LONDON — Currency headwinds and the sale of its spreads business to KKR dented Unilever’s sales growth in 2018, a year that ushered in major changes for the consumer giant, and there could be more volatility to come.
Unilever’s new chief executive officer Alan Jope said Thursday during the year-end results presentation that market conditions would remain challenging in fiscal 2019, and the company anticipated underlying sales growth to be in the “lower half” of its multiyear 3 percent to 5 percent range.
He stressed that “accelerating growth” would be Unilever’s top priority going forward in the face of a challenging macro environment and increased competition. Although Jope flagged “continued improvement” in underlying operating margin and added that Unilever remained on track for its 2020 goals, those words were not enough to shore up the share price, which closed down 2 percent at 39.85 pounds.
Pierre Tegnér, an analyst at Oddo Securities in Paris, wrote that the main driver of the share drop was the 2019 organic growth guidance. “The consensus,” he said, “was expecting 2019 at the middle of the 3 percent to 5 percent range.”
The parent of brands ranging from Dove and Vaseline to Ben & Jerry’s and Bertolli, saw sales in the 12 months to Dec. 31 shrink 5.1 percent to 51 billion euros. Excluding the spreads business, which was sold in July, turnover would have fallen 2.3 percent to 49.6 billion euros.
Underlying sales growth in the period was 2.9 percent. Stripping out the spreads business, underlying growth was 3.1 percent. Adverse currency impact on sales in the 12 months was 6.7 percent. Asset disposals bolstered year-end profit 51.2 percent to 9.8 billion euros.
Jope, who was named to the post shortly after a botched plan to move the company to the Netherlands, described 2018 as a “solid year” for Unilever, with good volume growth and high-quality margin progression.
“With so many of our brands enjoying leadership positions, we have significant opportunities to develop our markets, and to benefit from our deep global reach and purpose-led brands,” said Jope, a company veteran who, in his previous role, had spearheaded Unilever’s shift into the prestige beauty arena.
“We will capitalize on our strengthened organization and portfolio, and our digital transformation program, to bring higher levels of speed and agility. Strong delivery from our savings programs will improve productivity and fund our growth ambitions.”
Underlying sales in Unilever’s largest division, beauty and personal care, grew 3.1 percent to 20.7 billion euros in the 12 months.
The company’s largest personal-care brand, Dove, delivered “broad-based growth,” while skin care grew strongly due partly to innovations including a new Vaseline range that touts clinical strength moisture protection.
The consumer giant said that new, premium formats including Dove exfoliating body polishes and new cleansing brands such as Korea Glow, which launched in the fourth quarter, were also bolstering growth.
Jope added that Love Beauty and Planet, a new brand developed by Unilever that uses 100 percent recycled plastic bottles, was feeding consumers’ demand for natural, sustainability-focused products.
Prestige performed well, Unilever added, with double-digit growth at Hourglass, Ren, Living Proof and Kate Somerville as well as improved momentum on Dermalogica and Murad. Dollar Shave Club grew in the double digits and continued to build scale in the U.S.
By region, emerging markets grew by 4.6 percent with strong growth in Asia, while sales in developed markets grew “modestly,” the company said, due to robust growth in the ice cream business in Europe and the continued transformation of the Unilever portfolio toward faster-growing segments.
The company said underlying sales in North America grew 0.9 percent, with strong performances in deodorants, skin cleansing and home care offset by “continued competitive pressures” in food dressings and tea.
Underlying sales in Latin America declined by 1 percent with a volume decline in Argentina of 10 percent for the year. Latin America also delivered lower gross margins due to currency driven commodity inflation, and an adverse impact from Unilever’s decision to apply hyper-inflationary accounting in the country.
Bernstein said that overall, Unilever delivered “reasonable organic growth, strong underlying margin growth, good underlying earnings per share growth at constant exchange. We consider this another good year from Unilever.”
Jope was named ceo at the end of 2018, capping a tumultuous year for Unilever. He replaced Paul Polman, who had already announced his plans to retire.
Polman’s last year in the job was marred by Unilever’s botched plans to move its corporate entity to the Netherlands, and eliminate the dual corporate structure in London and Rotterdam. The plan failed to find favor among Unilever’s big institutional investors, so the company remains headquartered in both countries and quoted on the London Stock Exchange and in Amsterdam.
Jope had most recently served as president, beauty and personal care at Unilever, and had long been mooted as a frontrunner for the job.
The plan to move Unilever to the Netherlands had stemmed from the Brexit vote in 2016 and a shock $143 billion takeover bid by Kraft Heinz Co. in 2017. Kraft Heinz withdrew the offer after Unilever spurned its advances and Unilever later undertook a major audit, simplifying its internal structure and selling its underperforming spreads business to KKR.
Polman retired as ceo and as a board member on Dec. 31, although he plans to support the transition process in the first half of 2019. He will leave the company in early July.