Unilever PLC (ULVR) Earnings Call Transcript & Summary

Hello, everybody. I'm Warren Ackerman, Head of Consumer Staples at Barclays. I hope you're well. It's great to be hosting this fireside chat with Unilever CEO, Hein Schumacher. Thanks for your time, Hein.

Morning, Warren.

Lot's to talk about. So let's get cracking. So first question, and it's the feedback from the plan that you set out in October. The feedback I've had is that whilst people were constructive, there was also a feeling that they've heard some of these elements before. So the big question, I'm guessing, is what's really different this time? P&G took 5 years. Are there areas of low-hanging fruit? Or is it just going to take time to get some of this stuff fixed?

Right. There are some key differences, I think, versus the past. I think, first of all, we have talked about doing fewer things better with greater impact. So we're making real choices when it comes to what areas we want to focus on for top line growth. Talk about market development, talk about superiority, and I'm sure we're going to go deeper on that one a little bit later. We're also talking about prioritization of our resources, and that's behind the top 30 brands. What's really different is the new organization, we should stop calling it new, but we're putting our finishing touches to it, but it's a really major change for the company. And I'm very keen to push that one through all the way to the max. Also there, I'm happy to go a bit deeper. We have put a new leadership in place. We changed around 60%, 70% of the team. There's still some more change on that one to come. So look, I think there are quite a number of things are very different. I'm just a bit careful to call it out as a strategy. This is an action plan. Internally, by the way, we label it as the GAP, the growth action plan. But it's also very well meant to close the gap. I'm realizing -- we're trading at a discount, absolutely determined to close that discount. I think we have many reasons that we can do that. So also the perceived change within the company is actually very high. Now when you talk about when will you see the first fruits of all of that good work, I think many things are actually already happening. I mean, first of all, we saw an inflection point in the beginning of 2023 when it came to gross margin. There's a way to go, and we're going to build on that but it's not that things are not moving. Secondly, if you look at our business groups, the 5. And 3 of them have now moved to positive volume growth. Obviously, there's more to do, and we're going to talk about that. The new leadership, yes, to be installed on the 1st of January, but we're off to a flying start. When it comes to concepts like filling the pipeline on breakthrough innovations to develop the markets again, there's many things that were sort of hidden somewhere in the company, and I'm extremely keen to dial it up. And the same goes for the superiority thinking. It was well executed in our Home Care division in the last year. They piloted it with it, what took it, and I'm very keen to make it all Unilever. So I guess what I want to say is, look, it's an action plan meant to close the gap. Many things already at play. And I do see some momentum in the business.

Okay. Can we touch on the activist? I know you don't talk about individual shareholders, but obviously, Nelson Peltz and Trian is a bit different in that they've got Board seat. Can you share with us a little bit in terms of their priorities? Are they putting any pressure to unlock value by splitting the business up? I guess the question people were thinking is how much time do you have to implement plan A? Or is there actually a Plan B, more maybe a nuclear option where you can't unlock value from Plan A? And what I'm trying to get at is, have you already thought about that? And if you have, is there any kind of view around the kind of dissynergies or any kind of quantification of that because that has been a topic that keeps coming up.

Right. I mean first, back to Trian and to Nelson. Nelson is first of all, they are squarely behind the growth action plan. And I talked about this plan, the interventions that we're making with our full Board roughly 2 weeks before or week before we communicate it to yourselves and he's very much behind it. I mean he has the same interest as we have, which is to execute in the company diligently with great discipline behind the things that I just talked about. So there is no difference of views on that at all. And in fact, I'm benefiting from his learnings as well as from Trian. I mean, they've been on the Board of other companies. And I'm very open to their views. Yes, there's pressure but healthy pressure and every company needs pressure. So I'm actually good there. When you talk about the portfolio, it's not a live option at the moment. As I said, I believe the short-term value creation opportunity by simply doing things better. And behind the things that I talked about, pressing on with the organization, making sure we do the right things behind our top brands. I think that's the biggest value unlock. Do I think about it? Of course, I think about it. Of course, I do. It would be a bit funny if I wouldn't think about the portfolio, and I will always think about the portfolio, because that's my role. But I'm absolutely convinced that the immediate opportunity is to do fewer things better with greater impact and behind things that I talked about.

In terms of people and organization, there's obviously been a lot of changes. We've seen Hanneke Faber moving on from Nutrition, Matt Close in Ice Cream. Peter ter Kulve's got a new job now in Ice Cream, Fernando's CFO. There's been a few internal promotions like Eduardo in Home Care and Priya in Beauty and Wellness. Question is why are these the right people to run these important jobs. And why is there no external coming in? And how does the new organization unlock real value with the right leaders running the key divisions?

Right. Very good question, and I've heard the question before. So look, we've gone for all roles, we've gone through a very thorough process. And when it comes to the CFO, I'm super happy. Of course, I'm very happy with the choice. I've gone very carefully about these appointments because I knew they were going to be very important. But I wanted to make sure that, a, all of these people have -- would have a proven track record, certainly within the company, and they have. They have really performed over the last year. They are squarely behind the plan. That's super important to me as well. And I also want to make sure that eventually, when the whole leadership team is done and for example, we have still an open position in Nutrition, and there will be some changes down the road that ultimately, we have a great mix. And a great mix is internal, external, male, female. It's a super global team. People, obviously, from Latin America, I'm very happy with Esi now as the Chief Marketing and Growth Officer, because we didn't have that North American perspective in the top team, which I think is absolutely necessary. So when it comes to diversity and understanding and getting different perspectives, I'm sure we'll get there but I'm very happy with the choices that we've made.

I want to spend a bit of time on culture. I follow Unilever a long time. And I think it's safe to say there's a very distinctive culture at Unilever, humane, collegiate, democratic are some of the words I would use. But at the same time, it hasn't been consistently winning. And you've said yourself, is your burning ambition to cut through the decision-making and the red tape have more accountability. How do you actually change your culture and take the things that work and then that quickly in areas which are less effective? I'm just trying to get a sense of -- you've got 127,000 people at Unilever. How were these people, going forward, get paid and get incentivized? And how can you manage the speed of that transition because if you go too fast, there's also risk. So I'd love to get your perspective on that.

True. Although the speed does need to go up. So let me be super clear about that, and I'm very determined to do so. And I think people -- but I'll get to that in a second to why, people are very hungry actually for the change. I mean, first of all, Warren, we have very good people. This company has outstanding people. We are the most preferred employer certainly in the CPG industry in 16 out of our 20 markets. And these are very large markets, India, Brazil, outstanding talent basis. And it's, of course, our job to turn talent into performance. But everywhere I go and when I speak to people, people are hungry. And when you talk about performance culture, we should be careful here for me not to give you too lengthy answers because this is a very -- this is a topic that I'm very passionate about. But I believe when you talk about performance culture, it's a whole series of actions that you take. It's not just talking about it. But there are actions, first of all, do we allow people to be really empowered. Now here, I want to go a little deeper if that's all right with you. If you think of our new organization, I want to remove the matrix and be super clear about that. We have 5 global verticals. And we did some analysis in June, July when I came in and said, "Hey, if you want to launch a new deodorant in Southeast Asia under the new brand, how many centers of decision-making are there for people to make that call?" And there were simply too many. I will not say how many, but there were a lot. I'm very keen to bring that back, in my view, the ideal world, hey, we'll take a bit, but 2 centers. The people there decided or they go up 1 level and then you decide it there and then the decision is made. No return trips. The new organization allows me to enforce that. So that's #1. Secondly, it's about remuneration. We're tying remuneration much more to where people work. So they have line of sight. Thirdly, it's about differentiation in remuneration. Unilever was quite in the corridor of somewhere between a payout, let's say, of 80 to 120 on your variable components. We're stretching that substantially. It's about behaviors. We have many standards of leadership as I call it. We're bringing it back to just a few. And of course, it's the leadership that I -- we talked about, who needs to walk the talk. Now there's more to it. But let me summarize by saying I think the structure will allow me and the company to drive speed, empower people and hold them accountable. Simply because of much simpler decision-making. And this is something I will be on day in, day out. We're changing remuneration through the hard stuff, and we're making sure that the things we talk about, building though on the strong fundamentals that we have because we should never lose some of the good things. Of course, we have a human culture. Of course, values are important to us. They will remain so. That was one of the reasons why I joined this company in the first place but it doesn't mean that it should get in the way of doing things faster, better and with greater impact.

Okay. That's great. Market share is obviously the lifeblood of FMCG companies and 38% business winning is obviously not good enough. It's fallen from 58% 6, 7 quarters ago. Can you maybe try and explain the reasons for that decelerating trend? And what needs to happen to get back to 50% plus consistently. People are asking how long is it going to take? It looks to me and the analysis I've done that in the majority of your top 30 power brands, most of them have lost market share over the last 3 years. So the question is how do you actually arrest that decline? And how can we be confident that the 30 power brands today are the right 30 brands to continue to be in the Unilever portfolio.

Right. I mean, first on competitiveness. And let me be straight, the 38% that you called out is not good enough, all right? So I think I've been clear on that. It simply has to improve. It's not a perfect metric, though. And I don't want to discount it, but I do want to caveat it for 2 factors. Number one, roughly 25% of our business is not captured in that metric. And #2 is it is binary, as you know, right? So if you lose a basis point of market share, we classify it as business losing. And that's not always the right way to look at it. All that said, year-on-year, it's not good enough. Now what are we going to do about it? The good news is our top 30 brands that we called out, representing a little over 70% of our business are already growing ahead of the company average, and they do perform better. What we need to do, again, is on competitiveness. We need to grow our markets. This is super important. We've -- I think just taking share and promoting more on our products is not going to deliver that sustainable market share growth that we're looking for. Therefore, we need to embark on journeys for our top brands on multiple year innovations, making sure that we develop the category, create value for our customer and for ourselves. And that means more premiumization, it means bigger and more scalable bets. That's what we're going to do. And I'm actually quite convinced that we will grow these categories back again. We have leading positions in around 80% of the businesses in which we play. We ought to do this. And that will obviously help. Now besides that, there are other things that we need to do, which we'll need to talk about. But I do see momentum behind improving. And look, we should be above the 50% hurdle on that.

Maybe switching gears to reinvestment. I think Unilever committed to a multiyear increase in A&P, R&D and CapEx. Can we maybe zoom in to the brand and marketing number. I know it's not like-for-like, but it used to be 15% of sales, it's now 13%. Where do you think that needs to go back to? And how much of that spend is currently behind the top 30 brands? You said it's 70% of revenues, is it 70% of the spend? And can you reassure investors that a step-up in investment can be funded by gross margin recovery rather than through a margin reset?

Right. So we've committed ourselves -- I'm starting with your last point. We've committed ourselves to moderate margin expansion and that's what I want to stick to. So let me be super clear on that one.

So no reset.

No reset. Secondly, when it comes to gross margin, as I mentioned, we had an inflection point in the beginning of the year. This is super important for us. And I guess we're going to talk about that on the gross margin probably later. But look, gross margin needs to improve further. We were down 400 basis points since pre-pandemic. That was simply not acceptable. Yes, it's growing now, but we need to continue to grow it, not just based on price and mix and so forth on the top line, but also by reducing cost, and there's a plan for that. So happy to talk about that a bit more. But when it comes to -- going back to the resources allocation, 3 layers. So brand marketing investment, R&D and capital expenditure. If I add up the 3, they were not pro rata to the turnover of these top 30 brands that actually did have a higher growth momentum. So that's what we're going to change because, of course, if we prioritize those initially to force discipline on the choices we make, then that's what we've got to do. We will increase some R&D expense. It's currently at 1.6%. It will go up and we're going to increase our capital expenditure to drive productivity, but also innovation, now from the 2.7% that we had to somewhere between 3% and 3.5%. Then you come to brand and marketing investment. For me, the mantra is budget follows plan. I want to make sure that the pipeline that I talked about on market development, I want to make sure that these top 30 events are going to be unmissable, superior. When we pilot that in Q1 and Q2 next year, then the budgets and the spend will follow. But I didn't want to give a mantra now in the company and also not to the market that it's sort of a blank check and say, "Hey, we're going to spend 2 percentage points more of our turnover. That will be EUR 1.2 billion more. It will tick up. And when you see a tick up, it will mean that the plans that we have and the priorities that we're setting, that they're actually happening. And that will be a great thing.

Yes. Maybe moving to the 6 Ps. When I think about Unilever and I think about P&G, they talk about irresistible superiority in every vector and Unilever said that 70% of your brands are technically superior, but consumer cares about everything including things like packaging. And being frank, it feels to me it's taken some time for the penny to drop, that everything is important for consumer. And you gave some examples of Dove U.S. and Domestos Power Foam, where you actually have looked at all the vectors and where you've done that, there has been a really nice tick up in terms of market share and in terms of performance. So the obvious question then is, how can you actually codify what consumers think on all the vectors? How can you actually measure that? And then secondly, how quickly can you scale those examples of Dove U.S. and Power Foam and do it everywhere?

So on that superiority, I like our unmissable superiority by the way. So we're going with that one, right. And if you think about it, exactly to your point, this business, CPG is about -- it's about details. Everything needs to take and tie. It all needs to come together and that means that on these, call it, 6 dimensions. And for us, by the way, in the proposition, that P of proposition, for example, sustainability is important, but not for everybody the same. So we need to measure it through the eyes of the consumer. We're doing that very diligently. That's a huge exercise. But at the same time, we are doing it right now for a number of those brands. And for example, Warren, if you have a pack of washing sheets and you would say, look, I like this because it's a sustainable product. It doesn't mean that for someone else, he or she likes it because it's a sustainable product. So we're testing all of that. We're taking these results back, and then we're going to adapt. We're doing that now for a smaller part of these top 30 brands, and we're going to roll that out. And it needs to -- we need to make sure that by mid-2024, we have a baseline on that unmissable superiority for more than 70% of our turnover. From there on, we're going to determine what that next leap should look like and then we'll take it forward towards the end of the year. So it's going to be a process towards the first half of the year. We're going to do it, not look back, measure it, make sure that where the gaps are, we immediately address them very quickly and then move on from there.

You touched on R&D, maybe we can talk a little bit about R&D. I was quite struck by the comment that the innovation side, you wanted to be 5x bigger than the 2020 baseline. My question to you is how much of those breakthrough innovations are already within the pipeline? Or do you actually need to build that capability going forward? And then when you benchmark the R&D spend, I know it's not just about more money, it's also about getting more out of what you're already doing. So just in terms of -- when you're looking at the R&D, are you happy with the pipeline as is in terms of getting to that 5x multiplier on innovation that actually then moves the needle in terms of top line?

First of all, to those platforms and the size, right? So it was so interesting when I joined the company, and I asked people and said, "Hey, what are you really proud of with Unilever?" and consistently, one of the first -- the #1 or #2 item that employees go out and say, our scale. Our scale and our reach. And yes, that's a phenomenal fundamental. We distribute to places that others don't go to, but that is not a strength unless we use it to scale up. So we're very keen to do that. And I recognize local differences, but it doesn't mean that certain trends don't travel, and that we, therefore, shouldn't scale it up, and we should simply break through that. So developing scale is super important. Then going to R&D. I spent a lot of time in my first months in the -- not most in the lab necessarily, but with the R&D community and let me be super clear, in a number of platforms, biotechnology, I called out in earlier meetings, our microbiome technology, our packaging technology. And there's a few more, but I'll hold those with me for now. They are, in my view, they are differentiating. We know more than many of our competitors. And yes, it's there. So this is not something that needs to start from scratch. I think over the years -- and look, I don't look back. But when talking to the R&D community, it felt like, hey, we have those great things, but we tended to start and stop a bit, driven by all kinds of factors. It doesn't matter. What we now need to do is consistently use these technologies, use the expertise and move it forward. But this is not something that we have to start anew. I'm actually quite positive of what's there.

Can we talk a little bit about premiumization and mix. Unilever have been great at premiumizing categories in emerging markets but arguably less good in developed markets. And I think about things like U.S. deodorants, U.S. skin care, where a lot of the growth at the moment is coming in a price index of, say, 200, 300 and Unilever's wheelhouse tends to be more like 80 to 150. So when things are growing at a price index that is above your wheelhouse, how do you actually go about trying to address that and to capture your fair share of growth? Do you need to buy a brand, you need to take the prestige brands down? How are you going to think about that? Because if that keeps happening and you keep missing it, is obviously a problem.

Yes. Good point. So premiumization is such a -- I mean, this word, it's a word -- it's a big word, right? But it is true because it's happening, it's literally happening globally. I would say with the exception of Africa where affordability is such an important thing. But it's -- you see consumers bifurcating in any market that's sort of I go to and premiumization is important. And it has for us. It does -- I mean, you obviously -- I go to developed markets, don't worry. But since we are 65% of our business is in emerging markets, I want to make sure that premiumization is a super important growth lever there. And premiumization in emerging markets is a different field than in the developed markets. And it means taking people, joining the middle class along in applying our products that we probably have in developed markets but might be new to them there and increased convenience, et cetera. So for example, laundry, we're going from bars to powders to liquids to capsules, and taking consumers along there. And that's a very important play for us, and we're very good at that. So -- but that's one part of premiumization for an important part of our business. Then to the developed world and particularly in North America, you are right. That is an area where we have missed it a bit. And first of all, we are premiumizing our existing brands where we can, but I'm realistic there will be a price ceiling to that. Secondly, we have a very attractive prestige beauty and health and well-being business, exactly what you said. That is developing well, but we want to be careful that we don't take them too quickly to mass. That is a strategy. But I feel good about the fairly cautious approach we are currently taking by developing these brands and keeping them in the D2C area and keeping them very premium. We're looking at one of the brands probably to masstige them a bit. So that could happen, but I want to make sure that we stay very true to their nature. Third, as you've seen, we are continuing to look for bolt-on acquisitions. I want to take complexity out of the portfolio where we can. But here and there, where there's a -- there's something really good, then we're keen -- and the bar is high, but then we're keen to fill the gaps on the premium line, for the premium portfolio. And that's what we're doing.

And you touched a little bit on beauty and Wellbeing. Maybe we can elaborate a little bit on that. I'm looking at some of these fast-growing platforms. They were EUR 1.5 billion 2 years ago, revenues now, into this year, I think you said EUR 3.5 billion which is quite very impressive, I would say. If you look at that, which of the brands are you most excited about? I know you've called out Liquid I.V. and Nutrafol. I mean, could these types of brands be the next billionaire brands for Unilever? And then is there a concern that some of these brands grow so quickly that what happens when they plateau and come down the other side? Will there be other things that actually take place in terms of driving growth.

I am, I mean, positive about the brands, of course, as I just mentioned, and they fill partially that gap of premiumization. Liquid I.V., yes, very excited about. It's all North America, by the way, these days. We're just introduced in Canada. We're going to introduce it in the U.K. It's somewhere between the EUR 0.5 billion and EUR 1 billion at the moment. Nutrafol indeed the same. I'm very positive about Paula's Choice, growing very fast in Europe as well these days. So it shows that these type of brands can travel. But as I said, I want to make sure that we first -- this is exactly to your point. When you acquire a brand, usually, that's a brand that's on a fairly fast growth trajectory. You think, now I got it. But you want to make sure that you build for the next S-curve. And that means you need to have the available science. You need to have the available technology to fuel those brands for that next S-curve. And our acquisition strategy should, therefore, be very clear. It shouldn't be too remote from that capability core that we have because as soon as we start to move away from that, we can't fuel that next S-curve, and you can't fuel that business for the next growth cycle. So Dollar Shave Club was one of those, and that was the reason why we divested it and I'm looking through that lens to develop the portfolio going further.

Okay. Maybe switching gears to Ice Cream. I mean, you've obviously got some great brands, Magnum, Ben & Jerry's. And I think I'm right in saying...

They're very premium by the way.

Yes, exactly. They are very premium. But within that, you've got, I would say, maybe the in-home ice cream piece, the channel, which is maybe commoditizing a bit, but fast growth out-of-home. And when I look at your kind of cost base, it seems quite high in Ice Cream. I'm comparing it to say, Nestle. I'm sure it hasn't been lost on you what they've done with Froneri with private equity in terms of improving the margins. And so what I'm interested in is what will Peter ter Kulve's priorities be as he takes over that leadership of Ice Cream from Matt Close. And how do you actually really unlock the full potential of Ice Cream? And if you can't do that, is it not a prime candidate to be spun out of Unilever?

No. So Ice Cream, I mean, first of all, Peter has run Ice Cream before. And I was -- so I wanted to benefit from his knowledge on Ice Cream, but also he is a system thinker, and you need to think the system -- to your point. So it's not just a marketing job and premiumization. It is truly managing the whole shooting match from the top line, the supply chain, making sure your cost structure works, et cetera, because in Ice Cream, you make your money in 5 months a year generally. And so there's a lot of things that need to come together. Our cost structure at this moment is not acceptable on Ice Cream, and that means we're working through that. We're making changes already. So that goes very, very fast. There were some plans were out there, but Peter is executing on them with an enormous space, as you may expect from Peter. And so cost structure needs to be adapted. One of the reasons is that Ice Cream is competing more and more to pure Ice Cream players. And if you think about it 10 years ago, 15 years ago, ice cream competition was very much companies like ours that also had ice cream. Now you see more pure play. And it means that we need to make sure that we run the Ice Cream business as an Ice Cream business and that's what we're currently -- that's what we -- I mean, that's what the new organization unlocks. But in Ice Cream, that is probably more so than in the rest of the organization. Given our out-of-home nature of it, given the higher CapEx nature of it. I mean, Ice Cream does have high CapEx because of freezers because of -- well, I've been in dairy and I can tell you, the stainless steel that's needed there is just higher than in some of the other parts of the business. Now to your point on the portfolio, I think also here, we have that opportunity to unlock value. We are working through that diligently. We know how to do it, and I'm really looking forward to see the results of the plans of Peter for now.

And maybe switching gears to some geographies. I want to start on Europe, a bit of a bugbear of mine. I mean it seems to me -- I know it's only 20% of the portfolio but even so...

A little less.

A little less. It seems to be struggling. I mean the volume is down 11% in the last quarter. I appreciate a lot of that is pricing, elasticity and maybe some of its SKU cuts, but the data doesn't look great. And private label is winning in many places. And some might argue that your brands are simply not differentiated versus competition or even, if I'm being harsh, maybe losing relevance. How do you actually tackle that challenge, especially when you have a kind of now category lens, not a geographical lens. And do you actually see a pathway to get back to positive volume in that region? How long is it going to take? Because clearly, if you're trying to aspire to 3 to 5, you need Europe to be contributing a lot more than it's currently doing.

Yes. So I mean, first of all, you are touching on one point that is important to mention. That is the -- we've made conscious choices on the portfolio. We've reduced our SKUs by roughly 20% this year. By the way, that also impacted some of that business winning as I talked about. Those were conscious choices, but I'm not going to hide behind that. There were good choices, but now we need to move on. And the European performance has to improve. And the way I look at Europe is it's generally flat. But within Europe, you have winners and you have losers. So -- and Europe remains an important and attractive market for us. So in the compass strategy that was there, North America, India, China were prioritized. That's not what I'm doing right now. So I'm taking a different view at it. I'm looking at the 5 business groups and saying, hey, if you have a big exposure to Europe, Nutrition, Ice Cream, we've got to make sure that we build unmissable superior propositions for the consumers in Europe. We developed the market in the categories where we're leading in Europe and we need to find ways to find, to get closer to the consumer. As I said, Paula's Choice, great example, growing double digit in Europe, but in a different fashion than what we've done before. So we need to rethink Europe. We started a program called Reimagine Europe. And yes, we're taking that through a business group lens. So I don't want to gravitate back to a geo play. But I do say, if your exposure -- to your point, is it 20%, 25% in Europe, we've got to make Europe work. And that means we need to develop products and solutions for the European consumer. And that's what we're doing. And we're -- we can't have Europe losing double digit. I think we -- I don't think third quarter was a true representation of that, but it needs to be better.

Maybe moving to India. I mean, clearly, Unilever has the highest exposure of any FMCG company to India. In fact, across the whole European market, if I'm right in saying that. And the last 10-year, track record have been exceptional in terms of growth, margin, market cap. Do you think the next 10 years can be as bright as the last 10 years? And what are the biggest long-term opportunities, I assume Beauty. And in short-term, it sounds like you are a little bit concerned about local competition and commodities rolling over. But do you not benefit from the rural economy starting to improve and the marketing spend really increasing significantly as you're using the gross margin recovery to reinvest in advertising to stimulate volume mix as pricing rolls over? So just interested in the kind of long-term, short-term on India and your views.

India is a super important part of the portfolio. And if you look at, as I mentioned before, on market share, we look at market share through business winning. We look at it turnover weighted, but we also look at it market weighted. And currently, in the last, particularly, 6 to 9 months, on a market-weighted basis, the company is actually showing positive numbers. And India is an important part of that. And that is the primary lens to which I look at India, is that for the next 10 years, and you're taking rightly so, 10 year view, this will be an important driver of growth and we're well positioned to that but we should not be complacent about it. Yes, we have great positions but with some slowdown in China, I do see international competitors walking into India and putting a greater amount of resources behind it, and we're seeing increasingly strong local competition. So market shares and the enormous business winning percentages that we had above 80% might not be there forever. But with the undercurrent of us being very well positioned, the Indian economy doing well, I think the prospects in India, particularly behind digitization are phenomenal. It will be a continued country of focus for all, meaning all 5 of the business groups. That's not because I'm saying they should, but it's because they see the opportunity there. So look, I think that's how we -- that's how I view it over the 10 years. If you look at it more short-term, India is seeing some deflation in particularly the categories which are exposed to chemicals. And you're sort of in that famous window with deflation coming in and volume growth, not yet completely matching, therefore, pressure on pricing. So on the short-term, we're seeing some pressure on that. That will sustain in quarter 4, probably a bit of Q1, but I feel that we're going to grow out of that pretty quickly.

The other thing on India that's happened, you've changed the organizational structure in Beauty and Personal Care. It's been...

It's been through 5 lenses, very consistent with the rest of the organization. Because -- sorry to interrupt, but I'm passionate about making sure that we get this organizational concept, no question marks. Two centers of gravity, speed and decision-making, clear empowerment. If we want to win in Beauty in India, and we're well positioned, we need to play Beauty in India. We have a phenomenal Nutrition business in India, but it's very different. And look, that's the lens that we need to take again.

And another key country is Indonesia. I think I'm right in saying it's 6% of revenues. You unfortunately lost about 500, 600 bps of corporate share in the last sort of period, 5, 10 years. Turning this around has taken, frankly, a bit longer. There's been quite a lot of surgery that needed to be done in terms of management and channel mix and price points. Can you may be like elaborate a little bit where we are within the turnaround of Indonesia? And are we still seeing local competition winning? And what does success look like for Unilever in Indonesia because if you get Indonesia right, India right, you kind of get Asia right given the weighting of Indonesia. So it's actually a really critical component that growth equation for the region?

Yes. So I mean, Indonesia, I always love the business Indonesia. I've been exposed to it in my career a few times in different companies. And I think Indonesia represents a great opportunity. I'm happy that in Q3, we stabilized it. So you're right. I mean, in the -- we have dropped share. By the way, what does winning look like? That's the same for Indonesia as for the rest of the company. We need to grow on a relative basis versus our competition in a healthy way. That means pricing a bit, but certainly volume led and with some positive mix impact. I'm looking at it through that lens. And volume improvement is absolutely critical to me, and that goes for everyone, but that also goes for Indonesia, and we're going to be laser sharp on that. In Indonesia, we saw stabilization in Q3. I think that the short-term, we will sort of be in that area. We've changed leadership. We -- that Indonesia was not yet on the new organization and the unlock that I talked about nowadays. So as per the 1st of January, it's fully on and we are essentially changing quite a few of the plans. So there is work to do, but I believe that we have -- our awareness, brand awareness is as high as it could be. I think the plans are strong. In the short-term, we're seeing some pressure. I mean, geopolitics playing a role. Obviously, there's many -- with the wars in Middle East and so forth, we're seeing some pressure from -- on international brands in general in Indonesia. There was consumer boycotts in the short-term. And look, they're not material to the group, but they are there. So we're wrestling through that. By the way, that doesn't impact our competitiveness as necessarily to and so forth, but there is some pressure on international brands. So I want to call that out. But at the same time, stabilizing, new leadership, clear priorities and finding the way forward.

And turning to China, I think Unilever has been underweight in China, particularly in Beauty, historically. That might be a good thing given the current issues with China, particularly in places like Hainan and destocking. Is this now the opportunity for you to double down in China given the disruption elsewhere, really push your Beauty and your Prestige cosmetics agenda and how big a priority is it now to actually increase the investment and make sure that you get your fair share of the growth.

China is in the top 5 of our -- if you take a country lens, it would be a top 5 country and it's indeed smaller than what you would expect from a company of our size. But you know what's great about it? It's all organic. We didn't get into China through acquisitions. And the benefit of that and when I visited it and having lived in China for a number of years, we've really built up those brands from scratch. They have very strong relative positions. We have a great Food Solutions business in China in our Nutrition portfolio that is highly digital. We came out COVID much stronger. The way I look at China is ploughing on in the way we have been working it over the last year. So not intending to double down in terms of making sort of that quantum leap with a big acquisition. I think that we need to grow our business organically, make the most of our brands exactly behind the things that we talked about and keep going at it. It is going actually quite well. And if you look at it, the pressure that's currently on China, yes, we're seeing it in Beauty and Wellbeing. And we are launching Prestige brands but doing it carefully, as I talked about before because I want to stay true to those brands. But what we do is successful in China. It is successful. We're growing share. Our business winning is above the 50%, 60% in China. And we have strong brands that we can develop through these new technologies or to the technologies and the science. So yes, organic play.

Continuing the world tour, Latin America. Clearly, we've seen Diageo's had a profit warning recently. We've heard a lot about down trading in Brazil. I think I'm right in saying you were down in the region pretty recently. So love to share your perspective, what are you seeing on the ground? And then maybe a specific one just on Argentina given the recent news about the peso devaluation. Can you maybe just -- do you actually have local manufacturing in Argentina? And if you do, does that help or not really because you still need a stable valued currency to import raw materials. I guess it doesn't impact anything around the hyperinflation accounting because you're capping the pricing. But do you see any issues about getting money out of the country given what's actually happening in Argentina? So double prong question on macro and in Argentina.

On Argentina. So I mean, first of all, I would say LatAm is one of our strongest regions. We are definitely not making that call down on it. We're actually seeing very consistent growth also this year. Yes, I mean, in our -- in Brazil, there's some macro pressure but at this point, I think we're getting through quite well. So when it comes to Latin America overall, and obviously, Fernando has been instrumental in that, but later on also many others. So don't want to credit one person, strong region, good category positions, outstanding talent base and I'm actually confident that, that will continue to grow for now.

Are you seeing down trading though in Brazil?

There was a bit of down trading in Brazil, but once again, we shouldn't exaggerate that because at the same time, we're seeing premiumization in a couple of other areas. But for example, we launched -- let's take Nutrition, something quite mundane. We launched a mayonnaise supreme, Hellmann's Supremo. It's growing excellently. So yes, there's some down trading. But if you come with the right product that ticks all the boxes, we can get more out of these categories, grow the categories and that's what we're doing. I'm going to Argentina. Argentina is slightly below 2% of our turnover, but we have leading positions in all categories. It's one of -- I would say, it's one of the stronger Unilever operations. We have gone through many crises before in Argentina. And I look back and studying it a bit given everything that's currently going on, there was a big crisis in '15 and '16, we came out stronger. This crisis, were going to come out stronger. We are not leaving the country. We are making sure that we are strong. But at the same time, of course, that gives you a short-term financial headwind. And that's, again, it's not material to the group. It's slightly -- it's below the 2%. But of course, it gives you a translation downside. The team has responded outstandingly. They -- we have localized production probably more than anyone else. We're now roughly 90% production -- above 90% from a production perspective, we're localized. Of course, when it comes to raw materials, we still need to buy externally and where needed, we need to price, but we're doing that in very close cooperation with the government who has put certain regulations in place. But I would say the business is in a good shape. Yes, we're seeing some short-term pressure but we're responding well, and we're in there for the long run.

You'll be glad that the world tour is over, we can move to other questions. I want to move on to e-commerce. It's 16% of sales, it seems to me maybe slightly behind best-in-class peers. Would you agree with that assessment? And maybe can you give some precise examples of where you think Unilever needs to up its game. I know Alan Jope previously talked about an ambition of 30% weighting to e-commerce. Is that realistic? Or is it actually maybe a bit unhelpful just throwing numbers out there without a plan to get there? I'm just trying to understand where do you actually think you need to improve your capabilities in e-commerce, and get it into a world-class territory.

Yes. So look, I mean, on the target that Alan gave you, actually, I always admire people sort of putting a flag out there and saying, hey, that's an ambition we need to go to. You'll probably -- when we -- in our interactions so far and probably going forward, I'm a bit more -- I need to see a pathway. I need to see a roadmap and then I'll give you a number, like on BMI investment. So I'm not so much on giving big numbers. I want to understand it really and at this point, it is what that number is. When you talk digitization, can I go -- I want to get 2 ways quickly. First one for us, digitization is super important in our B2B. You would say B2B, but B2B means the connection with the customer. And that means we need to make sure that our general trade, again, 65% of our business is in emerging market, that they are digitally connected to everything that we do. That's a big priority. We're moving fast on that in our 3 big regions, Southeast Asia, India through the Shikhar system and Latin America where we have a marketplace called Compra Agora. So that digitization is super important, and we're moving with great pace. So that's #1. Secondly, when it comes to digital, of course, to the consumer, and that's the Prestige side of the business and Health and Wellbeing side of the business with the convergence of media, commerce and marketing, I think they are helping the company and our brands to be much more relevant to that -- to the social media and to these platforms and to the young shoppers. Great. So that's happening, I would say, we're well on track there. So in these 2 areas, we're on par or probably even somewhat ahead of the competition. Now, where -- do we have room to go? That's on the d-comm. As on the e-commerce where our portfolio has probably not always kept up with what you would expect there, and I think we need to adapt it. When it comes to unmissable superiority and you talk about place, the P of place, that means, for me, there's 2 channels that are not -- that are a bit untapped and where we need to win bigger. That is in e-commerce, but also in the discount channel. I'm not afraid of saying that. We -- if you want to be relevant, the consumer needs to find you. It doesn't mean it's always the same product, but it can be the same brand and offered in a different way. So you can take people wherever they shop and however they want to get your product that you were able to offer it to them. That's what I'm now focusing on under the banner of unmissable superiority. That's what we're doing. And I feel that we're going to tick up that 16%, but I'm not committing to a grand goal.

And shifting gear again, Hein. I want to talk a little bit about gross margins because do you think the gross margin is too low? It was 44%, okay. So I'm going to ask it. It was by 44% in 2019. It's down to 40%. Do you think you can actually get the gross margin back to that kind of 44% by 2025? And where are the gross margin issues? I mean you mentioned Ice Cream. It seems to me Home Care is an issue. I mean this is a really key metric because it allows you to fund the reinvestment. I mean, should Unilever actually be more like a 50% gross margin business. I know that -- I know distribution costs, you need to adjust for that in terms of how you account for it relative to other companies and maybe there's some adjustments to be made, but I'd love to get your perspective on just how you're thinking about gross margin, what needs to be done? How quickly? And is it Ice Cream and Home Care that are the main culprits in your view?

I mean -- so first of all, we agree on that, that it's too low, that we dropped it too much. Secondly, you said, do I believe that it will go back to the to the pre-pandemic level in the plan period I called out between now and 2026, 2025? Yes. So we have to -- I mean I committed myself to that and I don't want to shy away from that. So we're going to have to do that. Then thirdly, do I see Unilever going from 44% to 50%? We need to develop that plan. And I think in gross margin, there are 2 important levers. Obviously, this is not rocket science one. But it's, first of all, it's the mix and it's volume and its pricing, which I'll touch upon, but it's also cost and it's not sexy to talk about cost, but it's super important. And we've had, I think, too many years of cost in on the cost that you can actually control, and that means indirect labor, direct waste maintenance. And I feel that with the plans, the decision rights here, being in the business and the business now being completely responsible, the business groups for that part, supported, of course, by global technologies if they need it, that will help to control these costs better, and we're going into 2024 with a plan for no longer incurring a net cost in. So that is super important, and that will help to get us back. Besides that, again, good growth is 3 elements. It's volume that will help a bit on the supply chain. It is mix, and it is pricing. We're seeing some rollover pricing currently happening, so that's helping us. I think mix will help us, given the things that I talked about and the focus on the top 30 brands. They are a bit higher on gross margin. I don't want to call out culprits because life is about delta. We have an Ice Cream business that's lower on gross margin. We have a Home Care business that's lower gross margin than the group. But hey, I'm here to manage the delta where we are today to what it's going to be in the future. We have a strong productivity plan in Ice Cream. We already talked about that. I don't need to talk about that. Home Care is primarily a function of driving multiyear scalable innovations, developing the categories and premiumize where we can, that's the main play and the supply chain will help us to get there.

I want to press a little bit harder on that because -- I mean, it seems to me the SG&A is too high. I mean, gross margin of 40%, even 44%, I mean that doesn't smack of leveraging global scale. When I listen to you, you're talking about procurement need to be better. You're talking about in Home Care, the different cost base between the powder and liquid and how you need to actually locate near to plants depending on the cost base. That's really interesting to me. And is there going to be a point where we hear specific details on all of this stuff? Because it sounds to me like what you're implying whether it's procurement or cost base could be quite big and potentially may be disruptive. Can you do all of this stuff on the cost base without there being a big bang kind of initiative? And can you do this without actually increasing the restructuring spend over and above 100 basis points, which it's always been, basically saying it's the same number, but we've got a lot to do.

Right. Actually, I'm happy that you're giving all of these examples because I didn't want to draw you into the details. All right. Well, if you were in details, then you need to stop me now, all right? So I'm happy to go there because I love it. Because I love the pragmatist style of that. But so I'm going to dissect your question a bit. I'm starting with the last one, just to be super clear. Next year, 1% is 1%. When we give guidance of 1%, it's going to have to be 1%. I don't want to stop the business coming with good restructuring proposals to me, but I want to make sure they drive a return. And therefore, it's helpful to say, look, it is -- that's the ceiling and give me your best, give me the best programs, and that's what we're going to do. We have done quite a bit of restructuring, but I didn't see the need at this time to come to the company and to the world and say, "Oh, we're going to do a massive restructuring at this point". There will be many pockets of restructuring because these business groups are looking now to the lens of -- I need to -- I control all the resources. What do I need to do? So that overhead picture of the 10%, look, 10% overhead, if you compare us to our peers is not crazy. Is there room to come down? Yes. And I want to make sure there will be leverage in the P&L, again, combined with a 1% of restructuring that we've guided for. So that's on overhead. I think on supply chain, let me give a few examples and go a bit deeper. First of all, we carried out a 21% SKU reduction. Is that going to lead to procurement benefits? And am I therefore confident that, that will help us to get back to pre-pandemic levels? Absolutely. An example, we had 261 recipes of tomato soup. I use it a bit as a symbolic project. I know, and it's not a [indiscernible], but it shows you that when you're serious about it, it's come down now to 100. I don't know how many we need, Warren, but we need less than 261. It simplifies supply chain. It simplifies procurement, and it helps to grow the business. So I'm very convinced about that. Now that we're looking at this through a category lens, essentially, you see interesting movements. I talked about ice cream and making an ice cream supply chain, but Home Care is a great example. When you optimize between manufacturing costs and logistic costs, you come to different conclusions if you look at it through the category lens. We found out that we needed with the much higher usage of liquid laundry solutions, we needed our factories closer to the consumer because, yes, we were very good in producing but we had a great logistics cost, making the optimal trade-off means actually being closer from a production perspective and lowering your logistics cost in large markets such as Brazil and India, that's what we're doing. That's one of the reasons why we're increasing our capital expenditure, but it comes with -- I mean, it leads to optimization for the group. So that's -- there are some very specific examples on that. I think -- there's 1/3 that I want to mention. We've gone a bit too far. It has been a trend for a while in outsourcing. When you determine something core, we need to own it. We need to own it from R&D to production. Because what we've seen in inflationary periods, you do control inflation better if you own it. And when you localize your change, which is also something we've seen after the pandemic, I called out Argentina, you need to own it a bit more. And that's another reason for the uptick in capital expenditure.

Thank you for the color. I do want to move on to sustainability, it's obviously a big topic.

I was very happy to go deeper on supply chain.

Yes. So unfortunately, with time is running a little short. But look, on sustainability, I was very struck by your comments about it has caused more heat than light and you want to move more to a kind of shorter-term focus for the 4 big pillars of climate, nature, plastics and livelihood. Can you talk a little bit about that? And then obviously, the news story on greenwashing is being over the -- all over the news the last few days, can you maybe talk a little bit about your kind of strategic view on sustainability on those 4 pillars and maybe moving in the short-term? And then how does Unilever answer that question around greenwashing?

Sure. I was still thinking of your gross margin.

We'll come back on that.

We're going to come back to that. But I do apologize, but I want to add one thing to it because I want to make sure that this is an underpinned plan and it is for me. And that's why I was confident to give that clear target. Yes, I commit it myself. There is one other element. And there is, of course, a bit of restructuring going on. We're optimizing, particularly in North America on the supply chain as well as in Europe. So there is still productivity gains to be made. These are plans that are being carried out right now. They fall within the 1% this year, the restructuring bucket and they are pushed through. I didn't want to leave that out. But going to an important topic, sustainability. Look, I think the next era of sustainability is all about performance, just like anything else. With the 2024 and 2025 new frameworks on reporting, the transparency on sustainability will go up. That suits us very well because we've done a lot and I'm building here on the extraordinary work that my predecessors in that sense have done. Unilever is a company that has high standards, but were also held to very high standards. You see that in the press and so forth. When something happens, people refer quickly to us on this topic and rightly so. We've pioneered it. We've been leading it. I'm keen to continue to lead it but only in those areas where, a, we can make a big impact to the world. Why would we talk about stuff where our impact is relatively small. B, where it helps our business -- well, where it helps our business. And if you do both, you can only choose a few big platforms. And also here, it's about doing fewer things better with greater impact. And that meant, we want to make sure that on climate, we stick to the Paris agreement. And we have a plan that takes us to make sure that the 1.5 degrees, we stay below that. That's not an easy one, including Scope 3, and we want to talk about that with our shareholders in the next AGM. On plastics, we are -- obviously, sachets is an important topic for me. And here, we're going to have to make some bets and determined to do so. Well, I could talk about plastics for a long time. Thirdly, on nature, it's about regenerative agriculture, but it's also deforestation-free sourcing. That one for me is paramount. We're going to have to be -- we have to be 100% on that. We are at the moment, by the way, so no compromises and it's about inequality and particularly in the communities in which we operate. Those are -- and that's already a very big agenda. And I believe with everything that we've built up over the years, here, we can play a leading role, but that's it.

We're almost on the buzzer, I want to try and squeeze in 2 more quick fire questions to you, if you don't mind. First one is on total shareholder return. The question keeps coming up. How do you deliver top third total shareholder return with a low end of 3% to 5% organic growth and modest margin expansion. Global peers, are they likely to do a lot better than that? And should we then expect TSR to be included in the management LTIP at the next AGM?

Yes. So first of all, the multiyear framework, as word implies, it's multiyear, it does assume a return to a normalized inflation time. It doesn't reflect my ambition. Look, if you look at the top line, clearly, in the current environment, you want to shoot at the high end of that. But if you look at the total construct of the financial framework with the 3% to 5%. And again, that assumes a return to almost the noninflationary times. But if you take that, if it's healthy mix, volume, price. If you look at margin expansion on the gross margin, moderate margin expansion on the bottom line and fueling the business, 60% of floor on our dividend, which has been an important support, of course, to our shareholders. Look and an [ ROSC ] in the mid-teens range that allows us to continue to premiumize the portfolio to some bolt-ons as well as doing some pruning on the complexity side. I believe that the construct of that will take us to top third if we deliver consistently and that probably wasn't always the case, and we're going to have to simply deliver consistently. Again, is my ambition higher, certainly on the short run? Yes, of course, it is.

Final question...

TSR? Yes, part of the LTIP. That will be proposed.

Do we know the weighting yet?

Sorry?

Do you know the weighting or how much weighting on TSR?

We're working that through but it has to be meaningful. Otherwise, it doesn't make sense. Aligning shareholder interest with top management remuneration, of course, I would say. So we're going to have to bring that back and that will be part of the proposal.

And a final question, just on guidance in a bit of a shorter term one. At the 9-month stage, you delivered 7.7% organic growth. You didn't change your full year guide, which is still above 5%. Taking that literally, and I know there's moving parts, but that would imply a very weak Q4. Is that how we should read it? Or is it more you just didn't want to send a mixed message because you're saying that the outlook is not the top end of the 3 to 5. I guess another way of asking the question is, are you expecting like maybe a short-term air pocket where the pricing rolls over but the -- you mentioned India -- but the volume doesn't pick up. Things don't move symmetrically just because pricing rolls over, volume picks up. Is there any sort of specific moving parts around Q4 that you would point to? And can you just reiterate one more time that we have had the plan. There is no new plan. The plan is the plan that you gave us at Q3 stage.

I mean, on both on the multiyear, yes, I focused very much -- and history will prove right or wrong. But I focus very much in the end of October as well as in the recent conversation with investors on the plan on the gap. And I want to close the gap, and we're going to. But on guidance, I -- look, I wanted to stick with what's out there multiyear, but also this year. Is there anything particularly or spooky on Q4? Answer is no. Okay. So look, the 5% plus is a floor and other -- we did -- we communicated the floor and not a ceiling. And on the deflationary side, yes, there is some in India. So clear on that. But look, the good news is we have a -- we do have that scale and that global portfolio, and I'm very, very happy with that. So we're a robust company and there's many good -- many other good things happening.

It's been a whirlwind, Hein and I can talk to you for hours, but unfortunately, our time is up. So thank you for your insights and your color on some of those key questions. I really appreciate your time talking to me today.

Thank you for your interest in the company.

Thanks.