Unilever pins hopes on high-growth strategy
LAST week global consumer goods giant Unilever released half-year results. The name behind household brands from Persil and Dove to Ben & Jerry’s delivered a 14.4 per cent rise in its first half underlying earnings per share. Profits were boosted by a 3 per cent rise in underlying sales and a 1.8 percentage point increase in operating margins. The figure also includes a 2.6 per cent bump from favourable exchange rates.
Each of Unilever’s four main divisions, foods, refreshment, personal care and home, delivered low- to mid-single-digit sales growth. However, with the quantity of goods sold remaining flat year-on-year, the sales growth was driven by price rises.
Refreshment was the strongest division, with ice cream sales doing well. However, Foods delivered just 0.6 per cent sales growth, with negative sales just offset by a 2.4 per cent price rise. The foods business has been held back by the spreads division, which includes the Flora and Stork brands. These brands are due for disposal after CEO Paul Polman put the division up for sale.
The decision was part of a strategic review, undertaken shortly after Unilever rebuffed a £115billion bid from Kraft Heinz earlier this year. Fending off this kind of approach required shoring up shareholder support. It looks as though many wanted assurances that Unilever would change gear on its steady growth strategy.
Sure enough, Unilever is aiming to ramp up profitability in the coming years. This process involves taking on extra debt to fund the plans, while returning more cash to shareholders. The expectation of higher dividends has pushed the yield on the shares up to 3.3 per cent. The signs are positive, with half-year results showing a big improvement in operating margins.
Improved margins have overshadowed a weaker showing in Emerging Markets. In the long run, exposure to a growing and increasingly wealthy customer base in these areas should prove to be a tailwind.
At more than 21 times expected earnings per share, Unilever trades on a higher rating than it has historically. However, provided the group can execute its higher-growth strategy, there are plenty of reasons for investors to be upbeat.
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