Unilever PLC (ULVR) Earnings Call Transcript & Summary

Delighted to be here at Unilever House with incoming CEO, Fernando Fernandez. Welcome, Fernando. We've got a fireside chat. It's an auspicious time. It's your first week in the role. And maybe I'm showing my age, but I think you're the fifth or sixth Unilever CEO I've known. I'm delighted to have the opportunity to spend some time with you and get your thoughts.

So we're going to kick off. First question, Fernando, I'm going to start with the elephant in the room and get your thoughts on the circumstances around the sudden change of leadership. Many investors thought Hein was doing a good job. 2024 was Unilever's best year in a decade. There's been a lot of surprise on the timing of the change. Can you maybe provide some perspective of what happened? Is there any back story? Why it's happened now in terms of timing? There's lots of theories out there on disagreements on strategy, on portfolio, speed of change. So it would be great to get your perspective on what happened, why it happened and maybe something on the timing?

Yes. No, clearly. Thank you for having me, Warren. Hein, I feel the Board agreed with the investor. Hein has done a really good job. He put together the basis of the Growth Action Plan that is our strategic path. It's a path that the Board fully endorses. He took some significant decisions, the separation of Ice Cream is a very important portfolio decision. We have implemented the productivity program ahead of schedule. So there is -- and the financial metrics in 2024, I believe, have been really solid. But this is a forward-looking decision. It's not a backward-looking decision. And the Board believes that for the next phase of transformation of the company that is fundamentally making Unilever a world-class company in terms of brand creation and in market execution. My skill set, my track record is a better fit. So that's the reason behind this decision. There is nothing more than that. Regarding the timing, I feel the question that the Board made to themselves is why wait? What time will give in terms of additional information to substantiate a different decision. And they got to a conclusion that it was the right timing, the faster the better. And I believe it's a good message also for me and for the organization about not procrastinating on decision when you have enough information to take it.

Okay. How would you describe your relationship with Nelson Peltz and with the Chairman, Ian Meakins, anything to say on that?

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

And can I just maybe push you a little bit on trading because with your full year results, you confirmed your guidance for the full year, but said there will be a softer start in the first quarter. Can you maybe reassure the listeners that there are no skeletons in the closets and there's no linkage between the CEO change and any further deterioration in trading? I'm just trying to understand again the reasons for the softer start in Q1 and what are the building blocks that give you confidence that we will see an acceleration in Q2 and in the back half to deliver the guidance that you have reiterated?

Yes, well, many questions within that question. First of all, no skeletons in the closet. I want to be very clear. We have reaffirmed our guidance for the year, 3% to 5%, and we reaffirm our guidance for the midterm after the separation of Ice Cream, 4% to 6%. Of course, we put that guidance in the context of a 3% global real GDP growth and 3% inflation as an economic context. That is what we have seen in the world in the last 10 years. Things can change, but that's the hypothesis that substantiate the guidance that we have put. I feel, first of all, let me -- I believe it's important to remind what we have done in 2024. We delivered 3.5% growth of revenue in hard currency, 2.9% volume growth, 280 basis points of gross margin expansion, 13% of profit growth in hard currency, and we were #1 in total shareholder return. So we believe that the Growth Action Plan is working. It gives us a very good foundation to continue building from now onwards. Regarding the quarter 1, we called out it was our responsibility to call out a softer start. Markets are softer. Pricing is subdued. Consumer confidence has gone downwards in many important markets. And of course, there is a lot of instability after the American Election with the start stop -- start of tariffs. And I believe we have not been the only company. Many, many other companies have called out an acceleration of performance along the year. What is behind what we believe will be the acceleration of performance. We are landing what we believe is one of our best innovation plans in a long period of time now between March and April. We have had China and Indonesia as a significant drag of our performance, and they will contribute to growth in the second half. And I have been in India recently, I spent 5 days in India. The Indian economy has been a bit softer recently. The September quarter showed something like 5% GDP. But the Indian government and the Central Bank in India has taken some significant measures. There was a significant reduction of interest rates. There is close to EUR 500 billion of loans to household in India that will get benefit from that. There are cuts in personal income tax. And fundamentally, that is a very important factor in India in terms of disposable income. There is food deflation now after many years of food inflation. So we believe that the prospects of economic environment in India get better in the second half of the year. India is our second largest business, and we need India growing faster than what we have done recently to really be another driver of growth to the ones we are having in developed markets and in other regions of the world.

I mean it seems, Fernando, obvious that the Chairman and the activists want you to go quicker and to unlock value creation more quickly. That was in the statement very clearly. Can you maybe specifically give some examples of where you want to go more quickly and how you're going to unlock value more quickly?

Yes. Just every business I have run in my career, I have basically divided my approach between what I call perform and transform. In the short term, I believe it's very important to land flawlessly what I mentioned is a very strong innovation plan. We are divisionalizing our sales force in the top 24 markets. It's a very significant organizational change. We believe it will make the company much, much stronger, increase accountability of delivery to BG presidents. So I want to ensure that, that happens in a very, very solid way. We need to complete the separation of Ice Cream and we need to really -- by the end of the year, that's a commitment we have made. And we need to ensure also that the productivity plan is completed. My intention is to really complete that by June this year. So these are the short-term priorities. I feel in the long term, it is all about creating a machine of demand creation in Unilever. I believe I have always said that on a 1 to 10 scale, I probably score us a 6.

Ten doesn't exist.

Ten doesn't exist. My mom used to say. But yes, I believe that. We want to really build a marketing and sales machine in Unilever, and that requires a decisive shift to premium that is required to create what I call desire at scale. Desire has been a very important word or mantra in my time in Beauty, but I believe that it applies to any single business groups. The consumer now is much more discerning, is much more demanding. The phone has changed the parameters of aesthetics, the parameters of what the desirability that they are expecting. I'm really committed to really make a serious revolution in our superior functionality, aesthetics, sensorial of our brands. On top of that, when I look at the long run, any company that is the best performer tend to have a couple of very strong geographical anchors. I believe that U.S. and India should be our geographical anchors in the long run. This is what I did in beauty and what I believe has to be replicated in our business as a whole.

In terms of pace of change. There's been a lot of investor questions about that. Is there any risk that you see that the pace of change could be too quick for the organization? How do you get the balance right. I mean some investors see you as very dynamic, very operational, good track record, but also you're quite a hard charger, a lot of energy, you are pretty direct, which could also unsettle some people in the organization. Can you say anything about reassurance about getting the pace of change because it feels to many people, the pace has already been quite quick.

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

Can you give a little bit more detail on your experience in Brazil, in the Philippines and running the Beauty & Wellbeing division. You talk a lot about volume, mix and gross margin as the 3 KPIs that really drive value creation in staples. How can you take those experiences that you've had in those 3 different areas and then apply them to the unique organization as a whole.

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

And Fernando, if I had to pin you down on your near-term priorities, if there's 3 kind of near-term things that you want to see done, what would that be? And then what would be your 3 kind of medium and longer term. I'd love to just kind of get your idea on prioritization because that's obviously the case.

Yes. I mentioned some of that. In the short term, held the business group to really shift decisively resources into a more profitable strongholds. There is an element of risk on that, and I feel I'm prepared to share the risk with them. I feel that's my role. I feel, as I mentioned, landing our innovation plan flawlessly in a moment in which we are divisionalizing sales force is a very important point. I feel fixing some of the geographical issues we have. China, Indonesia, accelerating India is very important for me at this point of time. And of course, completing the separation of Ice Cream and finishing with the productivity program because we need to leave that behind and give our people a clear reason to believe in the future growth of the company. In the long run, as I mentioned, make U.S. and India key -- 2 key angles of our portfolio, make our best brand travel fast. We have not been good enough in rolling out our brands globally. I always say that Unilever is a bit of a federation of local and regional brands. I believe in the long run, we need more widespread presence of our strongest brands. I feel we have made a significant step with the top 30 brands and the focus we are putting on them. But I believe we can go faster in rollout, continue driving optimization of our portfolio into premium with a good program of bolt-on acquisition and disposal. So that's basically what I would say.

Yes, you mentioned portfolio. It's been a bit of speculation that the change means that the Board wants to go faster on portfolio change and perhaps consider more transformational change with question marks on the foods portfolio. I want to try to clarify that because at the CMD, you raised your ROIC target from mid-teens to high teens, which I read to mean no big deals. And you also said that there was only EUR 1.5 billion that you would invest in portfolio change. Is that still the case? Or has there been any change of view from either you or the Board, particularly on the point around bigger deals?

No change our view. Yes, I mentioned in the Capital Markets Day that our ROIC now is close to 19%. So it's -- I believe it's in the top third of the sector. We like that. You know my view in transformational acquisitions, I call it the paradox of transformational acquisitions. You can only do it from a position of strength. And if you are in a position of a strength, why would you do it? We are happy with the approach we have had in terms of bolt-on M&A focused on the U.S. and India. U.S. is a very important market because it's probably the only market that gives you 2 things. It gives you enough local critical mass and it gives you a platform for global brands because American brands tend to travel and we are very happy with the progress we have done in our portfolio in the U.S. I believe it has been a bit -- it has gone a bit unnoticed by the market. But after a separation of Ice Cream, we will have a business there of around EUR 11 billion, close to EUR 3.5 billion in Prestige Beauty and Health & Wellbeing with 15 consecutive quarters of double-digit growth, an extraordinary position in the deodorants, an extraordinary brand in skin cleansing, Hellmann's in dressing 45% share, 2x the share of the second player. So our U.S. business, we will not be the largest company in U.S., but I don't see many companies with the kind of growth footprint that we have in the U.S. And in India, we have just completed acquisition of Prestige Beauty brand called Minimalist. We have an exceptional position in India. But we know that the portfolio that brought us here is not the one that will keep our position in the future. So there are significant consumer preference change. There are significant changes in the channels. We need to ensure that the portfolio move in line with the changes. And we will not blink on that. We will do what is necessary to really ensure that the kind of positions we have in India, 55% in hair care, 45% in laundry, 80% in premium tea will continue being like that. So no transformation on acquisitions on the table. We are happy with the kind of approach. Probably some faster -- some acceleration in the process of disposal. We always talked of pruning the portfolio. I'm in the camp that when you have taken a strategic decision, it's better to act fast. So probably you would see a bit more pace on that.

I mean you mentioned that at the CMD EUR 1 billion of revenues are noncore in the Foods portfolio many Europe. We've seen a few small disposals, but it's not really been happening that quickly. So where are we on that? And then sort of a bigger question, I suppose, is the bigger food portfolio. You mentioned Hellmann's. And it seemed to me that Hein was quite wedded to the Foods portfolio. Hellmann's and Knorr scale brands, big market shares, they're good on cash. They help in the EM. He always said there will be big dyssynergies. Can you just clarify your view longer term on the Foods portfolio. Does it have a place in the portfolio? And do you agree on the dyssynergy points? So 2 questions. So one is on the Europe noncore and then the bigger one on the strategic outlook...

Let me start with the bigger one. And I feel Knorr is our second largest brand, Hellmann's is our fifth largest brand s. They are accretive in margin. They are accretive in terms of cash generation. They have a huge return on investing capital. So they are 60% of our Foods business and the 2 categories in which they play are 70% of our Foods business. So our food business is not a classic food business. I internally call it edible personal care because the margin structure of the business is very similar to the personal care one. So it's a very attractive business. It gives us a lot of flexibility and we are committed to grow that business. So that's what I can say about foods now. Of course, there is, yes, around EUR 1 billion of local brands fundamentally in Foods Europe that we believe they don't fit with our portfolio going forward. They are not strategic priorities. We have some another probably EUR 0.5 billion of other foods and other categories brand, particularly in the smaller markets of Unilever that we don't see possibility to scale. Probably we will also act on that. And my intention is to act in all these probably at a faster pace. But of course, the market condition has to be there to ensure that happens. So that's where we are in portfolio. But many people say that I am a hair brand -- a hair guy. I have worked in -- my hair doesn't show but I have worked in haircare for many, many years. I was a person that disposed Suave in the U.S. And Suave was the highest penetrated brand in the hair care market in the U.S., but it was a perennial decliner. It was in the value segment. We didn't see good -- a traditional fit in the long run, and I didn't have any problem to dispose that brand. So what I want to say with this? Every brand in our portfolio, every category in our portfolio have to earn the right to remain in our portfolio. And I don't have any emotional engagement with any brand when it comes to portfolio management. So this is what I can say. Time will say, what we do with our portfolio in the long run, but that's the position at this stage.

Maybe switching gears to Ice Cream. There's been a lot of discussion around that. My question is, were there -- are there any other options for Ice Cream? How much of a distraction has it been? Would it still not be better just to do a JV or a sale and then return cash to shareholders even if it meant a higher tax liability, are you definitely happy now as the new CEO that you're going down the right path for the primary listing in Amsterdam and secondary listings in London and New York? Why wouldn't you still consider a twin track or I don't know incorporating it into the U.S.?

Well, it's just -- I'm not coming into the CEO role from whatever. I am coming from the CFO role, and I have been part of all these decisions. So definitely, I'm aligned with the decisions that we have taken. Let me give you a bit of background first. We separate Ice Cream because we always saw it as a clear outlier in our portfolio. So completely different capital intensity, seasonal business. Our infrastructure in rural areas don't help a lot the Ice Cream business. So I'm absolutely convinced that a separated and independent Ice Cream company with a different ownership structure will make that business thrive. At the same time for the remaining Unilever, focusing our portfolio, we believe will have an impact in the quality of the work that we will do. So I'm absolutely 100% behind that decision. In terms of the mode of separation, we analyzed a few factors. First one, maximizing value for our shareholders, a disposal and demerger don't have the same tax impact; second, minimize the technical flowback or the fore selling is an important factor. Very importantly, ensure no operational disruption, neither in the Ice Cream business nor in the remaining Unilever. The fourth point, important also, define that in a time frame that we believe would be one that will be manageable and that wouldn't imply distraction for the management, and we want to do this by the end of the year. So we continue thinking that the demerger and listing is the most logical outcome of this. But of course, we always have to -- we have a fiduciary responsibility to analyze any other option. It has to be a very credible option to really ensure that we don't follow this path. At this stage, we are running ahead with the demerger and the listing. We have 11 work streams absolutely on track. I reviewed that last week. The progress is very significant. We are setting up a stand-alone operation in Ice Cream that by July should be operating in that way. And we -- I stick to the decisions that we have taken.

And in terms of numbers, you talk a lot about hard currency EPS. When you do spin Ice Cream, will it be EPS accretive, neutral, dilutive? Can you share some numbers in terms of the hard currency EPS impact because there are some concerns around scope and they could be a bit dilutive?

Ice cream is 13% of our revenue, is 9% of our profits. And in terms of cash contribution is less than that. So when we separate Ice Cream, the shareholders who receive shares of the Ice Cream company and the Unilever company. What we say is that on a like-for-like basis, we are committed to earnings per share growth in the business. So that's what I can say at this stage. Of course, there are many decisions that we have to take now, but that's what we have promised and that we have delivered.

And what is the investment case in Ice Cream? How much margin upside is there? Can it grow in line with the refreshment average? You got the great brands, but the margins still seem to be quite low.

Honestly, I'm a bit critical of how we have managed the Ice Cream business in the past. And I believe we have done a lot of progress last year, and I believe that some of that progress will also be shown this year in a better performance. If you look at some other Ice Cream companies, I will not mention the name, but companies that have a significant exposure even to private label that depend a lot in licensing brands. They have a much better margin structure that we -- than the one we have. So I believe the possibility of unlocking significant profit growth in hard currency in the business is in Ice Cream business is incredible. We have 3 out of the 4 major global brands. We have a significant global presence in the business. I believe there is a lot of scope in improving our supply chain. But it would require some capital, but even before allocating significant capital to improve that business, I believe that there is profit expansion opportunities just through better managing what is a complicated business. I always say that Ice Cream the marketing of beauty and the operational group of beer or soft drinks. I believe that our marketing has been good. Our operational management has been very far from a beer company or a soft drink company.

I want to move to premiumization because as long as I've covered Unilever, it's been seen as a kind of a mass market FMCG company. It's morphing into something different, more premium, more focused, 30 brands, 24 countries. But when I look at Europe and North America, the percentage of the portfolio in premium still looks quite low. There's been progress but the starting point is low. So my question to you is how big does premium need to be in Europe and the U.S. How do you turbocharge premiumization? And what's the best way to get there?

Clear. Let me give you some numbers. If I look at our, let's say, in 3 aggregated segments, premium, mainstream and value, we have around 20% of our business in value, 35% in premium, the other 45% in mainstream, okay? So I would like to have around 50% in premium that would be our ideal position. I feel different situations in Europe and U.S. I feel in U.S., we have allocated a lot of capital into M&A that has transformed our business in a dramatic way. And I would say, that's a business now that the profile is fundamentally a Beauty, Wellness, Personal Care and Food business. And I believe the profile of that business, when you consider that close to 35% of the business is in Health & Wellbeing and Prestige Beauty is already a very significant contribution of the premium segment. So it's just the U.S. business now is a positive outlier when it comes to premium segment for Unilever. In Europe, it's different. Both Hein and I, have been very, very clear that we have -- we are both fans of a better balance between emerging markets and developed market growth. We have neglected Europe for many years. That has changed in the last couple of years. We have innovated at scale in Europe, and you have seen our volume growth in Europe, close to 4% last year. I cannot say that Europe will be for us, a 4% volume growth in the long run. But this has given us a lot of confidence that we will put our best technology behind our best premium brands in Europe. There are significant volume growth and positive mix that can be unlocked. So just -- I feel the direction of travel is clear. I like premium. I believe if you look at my career, I have been always driving premium, but that cannot be wishful thinking. Getting a portfolio that is more premium require injecting desirability at the scale. I'm a great believer on that. That will be probably my mantra in the next few years, desire at scale. I want to ensure that this is injected in our marketing philosophy, it has not been in the past. So that's probably 1 of the changes that you will see.

I want to switch gears and talk about a few geographies and especially Asia because as long as I've been covering Unilever, emerging markets are the real powerhouse. They still are the real powerhouse. But what we're seeing is very nice growth in Europe and North America. And some of these Asian markets are lagging. China and Indonesia, we saw China down 5%, a bit of a reset going on. Indonesia has been a long story and you've been trying to get that improving, but it has been a struggle. The question I'm getting from investors is, is there something bigger going on? Are you actually behind the curve with how consumers and channels are changing? Do you need to rethink your approach and go much faster in terms of digitalization, channel shift to actually appeal to those aspiring Asian consumers. And then when do we actually get Indonesia and China back into solid growth.

Yes. It's a very important question. First of all, we are very proud, and we like a lot our position in emerging markets. And I'm sure that if you would be running Unilever, you will not swap our Indian business with any other company. And probably you would not swap our Indonesian business. So we like the kind of positions we have in Asia, it's not only Asia. We have an incredible business in Latin America. Our African business is already the size of Indonesia. So we are making serious inroads there. So the demographic benefit that emerging markets provide is a significant element for fast-moving consumer goods business. And if I look at the history of Unilever in many of these markets, Indonesia, that is where we have had a serious long-standing crisis, it has been a clear outlier. I went to run the Philippines in 2008. And our Philippines business at that time was EUR 450 million. Now it's EUR 1.3 billion. So we have added EUR 8 to EUR 9 per capita in 15 years in the Philippines. In the same period in Indonesia, we have done nothing. And I believe it's just -- there are many, many reasons for that, and we have reflected on that. But there's a very strong local competitor there, it has anchored our pricing for a long period of time. And I believe that our marketing has not been of the quality that we deserve -- that the consumers in Indonesia deserve. But Indonesia has been an outlier.

But is there any green shoots in Indonesia?

There are green shoots. I feel -- I was in August there. You know that -- the last year, Indonesia has been a bit strange because of the Middle East conflict. There was a clear consumer backlash against international companies. It has affected many of the big American names also. In our case, the response was significant promotional activity, and that generated a lot of pricing stability. Our distributor system were put in disarray. And I [indiscernible] we need to reset here. And when you reset your distributor systems, it takes some time. But in the last few months, we have been beating our forecast in Indonesia. Is far from being where I would like it to be when you look at the run rates that we believe that we can have in Indonesia. But I see Indonesia contributing to growth in the second half of the year. China is a different thing. I feel in China, for many years, we went for an all-in strategy. But the truth is, we arrived to China probably late. We didn't have the portfolio particularly to attract premium beauty in China that we have now. Our strategy in China now is much more selective growth. We have excellent businesses. Our hair care business is very strong. Our laundry business is very strong in 1 reason of China. We have an excellent food service business in China. And we are making serious inroads with some brands like Hourglass or OLLY in vitamins, but it's a much more selective strategy. And you know that there has been a dramatic change in the e-commerce side of China from the likes of Alibaba to the likes of Douyin and Pinduoduo. Our route to market to channels like Pinduoduo or Douyin was seriously intermediated. And we are now adopting a much more direct approach in the route to market that also has some kind of short-term impact. So I see China also contributing in the second half of the year. India. I don't know if you asked me about India, but...

I was going to ask you about India because at the CMD, the comments on India were pretty bullish. Per capita consumption will double by 2033. You talked about it as the biggest near term, medium and long-term opportunity, but the performance is still being pedestrian and has been missing numbers every quarter over the last 3 or 4 quarters, 2% organic growth for the last quarter. So my question is, when does growth pick up? Are you saying it's just mainly a macro issue? And what can you do to turbocharge premiumization? I know you bought the Minimalist and you're talking about 900 bps increase in premium. Is that enough? And why should we be confident that Unilever will get the fair share of the growth in Beauty, which is going to be the next battleground in staples over the next decade when you've got the likes of L'Oreal, also trying to chase that same growth. So when do we actually see it come through?

I feel with the slowdown of China, everybody has rediscovered U.S. and India, of course. But our position in India, I mentioned before, is exceptional. We have great brands. We have a great portfolio. I feel in the last 3 years, we have gained 200 basis points of share in India. It's not that we are losing share or anything like that. The market has been softer. I have given some explanations. Food inflation was very significant in India and food inflation affects 80% of the households seriously, particularly vegetables inflation has been crazy, and that's very strange because in vegetables usually supply and demand align very, very quickly. I believe the economic environment in India will get better in the second half of the year. There are significant changes in channels in India. There is -- the rise of the affluent India is very important. There are 60 million households of the 320 million households in India that they have serious money now. The economic active population in India is for 430 million, is up 30%. So it's probably the lowest in the world. There are 80 million of female workers in India, so in 750 million female population. So every time the women get into the labor force at a scale companies like Unilever really have a lot of tailwind. So I'm very bullish about the long-term prospects of India. Regarding the changes in consumer preferences, the channel changes. Are we moving fast enough? The answer is we have to move faster. I was in India, I spent 5 days a couple of weeks ago. And you see, for example, the phenomenon of quick commerce. Quick commerce is now 2% of our sales. We expect quick commerce to be 10%, 15% in the next 3, 4 years. India is a very special place because richer Indians and poorer Indians live in close proximity. That basically provides demand and supply of labor that basically made that quick commerce a logical channel to grow, but if you ask me, do you prefer quick commerce to marketplace in terms of channel development. Yes, of course. Quick commerce is a limited assortment channel. And for companies like us that have such a presence in India, that's a good developmental channel...

You are mixing margins in that channel?

It's just our -- the mix in that channel is much better. So I cannot say that like-for-like, the margin is better, but what I can tell you is that the mix in that channel is favorable, that in the whole picture will drive our margin faster. So I'm very optimistic in the long run, we are competitive. We have a great organization. We have great people. There are things that have to be adjusted yes. But let me tell you something. Some people believe that we have headwinds in all the portfolio. The only category in which we have some headwinds due to channel and segment development is in Beauty. We have tailwinds in Home Care. We have tailwinds in Personal Care. We have tailwinds in Foods. So it's not that we have a portfolio that has to be completely rebuilt in India. It's not the case. Probably where we have more things to do is in Beauty because the change will be faster there and the acquisition of Minimalist is fundamentally an indication of what we will do there to really move our portfolio fast.

I want to turn to Latin America, your old stomping ground. You talked about -- I mean, Latin America has been very strong, but we have seen volumes slowing. I think it was flat the last quarter and there is talk of retailer destocking. So the question is, how long do you think that continues? And then how do you feel about Brazil and Mexico '25 more medium term as well?

Well, I'm not very objective about Latin America. So I ran Brazil for 9 years, I ran Latin America for another 4 years and it has been a spectacular region for us in terms of growth. We have incredible market positions in growth at Latin America, Brazil, Argentina, Mexico. Let me give a bit of a structure of our business in Latin America. Brazil is 50%, Mexico is 25%, Argentina is 15%. Different situations. Let me start by Mexico, That is most obvious. The start of tariffs is really having a significant impact in the Mexican economy. If you look at the Mexican peso, it was very, very strong for a long period of time. In the last year, there has been a significant devaluation that brings inflation in place. So I believe that Mexico there is a macro component there. We need to see how it evolves. Of course, if there are 25% tariffs into Mexico, there will be an impact in the economy. There will be an impact in the currency. So we will have to wait until we see how all these things develop. Our position is very strong. Our shares are very strong. We have a great Foods business, a great Personal Care and a great Beauty business there. In Brazil, there is a short term -- well, there is a short-term issue in Brazil that is Brazil tend to operate with positive interest rates, real interest rates. But if you look at nominal interest rates now at 14% and inflation is at 4%. So the real interest rates went from 3%, 4% into 10%. If you look at the normal retailer in Brazil do 3%, 4%, 5% of operational profit, now they can do 10% in financial profit. So that fundamentally puts pressure in the stockholding in Brazil, and we are seeing some pressure in the short term, particularly in big volume categories like Laundry like Home Care. Our Personal Care and Beauty business continues thriving. So I believe that, that situation in Brazil is related with some fiscal position of the government that has to be adjusted, but ...

That doesn't happen. Our stock levels coming down now to a point where...

Stock levels are coming down. But there is probably a bit more happening in particular in categories like Home Care. Argentina, the government is doing the right thing. It's just -- but that generates some contraction of the economy in the short term. Last year, our corporate share in Argentina went from 49% to 53%. So it's a huge, huge increase. Many of our international competitors have abandoned Argentina. Now we compete in Argentina fundamentally with local players, but our competitiveness continues evolving in the right way. There is some pressure in the market now because I believe for the long run what is happening in Argentina is good, but in the short term fiscal adjustment tends to have some impact in contraction of the economy. The purchasing power of the consumers is feeling that.

I mean you mentioned tariffs in passing. I mean you mentioned it in relation to Mexico, but obviously, China, Canada. Can you maybe talk a bit more broadly about tariffs and kind of risk mitigation that Unilever is looking at with tariffs? I know it's volatile every day. It seems to be something different. But how do you think about it from a planning point of view?

Yes. First of all, let me tell you about U.S. because it has been driver of all of this. In the last 3 years, we put close to EUR 4 billion of capital in the U.S. So between acquisitions, investment in factories. So we are well positioned in the U.S. As I mentioned before, it's a key market for us. We are investing heavily there, and we will keep investing heavily there. When it comes to the supply chain, after COVID, we made a serious effort to make our supply chain more flexible in terms of more local for local, more reliable. I believe now, if you take a country like the U.S., close to 87% of our revenue is produced on a local basis. Tariffs have impacts in different dimensions. Let me give you 2 fundamental dimensions. One is the direct impact of the tariffs in the flow of goods between these 4 countries, China, Mexico, Canada and U.S. And the second is, of course, it gives some space for producers of material locally to charge more. We believe that, that effect for us is limited. We can put mitigating actions in place. We can reroute our supply chain to serve U.S. in case of need. So the mitigated effect of the tariff increase is something that is not material for us. There's a second effect that is what tariffs can imply in terms of currency instability. And logically, in the context of tariffs going up, emerging market currencies tend to depreciate and that implies more pricing in D&E that has to materialize. But we have seen that in the first round of announcement of tariffs, we have not seen that in the last few weeks. But that's something that we are following in detail. On top of that, of course, usually, when there are tariffs, there is some impact in economic growth. I feel Mexico and Canada will be much more affected on this than the U.S. So these are 2 markets in which our revenue is in the EUR 2 billion territory between the 2 of them. So it's -- there can be some effect, but it's not a dramatic effect. So we don't see a dramatic effect. In Unilever you look at this always in relative terms. We believe that given our global supply chain footprint, our flexibility in our supply chain, we will suffer much less than most other players of the tariff effect.

I want to move to gross margins, one of your focus areas, Fernando. Your gross margins recovered from 40% to 45%. My question is quite simple. What is the real long-term gross margin runway in this company? Why can't this be a 50% plus gross margin business? I mean, is that -- I'm thinking out to 2030 to your -- end of your GAAP program. I was struck by your comment at the CMD that every percentage point of incremental volume is coming in as a gross margin closer to 60% plus. So here we are at 45%. Where -- what is your vision of where you want this to go long term?

Yes, it's absolutely right. What we call the marginal contribution. So the gross margin in the next unit of volume comes average of the company at close to 60%, if you take Beauty, 65%, 70% or if you do Personal Care 62% or whatever. So that's the reason why volume growth is so important because just the absorption of cost is dramatic, and I'm a great fan of that. We are happy with what we have done in gross margin last year, 280 basis points of margin increase. But I feel important also if you look at the quarter 4 results that were published by the sector. I believe we have the highest expansion in gross margin of the whole sector in the quarter 4. It's not only in the full year but also in the quarter 4. There are, I would say, 4 drivers of gross margin improvement. And we -- one is volume leverage. Marginal contribution is very important. The second is mix. So the more you grow Beauty, Personal Care, that has a significant impact. The third one is procurement interventions that we are doing in some fundamental -- in the value chain of some fundamental materials for us. I always give the example of surfactants. I can mention fragrances, et cetera. We were one of the few companies that we are completely dependent on third parties on that. Now we are making some vertical integration in some key materials that we believe that will improve our procurement power. And the fourth one that is very important, I have mentioned many times, we allocate -- we are spending capital expenditure around EUR 2 billion a year. In the past, we used to allocate around 30% of that to margin expansion initiatives. Now we are allocating 55%. So if you think that number, that's basically EUR 1.2 billion, you take 3, 4 years of payback, you have EUR 300 million, EUR 400 million that you can expand profit through this kind of allocation of CapEx. So we have a very disciplined approach now. I'm a great fan of fixed spending in our factories. I always tell our factory director say, your role is to run the factory without a penny more. I don't care how much more volume you put. So leverage has to happen. So I cannot tell you what is our long-term ambition, but I expect that we will continue driving gross margin to ensure that we can keep investing behind our brands.

On the procurement side. I think your [indiscernible] is like EUR 25 billion. It's a big...

EUR 27 billion.

EUR 27 billion is a big number. All these interventions that you're making, what's in scope how many -- how do you -- how should we think about that? Because you've been mentioning it more and more fragrance, EUR 100 million investment, surfactants, I think palm oil. Can you maybe just frame it for us.

Yes, let me give you an example of fragrance. For example, we invest in fragrance, it is around EUR 1.2 billion. If you compare that number with some of the size of the key fragrance houses in the consumer division, it's not a small number. Now we continue working in partnership with all the fragrance houses, but we want to develop internal capabilities also to ensure that the value in the value chain is better split. So we have done surfactants in U.S., for example. We used to be the only -- those surfactants are very important in liquids. We were the only player basically with no participation in the whole value chain. That's a monopolistic position of some supplier there. We have invested on that, we're improving. So overall, our intention is to basically -- our procurement inflation to be 1% below the procurement inflation, the market material inflation. That's significant. In a EUR 27 billion it is a significant number. That's the challenge I have put to our supply chain guys and we continue doing. There are 12 family of materials in which we are making interventions. I cannot give you more...

Don't worry, I won't ask.

But there are 12 family of materials in which we are working with a very clear structured articulated way. I have brought game theory at scale in our negotiations. I'm a great believer of that. And I feel all that is resulting in a better procurement strategy.

When I move to brand and marketing, Fernando, it really stepped up from 13% of sales to 15.5% of sales. Question is, does it begin to plateau from here? Or does it keep increasing as the portfolio shifts more to Beauty? And then if you get ahead on productivity, can the BMI be stepped up sort of in a dynamic way. And I'm just trying to understand because it's such a big number, what the incremental returns on that spend are because you're going from a -- you're moving to a social first advertising strategy, 30% of total spend of 50%. I mean, that's huge. I mean content going up, not 20%, 20x. That's huge. So it sounds like a massive change to me, more influencers. How -- can you maybe just walk us through that on the return side? And how confident are you this is the right move at the right time.

Yes. It's probably the biggest change in our company going forward. Let me first go into the numbers. We spent 13.1% in 2022. We moved to 14.3% in 2023, 15.1% in the first half of 2024 and 15.9% in the second half of 2024. If I remember all these numbers, it is because I consider them very, very important. It is something in which I believe there is an implicit recognition that our level of investment in 2022 was noncompetitive. So we are happy that our improvement of gross margin has allowed us to really fuel investment. I believe that this number between 15% and 16%, we feel comfortable with. We believe it's in competitive levels. Our shares are starting to show that the level of investment is competitive. I have a principle that I took from an old boss that being consciously uncompetitive is a criminal act. So basically, we will always be competitive in investment. Regarding the quality of -- so we are -- that's the quantity, regarding the quality aspect of our investment, today brands are, by definition, by default, they are suspicious. Brands coming from corporate -- message of the brands coming from corporations are suspicious messages. So creating marketing activity systems, in which others can speak for your brand at scale is very, very important. Influencers, celebrities, TikTokers, et cetera. There are 19,000 zip codes in India. There are 5,764 municipalities in Brazil. I want 1 influencer in each of them. In some of them, I want 100, but at least I want 1 in each of them. That's a significant change. It requires a machine of content creation, very different to the one we have had in the past. AI plays a very important role on that. But I'm absolutely committed and this is one of the things I would drive like hell in the company in the next few years. Desirability at scale and marketing activity systems of other sales at scale will be the fundamental principles of our marketing strategy. I am 100% behind that. I need to really ensure that, that happens...

[indiscernible] to be higher?

The returns, we have now the UBS methodology to measure performance of our brands, the impact in brand equities. And we have a very clear understanding of what is a return of all these kind of sales. The point is not if the returns are higher versus the past. The point is that returns are higher versus any alternative allocation of funds today and versus any other options, they are higher returns.

Okay. I want to move to Prestige, Beauty & Wellbeing because from small beginnings, it's now growing rapidly. I think it's broken through EUR 4 billion of revenue. I think 14 consecutive quarters of double-digit growth. You've got brands like Liquid I.V. approaching EUR 1 billion of revenue from a small base when you acquired it. So how much more runway is there for that brand? And then you've got the new jewels, K18 and Nutrafol. Can these be the next billionaire brands in the future? I'm just trying to understand, you are CEO now, what is the vision long-term for Prestige, Beauty. I know you've got a new head in Prestige and Wellbeing. And if you look out to 2030, how big can it be and what brands are you most excited about within the portfolio? And can investors get confident that when you acquire brands that you acquire the right ones, that are not just flattish and they've actually got real appeal for the long term. So the whole kind of Prestige Beauty, and Health & Wellbeing strategy.

No, that's good. First of all, the number you quote is directionally right. So let's say that we are around EUR 4 billion of turnover. When we acquired those businesses, they were around EUR 1.7 billion. And the tenure, the average tenure is around 5 years now. So basically, in 5 years, we have doubled that business. And you have seen that in the results, particularly in our U.S. portfolio, our U.S. business in the last couple of quarters grew 7%, volume of more than 5%, and Prestige Beauty and Health & Wellbeing has been a significant contributor to that. It's true also that in Prestige Beauty, we have seen a softening in the market in the last couple of quarters, wellness continue flying. There are some spectacular successes. Liquid I.V., we acquired the brand in 2020. It has multiplied by 7. And it's now an EUR 850 million brand. Nutrafol, we acquired the brand in 2022. It has multiplied by 3, is now a EUR 650 million brand or something like that. So they are definitely in their path to a billionaire brand. There are other brands who are doing very well, OLLY in wellness, Hourglass in Beauty, Tatcha, Dermalogica. We have some dock also. Sometimes, not all the acquisitions were as they should work, but we have now a very clear blueprint for acquisitions. They have to be digitally native brands. They have to be in super growth stage. They have to be brands in which our R&D capabilities can add value to that innovation process. They have to be lifestyle brands, and they have to be brands that are very strong in some narrow verticals to ensure that we can deliver exceptional profits. And fundamentally, there should be brands that not only appeal for the American consumers, but has potential to travel abroad because as I mentioned before, I see the fact of being a federation of local and regional brands, one issue for Unilever, and I want to ensure that we have a portfolio of more global brands in the future. So it's a great business. The intention is to grow it faster and to roll it out faster. So you probably will see an acceleration of rollout. I believe it's very important for our India business. So Indian consumers tend to have the American brands in high regard. So different to the China situation in which at the time in which the Beauty business exploded in China, we didn't have a portfolio ready. Now we have a portfolio ready, and we will deploy the portfolio at the right time on top of the acquisitions that we will do locally. So these are very important business. We have seen some change of leadership, Vasiliki Petrou who did an amazing job for us, has decided to retire. We replaced her with an excellent resource, somebody that we knew from Unilever before, but was running a jewelry company. MC Gasco-Buisson, who is an extraordinary talent. I'm sure that she will take the Prestige Beauty business to new heights.

I am sure she will. I want to talk about innovation. Your 6P strategy has been a real kind of driver or you call it UBS. You're focusing on 12 big launches. You're trying to create EUR 100 million platforms that are unmissably superior. You want to make markets, not steal market share. It's a big change in mentality. How confident are you that this 6P strategy is embedded deep in the organization. And what innovations, technologies are you most excited about because that was a big kind of thing for Hein, and are you going to take that and extend it further? Are you happy with where it's at.

Our science has been historically better than our marketing. I feel -- and I look at our science in 2 different buckets. The new flow of science that is there and the investment that we will do in the future, but also the stock of science that has not been leveraged in our portfolio. and there is a lot of that. When I took over Beauty, if I look at the 5 key scientific streams of skin care and hair care, they were deployed in 22% of the revenue. A few years later, they were in 45%. I would be surprised if something similar happens in the rest of the portfolio. So I will be really looking at that seriously. Science is -- science and market -- better marketing in the premium segment is fundamental in developed markets, where concentration of retail and change of channels is very, very significant. So I'm absolutely committed to this idea of focusing behind big bets. I believe that the numbers don't reflect the opportunities we have. So the numbers of our innovation plans don't reflect the ambition we should have with some of the science that we have available. And the intention is to really move faster, move at higher scale and ensuring that the geographical coverage of our key innovations, at least in the top 24 markets happen in a much shorter time frame than it has happened in the past. So that's something I'm very keen in making it happen.

I want to talk about the mid-single-digit organic growth ambition in 2026. What is your conviction level that can be delivered because the consensus currently is not there. Consensus is kind of like 4% or below or around 4%. And then related to that, when Ice Cream is out of the portfolio, EM becomes a bigger weight. So how come -- so is hard currency EPS still the priority? And how do you deliver that and the top line mid-single digits stepping up at the same time with this volatility and deliver both top line, bottom line and deliver that top third consistently. What needs to happen?

You know I'm a hard currency guy. So it's just -- I know investor puts pounds or euros or dollars, and they don't want Argentinian peso. So that's very clear. And revenue growth in hard currency driven by volume growth and mix. Profit growth in hard currency is driven by top line leverage and gross margin expansion is what guides my strategy. Financial metrics have to say it all and these are the financial metrics I will be looking at. I feel it's very important for you guys to know also that if you look at my remuneration and the leadership executive remuneration now in the long-term incentives, more than 80% of our remuneration is hard currency linked remuneration. So it's a very important change. It was not like that a few years ago, and that drives different behaviors in the company. And we look at metrics in a very different way to the way we used to do it. Regarding the 4% to 6% USG underlying sales growth guidance, I mentioned before, it is, of course, based on a hypothesis of 3% GDP growth, 3% inflation. If the inflation is higher, we need to revise. If the GDP growth is lower, we need to revise. But overall, assuming the hypothesis, we are confident that the kind of changes we are doing in the company, the focus in the new innovation platform, multiyear scalable innovation platforms, what I call excellence in demand drivers, multiyear scalable innovation, desire at scale, social first expansion, et cetera, et cetera. So really -- and better in market execution. That is something I'm very passionate about. It is something that it should really drive the company into that kind of level of growth.

The CEO is a very different job to CFO, Fernando. I remember Alan Jope telling me that when you get to the top of a company, you think you're at the top, but then you realize is actually an inverted pyramid. And you actually then have governments and regulators and other stakeholders that maybe you don't sort of think about at the time. So are you ready for that? You're an operator, but there's other stuff that's going to be out there? How will you manage those additional responsibilities? And do you need to bring in new talent? Or are there gaps in terms of people or skills that you need to change upfront?

Well, I believe the size of the inverted pyramid is as large as you want that inverted pyramid to be. So let me be very clear. I will be a frontline CEO. So my focus will be being all over our brand plans and be all over our market execution. So that's where I will allocate 95% of our time. So I know also that Unilever has a great reputation and preserving their reputation with all our stakeholders is very important. And I will surround myself with a top-notch team to ensure that I can deliver on that space also. But my personal focus will be in demand creation and in market execution. I really believe -- I'm an economist, I look at everything in terms of return. The return of my time, I believe, will be higher if I put it in that kind of areas. So that's the initial point. So front line CEO, absolutely focused on demand creation and market execution.

The other thing I want to talk about as a CFO, obviously, you and Hein, I thought you were a good foil for each other. You've got an interim CFO, Srinivas Phatak, but you're starting an internal and external search, is my understanding. What attributes do you look for in a CFO for you? What would suit you, your style and when can we expect to hear confirmation of a permanent CFO appointment?

First of all, let me tell you a bit about our acting CFO, that is Srinivas, Srini, we call him Srini. He was the CFO of Hindustan Unilever between 2017 and 2021. The business grew about 7% in that period. Cash conversion was about 100%, gross margin expansion was more than 300 basis points. I believe the market cap doubled in that time for Hindustan Unilever. So he has an incredible track record. He has been my key person in the finance team during my period as CFO. As you know, I was an unorthodox pick for CFO. I had 27 years of oxidation of my financial knowledge when I came into that. So Srini was very, very important. Of course, we have a very talented team surrounding him. So he's a great pick to be the acting CFO. My responsibility is to ensure that we have the best possible CFO and we will have a very thorough process with internal and external candidates to define who is the best guide to really partner with me in the next few years. It will be a relatively 6 months to 12 months process. We believe that this is the timing that the classic process can take. And in terms of the profile, I would like to have somebody that is complementary to me, that gives me -- I'm fundamentally in the business partnering side of finance. I believe that somebody that has a very solid knowledge about accounting controllership that keeps the finance ship very, very tight and also somebody with a good reputation with the markets, of course. I believe I have built a decent reputation in the market, as you know, somebody that support me on that is very, very important. A good communicator with the market, somebody that is keen on doing that. And somebody that also has a real focus on performance management. I believe that Hein and myself, were very well on that. The performance management intensity in the company has changed a lot. You can ask to any person in the company, and that's very different today. And I want to ensure that, that only goes higher. So that's the kind of profile we are looking, ideally PLC or U.S. experience will be welcome. But it's just fundamental that this kind of 3 or 4 features are important, but we are very happy in the meantime with Srini. He's a great talent, and we partner very well. I'm sure that he will do a brilliant job.

Fernando, I can talk to you for hours, but unfortunately, our time is up. I do before I let you go want to ask 2 sort of non-Unilever questions just to get -- to understand a bit more about you. First of all, favorite sports team, and secondly, I'd love to know what your favorite book is.

Good. Well, my favorite team is called San Lorenzo de Almagro, is an Argentinian team. It's 1 of the top 5, but it's not 1 of the top 2. We have been in bad shape last year. But this year, we are leading the league. So it's just -- I'm motivated, I follow them. I have never missed a match in my life, practically. So I'm a great football fan. Book, that's a difficult question, but I will probably choose 1 from Mario Vargas Llosa. He's a Peruvian writer. It's called the war at the end of the -- The War of the End of the World. I like competitive wars and I am coming from the end of the world. So it fits well.

Okay. Well, listen, Fernando, thank you again for your time. Good luck on the journey and [Foreign Language].

Thank you very much. It has been a pleasure. And always a pleasure to talk to you. Thank you.

Thank you.