Unilever delivers strong fourth quarter but competition probe hits shares

Unilever hit its full year growth targets after a strong fourth quarter where sales accelerated in the final quarter of the year thanks to volume growth.

Underlying sales growth of 4.3% in the fourth quarter, beating the 3.7% expected by the market, helped the consumer goods giant grow underlying sales 3.5% for the full year, excluding the spreads business that it agreed to sell for €6.8bn late last year.

All product categories showed growth, with Personal Care up 2.9%, Home Care gaining 4.4%, Foods inching 1% higher, and Refreshment fizzing up 4.9%.

Volume growth of 1.0% and a 2.4% increase from prices helped the FTSE 100 group meet its ongoing 3-5% underlying sales growth target, with a 110-basis-point growth in underlying operating margins to 17.5% ticking another medium-term strategic box.

On a reported accounting basis, turnover of €53.7bn for the calendar year was up 1.9% on the previous period, or up 2.2% to €50.7bn excluding spreads, which included an adverse negative currency impact of 2.1% and a net 0.9% from acquisitions and disposals. As well as selling spreads, chief executive Paul Polman's continued quest to freshen up the portfolio saw 11 acquisitions in the year from Myanmar and Korea to Brazil and the US, including names such as Pukka Herbs, Living Proof haircare and Hourglass cosmetics.

The margin improvements, coming from price gains and the savings programme stepped up the pace and cut €2bn of costs in the year, helping to percolate to a 9.2% rise in profit before tax to €8.1bn and an 18.4% jump in earnings per share to €2.15.

A quarterly dividend of €0.3585 or 31.55p per share will be payable in March.

Polman, who reiterated the 2020 targets for continued underlying sales growth of 3-5%, improving the underlying operating margin to 20% and improving cash flow, said the year was an important one in making the company a "more agile, consumer-facing organisation", with the "quality and speed of innovation" improving, and the freshening up of the portfolio was "making Unilever increasingly competitive in light of fast-changing consumer and technology trends".

He added that the review of the group's dual-headed Anglo-Dutch legal structure "has progressed well and we expect to conclude it shortly".

One negative in the results was the provision of €80m in relation to ongoing competition investigations in Italy and South Africa, which was taken in the second half.

Unilever shares fell 0.4% to 3,983p in early trade on Thursday, down more than 12% from October's high but still higher than than when Kraft-Heinz's approach was batted away almost a year ago.

Although price growth has been key to meeting targets, volume growth is improving too, said analyst Neil Wilson at ETX Capital, especially as market conditions remain tough, particularly in mature markets like Europe and the US. He said the competition provision may weigh on the shares.

To achieve its margin target, Wilson said management needs to make efficiencies in areas like advertising spending, noting that marketing spend was flat in 2017 but as a percentage of turnover was down 60bps.

The key numbers all stack up pretty well and in short, he said Unilever was "driving sales growth and improving margins at the same time; shareholders will find it hard to complain with that".