Conversations with Industry Leaders
We use the equity market to invest in companies that are constantly making decisions in the real world and adjusting their strategy to respond to changing economic and market conditions. Meeting them in person is helpful in making sure we fully understand the fundamentals that drive their business, and how they are responding to and planning for change. Recently, I met eight portfolio companies in the space of two days at a conference in London: Experian, GSK, Sanofi, Unilever, SGS, Intertek, Kuehne & Nagel and Roche. Companies are in some ways a collection of people and the stories they perpetuate. It is these people that are responsible for the evolution of a business and meeting them and hearing their stories is hugely valuable for our research, as well as being interesting in and of themselves.
Roche
For example, the CFO of Roche, Dr Alan Hippe, is the last remaining executive of his fourteen-year tenure that has overseen major portfolio transformation and the COVID pandemic. We discussed the cultural change that has occurred over that time and the lessons learned for the future. This included implementing stricter requirements and processes on research funding. Scientists have brilliants minds, but perhaps lack commercial understanding (unsurprising, given the odds are stacked against them; the success rate for a research project turning into a blockbuster drug is very low). We think Roche are well set for the foreseeable future with a healthy pipeline, partly driven by those lessons learnt.
Unilever
Unilever is another company in transition. I met the new CFO Fernando Fernandez, who seems to have a robust and straightforward character, focused on winning in the consumer products markets (and, it seemed, more broadly). Meeting him and the Dutch CEO Hein Schumacher gave credibility to the changes they are making. One key topic is India, where Unilever have an enviable position via their subsidiary Hindustan Unilever, built on decades of brand building and channel investments (the latter is critical in a country so logistically complex). Competition from other large multinationals is increasing, partly due to the recent slowdown of Chinese domestic spending; companies are looking elsewhere for growth. Fernando was clear that Unilever intend to protect their position aggressively. In any case, the wider growth opportunity is enormous, enough for more than one company to harvest the cash compounding potential.
Kuehne & Nagel
Meeting companies is an opportunity to focus on what we consider important, to ignore the noise of short-term earnings calls and announcements. Kuehne & Nagel are the world’s largest freight forwarder, sitting in the middle between shippers (companies sending goods) and carriers (ships). This is a cyclical industry, influenced by economic production and geopolitics, of which there is a lot about at the moment. Rather than talk about the outlook for the upcoming results print in a few weeks, we focused on discussing their strategy to shift the mix of the business to higher value cargo, and investments they are making to improve customer relationships. These will protect Kuehne’s high returns on capital through the cycle, over the long-term.
