LONDON — If there were ever a snapshot of the way we live now, it would be Unilever’s first-half sales figures: Delivered with pride by chief executive Alan Jope and applauded by analysts, the 1.6 percent drop in turnover to 25.7 billion euros, and the company’s response to sales trends over the past six months, painted a colorful picture of life under lockdown.
Jefferies said Unilever’s first half, and second quarter, results were better than it, or the market, had expected. Second-quarter turnover was down 3.1 percent to 13.3 billion euros, with underlying sales down 0.3 percent.
Oddo described the numbers as a “welcome surprise,” given the challenges presented by Unilever’s diverse portfolio, which stretches from high-end skin care and cosmetics, with labels such as Hourglass, to home cleaning products to mass market ice cream brands, Magnum and Cornetto.
Shares in the company closed up 7.9 percent at 46.71 pounds on Thursday.
During a presentation to analysts, Jope said that over the past six months Unilever had witnessed the “absolute most testing conditions” in its history, with “record levels of growth and decline — all at the same time.”
He added that those challenges were empowering, however, and forced Unilever to become a more agile operation. “We learned we could switch the supply chain off, and then switch it back on again,” said Jope, adding that e-commerce operations accelerated, with a 120 percent spike in omnichannel sales during the six months.
With virus cases and lockdown measures in flux around the world, the company said it has also been quick to adapt, reallocating its brand and marketing investments “week by week.”
Unilever said that, depending on how and where the virus was advancing — or retreating — it was reducing spending in some channels and geographies, but still maintaining investment in “growth opportunities.”
Jope also touted the speed with which Unilever has been able to rework existing product campaigns to appeal to the new, stay-at-home consumer. He also said the company intends to focus on “fewer, bigger innovations” aimed at generating a higher incremental turnover, and more market share. He said that pre-COVID-19, Unilever had become distracted with too many small innovations.
“We will be retooling the innovation program for the times we are living in now,” he said, adding that Unilever planned to put “significant investment” into campaigns “tailored to this new environment, and digitally relevant for lockdown living.”
Going forward, Unilever will be looking to develop more all-natural, chemical-free products; affordable foods and condiments meant for cooking at home, and plant-based foods. Unilever will also be accelerating its efforts to use less plastic, or no plastic at all in its packaging.
Unilever will increasingly accent its e-commerce delivery services, and deliver value for money as consumers continue to hunker down — and count their pennies.
Jope argued that the company had done a good job of safeguarding supply and preserving cash, and said it did not seek COVID-19-related financial support from any government. It paid its suppliers on time, and set aside 500 million euros cash flow relief fund for those suppliers who were particularly hard hit by the crisis.
Turnover in the six months to June 30 was dented mostly by the negative impact of exchange rates and uneven consumption trends due to COVID-19. Underlying sales growth was broadly flat, easing 0.1 percent in the six-month period.
The company said that underlying operating profit rose 3.8 percent to 5.1 billion euros in the half. The quarterly dividend has been maintained at 0.41 euros per share.
Jope said that, moving into the second half, the focus would be on volume-led competitive growth and “absolute profit and cash delivery” in a bid to maximize shareholder value.
During the analyst call, both Jope and Graeme Pitkethly, Unilever’s chief financial officer, shied away from giving any future guidance beyond saying they expect to see a higher brand and marketing investment in the second half as lockdowns ease worldwide.
“We’re now out of ‘response’ mode, and into a state of living with the reality of COVID-19,” said Jope, adding that the company was willing to invest, now more than ever, in strengthening its competitive position in the market.
Pitkethly added that it would be difficult to project too far into the future because of the range of possible COVID outcomes, and that a “quick recovery” scenario was too optimistic. A second wave of the virus remains a very real threat, while the pace of progress back to any sort of normality would likely be “two steps forward, one step back.”
Beauty and Personal Care, Unliever’s largest division, saw sales shrink by 0.3 percent to 10.6 billion euros in the half,
Unilever said that skin cleansing products saw mid-teens, volume-led growth, boosted by demand for hand hygiene to prevent the spread of the coronavirus. Unilever said it had rolled out Lifebuoy soap products to more than 50 markets and increased its hand sanitizer capacity by around 600 times across several brands. As a result of peddling so much hand sanitizer, the Suave brand saw double-digit growth.
The company said that demand for skin care, deodorants and hair care declined because people were no longer leaving their homes and socializing. The division’s largest brand, Dove, remained resilient, with mid-single digit growth.
Sales in the prestige beauty portfolio fell by 10 percent in the second quarter, impacted by the closure of beauty channels in many markets. Jope noted that two-thirds of Unilever’s prestige business is generated in the U.S., and the temporary closure of retail chains such as Ulta, had dampened sales.
He said that color cosmetics in particular took a big hit, with Hourglass sales down “quite considerably” in the second quarter, due to the fact that no one could trial products in-store. He said trends in the segment have been improving as non-essential retailers have begun to open.
Jope added that Unilever has “exciting plans” to take its prestige beauty portfolio to China, given the country’s indication earlier this month that it will allow foreign products to be sold without testing them first on animals.
The new regulations should come into effect at the start of 2021, and will mean that imported ordinary cosmetics such as shampoo, blush, mascara and perfume will no longer have to be animal-tested for eye and skin irritation in Chinese laboratories.
Jope noted that Unilever had been working for a decade with China’s food and drug administration to stop animal testing on beauty products imported into the country.
During the six months, sales in Unilever’s Home Care division rose 3.2 percent to 5.3 billion euros due to the popularity of products such as Cif and Domestos surface cleaners. Seventh Generation, an eco-cleaning brand with formulations derived almost entirely from plants, saw strong double-digit growth.
Sales at Unilever’s Foods & Refreshment division were down 1.7 percent to 9.8 billion euros, with Jope noting that sales of “in-home foods” such as soups, mayonnaise and mustard, rose in the double-digits, while “out-of-home foods,” such as pre-packaged ice cream bars, declined because no one was eating out, socializing in groups or attending large-scale gatherings.
The company noted that reduced tourism led to a reduction in out-of-home ice cream sales of nearly 30 percent, while food service sales were down around 40 percent as hotels, restaurants, cafes and bars shut.
It’s been an extraordinary half year for Unilever: In addition to wrestling with the COVID-related challenges of rollercoaster growth and fast-changing consumer habits, the company last month announced it would consolidate its dual-headed legal and corporate structure under a single parent company, Unilever plc.
The move, it said at the time, creates “a simpler company with greater strategic flexibility that is better positioned for future success,” and also positions Unilever for more M&A deals going forward.
The corporate giant also made major moves in the diversity and ethics arena.
It joined a boycott dubbed “Stop Hate for Profit,” started earlier this summer by groups including Color of Change, the NAACP and the Anti-Defamation League over Facebook’s refusal to tamp down racist and hate speech on its platforms, including posts by President Trump. Unilever is one of Facebook’s top 40 advertisers, having spent nearly $3 million on ads across Facebook and Instagram over the last two months, according to data from Sling & Stone, an agency that tracks ad spend.
The company also vowed to retool its language, removing references to “white” and “whitening” in its skin-care products. It also plans to change the name of its Fair & Lovely brand, which is sold throughout Asia.
The consumer giant said last month it wants to promote a “more inclusive vision of beauty,” and will also remove the words fair/fairness and light/lightening from all Unilever products.
The words most frequently appear on creams and treatments aimed at making Asian women’s skin lighter and more even-toned, conforming to a Western ideal of beauty, wealth and social status. Lightening and whitening creams from a variety of companies have long been marketed throughout Asia.
The Fair & Lovely name will be changed within the next few months, said Sunny Jain, president of beauty and personal care at Unilever.
During Thursday’s call, the company focused on the H1 and Q2 numbers and consumer trends, as did financial analysts on the call. No one asked about the corporate consolidation, Facebook or product language issues.