Unilever to cut 20,000 jobs to boost recovery

Unilever, the world's third-biggest food and consumer goods company, yesterday unveiled plans to cut 20,000 jobs and sell slow-growing businesses in a bid to speed up its recovery and fight surging food costs.

Shares in the Anglo-Dutch group, whose 400-plus brands include Dove soap, Knorr soups and Sunsilk shampoo, leapt as much as 8.4 per cent on hopes it is finally getting to grips with years of underperformance.

Unilever said that the restructuring would affect about a tenth of its 180,000-strong workforce. The cuts would be mainly in Europe and would be implemented over four years.

Unilever also posted a 5.8 per cent rise in second-quarter underlying sales, beating analysts' forecasts of 4.2 per cent to 5.5 per cent, and said it now expects full-year sales growth at the upper end of its three to five per cent target band. "There is now real evidence of sustained improvement in the group," Panmure analyst Graham Jones wrote in a research note, raising his rating on Unilever shares to "buy" from "hold".

Unilever has been steadily recovering from a shock profit warning in 2004. But its sales growth has still generally lagged rivals such as Switzerland's Nestle in food and US consumer products group Procter & Gamble.

Chief Financial Officer Rudy Markham said a hot first-half performance provided a springboard for more radical action.

"We've created the right conditions for accelerated progress," he told reporters.

Unilever said it would close or streamline around 50 of its 300 manufacturing sites, reduce its regional centres from around 100 to about 25 and shed around 11 per cent of its workforce in a drive to save €1.5 billion ($2.1 billion) a year by 2010.

It also pledged to sell off over €2 billion of turnover from slower growing businesses, including its North American laundry operation, and step up innovation, particularly in fast-growing product areas such as personal care.

The restructuring drive could help the firm beat its target for an operating margin of over 15 per cent by 2010, it said.

The plan came a day after the firm appointed James Lawrence, currently finance chief at US food group General Mills, to succeed CFO Markham in September, and raised analysts' hopes that a new generation of leaders would get to grips with the firm's still-complex organisation.

Mr Lawrence will join Michael Treschow, who was the first person from outside Unilever to become its chairman earlier this year, and Chief Executive Patrick Cescau, who started the latest recovery programme in 2005.

"The appointment of the new CFO, the comments made and the announcement of reshaping the portfolio and new restructuring show that Mr Cescau and Mr Treschow are fixing overdue repairs," Petercam analysts wrote in a research note. "We cheer the desire to change, but it is a very lengthy process," they added. Unilever, formed in 1930 from the merger of British and Dutch companies, posted a 15 per cent rise in second-quarter earnings from continuing operations to €0.38 a share, compared with analysts' forecasts of €0.32 to €0.40.

Mr Markham said sales growth was across the range of its products, but picked out Knorr soups, Magnum ice creams, Clear anti-dandruff shampoo and small and mighty fabric cleaners among the strongest performers.

Commodity costs rose about €300 million in the first half of the year, Mr Markham said on a conference call, adding he expected this trend to continue amid soaring prices for edible oils and dairy products.

But Unilever would more than offset this by raising its own prices and cutting costs, he said, and the firm kept its target to improve underlying operating margins this year. The margin increased 30 basis points in the April-June period.