Unilever's net profit slumps

The consumer goods powerhouse operates three divisions: food and refreshments, personal care and home care products. Like its peers, Unilever has been struggling with slow growth in recent years as more challenger brands emerge and consumer tastes shift faster than ever. Its tea business is just one example of this: the company said it had achieved “price-led growth” but that volumes had fallen as customers in developed markets moved away from black tea. 

But across all of its divisions underlying sales growth, which strips out the effects of currency and acquisitions, missed initial guidance (up by 2.9 per cent, where the group had previously anticipated 3-5 per cent). Management flagged in December that growth would come below expectations due to an economic slowdown in South Asia, one of its largest markets, and continued trading difficulties in West Africa. Indeed, its performance in emerging markets slowed sharply in the fourth quarter to 2.8 per cent. Brazil was perhaps the outlier, where innovation in home care and deodorants products led volume growth. The picture was not friendly in Europe, where underlying sales growth contracted by 0.8 per cent. 

Chief executive Alan Jope said in a note that the group will push forward with its active cost-cutting. But in order to keep up with competitors and protect its customer base from new challengers, Unilever must focus on its innovation programme. 

Broker Jefferies leaves its forecast for 2020 unchanged and expects growth at 3.5 per cent and an operating margin of 19.5 per cent. It notes that its guidance excludes any impact from coronavirus – but we imagine that, given more than half of Unilever’s revenue comes from emerging markets, the company has significant exposure to this risk.