2023 First Half Results
Solid first half performance, continued growth across all Business Groups
Underlying performance GAAP measures
| (unaudited) | 2023 | vs 2022 | 2023 | vs 2022 | ||
| First Half | ||||||
| Underlying sales growth (USG) | 9.1% | Turnover | €30.4bn | 2.7% | ||
| Beauty & Wellbeing | 9.1% | Beauty & Wellbeing | €6.2bn | 8.6% | ||
| Personal Care | 10.8% | Personal Care | €6.9bn | 7.3% | ||
| Home Care | 8.4% | Home Care | €6.2bn | 3.0% | ||
| Nutrition | 10.4% | Nutrition | €6.6bn | (7.1)% | ||
| Ice Cream | 5.7% | Ice Cream | €4.5bn | 3.9% | ||
| Underlying operating profit | €5.2bn | 3.3% | Operating profit | €5.5bn | 22.6% | |
| Underlying operating margin | 17.1% | 10bps | Operating margin | 18.1% | 290bps | |
| Underlying earnings per share | €1.39 | 3.9% | Diluted earnings per share | €1.40 | 23.6% | |
| Free cash flow | €2.5bn | €0.2bn | Net profit | €3.9bn | 20.7% | |
| Second Quarter | ||||||
| USG | 7.9% | Turnover | €15.7bn | (0.4)% | ||
| Quarterly dividend payable in September 2023 | €0.4268 per share (a) | |||||
(a) See note 10 for more information on dividends
First half highlights
• Underlying sales growth of 9.1%, driven by all Business Groups, with 9.4% price growth and (0.2)% volume
• Turnover increased 2.7% to €30.4 billion, with (3.2)% from currency and (2.7)% from disposals net of acquisitions
• Underlying operating profit improved 3.3% to €5.2 billion, with a 10bps margin improvement to 17.1%
• Underlying earnings per share improved 3.9%, diluted EPS up 23.6%, boosted by profit on disposals and lower restructuring spend
• Completed third €750 million tranche of our ongoing share buyback programme of up to €3 billion
• Brand and marketing investment increased €0.4 billion in constant exchange rates
• Our billion+ Euro brands, accounting for 55% of Group turnover, delivered underlying sales growth of 10.8%, led by strong performances from Rexona, Hellmann’s, OMO, Sunsilk and Lux
• Continued portfolio reshaping with the announced acquisition of the frozen yoghurt brand Yasso and the sale of the Suave brand in North America
Chief Executive Officer statement
“Unilever’s performance in the first half highlights the qualities that attracted me to the business: an unmatched global footprint, a portfolio of great brands and a team of talented people.
My early immersion in the business has confirmed my belief in Unilever’s strong fundamentals. The task ahead is to leverage these core strengths – supported by our simplified operating model – to drive improved performance and competitiveness. This is our absolute priority and it will mean bringing greater focus and sharper execution, with science-backed innovations and investment behind our brands.
This opportunity to step up our performance and unlock our full potential makes it an exciting time to lead Unilever. I look forward to sharing further details when we report our Q3 results in October.”
Hein Schumacher
Outlook
In a volatile and high-cost environment, we will deliver another year of strong underlying sales growth in 2023. We expect underlying sales growth for the full year to be above 5%, ahead of our multi-year range, with underlying price growth continuing to moderate through the year.
Our expectation for net material inflation (NMI) for 2023 is around €2 billion of which €0.4 billion is anticipated in the second half. We continue to expect a modest improvement in underlying operating margin for the full year, reflecting higher gross margin and increased investment behind our brands.
First Half Review: Unilever Group
| (unaudited) | Turnover | USG | UVG | UPG | A&D | Currency | Turnover change | UOM% | Change in UOM |
| First Half | €30.4bn | 9.1% | (0.2)% | 9.4% | (2.7)% | (3.2)% | 2.7% | 17.1% | 10bps |
| Second Quarter | €15.7bn | 7.9% | (0.3)% | 8.2% | (2.6)% | (5.2)% | (0.4)% |
Performance
Underlying sales growth in the first half was 9.1%, with 9.4% from price and (0.2)% from volume. As underlying price growth has sequentially moderated from 13.3% in the fourth quarter of 2022, volumes were virtually flat with a step- up in performance in Beauty & Wellbeing and Personal Care offsetting volume declines elsewhere.
The percentage of our business winning market share* on a rolling 12 month-basis has reduced to 41%, reflecting the impact of a 17% SKU reduction, pricing dynamics, and consumer shifts in certain markets. These included Tea and Laundry value segments in India and Brazil respectively, and super-premium segments in Personal Care North America. We continue to focus on the longer-term health and competitiveness of the business while developing the portfolio into high-growth spaces and channels.
Beauty & Wellbeing grew underlying sales by 9.1%. Volume growth of 3.8% was led by continued double-digit growth in Prestige Beauty and Health & Wellbeing, as well as strong growth in Hair Care. Personal Care underlying sales were up 10.8%, driven by price and 3.2% volume growth with strong sales of Deodorants. Home Care grew 8.4% with volumes almost flat in emerging markets and down in Europe. Nutrition grew 10.4% with strong growth of Dressings, while underlying volumes of (1.9)% reflect a challenging European market. Ice Cream underlying sales growth was 5.7%, with volumes down 5.2% due to the in-home segment.
Emerging markets grew underlying sales by 10.6% with price of 10.0% and a return to positive volume growth at 0.6%. Latin America delivered 16.3% underlying sales growth with price moderating and volume up 1.6%. South Asia grew double-digit through price and some volume, driven by India. China grew 7.9%, with improved volumes following the lifting of pandemic-related restrictions. Growth in South East Asia was muted due to a sales decline in Indonesia, while Turkey delivered strong volume growth in a continued hyper-inflationary economy. Developed markets grew underlying sales by 6.9%, with 8.4% from price and (1.4)% from volume. Volumes held up well in North America, while underlying price growth remained elevated in Europe given its higher exposure to categories with significant cost inflation.
Turnover increased 2.7% to €30.4 billion, which included a currency impact of (3.2)% and (2.7)% from disposals net of acquisitions. Underlying operating profit was €5.2 billion, up 3.3% versus the prior year. Underlying operating margin improved by 10bps to 17.1%. Gross margin increased by 30bps despite €1.6 billion of net material inflation and increased production and logistics costs. The cost increases were fully mitigated by pricing, savings and improved mix. After several periods of high cost inflation, gross margin remains 270bps below its level at H1 2019. Brand and marketing investment stepped up by €0.4 billion in constant exchange rates, a 30bps increase as a percentage of turnover in current exchange rates. Overheads improved by 10bps due to growth leverage while we continued to invest in capabilities and our Prestige Beauty and Health & Wellbeing businesses.
*Competitiveness % Business Winning measures the aggregate turnover of the portfolio components (country/category cells) gaining value market share as a % of the total turnover measured by market data. As such, it assesses what percentage of our revenue is being generated in areas where we are gaining market share
Operating model and capital allocation
Since 1 July 2022, our simpler, more category-focused operating model for Unilever has been in place, organised around five Business Groups and a technology-driven backbone, Unilever Business Operations. We continue to expect around €600 million of cost savings, with the majority delivered by the end of 2023.
After completing two €750 million tranches in 2022 of our ongoing share buyback programme of up to €3 billion, we completed a third €750 million tranche on 2 June 2023. The quarterly interim dividend for the second quarter is maintained at €0.4268.
We completed the sale of the Suave brand in North America on 1 May 2023. On 14 June, we announced the acquisition of Yasso Holdings, Inc., a premium frozen Greek yogurt brand in the United States.
Conference Call
Following the release of this trading statement on 25 July 2023 at 7:00 AM (UK time), there will be a live webcast at 8:00 AM available on the website www.unilever.com/investor-relations/results-and-presentations/latest-results.
A replay of the webcast and the slides of the presentation will be made available after the live meeting.
First Half Review: Business Groups
| First Half 2023 | Second Quarter 2023 | ||||||||
| (unaudited) | Turnover | USG | UVG | UPG | Change in UOM | Turnover | USG | UVG | UPG |
| Unilever | €30.4bn | 9.1% | (0.2)% | 9.4% | 10bps | €15.7bn | 7.9% | (0.3)% | 8.2% |
| Beauty & Wellbeing | €6.2bn | 9.1% | 3.8% | 5.1% | 0bps | €3.1bn | 8.8% | 4.9% | 3.7% |
| Personal Care | €6.9bn | 10.8% | 3.2% | 7.3% | (10)bps | €3.5bn | 9.0% | 3.4% | 5.4% |
| Home Care | €6.2bn | 8.4% | (2.5)% | 11.2% | 30bps | €3.0bn | 6.7% | (2.1)% | 9.0% |
| Nutrition | €6.6bn | 10.4% | (1.9)% | 12.6% | 80bps | €3.3bn | 8.9% | (2.6)% | 11.8% |
| Ice Cream | €4.5bn | 5.7% | (5.2)% | 11.5% | (100)bps | €2.8bn | 5.6% | (5.8)% | 12.1% |
Beauty & Wellbeing
20% of Group turnover
| (unaudited) | Turnover | USG | UVG | UPG | A&D | Currency | Turnover change | UOM% | Change in UOM |
| First Half | €6.2bn | 9.1% | 3.8% | 5.1% | 2.6% | (3.0)% | 8.6% | 18.9% | 0bps |
| Second Quarter | €3.1bn | 8.8% | 4.9% | 3.7% | 1.9% | (5.5)% | 4.8% |
Beauty & Wellbeing underlying sales grew 9.1%, with 5.1% from price and 3.8% from volume.
Hair Care grew high single-digit with positive volume growth driven by the Americas. Sunsilkand TRESemmé delivered double-digit growth helped by successful relaunches.
Core Skin Care grew mid-single digit with Vaseline performing strongly, as we extended the successful Gluta-Hya range into the pro age segment, offering additional benefits and bringing new consumers to the brand. In North Asia, sales of AHC declined double-digit as we reset the cross-border channel.
Prestige Beauty and Health & Wellbeing delivered another period of volume-led, double-digit growth. In Prestige, Paula’s Choice, Dermalogica and Hourglass delivered strong growth supported by new product launches backed by cutting-edge science and technology such as Dermalogica‘s phyto nature oxygen cream. In Health & Wellbeing, Liquid IV continued to perform well, and we launched three sugar-free variants of its hydration technology without compromise on flavour or function.
Underlying operating margin was flat with an improvement in gross margin offset by an increase in overheads.
Personal Care
23% of Group turnover
| (unaudited) | Turnover | USG | UVG | UPG | A&D | Currency | Turnover change | UOM% | Change in UOM |
| First Half | €6.9bn | 10.8% | 3.2% | 7.3% | (0.3)% | (2.9)% | 7.3% | 20.0% | (10)bps |
| Second Quarter | €3.5bn | 9.0% | 3.4% | 5.4% | (0.6)% | (5.0)% | 2.9% |
Personal Care underlying sales grew 10.8% with price growth of 7.3% and volume growth of 3.2%.
Deodorants delivered high double-digit growth driven by Europe and the Americas, where volumes were boosted by a recovery in service levels and associated pipeline fill. Axe grew double-digit as we rolled out the Fine Fragrance range, combining odour protection with fine fragrances. We launched new variants under Rexona which build on our superior 72-hour technology, delivering high double-digit growth for the brand. The Dove Personal Care portfolio also grew double-digit.
Skin Cleansing grew high single-digit with strong growth in Latin America and South Asia.
Oral Care grew high single-digit as we relaunched Pepsodent in South East Asia.
Underlying operating margin decreased 10bps with an improvement in gross margin and a reduction in overheads more than offset by a step-up in brand and marketing investment.
Home Care
20% of Group turnover
| (unaudited) | Turnover | USG | UVG | UPG | A&D | Currency | Turnover change | UOM% | Change in UOM |
| First Half | €6.2bn | 8.4% | (2.5)% | 11.2% | -% | (5.0)% | 3.0% | 12.3% | 30bps |
| Second Quarter | €3.0bn | 6.7% | (2.1)% | 9.0% | -% | (7.3)% | (1.1)% |
Home Care underlying sales grew 8.4%, with 11.2% from price and (2.5)% from volume.
Fabric Cleaning grew double-digit. In Europe, we rolled out OMO capsules with plastic free packaging to more countries, delivering top cleaning performance with less plastic and less chemicals and contributing to improved volumes and double-digit growth for the brand.
Fabric Enhancers grew mid single-digit driven by price. In China, Comfort Beads were relaunched with improved fragrance that lasts longer.
In Latin America, we introduced the first product range specifically designed for the Launderette and Hospitality segment, delivering the perfect white wash, under both the OMO and Comfort brands.
Home & Hygiene grew mid-single digit while the Air Wellness business declined.
Underlying operating margin improved 30bps led by an improvement in gross margin.
Nutrition
22% of Group turnover
| (unaudited) | Turnover | USG | UVG | UPG | A&D | Currency | Turnover change | UOM% | Change in UOM |
| First Half | €6.6bn | 10.4% | (1.9)% | 12.6% | (13.1)% | (3.2)% | (7.1)% | 18.4% | 80bps |
| Second Quarter | €3.3bn | 8.9% | (2.6)% | 11.8% | (12.6)% | (4.7)% | (9.3)% |
Nutrition underlying sales grew 10.4%, with 12.6% from price and (1.9)% from volume.
Scratch Cooking Aids grew high single-digit. Growth was price-led with negative volume, particularly in Europe and North America.
Dressings continued to grow double-digit with Hellmann’s driving sales during the Easter and BBQ season, combining the “make taste, not waste” campaign with innovation such as spicy mayonnaise in the United States.
Unilever Food Solutions accelerated its double-digit growth through the first half with China returning to double- digit growth in the second quarter.
Underlying operating margin increased by 80bps, mainly driven by a reduction in overheads, partially offset by lower gross margin as a result of continued input cost inflation.
Ice Cream
15% of Group turnover
| (unaudited) | Turnover | USG | UVG | UPG | A&D | Currency | Turnover change | UOM% | Change in UOM |
| First Half | €4.5bn | 5.7% | (5.2)% | 11.5% | -% | (1.7)% | 3.9% | 15.0% | (100)bps |
| Second Quarter | €2.8bn | 5.6% | (5.8)% | 12.1% | -% | (3.3)% | 2.1% |
Ice Cream underlying sales grew 5.8%, with 11.5% from price and (5.2)% from volume.
In-home Ice Cream grew low-single digit as volumes continued to be impacted by lower consumption due to the discretionary nature of the category in an inflationary environment.
Out-of-home Ice Cream grew double-digit with positive price and positive volume. In Europe, poor weather in April and May was largely offset by good weather in June.
Magnumgrew high single-digit with the Starchaser and Sunlover limited edition innovation performing well. In North America, we launched Talenti mini gelato and sorbetto bars, the perfect indulgent snack to be enjoyed on the go. The Heart brand grew mid-single digit, supported by a new plant-based variant under the Twister range.
Underlying operating margin declined 100bps due to an input cost driven reduction in gross margin.
First Half Review: Geographical Areas
| First Half 2023 | Second Quarter 2023 | |||||||
| (unaudited) | Turnover | USG | UVG | UPG | Turnover | USG | UVG | UPG |
| Unilever | €30.4bn | 9.1% | (0.2)% | 9.4% | €15.7bn | 7.9% | (0.3)% | 8.2% |
| Asia Pacific Africa | €13.4bn | 9.1% | 1.1% | 8.0% | €6.7bn | 8.3% | 1.8% | 6.5% |
| The Americas | €10.9bn | 10.6% | 1.8% | 8.6% | €5.7bn | 9.5% | 2.9% | 6.4% |
| Europe | €6.1bn | 6.4% | (6.8)% | 14.2% | €3.3bn | 4.3% | (9.7)% | 15.5% |
| First Half 2023 | Second Quarter 2023 | |||||||
| (unaudited) | Turnover | USG | UVG | UPG | Turnover | USG | UVG | UPG |
| Emerging markets | €17.7bn | 10.6% | 0.6% | 10.0% | €9.0bn | 9.7% | 1.3% | 8.3% |
| Developed markets | €12.7bn | 6.9% | (1.4)% | 8.4% | €6.7bn | 5.4% | (2.4)% | 8.0% |
| North America | €6.7bn | 7.4% | 2.0% | 5.3% | €3.5bn | 6.7% | 3.0% | 3.6% |
| Latin America | €4.2bn | 16.3% | 1.6% | 14.5% | €2.2bn | 14.3% | 2.8% | 11.1% |
Asia Pacific Africa
44% of Group turnover
Underlying sales growth was 9.1% with price growth of 8% and volume growth of 1.1%.
India delivered high single-digit growth through price and volume. China grew high single-digit as growth recovered in the second quarter with volume-led, double-digit growth against a softer prior year comparator which was impacted by lockdowns. In South East Asia, Indonesia declined mid single-digit as volumes softened and we adjusted pricing to build back competitiveness. The Philippines, Thailand and Vietnam all grew with contributions from both price and volume. Turkey grew double-digit with positive volume and high double-digit pricing in a difficult and hyperinflationary environment. Africa grew double-digit led by strong price growth that was partially offset by volume decline.
The Americas
36% of Group turnover
Underlying sales growth in North America was 7.4% with 5.3% from price and 2% from volume. Performance was led by double-digit growth in Nutrition and Beauty & Wellbeing, driven by Dressings, Prestige Beauty and Health & Wellbeing. Volumes improved in Nutrition, Beauty and Wellbeing and Personal Care but declined in Ice Cream.
In Latin America, underlying sales grew 16.3% with 14.5% from price and 1.6% from volume. Brazil grew double-digit with price growth slowing through the first half. Despite high price growth and a difficult environment, Mexico and Argentina delivered positive volume growth.
Europe
20% of Group turnover
Underlying sales growth was 6.4% with price at 14.2% and volume at (6.8)%.
Pricing remained elevated due to the high exposure to Nutrition and Ice Cream which see continued input cost inflation. Beauty & Wellbeing and Personal Care grew double-digit with positive volume growth while volumes declined in the other three Business Groups. Home Care underlying sales were flat, while Nutrition and Ice Cream grew high and low single-digit respectively.
Growth was broad-based and price-led across countries, with the United Kingdom and Spain growing double-digit, driven by Personal Care.
Additional commentary on the financial statements – First Half
Finance costs and tax
Net finance costs increased by €32 million to €259 million in 2023. The increase was largely driven by higher cost of debt on bonds and commercial paper. This was partially offset by higher interest income and a higher interest credit from pensions. We continue to expect net finance costs to be in the range of 2.5% to 3.0% on average net debt for 2023.
The underlying effective tax rate for the first half decreased to 24.2% from 24.4% in the prior year, largely due to changes in profit mix. The effective rate was 26.9% and includes the adverse impact from the Suave disposal. This compares with 26.8% in the prior year, which included tax costs related to the separation of the tea business.
Joint ventures, associates and other income from non-current investments
Net profit from joint ventures and associates was €118 million, an increase of €21 million compared to 2022, mainly driven by the Pepsi-Lipton JVs. Other income from non-current investments was negative at €(10) million, versus €27 million in the prior year.
Earnings per share
Underlying earnings per share increased by 3.9% to €1.39, including a negative impact of 5.3% from currency. Constant underlying earnings per share increased by 9.2%. The increase was mainly driven by the operational performance. The reduction in the average number of shares as a result of our share buybacks contributed 1.2%. Diluted earnings per share increased by 23.6% to €1.40, helped by profit on disposals and lower restructuring spend.
Free cash flow
Free cash flow in the first half of 2023 was €2.5 billion, up from the €2.2 billion delivered in the first half of 2022. The increase was driven by higher operating profit, partially offset by higher working capital.
Net debt
Closing net debt was €24.3 billion compared to €23.7 billion as at 31 December 2022. The increase was driven by dividends paid and €750 million of the executed share buy back programme during the first half. The increase was partially offset by free cash flow delivery and net disposal proceeds.
Pensions
Pension assets net of liabilities were in surplus of €2.8 billion at 30 June 2023 versus a surplus of €2.6 billion at the end of 2022. The increase was primarily driven by changes in interest rates reducing liabilities more than assets.
Financial implications and impairment risk in Russia
Our Russia business employs approximately 3,000 people in Russia and in the first six months of 2023 the business represented 1.2% of the Group’s turnover and 1.5% of the Group’s net profit. As at 30 June 2023, our Russia business had net assets of around €800 million, including four factories. In March 2022, we announced our decision to suspend all imports and exports of Unilever products into and out of Russia and cease any capital flows in and out of the country.
We will continue to review and disclose the financial implications from the conflict. While the potential impacts remain uncertain, there remains a risk that our operations in Russia are unable to continue, leading to loss of turnover, profit and a write-down of assets.
Share buyback programme
On 2 June 2023, we completed the third €750 million tranche of our share buyback programme of up to €3 billion, initiated on 10 February 2022. The total consideration paid for the repurchase of 15,552,684 shares is recorded within other reserves. All shares purchased are held by Unilever as treasury shares. A total of 112,746,434 ordinary shares held in treasury reflecting the shares purchased as part of the company’s share buyback programmes in 2021, 2022 and in the first half of 2023 will be cancelled in Q3 2023.
Finance and liquidity
In the first six months of 2023, the following notes matured and were repaid:
· February: €600 million 0.375% fixed rate notes
· March: $550 million 3.125% fixed rate notes
· June: €500 million 1.00% fixed rate notes
The following notes were issued:
· February: €500 million 3.25% fixed rate notes maturing in February 2031 and €500 million 3.50% fixed rate notes due February 2035
· June: €550 million 3.30% fixed rate notes due June 2029 and €700 million 3.40% fixed rate notes due June 2033
On 30 June 2023, Unilever had undrawn revolving 364-day bilateral credit facilities in aggregate of $5,200 million and €2,600 million with a 364-day term out.
Competition Investigations
As previously disclosed, Unilever is involved in a number of ongoing investigations by national competition authorities, including those of France and South Africa. These proceedings and investigations are at different stages and concern different product markets. Where appropriate, provisions are made and contingent liabilities disclosed in relation to such matters.
Ongoing compliance with competition laws is of key importance to Unilever. It is Unilever’s policy to co-operate fully with competition authorities whenever questions or issues arise. At the same time, we are vigorously defending Unilever when we feel that allegations are unwarranted. The Group continues to reinforce and enhance its internal competition law compliance programme on an ongoing basis.
Non-GAAP measures
Certain discussions and analyses set out in this announcement include measures which are not defined by generally accepted accounting principles (GAAP) such as IFRS. We believe this information, along with comparable GAAP measurements, is useful to investors because it provides a basis for measuring our operating performance, ability to retire debt and invest in new business opportunities. Our management uses these financial measures, along with the most directly comparable GAAP financial measures, in evaluating our operating performance and value creation.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP. Wherever appropriate and practical, we provide reconciliations to relevant GAAP measures.
Unilever uses ‘constant rate’, and ‘underlying’ measures primarily for internal performance analysis and targeting purposes. We present certain items, percentages and movements, using constant exchange rates, which exclude the impact of fluctuations in foreign currency exchange rates. We calculate constant currency values by translating both the current and the prior period local currency amounts using the prior year average exchange rates into euro, except for the local currency of entities that operate in hyperinflationary economies. These currencies are translated into euros using the prior year closing exchange rate before the application of IAS 29. The table below shows exchange rate movements in our key markets.
| First half average rate in 2023 | First half average rate in 2022 | |
| Brazilian Real (€1 = BRL) | 5.493 | 5.538 |
| Chinese Yuan (€1 = CNY) | 7.475 | 7.083 |
| Indian Rupee (€1 = INR) | 88.860 | 83.337 |
| Indonesia Rupiah (€1 = IDR) | 16,277 | 15,798 |
| Philippine Peso (€1 = PHP) | 59.674 | 56.969 |
| UK Pound Sterling (€1 = GBP) | 0.877 | 0.842 |
| US Dollar (€1 = US $) | 1.081 | 1.094 |
Underlying sales growth (USG)
Underlying sales growth (USG) refers to the increase in turnover for the period, excluding any change in turnover resulting from acquisitions, disposals, changes in currency and price growth in excess of 26% in hyperinflationary economies. Inflation of 26% per year compounded over three years is one of the key indicators within IAS 29 to assess whether an economy is deemed to be hyperinflationary. We believe this measure provides valuable additional information on the underlying sales performance of the business and is a key measure used internally. The impact of acquisitions and disposals is excluded from USG for a period of 12 calendar months from the applicable closing date. Turnover from acquired brands that are launched in countries where they were not previously sold is included in USG as such turnover is more attributable to our existing sales and distribution network than the acquisition itself. The reconciliation of changes in the GAAP measure turnover to USG is provided in notes 3 and 4.
Underlying price growth (UPG)
Underlying price growth (UPG) is part of USG and means, for the applicable period, the increase in turnover attributable to changes in prices during the period. UPG therefore excludes the impact to USG due to (i) the volume of products sold; and (ii) the composition of products sold during the period. In determining changes in price, we exclude the impact of price growth in excess of 26% per year in hyperinflationary economies as explained in USG above. The measures and the related turnover GAAP measure are set out in notes 3 and 4.
Underlying volume growth (UVG)
Underlying volume growth (UVG) is part of USG and means, for the applicable period, the increase in turnover in such period calculated as the sum of (i) the increase in turnover attributable to the volume of products sold; and (ii) the increase in turnover attributable to the composition of products sold during such period. UVG therefore excludes any impact on USG due to changes in prices. The measures and the related turnover GAAP measure are set out in notes 3 and 4.
Non-underlying items
Several non-GAAP measures are adjusted to exclude items defined as non-underlying due to their nature and/or frequency of occurrence.
• Non-underlying items within operating profit are: gains or losses on business disposals, acquisition and disposal related costs, restructuring costs, impairments and other items within operating profit classified here due to their nature and frequency.
• Non-underlying items not in operating profit but within net profit are: net monetary gain/(loss) arising from hyperinflationary economies and significant and unusual items in net finance cost, share of profit/(loss) of joint ventures and associates and taxation.
• Non-underlying items are: both non-underlying items within operating profit and those non-underlying items not in operating profit but within net profit.
Underlying operating profit (UOP) and underlying operating margin (UOM)
Underlying operating profit and underlying operating margin mean operating profit and operating margin before the impact of non-underlying items within operating profit. Underlying operating profit represents our measure of segment profit or loss as it is the primary measure used for making decisions about allocating resources and assessing performance of the segments. The reconciliation of operating profit to underlying operating profit is as follows:
€ million | First Half | |
| (unaudited) | 2023 | 2022 |
| Operating profit | 5,516 | 4,500 |
| Non-underlying items within operating profit (see note 2) | (308) | 544 |
| Underlying operating profit | 5,208 | 5,044 |
| Turnover | 30,428 | 29,623 |
| Operating margin (%) | 18.1 | 15.2 |
| Underlying operating margin (%) | 17.1 | 17.0 |
Underlying effective tax rate
The underlying effective tax rate is calculated by dividing taxation excluding the tax impact of non-underlying items by profit before tax excluding the impact of non-underlying items and share of net (profit)/loss of joint ventures and associates. This measure reflects the underlying tax rate in relation to profit before tax excluding non-underlying items before tax and share of net profit/(loss) of joint ventures and associates. Tax impact on non-underlying items within operating profit is the sum of the tax on each non-underlying item, based on the applicable country tax rates and tax treatment. This is shown in the following table:
€ million | First Half | |
| (unaudited) | 2023 | 2022 |
| Taxation | 1,385 | 1,143 |
| Tax impact of: | ||
| Non-underlying items within operating profit(a) | (111) | 102 |
| Non-underlying items not in operating profit but within net profit(a) | (80) | (63) |
| Taxation before tax impact of non-underlying items | 1,194 | 1,182 |
| Profit before taxation | 5,267 | 4,359 |
| Share of net (profit)/loss of joint ventures and associates | (118) | (97) |
| Profit before tax excluding share of net profit/(loss) of joint ventures and associates | 5,149 | 4,262 |
| Non-underlying items within operating profit before tax(a) | (308) | 544 |
| Non-underlying items not in operating profit but within net profit before tax | 103 | 38 |
| Profit before tax excluding non-underlying items before tax and share of net profit/ (loss) of joint ventures and associates | 4,944 | 4,844 |
| Effective tax rate (%) | 26.9 | 26.8 |
| Underlying effective tax rate (%) | 24.2 | 24.4 |
(a) See note 2.
Underlying earnings per share
Underlying earnings per share (underlying EPS) is calculated as underlying profit attributable to shareholders’ equity divided by the diluted average number of ordinary shares. In calculating underlying profit attributable to shareholders’ equity, net profit attributable to shareholders’ equity is adjusted to eliminate the post-tax impact of non-underlying items. This measure reflects the underlying earnings for each share unit of the Group. Refer to note 6 for reconciliation of net profit attributable to shareholders’ equity to underlying profit attributable to shareholders’ equity.
Constant underlying EPS
Constant underlying earnings per share (constant underlying EPS) is calculated as underlying profit attributable to shareholders’ equity at constant exchange rates and excluding the impact of both translational hedges and price growth in excess of 26% per year in hyperinflationary economies divided by the diluted average number of ordinary shares. This measure reflects the underlying earnings for each share unit of the Group in constant exchange rates.
The reconciliation of underlying profit attributable to shareholders’ equity to constant underlying earnings attributable to shareholders’ equity and the calculation of constant underlying EPS is as follows:
| € million | First Half | |
| (unaudited) | 2023 | 2022 |
| Underlying profit attributable to shareholders’ equity (see note 6) | 3,534 | 3,440 |
| Impact of translation from current to constant exchange rates and translational hedges | 330 | – |
| Impact of price growth in excess of 26% per year in hyperinflationary economies | (149) | – |
| Constant underlying earnings attributable to shareholders’ equity | 3,715 | 3,440 |
| Diluted average number of share units (millions of units) | 2,536.8 | 2,566.2 |
| Constant underlying EPS (€) | 1.46 | 1.34 |
Net debt
Net debt is a measure that provides valuable additional information on the summary presentation of the Group’s net financial liabilities and is a measure in common use elsewhere. Net debt is defined as the excess of total financial liabilities, excluding trade payables and other current liabilities, over cash, cash equivalents and other current financial assets, excluding trade and other current receivables, and non-current financial asset derivatives that relate to financial liabilities.
The reconciliation of total financial liabilities to net debt is as follows:
| € million | As at 30 June 2023 | As at 31 December 2022 | As at 30 June 2022 |
| (unaudited) | |||
| Total financial liabilities | (30,708) | (29,488) | (33,961) |
| Current financial liabilities | (6,715) | (5,775) | (9,032) |
| Non-current financial liabilities | (23,993) | (23,713) | (24,929) |
| Cash and cash equivalents as per balance sheet | 4,994 | 4,326 | 5,411 |
| Cash and cash equivalents as per cash flow statement | 4,870 | 4,225 | 5,274 |
| Add: bank overdrafts deducted therein | 124 | 101 | 157 |
| Less: cash and cash equivalents held for sale | – | – | (20) |
| Other current financial assets | 1,376 | 1,435 | 1,435 |
| Non-current financial asset derivatives that relate to financial liabilities | 31 | 51 | 60 |
| Net debt | (24,307) | (23,676) | (27,055) |
Free cash flow (FCF)
Within the Unilever Group, free cash flow (FCF) is defined as cash flow from operating activities, less income taxes paid, net capital expenditure and net interest payments. It does not represent residual cash flows entirely available for discretionary purposes; for example, the repayment of principal amounts borrowed is not deducted from FCF. FCF reflects an additional way of viewing our liquidity that we believe is useful to investors because it represents cash flows that could be used for distribution of dividends, repayment of debt or to fund our strategic initiatives, including acquisitions, if any.
The reconciliation of cash flow from operating activities to FCF is as follows:
| € million | First Half | |
| (unaudited) | 2023 | 2022 |
| Cash flow from operating activities | 4,377 | 4,344 |
| Income tax paid | (1,011) | (1,295) |
| Net capital expenditure | (548) | (593) |
| Net interest paid | (364) | (217) |
| Free cash flow | 2,454 | 2,239 |
| Net cash flow (used in)/from investing activities | (200) | (432) |
| Net cash flow (used in)/from financing activities | (2,489) | (924) |
USG, UVG, UPG, UOP, UOM, underlying EPS, constant underlying EPS, underlying effective tax rate, FCF and net debt are