Has Unilever signalled more changes will come?

Has Unilever signalled more changes will come?

Unilever announced the fruits of its business review - convened after the company brushed off interest from Kraft Heinz - yesterday (6 April). The Knorr and Magnum maker set out a measured plan, which included the wise decision to leave the spreads business. But could bolder action be on the horizon in the longer term? Dean Best reports.

The results of Unilever's review to "accelerate delivery of value for the benefit of our shareholders" – an audit started after the consumer goods giant dismissed Kraft Heinz's takeover interest, much to the frustration of some investors – had been much anticipated.

Announced yesterday (6 April), Unilever's latest bid to improve the performance of the business and enhance returns to shareholders contained no eyebrow-raising moves.

However, has Unilever hinted bolder moves could come further down the line?

Unilever's management, under self-assured CEO Paul Polman, has long been confident about the company's overall strategy, which, broadly, is focused more on the long-term, on ensuring a sustainable rate of growth, rather than on the shorter-term approaches favoured by some (including, tellingly, Kraft Heinz).

The results of its review include plans to speed up its "Connected 4 Growth" programme, which aims to make the business simpler and more agile. Unilever has outlined a new target on margins, plans to buy back shares and up its dividend – all classic ways to soothe any investors put out by the rejection of a takeover bid. 

Moreover, Unilever is to stay a food, home and personal care business. The company ignored calls from some quarters for a split.

That is not to say there were no notable announcements. The obvious headline is Unilever's decision to "exit" the spreads sector. Given Unilever's long-held conviction of the worth of the Flora-to-Country Crock division to its business, some may argue its decision to now "sell or demerge" the unit is something of a surprise.

However, Unilever surely could not go on defending the position of spreads in its portfolio, not with a portion of its investor base keen, in the wake of the company's rebuttal of Kraft Heinz, for signs of decisive action to improve its performance and growth trajectory.

And Unilever surely could not go on trying to eke out growth in a category in trouble in a number of markets, not least the UK and the US. The company insists its decision in 2014 to put the spreads business in a standalone unit away from the rest of the food business has paid off. Even yesterday, when Unilever said the future of the unit would be outside the company, it was arguing the business had "responded well to this focus, reducing costs, increasing cash generation and holding market share".

However, its decision to leave spreads is correct. The question now is how to exit. Some Unilever watchers had often wondered, amid the regular clamour for the business to sell spreads, who out there could afford to buy it, with no obvious trade buyer in sight. If a sale does happen, a buyer is more likely to emerge from private equity – and, before the results of the review were announced, there was already speculation buy-out houses like Bain Capital, CVC or Clayton Dubilier and Rice could be interested.

Reflecting on the set of actions Unilever announced yesterday, equity analyst Andrew Wood of Sanford Bernstein said in the investment bank's recent conversations with investors it had "identified a broad consensus" of what they wanted – and, he added, they "have all largely been addressed".

"We believe much of today's news was already in the stock, so we would not expect a major stock reaction today," Wood said. Unilever's shares close up just over 1%.

However, Alain Oberhuber, an analyst at Switzerland-based financial services firm MainFirst, described the results of the review as the "first step of the reshaping of the company". Oberhuber still believes Unilever could at some point look to sell more of its food portfolio, which are largely growing more slowly than its non-food assets.

And here is where, down the line, there could be some moves that, given Unilever's long-held rhetoric about the benefits of keeping food together with its home and personal care businesses, would catch the eye.

Unilever's announcement yesterday carried the admission "our dual-headed legal structure adds complexity" when embarking on moves like the exit from spreads.

The company, listed in the UK and the Netherlands, is to review its legal structure to achieve "greater simplification and strategic flexibility".

It added: "Looking ahead, we see it as important to create greater optionality for future strategic portfolio change."

Unilever's announcement yesterday also included a decision to combine its food and refreshment divisions – the latter unit houses its ice cream and beverage interests – in a single division, based in the Netherlands.

In a note to clients yesterday, Oberhuber wrote: "The question will remain whether Unilever will fully exit its foods business. The ice cream business remains a low-margin and slower growth category; the tea business is less significant and the Knorr business will only be a stand-alone food activity, which will be less vital for the overall group. Therefore, Unilever's announcement [on its] dual-headed legal structure with active portfolio management will raise more questions about Unilever's foods future."