Unilever’s first financial update since it was caught in the tailwind of Kraft Heinz’s surprise bid appear to reaffirm the significance of its spreads business.
Turnover rose to €13.3 billion in the first quarter, with underlying sales growth across the rest of its food and refreshments business of 3.5%.
But spreads continue to perform poorly after recording a decline last year, when growth in emerging economies was offset by disappointing performance in developed markets.
In this morning’s trading update, Unilever has taken the unprecedented step of providing separate figures with its spreads business excluded. They provide a glimpse into Unilever’s business beyond a potential sale, but also underline the troubles facing brands like Flora and Stork.
With spreads included, its underlying sales growth across food and refreshments was 2.2% – driven largely by refreshments. But take the troubled spreads away and sales growth leaps to 3.5%. That shows the problem facing Unilever, with consumers slowly ebbing away from the margarines category amid changing health perceptions, and provides a first glimpse into Unilever’s reasoning for offloading the business.
The update also shows that spreads is an €800-million-a-quarter category for Unilever – between €2.9 billion and €3.5 billion on a consistent basis.
That might make an asking price reported to be as high as £6 billion easier to swallow for a prospective buyer.
Analysis: Who will buy Unilever’s spreads brands?
With news that Unilever will sell its spread brands – including Bertolli, Flora, Stork and I Can’t Believe it’s So Good – the question turns to who will swoop in and take the brands over. But with Unilever CEO calling margarines ‘a declining segment’, any potential buyer will need to realise some serious synergies in order for the deal to be worthwhile. That throws up the usual suspects in big-money deals, but also some of the more established players in the British and European spreads category. [Read more…]
Commenting on this morning’s trading update, Unilever chief executive Paul Polman said: “The first quarter shows growth once more ahead of our markets. This reflects our continued investment in both innovations and brand support, and reconfirms the strength of our long term sustainable compounding growth model.
“The change programme ‘Connected for Growth’, which we started implementing in the autumn last year, is starting to bear fruit and is making Unilever more agile and closer to the local markets, unlocking both further growth and margin.
“The actions we are taking keep us on track for another year of underlying sales growth ahead of our markets, in the 3–5% range. We also expect an improvement in underlying operating margin this year of at least 80 basis points and strong cash flow.”
© FoodBev Media Ltd 2017