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Unilever splits spreads business into The Baking, Cooking and Spreading Company

Last week Unilever announced it will split its US and European spreads operations into a standalone unit, a first step toward a possible exit from a struggling business that the company has failed to turn around over the past two years.

The new entity, including brands such as Flora and I Can’t Believe It’s Not Butter, will be running by mid-2015, Unilever CFO Jean-Marc Huet told an investor seminar in London. The unit’s sales account for about 5 percent, or €2.5bn ($3.1bn), of Unilever’s total revenue.

A declining market for margarine and price deflation have led sales to drop for two years at the spreads business, all of which is valued by analysts at between €6bn and €10bn euros. By announcing the split, Unilever spurred speculation about a possible exit, even though the company said it doesn’t plan a sale or spinoff.

Under CEO Paul Polman, Unilever has focused on its health and beauty business, while selling slower-growth food brands, mainly in the US. The company in May agreed to sell its Ragu and Bertolli pasta sauce business to Japanese food maker Mizkan Group for about $2.15bn.

The separated spreads unit will become known as the Baking, Cooking and Spreading Company and will have a dedicated management team headed by executive VP Sean Gogarty and its own financial statements. It will have more focus and will be faster as it gains more freedom to take “necessary decisions,” Unilever said.

“This is an important part of our portfolio and heritage but this will never ever be a barrier to take determined action,” Huet said. “We are now taking the next step in making margarines more competitive.”

After years of positioning butter as the enemy of margarine, Unilever last year added butter to some of its spread brands like Rama. The move came amid a comeback by butter, lifted by a consumer embrace of all things natural. US per-capita butter consumption hit a 44-year high in 2012, according to US government data, while margarine is at a 70-year low.
With brands including Country Crock and Stork, London- and Rotterdam-based Unilever is the world’s leading maker of spreads with more than 30 percent of the market, according to researcher Euromonitor.

The company’s share of the US market for butter and margarine declined to 18.6 percent in the four weeks ended Nov 22, according to Nielsen data. That’s a three percentage point drop from last year.

The entire spreads unit represents about 7 percent of Unilever’s total revenue, or 27 percent of its food division’s 13.4 billion euros of sales, according to the company.

“This is long overdue,” said Andrew Wood, an analyst at Sanford C Bernstein, who estimates that the parts being separated are worth as much as 4.2 billion euros. “Hopefully it’s a forerunner to the eventual sale or spin of the business, but it is clearly no longer part of the core future of Unilever, which is good news.”

Source: Blomberg

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