Unilever looks to go 'faster and further'

by Eric Schroeder
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Unilever food and beverage - Knorr, Lipton
Unilever will combine Foods and Refreshment into one organization.

LONDON — While an extensive review of the company’s model of long-term shareholder value creation has been shown to be as successful and valid as ever, Unilever P.L.C. on April 6 said the pace of change in the marketplace is leading the company to make changes. Among those changes are the decisions to combine Foods and Refreshment into one organization and sell the company’s Spreads business.

Paul Polman, Unilever
Paul Polman, c.e.o. of Unilever

“With the transformation of Unilever, we have built on a portfolio of strong and growing brands delivered to consumers across the world,” said Paul Polman, chief executive officer. “We have established a responsible investment-led growth model that is well-equipped with global scale and unrivaled distribution strength in emerging markets. This has resulted in consistent, competitive, profitable and responsible growth and attractive returns for our shareholders. The faster pace of change that we are seeing in our markets and competitive set requires us to continue to set the bar higher.”

Mr. Polman said Unilever’s review of operations revealed that the company’s strategy for growth is the right one, but also highlighted an opportunity “to go faster and further.” Specifically, he said progress made with Connected 4 Growth (C4G) will allow Unilever to accelerate the program.

Unilever Flora margarine
Unilever plans to sell its Spreads business.

Launched last year, C4G is a restructuring initiative under which Unilever plans to increase its penetration in fast-growing categories and markets, evolve its portfolio through acquisitions and develop more channels to sell its products. 

The next step in the program will be creating an integrated Foods and Refreshment unit, Mr. Polman said. The unit will be located in The Netherlands, which is the center of Unilever’s European Foods business and where the company already has a research and development facility.

Mr. Polman described the unit as a “leaner and more focused business unit that will continue to benefit from our global scale and footprint.”

“This acceleration allows us to unlock sustainable value faster and target an overall underlying operating margin, which excludes restructuring, of 20% by 2020,” he said. “Progress and performance will be reported on with greater granularity in our financial communication.”

Unilever spreads - Country Crock, I Can't Believe It's Not Butter
Unilever has decided the future of the Spreads business lies outside the group.

Unilever’s review also highlighted an opportunity for accelerated development of the company’s portfolio. To that end, Mr. Polman said the company has decided the future of the Spreads business lies outside the group.

“We will accelerate the active management of our portfolio through bolt-on acquisitions and disposals,” he said. “In 2015 we set up a separate Baking, Cooking and Spreads unit to allow greater focus on the issues facing the business. The unit has responded well to this focus, reducing costs, increasing cash generation and holding market share. However, the underlying category remains challenged in developed markets, and we have now taken the decision to launch a process to either sell or demerge Spreads.

“Looking ahead, we see it as important to create greater optionality for future strategic portfolio change. As we evaluated the alternatives for our Spreads business, it was apparent that our dual-headed (Unilever N.V. and Unilever P.L.C.) legal structure adds complexity when undertaking such changes. Accordingly, we will review our legal structure with the objective of achieving greater simplification and strategic flexibility. As part of this review, which we expect to complete by end of 2017, we will investigate and take actions, if appropriate, that assist in implementing that corporate structure change.”

Mr. Polman said Unilever is maintaining its full-year outlook and underlying sales growth of 3% to 5% and intends to increase its dividend by 12% for the coming year. He said the company also intends to launch a share buy-back program of $5 billion in 2017. 
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