about the performance, how good or bad, whatever the 12.7% growth in Indonesia is relative to your expectations? And also on China, backing growth in Q3, I think that might have been a bit earlier than we might have expected. So just the changes you made there, how they're having an impact and how you would assess performance there?

Well, thank you, Ed. In Indonesia, we are very pleased with the renewed leadership team we have put in place there and the progress they are making in resetting the fundamentals of the business. We are operating now with historic low levels of stocks in our distributors. We have removed any fundamental issue of channel price conflict and that drags us down in 2024. We are relaunching our top brands in the market. We are stepping up significantly our social first marketing capability. As a result of that, we are seeing our run rates in Indonesia improving consistently quarter after quarter. We initiated this reset around July, August last year, and the results are solid. So we expect Indonesia to continue contributing to growth in the next quarters. In China, I feel that Srini has been clear about it. We are pleased that our four business groups for the remaining company are back to growth in China. It's getting better slowly in the market there. We have made significant interventions to disintermediate our route to market in e-commerce. We have set up significant manufacturing and logistics capability for direct-to-consumer delivery, and we are starting to see the benefits of these actions, and we expect that to continue improving in the next few quarters.

Thank you very much. That was our final question.

Let me finish, Jemma saying that I hope after the call it is clear that our major growth engines of Beauty & Wellbeing and Personal Care continue to deliver very strong performance, about 5% and 4%, respectively. Our shift to premium and digital commerce is accelerating. The performance in developed markets is strong. We are outperforming markets clearly, both in the U.S. and Europe, with U.S. being a clear standout in terms of our performance. Our emerging market performance is improving. India, in particular, is very, very well positioned over the medium term. The GST reform has had some impact in the short term, but we believe it's very good news for 40% of our portfolio with close to a 10% reduction. This will boost demand in the medium term. Indonesia and China continue to improve. And there are lessons learned in Latin America that will not be repeated in either in Latin America nor in any other places. Our business in Latin America is structurally strong, remains intact, and our shares have grown in six out of the last seven quarters there. All of these give us confidence for the remainder of the year in our ability to outperform markets, and as Srini mentioned, to deliver hard currency earnings growth. Thank you very much.