Unilever packaging

LONDON – Food and beauty will remain a double act at Unilever, which laid out a series of new strategies following an aborted takeover bid by rival Kraft Heinz in February.

On Thursday, the owner of brands as diverse as Dove, Dermalogica, Knorr and Hellmann’s revealed the results of quick-and-intense strategic review, vowing to dispose of its struggling spreads business and fuse its food and refreshments divisions.

It also promised to re-examine its legal structure and dual listing, in London and Amsterdam, and to grow profits in the double-digits by 2020.

Unilever set a share buyback of 5 billion euros, or $5.34 billion at current exchange, this year and plans to raise its dividend 12 percent, reflecting “increased confidence” in the outlook for profit growth and cash generation.

The corporate giant, which had total turnover of 52.7 billion euros, or $56.39 billion, in 2016, was spooked by the abrupt advance from Kraft Heinz, which it immediately rebuffed. Just days after Kraft Heinz abandoned its bid, Unilever hit the road, spoke to shareholders and formed its future plan.

The big news that shareholders and analysts were waiting for was the decoupling of the food and personal-care businesses.

Personal care is Unilever’s single largest division, with turnover last year of 20.2 billion euros, or $21.61 billion, while food and refreshment combined were 22.5 billion euros, or $24.08 billion.

Dollar figures have been converted at average exchange rates for the periods to which they refer.

As part of the new strategy, food and refreshment will be combined into one unit, which Unilever said would lead to a “leaner, more focused business that will continue to benefit from our global scale and footprint.”

During a call Thursday morning, chief executive officer Paul Polman fielded multiple questions about why Unilever wants to keep food and beauty working together.

“Food and personal care help each other to develop business in emerging markets,” said Polman.

Although they may appear to be strange bedfellows, Unilever’s food and personal-care products are often grouped on the same stalls and trolleys in countries that rely on networks of small-scale vendors rather than on supermarket giants.

Polman added that food and personal “can create enormous value together.” He pointed to business and back-office synergies, talent attraction and the still unlocked potential in emerging markets.

“The opportunities [for both divisions] are better in-house than with others,” he said.

Unilever stock closed up 0.9 percent on the London Stock Exchange Thursday at 39.73 pounds, or $49.51 at current exchange.

Polman also said the company would review its complex legal structure: It trades publicly both as Unilever plc and as Unilever N.V. The point, in addition to simplifying operations, would also be to facilitate sales and acquisitions, and in particular the disposal of the profitable – but already mature – spreads business.

A sale or spin-off is set to be completed by the end of the year. The spreads business has sales of 3 billion euros, or $3.21 billion at average exchange, and profits of 80 million euros, or $85.6 million, last year.

Polman said there is scope to grow and expand it, although the future of that business lies “outside the group.”

The spreads brands – such as Flora and Stork – won’t be the only ones in play. Polman was bullish about future mergers-and-acquisitions activity.

He said Unilever had a golden opportunity to accelerate value delivery in the short term, and said it was “critical” the company manage its portfolio through acquisitions and disposals.

“The deal pipeline will become increasingly active,” Polman said. “Opportunities will come and go quicker than in the past,” and Unilever will have to be vigilant if it wants to snap up – or get rid of – the right brands.

He added that the personal-care category would grow largely through “global innovations,” premium positioning, and high-growth segments and channels. The company owns brands including Dove, Vaseline and TreSemmé.

It also has a separate investment arm that has taken stakes in premium businesses such as Living Proof, and skin-care brands Murad, Kate Somerville and Ren.

Unilever said Thursday it was committed to compounding growth and sustainable value creation, and was targeting a 20 percent underlying operating margin, before restructuring, by 2020.

The Kraft Heinz deal would have offered Unilever shareholders $50 per share in a mix of $30.23 per share in cash payable in U.S. dollars and 0.222 new, enlarged entity shares per existing Unilever share, which valued Unilever at a total equity value of approximately $143 billion.

The deal would also have added a portfolio of beauty and personal-care labels to Kraft, which owns food brands such as Oscar Meyer, Kool-Aid and Jell-O. Unilever rebuffed the offer, saying it did not properly value the company.


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