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Unilever - emerging market sales up 8%

Charlie Huggins | 14 April 2016 | A A A
Unilever - emerging market sales up 8%

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Unilever plc Ordinary 3.11p

Sell: 3,958.00 | Buy: 3,959.00 | Change 26.00 (0.66%)
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Unilever's first quarter results show a 2% decline in sales on the back of a 7.1% negative currency headwind, but underlying sales (adjusting for currency and acquisitions/disposals) up 4.7%. This was driven by higher volumes (+2.6%) and pricing gains (+2.0%), with strong growth in emerging markets (58% of sales) once again the highlight. The shares fell slightly in early morning trading.

Unilever has raised its quarterly dividend by 6% to EUR0.3201 per share. In sterling terms this equates to 25.56p, up 17% on last year's quarterly payment; reflecting the recent weakness of sterling against the euro (Unilever's reporting currency).

All four categories grew underlying sales with Foods once again the laggard (+1.9%), and Home Care the strongest performing category (+7.0%).

Strong growth in emerging markets continued in Q1 (+8.3%); with Latin America particularly strong (+17.9%). This more than offset weakness in developed markets where underlying sales fell 0.3%; with Europe suffering from price deflation.

While conditions in many of its markets remain challenging, Unilever says it is well positioned to deliver another year of volume-driven growth ahead of its markets, steady improvement in core operating margin and strong cash flow.

Our view:

Despite the widely acknowledged economic slowdown in emerging markets, Unilever continues to perform very strongly in these regions. In fact, some of the economies that are suffering most, such as Brazil, Russia, and China, are where Unilever seems to be generating the strongest growth. This demonstrates the success of the group's strategy and the brand loyalty it has managed to build up in these regions.

Sales in developed markets remain weak, but they are holding their own; and each year they become less relevant to the group, so long as sales in emerging markets keep growing. Emerging markets now account for nearly 60% of sales and we expect them to remain the key growth driver over the long term, as incomes in these regions continue to rise.

Margin growth is being supported by a strong focus on cost savings and efficiencies. 'Zero based budgeting' has become a corporate buzzword and is a key part of Unilever's strategy. Basically this means that management go through each part of the business with a fine tooth comb, and build Budgets around what is needed for the upcoming period, rather than imposing blanket increases or decreases. Part of the savings can then be reinvested in marketing and brand innovations, to sustain the sales momentum.

The shares trade on a forward price to earnings ratio (P/E) of c. 21x, which is around a 30% premium to the long run average rating. However, we like Unilever's ability to drive sales and margin growth through self-help initiatives, in an increasingly uncertain economic environment.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.