- Underlying sales growth of 9% driven by price hikes
- Growth this year unlikely to match last year
- New chief executive takes over in July
Chief executive Alan Jope signed off on his final set of full-year results at the helm of consumer goods giant Unilever (ULVR) by delivering on his promise to grow sales by high single-digits.
After initially trading 1.3% higher at £41.55, the shares settled up 22p or 0.5% at £41.22 by mid-morning.
PRICING POWER PAYING OFF
Having said the group would increase underlying sales by more than 8%, Jope revealed revenues grew by 9% on a like-for-like basis and 14.5% on a GAAP (generally accepted accounting practices) basis to €60.1 billion last year.
Selling prices rose by 11.3% in response to high input cost inflation, helped by a 6.2% boost linked to currency movements, while volumes were down 2.1% and disposals trimmed 1% from overall sales.
Underlying sales growth at the firm’s ‘billion+ Euro brands’ such as Hellman’s, Magnum, OMO, Rexona and Sunsilk rose by 10.9% and accounted for 53% of group turnover.
Operating profits jumped 23.6% to €10.8 billion on a GAAP basis, although on an underlying basis they were almost unchanged at €9.7 billion.
Jope, who hands over to former HJ Heinz and Royal FrieslandCampina executive Hein Schumacher in July, praised what he called the ‘transformation’ of the group.
‘Our new operating model is already unlocking a culture of bolder and more rapid decision-making with improved accountability.
‘We are increasingly realising the benefits from the reshaped portfolio, accelerated savings delivery and improved execution.
‘There is more to do, but the changes we have made mean that we start 2023 with momentum, setting us up well for delivering another year of higher growth, which remains our first priority.’
For the current year, the firm is predicting further stiff price rises in the first half to offset higher input costs, and another fall in volumes as a result, but a more measured increase in prices in the second half leading to underlying sales growth ‘in the upper half’ of its 3% to 5% medium-term target.
CHALLENGES AHEAD
While the firm has raised price successfully so far, continued pressure on household budgets is forcing shoppers to trade down according to the UK supermarkets.
‘The new boss will need to think quickly about this point, as well as defining what Unilever should look like over the next decade’, says AJ Bell investment director Russ Mould.
‘As ever with a business that has so many moving parts, we aren’t likely to see any radical changes for at least a year, but Schumacher’s in-tray is already going to be full before he’s even stepped in the door.’
‘There is little wrong with Unilever on the surface’, says Wealth Club head of equities Charlie Huggins. ‘It has good brands and a great footprint in emerging markets. The problem has been execution and getting the best out of the assets it owns.
‘Several problems could probably be solved by stopping doing things, rather than seeking to do more. Stop acquiring, stop shackling employees with bureaucracy, stop making empty promises and stop the corporate gobbledygook. Instead, focus on the basics, simplify, and inject some much-needed dynamism.
‘Easier said than done of course, especially for a business Unilever’s size. But there is a potential solution to that problem - disposals. The new chief executive is bound to take a long hard look at Unilever’s portfolio. He may decide that over 400 brands is too many, especially since 13 account for about half of total sales’, suggests Huggins.
Disclaimer: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (Tom Sieber) own shares in AJ Bell.
