Comment: FitzGerald's flotilla plots a hazardous course

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The Independent Online
Niall FitzGerald, Unilever's recently appointed chairman, likes to depict his company not as the giant oil tanker it is often described as - difficult to turn - but rather as a flotilla of nimble frigates all sailing in the same direction with a consistent set of battle orders. For the time being that analogy - intended to convey the impression of a hard-hitting, fast, flexible and entrepreneurial machine - may owe more to wishful thinking than reality. As the world's second-largest consumer products company, Unilever is always going to find it hard to deliver anything other than pedestrian, OECD-average growth.

But that's not for lack of trying, and certainly Unilever seems at the moment to be making all the right noises. The flotilla is being firmly set on a course away from the stodgy, low-growth economies of Europe and the US and towards the double-digit growth opportunities of emerging markets. Furthermore a quite substantial part of the flotilla, speciality chemicals, is to be separated and sold. In itself, there's nothing particularly new in this; Unilever has been weeding out and selling off poorly performing businesses for years. Disposals over the past 10 years amount to pounds 3.5bn of sales.

The point about Unilever's chemical businesses, however, is they are not poorly performing. In fact they are very much in demand among those at the cutting edge of consolidation in these industries. These are very significant businesses, accounting for some 10 per cent of total group sales, worth perhaps upwards of pounds 5bn. Mr FitzGerald's phone has barely stopped ringing since the "for sale" sign was hoisted yesterday morning. This is therefore quite a departure from the run-of-the-mill, ongoing disposal programme.

So what's the point of it? Unilever was faced with a choice. To leave these businesses alone would merely have been to watch their value erode. Unilever either had to commit very substantial extra investment to make them bigger, or it had to sell. Given that some of the businesses were finding they were disadvantaged by the Unilever link (Unilever competitors don't on the whole like dealing with Unilever companies), Mr FitzGerald has opted for the latter.

All very logical but the strategy is not without its risks. The difficulty is going to be in finding a replacement for these businesses which is as high-margin. Like many big companies these days, Mr FitzGerald believes the answers lie in the emerging markets of the Far East, Latin America, India and China. Today these markets account for less than 30 per cent of group sales. He aims to push that above 50 per cent over the next 10 years. That in itself would seem to rule out a big consumer products acquisition in the developed world.

But how else other than through acquisition can Unilever usefully apply all that money? Investing in organic growth, even in emerging markets, is a path fraught with difficulties and pitfalls. But let's give Mr FitzGerald the benefit of the doubt. If Unilever does manage to reorient itself away from tired old, slow-growth Europe to the dynamic developing economies, we will see the emergence of a quite different sort of company - one which really does justify the description of a flotilla of fast-moving frigates.