Unilever takes aggressive stance for growth aims

By Neil Merrett

- Last updated on GMT

Related tags: Percentage point, Unilever

Unilever today announced it will cut
20,000 jobs, accounting for 11 per cent of its total
workforce, as part
of a new "aggressive" growth strategy
for its operations.

Through the strategy, the company plans to streamline its operations by making €1.5bn worth of cost cuts in a bid to lift it operating margins to above 15 per cent by 2010, the company stated. The company plans to make the job cuts, along with the sale of some of its operations and brands, such as its North American laundry segment. The company expects to make €2bn worth of divestments, with its slower performing divisions facing the possibility of being cut from the business. In commenting on the possible laundry sale, company chief executive Patrick Cescau accepted that while the business remained profitable, its potential for growth was limited. As such, Cescau stressed that even categories singled out as being important to the group's growth ambitions could face being sold off, if growth fails to take place. He added that in some cases, joint ventures may also be used in order to boost the performance of some of its brands. Planned divestments by the company are expected to contribute positively to its overall growth rate by about 0.4 percentage points. To improve its operating margins, Unilever announced it would also continue to streamline its regional operations by grouping some together in clusters. This has been carried out already for example in mainland Europe, where the group has combined its Dutch and Belgian operations. This strategy will be backed by reductions to the company's supply chain costs, as well as improved availability of its products to retailers. The announcements were made as Unilever reported that underlying half year sales were up 5.8 per cent to €20bn driven by its continued focus on cost saving measures throughout its brands and workforce. Expressed in current rates, profits were down by 4 per cent, though were unchanged on a like-for-like basis at €2.74bn for the period ending 30 June. However, operating margins improved by 0.3 percentage points to 13.7 per cent before the effects of restructuring. Cescau added that the latest half year results results reflected the beginnings of a turnaround in the group's operations, resulting from its drive for greater cost efficiency and brand expansion. "We set out this year to sustain our growth momentum and deliver an underlying improvement in operating margin,"​ he stated. "Despite rising commodity costs, we have started to see the benefits of growth coming through in the bottom line." ​Unilever's drive for innovation within its brands, particularly in dairy production, to tap consumer demand for nutrition benefits and strong sales throughout its personal care and food divisions were picked as particular highlights of the period. The company said it had also adopted a strategy of increasing pricing for its brands to further lift profitability during the current restructuring campaign. In Europe, underlying sales for the half rose by 2.6 per cent, though increased restructuring and disposal costs resulted in a 0.9 percentage point decline in margins for the half to 14.1 per cent. Strong sales of its brands in the Netherlands, Italy, Russia and Poland contributed significantly to the sales growth, while mixed results for its operations in France, Germany and the UK led to a generally improved performance in the region. In the UK, sales of deodorants, tea and dressings were all up, though a decline in market share for its haircare brands, and lower income of its ice cream ranges hit hard. By contrast, personal care and ice-cream performed strongly for the group in Germany, which posted improved market shares and sales throughout most of the group's brands. Ice cream and deodorants also resulted in moderate sales growth in France. The company's innovation ambitions in the region were focused on growing consumer demand for health and nutrition benefits particularly in food and beverage production. It announced the launch of high calcium Milk-time tubs, frusi frozen yoghurt, Solero smoothies and a new spread enriched with nutrients as examples of this focus. The personal care segment also boosted a range of new product launches including a clear anti-dandruff shampoo in Russia, and the Dove pro age​ range of personal care products aimed at the over 50's Through its America's division underlying sales rose by 4.9 per cent, though was down 2.1 per cent to €6.7bn in current terms. The reduced sales and continued investment in restructuring resulted in margin declines of 0.7 percentage points to 14.6 per cent for the period. A 4.9 per cent growth in sales through its US operations helped growth in the region, while modest improvements in Mexico and Brazil belied a strong half year for the division. Innovation within personal care, added a percentage point worth of growth to the regions sales, with new launches of spreads, teas and frozen meals also driving growth. Ice cream sales were down for the period though, but restructuring made during the half iss expected to turn the segment around for the full year, the group said. Asia Africa posted an 11.3 per cent increase in underlying sales to €5.7bn, with margins dipping slightly by 0.2 percentage points to 12.1 per cent, again on the back of higher restructuring and disposal costs. Highlights for the region, which the group estimates now represents 30 per cent of its entire income, were continued strong sales in emerging markets like India and China and product innovation. China proved a particularly important market for the company, with sales up by 20 per cent spurred on by the popularity of its tea, ice cream and personal care ranges. The group's operations in Indonesia and the Philippines were also a significant factor in growth. Unilever added that its innovation drive in the region reflected the strategy throughout many of its international operations, with dairy products again leading its food focus. The launch of the Becel brand of plant sterol enhanced margarines, and the extension of its Moo ice cream brand containing super absorbent calcium in Asia were picked by the group as examples of its focus towards changing consumer demand. Through its personal care brands, Unilever also announced the availability of Clear anti-dandruff shampoo in markets like China, Arabia, Egypt and Pakistan for the first time. As the company continues to drive innovation in its product portfolio along with its aims of a €1.5bn reduction in costs, Unilever said it expected sales growth for the full year to reach three per cent to five per cent. The group said its planned disposals, most notably in the case of its North American laundry segment, would help in these aims. In a further sign of its commitment to reducing outgoings, Unilever said last month that it would also move to restructure its management, by reducing the number roles by about 50 per cent. This will be extended to changes within its sales structure and a reduction in its offices to a single site in Surrey, England by 2008.

Related topics: Unilever, Manufacturers

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