Unilever reports profitable growth overall, despite dip in spreads

20 Jul 2017 --- Unilever has announced its results for the first half of 2017, which shows profitable growth ahead of the market, driven by Connected 4 Growth change program, despite challenges in the market and a decline in spreads. 

Foods continued to modernize the portfolio while building its presence in emerging markets and sustaining a strong performance in the food service channels. However, the overall growth was adversely affected by declines of some non-core brands in Europe.

Knorr, the company’s largest brand, performed well by responding to key needs such as nutrition deficiency or time-saving cooking products. The successful Knorr Mealmakers with 100 percent natural ingredients have now been extended into 100 percent natural seasonings.

In dressings, Hellmann’s relaunched the brand with strengthened naturalness claims while the organic variants have been rolled out from North America into Europe.

In spreads, the new margarines with specialty oils and the roll-out of the dairy-free variants are performing well. The rate of decline in spreads has slowed to 3.7 percent as sales growth in emerging markets partially offset the continued market contraction in developed countries.

Ice cream delivered strong growth driven by margin-accretive innovations behind premium brands, such as Ben & Jerry’s pint range “Topped”, that takes ice cream indulgence to a new level, and the “Wich” sandwich. Magnum grew at double-digit rates, helped by the new Magnum pints that deliver the ultimate chocolate and ice cream experience in a tub, as well as the coconut and raspberry variants. We have extended our less than 50 calories offering under Solero and launched vegan and gluten-free variants under Cornetto.

Leaf tea showed good growth as we are increasingly seeing the benefits of our innovations in specialty and premium tea segments. Lipton was launched in Brazil and Argentina, and is successfully extending its presence in the faster-growing green and matcha segments, while T2 continued to show strong growth.

Overall performance
Market conditions have remained challenging for Unilever. The economic crisis in Brazil continued to present a significant headwind. 

Underlying sales grew 3.0 percent, ahead of our markets, with growth in all our categories and sub-categories except for spreads. Turnover increased 5.5 percent to €27.7 billion (US$31.8 billion), which included a positive currency impact of 1.7 percent and 0.8 percent from acquisitions net of disposals. Gross margin improved by 40bps to 43.1 percent driven by margin-accretive innovations and acquisitions as well as discipline in driving savings programs.

The preparation for the exit from spreads via a sale or de-merger is well underway. The review of the dual-headed legal structure is also progressing well and we expect the Board to decide the outcome before the end of the year. In the first half of the year we have bought back shares to the value of €1.4 billion (US$1.6 billion), putting us on track to complete the announced €5 billion (US$5.7 billion) program by the end of the year.

Commenting on the results, CEO Paul Polman says: “Our first-half results show continued growth well ahead of our markets and a substantial step-up in profitability despite the persisting volatile global trading environment. It once more shows the validity of Unilever’s long-term compounding growth model. Our change program “Connected 4 Growth” (C4G), which started in the autumn of 2016, is delivering ahead of plan.”

“The transformation of Unilever into a more resilient, more competitive and more profitable business is accelerating. C4G is making our business even more agile, less complex and increasingly responsive to fast-changing consumer trends. The resulting increase in innovation speed and effectiveness will allow us to grow ahead of market. We see this as a proven way of delivering long-term shareholder value. C4G also enables a further step-change in margin expansion and cash flow delivery, as we secure efficiencies from the roll-out of our savings programs and benefit from the investments we have made over the last few years.”

“The actions we are taking keep us on track for another year of underlying sales growth ahead of our markets, in the 3–5 percent range. We anticipate accelerating growth in the second half of the year driven by the phasing of our innovation plans and a step-up in brand and marketing investment. We now expect an improvement in underlying operating margin this year of at least 100 basis points and strong cash flow.”