Unilever to change strategy
LONDON England (Reuters) -- Anglo-Dutch giant Unilever switched its focus to boosting shareholder returns Thursday after failing to meet sales growth targets, lifting its stock, and said Chairman Niall FitzGerald would retire early.
Unilever Plc/NV, the food and consumer products group with brands like Knorr soups, Lipton tea and Dove soap, posted full-year profit at the top end of forecasts but admitted it would fall short of meeting its sales target.
The world's third-largest food group, home to Slimfast weight-loss aids, Ragu sauces and Hellmann's mayonnaise, said it would switch to a greater focus on share buybacks and dividend rises to boost overall shareholder returns as its debt falls.
FitzGerald, one of the major architects of its five-year path to growth strategy, will retire one year earlier than expected on September 30 as chairman of Unilever Plc, and be replaced by Patrick Cescau, head of Unilever's foods division.
FitzGerald said Unilever's path to growth strategy would hit its targets on margins, cost savings, cash flow and debt reduction but would not meet the target of five to six percent sales growth from its 400 leading brands during 2004.
"I am disappointed we have not achieved the top line growth target but we have achieved 9-1/2 out of ten for our path to growth strategy. We have now responded to shareholders to target enhanced shareholder value," FitzGerald said in an interview.
The world's number three food group after Nestle and Kraft Foods Inc outlined that it now looked for sales growth of three to five percent in the period 2005-2010, to improve operating margins by 2.5 percentage points and target earnings growth of between eight and 12 percent.
Investors welcomed the focus on boosting returns. Unilever Plc shares in London rose 3.5 percent to 551-3/4 pence by 1020 GMT and Unilever NV shares were up 3.57 percent to 56.60 euros in Amsterdam -- their highest since June and May 2003 respectively.
Unilever Plc stock has underperformed the FTSE 100 index by nearly 15 percent over the last year after two warnings during 2003 of slower sales growth.
Unilever said when its current debt of 12.6 billion euros falls to 10 billion euros it will move to "enhance shareholder returns" which investors took to mean a share buyback programme and/or increased dividends.
FitzGerald's early retirement is likely to fuel persistent speculation that he is favorite to be appointed as the next chairman of news and information company Reuters Group Plc, where he is already a non-executive director.
Reuters, due to announce a successor to long-standing Chairman Christopher Hogg by its annual general meeting in April, declined to comment, while FitzGerald declined comment and said he will be focusing on Unilever until September.
"We are not going to comment on the appointment of the next chairman until that appointment is made," a Reuters spokeswoman said.
Unilever reported 2003 net profit before exceptional items and amortization (BEIA) of 3.923 billion euros ($4.97 billion) at current exchange rates, while at constant rates net profits BEIA rose to 4.277 billion euros at the top end of forecasts of 3.531-4.288 billion euros.
"Looking ahead to 2004 we see an improved picture for the business with leading brand sales growth back ahead of three percent while margins should continue to show improvement," said analyst Andrew Saunder at Numis Securities, adding the shares look good value on an improved future growth outlook.
"The news of Niall FitzGerald's impending retirement in September 2004 is not unexpected given the Path to Growth programme will be drawing to a close and we welcome the appointment of Patrick Cescau as his successor," he added.
Unilever's top 400 brand sales grew at 2.5 percent in 2003 after an October warning they would grow less than three percent. The original target had been for five to six percent growth by 2004. Earnings per share (BEIA) grew 11 percent, in line with its target of low double-digit percentage growth.
For 2004, Unilever expects improved growth of its top brands from 2003's 2.5 percent and operating margins over 16 percent and low double-digit percentage earnings growth, with just the top brands failing to meet its path to growth targets.
The Unilever Plc 2003 dividend rose 13 percent to 18.08 pence a share and the NV dividend by two percent to 1.74 euros. ($1-.7891 Euro)
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