Unilever promises €5bn rewards scheme after Kraft approach

Unilever promised a multi-billion euro programme of shareholder rewards yesterday, after a corporate rethink sparked by a takeover approach from Kraft Heinz. It is aiming to prove it can generate lucrative returns as an independent company.

Under a restructuring sparked by the rebuffed $143bn (€134bn) offer by its US rival, the maker of Dove soap and Knorr soup set out an accelerated cost-saving plan, the sale of its Flora and Stork spreads business, where sales are declining, and a review of its dual-headed Anglo-Dutch structure. Unilever will also splash out €5bn on a share buyback and raise its dividend 12% this year. Unilever, one of Europe’s biggest blue-chip stocks, called the Kraft episode a “trigger moment” to assess its business, as the global packaged goods industry faces slowing growth and greater competition.

Some analysts had speculated it would split into two in a dramatic strategy reversal, but executives said the current plan was working, while needing to be speeded up. “We need to accelerate our plans to unlock further value faster, and this was brought home to us by the events of February,” chief executive, Paul Polman, said. “There is no doubt that, however ... opportunistic it (the Kraft approach) was, it did raise expectations,” Mr Polman said. Unilever executives said their strategy of long-term, steady growth had found support with investors, including all of the group’s top 50 shareholders.

GAM fund manager, Ali Miremadi, who manages two worldwide equity funds that are 2.5% invested in Unilever shares, said the announcement was in line with expectations. “They’re not stretching here, and nor should they. They’re in a very strong position and this is, hopefully, a sign they’re going to be a bit leaner and more shareholder-focused,” Mr Miremadi said, adding Unilever should be able to deliver the premium Kraft was offering, or more, over the next four or five years. Unilever’s shares were up about 1%. They have risen 20% since the start of the year. The group said it would speed up a cost-savings plan, targeting a 20% underlying operating margin, before restructuring expenses, by 2020, up from 16.4% on the same basis in 2016. The company previously forecast €4bn of savings, from 2017 to 2019, and has raised that to €6bn. That includes doubling the savings target within brand and marketing investments to €2bn, and increasing supply chain savings from €3bn to €4bn. About two-thirds of these savings are to be reinvested in the business. It also sees €3.5bn of restructuring costs over the three years. Unilever also said it would take on more debt, in part to finance acquisitions.

Reuters