Fireside Chat with Fernando Fernandez, Unilever CEO and Warren Ackerman, Barclays

Yeah, no, clearly. Thank you for having me, Warren. You know, I feel the board agrees that Hein has done a really good job. He put together the basis of the Growth Action Plan, which is our strategic path, a path that the board fully endorses. He took some significant decisions: the separation of ice cream is a very important portfolio decision; we have implemented the productivity program ahead of schedule. And the financial metrics in 2024, I believe, have been really solid. But this is a forward-looking decision, not a backward-looking decision. The board believes that for the next phase of transformation of the company, fundamentally making Unilever a world-class company in terms of brand creation and in-market execution, my skill set and my track record are a better fit. So that's the reason behind this decision. There is nothing more than that. Regarding the timing, I feel the question that the board asked themselves is: why wait? What time would we gain in terms of additional information to substantiate a different decision? And they got to the conclusion that it was the right timing, the faster the better. And I believe it's a good message also for me and for the organization about not procrastinating decisions when you have enough information to take it.

Well, let me expand that. My relationship with every board member is very, very good. It's excellent. They have really provided very significant insight, very valuable insight for the definition of our strategy, and they are absolutely behind me and the management in making this company a world-class leading company. Ian and Nelson in particular, they have a ton of experience in the consumer sector, and their insights tend to be spot on, so I listen to them a lot. But if the underlying question behind your question is: Am I an Ian person or a Nelson person? Probably the right answer is I am a board person. And you know me, Warren, I'm my own person. So that's what I would say.

Yeah, many questions within that question. First of all, no skeletons in the closet. I want to be very clear. We have reaffirmed our guidance for the year: 3% to 5% growth. And we reaffirmed our guidance for the mid-term after the separation of ice cream: 4% to 6%. Of course, we put that guidance in the context of 3% global real GDP growth and 3% inflation as an economic context. That is what we have seen in the world in the last 10 years. Things can change, but that's the hypothesis that substantiates the guidance we have put. First of all, let me remind what we have done in 2024. We delivered 3.5% growth of revenue in hard currency, 2.9% volume growth, 280 basis points of gross margin expansion, 13% profit growth in hard currency, and we were number one in total shareholder return. So we believe the Growth Action Plan is working; it gives us a very good foundation to continue building from now onwards. Regarding Q1, we called out a softer start. It was our responsibility to call it out. Markets are softer. Pricing is subdued. Consumer confidence has gone downwards in many important markets. And of course, there is a lot of instability after the American election with the start-stop-start of tariffs. And believe me, we have not been the only company; many other companies have called out an acceleration of performance along the year. What is behind what we believe will be the acceleration of performance? We are landing what we believe is one of our best innovation plans in a long period of time now between March and April. We have had China and Indonesia as a significant drag on our performance, and they will contribute to growth in the second half. And I have been in India recently; I spent five days in India. The Indian economy has been a bit softer recently. The September quarter showed something like 5% GDP, but the Indian government and the Central Bank in India have taken some significant measures. There was a significant reduction of interest rates. There is close to $500 billion of loans to households in India that will get benefit from that. There are cuts in personal income tax. Fundamentally, that is a very important factor in India in terms of disposable income. Also, food deflation now after many years of food inflation. So we believe the prospects of the economic environment in India get better in the second half of the year. India is our second largest business, and we need India growing faster than what we have done recently to really be another driver of growth to the ones we are having in developed markets and in other regions of the world.

Yeah, you know, just every business I have run in my career, I have basically divided my approach between what I call 'perform' and 'transform'. In the short term, I believe it is very important to execute flawlessly what I mentioned. We have a very strong innovation plan. We are divisionalizing our sales force in the top 24 markets. That is a very significant organizational change; we believe it will make the company much stronger and increase accountability of delivery to the vice presidents. So I want to ensure that happens in a very solid way. We need to complete the separation of ice cream, and by the end of the year, that's a commitment we have made. We need to ensure also that the productivity plan is completed. My intention is to complete that by June this year. So these are the short-term priorities. In the long term, it is all about creating a machine of demand creation in Unilever. I have always said that on a one-to-ten scale, I probably score as a six. Ten doesn't exist; my mom used to say that. But I believe that we want to build a marketing and sales machine in Unilever, and that requires a decisive shift to premium, to create what I call 'desire at scale'. Desire has been a very important word or mantra in my time in Beauty, but I believe it applies to every single business group. The consumer now is much more discerning, much more demanding. The phone has changed the parameters of aesthetics, the parameters of the desirability that they are expecting. And I am really committed to make a serious revolution in our superior functionality, aesthetics, and sensorial of our brands. On top of that, when I look at the long run, any company that is the best performer tends to have a couple of very strong geographical anchors. I believe that the US and India should be our geographical anchors in the long run. This is what I did in Beauty, and what I believe has to be replicated in our business as a whole.

Yeah, because it feels to many people the pace has already been quite quick. You know what? I have been 37 years with Unilever, and I have never crossed my path with an employee that told me, 'Fernando, we are going too fast.' Some people say, 'Why are we going so slow?' or 'Fernando, tell me why I'm working on this that is completely useless,' or 'Why do we have a process of sequential decision-making when things can be decided much faster?' So I will not reassure you in terms of slowing the pace, because I believe that's not what we should do. I believe we have great talent, and I want to ensure that we shift this company outwards and forward, and that everyone that is working in Unilever is absolutely focused on creating demand. I believe this will be very well received by the company overall. They know me, they know what my priorities are. That's the way I have run business for 20 years, and I continue thinking that that will be the approach.

Hey, there are a few principles that I believe are a pattern in every business I have managed. Let me mention some of them. I like to concentrate resources in segments and categories where I see a significant profit pool and where we have the right to win. My time in Latin America, for example, was defined by the mantra 'Dios first, then the rest'... as you know, we have a very interesting category there where we have the right to win, very profitable, very good returns. The second principle is productivity as a habit, not as a program. Productivity as a habit to ensure that we release resources to invest significantly and competitively behind our brands. I'm a great believer that there are always inefficiencies in the company; if you tackle them, you release money that you can put behind your brands, and you build a virtuous circle of volume growth, investment, more profit, more volume growth. The third point is a decisive shift of our portfolio into more premium, more desirability, investing heavily in product, investing heavily in activity systems of marketing that really drive our brands forward. I believe these are some of the key patterns of what I have done. I'm obsessed with volume growth. I believe that investment for volume growth is a key feature that I have always followed. Innovation is a key driver of volume growth; renovation is a key driver of pricing. So innovation for volume, renovation for pricing, is another pattern. And the last point I would mention, related to my experience in developing and emerging markets, is that you have to build portfolio resilience to deal with economic volatility, and you have to have clever pricing management to deal with that. So portfolio resilience against economic volatility has been another feature. All this is possible if you are surrounded by great people. I'm uncompromising on talent, and I'm uncompromising on winning mindset. This is what the company in Argentina injected in me in my early years of my career, and it has been something that I try to inject and infect the whole organization with.

Yeah, I mentioned some of that. In the short term, help the business groups to really shift decisively resources into the most profitable strongholds. There is an element of risk on that, and I feel I'm prepared to share the risk with them. I feel that's my role. As I mentioned, landing our innovation plan flawlessly in a moment in which we are divisionalizing the sales force is a very important point. I feel fixing some of the geographical issues we have, China, Indonesia, accelerating India, is very important for me at this point of time. And of course, completing the separation of ice cream and finishing the productivity program, because we need to leave that behind and give our people a clear reason to believe in the future growth of the company. In the long run, as I mentioned, make the US and India two key anchors of our portfolio. Make our best brands travel fast. We have not been good enough in rolling out our brands globally. I always say that Unilever is a bit of a federation of local and regional brands. I believe in the long run we need more wide global presence of our strongest brands. I feel we have made a significant step with the top 30 brands and the focus we are putting on them, but I believe we can go faster in roll-out. Continue driving optimization of our portfolio into premium with a good program of bolt-on acquisitions and disposals. So that's basically what I would say.

Yeah, no change of view. Yes, I mentioned in the Capital Markets Day that our ROIC is now close to 19%, so I believe it's in the top third of the sector. We like that. My view on transformational acquisitions: I call it the paradox of transformational acquisitions. You can only do it from a position of strength, and if you're in a position of strength, why would you do it? We are happy with the approach we have had in terms of bolt-ons, focusing on the US and India. The US is a very important market because it's probably the only market that gives you two things: it gives you enough local critical mass and it gives you a platform for global brands, because American brands tend to travel. And we are very happy with the progress we have done in our portfolio in the US. I believe it has gone a bit unnoticed by the market, but after the separation of ice cream, we will have a business there of around $11 billion, close to $3.5 billion in Prestige Beauty and Health and Wellbeing with 15 consecutive quarters of double-digit growth, an extraordinary position in the Ouai and an extraordinary brand in skin cleansing, Hellmann's in dressings, 45% share, two times the share of the second player. So our US business, we will not be the largest company in the US, but I don't see many companies with the kind of growth footprint that we have in the US and in India. We have just completed the acquisition of a Prestige Beauty brand called Minimalist. We have an exceptional position in India. But we know that the portfolio that brought us here is not the one that will keep our position in the future. There are significant consumer preference changes, significant changes in the channels, and we need to ensure that the portfolio moves in line with those changes. We will not blink on that. We will do whatever necessary to ensure that the kind of positions we have in India – 55% in hair care, 45% in laundry, 80% in premium tea – will continue being like that. So no transformational acquisitions on the table. We are happy with the kind of approach, probably some faster acceleration in the process of disposals. We always talked of pruning the portfolio. I'm in the camp that when you have taken a strategic decision, it's better to act fast.