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Unilever - strong full year sales boosted by higher prices

Full year underlying sales growth rose 4.5%.

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Full year underlying sales growth rose 4.5%. The increase was led by higher prices, with a smaller contribution from volumes. This fed into reported turnover of €52.4bn.

Underlying operating profit rose 2.9% to €9.6bn. Unilever expects ''very high'' cost inflation in the new financial year, which could total around €3.5bn, relating to material, freight and packaging costs. Operating margins are expected to dip a couple of percentage points.

The group also mentioned it had received a ''strong message'' from shareholders about the need for portfolio changes to be measured, and won't be pursuing any major acquisitions.

A further €3bn share buyback was announced alongside a quarterly dividend of €0.4268 per share.

The shares fell 3% following the announcement.

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Our View

Unilever's attempt to buy Glaxo's Consumer Health business came out of left field. We're heartened to say that management is now committed to measured, manageable change as it works through its strategy shift.

The group is shifting its organisational structure to focus on product rather than geography. It thinks this will give it more focus and achieve annual cost savings of €600m. This comes as a result of more severe restructuring and streamlining efforts as Unilever tries to outpace years of sluggish performance - not to mention the challenges brought on by the pandemic.

We must admit progress at the full year mark is very impressive. It's seen the fastest underlying sales growth in nine years. We're also supportive of streamlining efforts, including getting rid of the underperforming tea business.

That said, there are some challenges. Margins are under pressure as supply chain and distribution costs are on the rise. Unilever's strong brands mean it's been able to offset some of this by pushing prices up, but this is eating into volumes. This trend could yet get worse, as rising inflation means customers are more likely to slide down the value chain to less expensive, non-branded products. Together with the extensive marketing costs required to maintain a loyal following, margins are creaking.

Brand power and loyalty are Unilever's most powerful assets because they generally support increased prices and help boost margins. It's this visibility that keeps people buying branded products. While some of Unilever's customers might drop down to lower-priced unbranded products amid rising prices, many will still look for names like Dove and Ben & Jerry's on the shelves.

There aren't too many companies boasting yearly sales over €50bn. As an integral part of the global consumer supply chain, some level of revenue is pretty much guaranteed. This is why Unilever has long been considered a relatively defensive play. The huge scale underpins the group's ability to pay a dividend, they currently offer a prospective dividend yield of almost 4.0%, though no dividend is ever guaranteed.

Unilever is on a more solid footing than feared. Its strong brands mean it's in a better position than some, even in times of difficult consumer conditions. However, the lower than average price to earnings ratio reflects the ongoing uncertainty, and we'd like to see a longer run of progress, and keep a close eye on margins, before saying the hard work is over for this consumer conglomerate.

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.

Full Year Results

Beauty & Personal Care saw good growth across all categories bar skin cleaning, with underlying sales growth (USG) of 3.8%, 3% of which came from higher prices. Brands including Vaseline and Dove did well. Underlying operating profit rose from €4.6bn to €4.7bn, the smaller increase reflected higher commodity prices, especially palm oil.

It was a similar story in Home Care where margins declined because of input costs. Underlying operating profit dipped from €1.5bn to €1.4bn. That was despite 3.9% USG, which was again led by price.

Food & Refreshment was boosted by ice cream sales, including Magnum and Ben & Jerry's. USG of 5.6% was fairly evenly mixed between volumes and prices. Underlying operating profit rose 6.8% to €3.5bn.

There was growth across all geographies in the year, but Europe was the slowest by some margin.

Higher capital expenditure meant free cash flow was €6.4bn compared to €7.7bn. Net debt rose around €4.6bn to €25.5bn, reflecting lower free cash, share buybacks and acquisitions.

Unilever reiterated it's introducing a new organisational structure that will be product rather than geography led. These changes are expected to result in yearly cost savings of €600m.

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
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 10th February 2022