Home Estate Planning Unilever: Why job cuts and ice cream split may be a sweet deal for the FTSE 100 business

Unilever: Why job cuts and ice cream split may be a sweet deal for the FTSE 100 business

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Consumer goods giant Unilever topped the FTSE 100 leaderboard on Tuesday as news of job cuts and a spin-off of its ice cream business appealed to investors. 

Shares in the maker of Dove soap and Marmite climbed over three per cent after it was announced that it would cut five per cent of its workforce in efforts to save around £683m. 

The board also said its ice cream division, which makes the popular Ben and Jerry’s and Magnum brands, would be “better delivered under a different ownership structure.”

Today’s decision is thought to be influenced by the billionaire activist investor Nelson Peltz. Peltz acquired a stake in the firm two years ago, in 2022, and at the time, investors cheered his arrival following his success at Unilever’s peer P&G. 

Hans Schumacher, Unilever’s new chief executive, has also been quite vocal in recent months about the company’s shoddy performance. 

Schumacher, who joined from a Dutch dairy giant last July, previously told investors the cosmetics and confectionery maker was not “reaching its potential” and the firm had “under-delivered”.

In an update at the start of the year, he described the brand’s competitiveness as “disappointing” and said “overall performance” needed to improve.

Shares in Unilever fell nine per cent last year as inflation ate into its profit margins and allegations of greenwashing bruised the company’s reputation. 

The board warned earlier this year that less than four in ten of its brands were currently claiming market share.

The slashing of 7,500 job roles and the separation of its multi-million-pound ice cream arm add to the chief’s turnaround plan, which was announced last quarter. 

At the time, Unilever said it was aiming for between three to five per cent of underlying sales growth, which would be achieved by stepping up innovation and investment behind its 70 top-performing brands. 

Charlie Huggins, head of equities at the Wealth Club, described today’s decision as a “good move” and said it should “improve the quality of Unilever’s portfolio and accelerate both revenue growth and margins.”  

“It shows that Hein Scumacher is willing to take bold actions to turn the company around, which is what Unilever desperately needs,” he explained. 

“Ice cream is a lower margin business and has struggled recently, losing share to competitors.”

He added: “Separating out the ice cream business will simplify the group and free up resources to invest behind the biggest brands.”

“Overall, this separation should improve the quality of Unilever’s portfolio and accelerate both revenue growth and margins.”

Russ Mould, investment director at AJ Bell said a “demerger and separate stock market listing for the ice cream arm is seen by Unilever as the most likely outcome.”

He explained: “Achieving underlying sales growth and margin improvement doesn’t sound an overly ambitious goal but given the extent of price increases consumers have had to stomach thanks to inflation it may not be easy to achieve.

“The danger for Unilever is that people are put off by its branded goods because of the cost and they turn to cheaper supermarket own-brand alternatives.”

“This risk is particularly acute in the West where quality unbranded goods are widely available. Unilever is in a stronger position in emerging markets where the same choice is not as freely available,” he added.

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