Magnum ice cream boxes
Marmite-to-Magnum maker Unilever is to demerge its ice creams division and cut 7,500 jobs / Image source: Adobe
  • Ice cream demerger planned
  • Major productivity programme launched
  • Focus on ‘unmissably superior’ brands

Shares in Unilever (ULVR) topped the FTSE 100 leader board on Tuesday, gaining 3.7% to £39.51 after the FMCG (fast-moving consumer goods) goliath announced plans to demerge its ice cream division under a drive to ‘maximise’ shareholder returns.

Less than a year into his tenure, chief executive Hein Schumacher is certainly making his mark on the Marmite-to-Magnum brands owner, which will also cut 7,500 jobs as the new broom’s Growth Action Plan (GAP) plan gathers pace.

ICE CREAMS FROZEN OUT

When the market was speculating about steps Unilever might take to revive its fortunes, an ice cream division spin-off had not been that widely discussed – even if political pronouncements from Ben & Jerry’s had provoked a meltdown among some investors.

But the company, which owns five of the top 10 best-selling global ice cream brands including Wall’s, Magnum and Ben & Jerry’s, said the separation of ice cream would assist in GAP’s implementation.

Unilever is confident the ice cream arm’s future growth potential will be better delivered under a different ownership structure, noting the business has distinct characteristics compared with Unilever’s other businesses.

It costs Unilever more to sustain the ice cream business, there is a different supply chain because it is dealing with frozen goods and it is more seasonal than the company’s other roster of brands.

Unilever, which reported a welcome return to volume growth and improved margins for the year to December 2023, sees a demerger and separate stock market listing for the ice cream arm as the most likely outcome and has set a fairly tight deadline of the end of 2025.

PRODUCTIVITY DRIVE

Post-separation, Unilever will become ‘a simpler, more focused company, operating four Business Groups across Beauty & Wellbeing, Personal Care, Home Care and Nutrition’, explained the company, sharpening its focus on a portfolio of ‘unmissably superior’ brands.

The consumer goods giant also intends to launch a comprehensive productivity programme expected to deliver total cost savings of ‘around €800 million’ over the next three years.

The changes will impact around 7,500 jobs, with total restructuring costs now anticipated to be around 1.2% of group turnover for the next three years up from around 1% of turnover previously guided.

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WHAT DID SCHUMACHER SAY?

Schumacher commented: ‘Under the Growth Action Plan we have committed to do fewer things, better, and with greater impact. The changes we are announcing today will help us accelerate that plan, focusing our business and our resources on global or scalable brands where we can apply our leading innovation, technology and go-to-market capabilities across complementary operating models.

‘Simplifying our portfolio and driving greater productivity will allow us to further unlock the potential of this business, supporting our ambition to position Unilever as a world-leading consumer goods company delivering strong, sustainable growth and enhanced profitability.’

EXPERT VIEWS

Russ Mould, investment director at AJ Bell, said Schumacher will ultimately be judged on his ability to revive the fortunes of the remaining ‘simplified’ operation.

‘Job cuts and efficiency savings are straight out of the corporate turnaround playbook but that doesn’t mean they are without any merit,’ observed Mould.

‘There will still need to be investment in the company’s key brands and sensible positioning to ensure the company retains its pricing power. Achieving underlying sales growth and margin improvement doesn’t sound an overly ambitious goal but given the extent of price increases consumers have had to stomach thanks to inflation it may not be easy to achieve.’

Mould added: ‘The danger for Unilever is that people are put off its branded goods because of the cost and they turn to cheaper supermarket own-brand alternatives. This risk is particularly acute in the West where quality unbranded goods are widely available.’

Quilter Cheviot analyst Chris Beckett viewed the share price reaction to the demerger news as ‘somewhat unwarranted’, since the division is ‘noted for its lower growth compared to Unilever’s overall performance, suggesting that the demerger might not significantly alter the company’s growth trajectory.

‘Historically, Unilever’s decision to sell its tea business did not lead to a transformative impact on the company’s operations or value. It stands to reason that this latest move to split off the ice cream business may follow a similar pattern, offering no substantial metamorphosis.’

Beckett stressed that while the demerger is ‘a notable event, it is the continuous pursuit of efficiency that often underpins enduring success in the sector.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.

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Issue Date: 19 Mar 2024