Sector News

Unilever rules out more big deals as cost inflations loom

February 12, 2022
Food & Drink

Unilever is holding back on completing more big deals as it anticipates a “very high” input cost inflation in the first half of 2022, of over €2 billion (US$2.3 billion). With the FMCG giant recently completing a major shakeup – pivoting away from food and toward personal care – CEO Alan Jope confirms Unilever doesn’t intend to pursue major acquisitions in the foreseeable future.

The company notes that this cost inflation may moderate in the second half of this year to around €1.5 billion (US$1.7 billion), although it highlights there is currently a wide range for this that reflects market uncertainty on the outlook for commodity, freight and packaging costs.

“The major challenge of 2021 has been the dramatic rise of input costs. We responded with pricing actions, delivering underlying price growth of 2.9% for the year, accelerating to 4.9% in the fourth quarter, with full-year underlying operating margin down 10bps and underlying earnings per share up 5.5%,” explains CEO Alan Jope.

“We are focused on driving faster growth from our strong portfolio of brands and markets and recently announced a major change to create a simpler, more category-focused organization designed to further improve performance. In 2022, we will manage a significant input cost inflation cycle and will continue to invest competitively in marketing, R&D and capital expenditure,” he says.

Jope says that underlying operating margin is expected to be down by between 140bps and 240bps – so maintained between 16% and 17%, with the first half impacted more than the second half.

“We expect margin to be restored after 2022, with the bulk coming back in 2023 and the rest in 2024,” he notes.

The Unilever Board has approved a share buyback program of up to €3 billion (US$3.4 billion) to be conducted over the next two years, which it expects to commence in the first quarter.

Redirecting attention to “high growth spaces”
Unilever continues to redirect its portfolio toward what it deems as “high growth spaces” – acquiring in the categories of Prestige Beauty and Functional Nutrition while agreeing to the sale of its Tea business for €4.5 billion (US$5.1 billion) on a cash-free, debt-free basis.

As of late, there has been speculation that this major restructuring could potentially see the offloading of more of Unilever’s global food brands, as the company narrows focus on its ice cream segment and personal care business – which includes brands like Dove, Comfort, Lifebuoy and Rexona.

Jope calls this a pivot toward a “simpler, more category-focused organization designed to further improve performance.”

“We have engaged extensively with our shareholders in recent weeks and received a strong message that the evolution of our portfolio needs to be measured. We, therefore, do not intend to pursue major acquisitions in the foreseeable future and will conduct a share buyback program of up to €3 billion (US$3.4 billion) over the next two years.”

The new organization is expected to generate around €600 million (US$686.5 million) of cost savings over two years. It is anticipated to be fully operational from the middle of the year.

The new structure will be achieved within existing restructuring investment plans of €2 billion (US$2.3 billion) across 2021 and 2022. Restructuring investment for 2022 is therefore forecasted to be around €1.4 billion (US$1.6 billion), returning to pre-2017 levels of around 1% of turnover after that.

Unilever hits “fastest underlying sales growth in nine years”
The FMCG giant reported underlying sales growth in the range of 4.5% to 6.5% – dubbed the company’s fastest underlying sales growth in nine years.

“Our thirteen billion-Euro brands grew 6.4%. Priority markets of China, India and the US grew at 14.3%, 13.4%, and 3.7%, respectively. Our growth in e-commerce was 44%, ahead of global channel growth and bringing e-commerce to 13% of turnover,” continues Jope.

Unilever’s Foods and Refreshment segment grew the fastest in 2021, with 5.6% underlying sales growth with food solutions and out-of-home ice cream partially recovering from channel restrictions in 2020.

In the US, growth has returned to competitive levels, with strong contributions from Prestige Beauty, functional nutrition and food solutions.

India grew double-digit with balanced volume and price and strong actions on savings and mix. China grew double-digit, led by volume, with growth broad-based across categories and channels, especially e-commerce.

Markets in Latin America are reportedly recovering – with growth driven by higher prices – although macroeconomic volatility remains high.

South East Asia declined following tough COVID-19-related restrictions throughout the year and weak competitive performance in Indonesia. Europe grew slightly from both price and volume.

E-commerce growth was 44% and now represents 13% of Unilever’s turnover.

Foods & Refreshment
Magnum and Ben & Jerry’s brands each grew high single-digit. Food solutions have begun to recover from channel closure in 2020, delivering double-digit growth.

In-home food saw low single-digit price led growth, following elevated demand and double-digit growth in 2020.

Knorr grew high single-digit across in-home and out-of-home channels through innovations such as zero-salt stock cubes and Rinde Mas in Latin America, a plant-based product that extends the yield of meat dishes while adding flavor.

Dressings brand Hellmann’s grew double-digit for the second year in succession, while the retained tea business grew double-digit.

Functional nutrition grew double-digit across its portfolio of brands.

Beauty & Personal Care
Prestige Beauty delivered strong double-digit growth across all brands as channels reopened, with e-commerce a significant contributor.

Innovations in Prestige Beauty include Dermalogica’s biolumin-c and sound sleep cocoon and Ren’s zero-waste packaging.

Skincare grew high single-digit with channels reopening in 2021. Vaseline performed strongly throughout the year, supported by several premium innovations across brightening, therapeutics and hydration.

Deodorants grew as the market continued to recover, with good growth and restored competitiveness in North America. Dove refillable deodorant launched in the US and has been well-received by consumers.

Haircare grew mid-single-digit with Sunsilk, Dove and Clear contributing and styling in North America being restored to competitive growth.

Meanwhile, Oral care grew with good performance in South Asia and Africa.

Unilever recently confirmed that it had made offers to buy personal care company GlaxoSmithKline’s (GSK) consumer unit. However, its bid worth £50 billion (US$67.5 billion) was rejected.

By Benjamin Ferrer


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