Unilever tea and ice cream
Unilever is focused on improving margins and cash flow in its ice cream and tea business.

LONDON — In both developed and emerging food and beverage markets, Unilever’s Foods business unit is investing in on-trend applications to drive growth. In its Refreshment business, which includes ice cream and tea, the focus is on improving margins and cash flow.

Graeme Pitkethly, Unilever
Graeme Pitkethly, c.f.o. of Unilever

“In foods, our biggest opportunity is to develop the emerging markets, already a ($5.5 billion) business for us that has been growing at more than 7%,” said Graeme Pitkethly, chief financial officer, on Oct. 13 during a conference call with financial analysts, to discuss third-quarter results. “Demand for our categories will only continue to increase as populations become more urban, with more kitchens and with more women moving into paid employment. We’re particularly well placed to meet this demand with the broad distribution reach we can command with our portfolio.

“In Africa, as elsewhere, a growing number of consumers are looking for naturalness. We’ve upgraded our Royco range, introducing naturally sundried ingredients with a richer flavor. And we’re getting good results from products fortified with iron under both our global Knorr brand and Robertsons, a local brand in South Africa.”

Unilever Knorr Mealmakers
In Europe, Knorr Meal Makers are now made with “100% natural ingredients."

Mr. Pitkethly added that in developed markets the company is also investing in natural. For example, Meal Makers, under the company’s Knorr brand, are now made with “100% natural ingredients” in Europe. Accompanying the reformulation effort is transparent packaging that showcases the ingredients, according to the company.

“Hellmann’s retains its strong heritage of real mayonnaise, but has been successfully extending with an organic variant and a wider range of dressings like barbecue and grilling sauces,” Mr. Pitkethly said.

The Foods’ baking, cooking and spreads business continues to face challenges.

Hellmann's organic mayonnaise, barbecue sauce and grilling sauce, Unilever
Hellmann's organic mayonnaise, barbecue sauces and grilling sauces have seen success.

“The B.C.S. unit … has been driving down costs and reallocating resources, as we seek to preserve the value of the very strong cash flows that this business generates,” Mr. Pitkethly said. “The operating margin of the unit, already well above the Unilever average, has improved further. The rate of sales decline has slowed in North America, but not yet in Europe.”

With B.C.S. Unilever is facing high single-digit market declines in Europe and reduced consumption in North America due to historically low butter prices.

“Now, against that, the spreads performance overall continues to be a mid-single-digit decline (and) it’s mainly volume-driven,” Mr. Pitkethly said.

To improve margins and cash flow in the company’s Refreshment business, Unilever is expanding into premium segments with its Magnum and Ben & Jerry’s brands.

Magnum Minis, Non-dairy Ben & Jerry's, Pure Leaf tea, Unilever
Magnum Minis, non-dairy Ben & Jerry's and Pure Leaf tea are responses to high-growth segments.

“In both ice cream and tea, we’re also addressing emerging high-growth segments,” Mr. Pitkethly said. “We’ve just launched Pure Leaf, already successful in ready to drink, as a natural leaf tea in the U.S. Ben & Jerry’s now has a non-dairy variant, and we're offering smaller, lower calorie options like Magnum Minis.”

During the third quarter, Unilever generated total sales of €13.4 billion ($14.7 billion). Its Foods business generated €2.9 billion ($3.2 billion) and Refreshment totaled €2.8 billion ($3 billion).

“Our business continues to demonstrate its resilience by growing competitively and consistently in tough market conditions,” said Paul Polman, chief executive officer. “With markets remaining soft and volatile, we have continued to transform our business at an accelerated pace. We are progressing well with the fast implementation of our change programs: net revenue management, zero-based budgeting and ‘Connected 4 Growth,’ making our organization more agile and responsive to market needs.”