Unilever will split its US and European spreads operations into a standalone unit, a first step toward a possible exit from a struggling business that the company has failed to turn around over the past two years.
The new entity, including brands such as Flora and I Can’t Believe It’s Not Butter, will be running by mid-2015, Unilever Chief Financial Officer Jean-Marc Huet said today at an investor seminar in London. The unit’s sales account for about 5 per cent, or €2.5 billion ($3.1 billion), of Unilever’s total revenue.
A declining market for margarine and price deflation have led sales to drop for two years at the spreads business, all of which is valued by analysts at between €6 billion and €10 billion. By announcing the split, Unilever spurred speculation about a possible exit, even though the company said it doesn’t plan a sale or spinoff. The shares rose as much as 3.5 per cent, the most since January.
Under Chief Executive Officer Paul Polman, Unilever has focused on its health and beauty business, while selling slower-growth food brands, mainly in the U.S. The company in May agreed to sell its Ragu and Bertolli pasta sauce business to Japanese food maker Mizkan Group for about $2.15 billion.
The separated spreads unit will become known as the Baking, Cooking and Spreading Company and will have a dedicated management team headed by Executive Vice President Sean Gogarty and its own financial statements. It will have more focus and will be faster as it gains more freedom to take “necessary decisions,” Unilever said in the slides.
“This is an important part of our portfolio and heritage but this will never ever be a barrier to take determined action,” Huet said at today’s seminar. “We are now taking the next step in making margarines more competitive.”
After years of positioning butter as the enemy of margarine, Unilever last year added butter to some of its spread brands like Rama. The move came amid a comeback by butter, lifted by a consumer embrace of all things natural. Per-capita butter consumption hit a 44-year high in 2012, according to US government data, while margarine is at a 70-year low.
With brands including Country Crock and Stork, London- and Rotterdam-based Unilever is the world’s leading maker of spreads with more than 30 per cent of the market, according to researcher Euromonitor.
Bloomberg News, edited by ESM
