Contrasting fortunes at Unilever with better revenues but lower profits

Household goods and foods conglomerate Unilever today reported better annual sales, but a sharp fall in pre-tax profits.

Turnover for the year was 2.7% better, on constant currency rates, at €51.98bn, while pre-tax the profit of €8.289bn was a 32.5% fall on the previous year’s figure of €12.56bn.

Highlights for the year included underlying sales growth of 2.9%, with 1.2% volume and 1.6% price.

The underlying operating margin increased 50bps with 30bps from gross margin

Operating margin and net profit decreased due to the €4.3bn prior year gain from the disposal of the spreads business.

Free cash flow was up €700m to €6.1bn, helped by higher underlying operating profit which grew by €500m.

Chief executive Alan Jope said: “In 2019 we delivered underlying sales growth of 2.9%, balanced between price and volume, a further year of good margin and earnings progression, and strong free cash flow.

“We saw strong growth from emerging markets and our Home Care division.

“Overall growth was slightly below our guided range for the year due to the slowdown we saw in the fourth quarter.

“We are now stepping up execution against our fundamental drivers of growth.

“These are to: Increase penetration by improving brand awareness and availability; implement a more impactful innovation programme; improve our performance in faster growing channels; drive purpose into all our brands; and fuel growth through cost savings.

“We are continuing to evaluate our portfolio and have initiated a strategic review of our global tea business.

“In 2020, our underlying sales growth is expected to be in the lower half of the multi-year 3-5% range and will be second-half weighted.

“While we expect an improvement from the fourth quarter of 2019 into the first half of 2020, first half underlying sales growth will be below 3%.

“The impact of the coronavirus outbreak is unknown at this time. As we near the completion of our three-year strategic plan, we expect continued improvement in underlying operating margin and another year of strong free cash flow, remaining on track for our 2020 goals.”

Unilever operates a key home and personal care manufacturing site at Port Sunlight in the Wirral, and a detergents plant in Warrington.

Earlier this month the group announced that 100 jobs are set to go at the Port Sunlight factory and research facility, where it employs around 1,800 staff making brands such as Dove, Lynx, Comfort and Domestos.

Around 750 scientiests work at the research centre.

The cuts are expected to affect IT, research development and factory support workers.

Unilever said it had already shed 125 employees in 2019 and that the next two years would see a further 100 employees made redundant.

Russ Mould, investment director at Manchester investment platform AJ Bell, said: “It is little wonder that Unilever’s tea brands are poised over the rubbish bin after their sluggish showing left a bitter aftertaste in its latest financial results.

“With sales of products like PG Tips and Lipton under pressure in developed markets, suggesting either a move away from the traditional cuppa or less attachment to specific brands in this market, Unilever has been focusing on items such as premium tea and fruit and herbal varieties.

“However, it appears more drastic action might be required. The decision to launch a strategic review of its tea business reflects an attempt under CEO Alan Jope to reposition the company towards areas of higher potential, after a period in which growth has been harder to come by.

“Unilever has already parted with low-growth brands in the past – selling its spreads business in December 2017 for £6bn.

“The underlying group performance in the fourth quarter was actually a little better than expected after a pre-Christmas warning linked to declining sales in South Asia and West Africa.

“The company continues to expect a second-half weighting to 2020. This could be setting itself up for a fall if the anticipated recovery doesn’t come through.

“The risks of such a disappointment look greater given the escalating coronavirus outbreak in China, whose impact the company admits remains an unknown.”