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Unilever - CEO to step down after 5 years at the helm

Unilever CEO, Alan Jope, will step down as CEO at the end of 2023 after five years at the helm. Jope intends to retire after this...

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Unilever CEO, Alan Jope, will step down as CEO at the end of 2023 after five years at the helm. Jope intends to retire after this.

Chairman Nils Andersen praised Alan for his "remarkable career" after 35 years of service to the company.

The board will now begin a formal search for his successor.

The shares rose 3.7% following the announcement.

See the latest Unilever share price, charts and how to trade

Our View

News that CEO, Alan Jope, is set to step down at the end of 2023 was taken favourably by the market.

Under Jope's leadership, the group made "critical changes" to its strategy, structure and organisation, but the move comes after a failed takeover attempt on GlaxoSmithKline consumer health business, Haleon earlier this year, sparking unrest with investors. Haleon has since demerged from GSK and joined the London Stock Market.

Still, Unilever's responsible for some of the world's most recognisable brands. This familiarity and consumer trust is Unilever's superpower, and the reason it's been able to charge a premium for its products, which range from Magnum to Domestos,

But price increases to cope with inflation can only go so far, even with a strong set of brands. The group's walking a thin line between protecting margins and losing long-term customers.

There aren't too many companies boasting yearly sales over €50bn. As an integral part of the global consumer supply chain we don't think this is likely to fall too much. Unilever has long been considered a relatively defensive play.

Protecting the brand is Unilever's number one priority, and that comes at a hefty cost. Brand and marketing investment racked up €3.7bn in the first half, with that expected to increase into the second. That's all part and parcel with the group's strategy of locking in long-term customers with well-known, trusted brands.

This part of the business is a non-negotiable, so if revenue starts to weaken margins will come under pressure.

Price increases will go a long way to help cushioning the blow, but there's only so much you can hike before customers walk away.

Luckily there are other levers to pull. The group's shifting its organisational structure following a period of lacklustre growth and pressure from investors. Greater focus and cost savings of €600m over the next couple of years certainly sounds good. But turning a beast like Unilever into a streamlined outfit isn't a quick process.

On a more positive note, free cash flow at the half year mark was €2.2bn and net debt was 2.3 times cash profits (EBITDA), which helps underpin ongoing investment and the dividend. There's a prospective yield of nearly 4.0% on offer, please remember though there are no guarantees.

The group's valuation has come down below the long-term average, reflecting the market's uncertainty. This could prove attractive if management can navigate through this turbulence effectively, although a departing CEO could impact this.

Unilever key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Half Year Results (underlying)

First half revenue of €29.6bn, reflecting underlying sales growth of 8.1% and improvements across all business divisions. Growth was entirely driven by an increase in pricing, as volumes declined 1.8%.

Rising input costs weighed on margins, but higher sales meant underlying operating profit grew 4.1% to €5.0bn.

Sales guidance for the full year has been raised, now expected above the previous range of 4.5-6.5%. Underlying operating margin guidance remains at 16%, within the previous range of 16% to 17%.

The group announced a dividend of €0.4268 and plans to start another €750m tranche of its ongoing buyback scheme in the third quarter.

Beauty & Personal Care sales grew 7.5% to €12.2bn. Price increases of 9.0% more than offset a 1.3% decline in volumes. Latin America, South Asia and Turkey were standout benefactors of higher prices. Rising costs meant operating margin decreased 1.8 percentage points, but higher sales pushed operating profit up to €2.4bn from €2.2bn.

Home Care sales grew 10.7%, with 14.5% from higher prices and a 3.4% drop in volumes. Double-digit price increases landed across most geographies in response to increasing raw material costs. Those higher costs weighed on operating margin which fell 2.0 percentage points, partially offset by lower marketing spend. Operating profit was broadly flat at €723m.

Foods & Refreshment sales grew 7.3%, with 8.3% from price rises and a 0.9% drop in volumes. Pricing was broad-based and particularly high in dressings given higher input costs. Sales from ice cream and foods both enjoyed high single digit growth - Magnum, Cornetto and Hellmann's the standout brands. Operating margins declined 1.7 percentage points, again due to higher costs. Operating profit was broadly flat at €1.9bn.

Free cash flow over the period declined from €2.4bn to €2.2bn, as higher operating cash flow was offset by increased tax and capital expenditure. At the 30 June 2022, net debt stood at €27.1bn compared to €25.5bn at the start of the period.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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 disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 26th September 2022