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Unilever returned to volume growth last year as price increases decelerated, but new boss Hein Schumacher said the group’s competitiveness remained “disappointing”.
The consumer giant’s underlying sales growth in the full year was 7%, with positive volumes of 0.2% and 6.8% from price.
Underlying price growth decelerated from 10.7% in the first quarter to 2.8% in the fourth quarter, reflecting lower net material inflation in the second half. Nutrition and ice cream faced the highest input cost inflation in 2023, which translated into higher pricing.
Growth from the group’s 30 Power Brands was 8.6%, with beauty & wellbeing and personal care delivering strong volume growth throughout the year. Home care returned to positive volume growth in the second half.
Volume growth for the group accelerated to 1.8% in the fourth quarter, with 3.9% volume growth from those 30 Power Brands.
However, the percentage of business winning market share on a rolling 12 month-basis was “disappointing” at 37%.
This “poor” performance reflects share losses to private label in Europe, consumer shifts to super-premium segments in North America and a significant reduction of unprofitable SKUs globally.
In category terms, beauty & wellbeing grew underlying sales by 8.3%, with strong volume growth of 4.4%. Personal care grew underlying sales 8.9%, with 3.2% from volume and 5.5% from price, led by strong sales growth of deodorants.
Home care grew underlying sales 5.9%, driven by 6.8% from price and a 0.9% volume drop, with positive volumes in emerging markets offset by a double-digit decline in Europe.
Nutrition grew underlying sales 7.7%, with 10.1% from price and volumes down 2.2% given higher input costs and a challenging European market. Ice cream’s underlying sales growth was disappointing at 2.3%, with price growth of 8.8% and a volume decline of 6%, reflecting the impact of downtrading in the in-home channels.
Regionally, emerging markets (58% of group turnover) grew underlying sales 8.5%, with 1.6% from volume and 6.9% from price.
Underlying sales in developed markets (42% of group turnover) grew 4.8% in the full year with 6.7% from price and a 1.8% drop in volumes.
North America delivered strong growth of 5.8% with 2.5% from volume and 3.3% from price, while in Europe, underlying sales growth was 4.1%, driven by 12.8% from price given its higher exposure to categories with significant cost inflation, and a volume decline of 7.7%.
Total turnover was €59.6bn, down 0.8% versus the prior year, including (5.7)% adverse foreign exchange translation and 1.7% from disposals net of acquisitions.
The group’s underlying operating profit was up 2.6% to €9.9bn, with underlying operating margin increasing 60bps to 16.7%.
Gross margin improved by 200bps to 42.2% with an improvement of 330bps in the second half as the group more than mitigated net material inflation of around €1.8bn through improved productivity, price and mix while stepping up brand and marketing investment.
CEO Hein Schumacher commented: “Today’s results show an improving financial performance, with the return to volume growth and margins rebuilding. However, our competitiveness remains disappointing and overall performance needs to improve. We are working to address this by improving our execution to unlock Unilever’s full potential.
“In October, we set out a Growth Action Plan focused on three priorities: delivering higher-quality growth, stepping up productivity and simplicity, and adopting a strong performance focus.
“The new leadership team has embedded the action plan at pace. We have increased investment behind our 30 Power Brands, accelerated portfolio transformation, and are driving a sharper performance focus with clear and stretching targets across the whole organisation.
“We are at the early stages of this work and there is much to do but we are moving with speed and urgency to transform Unilever into a consistently higher performing business.”
Looking forwards, Unilever expects underlying sales growth for 2024 to be within its multi-year range of 3% to 5%, with more balance between volume and price.
It also guided to a modest improvement in underlying operating margin for the full year through gross margin expansion, driven by a step-up in productivity and net material inflation back to more normal levels.
Unilever shares are up 3.2% on the news to 4,025p.
Morning update
Tobacco giant British American Tobacco has reported a “resilient” 2023 as its revenues from new categories continued to grow.
Reported revenue in the year to 31 December decreased by 1.3% to £27.3bn, largely due to the sale of its businesses in Russia and Belarus partway through the year, as well as the impact of lower cigarette volume and fx headwinds.
These factors offset a 17.8% rise in new category revenue growth, up 21% organically with volume growth in all its categories.
New category growth was driven by Vuse and Velo, with revenue from non-combustibles now 16.5% of total revenues.
Notably new categories achieved profitability in 2023 (at a category contribution level), two years ahead of original target and contributing a £398m to group profit.
Overall cigarette volume declined 8.2%, a decline of 5.3% on an organic basis.
This was mainly driven by the US cigarette volume decline of 11.4% as the US cigarette industry was down 7.5% due to continued macro-economic pressures and proliferation of illicit single-use vapour products impacting industry volumes into the second half of 2023.
Despite this, the group’s commercial plans are delivering early signs of portfolio stabilisation with our volume share up 40bps since January 2023.
The group reported a headline loss from operations of £15.75bn due to a £27.6bn non-cash impairment charge mainly related to its US business.
Adjusted organic profit from operations up 3.9% at constant rates, with adjusted organic operating margin up 40 bps to 45.6%
CEO Tadeu Marroco commented: “2023 was another year of resilient financial performance and delivery in line with our guidance, underpinned by our global footprint and multi-category strategy, despite a challenging macro-environment.
“Our refined strategy commits us to ‘Building a Smokeless World’, a predominantly smokeless business, with 50% of our revenue from non-combustibles by 2035. Consistent with this vision, and taking into account the current macro-economic pressures impacting the US combustibles industry, the growth of illicit single-use vapour products and uncertainty around a potential menthol ban in the US, we have taken a non-cash impairment charge of £27.3bn, mainly relating to our acquired US combustibles brands.
“We are investing to strengthen our US business, accelerate innovation momentum, and enhance capabilities that support our strategic delivery. We expect these investments, together with the US macro-economic pressures, will impact 2024. Thereafter, we will progressively build to deliver 3-5% organic revenue, and mid-single digit adjusted organic profit from operations growth by 2026 on a constant currency basis. We are committed to continuing to reward shareholders with strong cash returns throughout this period.
“I am confident that the choices we have made will drive our long-term success and create sustainable value for all our stakeholders.”
Elsewhere, catering giant Compass Group has posted a first quarter trading update ahead of its AGM this morning.
The group’s organic revenue for the three months to 31 December 2023 increased by 11.7%, with strong growth across all regions.
Europe was up 13%, North America up 11.3% and the rest of the world up 11.8% in the period.
“Like-for-like volume was better than we anticipated, especially in business and industry, with all other growth drivers in line with our expectations when we reported the full-year results.”
It continues to invest in growth opportunities in core markets, with net acquisition expenditure in the first quarter of $352m, of which most related to the completion of Hofmanns in Germany.
CEO Dominic Blakemore said: “We’ve had a strong start to the year with sustained balanced growth across all regions. Outsourcing trends and volumes were strong despite continued inflationary pressures and some macroeconomic uncertainty.
“The group’s good cash generation and balance sheet gives us the flexibility to invest in capex, driving organic growth, and acquire high-quality businesses, unlocking further growth and enhancing shareholder returns.
“Our 2024 guidance remains unchanged. Underlying operating profit growth is expected to be towards 13%3 delivered through high single-digit organic revenue growth and ongoing margin progression.”
On the markets this morning, the FTSE 100 has edged up several points to 7,632.1pts.
Risers include DS Smith, up 5.7% to 297p, British American Tobacco, up 4.7% to 2,427.5p and Kerry Group, up 4.2% to €81.85.
Fallers include Greencore, down 1.1% to 99.1p, Bakkavor, down 1% to 96.1p and Coca-Cola Europacific Partners, down 0.8% to €62.00.
Yesterday in the City
The FTSE 100 closed yesterday down 0.7% at 7,628.8pts.
Sainsbury’s dropped 6.1% back to 258.9p after unveiling its ‘Next Level Sainsbury’s’ strategy targeting £1bn in cost savings over the next three years as part of its new strategy launch.
PZ Cussons slumped 16.4% to 107p after falling to a £90m operating loss as the ongoing devaluation of currency in Nigeria slammed the personal care group.
Other fallers included Coca-Cola HBC down 2.2%to 2,239p, Naked Wines, down 2.1% to 65.8p, Coca-Cola Europacific Partners, down 2.3% to €62.50, Nichols, down 1.8% to 992p, Wynnstay, down 1.9% to 390p and Kerry Group, down 1.6% to €78.55.
Risers included Virgin Wines, up 8.4% to 37.5p, Hilton Food Group, up 2.3% to 805p and Just Eat Takeaway.com, up 1% to 1,219p.
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