Unilever Reports 7.4% Underlying Sales Growth But Gives Up Targets

The company did not make a forecast for the year, however, which caused share prices to fall. New chief executive Paul Polman said: “Given the current economic uncertainty I believe it would be inappropriate at this stage to provide an outlook specifically for 2009 or to reaffirm the 2010 targets.”

05/02/09 Unilever has reported underlying sales growth of 7.4%, which was partly offset by movements in exchange rates (4.8%) and the net impact of disposals and acquisitions (1.4%). Including these effects, turnover was €40 523 million for the full year, increasing by 0.8%. Operating profit increased by €1 922 million to €7 167 million, including a higher level of profits on business disposals. These generated a pre-tax profit of €2 190 million in 2008, compared with €297 million in 2007. Before the impact of RDIs (Restructuring, Disposals, and other one-off items), operating profit grew by 1% at current exchange rates, or 6% at constant exchange rates, and there was an underlying improvement in operating margin of 0.1 percentage points. The company did not make a forecast for the year, however, which caused share prices to fall. New chief executive Paul Polman said: “Given the current economic uncertainty I believe it would be inappropriate at this stage to provide an outlook specifically for 2009 or to reaffirm the 2010 targets.”

Unilever said that during the year they increased investment behind brands and have now raised our annual spending on advertising and promotions by €1 billion over the past four years as well as benefiting from our media efficiency programmes. With the effect of the much higher selling prices, the ratio of advertising and promotions to turnover was 0.7 points lower than last year. Net profit was 28% higher than last year, boosted by the profits on disposals. Earnings per share were €1.79, including a net gain of €0.36 from RDI’s. This compared with €1.35 last year, which included a net loss of € 0.07 from RDI’s. Net cash flow from operations at €3.9 billion was in line with last year. Total cash returns to shareholders in the year were €3.6 billion, made up of €2.1 billion of dividends and €1.5 billion of share buy-backs.

In the fourth quarter underlying sales growth was 7.3% and turnover increased by 2.6%. Operating profit increased by €361 million, with a higher level of profits on business disposals including the Bertolli and Komili olive oil businesses and plantations in Côte D’Ivoire. Before the impact of RDIs, there was an underlying reduction in operating margin of 0.7 percentage points. This reflected a combination of continued very large increases in input costs exacerbated by adverse currency movements, the effect of lower volumes and the impact of disposals which diluted operating margin by 0.3 percentage points.

The company continued to invest strongly behind brands in the fourth quarter and started to benefit from lower media rates in many countries as well as media efficiency programmes. Against a relatively high comparator the ratio of advertising and promotions to turnover was lower by 1.3 percentage points. This followed similar reductions by competitors. Net profit and earnings per share in the fourth quarter also benefited from the profits on disposals.

In Western Europe underlying sales growth was 1.3% for both the year and the fourth quarter, with pricing contributing 3.8% and volume lower by 2.4% for the year. Volume consumption in markets has reduced and shoppers are increasingly looking to economise on their purchases. “We have made good progress in simplifying the business including the integration of the separate units in each country and the formation of ‘multi-country-organisations’. This is enabling faster decision making and more efficient operations. The European supply chain transformation is progressing well; so far, we have announced restructuring plans at twenty factories together with additional capital investments to increase efficiency”, the company said.

For the Americas underlying sales grew by 6.5% for the year driven by pricing taken to recover commodity cost increases. Trading conditions deteriorated in the fourth quarter, with a drop in consumer confidence and purchasing power and a reduction of trade inventories. Despite this more difficult environment consumers continued to spend on our brands and underlying sales growth was sustained in the fourth quarter, although volumes were lower. Underlying sales growth in the US was 3.8% for the year and 3.1% in the fourth quarter. Sales have been very much in line with the markets.  “While there has been some down-trading from branded products to private label brands our own market shares have held up well”, the company reported. Growth in Latin America was around 12% for both the full year and the fourth quarter. All key countries have contributed well to this growth as we benefited from our established brands and the breadth of our portfolio.