- Underlying sales growth across all five business segments
- Negative pricing developments in India and Indonesia
Recent press comment on Unilever (ULVR) has centred on the practical difficulties associated with the group’s decision to hive off its ice cream businesses. The relentless pursuit of social justice causes by the Ben & Jerry's brand obviously informed that decision, but the group cited a “different channel landscape, more seasonality, and greater capital intensity” as contributory factors.
The separation of the business from the rest of Unilever, which forms part of its “Growth Action Plan” to optimise the business structure, will complete by the end of 2025. A demerger seems the most likely option, although management hasn’t ruled out an outright sale. The relative pros and cons of the split in relation to the group’s cost base will partly determine the extent to which management will be able to maximise returns for shareholders.
For now, however, the owners of the fast-moving consumer goods group can take some heart from a Q1 update that detailed volume growth across all five business units, including ice cream. Underlying sales growth came in ahead of company-compiled consensus at 4.4 per cent, with turnover up by 1.4 per cent to €15.0bn (£12.8bn). The improvement was particularly noticeable at the beauty and wellbeing segment.
Arguably, the potential growth characteristics of the product portfolio are reflected in underlying sales growth of 5.4 per cent in emerging markets, with volumes on the rise in the Latin American, Turkish and African markets a pointer to positive demographic trends. However, the group did highlight negative pricing developments in India and Indonesia. In the case of the latter locale, the problems stem from Indonesian consumers “avoiding multinational brands in response to the geopolitical situation in the Middle East”.
Whatever the geographical trend, the group’s determination to streamline its product portfolio seems justified given that the sales growth of its “power brands” easily outstripped the group average. These brands now account for 75 per cent of turnover, but it’s likely that this proportion will increase over time in line with optimisation measures.
Last IC views: Hold, 4,014p, 8 Feb 2024
