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“The quality of our growth, productivity and returns have all under-delivered.”
Unilever shareholders must have been quietly reassured to hear new boss Hein Schumacher deliver his scathing assessment of the company’s performance a few weeks back.
There are plenty of big British corporations that fail to live up to their billing but the cuddly £93bn bleach-to-ice-creams-maker has turned mediocrity into a fine art.
Its shares haven’t just gone nowhere in the last five years. They are down 11pc, which tells you precisely what investors think of its prospects despite Unilever owning some of the most recognisable food and household brands on the planet.
It is a company absolutely crying out for real change – so to hear Schumacher deliver a few home truths must have been reassuring.
It may not be quite the devastating rebuke that Rolls-Royce boss Tufan Erginbilgic had for colleagues when he described the engineering giant as a “burning platform” but in the handful of public outings that Schumacher has made, he has sounded like someone ready to embark on a long overdue shake-up.
Shareholders were rightly never convinced by Schumacher’s saintly predecessor Alan Jope. The decision to launch a £50bn takeover bid for Glaxo’s consumer goods empire exposed the extent to which this was a board not just short of ideas but one that had failed to understand Unilever’s problems.
This was a company in need of shrinking and simplifying, not more scale and complexity, and certainly not the massive risks that come with trying to absorb a giant merger. Once Jope had shown his hand, it was only a matter of time before he stood down.
Yet the share price has fallen a further 7pc since Schumacher took over in July, which suggests the City remains far from convinced that Unilever’s fortunes are about to undergo a dramatic improvement on his watch.
And no wonder. Six months in and there are few signs of meaningful action.
The sale to private equity on Monday of its Elida Beauty business – home of more than 20 brands including Timotei shampoo and Q-Tips cotton buds – has understandably elicited a resounding shrug of the shoulders from investors. Its shares rose 0.5pc in response.
The deal fetched £700m, which is the equivalent of a rounding error at a company that posted annual turnover of €60bn (£51bn) last year. It will also do nothing to address Unilever’s persistently sluggish growth.
There are two complaints about Unilever that Schumacher needs to address quickly, or calls for a break-up will become deafening. The first is that it has become too big and the drawbacks from its size increasingly outweigh the benefits.
With more than 400 brands all under one roof, it’s a charge that becomes harder to refute with every set of lacklustre results.
The company insists the diversity that comes from being in home care, personal care, and food has helped it to weather downturns in certain sectors.
It has been broken down into a total of five divisions with individual profit and loss accounts, all of which share research and development, marketing and human resources functions. There are tax benefits to keeping them together, too.
But ultimately the set-up is incoherent and the concern is that it has resulted in a lack of focus that has led to many of its brands becoming neglected. As Barclays analyst Warren Ackerman recently noted: “If you created Unilever from scratch today, you probably wouldn’t come up with this.”
Meanwhile, Bernstein’s Bruno Monteyne has argued that there is a “need to address structural and cultural issues that cause Unilever to resort to mediocrity endlessly”. With Schumacher expressing a desire to focus on 30 so-called power brands, what will become of the others? Perhaps a break-up is inevitable.
Schumacher has said that Unilever will no longer seek to “force-fit” all of its products with a social purpose, which is reassuring. The other concern that quite rightly plagues Unilever is that it continues to prioritise woolly causes above the more mundane business of making a profit, which would be fine if it was a charity but it’s not.
That’s not to say big corporations shouldn’t be trying to cut down on waste or reduce their carbon footprint but Unilever has taken it to farcical extremes with its attempt to imbue every product it makes with a social purpose. Jope’s claims that such evangelism ultimately boosts long-term profitability never stood up to scrutiny.
The Dutchman has to grasp the nettle, and grasp it quickly. If he doesn’t then sleepy Unilever will surely have change foisted upon it as investors finally run out of patience.
After all, this is a company whose shareholder register includes the feared Wall Street activist Nelson Peltz, who despite successfully campaigning for radical change at some of Unilever biggest rivals including Procter & Gamble, Heinz and Mondelez, has been handed a seat on Unilever’s board.
Seriously, how did anyone think that was a good idea? Talk about allowing the fox to guard the hen house.
Schumacher needs to do better than a recent boast to analysts about how the company’s 261 tomato soup recipes have been whittled down to 100. Without a genuine overhaul, Unilever is sleepwalking into a painful reckoning.
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