Unilever warns of re­duced growth

The Mercury - - BUSINESS REPORT | INTERNATIONAL - An­drea Fel­sted

A FLASH Pow­erPoint pre­sen­ta­tion can only pa­per over so many ex­pen­sive prob­lems. Just ask Unilever share­hold­ers.

Yes­ter­day, the con­sumer goods gi­ant warned that sales growth in its fis­cal first half will fall short of its 3 to 5 per­cent tar­get for the full year. The shares sank as much as 4.5 per­cent.

The mes­sage and the way it was dis­closed – coughed out in a pre­sen­ta­tion at a con­fer­ence or­gan­ised by Deutsche Bank – are both con­cern­ing, es­pe­cially for a com­pany that was the sub­ject of a $143 bil­lion (R1.9 tril­lion) bid from The Kraft Heinz Com­pany last year.

Unilever blamed the slower-than-ex­pected growth on strikes in Brazil, which would cut rev­enue by €150 mil­lion (R2.35bn) in the sec­ond quar­ter. That seems like a lot. An­a­lysts at RBC note that a hit of that size would amount to 16 per­cent of to­tal sales in Brazil, which in turn ac­count for 6.5 per­cent of global rev­enue.

Unilever is con­fi­dent it will still meet its tar­get for the full year. That im­plies it will have some catch­ing up to do over the re­main­der of 2018.

Tall order

That looks a tall order. Al­though Unilever sold more bot­tles of sham­poo and de­odor­ant in the first quar­ter, pric­ing was stub­bornly weak. It was al­ready hop­ing that con­sumers would be pre­pared to pay more in the re­main­der of the year and ease the pres­sure on mar­gins.

The stum­ble comes at a del­i­cate time for Unilever. It has up­set some in­vestors with plans to move its head­quar­ters to Rot­ter­dam. The com­pany also said yes­ter­day that it was “ex­tremely un­likely” to re­main in the FTSE 100 in­dex after the move.

After be­ing a takeover tar­get last year, Unilever can’t af­ford any vul­ner­a­bil­ity. Stung into ac­tion by Kraft Heinz’s bid, chief ex­ec­u­tive Paul Pol­man em­barked on an over­haul – sell­ing off the spreads busi­ness, cut­ting costs and an­nounc­ing big share buy­backs. At first, that helped to re­vive the stock price, but its ef­fect has waned.

Kraft Heinz, though, isn’t in a strong po­si­tion to come back. Its shares are down 38 per­cent since the ap­proach in Fe­bru­ary 2017, hardly a man­date for large scale merger and ac­qui­si­tion ac­tiv­ity. – Bloomberg

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