Unilever PLC (ULVR) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to this webcast that we're holding today to give you an update on the company, as we normally would at the AGM at Unilever PLC. The restrictions put in place to combat the COVID-19 pandemic meant that we had to adjourn the PLC AGM and hold it behind closed doors. This took place a short while ago, and I will share the voting results with you at the end of this webcast. When we announced that we would not be able to hold the AGM in the usual way, we also promised to offer you this webcast, so you can hear firsthand how the company is doing. I'm pleased that you've taken the time to join us. And of course, I sincerely hope that the pandemic will be under control soon so that we can have a normal AGM next year. On the screen, you can now see my fellow directors, and I'm very proud to be chairing such a high-quality and diverse board. Of these directors, I'm joined today by Alan Jope, our Chief Executive Officer; and Graeme Pitkethly, our Chief Financial Officer; joined us also, Ritva Sotamaa, our Chief Legal Officer and Group Secretary. In a moment, Alan will update you on the progress of the business followed by a question-and-answer session. In this session, we'll respond to the questions that were sent to us by last Monday that we set as a deadline. First, let me share a few personal observations starting with the situations created by the current coronavirus pandemic. And clearly, we're all deeply saddened by the impact this outbreak is having on people's lives and livelihoods. The world is facing its greatest trial for many, many years. Governments, companies, investors and all our stakeholders are navigating unchartered waters. As a Board, we have been immensely proud of the way the company has responded to events. Alan and his team has moved quickly, not only to safeguard the well-being of the company and its people, but also in contributing significantly to the wider societal effort. That is, of course, nothing new for Unilever, but it has been very inspiring to see as a Board. I know Alan will say more about the company's response in a moment. But on behalf of the Board, let me just pay tribute to everyone at Unilever, who's working so hard to help overcome the effects of this terrible pandemic. Over recent months, we've seen many of Unilever's qualities come to fore, including a strong financial position, trusted brands and a great management team, not only the ones you see here today, but the ones we see across the globe and are helping the company operate every day. All these will stand Unilever in good speed and well into the future. There are also qualities -- they were also qualities that were evident in 2019 when the company delivered another year of positive value creation for shareholders. This was driven by a continuing balance of underlying sales growth, improved profitability and strong cash generation. 2019 also marked Alan's appointment to the role of CEO, and during the time he has been in the role, he's brought energy and fresh thinking to it and to us. The Board has certainly enjoyed working with him, including in the development of a new purpose-led, future-fit strategy. The strategy is anchored in the belief that sustainable business drives superior performance and long-term value creation for stakeholders if you execute well. Arguably, it's a strategy that is more relevant today than ever before. In November, we announced that Marijn Dekkers had chosen to stand down as Chairman in order to focus on the growing responsibilities associated with running his investment at advisory firm. I was very pleased indeed to have been asked to succeed Marijn. And on behalf of all my Board colleagues, I would like to thank Marijn once again for his strong leadership and for the contribution he made to the company as Chairman. And finally, my thanks to the Unilever leadership executive and all the Unilever employees for the work in 2019 and for the tremendous effort they are making to ensure Unilever emerge from this current crisis as a strong and healthy business. Before handing over to Alan, I just want to tell you that if I should experience technical difficulties with this webcast, Alan and Graeme will continue to lead the session, so everything should be secured and well. And with that, I hand over to Alan. Alan, the word is yours.

Great. Thank you, Nils, and hello, everyone. I, too, am sorry that circumstances mean it's not possible to meet and engage directly with our shareholders this year. But I also know that you all understand the reasons why this is the case. However, I am pleased to have this opportunity to speak to you about Unilever and about our performance. I'll say a few words first about our performance in 2019. And then I'll devote the rest of my remarks, as you would expect, to how we're responding to the really extraordinary situation in which we find ourselves as a result of the coronavirus pandemic. First, 2019, it was a good year for Unilever. Although underlying sales growth was very slightly below expectations at 2.9%, our profitability was good with a healthy improvement in underlying operating margin, and we delivered strong free cash flow of EUR 6.1 billion. Now this is important because Unilever's model is based on being able to reinvest in the long-term health of the business while also paying out a competitive annual dividend. There were many highlights to our performance in 2019. Let me mention just a few. We saw a strong performance across our emerging markets business, which was up by more than 5% in total. These markets now make up 60% of Unilever's turnover, which reaffirms our standing as one of the world's most geographically diverse businesses. Among our 3 divisions, it was a particularly good year for Home Care, which grew by over 6%, thanks to some wonderful innovation like Omo Perfect Wash and an increasing focus around green cleaning and green chemistries. We also achieved an important milestone on our journey to become a fully gender-balanced organization, with women now accounting for 51% of Unilever's management population. Now this was doubtless a factor in the decision that the prestigious Catalyst organization made to award Unilever their annual award for the company, which has done most to accelerate the progress of women through workplace inclusion. It's a great achievement, but we know we have a lot more to do, especially at the most senior levels of the company. As Nils mentioned, our enduring commitment to a multi-stakeholder-led responsible growth was also recognized last year when, amongst many other awards, Unilever was named the top company in the Globescan/SustainAbility Leaders Survey for the ninth consecutive year. We intend that the leadership Unilever has shown over many years on sustainability under our Unilever Sustainable Living Plan should not only continue but in the future become an even more integral part of our overall business strategy. And recalling this future strategy that Nils referred to our Compass, purpose-led, future-fit, founded on the core beliefs that brands with purpose grow, companies with purpose last and people with purpose thrive. And a key element of this strategy will be to make our product brands even more prominent vehicles for driving positive social and environmental change in what they see and, importantly, in what they do. And you're going to see a lot more of that from Unilever in the future. You'll also see a continuation of the kind of measures we announced in 2019, including for example, a commitment to halving our use of virgin plastic in our packaging and collecting and processing more plastic packaging than we sell both by 2025, which seems just around the corner, and delivering a year early on our goal that 100% of our grid electricity across the world on all continents and all Unilever facilities comes from renewable sources. Now as part of keeping our portfolio under regular review, we made a number of smaller acquisitions in 2019, including in the area of Prestige beauty, where we acquired Garancia, a French derma cosmetic brand; and Tatcha, a modern skincare brand rooted in classical Japanese beauty rituals. On the other side of the ledger, at the same time, we announced towards the end of the year a strategic review of our global tea business. Now we have an entirely open mind and are considering all options as we look to determine the best long-term future for our tea brands shown here. In 2019, we also set out some very clear priorities for accelerating growth, and we call these our 5 growth fundamentals. They are proven means of driving growth in consumer goods companies through an unrelenting focus on 5 things: one, improving penetration, in other words, deeper and wider use of our products in more homes around the world; two, more impactful innovation, leveraging the deep consumer understanding and world-class R&D capability that Unilever has access to; thirdly, ensuring our brands show up in the right way in the most important, fastest-growing retail channels available to consumers, including, of course, online; fourthly, continuing our mission to put purpose at the heart of all of Unilever's brands; and finally, driving our efficiency programs hard so that we generate the funds, the fuel necessary to invest behind the many growth opportunities that we have. Now already by the early stages of 2020, it was clear that this refocusing of the business behind these 5 fundamentals was working. We were seeing growing household penetration of our brands and steadily increasing market share competitiveness around the world. Hence, these growth fundamentals will remain a key element in building an even stronger Unilever for the future. However, as Nils mentioned, over the last few months, we've had to face a very distinct and immediate set of challenges posed by the outbreak and spread of coronavirus. Before I say something about our response, let me first be clear that this is, above all, a humanitarian crisis, and our hearts go out to everyone who has been caught up in this terrible ordeal. Tragically, that does include some of our own Unilever family, and I'm deeply saddened to report that we have lost a small number of our teammates around the world to COVID-19. Our response to the crisis, I believe, will be judged to have been swift and decisive. We've moved quickly to structure our response around 5 critical areas: people, community, supply, cash and demand. And I'll say just a few words on each. Of course, first comes people whose safety and well-being has always been our most pressing priority. We were one of the first companies, for example, to announce a global, immediate, mandatory, indefinite work-from-home policy for all of our office staff. And within days, we guaranteed jobs and incomes for our entire workforce for a minimum of 3 months and extended that commitment to those not on our payroll but who are an important part of our operations, such as our much valued facilities partners. When it comes to people, we're going to go on doing everything we can to protect lives and livelihoods. In our community action, we've been guided very much by our multi-stakeholder model and our instinct to use Unilever's scales of force for good. In addition to making EUR 100 million worth of hygiene and other products available to help in the fight against coronavirus, we've also partnered with the U.K.'s Department for International Development or DFID in rolling out handwashing campaigns to some of the most impoverished parts of the world, drawing on our unmatched insights into handwashing and how to drive positive behavior change. Significantly, as part of our broader effort, we've also made EUR 500 million of short-term cash flow relief available to support livelihoods across our extended value chain, primarily focusing on our most vulnerable, small and medium-sized suppliers who we will pay promptly. On supply, our focus has been on maintaining the supply and distribution of our essential food and hygiene products. Our teams have done, frankly, an incredible job keeping our factories running. There have been times when some of our factories have had to close, but none for more than a few days and only a handful at a time. A huge thank you to our frontline heroes in the factories, some of whom are shown with their resolve written in the signs here. On cash, even though we entered the crisis with a robust balance sheet and strong liquidity, we're nevertheless taking the opportunity to ensure that we're managing our sources and uses of cash in the most disciplined way possible. Now this has included accessing the bond market earlier this year where our offering was heavily oversubscribed, actually a sign of what an attractive repository Unilever is in these difficult times. And finally, in responding to rapidly changing demand patterns, our teams have done a good job and demonstrated a level of speed and responsiveness that we hope will be a hallmark of Unilever going forward much beyond this immediate crisis. In home and hygiene, for example, we brought forward the launch of Botanical Hygiene in China. It's a new brand combining advanced technology with the wisdom of nature to give reassurance on killing 99.999% of germs. In Italy, we created and launched a whole new professionals cleaning range under our much loved Lysoform brand, which especially is targeted for professional channels, including medical facilities. In Brazil, we teamed up with Heineken, who were able to produce the necessary alcohol as a byproduct from their alcohol-free beer, for us to produce a special Cif hand sanitizer, which has been distributed throughout 210 favelas across São Paulo. Many of our categories and brands have moved quickly to replan their innovation, adjust to consumers buying in different channels and rework our brand communication to make sure it remains relevant for today's changed circumstances. PG tips, for example, has encouraged everyone to stay connected by enjoying a cuppa together, but to do it virtually. Let's have a look at the PG tips film. [Presentation]

These 5 areas have continued to guide our approach throughout crisis, and they've served us well so far. Although, of course, the impact of the COVID-19 has varied considerably across the world depending on how far the virus is spread and on the differing approaches of governments. Some governments have moved faster than others. Some of them put severe restrictions at the outset, others have taken a more gradual approach. We've also seen consumers reacting in very different ways. And while there's been enormous panic buying in the United States and in some parts of Europe, including in the U.K., we have not seen an equivalent behavior across most of Europe nor the developing world. All of this has required a very high level of agility and responsiveness on the part of our teams on the ground. And I want to pay tribute today to the many women and man at Unilever, especially in our factories, in logistics and in field sales, who have worked so hard to ensure our essential products reach the shelves. Although operating under significant constraints and massively enhanced safety protocols, their actions really have been nothing less than heroic. And I've seen some of this first hand. The efforts of our people have included opening up new capacity where it's needed most. So let me give you one example. Prior to the COVID-19 outbreak, hand sanitizer was a very small part of Unilever's business. Yet, over the last 2 months, we have opened up more than 30 new production lines to produce hand sanitizers. And in the U.K., we converted one of our plants in just 3 days to support this effort. Our first priority has been to serve frontline health care facilities to whom we've been donating bulk sanitizer product. The very varied nature of the way in which the pandemic is hitting, both across the world and across our categories, was reflected in our first quarter results for 2020, which we have announced last week. Overall, flat underlying sales growth for the quarter represents, I believe, a very solid performance in such uniquely challenging conditions. We were badly impacted by a decline in our global Food Solutions business as the restaurants, canteens and cafeterias that they serve worldwide shutdown; and a steep decline in out-of-home consumption of ice cream as many leisure locations and tourist destinations were also closed. The significant slowdown in the Chinese market and during quarter 1 also hurt sales, and the total lockdown of India at the very end of March, which stopped production and shipping for a number of days, also impacted our first quarter. On the other hand, our hand wash and home and hygiene businesses grew double digits as a result of increased demand for household cleaning brands like Cif, Domestos; and an increase in in-home eating. So Hellman's, one of Unilever's billion Euro brands, also grew double digits. And we saw a strong rise in our e-commerce business as many households shifted to doing the grocery shopping online. So a decent start to the year in some very challenging conditions. I'm absolutely delighted to say that earlier in the month, we also completed the acquisition of the health and nutrition brands, Horlicks and Boost in India and other parts of Asia. This is a wonderful on-trend acquisition with fantastic growth potential, and we're delighted to have it in the portfolio. As we look ahead to the remainder of the year and beyond, the only thing that seems certain right now is how uncertain the world will remain, but Unilever is not fazed by that. We're well prepared. We've already shown in recent months just how agile and responsive a business we can be. Moreover, we're able to draw on some inherent strengths. The experience of having lived through many crisis in many countries in the past, crisis from which Unilever has generally emerged a stronger business. Indeed, we're blessed with a portfolio of essential brands arguably more relevant today than ever before. And our financial stability is a foundation and a source of great strength for the company, above all, the resilience of our people and the quality of our management teams. For all these reasons and more, I'm very confident about Unilever's future. That confidence was reflected in our decision to maintain our quarterly dividend payment to shareholders, something many others have chosen not to do. We see this as an important element of our multi-stakeholder model to one important group of stakeholders, our shareholders, thank you. Thank you for your continuing support and trust in Unilever. It is something we value more than ever at these times. And finally, to the Unilever Board of Directors, my thanks for all the support, encouragement and wise counsel, which have been invaluable. A special thanks to Nils and, before him, to Marijn for their very, very steady hands as Chairman and guiding me, still a relatively new Chief Executive Officer. With that, thank you, and back to you, Nils.

Thanks, Alan. And after this, I think, a very exciting presentation we'll move on to the Q&A question -- session. We will answer the questions that were submitted ahead of this webcast on Monday. In our website, we explained when the questions needed to be in. And although we only received really very few questions, I would like to thank everyone who did submit their questions, and we'll try to answer them as well as we possibly can. So the process going forward will be I'll start by summarizing the question, and then I'll state the name of the shareholder or stakeholder representative that asked the question. I'll then hand over to Alan, Graeme or Ritva to respond to the questions. So the first question, we received from [ Mr. Gatci ] on behalf of ShareAction, who congratulates Unilever on its commitment not to market to children below the age of 12 in response to the issue of childhood obesity. He asked why some of the products we sell in the U.K. don't carry traffic light labeling, whether we plan to extend this and whether we'll be willing to meet with ShareAction to discuss this subject. Alan, would you be kind enough to answer this question?

Thanks, Nils. And thank you, [ Mr. Gatci ], for your question and indeed message of support. What [ Mr. Gatci ] refers to in his question is the announcement we made in February, which saw us go well beyond our existing pledge, with a commitment not to market food products to children under 12 in traditional media nor under 13 in social media. It also included a commitment not to use influencers or celebrities who primarily appeal to children, to limit the use of cartoon characters, and a voluntary commitment to restrict marketing to children below the age of 6. In the U.K., we adopted traffic light labeling for products that are made for the U.K. market and which were consumed in portions of more than 100 grams, where there's adequate space on the label to do so. Now in all of our U.K. products, only about 8% have no form of nutritional labeling on the front of the pack. And the reason is we fully support simple and meaningful labeling that helps consumers to make positive choices, encourages reformulation and smaller portions and aligns with good dietary guidelines. One of the challenges we face is that we have a global portfolio, but unfortunately, there's no global standard for front-of-pack labeling. We are keen to see scientific studies, which can lead to a better understanding of which of the labeling schemes around the world work best, and we will be absolutely delighted to meet with ShareAction to discuss this subject. We're aware that Public Health England is planning an open consultation on exactly this subject of pack nutritional labeling after Brexit, and I've already spoken to my colleagues in the U.K. so a meeting can be arranged following this consultation. Thanks for the question, and back to you, Nils.

Thank you, Alan. The next question comes from [ Mr. Barrett ] with regard to Resolution 17 of the notice of the meeting. He would like to understand how much we set aside for political donations and for whom they are intended. Graeme, would you respond to this question please?

Yes, sure. Thank you, Nils. [ Mr. Barrett ], it is Unilever's policy not to make political donations or to incur political expenditure within the ordinary meaning of these words, and the directors have no intention of changing that policy. However, as the definitions used in the U.K. Companies Act 2006 regarding political donations are broad, it is possible that normal business activities, which might not be thought to be political donations or expenditure in the usual sense, could fall within that definition. And on that basis, just as we have in previous years, this authority is being sought purely as a precaution. Back to you, Nils.

Thanks, Graeme. [ Mr. Barrett ] also asked notices of meeting and how many clear days Unilever is requesting for notice of general meetings. I think, Ritva, that would be good for you. Can you answer this question, please?

Yes. Thank you, Nils, and thank you, [ Mr. Barrett ], for the question. Resolution 22 in the notice of meeting seeks the approval of shareholders to call general meetings other than annual general meetings on 14 clear days' notice instead of the statutory notice period of 21 days, which is required by the shareholders' rights regulations. And Unilever does not intend to use this authority routinely and only in limited circumstances for time-sensitive matters, wherein quarter notice period would be to the advantage of shareholders as a full -- as a whole. So this is also a resolution that is routinely put forward to the AGM each year. Back to you, Nils.

Well, thank you, Ritva. And that concludes actually the list of questions we received for today. And I want to thank you once again, those of you who have taken the time to submit questions. I hope you had satisfactory answers to them. And if you or anyone else would have any questions after this meeting, please feel free to submit them in writing, and we'll do our best to answer them, at least to the extent we're able. And we are always interested in engaging with dialogue with the shareholders, as you know. As -- I promised at the beginning of the meeting that I would share the voting results of the PLC AGM at the end of the meeting. It was held just before behind closed doors and very safely, behind -- or just before we started the webcast. And we haven't done all the counting yet, but I'll walk you through all the resolutions and tell you if they have been carried. The results we show you will be based on the proxy votes that were submitted 48 hours before the start of the meeting, so the final results might have changed slightly. We are currently through Computershare checking the final numbers, and they will be made publicly available on our website after the meeting. So let's go through the resolutions. The first 2 resolutions relating to the approval of the annual accounts 2019 and the Directors' Remuneration Reports are both carried. And Resolutions 3 to 8 relating to the reelection of myself, Laura Cha, Vittorio Colao; Judith Hartmann, Alan Jope and Andrea Jung are also all carried. And Resolutions 9 to 14 relating to the reelection of Susan Kilsby, Strive Masiyiwa, Youngme Moon, Graeme Pitkethly, John Rishton and Feike Sijbesma are also carried. And the last resolutions. So the resolutions 15 to 17, which are relating to the reappointment of KPMG as auditors of the company, the authorization to fix remuneration of KPMG, and the authorization of political donations are also carried. And then we come to the last resolutions 18 to 22, related to the authority to issue shares, disapplication of pre-emption rights for the general corporate purposes, the disapplication of pre-emption right for acquisitions, the authority to purchase shares, and the authority to shorten the notice period for general meetings are also carried. Thank you very much. And that concludes our webcast today. Thank you for your attention. I hope as we said earlier in various times during the meeting, I hope we will be able to meet in person next year. And we really appreciate it that you took the time to call in at this short briefing of what went mostly, fortunately, well in 2019. So we will see each other, hopefully physically, next year. Thank you very much.