Unilever’s aborted Rot­ter­dam plot still jars with in­vestors

Paul Pol­man needs cheer­ing news next week to wash away the bad taste of a new pay plan and its Dutch farce, writes Rob Davies

The Observer - - Comment & Analysis -

The safest course of ac­tion af­ter a hu­mil­i­at­ing de­feat at the hands of your own share­hold­ers is to duck be­low the para­pet and get on with your day job. Un­for­tu­nately for Unilever, maker of house­hold sta­ples from Dove soap to Hell­mann’s may­on­naise, keep­ing a low pro­file isn’t go­ing to be an op­tion for at least an­other week.

Chief ex­ec­u­tive Paul Pol­man scrapped plans last month to sim­plify the com­pany’s An­glo-Dutch le­gal struc­ture and trans­plant head­quar­ters from Lon­don to Rot­ter­dam, a move that would have seen its shares de­part the FTSE 100. City share­hold­ers, many of whom would have been forced to re­move Unilever and its steady re­turns from their port­fo­lios as a re­sult, op­posed the plan and were not shy about say­ing so.

Pol­man duly caved in, but the highly pub­lic con­tretemps with in­vestors left some ob­servers ques­tion­ing his fu­ture in the post he has oc­cu­pied for nearly a decade.

Now might be the time to keep quiet and con­cen­trate on per­for­mance but in­stead Unilever will find it­self back in the pub­lic eye, giv­ing ev­i­dence along­side Royal Mail at a se­lect com­mit­tee ses­sion on ex­ec­u­tive pay on Tues­day, then, two days later, pre­sent­ing in­terim re­sults.

The first of these could prove a bruis­ing en­counter for Unilever, given the pre­dis­po­si­tion among MPs to use se­lect com­mit­tees to in­dulge in glee­ful grand­stand­ing. The com­pany re­cently tweaked its pay struc­ture, swap­ping it for one that would al­low it to pay big­ger bonuses and award chunkier pay rises.

This change was ap­proved against stiff op­po­si­tion last May, and Pol­man – who could pocket nearly £13m un­der the new scheme – could do without it be­ing dredged up by head­line-hun­gry politi­cians. He’s prob­a­bly look­ing to Thurs­day for a chance to si­lence his crit­ics – or at least muf­fle them tem­po­rar­ily – with a strong set of num­bers, even if they’re only for the third quar­ter.

Last time out, quar­terly sales growth of 1.9% dis­ap­pointed in­vestors, and the com­pany that makes Mar­mite was left promis­ing jam to­mor­row, in the form of price rises mit­i­gat­ing in­creased com­mod­ity costs. An­a­lysts at Har­g­reaves Lans­down are hope­ful that Unilever will show some­thing pos­i­tive to off­set what they call the “re­cent drama”.

“Progress in the group’s emerg­ing mar­kets has been a bit slug­gish of late, but over­all sales growth for the full year is still ex­pected to come in be­tween 3% and 5%,” said eq­uity an­a­lyst Ni­cholas Hyett. “Im­prove­ments to op­er­at­ing mar­gins are also due. Next week’s state­ment will hope­fully show Unilever on the right track to hit those tar­gets.”

Any­thing less will add to the wor­ries keep­ing Pol­man up at night. In prac­tice, nei­ther the se­lect com­mit­tee ses­sion nor the third-quar­ter num­bers are big enough af­fairs to fur­ther loosen the Dutch­man’s grip on the chief ex­ec­u­tive’s chair. But his po­si­tion has come un­der greater scru­tiny than ever since the com­pany re­buffed a $143bn bid from Kraft Heinz in Fe­bru­ary last year. It was a huge bid to spurn, and the de­ci­sion forced Unilever to make over­tures to in­vestors, show­ing them that it was not rest­ing on its lau­rels.

The re­sult was a flurry of moves to un­lock greater value, most no­tably the sale of its spreads busi­ness – in­clud­ing Flora and I Can’t Be­lieve It’s Not But­ter – to KKR for £6bn at the end of last year. The com­pany has also cut costs to boost mar­gins, bought back shares and in­creased div­i­dends. All well and good, but dis­gruntle­ment over pay and the fail­ure of Pol­man’s Rot­ter­dam gam­bit have de­tracted from these ef­forts.

What Unilever needs now is a pe­riod out of the spot­light, al­low­ing Pol­man and co to lick their wounds. Neg­a­tive pub­lic­ity has a way of gath­er­ing a mo­men­tum all of its own.

Pol­man has come un­der greater scru­tiny than ever since he re­buffed an eye-wa­ter­ing $143bn bid from Kraft Heinz

Pho­to­graph by Christo­pher Thomond for the Ob­server

The maker of Mar­mite was left promis­ing share­hold­ers jam to­mor­row af­ter the last set of quar­terly re­sults.

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