Unilever’s plan A was to make a huge acquisition; plan B is not to make one, or at least not “for the foreseeable future”. Boardroom U-turns do not come much more screeching. Chief executive Alan Jope referenced a “strong message” from shareholders about their opposition to a £50bn tilt at GlaxoSmithKline’s consumer products division, but could equally have described the corporate equivalent of a riot in the ranks. Boards are expected to know when the investors have zero appetite for a “transformational” deal.
Drawing a line under the GSK misadventure won’t be easy, and will require more than a peace offering in the form of a two-year €3bn share buyback. At least the numbers for 2021 were a reminder of the basic solidity that comes with owning an international portfolio of big brands. At 4.5%, Unilever’s rate of underlying sales growth was the fastest for nine years, even if 2021 was a recovery year (especially in China and India) and many peers will be doing better.
Jope should also have a half-chance of quietening the grumbles about Unilever’s supposed obsession with seeking purpose in mayonnaise and suchlike. Come on, it’s the wrong complaint. Modern consumers, if not grizzly fund managers, expect brands to have a view on issues like food waste. Unilever’s problem isn’t “purpose” or “sustainability”; it’s the failure to convert those credentials into superior profits in the way that, say, Nestlé does.
Still, that entire debate looks trivial compared to what’s coming down the track – a serious bout of input cost inflation. In recent years, €100m-€200m has been the annual norm at Unilever, the sort of sum that can be lost in the wash of regular efficiency programmes. Now it’s staring at €3.5bn for 2022. Cue a warning that the whole lot can’t be recovered from consumers and that operating profit margins will fall to 16%-17%, from 18.4% in 2021. The already-abandoned target of 20% now feels distant.
The real test for Jope, then, is his ability to ensure a hiccup on margins doesn’t turn into something worse. The “bulk” will be recovered in 2023, he says, and the rest in 2024. That’s not quite a precise target, but it’s close to being one. And, since Unilever has been around the input inflation track in 2008 and 2011, the company ought to have a reasonably clear view of what’s achievable.
One assumes Jope will survive to lead the fight because the GSK mistake belonged to the entire board, especially invisible chair Nils Andersen. The delivery of operational targets, on the other hand, is obviously the executives’ responsibility. Investors will tolerate some temporary margin erosion in exceptional circumstances, but any diversion from the new virtuous path of day to day predictability would risk another uproar. Keep things boring.
Public accounts committee criticises HMRC’s Covid fraud-chasing abilities
The Public Accounts Committee has clearly hit a raw nerve with today’s highly critical report on HMRC’s Covid fraud-chasing abilities. The response from government came quickly and furiously: no fraudulent payments have been written off and the new taxpayer protection taskforce, a Rishi Sunak creation, is expected to recover £800m-£1bn. So don’t call us ignorant or inactive.
Who’s right? Well, it’s fair to cut HMRC and the government some degree of slack. Covid support schemes such as furlough and Eat out to help out were conceived in emergency conditions and were designed to get money out of the door quickly. It was accepted that there would be more leakage than normal, and there’s no point denying history now.
Yet the numbers here are enormous. HMRC currently expects to recover only £2bn of the £6bn in Covid grants it estimates has been lost to error and fraud in 2020-21. A £4bn gap – and probably more when the 2021-22 estimates are added – deserves a fuller explanation than any we’ve heard already.
Indeed, the plea from government that an “estimate” of a loss is not the same thing as a write-off sounds suspiciously like an attempt to manage expectations. The MPs on the committee are not obliged to play along with it. They should keep pushing.
• This article was amended on 11 February 2022 to correct the headline figure to £50bn, from $50bn, and to correct a photo caption implying that Marmite and Dove are owned by GSK.
