UK/NETHERLANDS: Unilever shares jump on sales, profit beat

By Katy Askew | 21 January 2014

Unilever sees improvement in emerging markets

Unilever sees improvement in emerging markets

Anglo-Dutch consumer goods giant Unilever saw its share price jump in morning trade today (21 January) after booking better-than-expected sales and earnings.

Turnover fell 3% to EUR49.9bn (US$67.55bn) in 2013, reflecting the contribution from discontinued operations. However, Unilever said full-year underlying sales grew 4.3%, beating consensus expectations of 4.2%. After a third-quarter slump, Unilever said fourth-quarter underlying sales rebounded to growth of 4.1%, above a consensus analyst forecast of 3.9%.

Growth was weighted to the group's home and personal care businesses, with underlying food sales rising just 0.3% and refreshments gaining 1.1%. In the fourth quarter, the company's refreshment business faced some significant challenges, including lower ice cream sales in North America.

"Within the categories personal care growth was strong, accelerating to 7.3% in Q4 and momentum in home care was also strong in the final quarter at 6.5%.... However, the foods and refreshment divisions remain more challenging with 1% and minus 1.2% sales momentum respectively, albeit better than the full year average," Shore Capital analyst Darren Shirley wrote in a note to investors.

In emerging markets, Unilever said fourth-quarter revenues accelerated despite slowing market conditions, with a "step-up" of growth in Turkey, Russia, China and Indonesia. 

Group operating profit rose 8% to EUR7.5bn while net profit gained 9% to EUR3.9bn. Profitability was boosted by a 40 basis-point improvement in operating margins.

Unilever recorded core earnings per share of EUR1.58 for 2013, above a consensus forecast of EUR1.52, according to Shirley.

Unilever shares had risen 3.12% by 10:03 GMT.

Click here for comments from Unilever CEO Paul Polman on the performance of the company's under-scrutiny spreads business.

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OPERATIONAL REVIEW CATEGORIES

 

 


Fourth Quarter 2013

Full Year 2013

(unaudited)

Turnover

USG

UVG

UPG

Turnover

USG

UVG

UPG

Change in core operating margin


€bn

%

%

%

€bn

%

%

%

bps

Unilever Total

   11.8

4.1

2.7

1.4

49.8

4.3

2.5

1.8

 40       

Personal Care

4.5

7.3

6.1

1.2

18.1

7.3

5.5

1.7

80      

Foods

3.5

1.0

0.6

0.4

13.4

0.3

(0.6)

0.9

20

Refreshment

1.7

(1.2)

(4.3)

3.3

  9.4

1.1

(1.8)

2.9

(20)

Home Care

    2.1

6.5

4.7

1.8

8.9   

8.0

5.7

2.1

60

 

 

Our markets: Growth continued to slow in emerging markets as a result of the impact of economic uncertainty and currency depreciation on consumer demand. Developed markets remained weak with little sign of any overall improvement despite the more positive macro-economic indicators in recent months.

 

Unilever overall performanceWe delivered another quarter of growth ahead of our markets. Our business in emerging markets grew 8.4% driven by underlying volume growth of 5.3%. In developed markets we declined (1.7)% and within this both Personal Care and Home Care reported growth.

 

For the full year gross margin increased 110bps to 41.2% at constant exchange rates. This reflected the impact of margin accretive innovation, disposal of low gross margin businesses and disciplined savings programmes.  Advertising and promotions expenditure was up 50 bps, an increase of around €460m, as we invested to build our brands for the long term. Overheads increased by 20bps primarily due to favourable one-off items in the prior year. Core operating margin was up 40bps at 14.1%.

 

Personal Care

Hair care growth in the quarter was underpinned by strong performances from our global brands DoveTRESemméSunsilk and ClearTRESemmé benefited from launches into countries such as India and Indonesia as well as the success of the Keratin Smooth product range. Dove Repair Expertise is now in more than 50 markets, Toni&Guy was launched into the United States and Lux hair was relaunched in Japan and China with good initial results.

 

Skin cleansing growth highlights included Dove Nutrium Moisture shower gels, including the Purely Pampering range, Lifebuoy Clini-Care10 coupled with handwashing market development activities and the launch of Lux Fine Fragrance body wash. In skin care Vaseline Spray and Go continued to grow strongly and Dove was driven by the Dove Men+Care face range and the new Dove facial cleansing range with DEFI technology launched in Japan. Pond'sBB+ cream made good progress whilst the Pond's Men range in Indonesia and Thailand is leading the development of the male segment of the market.

 

Deodorants grew ahead of our markets supported by the success of the Rexona Do:More campaign and the MotionSense technology now available in both male and female versions. Axe Apollo established itself as a very successful variant and compressed deodorants have driven growth ahead of the market whilst delivering significant environmental benefits. Oral care saw the continuation of the successful Brush Day and Night campaign, which is now in 15 countries, and successful innovations such as Pepsodent Germicheck+ and Zhong Hua Porcelain White.

 

Full year core operating margin was up 80bps entirely driven by higher gross margin.

 

Foods

Although spreads sales were down in the quarter, we have seen an improvement in performance throughout the year. We saw a positive response to the Rama with Butter in Germany, Bertolli melange in Belgium, the relaunch ofFlora in the UK and the Simply Delicious clean label variants of Country Crock and I can't believe it's not Butter in the United States. Nevertheless, spreads sales overall were down due to declining margarine markets. Dressings grew on the back of market development activities.

 

Savoury growth was driven by cooking products with Knorr jelly bouillon steadily building penetration and baking bags doing particularly well in Latin America with a range of new flavour variants being extended to Mexico in the quarter. A new vitamin-A enhanced bouillon was launched in Vietnam and the successful What's for Dinner? market development campaign was rolled out to Belgium and the Netherlands and has now been deployed in seven markets. The performance of soups and sauces in developed markets was weak.

 

Full year core operating margin was up 20bps supported by increased gross margin partially offset by higher advertising and promotions. 

 

Refreshment

Refreshment underlying sales declined in the quarter mainly due to ice cream in North America where we continued to see the impact of the withdrawal of some low margin products and high levels of low-priced competition. Elsewhere we saw a good start to the summer ice cream season in southern hemisphere markets such as Brazil, helped by the relaunch of our Kibon take home ice cream range and introduction of Fruttare Mousse.

 

Tea continued to grow driven by our recent innovations such as the improved tasting Lipton Yellow Label tea-bags with our patented tea essence technology. Lipton K-Cups were successfully launched in the United States and theBrooke Bond brand continued to drive growth in India. Ades soy drinks performance remained a significant drag on sales after the product recall earlier in the year but the Soy Force relaunch started to re-build consumer demand.

 

Full year core operating margin was down 20bps. Although gross margin increased, it was impacted by the Ades recall and was insufficient to offset higher advertising and promotions and overheads.

 

Home Care

Laundry growth in the quarter was volume-driven, both in fabric cleaners and fabric conditioners. New concentrated Small & Mighty liquid detergents with an improved formulation and innovative pack are now available in 5 markets and Omo with a touch of Comfort Super-Sensorial range has been successfully launched in Vietnam. Fabric conditioners growth has been supported by the continued success of the Aromatherapy range in South East Asia.

 

Household care grew double digits in the quarter helped by white space launches such as Cif and Domestos in Brazil and the continued strong momentum of the dishwash brands. Innovations such as Cif ultrafast sprays, DomestosLonger Lasting Germ Kill and Sunlight Power of 100 Lemons all contributed to the growth.

 

Full year core operating margin was up 60bps with higher gross margin partially offset by higher advertising and promotions.

 

 

 

OPERATIONAL REVIEW GEOGRAPHICAL AREA

 

 


Fourth Quarter 2013

Full Year 2013

(unaudited)

Turnover

USG

UVG

UPG

Turnover

USG

UVG

UPG

Change in core operating margin


€bn

%

%

%

      €bn

%

%

%

bps

Unilever Total

11.8

4.1

2.7

1.4

49.8

4.3

2.5

1.8

40

Asia/AMET/RUB

 4.7

6.6

4.4

2.1

20.1

7.8

5.0

2.6

20

The Americas

 3.9

5.2

2.0

3.2

16.2

4.6

1.0

3.5

10

Europe

 3.2

(1.3)

0.9

(2.2)

13.5

(1.1)

0.4

(1.5)

70

 

Asia/AMET/RUB

Growth improved in quarter four versus quarter three despite slowing market growth in many countries. We saw a step up in growth in Russia, Turkey, China and Indonesia. Australia rounded off the year with a fourth successive quarter of growth. Growth in other countries such as Vietnam, Thailand and South Africa remained below historical run rates as a result of the weaker markets.

 

Full year core operating margin was up 20bps driven by a significant improvement in gross margin partially offset by increased advertising and promotions. Overheads were higher due to the one-off benefit from property sales in 2012.

 

The Americas

Latin America finished the year strongly with double digit underlying sales growth in quarter four underpinned by volume growth. The implementation of the new information system in Brazil was successfully completed. North America declined in weak markets mainly due to lower volumes in spreads and ice cream but Personal Care continued to grow ahead of the market building on a high comparator in the same period in 2012.

 

Full year core operating margin was up 10bps with increased gross margin partially offset by higher advertising and promotions and overheads.

 

Europe

Our markets in Europe remain flat with the early signs of stabilisation in southern Europe offset by slowing growth in northern Europe. Sales performance, whilst negative, was competitive. Declines in spreads weighed on performance in Germany and the Netherlands but the United Kingdom delivered the twenty fifth successive quarter of growth.

 

Full year core operating margin was up 70bps driven by higher gross margin and lower overheads which primarily reflect the results of restructuring activities.

 

 

ADDITIONAL COMMENTARY ON THE FINANCIAL STATEMENTS - FULL YEAR

 

Finance costs and tax

The cost of financing net borrowings in 2013 was €397 million versus €390 million in 2012. The average level of net debt increased following the acquisition of additional shares in Hindustan Unilever Limited whilst interest rate movements were favourable. The average interest rate on borrowings was 3.3% and the average return on cash deposits was 2.9%. Pensions financing, restated for the impact of the revision to the accounting standard IAS 19, was a debit of €133 million versus a debit of €145 million in the prior year.  

 

The effective tax rate was 26.4%, the same as 2012. Our longer term expectation for the tax rate remains around 26%.

 

Joint ventures, associates and other income from non-current investments

Net profit from joint ventures and associates was broadly stable at €113 million despite higher investment behind the Lipton ready-to-drink tea brand. Income from non-current investments was higher by €28 million, mainly due to the low prior year comparator which contained an impairment of warrants associated with the disposal of the US laundry business.

 

Earnings per share

Core earnings per share increased by 3% to €1.58 for the full year, driven by the growth in core operating margin, partially offset by negative foreign exchange movements. In constant currency core earnings per share increased by 10.6%. This measure excludes the impact of business disposals, acquisition and disposal related costs, impairments and other one-off items.

 

Fully diluted earnings per share for the full year was up 11% at €1.66. This included the profits on disposal of the Skippy and Wish-Bone brands partly offset by a provision for competition investigations.

 

Pensions

The net pension deficit was €2.0 billion at the end of December 2013 versus €3.3 billion as at 31 December 2012, all numbers restated for the revisions to IAS 19. The reduction in the net pension deficit reflects the impact of investment returns, in excess of the interest cost on liabilities, and cash contributions.

 

Disposals

Business disposals contributed €733 million to non-core profits versus €117 million for the full year 2012. This primarily relates to the disposal of the Skippy and Wish-Bone brands.

 

Acquisitions and disposal related costs amounted to €112 million, against €190 million in the full year 2012.

 

Free cash flow

Free cash flow was €3.9 billion, slightly lower than 2012. The reduction is due to a lower inflow from working capital which is measured against a strong performance in 2012 and currency headwinds. Net capital expenditure was slightly lower than 2012 at 4.1% of turnover.

 

Net debt

Closing net debt was €8.5 billion versus €7.4 billion as at 31 December 2012. The main factor driving the increase was the impact of a €2.5 billion cash outflow to increase the Group's interest in Hindustan Unilever Limited from 52.48% to 67.28%.

 

Finance and liquidity

During the year the following bonds matured and were repaid: (i) US $450 million 3.125% and (ii) €750 million 4.875%. On 5 August 2013 we issued a 7 year €750 million bond at 1.75% and on 6 September we issued US $750 million 2.20% fixed rate notes due March 2019.

 

 

COMPETITION INVESTIGATIONS

 

As previously disclosed, along with other consumer products companies and retail customers, Unilever is involved in a number of ongoing investigations by national competition authorities. These proceedings and investigations are at various stages and concern a variety of product markets. In the second half of 2013 Unilever has recognised provisions of €120 million related to these cases, disclosed within non-core items.

 

Ongoing compliance with competition laws is of key importance to Unilever. It is Unilever's policy to co-operate fully with competition authorities whenever questions or issues arise. In addition the Group continues to reinforce and enhance its internal competition law compliance programme on an ongoing basis.

Original source: Unilever

Sectors: Chilled foods, Condiments, dressings & sauces, Dairy, Emerging markets, Financials, Frozen, Ice cream

Companies: Unilever

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