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February 7, 2008

Unilever takes recovery step by step

At first glance, Unilever's 2007 results may have been steady, if unspectacular. However, the company believes it is on the right track to fully recover from its woes earlier in the decade. Dean Best detects signs of confidence at the consumer goods giant.

By Dean Best

At first glance, Unilever’s 2007 results may have been steady, if unspectacular. However, the company believes it is on the right track to fully recover from its woes earlier in the decade. Dean Best detects signs of confidence at the consumer goods giant.


For a once sprawling, under-achieving company, there seems a new sense of focus at Unilever.


The consumer goods giant, home to brands from Hellmann’s mayonnaise to Magnum ice cream, is part-way through a root-and-branch restructuring designed to breathe fresh life into the business.


Unilever’s new priorities were first unveiled last summer. The Anglo-Dutch conglomerate had drawn up a programme designed to boost efficiency, improve margins and, as far as the company’s food business was concerned, give it cash to invest in emerging markets and in health and nutrition.


Six months on – and after a raft of job cuts and factory closures in Europe, plus a couple of brand disposals – Unilever today (7 February) issued its financial results for 2007. At first glance, the figures were steady, if unspectacular. A 1% increase in operating profit could suggest a company stagnating. However, Unilever believes it is on the right track and, with a more streamlined business, can push on in 2008.


“We are positive about 2008. We are a leaner company, our brands are strong and we make faster decisions,” chief executive Patrick Cescau told reporters in London this afternoon. “There are inherent strengths in our portfolio. The [sales] growth for 2008 in our market and our category will be 4-5%. We are confident that we will be at the upper end of that range.”


Unilever’s sales rose 5% last year. Its food portfolio, which also includes Knorr soup and Ben & Jerry’s, weighed in with an “excellent” performance, Cescau said, pointing to an increasing focus on healthier products.


Like most of the food industry, Unilever has been upping prices in a bid to offset the jump in commodity costs. But, with consumers around the world showing signs of tightening their belts, is Unilever concerned about the effects of an economic downturn? Not so, Cescau said.


“We have planned for a more turbulent economic environment in 2008. There is no doubt that an economic slowdown is underway in the US and we expect a similar phenomenon in Europe and Japan,” Cescau said. “However, with the breadth of our brand portfolio, which straddles different price points and addresses a range of consumer needs, the shift in consumer behaviour is as much an opportunity for us as a challenge.”


There has been debate in financial circles over how much of an impact a slowdown in the US will have on the fast-growing, emerging markets of the East. Unilever generates 44% of its turnover in countries like Russia and India and expansion in developing markets is a key plank of its recovery plan. Just this week, the company, which is the world’s leading ice cream business, said it was set to buy Inmarko, Russia’s largest ice cream maker. Continued robust growth in the East is critical to Unilever’s turnaround.


Cescau admitted that he does not expect this year’s growth in emerging markets to match previous years. “We expect the emerging markets to come a bit off their peak in 2008,” he said. However, he added: “The economic fundamentals of those markets are good.”


That view was echoed by Harish Manwani, president of Unilever’s business in Asia and Africa, who said the company would continue to see strong demand in the region’s developing markets. “Domestic demand is robust,” Manwani said. “People are converting into branded goods and uptrading because of money and you are still seeing people coming into the economy, even though there is price inflation.”


Nevertheless, despite the confident tones, there is an element of prudence running through Unilever due, no doubt, to the travails of recent years, particularly the company’s shock profit warning of 2004.


The company plans to push on with its restructuring programme and surprised some analysts by not upping their sales guidance for the year ahead. For all of Cescau’s optimism that Unilever can withstand any effects of an economic slowdown, it was notable to hear him insist the company was not “upbeat” about 2008 but was instead “reasonably confident”.


“Unilever has undergone unprecedented change,” Cescau said. “We are now building a platform for future growth.”

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