ALEX BRUMMER: Unilever boss Alan Jope needs to think bold rather than just relying upon emerging markets
Unilever is something of a bellwether for the global economy. When world output stutters – as has been the case in 2019 – its sales suffer.
One might have thought this was obvious to the Anglo-Dutch consumer giant’s executives, but apparently not.
Missing the sales growth target of 3 per cent to 5 per cent for the final quarter of this year stretching into the first half of 2020 has not pleased investors and led to a precipitous 7 per cent share price drop.
Excuses: Unilever chief exec Alan Jope has missed the sales growth target of 3 per cent to 5 per cent for the final quarter of this year stretching into the first half of 2020
Chief executive Alan Jope says that competition in the ‘big tub’ ice cream market in the US is tough, and there has been a slowdown in India and West Africa.
Excuses, excuses. In an age of activist investors even the biggest beasts cannot afford a slip-up. Swiss food rival Nestle has activist investor Dan Loeb’s firm Third Point crawling all over it and knows the risk of underperforming.
Small wonder that the Unilever board was keen in 2018 to hide its share quote in Rotterdam where it would be better protected by Dutch institutions, away from rip-roaring capitalism in London and New York.
What Jope and the Unilever board must now contemplate is whether it is time to reshape. The response after the failed Kraft Heinz bid was to kiss goodbye to slower moving spreads brands such as Flora.
One approach now might be to think about discarding some of the older tried and tested but tired lines. Knorr, Hellmann’s and Lipton have been mentioned.
That would create space to give more marketing welly to the boutique brands such as Pukka herb teas, increasing exposure to the hipster, natural sector.
Something even bolder may be required. Instead of collecting brands – there have been 34 acquisitions in recent years – Jope should be plotting fundamental change.
In a relatively short time Emma Walmsley has totally reshaped Glaxosmithkline, reinvigorated the shares and plans to spin off the jointly owned consumer health division as soon as 2021.
In the US, huge investment is piling into the meatless food market, with International Flavors and Fragrances (IFF) splashing out £20billion on Du Pont’s nutrition and biosciences arm. Being part of the fast-moving consumer goods market requires fleetness of foot.
Jope should seize the moment rather than just relying upon 60 per cent of income from emerging markets to propel expansion.
Mending the roof
Jeff Fairburn can thank his lucky stars that Labour’s eyes did not alight on his greed and that of his fellow directors at Persimmon during the election campaign.
The boardroom culture at Persimmon was ill-judged, with all the focus on boosting the share price at the expense of customers resulting in construction of rotten homes.
Chairman Roger Devlin deserves credit for confronting the problem. The report from the independent review panel headed by Stephanie Barwise QC is devastating.
It found a company far more concerned with buying land and selling the houses it built as quickly as possible – boosting the income of executives – than producing quality houses.
Barwise found systemic problems, such as missing cavity barriers, which could have rendered every home a fire risk.
There was scant attention to the quality of the build. Doubtless Persimmon is moving heaven and earth to address the problems and has invested £140million in a customer retention scheme. In context, Fairburn received £85million in bonuses over two years.
The change in corporate culture comes from the top and, regrettably, it is Fairburn’s right-hand man David Jenkinson, who received a £40.5million bonus from the same incentive scheme, who is in charge.
The current chief executive may now be the most modestly paid housebuilder in the sector but he already has enough cash with his wealth manager not to worry.
Holding back the release of homes until they are meticulously checked is now standard practice. But the idea that the culture has been mended, or ever can be, when Jenkinson is at the top is hard to imagine.
The notion of the audit watchdog, the Financial Reporting Council, doing anything ‘radical’ used to be an oxymoron.
But under the threat of extinction it has acted to ban the big accounting firms from providing recruitment, remuneration or due diligence to listed companies and other entities they audit.
The potential for conflict of interest has been obvious since the financial crisis. The Big Four audit firms could see partnership rewards ravaged. Not before time.