Screaming U-turn as Unilever shareholders balk at $50bn GSK deal | Nils Pratley

younilever’s plan A was to make a huge acquisition; plan B is not to do one, or at least not “in the foreseeable future”. The meeting room U-turns aren’t much more strident. Chief executive Alan Jope referred to a “strong message” from shareholders over their opposition to a £50bn tilt at GlaxoSmithKline’s consumer products division, but could also have described the corporate equivalent of a riot in the ranks. Boards are supposed to know when investors have no appetite for a “transformational” deal.

Ending GSK’s misfortune will not be easy and will require more than a peace offer in the form of a €3 billion share buyback over two years. At least the numbers for 2021 were a reminder of the fundamental strength that comes with owning an international portfolio of big brands. At 4.5%, Unilever’s underlying sales growth rate was the fastest in nine years, although 2021 has been a year of recovery (particularly in China and India) and many peers will do better.

Jope should also have half a chance to quell grumblings over Unilever’s supposed obsession with looking for a goal in mayonnaise and the like. Come on, that’s the wrong complaint. Modern consumers, if not grizzly money managers, expect brands to have a point of view on issues like food waste. Unilever’s problem is not ‘purpose’ or ‘sustainability’; it’s the inability to convert those credentials into superior profits the way, say, Nestlé does.

Yet this whole debate seems trivial compared to what is to come – a serious bout of input cost inflation. In recent years, 100-200 million euros has been the annual norm at Unilever, the kind of sum that can be lost in the washout of regular efficiency programs. It now starts at 3.5 billion euros for 2022. A warning that not everything can be recovered from consumers and that operating profit margins will fall to 16%-17%, from 18.4% in 2021 The already dropped 20% objective now feels distant.

The real test for Jope, then, is his ability to ensure that a hiccup on the margins doesn’t turn into something worse. The “bulk” will be recovered in 2023, he says, and the rest in 2024. It’s not a completely precise target, but it’s close. And, since Unilever was on the path to input inflation in 2008 and 2011, the company should have a reasonably clear view of what is achievable.

It is assumed that Jope will survive to fight the fight because GSK’s error belonged to the entire board, especially the unseen chairman Nils Andersen. The achievement of operational objectives, on the other hand, is obviously the responsibility of managers. Investors will tolerate some temporary erosion of margins in exceptional circumstances, but any diversion from the virtuous new path of day-to-day predictability would risk causing further outcry. Keep things boring.

Public Accounts Committee criticizes HMRC’s Covid fraud hunting abilities

The Public Accounts Committee has clearly struck a chord with today’s highly critical report into HMRC’s Covid fraud-hunting abilities. The government’s response came quickly and furiously: no fraudulent payments were reversed and the new Taxpayer Protection Task Force, a creation of Rishi Sunak, is expected to recover between £800million and £1billion. So don’t call us ignorant or inactive.

Who is right ? Well it is fair to cut HMRC and the government down to some extent. Covid support programs such as furlough and Eat out to help out were designed under emergency conditions and were designed to get cash out quickly. It was accepted that there would be more leaks than normal, and there is no point in denying the story now.

Yet the numbers here are staggering. HMRC currently expects to recover just £2billion of the £6billion in Covid grants it says were lost to error and fraud in 2020-21. A discrepancy of £4billion – and likely more when the 2021-22 estimates are added – deserves a fuller explanation than any we’ve heard before.

Indeed, the government’s argument that an “estimate” of a loss is not the same as a write-off sounds suspiciously like an attempt to manage expectations. Members of the committee do not have to play along. They should keep pushing.

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