For all the corporate drama at Unilever, shareholders had relatively little to complain about in 2024. Revenue growth was good, profit margins were heading in the right direction and the FTSE 100 group delivered a total return of 24 per cent in the year, ahead of its bigger American rival Procter & Gamble at 17 per cent. Yet its chief executive, Hein Schumacher, has been pushed out after only 20 months in the job.
Unilever, which owns a huge stable of brands ranging from Dove soap to Hellmann’s mayonnaise, had been undergoing one of its many transformation plans under Schumacher — its “growth action plan” to boost productivity and get its growth back on track. It was the latest in a series of big strategic revamps, after a “sustainable living plan” in 2012, “connected 4 growth” in 2016 and “compass for sustainable growth” in 2020.
It had been progressing well, with a sharper focus on its best brands, improving sales and the imminent spin-off of its £13 billion ice cream division. In 2018 its return on invested capital, which measures how effectively it profits from its investments, stood at 28.9 per cent. Last year this stood at 18.1 per cent, though that marked an improvement of almost one percentage point against 2023. Gross margins have improved too, at less than 40 per cent in 2022 to 45 per cent at the end of last year.
The decision to appoint the chief financial officer Fernando Fernandez as chief executive appears to be down to his management style — the Argentinian, who has been at Unilever since 1988, is reported to have a more “maverick” approach. The theory is that he is perhaps less worried about unsettling people if necessary and could achieve better and faster results.
No doubt his in-tray will be overflowing, especially as shareholders ramp up pressure on the group to slim down. Unilever has been pursuing a listing of its ice cream division in Amsterdam and, under Schumacher, pledged to sell up to £1 billion in food brands. It has already sold off chunks of its food business over the past decade, including spreads and tea.
The ice cream business was an obvious target, given it is much less profitable than the rest of the group, partly because of the expensive freezing process. Its operating profit margin stood at just under 7 per cent last year, compared with an average of 16.7 per cent in the four other divisions.
But Fernandez is likely to face further calls to spin off its €13.4 billion food business, too. It is not hard to see why: such a move would leave a more homogeneous beauty, personal care and home care group, though there are some worries that removing the food division from Unilever’s vast and interconnected supply chain could be a headache.
Unilever still benefits from very strong brand power — Dove alone generated roughly €5 billion in sales in 2024. More than half of the group’s turnover comes from emerging markets, with a particularly strong presence in India, China, Brazil and Indonesia, so it should benefit from rising levels of consumption in most of these countries. As such, Unilever remains a popular investment among pro stock pickers, including the fund manager Terry Smith, who told investors last week he thought the move to replace Schumacher was “good news” for shareholders, describing Fernandez as “basically dynamite”.
Since this column last rated Unilever as a hold, the shares have nudged up 3 per cent, though not without a few wobbles in between. The stock now trades at 17.2 times forecast earnings, broadly in line with its average of 17.9 over the past five years. The sudden change in chief executive does bring considerable uncertainty to the group, especially as Schumacher was delivering results. The board seems to hope that Fernandez will be able to move fast and break things, but a more patient approach may be better suited for the £116 billion behemoth.
Advice Hold
Why Good turnaround progress but change of chief executive is risky
WPP
WPP, one of the world’s biggest advertising groups, had a painful drop on the stock market last week, losing £400 million from its market value. The FTSE 100 business has been struggling with weak demand for ads for a while, but a warning of an even worse than expected decline in organic revenue has scared some investors off. With the shares now languishing at around their lowest level in four years, is there an opportunity for value investors at hand?
The results were underwhelming to say the least: overall revenue fell 0.7 per cent to £14.7 billion in 2024, with pre-tax profit down 3.8 per cent to £1.5 billion. Mark Read, who took over as chief executive from Sir Martin Sorrell in 2018, said the group expected revenue to stay flat this year, taking a cautious outlook on the global economy given the possible impact of trade wars and higher inflation.
China, which is WPP’s fifth biggest market, continued to be a thorn in its side. While like-for-like revenue dropped by 2.7 per cent in the UK and 0.7 per cent in North America, in China it dropped by 20.8 per cent.
WPP is still a powerhouse, with a huge blue-chip client base, including the likes of eBay, Warner Bros Discovery and Levi’s. But it looks like triggering more meaningful growth may be difficult, which is reflected in a lowly forecast price to earnings multiple of just 7.1. That is in stark contrast to its French rival Publicis at 11.4, as well as Omnicom and IPG, which are in the process of merging, at 9.5 and 10 respectively.
Consolidation in the sector may be the best way to stimulate returns, and the recent $31 billion Omnicom-IPG deal has set a helpful precedent, though a competitor of this size will be difficult to go up against. WPP itself has been the object of takeover speculation over the years, but without a more meaningful catalyst for growth, the low price tag on the stock looks justified.
Advice Hold
Why No significant growth catalyst
