In reaction to Unilever’s recent bidding for GSK CH last week, APG has issued its view on this surprising move.
In general, APG is not concerned about Unilever’s current strategy. In fact, we support the company’s multi-stakeholder model. In our view, Unilever, with its focus on purposeful brands, is one of the front-runners in taking the necessary steps for the food industry to move towards a more sustainable world. This perfectly aligns with APG’s views and expectations as long term responsible investor. However, despite Unilever’s excellent sustainability credentials we are waiting for an improvement of the company’s underlying growth, which we expect is just a matter of time.
Unilever has been able to generate an attractive return on its capital over the years. This is an important performance metric to us, which is also part of Unilever’s management remuneration. This has been achieved primarily by organic development and small acquisitions. We support this strategy as it has proven itself in the past. The company’s plan to make a more transformational shift in the business by bidding on GSK CH surprised us. While we do like positive surprises, it is not clear to us that this is one.
We see a lot of strategic benefits of entering, on a large scale, the consumer health space. Particularly the possibility to use Unilever’s strong distribution network in emerging markets in a.o. India, Indonesia and Brazil. Large acquisition tend to have a bad reputation. However, Unilever seems to be successful with the integration of the acquired Horlicks brand (also from GSK) in India. It would have helped if management had shared more information about their confidence in being able to copy the Horlicks success on a large scale with GSK HC.
We are anxiously awaiting Unilever’s major initiatives to enhance its performance. Unilever should passionately focus on consumer needs to reignite revenue growth. We would like to see new innovative products which should increase market share but also enhance overall category growth. A likely change of the matrix structure will certainly shake-up the company but in the end the company has to increase its innovative power.
Short term issues as increase input costs and slowing down emerging markets are storms Unilever has proven to overcome decennia after decennia. Introducing innovative, sustainable products against a reasonable price, combined with the company’s strong distribution network, particularly in emerging markets, has been the company’s success in the past and will likely be in the future as well.