Unilever's FitzGerald remains on the Path to Growth

The Anglo-Dutch giant's chief has led a transformation, but will he stay for next phase?

This July, 80 of Unilever's highest of high fliers will abandon the comfort of everyday life and get on board a plane. Their challenge? Six days away with Niall FitzGerald, their opinionated co-chairman. They won't know where they're headed, but – figuratively at least – they will be in the same boat as Mr FitzGerald.

For them, the trip will be as much about finding themselves as bonding with their boss. Talking business is not the main aim; learning how to be honest and open is. For Mr FitzGerald, this year's trip will be an opportunity to take stock not only of how far the company and its most talented employees have come, but, more importantly, where it is going.

The mystery tours date back to the genesis of Unilever's recent transformation, which yesterday saw it report its strongest set of annual figures for many moons. It will come as no surprise to learn that the away break trend was started by the marathon-running, left-leaning Mr FitzGerald, who promises that this July's destination will be as "wild and different" as previous trips to the likes of Costa Rica, Iceland and Croatia. "It's always a surprise," he says of the country on the boarding pass, adding: "It's about forcing people out of their comfort zone, about being in a very different place."

For Unilever, 2003 finds it in a very different place to a decade ago. The past three years have seen the Anglo-Dutch consumer products giant shake up its world by embarking on a vast restructuring exercise that goes by the name of "Path to Growth". The big question, once the five-year programme has run its course at the end of 2004, is where does Unilever go from there? The even bigger question, for some, is where does Mr FitzGerald go from there?

A Unilever man through and through, the trim Irishman did not always mean it to be thus. He found his way into what today is the world's 68th biggest company by accident, after accompanying a friend to an interview there, 34 years ago. He has held the top post, which he shares with his co-chairman, Anthony Burgmans, for seven years and was giving nothing away on when – or whether – he planned to give it up. "We're doing great but we're not finished. We won't be finished until 2004. [After that] we'll see," he said.

Analysts are split on the subject of how long Mr FitzGerald will stay. David Lang, at Investec Securities, said: "He'll see out Path to Growth and then we'll have to see. I don't think he'll overstay his welcome." Others have suggested that 2005 would be a natural point for Mr FitzGerald to take on other challenges. Wild rumours flooded the City last autumn that he would be prepared to swap his role at Unilever for the chairmanship of Reuters, the troubled information group, whose board he joined at the start of this year.

Another option could be the life of a European politician. Mr FitzGerald is an ardent supporter of the European Union and leads the "yes" campaign for Britain to join the eurozone. Asked at a press conference whether he was talking in sterling or euros, he said firmly: "We only think in euros." He would not have to change his body clock at least; his watch is already set to European time.

Most observers agree, however, that Mr FitzGerald's plans will depend on what follows Path to Growth and whether Unilever can reach the end of the road without breaking down. Andrew Wood, at Sanford C Bernstein, said: "I don't think he will necessarily be able to sail off in a blaze of glory at the end of 2004. I'm torn, but think he will have to stay on to oversee the challenge [of sustaining top line growth]."

Speaking at the annual results presentation, Mr FitzGerald said the company was "working on the next phase" of the company's development. Dousing City speculation that the next stage could be a break up of the group's 73-year relationship between food and household products, the suave joint chairman promised it would be "evolutionary but exciting". Asked what it might be called, he quipped: "Maybe 'The Highway to Even Faster Growth'."

On the subject of possibly spinning off the group's home and personal care business – a recurring manta among Unilever watchers due to the unit's higher growth prospects – Mr FitzGerald issued a firm rebuttal. "We see major, major benefit from the combination of the two [food and home and personal care]. Both of them benefit from the combination. Ninety per cent of their consumers are the same; 80 per cent of their customers are the same; and 70 per cent of their suppliers are the same. Any sort of separation is not something that is in our contemplation."

Instead, Unilever will spend the best part of the next two years on cementing its early progress with Path to Growth. Already, the programme, which was essentially about slimming down the business by overhauling its brand portfolio and rationalising its supply chain, has been a big success. The company has shut 108 of the 130 factories it earmarked for closure; sold off 87 non-core businesses; axed 38,000 members of staff; and is on track to achieve €1.6bn (£1.1bn) in buying savings by the end of next year. All this for the cool outlay of €5.2bn.

Last year saw the company achieve sales growth of its leading brands of 5.4 per cent, an operating margin of 14.9 per cent, €7.9bn of cashflow and earnings per share growth (before exceptional items and amortisation of goodwill and intangibles) of 21 per cent. At €7.3bn and 14 per cent of turnover, the group spent a record amount on innovative advertising campaigns that have seen it turn away from traditional 30-second TV slots and embrace different media such as outdoor billboards. The group is within a whisker of its end-2004 targets of achieving annual underlying sales growth of between 5 and 6 per cent and operating margins of more than 16 per cent. In total, the group reported a 10 per cent rise in pre-tax profits to €3.97bn, or €4.18bn at constant exchange rates. This was on sales down 7 per cent to €48.8bn, although at constant exchange rates turnover was flat at €52bn.

At the core of this progress has been Unilever's decision to shed its tail of more than 1,600 brands and focus on its 400 best sellers. These span global successes such as Persil washing powder, Hellmann's mayonnaise and Dove soap to local "jewels" such as Marmite and Pot Noodles. By shedding weight in this way, Unilever has been able to concentrate on driving sales growth from its best-known brands by expanding them across a number of categories. Today, Bertolli, for instance, is no longer just an Italian olive oil but a wide range of spreads, dressings and sauces. Knorr is no longer a mere stock cube, but a €3bn food miracle available in 100 different markets and spanning seven different food categories, from soups to ready meals.

Mr FitzGerald believes that much of the group's current success stems from its creative attitude to managing its employees and its business values. He says Unilever has swapped its "cautious, safety first approach" of the past for a more open culture in which it is much easier to progress through the ranks. Externally, the group's commitment to creative thinking is exemplified by the 500 foot-long sculpture that dominates the atrium of the Tate Modern gallery. Part of the "Unilever Series", a five-year sponsorship programme, the piece typifies the group's determination to keep its brands alive by connecting with the consumer and thinking out of the box.

Whether Mr FitzGerald can do the same for the business he has helped to reignite will become clearer next year.