City snapshot: Unilever restores growth targets after end of year sales acceleration

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Unilever’s sales growth accelerated at the end of its financial year, giving the consumer goods giant confidence to restore its long term growth targets.

For the full year to 31 December 2020, Unilever grew underlying sales by 1.9%, with volumes up 1.6% and price accounting for 0.3% growth.

Those underlying sales rose 3.5% in the fourth quarter, again driven by volumes, which rose 3.3% and price growth of 0.2%.

Unilever said growth was driven by hand and home hygiene products, laundry and in-home food and refreshments.

Food solutions and out of home ice cream sales declined, impacted by channel closures.

Additionally, as people stayed at home and had fewer opportunities to socialise, they spent less time on personal grooming which impacted sales in much of its beauty and personal care business, except for hygiene products where demand was high.

E-commerce grew by 61% and now represents 9% of Unilever’s total turnover.

Its food and refreshment underlying sales grew 1.3%, with 0.1% from volume and 1.1% from price.

Its retail foods business grew double digit, as restricted living led to more in-home eating occasions for consumers. Hellmann’s grew high-single digit and plant-based brand The Vegetarian Butcher grew over 70%.

However, food solutions declined by 30% as out of home channels remained closed for much of the year. Despite significant decline in the out of home business due to channel closures, ice cream grew slightly overall as we rapidly shifted resources towards the in-home business.

Underlying operating margin in Foods & Refreshment declined by 50bps, driven by lower gross margin, due to adverse mix impacts from out of home channel closures, costs related to Covid-19 and higher commodity costs in the second half of the year.

Beauty & Personal Care underlying sales grew 1.2% driven by volume, with flat price. Skin cleansing saw mid-teens volume-led growth for the year, driven by the important role of hand hygiene in combatting the spread of Covid-19.

Home Care underlying sales jumped 4.5%, with 5.1% from volume and negative pricing of 0.6%, with its major brands delivering high-teens volume-led underlying sales growth. Demand for products with germ-killing and antibacterial benefits has been elevated throughout the year, with Domestos growing by over 25%.

On a regional basis, emerging markets grew 1.2% as China and India returned to growth, after strict lock-downs in the first half of the year.

Latin America grew mid-single digit and Indonesia grew slightly, though declined in the final quarter. Developed markets grew 2.9%, led by strength in North American in-home foods. Europe declined for the full year, but grew in the final quarter.

The UK grew mid-single digit, benefiting from increased demand for in home eating and Home Care products, which more than offset negatively impacted categories.

Unilever’s overall turnover decreased 2.4% to €50.7bn, including a positive impact of 1.2% from acquisitions net of disposals and a negative impact of 5.4% from currency movements.

Underlying operating profit slid 5.8% to €9.4bn, driven by a negative impact from currency of 6.5%.

Gross margin reduced by 50bps, including a negative impact of 90bps from additional costs needed to adapt and run its supply chain and adverse mix from Covid-19.

While brand and marketing investment was conserved in the first half during the early lock-down periods, Unilever said it invested strongly behind our brands in the second half and, for the full year, brand and marketing investment was up €160m at constant exchange rates.

CEO Alan Jope commented: “In a volatile and unpredictable year, we have demonstrated Unilever’s resilience and agility through the Covid-19 pandemic.

“Early in the year, we refocused the business on competitive growth, and the delivery of profit and cash as the best way to maximise value. We have delivered a step change in operational excellence through our focus on the fundamentals of growth. As a result, we are winning market share in over 60% of our business in the last quarter, on the basis of measurable markets.

“We progressed our strategic agenda, building on our existing sustainability commitments with ambitious new targets and actions, most recently with our plans to help build a more equitable and inclusive society. We completed the unification of our legal structure under a single parent company and we continue to work on separating out the tea business as we evolve our portfolio.

“Today we are setting out our plans to drive long term growth through the strategic choices we are making and outlining our multi-year financial framework. While volatility and unpredictability will continue throughout 2021, we begin the year in good shape and are confident in our ability to adapt to a rapidly changing environment.”

Unilever said it will deliver long term value creation by continuing to evolve its portfolio and driving earnings growth, a strong cash flow and a growing dividend.

It committed to underlying sales growth ahead of its markets, in the range of 3% to 5% as well as profit growth ahead of sales growth.

Unilever will make savings of €2bn per annum from its ‘Fuel for Growth’ savings programmes, while restructuring investment will be around €1bn for 2021 and 2022 and reducing thereafter.

Unilever shares have dropped 3.6% to 4,178p on this morning’s news.

Morning update

Meat processor Cranswick has hiked its full year earnings forecast as the trading momentum delivered in the first half has continued into its third quarter.

Updating the market this morning, Cranswick said UK retail demand remained strong during its third quarter, reflecting the continued shift towards greater in-home consumption resulting from the COVID-19 pandemic.

Performance over the festive trading period was “robust” and ahead of the same period in 2019, reflecting “a well-executed Christmas plan, supported by exemplary service levels to our customers and tight cost control”.

The UK pig price continued to ease during the period, ending the quarter 9% lower than at the same stage last year. This downward trend is being reflected in selling prices.

Far East export sales were, as anticipated, lower than the same quarter last year due to a greater proportion of output being directed to UK retail customers and the temporary self-suspension of the group’s China export licences for its Northern Ireland and Norfolk primary processing facilities.

It continues to invest in its production facilities, and the capacity uplift from 1.1m to 1.4m birds per week at the Eye poultry facility will come on stream, as planned, during the final quarter of the year.

Also, the new £20m cooked bacon facility in Hull is well advanced and progressing to plan with commercial production due to start in Q1 of the new financial year.

For the remainder of the current financial year, Cranswick said the shift towards greater in-home consumption with resulting high demand for its products is expected to continue.

Adam Couch, CEO of Cranswick commented: “We have delivered another strong quarter of growth during which we have supported our customers by delivering excellent service levels to ensure full availability of our products both in store and on the fast-growing online channel.”

“Our outlook for the current financial year is now expected to be ahead of our previous expectations. Our continued positive progress reflects the substantial ongoing investment in our asset base and the quality and capability of our colleagues.”

Ahead of its AGM this morning, FTSE 100 catering giant Compass Group has said its organic revenue for the three months to 31 December 2020 was down 33.7%.

This performance was in line with its expectations, given the protracted lockdown measures to contain the virus during the winter months.

Despite little volume improvement, the group’s operating margin continues to improve, increasing from 0.6% in Q4 to 2.7% in Q1, with all regions now profitable.

This shift is due to a series of actions we have taken over the last year to adapt its operations and to manage its cost base more flexibly, including contract renegotiations and resizing of the business.

Compass Group admitted the provision of free school meal parcels in the UK “fell short of our usual high standards” and it said it has taken corrective measures that include improved supply chain processes, additional guidance and resources for employees, and stronger quality assurance checks.

Compass said that while the news around vaccinations is encouraging, the pace of volume recovery remains uncertain.

“As we enter the second quarter with varying lockdown measures in place across our key markets, we anticipate that Q2 revenues and volumes will be broadly in line with Q1. Despite this, we expect second quarter operating margin to improve by a further 50-100bps,” it stated.

“We are encouraged by the strong pipeline of new business which includes first time outsourcing and share gains, particularly in the more defensive sectors of Healthcare & Seniors, Education and Defence, Offshore & Remote.”

“Looking further ahead, we remain excited about the significant structural market opportunity globally, a return to organic revenue growth, continued margin improvement and returns to shareholders over time.”

Stock Spirits Group has issued a trading update for the period from 1 October 2020 to 4 February 2021, ahead of its AGM today.

It said that for significant parts of this period, the on-trade channel, which represented around 11% of the company’s revenue last year, has been closed or heavily restricted in each of its key markets.

These restrictions are still ongoing, albeit the company is hopeful that they will start to lift as vaccinations are rolled-out across its markets.

Therefore, performance in the on-trade has been lower than expected due to these restrictions, albeit this has been largely offset by our continuing strong performance in the off-trade, meaning its performance overall is in line with expectations.

Stock spirits grew market share in Poland’s vodka market to 30.1%, maintained its Czech Republic share at 33.5%, while growing volume and value share it Italy.

CEO Mirek Stachowicz commented: “We are pleased with the start that we have made to the year, and our performance is in line with expectations for FY2021 as a whole. Our longstanding Off-Trade focus has continued to help mitigate the impact of the closure of the On-Trade across our markets, and our local sourcing and manufacturing strategy means that there has been no disruption to our operations since the start of the pandemic.

“We are very proud of our partnership with Diageo in the Czech Republic, and the extension of our exclusive distribution agreement with them is a great opportunity for us to expand our portfolio of premium brands in that market.”

Following a decision by Diageo to consolidate its distribution structure in the Czech Republic, Stock Spirits will commence distribution of its full portfolio of premium and ‘Reserve’ brands from March 2021. This portfolio includes brands such as Zacapa Rum, Tanqueray Gin and Bulleit Bourbon.

Stock Spirits has been Diageo’s exclusive distribution partner in this market since 2014 for its core brands of Captain Morgan, Johnnie Walker and Baileys.

PayPoint has announced the completion of its £70m acquisition of Handepay after receiving regulatory and other customary approvals.

The acquisition of Handepay/Merchant Rentals “significantly enhances PayPoint’s existing cards business”, with a 30,000-strong SME customer base, access to new sectors including food services, garages and hospitality.

PayPoint said the deal gives it the opportunity “to accelerate the growth of the combined business in a growing cards market through clear operational initiatives, cross selling opportunities and synergies”.

The existing management team will join the PayPoint Group.. Mark Latham, formerly chief commercial officer at Handepay, joins the PayPoint board as card services director, responsible for the combined cards portfolio. Ian Kennedy, formerly sales director at Handepay, joins the business as sales director leading both the PayPoint and Handepay sales team.

Andy Peake has stepped down as CEO and will now act as a consultant to PayPoint.

On the markets this morning, the FTSE 100 is up 0.6% to 6,546pts.

Risers so far today include Science in Sport, up 6.7% to 48p, Compass Group, up 3.6% to 1,398.5p and Cranswick, up 2.6% to 3,526p.

Fallers - along with Unilever - include Bakkavor, down 2.8% to 82p, Hotel Chocolat, down 1.4% to 349.9p and AG Barr, down 1.2% to 495.1p.

Yesterday in the City

The FTSE 100 edged back 0.1% yesterday to 6,507.8pts, but most consumer stocks continued their recent positive run.

Marston’s, which is being courted by a PE buyer, jumped 7.5% to 94.8p.

SSP Group continued its recent recovery, up 5.7% to 323.4p, while other risers included PZ Cussons, up 4.2% to 259p, PayPoint, up 3.7% to 670p, Domino’s Pizza Group, up 2.7% to 341.8p, Cranswick, up 2.5% to 3,525p, WH Smith, up 2.3% to 1,599p, Science in Sport, up 2.3% to 45p and Pets at Home, up 2% to 422.2p.

The day’s dallers included Diageo, down 2.1% t 2,979p after strong gains on Tuesday, while Coke bottlers Coca Cola HBC and Coca Cola European Partners were down 1.6% to 2,201p and 0.8% to €41.08 respective.

Fallers also included French supermarket group Casino and French drinks firm Remy Cointreau, down 2.2% to €27.44 and 2% to €154.9 respectively

Other fallers in the UK were McBride, down 2% to 80p, McColl’s Retail Group, down 1.5% to 25.8p and Compass Group, down 0.8% to 1,349.5p.