Inflation next test for Jope
Soaring US consumer prices, up 7.5pc year-on-year in January, show the scale of the inflation challenge not just for households but for global corporations too. For Unilever boss alan Jope, it is out of the bid frying pan into the commodity price and margins fire.
Transforming deals on the scale of GSK’s consumer healthcare are off the table and surplus cash will be used for share buybacks and bolt-on acquisitions.
The focus is going to be on expanding health and beauty through organic investment. There are no major food disposals on the horizon now that the tea sale is done, even if Ben & Jerry’s continues to cause tensions by pushing ethical boundaries.
Higher input prices cost Unilever £100m two years ago, £1.3bn in 2021 and are estimated to add £3bn to costs in 2022.
Even if Jope is able to bolster revenues, which by growing at 4.5pc matched Proctor & gamble last year, there is no way of avoiding the huge hit to margins.
The pass through in the shape of higher prices is smoother in the americas, india and China than in Europe where the retailers hold the whip hand.
But there is confidence that in spite of the ingredients cost burden, there is more growth to come. reliance on traditional brands such as Dove and Hellmann’s is to be supported by trendier categories such as its Prestige Beauty brand Dermalogica and nutrition and food supplements using ecommerce platforms. The renewed focus on what Unilever already has and doing it better will offer some healing with dissident voices such as Terry Smith at Fundsmith.
Big, indigestible deals can be more trouble than they are worth.
Digital do
SOME corporate name changes, such as Diageo and aviva, resonate.
others leave behind an air of mystery. relx, formerly the anglo-Dutch media group reed Elsevier, comes to mind.
The UK prides itself on its vibrant media sector, part of creative Britain. relx with a market value of £45bn is bigger than Vodafone and worth more than WPP, informa, auto Trader and rightmove added together.
it is emerging from Covid more robust, in spite of running a global events business which thrives on live interaction. The 2021 performance is impressive with revenues up 7pc and pre-tax profits up to £1.8bn from £1.5bn, driving a 17pc jump in earnings per share and an uplift in dividend.
So how does relx, and its largely silent chief executive Erik Engstrom, do it?
Digital and technological transformation is key. once best known for publishing Farmers Weekly, it has developed as a risk management, scientific and legal powerhouse. NATWEST chief executive alison rose may be troubled by fraud, but it is relx which provides much of the tech which can track and assess the risk.
Legal eagles involved in complex cases used to deploy relx’s Lexisnexis to research case law. adoption of ai means the systems are now capable of scrutinising all the data for our learned friends, finding the relevant arguments and assessing the chances of success. Similarly, domination of scientific journals, peer reviews and the latest findings allows researchers a short cut to analyse findings and match them to urgent tasks such as tackling coronavirus.
as relx has driven more deeply into tech, one-third of its 33,000 global workforce are computing wizards. Exhibitions, which moved back into the black after a loss of £164m in 2020, are looking increasingly passe. as the world reopens, events are a cash generative enterprise which could move to the top of the disposal list.
Pacific bound
WHEN mike Wells replaced high velocity Tidjane Thiam as chief executive of the Pru, he was seen as a stop-gap.
instead, the Canadian became his own activist, putting m&g and Pru funds together, floating off Pru asia and US as a separate enterprise and then doing the further split of US-based Jackson Life.
after seven years in the job Wells’s departure looks a little rushed, especially as his temporary replacement mark FitzPatrick will not be seeking the chief executive job which is shifting to asia. The move across continents is bound to increase speculation that Prudential may seek to move its HQ and listing to the Pacific.
That’s going to be a tricky decision for the indomitable Pru chairman Baroness Vadera who is also chairman of the very British royal Shakespeare Company.