Morning Note: Market news and an update from Unilever.
Market News
US equity markets pushed higher last night – S&P 500 (+0.6%), Nasdaq (+0.8%) – ahead of today’s Fed meeting. Swaps are currently pricing in a less than 50% chance of a June rate cut. Alphabet enjoyed a 5% rally following a report that Apple is in talks to build Google’s Gemini AI engine into the iPhone. Nvidia slipped slightly in after-market trading after it unveiled Blackwell, its new AI processor.
Congressional leaders and the White House reached an agreement to avert a partial shutdown and fund the government through to 30 September.
This morning in Asia, the yen fell after the Bank of Japan delivered its first interest rate increase since 2007. The bank set a new policy rate range of between 0% to 0.1% and scrapped its yield curve control program while pledging to keep buying long-term government debt. The Nikkei 225 rose by 0.7% in response. Other Asian equity markets fell: Hang Seng (-1.1%); Shanghai Composite (-0.7%).
The FTSE 100 is currently little changed at 7,729, while Sterling trades at $1.2685 and €1.1693. Brent rose to $86.50 a barrel, while gold trades at $2,152 an ounce.
Source: Bloomberg
Company News
Unilever has today announced it will accelerate its growth action plan through the separation of its ice cream unit and the launch of a productivity programme to drive faster growth and a higher margin. This represents the next step of the company’s rehabilitation following the appointment of the new CEO and in response the shares have been marked up by 5% in early trading.
Unilever is one of the world’s leading suppliers of consumer goods, with annual sales of around €60bn across five business groups: Beauty & Wellbeing (21% of 2023 sales), Personal Care (23%), Home Care (20%), Nutrition (22%), and Ice Cream (13%). Its products are low-ticket, repeatable purchases, with 3.4bn people using a Unilever brand every day. With unique routes to market, the company has an unrivalled emerging market presence and generates more than half of its sales from those parts of the world expected to experience strong long-term growth in demand.
At the end of last year, new CEO Hein Schumacher set out an action plan to address the gap between the group’s past performance and its potential. The focus is on:
1. faster growth: focus first on 30 Power Brands (75% of turnover), scale multi-year innovation, increase brand investment and returns, and selectively optimise the portfolio.
2. greater productivity and simplicity: to build back the gross margin and drive the benefit of the new organisational structure.
3. a stronger performance culture – there has been a raft of senior management changes and a new incentive framework.
This morning, the group has gone further and announced steps to accelerate its plan through the separation of Ice Cream and the launch of a major productivity programme. The company believes it 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 distinct characteristics compared with Unilever's other operating businesses. These include a supply chain and point of sale that support frozen goods, a different channel landscape, more seasonality, and greater capital intensity. As a result, the company has decided that the separation of Ice Cream best serves the future growth of both Ice Cream and Unilever.
Under new leadership, Ice Cream is already making significant operational changes that are expected to drive stronger performance. As a standalone, more focused business, the management team will have operational and financial flexibility to grow its business, allocate capital and resources in support of the company’s distinct strategy, including further optimising its manufacturing and logistics network, and developing wide-reaching, flexible, distribution channels over and above the changes that are currently under way. A demerger of Ice Cream is the most likely separation route, and in that case, Unilever expects the company to operate with a capital structure in line with comparable listed companies. Other options for separation will be considered to maximise returns for shareholders. Separation activity will begin immediately, with full separation expected by the end of 2025.
Following separation, Unilever will become a simpler, more focused company, operating four business groups across Beauty & Wellbeing, Personal Care, Home Care, and Nutrition. These units have complementary routes to market, and/or R&D, manufacturing and distribution systems, across both developed markets and Unilever’s extensive emerging markets footprint. In addition, the company will continue to optimise its remaining portfolio towards higher growth spaces and through brands with global reach or significant potential to scale.
Building on the early momentum of its growth action plan, the company has identified additional efficiencies that can now be accelerated. In addition to the portfolio changes, Unilever intends to launch a comprehensive productivity programme, driving focus and faster growth through a leaner and more accountable organisation, enabled by investment in technology. The productivity programme is anticipated to deliver total cost savings of around €800m over the next three years, more than offsetting estimated operational dis-synergies from the separation of Ice Cream. Incremental net savings from the programme beyond dis-synergies will provide flexibility for accelerated growth investments behind Unilever’s brands and R&D, and support margin improvement over time. The proposed changes are expected to incur restructuring costs of around 1.2% of group turnover (c. €720m) for the next three years (up from the around 1% previously communicated).
The actions announced today will leave Unilever with a structurally higher margin. Post separation, the aim is to deliver mid-single digit underlying sales growth and modest margin improvement. The group will continue to target total shareholder returns in the top third of the peer group.
Although the cost of spinning off the ice business is large, the acceleration of the ongoing theme of focus and simplification is positive.
Source: Bloomberg