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Unilever has warned that it will take further pricing action in 2023 to cope with continued inflationary pressures, despite pushing through double-digit price hikes in 2022.

The group’s underlying sales growth last year stepped up to 9% in 2022, but this was entirely driven by pricing in the face of significant input cost inflation.

Price growth sequentially increased through each of the past eight quarters, reaching a record 13.3% in the fourth quarter and taking the full-year underlying price growth to 11.3%.

This had a negative impact on sales volumes, which declined 2.1%.

Overal turnover increased 14.5% to €60.1bn for the 12-month period, including a currency benefit of 6.2% and a 1% reduction from disposals net of acquisitions.

Despite the price hikes, underlying operating margin declined by 230bps to 16.1%, reflecting €4.3bn of net material inflation, and increased production and logistics costs.

Underlying operating profit improved 0.5% to €9.7bn despite the significant margin declines.

On a divisional basis, beauty & wellbeing grew underlying sales by 7.8% driven by price. volumes were slightly positive, helped by another year of strong growth in prestige beauty and health & wellbeing.

Personal care underlying sales were up 7.9%, driven by strong pricing, while volumes grew in deodorants, but declined in other categories.

Home care, which was particularly exposed to rising input costs, delivered the highest price growth and some volume decline, leading to underlying sales growth of 11.8%.

Nutrition grew 8.6%, led by high price growth of dressings and a continued recovery of Unilever Food Solutions. Ice cream improved underlying sales by 9.0%, with strong volume growth in out-of-home channels, benefiting from a good summer season, but not quite compensating for lower in-home volumes.

Geographically, emerging markets grew underlying sales by 11.2% with price of 13.5% and volume down 2.0%. Developed markets increased by 5.9%, with 8.4% from price and a 2.3% volume decline. Volumes held up better in North America than in Europe.

Unilever warned that cost inflation would continue in 2023, with first half net material inflation of around €1.5bn.

Therefore, in the first half underlying price growth will remain “high”, and volume growth will be negative.

However, Unilever said it anticipates “significantly lower” inflation in the second half, though it does not expect cost deflation.

Volumes will improve as price growth softens, but the group said it is “too early to say” whether volume will turn positive in the second half.

It expects 2023 underlying sales growth to be at least in the upper half of our multi-year range of 3%-5%.

It plans to deliver only a modest improvement in underlying operating margin in the full year, as it guided towards another year of increased investment, and with cost inflation remaining high.

CEO Alan Jope commented: “Unilever delivered a year of strong topline growth in challenging macroeconomic conditions. Despite sharp rises in material costs, we have prioritised stepping up our brand and marketing investment. Underlying operating margin was delivered in line with our guidance, with underlying operating profit up for the year.

“We have made further progress in the transformation of Unilever and continued to deliver against our strategic priorities. Our new operating model is already unlocking a culture of bolder and more rapid decision-making with improved accountability.

“We continue to improve our growth profile, with the sale of the global tea business and the acquisition of Nutrafol. 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.”

Unilever shares are up 0.2% on the news to 4,109p.

Morning update

Ahead of its AGM this morning, Compass Group has updated the market on its trading so far this year.

In the first quarter of the year, its organic revenue grew by 24% as it continues to benefit from strong outsourcing trends with net new business growth of 5.5%, significantly above the group’s historical rate of around 3%.

Like-for-like volumes were particularly strong in business & industry, as employees continued to return to the office, and in sports & leisure, where participation rates remained high.

While inflation remained elevated, it said it continued to work closely with clients to help mitigate this pressure both operationally and through appropriate pricing.

All regions performed strongly in the quarter, with organic growth of 23% in North America, 26% in Europe and 27% in Rest of World.

Overall, it said the outsourcing market remains strong, and we are excited about the significant growth potential across its markets.

“The increasingly complex operating environment and growing focus on sustainability and digitalisation, combined with our market-leading offering, mean we are best placed to capture these opportunities,” it stated.

“While populations continued to return to the office and consumer demand has been resilient, we are mindful of the uncertain macroenvironment and any potential impact on discretionary spending.”

For the full-year it expects operating profit growth above 20% on a constant currency basis, organic revenue growth of around 15%, weighted towards the first half of the year, and an underlying operating margin above 6.5%.

“Looking further ahead, we remain excited about the significant structural growth opportunities globally, leading to the potential for revenue and profit growth above historical rates, returning margin to pre-pandemic levels and rewarding shareholders with further returns.”

British American Tobacco grew revenues and profits last year as it continues to pivot towards non-combustible products.

On a reported basis, revenue increased 7.7% to £27.7bn for the full year 2022.

It saw particularly strong revenue growth in ‘new categories’, which were up 40.9%. This growth was supported by good cigarette pricing (partially offset by negative geographic mix), while value share was flat (compared to 2021).

Excluding the foreign exchange tailwind, revenue was up 2.3% on a constant currency basis.

New category consumables volume continues to grow and was up in all three categories.

However, cigarette volume declined 5.1% with cigarette volume share down 20 bps.

While emerging markets began to recover from the impact of Covid-19 last year, including Cuba, Bangladesh and Brazil, these were more than offset by volume decline in the US, Turkey and the sale of its Iranian business partway through 2021.

Total revenues from non-combustibles now represents 14.8% of group revenue, up from 12.4% in 2021 (and 4.2% in 2017).

Profit from operations on a reported basis was up 2.8% at £10.5bn, with reported operating margin down 170bps to 38.1%.

CEO Jack Bowles said: “Driven by our strong New Category momentum, (with revenue approaching £3bn), we are confident in our £5bn revenue target by 2025, and now expect New Category profitability in 2024, one year ahead of plan.

“Our New Category business delivered strong volume, revenue and market share growth and has become a significant contributor to the Group’s financial delivery. In 2022, we invested more than £2bn in New Categories to drive long-term sustainable growth, while making excellent progress in reducing operating losses by 62%.

“While reported results were impacted by a number of one-off charges, we achieved a 150bps improvement in adjusted operating margin at current rates and another year of 100% operating cash conversion demonstrating our ability to successfully navigate an increasingly challenging macro-economic environment. This enabled us to return £6.9bn to shareholders in 2022. I am proud of our people and their focus on delivery of our three strategic priorities, demonstrating once again the strength and resilience of our business.

“Looking forward, while we expect the macro-economic environment to remain challenging, we will continue to deliver and further accelerate our transformation. We will leverage our well-established multi-category brand portfolio, our new regional structure to enable even greater collaboration and accelerated decision-making and our new market archetype model to guide our strategic choices and resource allocation to further enhance returns.”

Finally this morning, European dairy co-operative Arla Foods said its growth staid on track last year despite volatile market conditions

The group delivered a solid performance throughout 2021 despite continued disruptions from the pandemic and renewed market volatility created by high inflation.

Total Arla Group revenue increased by 5.6% €11.2bn driven mainly by higher sales prices and strategic branded sales growth of 4.5%.

Arla’s performance price – which measures the value Arla Foods creates per kilogram of owner milk – was 39.7 eurocent in 2021 compared to 36.5 eurocent in 2020.

Arla’s farmer owners were again challenged throughout 2021 due to rising costs and additional requirements on their farms. Arla maintained a competitive pre-paid milk price that increased by 23% throughout the year.

Arla Foods chairman, Jan Toft Nørgaard, commented: “2021 was a tough year on farms as both our members and company were impacted by the continued effects of the pandemic and rapidly rising production costs.

“As such, I am proud that our company has been able to deliver a performance price that puts Arla among the market leaders in Europe and that supports our farmer owners. Thanks to the dedicated efforts of farmers, employees and management, we successfully navigated this challenging environment and secured a high value for our milk,” he said.

Retail sales in 2022 again reached the top end of expectations and Arla’s strategic brands delivered 4.5% branded volume growth, with with Arla, Starbucks and Castello all delivering robust growth.

From a market perspective, the UK and the combined region of the Netherlands, Belgium and France increased their branded volume driven growth by 3.8% and 8.4% respectively.

Group profit for the year was up slightly to €352m from €346m.

On the markets this morning, the FTSE 100 is up another 0.7% to 7,939.9pts.

Risers include Naked Wines, up 1.3% to 124.5p, Haleon, up 1% to 331.8p and Nichols, up 1% to 1,020p.

Fallers include Bakkavor, down 5.1% to 111p, British American Tobacco, down 5% to 2,936.5p and Deliveroo, down 4.2% to 85.2p. 

Yesterday in the City

The FTSE 100 closed 0.6% up at a new record of 7,930pts.

PZ Cussons, however, fell back 9% yesterday to 194.8p as it reported a drop a margins.

Other fallers included DS Smith, down 4% to 350p, Hotel Chocolat, down 1.7% to 226p, Haleon, down 1.5% to 328.4p, Sainsbury’s, down 1.4% to 264.3p and Domino’z Pizza Group, down 1.3% to 326.2p.

Risers included Tate & Lyle, up 3.8% to 808.2p, Kerry Group, up 2.2% to €87.69, Premier Foods, up 2% to 114p, AG Barr, up 1.7% to 552p, Deliveroo, up 1.6% to 88.9p, THG, up 1.3% to 59.2p and Greggs, up 1.1% to 2,756p.