Next Thursday, Unilever posts its full-year results. Few are expecting anything earth-shattering. But after a year of virtual purdah, its every word is likely to be pounced upon by the City and investors alike.
Most are predicting that it will post 2% to 4% top-line growth in like-for-like sales, but opinions are divided on underlying operating margins, given the impact of rising business costs and Unilever’s outlay on advertising last year, with some forecasting a fall and others a rise.
But the big question is: will it give a steer on strategy, particularly in relation to persistent rumours of an imminent takeover by a private equity group and plans for its frozen food business? And can it turn the corner as arch rival Procter & Gamble has done, the latter underscoring its advantage last week by posting a 29% leap in second-quarter profits in the wake of the Gillette deal?
Unilever’s lack of disclosure last year has not engendered much confidence. As one analyst puts it bluntly: “There has been less disclosure than from Nestlé - and that really tells you something.”
Few, however, see any credibility in the takeover speculation. “It’s absolute garbage,” says one. “They’d be looking at a 20% rate of return. Why do it? These guys work on 30%-plus. And it would be complex to break up.”
Trevor Gorin, Unilever’s head of UK media relations, refuses to comment on the takeover speculation and reiterates that a decision on the frozen food business will be made this quarter.
However, he admits that Unilever has not been as forthcoming as it might have been since its Path to Growth programme ended in 2004. “Clearly we hadn’t delivered growth at the end of the day. If you set 12 targets, inevitably you’re going to struggle to hit all 12. We ended up creating a straitjacket for ourselves. Last year we said we weren’t going to box ourselves in with new targets - we were more or less going to let the delivery do the talking. The new plan doesn’t have a name - we’ve learned our lesson about naming things.”
He won’t be drawn on next week’s results, but says: “Our intention is to be at least in line with market growth.”
In terms of strategy, he adds: “At the outset of 2005 we had four or five priority areas. One was developing in emerging markets and over the first nine months of 2005 we grew strongly. Personal care also grew. Vitality was another key area and we’re starting to see those products coming through. There’s also been steady improvement in North America.”
The big problem area for Unilever, however, has been Europe. Gorin concedes: “It’s a difficult situation. The market is not growing. For us a more comprehensive change than in other places was needed in, for instance, the way pricing positions were worked out. One of the things we didn’t do so well previously was play on our portfolio. We said we’d concentrate on big brands, but you have to have two or three working in tandem to set price across a category.”
Restructuring has been more complicated “for historical reasons”, he says.
Patrick Cescau, who took up the reins as group chief executive last April, has done a lot to streamline the business. “The upshot is that everyone is much clearer about where we are going,” says Gorin.
However, he adds: “Sometimes there are four businesses in one country. More needs to be done back of house. We’re where we expected to be, but there is a long way to go.”
He rubbishes suggestions that the company has not been innovative. “Maybe it’s a question of whether we’ve communicated it well enough.”
The answer is probably no, he concedes, nevertheless defending Cescau’s stance. “He’s different to Niall FitzGerald, who was more of a statesman. Cescau is focused on getting the business right and he’s got the team in place that he believes will deliver results in the end.”
As for unflattering comparisons with Procter & Gamble, Gorin is in no doubt as to the better horse to back in the long term. “It’s easy to compare us to P&G, but we were coming at things from different ends of the spectrum. They were mindlessly global and we were hopelessly local. I think it’s easier for us to go more global than for P&G to go in the opposite direction. What Cescau has done is start to get the balance right.”