Unilever PLC (ULVR) Earnings Call Transcript & Summary

My name is Nils Andersen, and I'm the Chairman of the Board of Directors of Unilever. It is a pleasure to welcome you to this virtual extraordinary general meeting. As you may be aware, the Dutch Emergency Legislation allowing virtual meetings was extended last month, and we announced on 3rd of September 2020 to hold a fully virtual meeting because we do not want to take any risks with the health of our staff, partners and you, our shareholders. I'm pleased to have taken the time to join us, and I sincerely hope the pandemic will be under control soon. I now formally declare this meeting -- that this meeting was properly convened by publishing the required notice and documents on our website on August 10, 2020. Please allow me first to introduce the following directors of the company who have joined in today's meeting: Alan Jope, our Chief Executive Officer.

Good morning.

And Graeme Pitkethly, our Chief Financial Officer.

Good morning.

Ritva Sotamaa, our Chief Legal Officer and Group Secretary, also joins this EGM.

Good morning.

And I would further like to introduce Ms. Irma Kroon, the independent Civil Law Notary who supervises the voting process. And Guido Portier Civil Law Notary of Linklaters LLP, who'll execute the notarial deed of amendment to our Articles of Association. Welcome, everybody. If such an agreement is approved in this meeting. The minutes of this meeting will be drawn up in notarial form and will be made available on the website of Unilever. All topics on this meeting relate to the proposal to unify Unilever. As explained in the notice, Agenda Item 2 require a separate vote in our last meeting of holders of ordinary shares. Your votes cast in respect of the proposal to approve unification will apply in both the EGM and the meeting of holders of ordinary shares. In a moment, Alan will provide you with some further information in relation to unification. This will be followed by a question-and-answer session in respect of all agenda items. We'll respond to the questions that were sent to us before the deadline of 18 September 2020 at 10 a.m. Shareholders who've questions -- who have submitted questions before that deadline will have received log-in details to the Lumi AGM portal. On this portal, you will be able to watch the webcast and ask your follow-up questions. Our moderator will read out the follow-up questions when we arrive at the Q&A session. Following the Q&A session, we'll give you the voting results. If the resolution under Item 1 is carried, we'll briefly suspend the EGM to implement the amendment to our Articles of Association. Only proxy votes submitted prior to 5:30 p.m. on the 16th of September 2020 have been taken into account to calculate the voting rights. Voting during the EGM is not possible, and the numbers we'll give you at the end of the meeting are final. I would like to personally thank you for taking the time to engage with us on our proposal to unify dual-headed -- Unilever's dual-headed structure under a single U.K. parent company. The Board conducted a comprehensive review before announcing our unification plans in June this year, and we firmly believe this proposal is in the long-term interest of Unilever and our many stakeholders. Modernizing our complex legal structure, which was established 90 years ago, will bring significant benefits such as greater strategic flexibility to grow shareholder value, providing the potential for accelerated portfolio change. The proposed changes will not impact the underlying economic interest of any shareholder. And for the first time, all shareholders will share exactly the same legal ownership, dividend, governance and capital distribution rights in a single parent company. The proposal does not change the operating business of the Board strategy or the Board strategy to drive long-term growth across the 3 divisions of Unilever; it will complement these efforts. The Board strongly believes this proposal will help create a simpler, stronger company that will better be able to deliver long-term shareholder -- long-term value for all our stakeholders. I'll now give the floor to Alan to provide you with some more information on unification. Over to you Alan.

Thank you very much, Nils. And again, good morning, everybody. I would like to extend my thanks for the level of stakeholder engagement that we've enjoyed over recent months on these proposals. Having listened carefully, I believe more strongly than ever that unifying the 2 separate legal entities is in the long-term interest of Unilever and our stakeholders. This is the customary safe harbor statement that we show anytime we're making forward-looking statements about the business. The benefits of unifying Unilever are, I believe, widely recognized. In order to drive long-term growth across our 3 divisions, we want and need to be able to accelerate portfolio change. Unifying our legal parent structure will give us greater strategic flexibility to do this should we choose through equity-based acquisitions or demergers. This would simply put us on a level playing field with our global competitors. And this link between a simpler legal structure and greater strategic flexibility was underlying strongly following a full-scale year review -- a full scale -- sorry, following a full-scale portfolio review, which began last year of all of our brands and categories. The recent strategic review of our key business assessed a full range of options including a demerger as one route to separation, as we found when we came to dispose of our spreads business in 2018, a demerger would be significantly more challenging under the current legal structure than under our single parent structure. Unification will also further strengthen Unilever's corporate governance. It will simplify the capital structure, as Nils said, with one market capitalization and distributable reserve for dividends and share buybacks. One global pool of liquidity and one class of shares with identical rights. Our proposal to establish a single U.K. parent company, Unilever plc, is the best practical option to achieve unification. As you know, in 2018, we withdrew our proposal to unify under the Dutch parent company because of concern from a significant minority shareholders about the impact it would have had on FTSE index inclusion. As a result, unifying our -- under a Dutch parent company is not an option. But we're very proud of our Anglo-Dutch heritage, and we have significantly strengthened our presence in the Netherlands in recent years. This proposal will have no impact on our commitment to the Netherlands or to our operations in the country. The number of people we employ; our investment in the Dutch economy, which is currently worth around EUR 1 billion a year; our factories in Hellendoorn and Breda and our significant R&D capabilities, and none of that will change as a result of unification. Furthermore, our Foods & Refreshment division, which makes up 40% of Unilever's brands like Knorr, Hellmann's, Magnum, Unox and The Vegetarian Butcher will remain firmly based in Rotterdam under these plans. Indeed, as part of our unification proposal and subject to successful implementation, we have agreed with the Dutch government to work together to create an even stronger and more dynamic Foods & Refreshment division in the Netherlands. One important platform for this will be our new Global Foods Innovation Center at Wageningen University, which we were very proud to open last December following an EUR 85 million investment. We have high ambitions that our work at Wageningen will help to transform the food industry in areas such as plant-based ingredients and sustainable food packaging. As in the Netherlands, that we know significant changes to Unilever's footprint in the United Kingdom as a result of unification, either jobs or investments and our Home Care and Beauty & Personal Care divisions will continue to be headquartered in the U.K. This slide shows a simple explanation of the legal change. As part of a cross-border merger, Unilever NV will be merged into Unilever plc and NV shareholders will become shareholders in plc. Unilever NV shareholders will receive one new plc share in exchange for each Unilever NV share held. As Nils mentioned, shareholders will share exactly the same legal ownership, dividend, governance and capital distribution rights in a single parent company. All the assets, liabilities and legal relationships of NV, including subsidiaries, will be acquired by plc by operation of law. NV will cease to exist and all their shares will be canceled. Plc will become the sole parent company of the Unilever Group. There will be one market capitalization, one global pool of liquidity, one class of share. While there's a lot that will not change, let me emphasize that unification will not result in any change to Unilever's multi-stakeholder approach to business. This will remain at the heart of everything we do. We're embedding sustainability into every aspect of our business through our new purpose-led, future-fit Unilever Compass strategy. We're determined to show that sustainable business drives superior financial performance and creates long-term value for all our stakeholders. The most recent example of this commitment came 2 weeks ago with the launch of our new home care strategy called Clean Future. By replacing 100% of the carbon derived from fossil fuels in our cleaning and laundry products with renewable or recycled carbon by 2030, that's less than 10 years away, we intend not only to transform our own business, but to help shift the whole industry. And this commitment came on top of similarly ambitious proposals announced in the last 6 to 12 months in the areas of [Audio Gap] nature and plastic packaging. Unilever is recognized as the global leader in sustainable business, though this will not be diminished in anyway as a result of the changes we're proposing. We also intend to go on maintaining the highest standards of corporate governance. Hence, Unilever will continue to apply its existing corporate governance principles following unification of participants in the U.K. corporate governance code. Unilever shares will be listed and traded on Amsterdam, London and New York Stock exchanges. Unilever plc will continue to have a premium listing on the London Stock Exchange, and we expect to continue to be included in the FTSE UK Index series. We've spoken with Euronext, and they have confirmed our expectations around Unilever plc shares, replacing NV shares in the AEX index. We also expect Unilever plc shares to be included in the STOXX Europe 600 index and other relevant pan-European indices. Finally, we will continue to report our earnings, including dividends in euros, with those dividends being paid in euros, pound, sterling or U.S. dollars. And there will be no change to our policy of seeking to pay an attractive, growing and sustainable dividend. Let me conclude. These are challenging and uncertain times in the world, but that merely underscores the need for Unilever to have greater strategic flexibility. We've consulted widely and listened carefully, and we're confident we've come forward with the most shareholder-friendly route to unify our legal structure. Above all, we strongly believe this proposal will help to create a future-fit Unilever, which is stronger, better positioned for success and more able to deliver long-term value for all of our stakeholders. Back to you, Nils.

Thank you very much, Alan. And we will now answer the questions that were submitted ahead of the meeting. With the shareholders -- where shareholders ask similar questions, I've decided to combine or cluster these questions. And I'll start with reading the first set of questions and state the name of the shareholder or stakeholder representative that asked any such question. Alan, Graeme or I will respond to these questions. The first set of questions come from European investors, VEB and reads as follows: the unification proposal follows the withdrawal in October 2018 of the previous attempt to simplify the dual-headed structure under a new single Dutch holding company. Several shareholders have criticized Unilever for not properly engaging with respect to the 2018 simplification proposal. How has this experience changed Unilever's engagement efforts concerning the current proposed unification? Also, Unilever now seeks shareholder approval for the exact opposite option of unifying the dual-headed structure, i.e., by implementing a plc structure. Which negative implications with the second best option have for shareholders? Finally, why hasn't Unilever opted for maintaining the NV legal structure with, at the same time, a primary listing in the London Stock Exchange as well as the U.K. head office? Let me address these questions. First, Unilever received widespread support for the principle of unification in 2018. We proposed then to unify our business under a Dutch parent company with listings in London and in Amsterdam. We withdrew our proposal because of concern from a significant minority of shareholders about the impact it would had on the FTSE index inclusion. Unifying under Dutch parent company while maintaining listings in London and the Netherlands is, therefore, no longer an option. We consulted extensively with shareholders after the Board decided to withdraw the proposal, and we continue to do so ever since. It was appropriate that the Board took some time to review and reflect around this arrangement and ensure it arrived at the best decision for Unilever, its shareholders and other stakeholders as a whole. What we're proposing now is in no means the opposite of our option -- opposite option of our proposal from 2018, but just a different way of achieving unification. Both the U.K. and the Netherlands are excellent legal jurisdictions, but having carefully considered a wide range of options, the board believes that incorporating is in the U.K. is the best practical option to achieve unification. VEB also asked the following: in the shareholder circular dated 10th of August 2020, Unilever states that if the proposed bill by Dutch opposition party, GreenLinks, resulted -- resulting in an exit tax would be enacted in its present form, the unification will not be in the best interest of Unilever and its stakeholders and Unilever will not proceed with the unification. Does this imply that the only option available in this adverse scenario is that Unilever will maintain its current dual-headed structure with both NV and PLC shares? And if not, what other options does Unilever have? Also, should the proposed bill be enacted in its present form, what will be the implications for Unilever in terms of future investments in the Netherlands? Unilever also states -- continuing the question, Unilever also states that based on legal advice received, it considers the proposal to be contrary to international law. Could Unilever elaborate on the aspect of the bill it considers to be contrary to international law? Alan, would you answer these questions, please?

Sure. Thank you, Nils. Well, the Board remains absolutely committed to unifying the group's legal structure as proposed for all the reasons that we've given. And we do remain confident in our plans as we believe that they're in the best interest of the company, its shareholders and other stakeholders as a whole. This bill is at a very early stage. It may be subject to amendment during the parliamentary process. And actually, it's not clear when or if indeed at all, the bill may be enacted or in what form. Accordingly, the ultimate effect of the bill on proposed unification is not clear at present. And beyond that, we really are not going to speculate. The legal that we've received from multiple sources is that the bill would breach fundamental principles of EU law on freedom of establishment and on free movement of capital. It would also, for example, contravene the Netherlands-U.K. tax treaty. So with that, back to you, Nils.

Thank you. Thank you, Alan. VEB also asked the following: Unilever expects the plc shares will, in addition to inclusion in the FTSE 100 index be included in the AEX index and continue to be included in the STOXX Europe 600 index and other relevant pan-European indexes. Could Unilever provide an update on the status of its communication with the index providers? Also what gives Unilever the confidence that the plc shares will be included in all the aforementioned indexes? Graeme, could you answer the questions by VEB, please?

Certainly, Nils, thank you. Let me start with Euronext, who we spoke to last week. Euronext will not formally conclude until we've taken the necessary steps to apply for the listing of Unilever plc shares on Euronext Amsterdam, but they have confirmed our expectations that the plc shares will replace the NV shares in the AEX Index. We engaged with the FTSE Russell Group, and they will formally confirm whether plc shares will be eligible for the U.K. series when they issue their index treatment notices. This will only be once the necessary steps for unification have been completed, including shareholder and regulatory approvals, and there is full clarity on the timetable for the share exchange. FTSE Russell has noted that on the basis of the information that we provided in the unification announcement in June, specifically a U.K. incorporation and the U.K. premium listing that their index nationality rules indicate that the combined entity would be eligible for inclusion in the FTSE UK index series, and we expect that, that will be confirmed in due course. And finally, the STOXX indices, we'd only normally comment ahead of a shareholder vote if there was significant interest from shareholders. We expect PLC shares will continue to be included in the STOXX Europe 600 index. With that back to you, Nils.

Thank you, Graeme. Further VEB questions read as follows: with the PLC legal structure, Unilever will only be subject to U.K. corporate law and governance code as well as the U.K. Takeover Code. Directors duties and responsibilities are different under the U.K. regime compared to the Dutch regime. Some Unilever shareholders have already voiced concerns that the focus with the stakeholder model may switch more towards shareholders following this change. In the shareholder circular, Unilever, nevertheless, states that its multi-stakeholder approach will not change. So how does Unilever reconcile its different requirements on the U.K. laws and regulations and its statement that the multi-stakeholder approach will remain unchanged? And could Unilever give some examples of circumstances under which the company will be obliged by law to make a different decision being a purely U.K. company compared to the current situation, in other words, with both the NV and PLC legal structure? Also, does Unilever agree that it might be forced to act differently in case of, for example, a hostile public offer for Unilever with Unilever being the target company? Alan, would you answer these questions, please?

Yes. Thanks, Nils. I think these are important questions. Unilever has operated effectively for many years under both the U.K. and Dutch corporate government's -- governance regimes. And over a decade ago, we set out our vision to become the world leader in sustainable business. Frankly, the location of legal incorporation of either parent company in Unilever's dual-headed structure has had no influence on our vision of doing business in a way which delivers schools by serving society and the planet. As to legal regimes, while there is a difference in emphasis between the U.K. and the Dutch governance regimes, both regimes place an emphasis on long-term value creation and Directors must consider the interest of stakeholders. In the U.K., the Board has a duty to promote the success of the company for the benefits of its shareholders. And in doing so, Directors must have a proper regard for the interest of other stakeholders, the long-term consequences of the decisions and the impact on community and environment, and this will be applicable in any public bid context. Back to you, Nils.

Thank you, Alan. And the final question from VEB is as follows. In case the unification will not be implemented, will Unilever then be confronted by a durable competitive disadvantage because of a lack of flexibility? Will this, for example, permanently close down certain M&A options for Unilever? I think this question is mostly suited for Graeme, would you address this question, please?

Sure. Thank you, Nils. Our current dual-headed structure has been in place for 90 years now, and it has not prevented us from doing mergers and acquisitions. However, we do want to accelerate the pace of portfolio change in Unilever from structurally lower growth to higher growth categories. And unifying our legal parent structure gives us greater flexibility to achieve that, including through equity-based acquisitions and demergers. We believe that this will become even more important as we anticipate the increasingly dynamic business environment that the COVID-19 pandemic creates, but ultimately, this is about creating the right strategic optionality for Unilever over the long term. Unification will put us on a level playing field with other companies and ensure that we are best positioned for future success. Back to you, Nils.

Nils, I think you may be muted.

Thank you, Alan. Thank you, Graeme, first of all. The next question come from Stichting Instituut Gak and read as follows: is Unilever prepared also on behalf of its subsidiaries to guarantee towards its Dutch employees that employment in the Netherlands will be maintained at the current level unless changes in circumstances in the relevant sector justify adjustment in accordance with what is happening in that sector? Further, is Unilever prepared also on behalf of its subsidiaries to guarantee towards its Dutch employees that the employment conditions for its Dutch employees, including all social schemes, including pension schemes, will be maintained at least on the current level unless changes in circumstances in the relevant sector, justify an adjustment in according -- accordance with what is happening in that sector? Finally, is Unilever prepared also on behalf of its subsidiaries, to guarantee towards all Dutch employees that its Dutch employees will maintain, at least in an equal manners currently, their consultation rights at the highest corporate level in the company? Alan, I would like you to answer these questions.

Thanks. As I've said, there's no change to the operations, locations, activities or staffing levels in the Netherlands nor in the U.K. for that matter as a result of this unification proposal. So it means that the employment conditions of our people in the Netherlands will not change as a result of unification. Now currently, there is no works council established at Unilever NV's level. However, there's a full employee consultation at the level of the Dutch holding company, Unilever Netherlands Holding BV. We are happy to confirm that the role of the Works council and employee representation in the Netherlands will not change because of unification. In the context of the change in the legal structure, Unilever is committed to an enhanced level of engagement with the Dutch Central Works Council. For example, we've formalized an annual meeting with the CEO. We have a very good relationship with the Works Council, and I welcome -- I'm thoroughly enjoyed our ongoing engagement. Nils, back to you.