Breakingviews - New Unilever CEO’s hard graft will come later

Toast with Marmite, a Unilever brand, sits on a kitchen counter in Manchester, Britain October 13, 2016. REUTERS/Phil Noble

LONDON (Reuters Breakingviews) - Alan Jope’s tenure at Unilever will be like the company’s popular British spread Marmite: smooth at first with a bitter aftertaste. The consumer giant’s new chief executive can cruise until 2020, but may then have to revisit controversial reforms to its dual-share structure.

Change at the top of the 130 billion euro company was expected: the Anglo-Dutch group has been planning for current boss Paul Polman’s retirement for a while. Jope, a Unilever lifer who runs its biggest division, beauty and personal care, takes over at the beginning of next year and will have Polman on hand for six months to help with the transition.

Jope will change little in the short term. Unilever’s strategy of raising its operating margin to 20 percent by 2020, from 17.5 percent last year, is sound. Its Amsterdam-listed shares have risen 4 percent this year compared with a one-third decline for Warren Buffett-backed Kraft-Heinz, which tried to buy Unilever last year. And Jope has the right skills to deliver Polman’s plan. His personal care business grew nearly 3 percent in 2017 excluding currency moves and M&A - faster than the second-biggest business food’s 1 percent expansion. Its 2017 operating margin of 21.1 percent is above where the whole group needs to be by 2020.

His challenge comes after that date. Unilever’s older businesses are growing more slowly than new entrants who can sell directly to consumers and also losing pricing power. Brokers Bryan, Garnier & Co reckon price hikes boosted sales by about 3.3 percent in 2012 but only 0.2 percent in the first half of 2018. Currently Unilever buys smaller business and folds them into the group’s vast marketing and distribution networks. Still, analysts expect its sales to barely grow next year, according to Refinitiv estimates.

One solution is to buy more brands in faster-growing businesses like skincare and vitamins. But Jope’s ability to pay for deals with shares will be constrained by Unilever’s odd dual-share structure. That was part of Polman’s reasoning for trying earlier this year to collapse the group into a single Dutch holding. That plan went nowhere because of a bruising fight with British fund managers who would have had to sell shares in the solely listed Dutch entity. Expect round two in 2020 after Jope has found his feet.


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