Unilever, as chief executive Paul Polman noted with satisfaction, gets its full-year results out smartly these days.
To see the full 2014 figures on the 20th day of January is impressive for a combine that spans the globe. Unfortunately, the numbers themselves were nothing to boast about. Underlying sales growth of 2.9% was the weakest for about a decade. Two years ago the Dove-to-Domestos-to-Flora-to-Ben & Jerry’s group was running at 6.9%.
The reasons for the recent weakness are not hard to identify. Competition is getting stiffer, consumers are becoming pickier and, in countries such as the UK, discount retailers are having an impact. It’s a low growth, low inflation world.
Expect more of the same in 2015. “We do not plan on a significant improvement in market conditions,” says Polman. The consolation for shareholders is the company’s steady hand in finding cost savings and efficiencies. Core operating margins last year were 14.5%. Go back to 2010 and the figure was 12.8%. When your annual turnover is €48.4bn, 1.7 percentage points of improvement makes a big difference. The Polman formula – seek more cost savings, more launches in emerging markets and more product “premiumisations” – is plainly the right one in the current climate. Even on these lower sales numbers Unilever is still beating its markets and will probably do so again this year. That is one reason why the shares are so highly rated, deservedly so. But, as a barometer of global growth, Unilever is sending an unmistakable message of a continuing global slowdown. Cheaper oil will put money in consumers’ pockets but Polman was clear about when the benefit will arrive – it’s a second half of the year story.
“We will seek to learn lessons from this incident which we can incorporate into our risk management approach,” said Tim Howkins, chief executive of IG Group, reflecting on last week’s excitement in the Swiss franc, which cost the broking firm up to £29.3m, or almost two months’ profit.
Some £12m was a direct hit to IG when it couldn’t close its hedge positions in the chaos that followed the Swiss National Bank’s abandonment of its policy of defending the franc’s ceiling against the euro. The other £17.3m represents debts racked up by 327 clients. That works out at an average of £53,000 a head, thus IG can’t be confident the sums will be repaid. Sorting those who “won’t pay” from those who “can’t pay” can be messy and time-consuming. In the end, pragmatism tends to prevail.
Two lessons for Howkins and IG should be straightforward. First, never trust a central bank’s commitment to a currency peg. It is true, of course, that G10 currencies don’t often move by 30% in minutes. But quantitative easing amounts to officially-sanctioned distortion of financial markets. Strange events will happen. Second, make the punters put up bigger deposits to trade currencies. IG’s deposits start at 1%, even if bigger bets must be supported with bigger deposits. A 1% trading margin is akin to a 99% mortgage. It is inviting trouble.
Who’s for O2?
The ink on BT’s £12.5bn purchase of EE is not yet dry but the investment bankers clearly want to keep the telecoms/media consolidation party alive. The hunt is on to find a dance partner for O2. The would-be names on the card are TalkTalk, Sky and Three.
Of course, it helps that Spanish group Telefónica seems to be a willing seller. It touted O2 to BT but lost the reverse auction, and must fear for the future if quad-play (ie, TV, broadband, landline and mobile from the same supplier) really is the hot ticket.
The trouble is, none of the consolidation candidates is likely to provide a clean or quick exit. TalkTalk, worth £3.1bn, can’t contemplate a £9bn purchase. Sky would give its shareholders a heart attack if it committed such a sum while its balance sheet is still heavy with debt after the Sky Europe wrap-up.
That leaves the possibility of TalkTalk or Sky doing a piggy-back partnership deal with O2. More plausible, certainly, but not a must-do transaction for either. Sky has a blossoming relationship with Vodafone on content deals. TalkTalk is doing fine under its own steam.
If the above is correct, Li Ka-Shing’s Hutchison Whampoa, owner of Three, may be the only party interested in buying O2 outright, even with the inevitable competition complications. But, in the shoes of the Hong Kong billionaire, you’d probably play it cool: let Telefónica stew for a while and hope its asking price falls. The Spanish, if they really want rid of O2, will find somebody; just don’t expect the process to be as smooth as bankers wish.
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