“Simpler, more category-focused” is how Unilever PLC (LSE:ULVR) chief executive Alan Jope sees the company going forward.
The comments come as the consumer brands conglomerate impressed the City with its latest set of results which revealed stronger than expected growth in the first six months of 2022.
Whilst warning that input cost inflation will continue to rise, Unilever also raised full-year underlying sales guidance.
It does so far aim to pass on higher costs to consumers, reflecting a confidence internally that its brands are strong enough to ride out the worst of the squeeze.
The presence of activist investor Nelson Peltz, now on the board, adds to the spectacle.
Jope apparently seeks to keep the picture uncomplicated as he looks to take the business forward.
“[A] simpler, more-category-focused organisation,” is how he put it.
New Unilever
Much of Unilever’s prior strategy was focused on geographic expansion.
Opening up new territories would’ve been the mode to bulk out market share and cross-sell brand products like Bovril and Dove, but, more recent changes now see Unilever sharpen existing operations and focus efforts on only key assets.
As a result, Unilever could land some €600mln through streamlining, that’s according to Richard Hunter, head of markets at interactive investor.
The new structure aims to slim down the company’s overheads, meanwhile, it is to split the business into five operating segments - nutrition, personal care, home care, beauty & well-being and ice cream.
They include “four well-defined strategic thrusts,” according to Russ Mould, investment director at AJ Bell.
Unilever is expected to focus on brands that produce €1bn of annual sales in order to skew its portfolio into higher growth areas. To get there it wants to target asset purchases.
Expansion into emerging markets and cutting supply into the low-cost supermarkets, like B&M also factor in the plan, as is a continuation of a move towards digital sales routes.
So far, there have been no specific ‘bright ideas’ mentioned along the lines of the failed move to buy the piece of GSK PLC (LSE:GSK, NYSE:GSK) that’s now been spun out and is known as Haleon.
It would appear there’s not so much for investors to be agitated about, albeit as activist investor Nelson Peltz has been pulled into the company perhaps those conversations are instead taking place largely behind closed doors.
Peltz’s influence
Peltz was given a seat on the board after building a stake in Unilever.
The so-called corporate raider and restructurer has previous in the big consumer brands business, targeting Cadburys in 2007, pushing for its merger with PepsiCo (NASDAQ:PEP) for example.
At this point, he has a mere 1.5% stake and has been pulled into the fold but that doesn’t mean Unilever’s management will be allowed to get comfortable.
“Unilever is not standing still, and nor can its management team afford to do so now that activist investor Nelson Peltz has 1.5% stake and a seat on the board,” said Russ Mould, analyst at AJ Bell.
“Whether all investors feel comfortable with someone with a relatively minor holding having such influence remains to be seen, but Unilever seems confident that profit margins will rise again in 2023 and 2024.”
Will ‘new Unilever’ be a success?
It’s far too soon to say after only a month, but, today’s share price reaction (up 2%) bodes well even though there’s much more room for improvement.
“Unilever’s shares trade at a notable discount, on an earnings basis, to those of the company’s global peers (with the ironic exception of Kraft-Heinz, which made an unsuccessful bid for Unilever in 2017),” Mould added.
“If Mr. Jope and the board, aided and abetted by Mr. Peltz, can meet growth and margin targets then that gap could close, and the shares make further progress.”
Plainly, eyes will be on the company and share price in the coming weeks and months as the consumer sector continues to evolve and react to the inflationary environment – in the meantime, the corporate jostling is likely not over.