BREAKINGVIEWS-Unilever ice cream spinoff needs a scoop of hope

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Aimee Donnellan

DUBLIN, Dec 5 (Reuters Breakingviews) - Unilever’s ULVR.L soon-to-be spun off gelato business will need some value-creating toppings. On Monday, the Magnum Ice Cream Company will be listed on the Amsterdam stock exchange and worth perhaps $16 billion including debt. That lowball valuation would reflect the unit's slow growth and narrow focus. To rank alongside premium snack groups like $72 billion Mondelez International MDLZ.O, CEO Peter ter Kulve will need to spruce up its profitability and find new treats besides Cornettos.

There are a variety of reasons why Unilever CEO Fernando Fernández might want to offload the business which sells Ben & Jerry’s as well as Magnum bars. In the past two years, ice cream has delivered an average of less than 3% annual sales growth, trailing the beauty and wellness division’s over 7% growth over the same period. Meanwhile, the supply chain and distribution costs needed to flog frozen foods tend to be high compared to Unilever’s household items like stock cubes. Lastly, the founders of Ben & Jerry’s, one of the business's top brands, and Unilever's top brass have publicly battled over issues like Gaza in recent years.

These issues may weigh on the company’s valuation when it lists on Monday. Assume Magnum is valued like privately-owned Häagen-Dazs maker Froneri which was carved out of Nestlé NESN.S and operated recently with a similar 16% to 17% EBITDA margin. That business, which is backed by private equity group PAI Partners and part owned by Nestlé, was recently valued at 15 billion euros, or 10.5 times its reported 2024 EBITDA. On a similar multiple Magnum would be worth 14 billion euros including debt. That's also in line with the valuation Barclays analysts recently assigned to the business.

Ter Kulve has a plan to sweeten the equity story. He is targeting hefty cost cuts of 500 million euros in the coming years, to be achieved by tidying up the supply chain, removing unnecessary waste in factories and rolling out new technology. The bigger challenge will be growing the top line, especially in an era of declining demand due to weight-loss drugs. This can be done by marketing ice cream as a relatively low calorie option versus cookies and crisps and expanding less sugary brands. They include glow-in the dark citrus-flavoured Hydro:ICE, a kind of thirst-quenching treat for Ibiza-bound “healthy hedonists”. Similarly, he hopes to roll out the company’s high protein frozen yogurt brand Yasso beyond the U.S. where it has grown sales by 20% year-on-year for the past five years.

A faster-growing, more profitable and diversified company could command a higher multiple. Valued at say 15 times 2024 EBITDA, the average of Nestlé, Mondelez and Hershey HSY.N, Magnum would be worth nearly 19 billion euros including debt. But the turnaround will happen as the core ice cream business grapples with changing consumer tastes, and the rapid rollout of weight-loss drugs. On the flip side, the fact Magnum has now been liberated from Unilever means ter Kulve should have more freedom, and a hungrier sales force to achieve his aims. That’s one good reason to hope that Magnum’s dessert may yet arrive.

Follow Aimee Donnellan on LinkedIn.

CONTEXT NEWS

Unilever’s ice cream business will spinoff and list in Amsterdam on December 8.

The new company which will be known as The Magnum Ice Cream Company will become the world's biggest standalone ice cream business, home to brands including Wall's, Ben & Jerry's and Cornetto, commanding more than a fifth of the $87 billion global ice cream market.

(Editing by Neil Unmack; Production by Streisand Neto)

((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))