Unilever announced an acceleration of its strategic Growth Action Plan on Tuesday morning. The most striking thing is the announcement that the ice division will be split off.
Unilever claims to produce five of the ten largest ice cream brands in the world. Ben & Jerry’s and Magnum are mentioned most often, but also think of Cornetto, Calippo and Vienetta, the dessert par excellence during holidays. The ice cream division generated a turnover of €7.9 billion in 2023, or 13.2% of the total turnover of €59.6 billion.
The management has chosen to split off the ice cream division because it has clearly different characteristics than the other parts of Unilever. Ice cream is a seasonal product par excellence that thrives particularly well in warm, summery weather. That gives it a more cyclical character than, for example, deodorant. And that makes the ice cream division more capital intensive due to the storage of large stocks of produced ice.
Unilever has not yet announced exactly what the demerger will look like. The group is looking for the option that will maximize shareholder value and currently sees a spin-off with a separate stock exchange listing as the most likely option. The split seems to be beneficial for both the future independent ice cream division and Unilever, because both can then focus on what they are good at. And the ice cream division no longer has to compete with other divisions for capital, if, for example, it wants to invest in further growth. Preparations for the demerger will begin immediately and the full settlement of the process is expected by the end of 2025.
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Productivity program
Unilever did not provide an estimate of the loss of synergy benefits that will be associated with the demerger. But in addition to the spin-off, the company announced the launch of a productivity program. Within this, the company sees opportunities to save €800 million in costs over the next three years. These savings would more than compensate for the costs due to loss of synergy due to the sale of the ice cream division. The savings should come from, among other things, reduced complexity and less duplication. Around 7,500, or 5.9% of the current 128,000, employees will lose their (office) jobs. The associated redundancy costs are estimated at 1.2% of turnover over the next three years.
The plans fit in with the previously announced strategy to focus the portfolio on the strongest brands with the most growth and the highest margins. This should lead to more profitable growth. The future main division will consist of four divisions: Beauty & Wellbeing, Personal Care, Home Care and Nutrition.
Recommendation for Unilever shares to ‘buy’
For 2024, the announced demerger and cost savings program do not change the earnings per share estimate of €2.75. We see the steps mainly as a sign that CEO Hein Schumacher is taking decisive action, which should have an effect in the medium term. At a current P/E of 16.8 and with the prospect of future improvements, the Unilever share remains a cheap share with a buy rating.
