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Unilever - price hikes help sales beat expectations, volumes fall

Unilever reported full year turnover of €60.1bn, up 14.5%, including a 6.2% headwind from exchange rates.

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Unilever reported full year turnover of €60.1bn, up 14.5%, including a 6.2% headwind from exchange rates.

Underlying sales growth was up 9%, driven by all business divisions and beating expectations. There was price growth of 11.3%, partly offset by a decline in volumes of 2.1%.

Underlying operating profit was broadly flat at €9.7bn. Higher costs offset the jump in sales, bringing underlying operating margin down 2.3 percentage points to 16.1%.

Free cash flow of €5.2bn was down from €6.4bn, driven by an increase in capital expenditure and investment in inventory.

Net debt was €1.8bn lower, at €23.7bn. That's 2.1 times underlying cash profit (EBITDA) and broadly in line with guidance of around two times.

In the coming year, price growth is expected to continue over the first half. Underlying sales growth for the full year is expected in the upper region of 3-5%.

The board announced a quarterly dividend of €0.4268.

That shares were up 1.2% in early trading.

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

Our view

Unilever delivered a relatively robust set of full year results, all things considered, as sales growth came in ahead of market expectations.

8 consecutive quarters of price hikes are taking their toll on volumes though, and that's a trend which is expected to continue into the first half of the new financial year. This isn't a Unilever-specific issue, as we've seen with other names in the wider industry, raising prices and keeping volumes intact is a mammoth challenge.

In Unilever's case, a small drop in volumes when the group's pushing record price hikes onto consumers isn't the end of the world. It's also positive to hear volume declines haven't been as bad as management initially modelled. The reason they've been able to keep demand somewhat intact, is down to the host of strong branded products in the armoury. In unfavourable conditions, brand power is king.

It's for that reason, protecting the quality of those brands is Unilever's number one priority, and that comes at a hefty cost. Brand and marketing investment rose €0.5bn over the year and is expected to rise again in 2023. 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.

Luckily there are other levers to pull. The group's shifted its organisational structure following a period of lacklustre growth and pressure from investors. The €600m cost saving program, weighted toward the second half of 2023, certainly sounds good. The issue here is that turning a beast like Unilever into a streamlined outfit isn't a quick process. But armed with a new CEO and a better focus on more profitable businesses, we're optimistic.

Free cash flow of €5.2bn and net debt that's 2.1 times cash profits (EBITDA) helps underpin ongoing investment and the dividend. There's a prospective yield of 3.8% on offer, please remember though there are no guarantees.

The group's valuation has come down below the long-term average, reflecting uncertainty around volumes and the strength of the consumer. This could prove attractive if the incoming CEO can navigate the turbulence effectively. But of course, there are challenges ahead.

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.

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
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 9th February 2023