LONDON — Having survived the chaos of 2020 and grown modestly due to demand for hand gels and other personal hygiene products, Unilever is now hunting for high-growth investments in prestige beauty and nutrition, and focusing on the mega-markets of the future — the U.S., India and China.
Unilever’s chief executive officer Alan Jope also wants the consumer giant to be “the global leader in sustainable business,” and a digital powerhouse as the group continues to target underlying sales growth of 3 to 5 percent in the medium term.
The parent of brands ranging from Magnum and Domestos to Dove, Pond’s and Kate Somerville reported underlying growth of 1.9 percent and a revenue decline of 2.4 percent to 50.7 billion euros, primarily driven by currency headwinds, in fiscal 2020.
Profits were up a modest 0.8 percent to 6.1 billion euros in a tumultuous year that saw entire product categories decline, including personal care (people weren’t shampooing their hair, or using deodorant as often due to life indoors), and ice cream as hot weather resorts and beaches were shut due to social distancing or travel restrictions.
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The crisis forced Unilever to think and act quickly, although the next months could be just as testing as the company looks to reshape itself into a more focused, and more ethical, growth machine.
During a call with analysts on Thursday, Jope’s messaging was direct: The Unilever of the future is about faster growth — through acquisitions, a sustainable mindset, robust b-to-b and b-to-c digital channels, and targeting the world’s most dynamic markets.
Jope’s plan is to focus on specific categories: hygiene, skin care, prestige beauty, functional nutrition and plant-based foods. He said “the lion’s share of investment” will flow into those categories.
“Our prestige unit is now the best-performing luxury beauty business in the market, with brands such as Dermalogica and Tatcha building our scale to what is now a 700 million euros business,” the CEO said.
The functional nutrition business, he added, is on course to deliver “well over” a billion euros in 2021. Among the brands in that portfolio is the California-based Olly Nutrition and the traditional British malted milk powder Horlicks, which Unilever has since fortified with zinc, to boost immunity.
Jope noted that while prestige and functional nutrition generate “just 4 percent of our turnover, we expect them both to contribute disproportionately to our growth in the future.”
Prestige beauty, a high-growth, high-margin, aspirational category where Jope has always been keen to play, stood out last year for another reason: More than 50 percent of sales in prestige beauty came from e-commerce, compared with Unilever’s overall figure of 9 percent.
Amy Rollinson, analyst at Euromonitor International, noted that Unilever’s expansion of its premium portfolio into China “offers opportunities for growth, as does its bath and shower portfolio, which has a strong leaning towards hand hygiene.”
The straight-talking Jope also admitted that Unilever had been outbid for “some prestige beauty targets that we were going after last year. But frankly the valuations just ran beyond what we thought was financially responsible.”
One of those acquisitions was most likely Charlotte Tilbury, which Unilever was known to be bidding for. In the end, the color cosmetics powerhouse went to Puig and BDT Capital Partners for a reported price of 1.2 billion pounds.
Disposals, Jope added, could also play an important role “in shifting the portfolio. We’re open to disposals where we see them as value-creating and we will continue to be very choosy with regard to acquisitions.”
He emphasized that there are “no annual targets” for what Unilever will acquire or dispose of, and said that in the long term, the company will likely end up being a “net acquirer.”
Jope didn’t directly address a report in Bloomberg last week that Unilever has hired Credit Suisse Group AG to look into an asset disposal of noncore beauty brands in the U.S. and Europe — but he came close.
“We are evaluating options for some of our smaller, BPC (beauty and personal care) brands as we continue to actively manage our portfolio. These brands are predominantly sold in Europe and/or North America, and are being transitioned to the leadership of a new management team which will give them dedicated focus to step up their growth and value creation. You might have seen some speculation about this in recent days, and I want to be clear that no final decisions about their long-term future have yet been taken.”
According to industry sources, the brands being floated are a mix of U.S. and U.K. names, and could include Simple, a mass skin care brand that Unilever inherited after buying Alberto Culver in 2009.
Unilever has already sold off noncore categories such as spreads, and is in the process of divesting its tea business, which grew in the “low single digits” in 2020.
Pierre Tegnér at Oddo BHF noted in a report on Thursday that the exit of the tea business “is well on track. All options are on the table: Disposal, spin-off or IPO. Management is clear on the fact that further choices can be made, and in our opinion, ice cream could be the next candidate as it has not been identified as a key segment.”
Unlike some analysts — and investors — Tegner heralded Unilever’s 2020 results, describing the company as “much more agile than expected,” and “building upon a healthy basis set in the second half of 2020.”
However, the market was unimpressed with the group’s performance, with shares closing down 6.2 percent at 40.67 pounds on Thursday.
Sustainability remains top of the agenda for Jope, who said he wants Unilever to be a global leader in the field.
So passionate is the CEO about the company’s green goals that he has announced plans to put Unilever’s climate strategy under the noses of shareholders and to seek “a nonbinding advisory vote” on the consumer giant’s emissions-reduction targets, and Unilever’s plans to achieve them.
Unilever said it will share its climate-transition action plan with shareholders in the first quarter of this year, ahead of its annual general meeting on May 5. The plan will be updated on a rolling basis, and Unilever will seek an advisory vote every three years on any material changes made or proposed to the plan.
The first year the company will report on its annual progress against the plan will be 2022.
Jope is also adamant that a “purpose-led, future-fit business model drives superior performance, consistently delivering financial results in the top third of our industry.” He said that businesses with ESG at their heart are more profitable, and can attract better talent.
“It is unequivocally clear that purposeful brands are growing faster,” than those without specific ESG-related targets, and that “sustainable businesses drive growth,” he said, adding that Millennials and Gen Z are the ones demanding that businesses take a stand and deliver on green goals.
As reported, Unilever’s science-based targets include zero emissions from its own operations by 2030 and a 50 percent reduction in the average footprint of its products by 2030. In June 2020, Unilever revealed a new target of net zero emissions from sourcing to point of sale by 2039.
Unilever also plans to push into fast-growing geographies and leverage its emerging markets strength.
The company noted that 35 percent of its turnover comes from the U.S., India and China alone, “and we believe we can bring sharper focus in those geographies and build even stronger positions. There is also significant opportunity beyond these markets and we will continue to build on our strong operating businesses in the world’s fastest-growing economies,” it said.
Unilever’s digital push will also gain momentum.
Unilever’s e-commerce sales grew 61 percent in fiscal 2020 due chiefly to the fact that physical stores were shut. Now the company plans to bulk up e-commerce; digitize its trade and wholesale business; and focus on gathering and crunching data as quickly and efficiently as possible “as the consumer and customer landscape continues to evolve.”
Rollinson of Euromonitor International said that Unilever “must accelerate its e-commerce and digital offerings, which have been somewhat limited in the past as a means to engage consumers and drive growth. Communication of their strong CSR efforts will also remain key as beauty consumers increasingly look for brands with purpose.”