Unilever's Jope expects further challenges as sales soften

Unilever said underlying sales growth will remain at the bottom end of its guidance in 2019 after growth at the Marmite and Ben & Jerry's slowed in the fourth quarter.

New boss Alan Jope said he expects market conditions in 2019 to "remain challenging" and anticipates underlying sales growth will be "in the lower half" of the group's medium-term 3-5% range.

Jope's "number one priority", he said, was "accelerating growth".

For 2018, underlying sales growth came out 2.9% or 3.1% if excluding the spreads business that was sold off for €4.3bn in July. Sales growth in developed markets were disappointing but helped by a "stand out year" for ice cream in Europe, while growth came from the ever stronger presence in emerging markets, which was boosted by the India deal with GSK in December.

The Anglo-Dutch group's sales growth slowed to 2.9% in the fourth quarter from 3.1% in the first nine months and 2.8% in the third quarter. This was short of analysts expectations for quarterly growth of 3.5%.

However, with underlying operating profit margins increasing 90 basis points to 18.4% over the year, operating profits of €12.5bn or €9.4bn on an underlying basis beat €8.8bn consensus estimate.

Total group turnover fell 5.1% to €51bn due to currency swings, or down 2.3% to €49.6bn excluding spreads. Selling the spreads business helped boost total operating margin 810 basis points to 24.5%.

Underlying earnings per share grew 5.2% to €2.36, or if excluding currency swings was up 12.8%. Total diluted EPS surged 62% to €3.48.

Free cash flow was down €0.4bn to €5.0bn, hit by exchange rates as currencies in all its main markets depreciated against the euro. Net debt increased to €20.8bn from €20.3bn over the year.

Jope, who took over from Paul Polman in November after the group's bungled bid to move headquarters from the UK to the Netherlands, said 2018 was a "solid year" but looking forward he added: "With so many of our brands enjoying leadership positions, we have significant opportunities to develop our markets, as well as to benefit from our deep global reach and purpose-led brands.

"We will capitalise on our strengthened organisation and portfolio, and our digital transformation programme, to bring higher levels of speed and agility. Strong delivery from our savings programmes will improve productivity and fund our growth ambitions."

So, despite the challenging market conditions this year keeping underlying sales growth at the lower end of targets, he is aiming for continued improvement in underlying operating margin and continued strong free cash flow.

"We remain on track for our 2020 goals."

Unilever shares fell almost 4% to 3,916.44p on Thursday morning, their lowest since last April.

Analyst Laith Khalaf at Hargreaves Lansdown said: "The controversy over Unilever’s failed bid to switch its headquarters from London to Rotterdam hasn’t dented its performance. Nor would we expect it to, Unilever’s corporate structure has no bearing on the propensity of global consumers to buy Marmite or PG Tips tea bags."

He said with a valuation of around 20 times earnings Unilever "isn’t a cheap stock by any stretch of the imagination, though what underpins that price tag is the company’s ability to churn out consistent growth", with a "limp" looking dividend yield of just over 3% is expected to grow by 18% in the next two years, "and the market puts a premium on that sort of rising income stream, particularly when it’s comfortably covered by cash flows".

Khalaf added: "The company has lots of international revenue streams, so its share price could be hampered by an orderly Brexit, doubtful as that may presently seem, and the positive effect that would have on the pound. Likewise the dividend is declared in euros so currency could impact the value of that payment for UK shareholders."