Unilever prepares to offload tea business amid flat H1 earnings

Group operating margin for H1 hit by cost inflation with full-year margin likely to remain level

Unilever is preparing to offload its tea business in October as it eyes an exit from the group via IPO, sale or strategic partnership, the business reported in its Q2 earnings results this week.

The tea business arm generated revenue of €2 billion in 2020, excluding hot tea operations in India and Indonesia.

The group expects to finalise the separation of the business arm’s operations by October.

In its earnings, wider group turnover for the six-month period was largely flat year-on-year at €25.8 billion, while operating margin decreased by 1%.

Lower operating profit across the group resulted in free cash flow dropping from €2.9 billion in H1 2020, to €2.4 billion in H1 2021.

Unilever CEO Alan Jope said of the results: “We are making good progress against the strategic choices outlined earlier this year, including the development of our portfolio into high growth spaces.

“Competitive growth is our priority, and we are confident that we will deliver underlying sales growth in 2021 well within our multi-year framework of 3-5%, despite more challenging comparators in the second half,” Jope added.

“We have seen further cost inflation emerge through the second quarter. Cost volatility and the timing of landing price actions create a higher-than-normal range of likely year-end margin outcomes. We are managing this dynamically and expect to maintain underlying operating margin for 2021 around flat.”

However, Unilever’s food and refreshments arm recorded €5.5 billion in turnover during Q2, indicating a 6.8% increase year-on-year.

The global CPG behemoth said underlying sales in functional nutrition, one of its higher growth segments, grew high single-digit in Q2.

Its food and drinks business outperformed all other segments during the quarter, as beauty and personal care reported €5.4 billion in turnover and home care turnover came in at €2.6 billion.

Food solutions increased double-digit in H1 2021, although most markets have yet to recover to pre-pandemic 2019 turnover.

In-home foods grew low single-digit despite the normalisation of shopping habits and the return of hospitality venues over the last few months.

Underlying operating margin was up 0.6% in H1 on a boost in marketing efforts and less spent on overheads than the previous year.