Unilever this morning (6 April) announced plans to “exit” the spreads category and part with its struggling Flora-to-Becel division, one of a series of ways the consumer goods giant believes it can “transform” the business and improve returns for shareholders.
Announcing the results of a review of Unilever’s operations, launched in the wake of its decision to reject Kraft Heinz’s proposal to take over the company, CEO Paul Polman said the company had “decided the future of the spreads business now lies outside the group”.
Unilever has faced repeated calls in some quarters of the investment community to sell the under-pressure spreads business, which has endured declining sales in a subdued sector.
In late 2014, Unilever announced it would separate the spreads arm, which also includes Becel and I Can’t Believe It’s Not Butter, from its wider food division and put it in a standalone unit. However, the performance of the unit remained lacklustre and Unilever continued to face pressure to dispose of the business.
Unilever resisted but speculation grew in recent weeks the company could decide to look for a buyer for the unit as part of its operational review. In the wake of Unilever’s decision to rebuff Kraft Heinz, the FMCG giant announced it would study its business to “accelerate” the value it could give to its shareholders.
The results of the review were announced this morning and, alongside the plans to offload the spreads unit, Unilever said it would combine its foods business with its refreshment division, which houses its ice cream and beverage assets. The larger division would be based in the Netherlands.
Unilever said it would look to “increase our strategic flexibility for further portfolio optimisation through a review of the dual-headed legal structure, with a view to simplifying it”.
The group said it would target an underlying operating margin of 20% through an “acceleration” of a programme it dubs Connected 4 Growth, which has been aiming to make the company simpler and more agile.
Unilever also announced it would buy back EUR5bn of its shares this year and raise its dividend by 12%. The company said the hike to its dividend reflected “increased confidence in the outlook for profit growth and cash generation”.
Polman said: “Our recent review concluded once more that our strategy for long-term value creation through growth and compounding returns on investment is the right one for Unilever and for our shareholders. It also highlighted the opportunity to go faster and further.
“The progress already made with Connected 4 Growth allows us to now accelerate the programme. This will be further enabled by the next step, which is the establishment of an integrated foods and refreshment unit, a leaner and more focussed business that will continue to benefit from our global scale and footprint. This acceleration allows us to unlock sustainable value faster and target an overall underlying operating margin, which excludes restructuring, of 20% by 2020. Progress and performance will be reported on with greater granularity in our financial communication.”
Unilever’s shares, which initially rose this morning, were down 0.04% on the day at GBP39.38 at 09:18 BST.