Hein Schumacher, Unilever’s new-ish chief executive, has already dialled down the worthy corporate sermons on social purpose. Now he’s ditching the ice-creams, including the famous names of Wall’s, Magnum and Ben & Jerry’s, and shedding 7,500 jobs elsewhere. Is this the hard-headed change of direction that shareholders, muttering about a sleepy share price and complacency in the boardroom for at least a decade, have been demanding? Well, possibly. But the script also has a familiar feel.
Remember that Schumacher’s two predecessors also tried slimming the corporate beast by offloading parts that were deemed low-growth or strategically challenged. Paul Polman, fresh from his close encounter with Kraft Heinz’s would-be takeover merchants in 2017, offloaded the Flora and Stork spreads business. In its way, that was a more radical move because spreads were a core part of the original Dutch end of Unilever. Alan Jope sold the PG Tips tea business, which also had a lot of history behind it.
Ice-cream is a bigger part of Unilever – providing annual turnover of €7.9bn (£6.7bn), or 13% of revenues – and one can understand the rationale for exiting. A seasonal product that ties up capital in thousands of freezer cabinets can be viewed as a misfit among the shampoos, soaps and sauces. The operation is also far more European than the beauty, personal, home and food divisions, most of which have a heavier tilt towards emerging markets.
But a demerger alone creates no value because shareholders are simply handed what they already own, albeit in tradeable form, and must shoulder a bill for separation costs. The point is that neither of the last two disposals noticeably made the rest of Unilever run faster. One assumes the real hope is that a private equity firm makes a clean offer for the ice-creams, as happened with both spreads and tea – but that is not what has been announced so far. (Nor, incidentally, will separating ice-cream do anything for Unilever’s Russian headache: those assets can’t be included in a separation, so the disgrace, as this column sees it, of Unilever paying corporate taxes to a Russian state waging war in Ukraine will continue.)
The test of Schumacher’s promise that the group is capable of better financial returns will really be his “growth action plan”, meaning the 10-point strategy to give the place a kick, starting with fewer employees, especially in office-based roles. A target of €800m of cost savings over the next three years sounds suitably large, even for a company of Unilever’s size. But, again, outsiders have heard such declarations by former managements, usually in the same leaden language of “technology-led interventions”, “process standardisation” and “operational centres of excellence”. The leaner version of Unilever never quite seems to emerge.
Schumacher may be the boss who finally makes it happen, of course. He has Nelson Peltz, feared activist, breathing fire from the boardroom by way of encouragement. Even Terry Smith of Fundsmith, a top Unilever critic in recent times, sounds more upbeat about his investment. And one likes the fact that Schumacher has resisted (so far, at least) calls from some quarters for a sale of the entire food division, Knorr and all. Better to improve the assets you think can be improved. It’s also to his credit that he hasn’t set rigid targets for operating margins; predecessors tried that game and failed.
But turning around Unilever still looks a long business. Demerging ice-creams probably helps at the margin, but the day job is about using the cost savings to make the sales line move faster. There are a lot of good intentions, but Schumacher hasn’t licked it yet.
