Unilever grows stronger – but margin outlook “shocking”

Dusseldorf The one under pressure Consumer goods group Unilever is excluding major acquisitions for the time being. “We are not aiming for any major acquisitions in the foreseeable future,” said CEO Alan Jope on Thursday when the annual figures were presented. In January, the manufacturer of Dove soap and Langnese ice cream tried to take over the consumer goods division of the pharmaceutical company Glaxo-Smithkline (GSK) for the equivalent of around 60 billion euros and failed miserably.

However, Unilever boss Jope has been under pressure for some time. Sales are stagnating, the share price is developing more slowly than that of the competition. In the past year, the British consumer goods manufacturer achieved the strongest sales growth in the past nine years with a plus of 4.5 percent.

Especially in the areas of cleaning products and body care, Unilever hardly grows under its own steam. The food business was doing better. The group is benefiting from the fact that consumers are eating more at home because of the pandemic.

The GSK takeover was supposed to be Jope’s liberation, but GSK rejected the offer as too low. The criticism from Unilever investors and analysts was unusually harsh. The Briton is now trying to generate new growth with a corporate restructuring and job cuts.

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By the middle of the year, Unilever plans to split into five business areas: beauty and well-being, personal care, home care, food and ice cream. New products in the health, beauty and hygiene categories in particular promise higher and more sustainable growth. Through the reorganization, Unilever wants to save 600 million euros over the next two years.

Many layoffs do not threaten in Germany

At the end of January, the group announced that it would cut 1,500 jobs worldwide, especially in management. How the job cuts will affect the German locations should only be clear in the spring. So far there are “no signs” that parts of the production workforce would also be laid off, said Group Works Council Chairman Hermann Soggeberg to the Handelsblatt.

From the Hamburg German headquarters, it is also said that the production sites should remain “unaffected” by the reorganization. But some managers will probably lose their jobs.

In addition to the head office in Hamburg, Unilever operates five production sites with more than 3,000 employees. In the factories in Buxtehude and Mannheim, the consumer goods group produces Dove soap, for example. Unilever produces food for the Knorr brand in Heilbronn and in Auerbach, Saxony.

Ice cream from brands such as Magnum or Langnese comes from Heppenheim in Hesse, where 600 people work. There is more unrest there. The fact that the ice cream division will be managed separately from the other Unilever foods as a separate division in the future is seen in the industry as a sign of a possible separation from the parent company. In one of his bi-weekly video calls, CEO Alan Jope is said to have recently denied this in front of the local workforce.

That doesn’t reassure Soggeberg: “Unilever no longer has sacred cows.” In 2018, the group sold its margarine business with brands like Lätta or Rama, with which Unilever’s company history had begun. Most recently, Unilever also sold its tea division, which is known for the Lipton Iced Tea brand.

Investor Peltz’s entry is “hushed up”

The sale of slow-growing brands at Unilever may have become even more likely recently: British media reported in January that the 79-year-old activist US investor Nelson Peltz had joined the consumer goods group.

Unilever has not yet officially confirmed this, and the exact amount of the investment is also unknown. According to group insiders, management doesn’t even talk about Peltz at internal meetings and events. “The topic is hushed up.”

Peltz’ US hedge fund Trian Partners is known for spinning off low-growth brands from corporations in order to generate higher growth. Employee representative Soggeberg is therefore observing Peltz’ entry with concern. “We don’t know what Peltz is up to. But activist investors always have a savings agenda at the end of the day,” Soggeberg said.

>> Read also: Hedge funds join Unilever – and should accelerate the upheaval

Like all consumer goods manufacturers, Unilever suffers from rising commodity prices, raw material shortages and supply chain problems. The group expects cost increases of more than two billion euros in the first half of the year, which Unilever will not be able to pass on in full to customers.

CEO Jope only expects a margin of between 16 and 17 percent for 2022, compared to 18.4 percent in 2021. Jope warned that it would take the group two more years to return to 2021 margins due to rising costs. The margin outlook is “shocking,” said RBC analyst James Edwardes Jones.

The shareholders see it the same way. Unilever’s share price fell 4.4 percent on Thursday morning.

More: Group restructuring at the consumer goods group: Unilever cuts 1,500 jobs

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