British FMCG giant Unilever on Tuesday announced steps to accelerate its Growth Action Plan through the separation of Ice Cream and the launch of a major productivity programme.
"The Board believes that Unilever should be increasingly focused on a portfolio of unmissably superior brands with strong positions in highly attractive categories that have complementary operating models. This is where the company can most effectively apply its innovation, marketing and go-to-market capabilities. Ice Cream has a very different operating model, and as a result the Board has decided that the separation of Ice Cream best serves the future growth of both Ice Cream and Unilever," a statement read.
"Following separation, Unilever will become a simpler, more focused company, operating four Business Groups across Beauty & Wellbeing, Personal Care, Home Care and Nutrition. These Business Groups have complementary routes to market, and/or R&D, manufacturing and distribution systems, across both developed markets and Unilever’s extensive emerging markets footprint," it added.
The separation of Ice Cream will help Unilever's management speed up the execution of its GAP plan, which was announced in October 2023. The plan aims to prioritize quality over quantity, with the goal of achieving consistent and stronger revenue growth, improving productivity and simplicity, and enhancing Unilever's performance culture. Additionally, Unilever will continue to focus on optimizing its portfolio within the four Business Groups by investing in high-growth areas and expanding brands with global reach or significant growth potential.
The Unilever Board believes that Ice Cream's potential for growth in the future would be better realized if it were owned by a different entity. Ice Cream has unique qualities that set it apart from Unilever's other businesses, such as a supply chain and sales system tailored for frozen products, a distinct distribution network, higher dependence on seasonal demand, and greater need for investment.
The separation of Ice Cream will establish a prominent company that operates in a very appealing industry. This company possesses several renowned brands, such as Wall's, Magnum, and Ben & Jerry's, which collectively generated a turnover of €7.9 billion in 2023. With a global presence, the company holds five of the top 10 ice cream brands in terms of sales, catering to both in-home and out-of-home segments.
Ice Cream, under its new leadership, is swiftly implementing important operational changes aimed at enhancing its performance. These changes encompass increased productivity and efficiency, streamlining of products, and investments in major innovations.
The management team of Ice Cream will have the freedom to expand their business, manage finances, and allocate resources according to their specific strategy. This includes improving their manufacturing and logistics network, as well as creating efficient distribution channels. These changes are in addition to the ongoing developments within the company.
The most probable method of separating the Ice Cream division is through a demerger, and if that happens, we anticipate that the company will follow a capital structure similar to other publicly traded companies. Alternative approaches to separation will also be evaluated to optimize shareholder returns. The specific transaction structure chosen will determine the expenses and operational inefficiencies associated with the Ice Cream division's separation.
The process of separating will commence right away, and it is anticipated to be completed by the end of 2025. More details will be given at a later time.
Expanding on the initial progress of GAP, we have discovered further improvements that can now be expedited. Alongside the adjustments to our portfolio, Unilever plans to introduce a thorough productivity initiative, aiming to enhance concentration and hasten growth by operating a more streamlined and responsible organization, supported by investments in technology.
The productivity program is expected to generate approximately €800 million in cost savings over the next three years. These savings will more than compensate for the estimated operational dis-synergies resulting from the separation of the Ice Cream division. In addition, the program will generate additional net savings that can be used for investments in brand growth, research and development, and overall margin improvement. The program will also simplify operations and reduce duplication through technological interventions, standardized processes, and operational centers of excellence, all aimed at increasing efficiency.
The suggested modifications are projected to have an effect on approximately 7,500 mostly office-related positions worldwide. The anticipated expenses for restructuring are now estimated to be around 1.2 per cent of the Group's revenue for the next three years, which is an increase from the previously communicated 1 per cent of the Group's revenue. These suggestions will undergo a consultation process.
The decision to separate Unilever and Ice Cream, along with the implementation of a productivity program, will allow Unilever to concentrate its financial and management resources on its most powerful global brands. These brands have the potential to expand their respective categories and achieve consistent, sustainable growth and profitability. By separating Ice Cream and implementing the productivity program, Unilever will have a permanently higher profit margin. Following the separation, Unilever's goal is to achieve a mid-single digit increase in underlying sales and a modest improvement in profit margins.
Ian Meakins, the Chairman of Unilever, stated, "The Board is determined to transform Unilever into a higher-growth, higher-margin business that will deliver consistently for all stakeholders. Improving our performance and sharpening our portfolio are key to delivering the improved results we believe Unilever can achieve.
"The separation of Ice Cream and the delivery of the productivity programme will help create a simpler, more focused, and higher performing Unilever. It will also create a world-leading ice cream business, with strong growth prospects and an exciting future as a standalone business."
Hein Schumacher, CEO of Unilever said, "Under the Growth Action Plan we have committed to do fewer things, better, and with greater impact. The changes we are announcing today will help us accelerate that plan, focusing our business and our resources on global or scalable brands where we can apply our leading innovation, technology and go-to-market capabilities across complementary operating models."
"Simplifying our portfolio and driving greater productivity will allow us to further unlock the potential of this business, supporting our ambition to position Unilever as a world-leading consumer goods company delivering strong, sustainable growth and enhanced profitability."
"We are committed to carrying out our productivity programme in consultation with employee representatives, and with respect and care for those of our people who are impacted."
