Unilever strategy turning into a long-term project
The market has reacted badly to the latest sales update from Anglo-Dutch conglomerate Unilever.
The group said it expects underlying sales growth for 2019 to be slightly below its guidance of the lower half of its 3-5% multi-year range, due to challenges in the quarter in some markets, including the economic slowdown in South Asia, one of Unilever’s largest markets, and trading conditions in West Africa remaining difficult.
It said the trading environment in developed markets continues to be challenging and while there are early signs of improving performance in North America, a full recovery there will take time.
However, Unilever, which has a key home and personal care manufacturing site at Port Sunlight in the Wirral, and a detergents plant in Warrington, said earnings, margin and cash are not expected to be impacted.
Chief executive Alan Jope said: “Due to challenges in certain markets we expect a slight miss to our full year underlying sales growth delivery.
“Looking ahead to 2020, growth will be second-half weighted.
“While we expect improvement in H1 2020 versus this quarter, we expect that first half growth will be below three per cent. Our full year underlying sales growth is expected to be in the lower half of the multi-year range.”
He added: “Growth remains our top priority and we are confident we have the right strategy and investment in place to step up our performance.”
Shares in the group fell, despite an early rally. Opening at 4,412.00 per share, they rose to 4,438.50p before dropping to 4,367.00p in early trading. By mid-day they stood at 4,368.00p, a 5.67% fall in value.
Russ Mould, investment director at Manchester investment platform AJ Bell, said today: “Even a bucket of Domestos couldn’t clean up the stink created by Unilever’s trading update.
“The company revealed that not only is sales growth short of expectations for 2019 as a whole, but it will also be behind in the first half of 2020.
“It is easy to see the expectation for next year to have a second-half weighting translate into a further warning if sales do not recover.”
He added: “The company blames an economic slowdown in South Asia and tricky trading conditions in West Africa as well as continued challenges in developed markets including North America. The reality is the consumer goods giant has been struggling to deliver organic growth for some time.
“As recently as late November at a big investor day, CEO Alan Jope had emphasised that improving growth rates was a big priority for the group.
“It now appears this will be very much a long-term project as Jope looks to reshape the portfolio of brands through investment, acquisitions and disposals.
“Another challenge for Unilever, and other big consumer goods firms, is weakening brand power amid increasing levels of choice for consumers.
“The company does, at least, seem able to keep its profit ticking over thanks to tight control of costs and it is notable that earnings, margins and cash flow are not expected to be impacted by the shortfall on sales.”
