The shackles are off: Unilever goes for growth after UK move
Politically sensitive unification will create a nimbler player in mergers and acquisitions
Launched more than a century ago to help fight cholera in England, Lifebuoy soap last year underwent a pandemic-fuelled revival that made it a global brand worth more than €1bn.
Now Alan Jope, chief executive of the soap’s producer, Unilever, faces pressure to give the whole group a similar boost, after last year unifying its almost century-old Anglo-Dutch structure into a single, UK-domiciled company.
Jope, a 36-year company veteran, argues that the politically sensitive unification will make Unilever, one of the world’s largest consumer goods makers, a nimbler player in mergers and acquisitions markets so it can chase higher growth.
But he told the Financial Times he also had a bigger goal, “to prove incontrovertibly that sustainable business does drive superior financial performance”.
Unilever has spent the past few months releasing ambitious climate and social targets, from net zero emissions in its supply chain by 2039 to ensuring all workers supplying the company receive a living wage by 2030.
The challenge, according to Marcus Morris-Eyton, a portfolio manager at Allianz Global Investors, which owns a stake in the company, “will be balancing this transition towards a more sustainable business without sacrificing too much margin.”
When Jope set out his business strategy on Thursday, reinstating financial targets and focusing on faster growing areas including high-end beauty and plant-based foods, Unilever’s shares fell to a nine-month low.
That was partly owing to tighter than expected margins for 2020, analysts said. While Covid-19-related costs were a factor, shareholders are closely watching profitability.
Among Unilever’s challenges is a homecare business weighted to relatively low-margin laundry products sold in emerging markets, according to Warren Ackerman, an analyst at Barclays.
And while the group has had some pandemic successes — such as launching Lifebuoy in 50 new countries — it has not benefited as much as rivals Procter & Gamble and Reckitt Benckiser, which have larger cleaning portfolios.
Unilever was slow to join the boom in plant-based proteins, although it now wants to increase sales of the meat and dairy substitutes fivefold, to €1bn a year in five to seven years. It also lacks a significant presence in petcare, which has helped fuel growth at rivals Mars and Nestlé.
The company plans to create more brands resembling Dove, its largest, which has over almost 20 years built up a reputation for marketing itself on “real beauty”, for example using non-models in its advertising.
Jope’s mantra is that brands sell better if they are “purpose-led”. Hellmann’s mayonnaise, for example, can be marketed as a way to combat food waste as people eat it with leftovers, he said. Next week’s Super Bowl will feature advertising to that effect.
“Our first priority is to help our brands find their purpose,” said Jope. But he warned that “the clock is ticking for brands that don’t have good growth potential.”
A review of Unilever’s slow-growing tea division, announced a year ago, is likely to result in a listing of most of the tea brands, the company said on Thursday.
Commitments made when the group unified its structure had led to speculation about a larger spin-off: Unilever told the Dutch government that if it were to carve out its food division, that company would be Netherlands-based.
But analysts now agree such a move is unlikely and Jope said the focus was on finding growth potential in the existing business.
Ackerman said he expected activity in high-end beauty, where Unilever said sales were down by low single digits in the pandemic, compared with 20 per cent for some rivals.
Activist investors could pose a threat. While they are not currently active at Unilever, London-based Bluebell Capital Partners is pushing for a new chief executive at French group Danone, while others have targeted Nestlé and Procter & Gamble in recent years.
Unilever, which is aiming to reach underlying annual sales growth of 3 to 5 per cent, compared with 1.9 per cent in 2020 and 2.9 per cent the year before, has traditionally been seen as slow-moving compared with harder-driving rivals such as Reckitt Benckiser. One former staffer called it “bureaucratic”.
But the pandemic unleashed a new agility in adapting to changed consumer behaviour, such as rolling out home deliveries of ice cream, analysts said.
“They are executing better and allocating resources better [in the pandemic], and they need to somehow take this newfound agility and bottle it and use it as a code for how they continue to deliver once hopefully Covid is in the rear-view mirror,” said Ackerman.
Jope will also need to demonstrate that sustainability pays. Switching to renewable energy has proved to be a money saver, he said.
But other initiatives Unilever supports — such as extended producer responsibility, in which companies must pay for green disposal of waste from their products — seem certain to incur costs.
Another example is paying the living wage through Unilever’s supply chain, which Jope said would be funded by savings elsewhere. He believed rivals would come under pressure to make the same shift.
“We would be interested to see which of our peers stands up and says, ‘We’re not prepared to ensure the payment of a living wage’,” he said.
Unilever was also in talks with national governments about using its ice-cream cold chain to help with vaccine rollouts, said the chief executive.
His plans have won over many former and current staff. Sue Garrard, a former Unilever executive, said she agreed with Jope that “the world is going to be increasingly intolerant of businesses that sell you stuff at the price of trashing the planet”.
Jope’s predecessor, Paul Polman, had long pushed similar green measures, but had a distant relationship with shareholders that turned fractious when he tried unsuccessfully to unify the group as a Dutch, rather than UK, company.
The current chief executive “has taken time to win the confidence of the market,” said Martin Deboo, analyst at Jefferies. “But I think the direction of travel is positive.”
