Slim-Fast writedown will leave Unilever up to pounds 700m lighter

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The Independent Online
Unilever will this Thursday admit that its $2.6bn (pounds 1.4bn) acquisition of Slim-Fast in 2000 was a failure by writing off nearly half the value of the diet foods business.

Along with the admission will come a radical shake-up of the company - as revealed in this paper last Sunday - and a ditching of the targets that underpinned the unsuccessful "Path to Growth" strategy of the past five years.

The Anglo-Dutch group, owner of Persil, Dove soap, Magnum ice cream, Domestos, Knorr and Lipton tea, will reveal disappointing full-year numbers on Thursday. Analysts are expecting pre-tax profits to have dipped slightly, from pounds 4bn to pounds 3.95bn, with brand growth being stymied by poor summer weather, weak European demand and stiffer competition.

But it will be the new strategy that will garner the most attention, following Procter & Gamble's $57bn acquisition of Gillette last month.

David Liston, an analyst at the stockbroker Gerrard, pointed out in a recent note: "The [deal] increases the pressure on Unilever's management to deliver a credible and positive action plan. Over the past two years, Unilever has suffered from poorly managing market expectations of its business and relying on a strategy that was inflexible in the face of competitive developments in its marketplace."

Unilever knows it must take action, in particular over its dual management structure. The company will announce that joint chairmen Patrick Cescau in the UK and Antony Burgmans in the Netherlands will change roles, becoming chief executive and executive chairman in charge of strategy respectively. Upon retiring in 2007, Mr Burgmans will be replaced with a non-executive chairman. The headquarters in London and Rotterdam are likely to be merged.

Mr Cescau also intimated last year that he would be reviewing the Path to Growth strategy in favour of a new five-year plan.

Under Path to Growth, Uni-lever aimed to increase sales by 3 to 5 per cent a year while maintaining profit margins of 17 to 18 per cent, so delivering earnings increases of 8 to 12 per cent.

On Thursday these targets will be dropped, with Unilever instead adopting the aim of outperforming comparable companies in its sector. This will give it more freedom to invest in marketing and new product development.

As part of the review, Mr Cescau will make a big break with the past by admitting that the purchase of Slim-Fast was an error. The business was hit by the success of the Atkins diet, causing double-digit growth to disappear. While Unilever is not planning to sell, it will reduce expectations of Slim-Fast's future profits by taking a writedown of between pounds 500m and pounds 700m on its value on the group's balance sheet.