By Alexander Marrow, Dimitri Rhodes and Charlie Conchie
LONDON, Dec 12 (Reuters) - With The Magnum Ice Cream Company's supply-chain chills gone, the pressure is on Unilever to show that its shift towards beauty and wellbeing can fire up growth and margins.
The spinoff is also seen as a test of whether moves by consumer goods groups globally to sharpen their focus will provide the special ingredient they need to boost performance.
Unilever is betting on brands like Nutrafol, Vaseline and Liquid I.V.
in the faster-growing personal care and beauty businesses, with the spin-off freeing up resources and removing the need for a complex, cold supply chain.
"For the underlying Unilever business, ice cream has been a drag on volumes," Edward Lewis, Rothschild & Co Redburn analyst, told Reuters. "It's a very different business to a beauty and well-being business or a personal care business."
UNILEVER HOPING 'BENEFITS OF FOCUS' PAY OFF
Strong growth in beauty and wellbeing, particularly in North America, led to a third-quarter earnings beat for Unilever. The business accounts for more than half the company's revenues after the spinoff.
CEO Fernando Fernandez has looked to speed up Unilever's turnaround and improve its range of brands since taking over in March. He has highlighted innovation in its Cif cleaning product and 12% volume growth from 155-year-old skincare brand Vaseline.
"The separation of ice cream for me was very, very important to continue accelerating our performance and competitiveness," Fernandez said at an event hosted by JPMorgan on Tuesday.
Keeping ice cream cold makes the supply chain more costly than for other Unilever products such as Dove soap or Domestos disinfectant and its high level of seasonality means sales volumes fluctuate.
Unilever expects its operating margins to be 100 basis points higher without ice cream in the second half of this year, rising to at least 19.5% of revenue, Fernandez said.
With around 400 brands prior to this spinoff, Unilever's portfolio was a bit disparate, Jack Martin, investment director at Unilever shareholder Oberon Investments, told Reuters.
"I think the benefits of this strategy are obvious. Whilst there are advantages to diversification and scale, there are also benefits on focusing on doing a smaller number of things well," Martin said.
The blueprint is fast-growing brands, such as hydration product Liquid I.V., acquired as a $120 million brand in 2020, and now approaching $1 billion in revenue. Hair growth supplement Nutrafol, a $220 million brand when purchased in 2022, will also be close to hitting $1 billion this year, Fernandez said.
Michael Fanner, corporate partner at Linklaters, which advised Unilever and Magnum on the demerger, said Unilever was not alone in looking to zero in on the top-selling brands.
"There is a sense that for a lot of companies, to improve performance and drive value, they need to work out what are the things they're really good at, that they really want to focus on," he said.
Nestle is reviewing its entire portfolio, with vitamins and water brands ripe for disposal, while Reckitt is finalising the sale of Essential Home business to Advent International.
BEN & JERRY'S 'DISTRACTION' GONE
Unilever has retained a 19.9% stake in Magnum, which started trading with a market capitalisation below analyst expectations of around $9.1 billion.
Many of investors will be waiting to see what happens, said a person familiar with the demerger, with Magnum now having to show what it can do as a standalone entity.
Magnum will inherit the challenges posed by Ben & Jerry's, the Vermont-founded ice cream maker, which repeatedly clashed with Unilever over political and ethical stances, particularly regarding the war in Gaza.
The Ben & Jerry's fallout created "a lot of noise around the edges" said a person familiar with the matter, but it did not really interfere with the spinoff process.
Getting the deal done will be a relief for Unilever, Morningstar analyst Diana Radu told Reuters.
"The fact that Ben & Jerry's related noise and distractions are gone (is a bonus)," Radu said.
(Reporting by Alexander Marrow, Dimitri Rhodes and Charlie Conchie; Editing by Adam Jourdan and Jane Merriman)
