Unilever: food fight Premium

Hooray. The wheels have not completely come off the emerging markets growth story. Both Unilever and SABMiller reported decent growth from all the Brics, Mints and Civets on Tuesday (although SABMiller was a shade below expectations). The acronymed masses still eat, drink and wash, it appears. Shares in Unilever, which warned about growth in September, jumped 3 per cent.

That out of the way, another, perhaps more pressing, issue at Unilever can be addressed. Five years ago, food, drink and ice cream accounted for almost 60 per cent of the group’s profits. Now the figure is closer to 50 per cent, with personal care (soaps, shampoos and the like) taking up the slack. That is partly because personal care products have been easier to sell in emerging markets. But it is also down to investment decisions. Recent disposals include Skippy peanut butter and Wish-Bone salad dressings. Investments include Iluminage, a beauty company, and, in 2011, the acquisition of the Alberto Culver beauty products.

Unilever does not break down the assets employed in each part of its business, nor the return on capital that those divisions produce. So it is difficult to assess whether those investment decisions have been wise ones. It is clear, however, that the food business is a laggard. Sales of food and drink barely inched ahead in 2013, against 7-plus per cent growth elsewhere. Operating profits in food fell 5 per cent.

Talk has emerged that Unilever should consider a split. Shorn of the grind of selling margarine to penny-pinching Europeans, the company would be a rapidly growing emerging markets personal care business, attracting a higher multiple than the current 18 times forecast earnings. Possibly, although as ever with a demerger there is a cost from the loss of scale.

Tuesday’s numbers, decent overall, will ease the pressure in that direction. But the food business cannot be a shrinking violet forever. Unilever needs to invest in its growth, or let it go to someone who will.

Email the Lex team in confidence at lex@ft.com

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