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Branded Content The Cornetto Way

Branded content is made up of ideas that bring entertainment value to brands and that integrate brands into entertainment. This could be in the form of a TV programme, community events, film or video - any content, provided it links important passions to brands with a strategic reason.

Fragmentation and consumer empowerment in a world of personalised media platforms mean that consumers can choose if they want to engage with brands or not at the touch of a button.

Sophisticated content strategies enable brands to reach people without shoving brand messages down their throats. By facilitating new entertainment experiences, brands gain fame and goodwill. The more value created for the consumer, the more value is created for businesses.

Branded content involves coming up with the creative ideas together with the brand and producers.

One of the companies that delivers outstanding results with branded content is Unilever (NYSE:UN). As the world's biggest ice cream manufacturer it is king of creating brand awareness. The bulk of the company's ice cream business falls under its "Heartbrand" brand umbrella, so called because of the brand's heart-shaped logo.

The Heartbrand was launched in 1998 (and slightly modified in 2003) as an effort to increase international brand awareness and promote cross-border synergies in manufacturing and marketing. Although the logo is common worldwide, each country retained the local brand so as to keep the familiarity built over the years.

Unilever generally manufactures the same ice-cream with the same names, with rare occasions of regional availability, under different brands. Some of these ice-creams include Cornetto, Magnum, Solero and Viennetta.

For example Cornetto, Unilever's ice cream brand is now growing more than 30% versus last year. In China, Cornetto's 7-minute digital microfilms have been watched 280 million times in the last 8 weeks.

Recent global and national economic trends have upended the fast moving consumer goods (FMCG) market in emerging markets. The long-term economic growth of emerging markets such as China, Brazil, India and Indonesia has produced consumers with higher levels of disposable income, driving FMCG manufacturers such as Unilever to increase supply.

To succeed in this market, FMCG companies must prove they can be both demand- and innovation-driven. Marketers must confront sophisticated consumers with innovative and unique product offerings.

The Power Of Innovation

Unilever's Home Care for example continues with strong momentum. The strong growth trends of the first quarter in Home Care continued in quarter 2. This results in an underlying sales growth just short of 10%. Volume growth contributed strongly, up over 5% for the first half of 2012. Market shares in Laundry have increased not only in emerging markets such as Indonesia, India or Brazil but also in Europe with strong performances in the U.K., as well as France. Innovation is the key driver of Unilever's success in this category. The roll-out of the new and improved Omo and Comfort Anti-Bacterial are just 2 examples of this.

In key markets such as Russia and the U.S., the launch of new products, such as Lipton Tea & Honey. Lipton Tea, which incorporates liquid essence, has accelerated growth and helped Unilever to gain share.

Results

Where Danone (OTCQX:DANOY) and Procter & Gamble (NYSE:PG) came with profit warnings, Unilever beat the competition with strong numbers, although it warned for difficult economies and volatile commodity costs.

Last Thursday Unilever's second-quarter underlying sales rose 5.8 percent helped by its lower exposure to problem economies such as Spain than Danone, while it has more business in fast-growing markets like India and Indonesia than P&G. Unilever's first half year results were solid with sales growth ahead of expectations, driven by stronger-than-expected price/mix contribution of 4.1%. The underlying sales growth came in at 7% compared with consensus at 6.5x. As mentioned before this was mainly due to the strong performance of the emerging markets, which reported a 11% growth.

The core EBIT margin was flat, better than consensus of -20bp and was achieved despite 10 basis points higher A&P expenses as % of sales. Net core profit and net core EPS of EUR 2,208 million and EUR 0.76 were in line with expectations. Geographically, all regions outpaced volume growth and price/mix expectations except Europe, where volumes disappointed. Despite deteriorating global economic conditions, Unilever sticks to its ambition of delivering modestly higher core EBIT profitability and because of this maintained outlook

The 5.8 percent rise beat a company-compiled consensus forecast of 4.8 percent and came after a first-quarter increase of 8.4 percent and 6.5 percent growth for 2011.

Final Note

The strong results contained many positive surprises regarding the underlying sales growth and the underlying operational margin developments.

The stock is trading at PE of 17.2x in 2012 and 15.7x in 2013 earnings forecasts, trading higher than for example Danone, which trades at a PE of 16.3x and 14.9x respectively. Despite that I think that the competitive advantage of Unilever regarding its large exposure to the emerging markets deserves a higher valuation. Also the impact of their branded content and innovation makes this company a valuable investment for your core portfolio.

Source: Unilever, Conservative Play The Cornetto Way