LONDON — After a year of full-on drama, Unilever is looking ahead and seeking growth, with its eyes locked on China.
Chief executive officer Alan Jope, who will step down in July after 37 years at Unilever, said expectations are high in the region, which is once again open for business.
He said Thursday that Unilever has already seen a “strong reopening” in China and his hope is that pent-up household savings will be lavished on Unilever’s array of personal, prestige, food and home products.
“I think we’re going to see a little bit of a consumption boom in China,” and the surge demand will have an impact on inflation in the second half, said Jope after the consumer giant’s 2022 results presentation.
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As reported, Unilever is expecting net material inflation in the first half to be around 1.5 billion euros. That figure will be “significantly lower” in the second half, the company said.
Unilever is hoping that a rebound in Chinse production and consumer demand will dampen fuel, energy and labor costs, which have been spiraling in the wake of the pandemic and the war in Ukraine.
In fiscal 2022, sales in China declined slightly due to the impact of lockdown, which particularly affected Unilever Food Solutions and Home Care in the second and fourth quarters.
Jope is not alone in holding out hope for China: Leaders from across the industry have been racing back to the region and launching charm offensives following the lifting of travel restrictions last month.
As reported, the consumer giant beat consensus expectations in 2022 with underlying sales growth of 9 percent in the fiscal year ended Dec. 31.
It looks to be poised for an encore. Unilever said it is expecting 2023 underlying growth to be “at least” in the upper half of its multiyear range of 3 to 5 percent, which would beat current consensus of 4.3 percent.
Some of that growth will come from increased investment, which will be skewed toward the prestige beauty and well-being categories, which saw underlying growth of 7.8 percent and sales of 12.3 billion euros in 2022.
Unilever will still have to fight for its margins, which have been eaten away by rising cost inflation. Jope said Unilever will deliver only a “modest improvement” in underlying operating margin in 2023 as it plans for another year of increased investment.
“With cost inflation remaining high, underlying operating margin will be around 16 percent in the first half,” he said.
High cost inflation was the latest in a series of woes to plague Jope’s final years at the Unilever helm.
His efforts to buy the consumer health business of GlaxoSmithKline flopped. The move irked shareholders, tarnished Jope’s image and saw Unilever’s share price collapse.
It also led to massive organizational changes at the 60.1 billion euro company, and the arrival of activist investor Nelson Peltz’s Trian Fund Management.
Trian made an investment of nearly $2 billion in Unilever last year, and over the summer Peltz joined the board as a non-executive director. A few months later, Jope revealed that he planned to retire.
On Thursday, in a gesture of grace, Jope touted the credentials of his successor Hein Schumacher, a turnaround expert who’s set to take the top job on July 1.
Schumacher is currently CEO of Royal FrieslandCampina, an international dairy and nutrition business with 11 billion euros in annual turnover. He was named a non-executive director of Unilever last year, and is thought to have been handpicked by Peltz.
“It’s not for me to comment on Hein’s agenda, but what I can tell you is that in an internal video that he recorded — unscripted and unprompted — he highlighted three things. Number one is his absolute focus on performance and value creation, number two is his commitment to the organization, and to keeping our troops calm,” Jope said.
“The third is his belief that performance can be enhanced by staying the course on Unilever’s long-standing commitment to sustainable business,” he added.
Jope described Schumacher as a “an extremely clear communicator and a hell of a nice guy. I’m looking forward to seeing what he does at the helm of this great company.”
As reported, higher prices due to inflation drove growth at Unilever in fiscal 2022, and the trend looks likely to continue in the first half of the current year.
Turnover in the 12 months to Dec. 31 was 60.1 billion euros, up 14.5 percent compared with the previous year. Underlying sales grew 9 percent following an 11.3 percent hike in prices. Sales volumes for the year declined 2.1 percent.
In the 12 months, Unilever’s net profit rose 24.9 percent to 8.3 billion euros, bolstered by increases in pricing and by disposals. Underlying earnings per share were 2.57 euros, down 2.1 percent compared with the corresponding period last year.
Analysts were impressed with the company’s larger-than-expected underlying sales growth, although some think Unilever is stretched in too many directions.
Pierre Tegner at Oddo said the best scenario “would be a refocus on consumer care with an exit from dressings and cooking aids; ice cream, and prestige beauty, three battles that are driving a lot of distractions.”
Tegner believes Unilever should focus instead on personal care, consumer health and home. He believes that while the change would take time, a tighter portfolio would set Unilever on a path to more profitable growth.
Shares in Unilever were broadly flat on Thursday at 41.10 pounds.