Unilever rules out major acquisitions as it seeks to win back investors
Consumer goods group announces €3bn share buyback plan following abortive bid for GlaxoSmithKline unit
Unilever has ruled out pursuing major acquisitions “in the foreseeable future” after an abortive £50bn bid for GlaxoSmithKline’s consumer health business sparked a backlash from shareholders.
Instead, the maker of Dove soap, Hellmann’s mayonnaise and Domestos bleach said on Thursday that it would buy back up to €3bn of shares over the next two years as it seeks to appease an investor base frustrated by the group’s languishing stock price.
“We have engaged extensively with our shareholders in recent weeks and received a strong message that the evolution of our portfolio needs to be measured,” said Alan Jope, chief executive. “We therefore do not intend to pursue major acquisitions in the foreseeable future.”
Unilever announced its strongest full-year sales growth in nine years at 4.5 per cent, but said rampant cost increases would hit margins over the coming two years, with €2bn of input cost inflation expected in the first half of 2022.
“The major challenge of 2021 has been the dramatic rise of input costs,” said Jope. Graeme Pitkethly, chief financial officer, said this type of inflation — which includes commodity and transport costs — across the consumer goods sector had reached 20 per cent.
Unilever said price rises would help take sales growth to between 4.5 per cent and 6.5 per cent this year, but its underlying operating margin was expected to decline by between 140 and 240 basis points after coming in at 18.4 per cent in 2021.
Margins are expected to remain below 2021 levels in 2023, the company said, before being fully restored in 2024.
Bruno Monteyne, an analyst at Bernstein, said the margin drop represented “a total change of direction” after Unilever cut advertising and spending on promotions to help deal with the results of inflation in 2021.
Analysts said the magnitude of the margin squeeze appeared to indicate a lack of confidence in the pricing power of Unilever’s brands.
“In our view investors’ main focus should be on the margin guidance and the lack of pricing power that it implies,” said James Edwardes Jones, analyst at RBC Capital Markets.
Unilever shares fell 3 per cent to £37.11 in early morning trading on Thursday.
The company faces additional pressure from the arrival of activist investor Trian Partners on its shareholder register.
Following the failed bid for the GSK unit, the company last month announced a reorganisation into five business groups that will entail 1,500 management job cuts and result in €600mn of cost savings over two years.
But many investors remain unhappy. One top-10 shareholder told the Financial Times they wanted the company to separate the food division from the rest of the business.
However Pitkethly said on Thursday that “separation isn’t straightforward as a path to value creation . . . nutrition and ice cream remains a core part of the company”.
Some investors are also seeking management change. A top-20 investor told the FT at the weekend that the company’s chair, Danish businessman Nils Andersen, should leave.
A top-25 investor said: “Nils Andersen has not done a great job. I would love to see a heavy-hitting, super impressive chair at Unilever. He’s not one of those.”
The group has underperformed rivals such as Nestlé and Procter & Gamble, where Trian founding partner Nelson Peltz sat on the board for three years.
Ahead of Thursday’s results Unilever’s shares had already fallen just over 4 per cent this year and 7.2 per cent since Jope became chief executive at the start of 2019.