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Unilever can't counter tough times

Deflation in Europe as well as issues in Brazil and India have weighed on sentiment despite a solid financial performance
January 26, 2017

Patchy global growth as well as other country-specific issues have failed to dampen Unilever (ULVR) chief executive Paul Polman's spirits. The group, which manufactures Dove soap and Hellmann's mayonnaise among other products, managed underlying sales growth of 3.7 per cent last year, outpacing the wider market, with price rises accounting for the bulk of the increase. This suggests UK price rises - a decision described as "the right one" despite a public spat with supermarket Tesco (TSCO) - have happened elsewhere, too. Total sales, which include recent acquisitions, rose 4.3 per cent on a constant-currency basis but turnover at current rates dropped 1 per cent to €52.7bn (£44.75), largely the result of a 5.1 per cent currency hit.

IC TIP: Hold at 3187p

Mr Polman said multiple goals, including growing ahead of the market in volume and value, improving the core operating margin (which rose by a higher than usual 50 basis points to 15.3 per cent) and delivering strong cash flow had all been achieved. On the margin front, three of its four divisions delivered growth, with home care performing particularly strongly, with a 210 basis point rise. Ongoing group-wide cost-cuts also helped here.

But, the group's 'developed' markets continued to struggle and chief financial officer Graeme Pitkethly said he didn't see "any fundamental reason" for the deflationary cycle in Europe to change despite a nudge up in prices recently. Two of its largest markets - Brazil and India - have also had their troubles, with the former mired in recession and the latter suffering from demonestisation after the removal of high denomination notes. But Mr Polman reckons Brazil has "hit the bottom" and so could soon see some improvement.

The group expects to grow sales by 3-5 per cent in 2017 but predicts a slow start this year. Mr Pitkethly said innovation and a quicker roll-out of new products would be crucial. He cited Hellmann's squeezy packets, which had been rapidly rolled out in 30 countries and a UK innovation of the condiment - BBQ flavours - hitting shelves in six months from conception, more quickly than before.

Broker Whitman Howards expect EPS to be flat in the year to December 2017 at €1.82.

 

UNILEVER (ULVR)
ORD PRICE:3,187pMARKET VALUE:£95.5bn*
TOUCH:3,186-3,187p12-MONTH HIGH:3,808pLOW: 2,870p
DIVIDEND YIELD:3.4%PE RATIO:21
NET ASSET VALUE:547¢**NET DEBT:74%

Year to 31 DecTurnover (€bn)Pre-tax profit (€bn)Earnings per share (¢)Dividend per share (p)
201251.36.515478.9
201349.87.117188.9
201448.47.618290.2
201553.37.217388.5
201652.77.5183109.0
% change-1+3+6+23

Ex-div: 9 Feb

Payment: 15 Mar

*Reflects combined value of Unilever NV and Unilever plc

**Includes intangible assets of €27.4bn, or 917¢ a share

£1=€1.18