Unilever to Exit Spreads Unit, Boost Shareholder Returns -- Update
06 April 2017 - 9:37AM
Dow Jones News
By SAABIRA CHAUDHURI and Rory Gallivan
LONDON -- Anglo-Dutch consumer goods giant Unilever PLC on
Thursday announced plans to divest its spreads division, combine
two of its main business units and boost shareholder returns with a
higher dividend and share buyback program.
The revamp, the result of a strategic review, comes as Chief
Executive Paul Polman looks to appease investors after rejecting a
$143 billion takeover offer from Kraft Heinz Co.
The company behind Hellmann's mayonnaise and Dove soap said the
future of its spreads business was now "outside the group" and that
it would be sold or demerged. The spreads division includes
products such as margarine, but not condiments like mayonnaise.
It also said it would combine its foods and refreshment units
into one organization to boost growth and cut costs, and look to
increase its strategic flexibility for further portfolio changes by
reviewing its duel-headed legal structure.
Overall, Unilever said various initiatives -- including more
efficient marketing spend and supply-chain savings -- would allow
it to increase cost savings from EUR4 billion to EUR6 billion.
Unilever said it would launch a EUR5 billion share buyback
program this year and raise its dividend by 12%, reflecting greater
confidence in its outlook for profit growth.
The company is aiming for a 20% operating margin by 2020,
compared with 2016's 16.4%.
Analysts had floated an array of actions that Unilever could
adopt, including divesting its spreads business, which the company
says faces a challenging market, or its entire food arm.
The buyback marks a rare concession by Mr. Polman who has
labeled repurchasing shares -- a practice that elevates earnings a
share, a key financial metric -- as financial engineering.
Unilever's last share buyback was in 2007. Its last special
dividend was in 1999.
Efforts to improve its profitability will also likely be
welcomed by investors. The company said it expects to improve
margins by at least 0.8 percentage point this year, compared with
guidance in February for improvement to be close to that figure.
Despite implementing its own version of zero-base budgeting, under
which costs are justified from scratch every year, Unilever's
profit margins have lagged behind those of several of its U.S. and
European peers.
Mr. Polman has sometimes been criticized by analysts for being
focused on long-term growth, often at the expense of short-term
profits. Kraft's approach has changed all that with Chief Financial
Officer Graeme Pitkethly describing it as an "inflection
point."
"The Kraft bid certainly highlight the importance of getting the
balance right between long-term sustainable value creation and
short-term value delivery," he said at a February conference.
Unilever is in the midst of an organizational reshuffle at
boosting sales that Mr. Pitkethly has described as "the biggest
change Unilever has undergone in the last 10 years." It is
restructuring its workforce to direct more resources to local
markets, and giving product-category-focused teams there more
autonomy. Unilever hopes the move will makes it more nimble in
responding to local tastes or trends.
Mr. Pitkethly in February said Unilever will focus on better
telegraphing the estimated benefits of the changes it is making to
shareholders. "We believe that we can do more to communicate the
value creation from our existing plans," he said at the time.
Unilever's share price had dipped in the months before Kraft's
approach as it reported slower sales growth for 2016 amid troubles
in major markets such as India and Brazil. The company has
struggled to grow volumes in recent quarters, relying on price
increases to boost revenue, something Mr. Polman has criticized as
unsustainable.
Kraft backed away from Unilever after it became increasingly
clear that any approach would be hostile. Unilever thought the 18%
premium offered undervalued it and that the two companies' business
models were so different that there would be few synergies from a
deal.
Under U.K. regulations governing takeovers, the London-based
company has earned a six month window in which Kraft can't make
another approach.
--Denise Roland contributed to this article.
Write to SAABIRA CHAUDHURI at saabira.chaudhuri@wsj.com and Rory
Gallivan at rory.gallivan@wsj.com
(END) Dow Jones Newswires
April 06, 2017 03:22 ET (07:22 GMT)
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