Unilever has played down the possibility of further food and drink portfolio exits, despite weaker ice cream sales and an overall fall in food sales volumes dragging back first-half revenues.
The company this week posted first-half underlying sales growth of 3.3%, at the lower end of its 3%-5% growth target and below analyst expectations as the poor European early summer led to weaker-than-predicted ice cream sales.
The group’s second quarter underlying growth was also boosted by about one percentage point from the impact of the 2018 truckers’ strike in Brazil.
Its food and refreshment division was the weakest performer, posting underlying sales growth of just 1.3%, wholly driven by increased prices as volumes dropped 1%.
Unilever said it had seen weak demand for its teas in western markets, while sales in dressings were flat, with volumes down as “competitive intensity remained high”. Despite the weaker-than-anticipated ice cream sales, the category was slightly up year on year.
Underlying operating margin in the food and drink division also fell by 40bps, as a result of an adverse impact on overheads related to the disposal of its spreads business, which completed .
It agreed to sell its low-growth spreads business, including Flora, in a £6bn sale to private equity giant in KKR in December 2017, with the deal completing in July 2018.
However, Unilever’s management played down the likelihood of further sales.
Unilever CEO Alan Jope said: “We are dissatisfied and impatient on big parts of the business where they underperform, but the solution is almost always not a disposal or exit.”
“We are looking at the long-term attractiveness of categories and in spreads the long-term prospects were not great. Areas such as black tea, ice cream and haircare in the US are definitely hotspots … but we will resolve those areas through intervention rather than disposal.”
Overall, Unilever’s emerging markets business grew by driven by 6.2% amid weaker performance in developed markets.
CFO Graeme Pitkethly stressed that 40% of Unilever’s food and drink business was in emerging markets, which offered opportunities to move consumers up the value curve while it continues to premiumise in developed markets through acquisitions, such as Graze, and organic developments.
“For the past two years we have been actively trying to make sure that we are addressing the more premium parts of key food categories. The challenge is getting scale to those parts of our business as they remain a relatively small part of the overall portfolio.”
Overall underlying operating margin improved by 50bps in the period to 19.3%, with gross margin up 30bps, helped by efficiencies.
Unilever said brand and marketing investment decreased compared to the prior year, as it continued to deliver zero based budgeting savings and increasingly focussed on digital spend.
Home care was the standout performer in the first half, with underlying sales jumping 7.4% as it benefitted from premiumisation. Beauty and personal care was up 3.3%, while home and hygiene also “grew well”.
Unilever shares fell 1.8% to 4,907p on the news.
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