Unilever PLC (ULVR) Earnings Call Transcript & Summary

Okay. I think we're going to kick off. I'm delighted to welcome Unilever to Boston. Thank you, Fernando and Priya for being here, especially Priya for coming all the way from Mumbai, from your CMD. So the session today is going to be a set piece presentation from Fernando followed by Priya. I'm then going to ask a couple of questions. But importantly, we do have a breakout after this. So all your questions, do please join us for that. So with that, Fernando, thanks again.

Thank you very much. Thank you, Warren, and thank you for having us in the Barclays conference. It's always a pleasure to be here. For me, it's a privilege also today with Priya today. She is the CEO of Hindustan Unilever. As you know, it's our second-largest company. After a separation of Foods, it will be close to 17% of our revenue and a key engine of growth for the future. So most of the presentation will be Priya basically taking our position in India and how do we believe it will be a key contributor to the performance of Unilever in the next few years. But let me kick off basically highlighting a few things about Unilever at an aggregated global level. And this is a very different company to the one you used to know 3 years ago also. Many things have changed in Unilever. We have dramatically transformed our portfolio. As you know, 2 big moves, the separation of ice cream as an independent company, The Magnum Ice Cream company doing very well. Also we are in the process of combining our food business with McCormick in what we believe it will be combination that will generate one of the best food companies in the globe, a real global flavor powerhouse with very strong positions, both across retail and food service and in some of the categories of foods that are having tailwinds instead of headwinds coming from GLP-1. We also made significant bolt-on acquisitions in the last few years. Since 2019, in particular, our track record in bolt-on has been very, very successful. The likes of Nutrafol, Liquid I.V, Tatcha, Dermalogica, Paula's Choice, et cetera, really contributing to make our U.S. business much more competitive, defining what we believe is a superior growth footprint in the U.S. and from where we are now stretching these brands internationally. We have also changed our marketing philosophy dramatically. Our mantra internally is all about elevating our brands through what we call desire at scale, superior science, standout aesthetics, great sensorials, brands that are recommended by others, said by others, times of big messages from corporations probably are gone and also making our brands contemporary. A brand like Vaseline 150 years to reach $1 billion. In the last 3 years, we have added $400 million to the company, to the brand. Real step in execution, what we call perfect store programs all around the globe. Probably the best example of that is what we have done during the World Cup recently around across 120 markets, executing more than 150 special items. More than 50,000 content creators working for us really stepping up, showing what Unilever can do now at a geographical scale that probably is really unmatched. But fundamentally also significant changes in terms of our culture, much more agility, much more performance management intensity, significant change in our incentives with absolute focus in volume growth and profit growth in hard currency and all driven by significant changes in our leadership, both at board and executive level. 8 out of 10 board members have changed in the last 3 years, 9 out of 11 leaders in the -- top leadership tier of the company are new to a position in the last 3 years, including myself and Priya. So many things changing in Unilever. And I feel results are more in the right direction. Our performance in the first half has been strong. It has been led by what will be our remaining company after the separation of Foods, what we call HPC, Home and Personal Care. We have upgraded our outlook. In the first half, we did 4.8% USG with more than 4% in volume. And when you look at our HPC business, 6% underlying sales growth, with volumes about 5%. With significant investment behind our brands, we are in -- around 16% of revenue in brand and marketing investment. 3 years ago, that level was 13%. So we are the times in which Unilever used to under-invest behind the brand to manage the bottom line are going. This put us in a very good position to deliver against our commitment in the midterm guidance. We believe that this is a company that can deliver 4% to 6% consistently at the USG level with at least 2% coming from volume. And we are in the right track. But the first half or the quarter 2, that was the quarter in which we delivered the highest volume growth in 15 years is not an outlier. When you look at the performance of Unilever across the last 10 quarters, we have delivered for the group 4.1% underlying sales growth with close to 3% volume, and we have delivered 4 HPC for remaining company, 4.6% USG with 3.3% volume growth and a margin expansion of close to 200 basis points. So not an outlier in the first half. We are gaining momentum. The company is becoming more competitive. We are definitely growing ahead markets. across most of our geographies. And this we believe is a track record that is starting to build. We will become after the separation of Foods $39 billion HPC pure play with very good balance between our 3 key categories, Beauty & Well Being, Personal Care and Home Care. We have a very active business in India, and particularly beverage and food that will continue being strategic for us in the medium term. We are the second largest BPC company globally and we are the #1 company in home care in emerging markets. So very, very solid foundation, leading positions and with an interesting geographical profile. It's getting difficult to get growth in developed markets. It's true that we have been developing in U.S. very, very good business. We have delivered 3% to 4% volume growth in the last 3.5 years. But it's true that the fundamental drivers of growth of the future are attached to your presence in emerging markets. And we will have a reason with 62% revenue in emerging markets. These are regions that have a better expansion to big consumption drivers, superior population growth, significant urbanization potential, expansion of female presence in the labor force, wealth expansion and a fragmentation of number of households. All these are fundamental trends that really support superior growth in emerging markets. And remember also the macroeconomic terms, emerging markets are becoming much more attractive than in the past. Only 7% of the global population lives with double-digit inflation today. Public finances in emerging markets are better than the ones in developed markets. So there are many things that suggest that the historic negative currency effect of emerging markets will be lower in the future. We have unrivaled positions in emerging markets. We are the #1 HPC company in emerging markets. So we have at scale 80% of our positions at category geography cells are in #1 position, 95% when we talk about #1 and #2. And in the first half of the year, we delivered 6.5% underlying volume growth through a clear elevation of our brands. There are multiple growth opportunities across emerging markets. I feel Priya will cover this better, but we see expansion of consumption with the potential for premiumization. We see opportunity for building new segments, new categories, and we see opportunity to occupy new adjacencies in our portfolio. So these 4 key drivers are the ones that we are really driving across all our emerging market businesses. India is by far our biggest company in emerging markets. And I feel when you look at the next 5 years, it's probably the market that for fast-moving consumer goods shows the only large exponential potential. We believe that India will have a significant expansion of the per capita consumption. And when you compare in absolute terms, in absolute growth, it will only be behind U.S. in terms of contribution to the fast-moving consumer goods industry. We have a fabulous company there, and I'm very happy for Priya to present that.

Thank you, Fernando, and thank you, Warren, for having me at Barclays conference. So I'm Priya Nair, and I'm the CEO and Managing Director of Hindustan Unilever, which is the arm in India of Unilever. Let me just take you through some numbers of HUL. It's $6.5 billion turnover. We are publicly listed market capitalization of $48 billion in India. We reached 9 out of 10 households in India. And in greater than 90% of our turnover, we have #1 position. We sell 85 billion packs in a year in the country and reached 9 million outlets. There are about 9.3 million outlets in the country, and we have an EBITDA margin of 23.6% in the financial year last year. Over a decade, HUL has had significant value creation between 2015 and 2025. We grew turnover 2x, EBITDA 3x and our operating cash flow 4x. So a strong performance over the last decade. What I probably want to spend the most time on is the India opportunity, as Fernando mentioned. And in that context, I think very important to think of some facts on India. -- population, 1.5 billion, with a median age of about 30 . So young country. GDP is poised to become the #3 country in the world on GDP and under-indexed significantly on FMCG at $63 per capita versus our nearing neighbors as well, very underindexed on CPG. But possibly the change that is going to take place in [indiscernible] income distribution will drive CPG growth and consumption. And I'm going to talk most about that and the change that has taken place India. This presents the biggest opportunity for HUL. There are 5 structural shifts taking place in India, which are changing India. The first is the population is transforming. We have 377 million Gen Z consumers in India. And these consumers are changing every on consumption in consumer products, whether it's the way they discover our brands, whether it's the way they buy our brands, it is changing radically. The next is more women at work. Fernando mentioned this. In India, the workforce participation of women have changed from 25% to 40%. And this dramatically changes how they buy our categories, convenience they seek, think about beauty and personal care, how they want to look as they step out of their home. A digital society, 50% of the world's digital payments go through India today. So that's the shift that's taken place in terms of India. Our road connectivity, the government has invested significantly in the infrastructure and roads. And what that changes is when a village or a small town becomes more proximate to an urban center.[indiscernible] The consumption. We actually did a study for HUL of how much change this has when a village is connected to a large town, it changes 30% delta growth for HUL. And indeed, villages are changing, more electrification, more tap water. Think of the way they wash their clothes, take a bath. Every product category that we are in, interfaces when and changes when you have tap water in the home. So the villages are becoming more modern. And of course, data changes everything. It changes access for villages who are no longer -- who did not have access in the past. So these are the 5 structural shifts taking place in the country. And there are multiple growth opportunities that are emerging across segments. Small towns are growing 2x faster than average towns in the country. There are new demand spaces emerging, newer channels, quick commerce in India is 10-minute delivery. It has already become sizable. And of course, social media platforms are changing. India is Meta's largest country today already. So with almost 400 million consumers in Meta in the country. And success, therefore, in India is winning across segments, and I'm going to describe to you what Fernando shared. When you think about India, the first way to look at the market is in terms of income distribution. 35% India lives in what we call democratizers, which are the household income of Africa. 60% of India is the household income of Indonesia and about 5% of India has a household income of France. Remember, we're talking about 1.5 billion people. You're dividing 1.5 billion people across these 3 vectors of household income. The other way to think about how consumption takes place is where they live. So 70% of India lives in Tier 4 and rural, 20% of India lives in small towns and 10% of India lives in the cities. And look at where they buy as well. This changes everything of how they consume online, modern trade, large grocers and also small general trade stores. So when you look at it in this manner, that's really how we look at this 24 cell metrics in which we divide growth opportunities of India. When I look at it and I'm just going to an example of hair care and the hair care market. If you look the hair care market, therefore, just given the population distribution of the country, if the hair care market in urban cities grows at X, the delta growth in rural is 2x. It's just the math of where consumers live in the country and where growth will come from. In that context, this is really 4 strategies that exist to unlock growth. This is still a very big opportunity in a market like India, which is consumption-led growth. and I'm going to talk more about it, which is consumers consuming more. In the context of hair care, it's essentially the number of times they wash their hair as they start to become more affluent changes, and you see more hair washing occasions. The next is premiumization, moving from mass shampoos to premium shampoos, so really changing value-added products for value-added benefits. But the biggest opportunity by far lies in market making. So when consumers become more affluent, it change from just using a shampoo. So just from hair cleansing to hair care. So they start adding mass conditioners, serums and that's the transformation that takes place. And online, what's happening is completely new demand spaces in hair are emerging. Think hair styling, think dry shampoos. So that's really how the market evolves with completely new spaces emerging. So these are the 4 strategies that Fernando referenced in terms of consumption, premiumization, market making and new spaces. And our opportunity and our portfolio is uniquely positioned in India to win across these 4 cells. So we have access packs in Clinic Plus and Sunsilk. We have the biggest premium brand in the market, which is Dove shampoo. We have market-making conditioners, serums and masks. And we've already launched Nexxus online and have the opportunity to bring in more of our Unilever brands like K18 into the market. So I'm going to talk to you the 4 pillars of our strategy and how this works in India. Our opportunity and our goal is to deliver competitive volume-led growth, and that's really the focus of the business. Let me start with consumption and give you some numbers on consumption. If you look at the numbers in India, and this is between value seekers in the country already today and the more affluent, this is the index across each of the categories in which we play between the consumption and for the value seekers and affluent. So in laundry it's x versus 1.2x. So it just shifts as consumers start to have more money, the amount of product they use starts to change. In soaps, it's 1.3x. In tea, it's 1.5x and in hair care and shampoos, it's 1.7x. And our market share, relative market share in each of those categories, we have 4x RMS in laundry, 2.5x in soaps, 1.2x the RMS of our nearest competitor in T and 3.5x the RMS of our nearest competitor in shampoo. So we are very well placed to get a lion's share of the consumption spend. Let me give you an example of laundry and how the market consumption is shift. The biggest reason for the shift in consumption that takes place is when consumers move from hand wash to machine wash. As they move into machines, they use more product. We are the leaders in premium and have the largest index in premium. And therefore, as the market shifts, the consumption that they use in each occasion of wash starts to change. We are well placed on this. As I mentioned, we have 3x the market share in premium, 1.6x in mass, mid and x in mass. We are now the leader also in mass, and we have overtaken our nearest competitor across the tiers in which we play. Looking at the next opportunity, which is premiumization. We have a tailwind in terms of our premium share, our premium shares at 1.3x of our mass shares. But most importantly, we own the premium equities of the market, the #1 premium equities of the market, whether it is Dove, Surf Excel, Horlicks, Vaseline, Vim or Red Label, these are the premium #1 brands in the categories in each of their relevant categories. I just want to give you an example from soaps. We have the 2 premium brands. We have 2x the share in premium versus mass. The market growth is over 2x versus mass. And we are outpacing the growth in premium in the market. But the best example for us is Dove, it's Unilever's largest brand. For HUL, Dove was just a few years ago, a #9 brand. So if you looked at a rank order within India of our brands, Dove was the #9 rank. Today, it is already the #5 rank for HUL. And we are absolutely convinced it will be the #2 brand for HUL. That's how fast Dove is growing. Incredible headroom for us to grow, not just in soaps, but in beauty and we'll talk more about that. And why is this happening? This is simply happening because of what Fernando said, which is we are making Dove more desirable and extending it to more categories. Let me show you this was Dove in 2022. And this is Dove today. I hope you all agree that it looks more desirable and in more categories. Dove in India was essentially known as just a soap and a shampoo. It's the #1 shampoo in the market. It is also the #1 premium soap of the market. It has now been extended not just in hair into treatment. We've just entered into body lotions and the skin care. So you can see how the brand grows and the opportunity that we have with Dove in the market. The same is true for Vaseline. Vaseline in India, 155-year old. We all know the iconic brand that is across the world, known as body lotion and a petroleum jelly. This was Dove in 2024 -- Vaseline in 2024. This is Vaseline today, present not just in its core formats of lotions, but now with Vaseline Gluta-Hya. We've entered Vaseline in face care with Cloud Soft. And of course, in lips where we are iconic. With a social-first idea, very, very well known of: if it's Vaseline, it's verified. It talks to the trust that consumer has and the social-first nature of how we are building out Vaseline in India. Again, growing double digits. The third area I want to talk about is market making. The biggest opportunity we have as the market leaders in India is to make the markets in each of the categories in which we play. And just to ground you in some numbers, these are the format segment penetrations in India. Hair masks under 1% penetration in India; sun care, 2% penetration in India. Body wash liquid, body washes is 2%. It's essentially a soap bar market to date. Dish wash liquids, 7%. Again, dish wash bars are what are used in the country. Laundry liquids, 13% penetration, face cleansing, 17% penetration, people essentially still using soaps to wash their faces. And underneath what you see is the index versus Indonesia on penetration to India. I said to you that 60% of India now has the household income of Indonesia. So you can imagine the transformation, and we are leading the market development of each of these subsegments in the country. And we have a repeatable and proven playbook to do this. This is what we've done across whether it is in terms of understanding deep understanding of consumers in the country, the formulations of the product, whether it's understanding the triggers and barriers to educating consumers of how to trade and transform and develop the market or whether it is the partnerships that will take to build these new segments or the social first playbook. But mostly, it's because we are investing multiyear behind this. And that compounding effect of the multiyear investments is what it takes to build these new segments and make these markets. Just as an example is laundry liquids. This same transformation has already taken place in China. In China, it's 3.3x of India, the size of the market. And Thailand, it's 2.6x the size of the market. Liquids is only 6% by volume of the total laundry market today, huge headroom for growth. And this is driven as washing machines grow in the country. Only 1/3 of the consumers today in the country wash with washing machines. It's still a predominantly hand wash market. And as that shifts, the liquid penetration in the country will shift. We are the leaders of liquids, and we are developing the liquids category in India. So that's just as an example. The other example I want to share is sun care. I said you 2% is the penetration of sun care in India, highly underpenetrated. If you look at the top 5% of India, the power spenders, there's a 21x difference in the penetration versus the average person in India. Working women, there are 200 million women stepping out to work. As they do that and this country is becoming hotter, you can imagine the need for a basic sunscreen is very high. For us, the opportunity is not just at the top end of the pyramid where we have acquired Minimalist, which is our first big acquisition in skin care. Simple is a brand, Unilever brand we're building out in India. We have Lakmé, which is the market leader of sun care, but we've also created access for consumers at the bottom of the pyramid. So at under $0.10, we today have access packs, which give consumers access into the sun care category. That's what you see with Lakmé and Glow & Lovely sunscreen, which we've just launched in the country. So with this, we have a robust portfolio to win and develop the market mostly in sun care. So that is the last growth driver that I want to share, which is new spaces. We are entering decisively into select growth spaces, whether this is masstige, deodorants, protein or ready-to-drink, this is an area where we are selectively entering and doubling down. I'll talk to you about the first, which is Minimalist, the acquisition we did 18 months ago. In 18 months, it's already doubled in turnover, huge headroom for us to grow, whether it's in terms of the awareness buildup that we will create for Minimalist, really the synergy benefits of distribution and driving distribution more from online to offline, still a large headroom for Minimalist in the country. On the next is in terms of protein, we've just entered the protein market in India, fast-growing market with Horlicks, which is the nutrition brand in India with a ready-to-go product as well as a powder, again, doubling down behind this segment in India. And that's really an algorithm for growth, which is competitive volume-led revenue growth. We will generate the fuel to invest behind our brands and generate that fuel so that we can invest behind our brands. Our EBITDA margin guidance is between 22% to 24%. And with that, we will have volume-led profit growth. We are stepping up our capital investments from 2% to 3%, both in terms of capital for growth, but also for bolt-on acquisitions. So with that, Fernando, I hand back over to you.

Excellent. Thank you very much, and I feel the proof of everything that is happening in India is the performance that we are having this year, 10% in the last quarter, and the business is accelerating. There are serious structural shifts in India that make India, particularly with the slowdown in China, the largest exponential growth opportunity and probably the only exponential growth opportunity globally. And there are multiple opportunities in different aspects, more consumption, premiumization, market making, emergence of new categories, new adjacencies for Unilever. We have very, very strong leading positions. We have brands that have been elevated. We have a social-first marketing model that has been put in place with very strong presuation activity system behind. And we have unmatched talent in India that give us a lot of confidence that Unilever will be probably the company that will benefit the most for this kind of explosive growth that we are seeing in the market in India. Many companies are discovering where India is in the map. We know the map of every ZIP code in India. India is the blueprint of what we are doing in emerging markets. Emerging markets is 62% of Unilever revenue, and we believe it will be a key driver of our performance in the next future. And we will achieve that kind of success fundamentally through the combination of elevated brands, strong leading positions that we already have, a fundamental change that has happened in our performance culture. And we believe that all this has been starting to materialize in our performance. And the proof of that is our superior volume growth. In the last 3 years, we have been operating at around 3% volume growth. This year is accelerating, but also profit growth in hard currency. We are very conscious when you have 62% of revenue in emerging markets, you have to really deliver profit growth in hard currency. This is a fundamental change also in how we look at the business. Thank you very much. And Warren, we can take some questions.

Okay. Priya, a fascinating presentation. I'm going to ask you about channels in India. As Unilever followers have always known, you've been extremely strong in the mom-and-pop stores. How do you replicate that massive moat into the new channels of the future like quick commerce, where other players are less disadvantaged when it's more about digital and less about mom-and-pops and last mile distribution. Maybe you can touch on that. And is there any implication on margins as well?

Yes. So first, Warren, before I go into quick commerce, I just want to mention that even in general trade, there are changes taking place. So there's more specialist channels emerging in general trade. Cosmetic stores, health and beauty stores, and we are doubling down behind these channels. So general trade in India is not going away anyway. It will continue to be a very, very large and the most dominant part of the Indian ecosystem. When you think about quick commerce and for those of you who are not familiar with quick commerce, it's 10-minute delivery in the country. The biggest challenge for quick commerce is actually ensuring that they have high turnover and really ensuring that they manage a very, very lean product portfolio. And they like large brands as a result, large brands that have well-defined demand signals. We are working join up with the quick commerce players to ensure that we have an advantage with them with regards to supply chain end-to-end so that we can manage a very, very lean, agile portfolio with them, huge advantage for large companies and large brands. And in fact, our margins are better in quick commerce versus modern trade versus general trade. So it's actually structurally in our favor, Warren.

And then I think, Fernando, you quoted as saying you missed the party in beauty in China, and you will not miss the party in India. But looking longer term, Priya, how are you going to win in the Indian beauty market because everybody else wants a piece of the action is where the growth is longer term. What needs to happen? And how many more Minimalist-type acquisitions do you need to do to get there?

So Warren, I think, first, huge opportunity for beauty in India. I think it's important to first break this up into the segments of beauty. When you think about hair care, we have an unrivaled portfolio in hair care. The biggest opportunity in hair care, like I said, is first the move, the shift that's going to take place from mass to premium, and Dove is by far the #1 hair care brand in premium. That is the largest opportunity in the market. We are also building out our portfolio in Masstige, whether it's the launch of Nexxus, we still have a large number of the Unilever brands we can enter with K18. So that is absolutely on the plan, but huge opportunity for us is just Dove. Just Dove on its own is the single largest opportunity in hair care. When we think about skin care, again, the biggest opportunity lies. Just think about the structure of the market that I was sharing, 70% of India lives in rural, 20% in large cities and 10% in the metros. Big opportunity with Vaseline, We're entering with Dove. And of course, we have the bolt-on acquisitions like Minimalist. We've also entered with our Unilever portfolio with Simple and still big headroom to enter with all our Unilever Prestige brands. I don't know, Fernando, whether you would like to add.

Yes. Everybody, of course, look at the opportunity with the 5% of rich in India. And it's an important opportunity -- we have 75 million people with the income per capita of France. So you have a potential France in beauty there. And I believe that the portfolio that we have built in the U.S., in particular, is a portfolio that will travel into India at the right time. At the same time, we are making bolt-on acquisitions. Minimalist is one of them. And you have seen how quickly that brand has scaled up. So in 18 months, we doubled the brand from 50 million run rate into 100 million run rate. But the biggest premiumization opportunity in India, let's take the case of hair care, is to move consumer from INR 1 a sachet into INR 2 a sachet, $1 to $2. In INR 1 a sachet, we have Clinic Plus. In INR 2 a sachet, we have Dove. Dove now is 20% share of the market in India. So I feel Priya mentioned that -- and this is economics. There is the famous Robert Solow transitional dynamics, convergence of economics. Poorer states are growing faster than richer states. And this is providing Unilever with the kind of structural advantages that we have in India, a huge opportunity to really upgrade our portfolio.

And Priya, can you talk a little bit about the new marketing model and how that kind of works in India, the kind of sassy approach. And everybody has got smartphones now, everybody is following different people. How are you actually putting that into play?

Huge opportunity, Warren, for us. Just to give you some numbers, we already reached 30,000 creators in India. By far, the largest player in the market in terms of creator marketing and our outreach to creators. Just given that we have 20 large brands, our opportunity to really work with creators is a different order than most companies. That, combined with all the work we're doing to really raise the desire of our brands, whether it's in terms of aesthetics, whether it's in terms of how we talk on our brands, making them more young, more contemporary is all the work we're doing. And we are working more with using AI now to really augment the human effort to really raise our game, whether it's in terms of content creation, whether it's in terms of media. That's the work that's happening.