Polman aims to "optimise" problematic spreads business

Polman aims to "optimise" problematic spreads business

Unilever CEO Paul Polman has revealed that the Flora and Becel maker will look to run its spreads business with "30% less people" as the Anglo-Dutch conglomerate looks to make the unit more efficient.

Addressing the Consumer Analyst Group Europe conference in London yesterday (29 March), Polman said Unilever had started to look at how to "optimise" its spreads business. The Unilever chief said it was "too early" to disclose any results from the move but said the company wanted to "run [the business] successfully in 2011 in a challenging environment".

Speaking to just-food on the sidelines of the event, Polman dismissed suggestions that Unilever's plans would lead to job losses or factory closures.

"No, not at all. We are growing so fast. Last year, we had record growth for the company and the good thing is we have opportunities to redeploy people. If they are marketing people for example, we will reallocate them to other categories that we have. The spreads is 7-8% of our business so I have to deal with the other 92%, which is growing as well."

Polman said Unilever is focusing on "accelerating" the growth of its spreads business in Europe and North America. The company, he said, had "sharpened" its innovation programme and was developing "an organisation that is leaner and faster to deal with the challenges that we have".

He said: "That is starting to pay off for us. Our business is growing faster, we have share increases in this category despite some of the challenges of input costs that we have to deal with."

There has been the belief in the investment community that Unilever may ultimately look to offload its spreads business. Polman, however, refused to be drawn on whether Unilever would one day move to sell the business.

"We always have evolutions of portfolio like any other company and we will continue to have that moving forward. Our task is to build shareholder value in the categories that we have and we see ample opportunity to do that."

Jon Cox, head of Swiss research at Kepler Capital Markets in Zurich, is one analyst that has expressed a belief that Unilever could sell the spreads business.

Reacting to Polman's comments, Cox told just-food: "[These are] all good initiatives but ultimately if the company can't get the growth going it will be disposed I presume. Making it leaner and meaner may be a step in this process."

Andy Smith, head of global consumer equity research at MF Global, said he valued Unilever's spreads business at EUR4bn (US$5.6bn) and would be "heavily dilutive" to the company's earnings.

"With sales approaching EUR3bn and operating margins in mid-teens we would value Unilever's spreads business at up to EUR4.5bn," Smith explained. "We see few potential trade buyers of such a scale asset - indeed it would be a big 'bite' for private equity to swallow and heavily dilutive (to earnings) for Unilever to sell."

Smith said he believed that Unilever had "concluded that running its spreads business to optimise cash flow - and not growth - could provide the best returns for shareholders".

However, while Smith described Polman's "pragmatic" strategy on spreads as "sensible", he added: "The burden of this spreads division - heavily impacted by substantial input cost inflation - is likely to contribute to a lacklustre set of first half 2011 financial results in our view."