Unilever

Products for the Whole Day

When you go shopping at the supermarket, you're practically overwhelmed by a multitude of different brands. The amazing thing, though, is that behind all these brands there are only a handful of corporations. Besides Procter & Gamble, Unilever clearly has to be named as a big player here. According to the company, more than 2.5 billion people from over 190 countries use at least one product from the Dutch company every day.

Brushing your teeth and washing your hair in the morning, then a tasty breakfast, a little snack or a refreshing drink at noon, and cleaning the apartment in the evening. Since the consumer goods manufacturer is so broadly diversified, it's easy to use nothing but Unilever products all day long.

The Origins and Business Model of Unilever Public Limited Company

It all started with a French chemist who had been commissioned by the government to develop a butter substitute for the military. In 1871, this inventor sold his recipe to the Dutch company Jurgens, which then set up a company in the town of Goch. In 1888, another Dutchman named Simon van den Bergh founded his margarine factory in Kleve (a neighboring town of Goch). In this factory, he wanted to push industrial production forward and make it more efficient. Both family businesses enjoyed great popularity, and business was good. It was only in 1927 that these two companies merged into Margarine Unie in Rotterdam and Margarine Union in London.

In the northwest of England, in Warrington to be exact, the brothers William Hesketh and James Darcy Lever founded the soap factory Lever Brothers in 1885. The two made their products from palm oil, unlike their competitors, who were still using cow tallow at the time. That was quite an innovation, and it was very well received by the public. Sunlight Soap, as they called their soap, sold so well that the Levers built their own housing village, Port Sunlight, for their employees.

Since both companies, Margarine Unie and Lever Brothers, depended on fat and could thus benefit from synergies, the two merged in 1929 to form Unilever. Up to that point, this corporate merger was the largest in the world. By the way, there's still a dual structure to this day - 2 stocks (Netherlands: Unilever N.V.; England: Unilever PLC.;), 2 annual general meetings, 2 headquarters (Rotterdam & London), but only one board. From an investor's point of view, it actually doesn't matter which stock you buy - there are only tax differences regarding the dividend.

Today, Unilever offers more than 400 brands, including 12 so-called power brands (over €1 billion in sales/year). Lipton, Dove, Knorr, Langnese, Axe, and Rexona, to name just a few of the giant brands. Certainly quite interesting is also the fact that around 60% of sales are generated in emerging markets. When launching new products, Unilever can also rely on a first-class distribution network there, reaching all the way down to the smallest village market. Unilever is also setting an example when it comes to sustainability. More economical packaging, shorter supply chains, and more eco-friendly ingredients. And the best part: As you can see from the sales growth - customers love these eco products.

What's Next for Unilever?

In early 2017, its competitor Kraft Heinz presented a takeover offer worth billions, but it was promptly rejected. Since then, Unilever has really rolled up its sleeves and is now pursuing a radical savings and restructuring program. The advertising budget was cut, staff was reduced, divisions were merged - this allowed the company to save 2 billion euros in the very same year as the takeover attempt. And the saving is still going on today. In the past fiscal year, for example, Unilever sold its entire spreads division. That might not please the founding fathers, but it certainly pleases the shareholders. Even though sales fell by about 5% in 2018, the company was able to post a new record profit thanks to the proceeds.

Profits are being reinvested into higher-margin and more promising businesses. Besides a British organic tea maker, Unilever recently also took over an Asian cosmetics company and an American online retailer for shaving supplies. In the future, too, management will keep an eye out for attractive offers worldwide while constantly optimizing its existing business.

What About the Dividend?

Unilever shareholders have been receiving a share of the profits since as early as 1937. Since 1989, it has even been raised every year. Over the last 10 years, this increase averaged 7% - pretty attractive, if you ask me. So the consumer goods giant can adorn itself with the title of Dividend Aristocrat. The current dividend yield is 3.1%, and the payout ratio is around 65%. That's a bit on the high side, but there's still enough profit left in the company to keep growing on its own.

Conclusion:
In my eyes, Unilever is an excellent investment. The group is very broadly and strongly positioned globally, sustainability is a high priority for management, and the savings and restructuring program is already showing some successes. I also think the quarterly dividend that rises every year is great. So if you're still looking for a consumer goods stock for your portfolio, you should be in very good hands here.