Unilever PLC (UL) on Q4 2021 Results - Earnings Call Transcript
Operator: Hello and welcome to the Unilever Q4 and Full Year 2021 Results and Strategic Update. . And with that, I'd like to hand over to Richard Williams, Unilever Head of Investor Relations, to begin the presentation. Please go ahead. Richard Williams: Thank you. Good morning and welcome to Unilever's Full year results and strategic update. We expect prepared remarks today to be around 45 minutes followed by Q&A of around 45 minutes. All of today's webcast is available live transcribed on the screen as part of our accessibility program. First, I draw your attention to the disclaimer to forward-looking statements and non-GAAP measures. And with that, let me hand straight away over to Alan. Alan Jope: Thanks, Richard. We are here to talk about our full year results, and our 2021 results have been good. We've delivered our fastest growth in 9 years. It's been driven in line with our strategic priorities. And we've managed margins to around flat with underlying earnings per share up 5%. But before we get into the detail, I do want to touch on a few topics that are top of mind for many of our investors and have been top of mind for the Board and me over the last weeks. And we'll come back to some of these in more detail later. Let me start by sharing unambiguously that I am dissatisfied with the recent value creation that Unilever has delivered for our investors. We have the potential to do a lot more with the portfolio that we have, and my leadership team and I are 100% focused on doing just that, delivering value for our shareholders. Our first priority, of course, and the thing that the vast majority of people in Unilever are focused exclusively on is organic growth. That is our day job. At the same time, though, it's important to chart the long-term direction of the company. And after months of careful review, our Board concluded that accelerating the shift of Unilever's portfolio into consumer health and well-being would position the company for faster growth in the coming decades. And it's this conclusion that lay behind the confidential discussions that we were having with GSK and Pfizer. That being said, we've listened carefully to our shareholders, and we've heard the message that there's currently no support for a move the size of the GSK Consumer Health business. We remain resolved in the direction of our portfolio evolution, but we will not be proposing transformational acquisitions for the foreseeable future. They are off our agenda. Instead, we intend to improve Unilever's value creation in the following ways. First, we'll continue to accelerate organic growth, investing in our biggest and best brands, which are in great health, stepping up the benchmark quality of our products and continuing to strengthen our innovation. We will build our position in the growth markets of the future, starting with the U.S., India and China. And e-commerce remains both an overarching priority and a part of the business that continues to grow very well. Secondly, a powerful, new organization model will be a further accelerant. An operating model that moves away from a heavy matrix is simpler, more focused and provides greater accountability. It is designed for growth but does so at materially lower cost. And thirdly, we will continue to reshape our portfolio but through bolt-on acquisitions and selective disposals. We've built substantial, fast-growing new businesses in Prestige Beauty and in Functional Nutrition, and this will continue to be the direction of travel for our portfolio. Our capital allocation will be disciplined, and we will maintain Unilever's historically high levels of return on invested capital. We exited 2021 with growth momentum, and we expect that to continue. Our goal is to keep growth at least in the top half of our 3% to 5% multiyear range. 2022 has started well. But the biggest challenge we'll face this year is navigating a further step-up in input cost inflation. We have been leading on pricing, and it's working. We will invest competitively in advertising, in R&D and in operational CapEx. As a result, our margin will be down in 2022, though, as Graeme will show later, the empirical experience we have is that we can expect a restoration in margin quickly, with the majority coming back in 2023. Right. So this is how we'll run today. First, I'll give a quick overview of 2021 before Graeme takes you through the details of the results. I'll then give a strategic progress update, which will include portfolio evolution and some more details on the new operational model that we announced last month. It's a major change for Unilever. Graeme will then close with the outlook for 2022 and beyond. So let's take a quick look at 2021. We delivered Q4 underlying sales growth of 4.9%, driven by price with volumes flat. And that resulted in a full year of 4.5% underlying sales growth, well into the upper end of our multiyear framework of 3% to 5%. Volume growth for the full year was 1.6%. Pricing stepped up to its highest level in a decade as we responded to the significant inflation that we're seeing across commodities and other input costs. We believe that landing price at speed is the right thing to do. It's critical to preserving our ability to continue to invest in our brands. At the same time, we maintained good levels of competitiveness, ending the year at 53% business winning value share, posting a second full year of growth that is competitive. Underlying operating margin for the year was 18.4%, which is down 10 bps versus last year and in line with our guidance of around flat. Underlying earnings per share were up 5.5% in current currency and 7.8% in constant currency. Free cash flow remained strong at €6.4 billion, albeit down year-on-year versus a record delivery in 2020. Well, remember, we focused the business on cash in a period of great uncertainty, and Graeme will give more details on this later. I do want briefly to put our 2021 delivery in the context of recent years'. At 4.5% underlying sales growth, 2021 was the highest we delivered in nearly a decade. Of course, this was helped by the relatively low comparator in 2020 as we managed the business through the pandemic. But on a 2-year basis, growth is back above 3% and has been accelerating during the year led by pricing. And that's despite some parts of the business, for example, Food Solutions, still not having fully recovered versus 2019. As you know, restoring Unilever's competitiveness has been a key focus for us over the last 3 years. Competitiveness had fallen to a level that was unacceptable. And through our sharp 5-point strategy and more focus on business fundamentals, we have made a good progress with 53% of our business winning share in both 2020 and 2021. Growth remains our priority, but margin progression is, of course, also an important component of value creation. Underlying operating margin was around flat in 2021 despite the inflationary conditions. So overall, good progress in '21. Our growth momentum is building. We stepped up pricing significantly in a heavily inflationary environment while delivering strong earnings. And we maintained our restored competitiveness. But we know there is more to do and further accelerating growth remains our #1 priority. I'll come back to this when I talk about our strategy later in the presentation. Now over to Graeme for a few more details on 2021. Graeme? Graeme Pitkethly: Thanks, Alan, and good morning, everyone. First of all, let me cover underlying sales growth. While the 2021 quarterly growth numbers were clearly impacted by the comparator, growth progressively stepped up on an average 2-year stack basis and is accelerating. We continue to land pricing as inflationary pressures increased through 2021, and we expect further increases in 2022. I'll give you more on that later in the outlook section. We have started seeing some volume elasticity, especially in our markets where pricing has been significant. But these are well within our expectations. While volume growth for the year was positive, there are a few puts and takes within that number. For example, the recovery of Food Solutions, where volumes grew at over 20%, and, in contrast, Southeast Asia, where lockdown restrictions, as we talked about in our last results call, had a 1% negative impact on reported volume growth just in Q3 alone. Turnover for the year was €52.4 billion, and that's up 3.4% versus 2020. As already mentioned, underlying sales growth contributed 4.5%, and we saw a positive impact from acquisitions and disposals of 1.3% with Liquid I.V., Horlicks, SmartyPants and, more recently, Paula's Choice being the main contributors to that. Currency had a negative impact of 2.4% as the U.S. dollar and some emerging markets currencies weakened against the euro. Based on spot rates, we would now expect a positive currency translation impact of around about 2% on turnover and on EPS for 2022. Turning to our divisions. Beauty & Personal Care grew 3.8% in 2021 with 0.8% from volume and 3% from price, with pricing stepping up across all categories. In 2021, we saw a growth step-up in categories most impacted by social restrictions during 2020. That's categories like Deodorants, Hair and skin care. These grew 4% in the year and are now flat on a 2-year CAGR basis. Social occasions in many of our markets remain below pre-COVID levels with people continuing to work from home and restrictions being reintroduced in some places. We continue to innovate at a greater pace and with greater scale in BPC with innovations landing on our global brands. For example, Dove, where we launched a range of both liquid and foaming hand washes, which are enriched with Dove moisturizers to mitigate against dryness after regular washing while still providing germ protection in seconds; or Rexona, where we rolled out patented technology to the core ranges of the Rexona brand, offering the first ever 72-hour protection in the core of the brand. Skin Cleansing declined versus strong double-digit growth in the prior year but remains significantly ahead of 2019 levels with a 2-year CAGR of 6%. And Prestige Beauty continues to be a big growth contributor for Beauty & Personal Care, growing strongly in 2021 and, in fact, by double digits on a 2-year CAGR basis. Growth in Foods & Refreshment was 5.6% in '21, well balanced between volume and pricing. Our in-home portfolio was flat against a high-growth comparator, leaving the 2-year CAGR at 6%. This was driven by strong core brand growth and by innovation such as Magnum Double Gold Caramel Billionaire; our Knorr zero-salt meals; and the Knorr Rinde Mas product, which we launched in Latin America. Out-of-home, which includes our Food Solutions and out-of-home Ice Cream business, grew by over 20% but is still down 4% on a 2-year CAGR basis. The recovery of our Food Solutions business accelerated throughout the year as restaurants, offices and schools reopened, and we saw our 2 largest food solutions markets, which are the China and the U.S., return to prepandemic turnover levels in the second half. Home Care grew 3.9% in '21 with price growth of 3.1% and volume growth of 0.7%. Pricing stepped up significantly in the second half to over 6% with limited price growth in the first half. Laundry grew by 6% in the year, bringing the 2-year CAGR to 4%. And while Home & Hygiene declined versus a very strong comparator, it does remain up 6% on that 2-year CAGR basis. We're rolling out our Clean Future technology now across our home care markets with formulations and products that deliver superior performance whilst also being kinder and friendlier to the planet. For example, our Cif antibacterial range, which is scientifically proven to kill 99.9% of bacteria and viruses with a cleaning agent that is 100% naturally derived. Now let me turn to our regions. Our biggest region, Asia/AMET/RUB, which is nearly 50% of our business, grew 5.8% in the full year with a mix of both price and volume. India performed strongly, growing by over 13%. We stepped up pricing in India during the year while maintaining positive volume. China saw good volume-led growth of over 14% with strong growth across all divisions, although we are currently seeing a slowdown in market growth driven by online channels. In Southeast Asia, Indonesia remains a challenged business for us with disappointing performance. Competitors there are backwards integrated into the supply chain, and they're, therefore, less exposed to inflation than Unilever is. Although that's a tough competitive dynamic, we're also clear that we have not been on top of our game in Indonesia when it comes to innovation and driving market development through marketing fundamentals. We have put strong plans in place to address this, but it will take time. Other Southeast Asian markets like Vietnam recovered in Q4 following the severe lockdowns in the third quarter, although the local economies still remain overall quite impacted by the pandemic restrictions. In Turkey, we saw another year of strong growth with both price and volume up for a second year running. Latin America grew by 9% in the year, all from price. Pricing in LatAm stepped up significantly through the year, and we're exiting Q4 at 14% price growth with some elasticity impact on volumes now showing. We have a really strong track record of landing pricing in the region, and we will continue to take price, but we will not compromise on the long-term health of the business. Our largest market, Brazil, grew double digit from price with volumes slightly down. North America grew 3.4% versus a very strong comparator, and we saw our growth return to competitive levels in our biggest market, which is the U.S. We are landing pricing with our customers and consumers and managing volumes well. Higher demand for in-home foods and ice cream has continued throughout the year, and our health and well-being and Prestige Beauty businesses are now strong vectors to North America's growth, contributing over 2% USG in the full year for North America. Europe was flat in the year with only slightly positive volume and price. The pricing environment in Europe remains difficult. In 2021, our list price increases were still relatively limited despite high levels of inflation. And France, in particular, remains a key area of pricing challenge. The U.K., which is our biggest market in Europe, declined versus a strong comparator. European out-of-home ice cream improved but still remains well below pre-COVID levels as travel restrictions hit the critical summer ice cream season in '21. Underlying operating margin for the year was 18.4%. That's down 10 basis points from last year. Our gross margin was down 120 basis points. Despite stepping up pricing significantly, this wasn't enough to fully offset the high cost inflation we're seeing across our raw materials, packaging and distribution costs globally. We have been leading on pricing in most markets, and those increases are landing on the shopper's shelf. Pricing is a relative exercise, and competition is following with a degree of lag. Volume elasticities are so far settling at around the levels we would expect for this level of relative pricing. And we're pleased to have maintained competitiveness while taking these pricing actions. Within gross margin, there was a 30 basis point benefit from the unwind of some of the additional COVID costs and negative mix that we had in 2020. Brand and marketing investment in constant currencies was €7 billion, so in line with the investment levels of prior years. BMI as a percentage of turnover was down 90 basis points. But if we look one level further down on BMI, we see a considered and responsible approach by our markets, focusing on local market dynamics and taking opportunities to invest competitively at greater efficiency. For example, we stepped up BMI spend in North America, including in our fast-growing health and well-being portfolio. Overheads were down 20 basis points through productivity programs and turnover leverage. Underlying earnings per share, as Alan said, were up by 5.5% in current currency and by 7.8% in constant currency. Operational performance was the main driver of earnings growth while the reduction in the number of shares from buybacks contributed 90 basis points. An increase in minority interest in India were part offset by lower finance costs and higher income from noncurrent investments. Looking at 2021 through the lens of our multiyear financial framework. We delivered growth well within our multiyear framework of between 3% and 5%. Underlying operating margin was down 10 basis points and cash was once again strong at €6.4 billion but down versus the record delivery from last year, which saw lower CapEx spend and a big focus on working capital. For 2021, we have declared a 3% increase to the dividend, taking it to €4.4 billion for the year. Looking at other long-term financial metrics. We delivered another year of €2 billion savings through the various programs that run across all lines of the Unilever P&L. This includes cost of goods savings such as ingredient agility and product logic, savings from our buying scale and the payback from our restructuring investments. Restructuring was €0.6 billion, which was below the run rate of the last few years because of delays in projects due to COVID disruption and to create the space needed to implement the new operational model in 2022. We still expect to spend €2 billion across 2021 and 2022, including the restructuring investment to create and land the new operational model. And thereafter, from 2023 onwards, we expect to return to the pre-2017 restructuring levels of around 1% of turnover. Return on invested capital for the year was 17.2%, in line with our guidance of mid to high teens. The decrease was due to goodwill and intangibles from the Horlicks and Paula's Choice acquisitions, partly offset by an increase in profit. Leverage at 2.2x remains broadly in line with our target of around 2x. So summarizing 2021, we improved our growth momentum during the year, but we are clear that there's still more to do. Pricing stepped up significantly in a high inflationary environment, and we're pleased to have delivered strong earnings and maintained competitiveness at the same time. And with that, I'm going to pass you back to Alan. Alan Jope: Thanks. As Graeme said, we believe that 2021 has seen a step-up in Unilever's performance and that we have built momentum in the business, and that's driven by disciplined action on the strategic priorities that we set out a year ago. It is these five choices which will sit at the heart of our strategy for value creation. So let's start with winning with our brands. We have 13 €1 billion brands that together make up 50% of our turnover. They grew an aggregate 6.4% in 2021. And some key performances to call out here are Dove, which grew 8%, which is the fastest growth in 8 years; Hellmann's, which grew 11%; and our ice cream brands, Magnum and Ben & Jerry's, both growing 9%, and all against strong comparators. So these are not COVID bounce backs. Behind the success of these brands is product superiority and great innovation, and we continue to improve our performance in both these areas. Superiority in blind testing versus competition is now over 70% of tested turnover, and that's up from less than 50% in 2019. And our focus on driving bigger, better and more impactful innovation delivered over €1 billion of incremental turnover in 2021. That's double the delivery in 2020. Yes, double. Our brand power remains strong with over 80% of our turnover increasing or holding brand power. We've chosen to prioritize the key markets for the future, the U.S., India and China, and other key emerging markets. All 3 of the highest-priority countries delivered strong and competitive growth in 2021 and on a CAGR basis over the last 2 years. The U.S., for example, grew almost 4% on top of a record growth year in 2020, while India and China grew well into double digits, albeit versus weaker comparators. It is particularly pleasing to be winning competitively across all 3 markets, and they do remain a key focus for innovation, for investment in capabilities, for talent development and for capital allocation. Next, leading in channels of the future. E-commerce grew 44% on the back of an exceptionally strong year of growth in 2020. And this growth came from all of the main subchannels of e-commerce. It was driven by growth ahead of the market in the U.S., India and China. In just 5 years, the channel has gone from 2% of Unilever's turnover to 13% in 2021. We've invested significant resources in both expertise and tech capabilities, and we will continue to do so. Our next strategic priority is to build a purpose-led, future-fit organization and growth culture, and key to that is putting in place the right operating model for Unilever. We've known for some time that the matrix structure we have operated under with 3 divisions and 15 regional performance management units was relatively heavy and not as simple, fast or clear as it could be. We started working on the future organization model all the way back in late 2019 but concluded that making such a significant change in the depths of the COVID crisis would not have been the right thing to do. So we restarted the work again in the second half of last year and announced the conclusion of that work last month. The objective of the change are straightforward: to make Unilever simpler, faster and more agile, more focused and expert in our categories with greater impairment and accountability. We will be organized around five business groups: Beauty & Wellbeing, Personal Care, Home Care, Nutrition and Ice Cream. Each business group will be fully responsible and accountable for their strategy, their growth and their P&L globally. Each business group will be able to allocate resources to choices which support their growth strategy. For example, the Beauty & Wellbeing business group under Fernando Fernandez will have a very strong focus on growing in channels like beauty stores, drug stores, direct-to-consumer, e-commerce. These channels are less relevant to, for example, our Nutrition business, where out-of-home, classic grocery and omnichannel e-commerce are going to be the key channels to grow the business. And here, you can see clearly how our categories fit within the relevant business groups. Beauty & Wellbeing will combine Hair and Skin Care, Prestige Beauty and our health and well-being businesses. Within that structure, we'll continue to run Prestige and health and well-being as separate global GBUs, a model that has served us well in building each of these businesses to €1 billion of revenues. Personal Care under Fabian Garcia brings together the categories of Skin Cleansing and Deodorants as well as Elida Beauty and Dollar Shave Club. Our Home Care business group will be run by Peter ter Kulve and our Nutrition business group by Hanneke Faber. Ice Cream becomes its own business group led by Matt Close, who has many years of success leading our Ice Cream business. We will have a lean corporate center, where our company-wide global strategy and priorities are set and led from, where capital is allocated and where our top talent is managed. And as a foundation to our business, we will have a technology-driven Unilever business operations team, who will run our backbone commercial processes designed once and leveraged everywhere with the highest reliability and the lowest cost. Each business group will consist of 7 or 8 geographic business units led by an empowered general manager. These are groups of countries which have similar consumers, customers and channels, and they will be the engine of our business in our markets. It's worth noting that customer development will remain one integrated function at country level, will continue to show up as One Unilever for our customers. This new operating model is a major change in the way we run Unilever, and I firmly believe it's one that will enable us to step up our growth by making us simpler, faster and more accountable. Quarter 2 is a transition period with accountability for delivery and performance incentives vested with our current leadership teams. We'll go live with the new organization in July, and I'm personally looking forward to performance managing the five business group presidents. They've been selected almost exclusively for their record of consistent delivery and performance. In terms of reporting, you'll continue to see our performance under our current structure for the first half of the year, and we'll report under the new business groups from Q3 onwards. This is a transformation that has been designed to deliver higher growth. Cost savings were not the primary goal, but the 15% reduction in senior management roles and 5% reduction in junior management roles, together with some nonpeople cost savings, will translate to a saving of €600 million that will be delivered across this year and 2023. This leads me to our fifth strategic priority, which is to continue the move of our portfolio into higher-growth spaces. In parallel with achieving unification of our legal structure, our Board went through an extensive process to review strategic pathways to reposition Unilever's portfolio into higher-growth categories for the longer term. This work concluded that our future strategic direction lies in expanding our presence in health, beauty and hygiene. These categories offer higher rates of sustainable market growth with significant opportunities to drive growth through investment, technology, marketing capability and innovation and by leveraging Unilever's strong global footprint. We're building a health business within Beauty & Wellbeing in particular through our Vitamins, Minerals and Supplements brands as consumers take a more holistic approach to their beauty and well-being. At the same time, we've disposed of slower-growth food segments such as Spreads and tea. Now obviously, we've been asked whether the new business groupings are the next step for a disposal of the Nutrition or Ice Cream businesses. Let me be clear, both Nutrition and Ice Cream are great businesses with strong brands that can thrive within Unilever. Both have benefited from our focus on operational excellence and have performed particularly strongly during the pandemic. And we've already stepped up their growth profile through the divestment of Spreads and the ekaterra tea business. The new operating model will give them even more power to drive performance by responding to the consumer and channel dynamics that are unique to each of those business groups. So we see a bright future ahead for both Nutrition and Ice Cream inside Unilever. When we responded to disclosure of our interest in GSK Consumer Health, we explained that were we to acquire that business, we would also have divested parts of our portfolio, most likely Foods & Refreshment via an IPO, to both provide funding and to enable the value impact of large separation dis-synergies to be more than offset by synergies available from acquisition. I want to emphasize the conditionality of that. We've drawn a line under the GSK Consumer Health proposal, and we do not intend to pursue any other major acquisitions in the foreseeable future. We are 100% committed to continue the step-up in growth of our existing businesses through the 5 new business groups which I've just described. We will continue to accelerate growth through a rigorous focus on organic growth, accelerated by our new operating model and while making incremental portfolio change through bolt-on acquisitions predominantly in the higher-growth spaces of beauty and well-being. Now we've been on this path of portfolio evolution for a while now, and we're seeing results. We intend to provide more transparency on the success or otherwise of our M&A activity starting today. 93% of all capital deployed in M&A since 2017 has been in either Prestige Beauty, Functional Nutrition or core Beauty & Personal Care. In contrast, 98% of disposals during that time have been in slower-growing Foods & Refreshment categories. The big 2, obviously, are Spreads and tea. Overall, our portfolio rotation as a percent of turnover has been about 17% in that time period, which is well ahead of our peer average and in line with the best regarded companies in our sector. I know this is not the perception, but they are the facts. And the portfolio rotation is making a difference to USG. We disposed of businesses, mainly Spreads, which we estimate would have -- would be around a 40 basis point drag on our USG. And the newly acquired businesses contributed 70 basis points to 2021 USG, and that excludes the impact of more recently acquired brands such as Liquid I.V. I want to stress that throughout this rotation, we've been disciplined in our capital allocation, which is reflected in good ROIC, which remains in the mid to high teens at 17.2% in 2021. And we will continue to be disciplined on capital allocation in the future. Generally, we have a good track record of delivery across our major recent acquisitions, which account for 88% of our deployed capital since 2017. In particular, the investment to build substantial Prestige Beauty and Functional Nutrition businesses has been highly successful. But let's also be clear that some of our earlier acquisitions have underperformed. We didn't always get it right. Dollar Shave Club did not deliver as expected, and the economics of the DTC model changed. We also find it harder to unlock non-razor sales than planned. Blueair took us too far outside our core strengths and, like Carver Korea, was impacted by significant channel and policy changes post acquisition that we hadn't anticipated such as material improvement in China air quality or the clampdown on the cross-border daigou in North Asia. Nevertheless, Carver, Quala and Sundial will remain highly important and strategic parts of the portfolio. Let me give a little bit more update on Prestige Beauty and Functional Nutrition as this is where nearly all of our M&A capital has been focused since 2019. Prestige Beauty, now a €1 billion business, grew over 20% in 2021. And whilst this was against a weak base, growth was still double digit on a 2-year basis. Dermalogica, the biggest Prestige Beauty brand in the portfolio, has seen a remarkable step-up in growth since we acquired it in 2015, from around 1% in the 3 years pre-acquisition to a CAGR of 10% over the last 5 years, with the brand now present in over 60 countries around the world. We're just getting started building Prestige in China now that the animal testing regulations permit it. Functional Nutrition includes the health food/drinks business in South Asia as well as our largely U.S.-based health and well-being VMS business. This business grew 22% in the full year and has some very strong global leadership positions across that portfolio. As you can see here, together, Functional Nutrition and Prestige are now making a meaningful contribution to group underlying sales growth. For the full year, these 2 businesses contributed over 50 basis points. But you can see the trend has been rising, and in Q4, they contributed 70 basis points. And that is with some of the more recent and fastest-growing acquisitions still not reflected in underlying sales growth. So this wraps up the update on how we're doing in total and versus the strategic priorities for Unilever. And the key messages that I'd like to leave with you are as follows. We've drawn a line under the GSK Consumer Health discussions, and we will not be doing any major acquisitions in the foreseeable future. We have a great portfolio of brands and categories, and we're 100% focused on driving stronger performance from our existing portfolio. The measures we've put in place through our strategic choices and focus on operational excellence are starting to show up in our performance. We exited 2021 with momentum and are impatient to accelerate further. We are facing the highest levels of inflation for over a decade, and the business is responding by leading on price. Organization change will be an accelerant of performance, and we'll continue the disciplined evolution of our portfolio through organic growth, bolt-ons and selected disposals from all business groups. And on that, back to Graeme. Graeme Pitkethly: So building on Alan's key messages there, I would first like to reconfirm what our approach to capital allocation has been and will be going forward. We will remain disciplined on capital allocation to drive shareholder value, and we will retain a leverage ratio of around 2x. Operational investment into our business remains our priority. Reshaping our portfolio through bolt-on acquisitions remains part of our strategy. But as Alan said, we will not pursue any transformational deals in the foreseeable future. Our dividend yield is high, and we will continue to pay an attractive dividend. Share buybacks remain part of our capital allocation and value-creation thinking. And today, we announced a further share buyback of up to €3 billion over the next 2 years, reflecting the continued strong cash flow and the proceeds from the tea sale expected in the second half of the year. This follows the share buyback of €3 billion which we announced and completed in 2021 and takes us to a total of €6 billion of share buybacks between '21 and 2023 and €17 billion between 2017 and 2023. Now before I get into the outlook, I'd like to touch briefly on a measure that is critical to understanding the inflationary pressures that we are facing next year. To date, our practice has been to "market inflation numbers," which are external numbers before any efficiencies and savings that we make. However, in a time of such dramatic cost inflation, we think it is useful and helpful to give you greater transparency and objectivity on the actual absolute levels of cost inflation that the business is facing. So today, we're sharing some more detail on what is the core internal inflation metric that we use. And that is called net material inflation, or NMI, as I'm going to refer to it now. Now NMI is the net inflation number expressed in absolute euros of cost that the business will see. It is market inflation less the benefit from hedging covers and global procurement actions, such as bundling purchases of similar ingredients it and includes product logic savings through reformulation, for example, where we substitute one ingredient for another depending on which is more expensive at the time but with no compromise on efficacy of the product, an also includes the work that we do to simplify the total number of product specifications that we have in the company. FX, foreign exchange, is also a factor, and it can be a headwind or a tailwind, though it generally has been a headwind in the last few years as our emerging market currencies have weakened versus hard currencies like the dollar in which most global commodities are priced. Now this chart has a lot of detail on it, but it really is very, very important. We want to give you some history on the levels of NMI, that net material inflation, absolute number that we have seen in the past, how we have priced for that and how quickly we recover the gross margin impact as a result. And as you can see on the chart, NMI inflation has been at quite low levels for the decade up until 2020. In 2021, we saw a significant step-up. That's €1.3 billion on the chart. And that was a step-up to levels that we've last seen, as you can see, over 10 years ago. And now looking ahead to 2022, our projections and the work that we do in our global procurement team indicate that we're faced with even more net material inflation at very high levels. We expect market inflation to move from mid-teens in 2021 to over 20% in 2022. And with fewer hedges in place and a more inflated cost base, more of this will flow through to the net material inflation absolute number. Now while there are wide ranges to this and a lot can change, we are currently looking at projections of around €3.6 billion of net material inflation on -- for 2022. That's the far right-hand column on this chart. We expect, just to break this down, that first half NMI will be over €2 billion. Now this may moderate in the second half to around €1.5 billion. But there is a wide range of projections, and that reflects market uncertainty about the outlook for commodity, freight and packaging costs. And just to put this into context, the unmitigated gross margin impact of €3.6 billion of NMI, if we were to take no pricing or implement other savings initiatives, would be around 700 basis points of gross margin. This chart also shows you the historic data for price growth, or UPG, as well as our gross margin progress. And as you can see in the chart, we have always stepped up pricing where inflation required us to do so, but often not to the extent so as to fully recover gross margin in any discrete year. Importantly, however, gross margin has then recovered quickly in the subsequent years once cost inflation normalizes and the full effect of pricing lands in the gross margin. The high inflation and brief declines in gross margin called out in this chart in 2008 and 2011 illustrate this very clearly. We will, of course, continue to take further price increases. These need to be phased in, however, and they lag the full effect of NMI inflation as well as continuing with our savings programs. So we need to do that as well because it's a very important component of managing the inflation. This time lag between inflation and pricing, combined with the need to keep the business healthy, means there will be a short-term hit to profitability. And we do not expect to be able to fully offset this extreme net material inflation in 2022 alone. But we are confident, based on the data that I've just presented and set out in this chart, that margin will be restored after 2022 with the majority coming back in 2023. And this takes me to our outlook for the year. We see continued growth momentum as we start the year, building on a strong 2021. We are managing the inflationary shock that 2022 brings, but we'll do the right thing for the health of the business in the long term. And at the same time, we will be implementing a major new operational model for Unilever to become an even simpler and faster business. For 2022, we expect underlying sales growth to be in the range of 4.5% to 6.5% with strong pricing. As mentioned, we expect very high input cost inflation in the first half of over €2 billion, and we currently expect that to moderate to around €1.5 billion for the second half. We will not dial back any investment to deliver a short-term margin, and we plan to maintain competitive levels of investment in our brands, in our marketing, in R&D and our capital expenditure. The full year underlying operating margin for '22 is expected to be down, therefore, by between 140 basis points and 240 basis points. So that would take our margin to somewhere between 16% and 17% with the first half underlying operating margin impacted more than the second half. We expect the margin decline from '22 to come back in 2023 and 2024 with the bulk in 2023. Our pricing has been and it will continue to be strong. We have established cost savings programs in place, which will be further enhanced by our operating model change. And we expect inflation to ease from the peak levels that we're seeing. We also expect the remaining impact from COVID, cost and mix to unwind over this period, although this depends on the world returning to normal. Therefore, we are confident that margin will be restored quickly, but our top priority is accelerating our growth, and we will continue to invest competitively and take actions to deliver stronger growth. And with that, let me hand you back to Richard for the Q&A. A - Richard Williams: Thank you, Graeme. . So our first question will come from Warren Ackerman at Barclays. Warren Ackerman: Alan Graeme, it's Warren here at Barclays. A couple from me. First one is just around the top line guidance. You were talking a little bit more about more elasticity in certain pockets. Could you maybe share with us where you are seeing more elasticity? And what should we expect as pricing continues to step up? I'm just trying to understand within the new top line guidance, which is a step-up, do you expect any volume growth in 2022? Or are you expecting price to be very high and sort of volume to be negative? Just trying to understand the whole elasticity points and where you're seeing it by geography and category. And then the second one for Alan, I guess. I mean can we just maybe step back and ask about the Glaxo consumer transaction, which obviously is now not happening? But maybe you can walk us through why you thought it was the right deal in the first place. I mean clearly, not happening now, but can you confirm that the target is still to triple sales in Prestige, Nutrition and Functional Nutrition? I'm just trying to sort of understand on the capital allocation. You're still saying bolt-ons but no but transactional deals. Alan Jope: Sure. Graeme, why don't you deal with the elasticities question and I'll get into GSK? Graeme Pitkethly: Yes. So the key message, I think, is we're going to continue to responsibly take price wherever that makes sense. We spoke months ago about the need to carefully manage the triangle of inflation, pricing, elasticity and competitiveness. So we won't push pricing to a level where it compromises the long-term health of the business, but taking price is critical to our ability to carry on investing in our brands. And we're able to do that because our brand equities, our brand power, as we measure it, is very strong, as Alan said, over 80% in very strong brand power positions. Just to click into a little bit more detail on where we're seeing it. The biggest elasticity we're seeing to date is in Latin America, where we've taken rounds of multiple high levels of price increase. And as you know, that is very much the norm in Latin America, although with these levels of inflation, there has been higher levels of price. And you see that reflected. Volumes have gone negative, for example, in Home Care. That's the right thing to do, we believe. I do want to emphasize we carefully manage it. But as the price leader, we need to balance that out. So it is simply that there is elasticity. Elasticity is a relative thing. Elasticity is lower where there's high levels of price inflation across the market. So we measure a relative price position. We are the price leader. Competition is following in pricing, and we're measuring that. Pricing is following up on the - it's landing on the consumer shelf, which is important. So retailers are protected. And elasticity so far, which we model very carefully, we've done a lot of work on this around the business, we began that -- we do it all the time, but we began it -- to step it up back in the middle of last year when we first saw the inflation headwinds coming, so far, elasticity is tracking very much within the modeled expectations that we have. But it's very dynamic. It's different market by market. That's where we've got the experience. But there is bound to see to be -- some impact on volume for 2022. Alan Jope: Thanks, Graeme. Warren, for your second question, let me start by underscoring that Unilever's management team, the entire company, are focused on one thing, and that's maximizing the performance from today's portfolio. That's the #1 focus of the vast majority of our employees who never touch M&A or capital allocation, but it's also the #1 priority for Graeme, myself, the rest of the Unilever executive. At the same time, it is important to chart the long-term direction of the company. And after months of careful review, the Board concluded that accelerating our shift into consumer health and well-being and beauty as two very attractive adjacencies would position Unilever for faster growth in the decades to come. And that's really the conclusion that lay behind what were intended to be confidential discussions that we're having with GSK and Pfizer. Now we've been very clear in our statements today where we stand on GSK Consumer Health or other transformational acquisitions. We've listened intently to our shareholders. We understand the feedback. We've drawn a line under the GSK Consumer Health bid, and we don't have any intention of pursuing other major acquisitions. However, and this is really the second part of your question, Warren, we are absolutely resolved on moving the portfolio towards these attractive spaces of beauty and health and well-being, but I would say we're more patient on how we get there. Bolt-ons remain part of the strategy. We expect to continue some disposals, pruning some brands and smaller assets across the whole portfolio, by the way. And that bolt-on activity will be very focused in delivering our intentions of scale, Prestige Beauty and health and well-being business. So yes, our commitments to grow those two businesses to meaningful scale are intact. Richard Williams: Okay. Thanks, Alan. Let's go straight to our next question, which is from Pinar Ergun from Morgan Stanley. Pinar Ergun: Two questions. The first one is on margins. Could you please walk us the building blocks from the '21 to '22 expected margin? Just wanted to confirm that the decline is all driven by commodity prices. And what would prevent the 23% margins from fully recovering? I appreciate the cost pressure is high, but you mentioned that you expect the majority to be restored by '23 despite some cost benefits you will get from the reorganization. So that's the first one, around margins. The second one is on capital allocation. I think Unilever's net CapEx is down to below 3% of sales this year. Graeme, I recall that back at one of Unilever's investor seminars a few years ago, you were indicating that such levels could be perhaps a little too low for a business like Unilever. What has led to this evolution of capital allocation strategy over the last 5, 6 years, where we have seen a shift from CapEx into pursuing external growth? Would you expect the next few years to follow a similar algorithm? Alan Jope: Thanks, Pinar. The short answer to your question on margin pressure in 2022 is 100% yes, it is all about commodity cost inflation. Those are very widespread. We're seeing doubling of costs on a variety of agricultural raw materials, petrochemical-derived raw materials, energy. You know the data on freight and distribution. It's up by multiples. Packaging components. So as Graeme has shown, we're looking at €3.6 billion of cost increases on those input costs. If we didn't mitigate that with savings and pricing, that would translate directly to 700 basis points of margin impact. So the commodity cost increases are way more than the margin impact that we've described. Of course, we then mitigate with our savings and productivity programs and leading on pricing. And so far, our determination to lead on price is going well. Our brands are in very good shape. Our brand health is allowing us to lead on price. Now to believe the reversal in 2023, I don't think we should just look at history and say, fingers crossed, that will happen again. Three things need to happen for our margins to restore in 2023. First, we need a slight reversal on commodity cost inflation and literally a few hundred million euros as against €3.6 billion this year. And that is our best outlook right now. Secondly, we will moderate price increases dramatically, in fact rely mainly on the rollover pricing effect from 2022. And thirdly, deliver the organizational savings, which we categorically will deliver. If those 3 conditions come true, then we see a reversal of almost the entire margin loss from 2022 in 2023. So it's a combination of decomposed assumptions about next year but also the historical track record. I hope that answers the question. Graeme? Graeme Pitkethly: Yes. Let me just anchor in a couple of numbers first. So net CapEx for 2020 was €1.2 billion. That was about 2% -- 2.4% of turnover. It was a step up from 2020, which was GBP 0.9 billion, and both of those years were impacted by the disruption of COVID. I want to be really clear, we've not been able to progress some of our major capital projects at the pace that we were planning because of the disruptions thrown up by the pandemic. You know where our footprint is. You know how disruptive the pandemic has been. You know the restrictions on movement in large parts of Unilever's footprint. So that's the reason for that. Now back to normalized levels. Actually, just a reminder, if you go back to pre-2015, our levels of CapEx were north of 4%. Then there was a very clear element of catch-up on that. We felt that in the decades prior, we had underinvested in the productive base of the company, and we accelerated that investment over a 4- or 5-year period in order to correct for that. Thereafter, and actually, I mean, I think you're right. I think we did have a conversation of around 3% being about the right levels. We think that around 2.7%, 2.8% is maybe around about the right level. And there's a reason for that now. And that is that so much of our manufacturing has now moved to third-party manufacturing. So that was 10% or 15% 3 or 4 years ago. It's now 20%. And you have to adjust for that and looking at it as a percentage of turnover. If you just do the math on it, it was 20% of your supply coming from third parties where the CapEx is on their balance sheet, not on ours, and you adjust for that. Then, a 2.7% level sort of corrects to about a 3.2% level. So I think we're broadly in the sort of areas that you and I talked about 2 or 3 years ago around that, Pinar. And just whilst I've got the mic, just a comment on the amount of restructuring spend that we passed through our supply chain. I think it's important when you're thinking about investment of capital. We, as you know, stepped up the level of restructuring from 2017 onwards. As I said in the presentation, we'll continue that until the end of this year. And thereafter, we expect it will drop down to the more normalized level of about 100 basis points of turnover. So roughly speaking, about $500 million of restructuring investment a year versus the broadly GBP 1 billion a year level that we were investing since 2017. A lot of that has gone on supply chain restructuring. It's been focused in Europe, it's been focused in North America and focused in Latin America. So that's what we've also been doing in terms of spending capital, in improving the performance of the capital base of the company. Richard Williams: Thanks, Graeme. Our next question comes from John Ennis at Goldman Sachs. John Ennis: I wanted to ask about the business reorganization. I wonder if you could give some examples to detail how you think it will improve future performance both in terms of sales growth and market share delivery. And I guess what made you realize that the old structure wasn't quite working for Unilever? And maybe just one more on this topic. How did you decide some of the category separations, I think, most notably between Beauty & Personal Care? Any details around that would be helpful. Alan Jope: Great. Okay, let me deal with that, John. There is -- there are increasing differences emerging between what we're now calling those business groups that -- in particular in the channel footprint where, if you look at the beauty channel and health and well-being, it's very strongly dominated by the drugstores, health and beauty independents. Online is a particularly important part of that business. And I'll use the example you asked about. By contrast, Personal Care, which, in our case, we've populated with deodorants, Skin Cleansing and Oral Care, is a business that's much more dominated by more mass channels. And so the channel footprint and the focus that each of those businesses requires in the different channels is a key difference between them. Secondly, the competitive landscape is very different. Our Ice Cream team are very focused on a very different set of competitors from our Home Care team, who, in turn, are very focused on a different set of competitors. So whether it's a consumer, a competitor or a channel landscape, there are emerging differences between these different business groups. And that's why we've chosen to focus them in five different areas. Secondly, our matrix organization served its purpose. But matrices are not notorious for being the most agile way of organizing a large company. And it does slow down decision-making when you're aligning across different dimensions. And frankly, I think it diffuses accountability. So I am looking forward to having five business leaders who are absolutely proven in their ability to drive short- and long-term performance, who I can work with, Graeme can work with and who we can performance management, who we can -- sorry, we can performance manage on a week-to-week, month-to-month basis. And then the final point, I mean, we haven't really teased this out, but today, Unilever's P&L is being optimized across categories at a country level, and we think that's resulting in some suboptimal outcomes. We will now optimize the P&L within a category across countries so that we retain the strategic integrity of the agenda of each of those categories. And that's the fundamental decision-making shift that comes with this model. But the headline is it's just simpler, it's just clearer who's accountable, and we're -- can't wait to get into it, to be honest. Richard Williams: Okay. Thanks for that, Alan. Our next question comes from Celine Pannuti at JPMorgan. Are you there, Celine? Celine Pannuti: My first question is for you, Alan, and it comes to the first sentence you said that you're satisfied with value creation. I'm looking at the presentation, and it seems that nonetheless, the business is progressing in terms of market share, there's enough CapEx, there's product superiority and so on. So what is the problem? Clearly, I think your investor base as well was satisfied with performance, and that's why they would like you to concentrate on organic growth versus M&A. So I just would like to understand where the problem lies in your mind. And then the second point, I just want to also -- maybe looking back into 2022 in terms of business risk. The implementation of the new structure, is that a risk for you to land prices or operate in the market? And also, I wanted to know whether inflation in salary was also included in your cost base. Alan Jope: Okay. Thanks, Celine. I think the gap between how we see the business and how it's currently valued comes back to this concept of 4G growth. We believe that Unilever has to and is capable of delivering growth that is consistent, competitive, profitable and responsible. And that's frankly how we drive the internal organization. We want to see consistent growth, competitive growth, profitable growth and responsible growth. And there has been, over the last 5 years, a gap on the consistency and on the competitiveness of the growth. And what you're seeing is a steady step-up in the consistency of our growth delivery. Of course, last year was a little bit flattered by the prior year comparator. But if you take a 2-year stack basis, our performance last year went from, on a 2-year basis, 2.8% in Q1, 2.3% in Q2, 3.4% in Q3 and 4.2% in Q4. So we are seeing that steady step-up in consistent delivery. Second is competitiveness of delivery. As you know, 3, 4 years ago, we were donating market share. And we've corrected that. We're now winning market share in more places than we're holding or losing market share, 53% in both of the last 2 years. And I think that's what we need to focus on delivering to the market now, is that steady, reliable operational performance and growth which is consistent, competitive, profitable and responsible. Perhaps, Graeme, you can handle some of the risks as we do our risk matrix in such a thorough way. Graeme Pitkethly: Yes. Yes. I think it's a very good question. I mean, obviously, this is a major organizational change for Unilever. I don't want anybody to think of it as a tweak of the model or an incremental improvement. As Alan said, it's quite a fundamental change to how we've managed the company for most of the last couple of decades. Really, it's as significant as when we made the change called One Unilever many, many years ago. And as Alan said, it is fundamental. The fundamental point is that we will be managing and optimizing our performance across a narrower set of categories in multiple geographies as opposed to a more limited geographic market envelope across multiple 13 or 14 categories. And that's a significant change. Now how are we going to manage that? The first thing to say is the appointments of the leaders that Alan touched on earlier. That's really, really important. Today, we have around about 90 country general managers in the business, and we have people who lead our divisions who are mainly responsible for global brand strategy, portfolio, M&A decisions, et cetera. And they set the targets for the markets. But after those targets are set, it falls to our Chief Operating Officer to be the gearbox of optimizing that short-term performance in your delivery across our 15 performance management units. That's today's model. Going forwards, however, we will have five, as Alan said, very, very senior and experienced and fully accountable business group presidents. And we will have 38 business units. That's the number of business units that ladders up into the business groups with our most senior and experienced leaders. These are big jobs, the business unit jobs. Going from, say, a country general manager position to a business unit general manager is a significant increase in responsibility. And the ability to perform is managed because we're bringing both strategy and capability to deliver performance absolutely into the same place with no split across the matrix. Now that will be very liberating. That's the basis for our belief that this will continue to be a further step-up in the performance that the company can offer. But it is a big change. And to manage that, we have asked Nitin to lead our transformation office. So Nitin will be the Chief Transformation Officer. Of course, for the first half of the year, he's the Chief Operating Officer. And rest assured, the entire leadership of the company is focused, first and foremost, on making sure that we don't drop balls during the first half of the year before we move to the new organization. And people will be targeted for that and held accountable for that. And as I said, it's helpful that Nitin retains both hats. Nitin is also, in addition to the transformation, managing the transformation office, the Chief People Officer. And I think that's a simplification as well because so much of this is around leadership change and people change and accountability. So that will help us. And then the final thing is we have staffed, and we've done it already, a very significant transformation office to take us through the change. Some of the most senior and experienced leaders in Unilever are coming out of their roles and will be dedicated to making sure that we can execute this change in our operating model successfully. For example, Rohit Jawa, who many of you will know he has very successfully led our business in North Asia for the last few years, Rohit is coming in to do that. On the finance side. The CFO of our big and successful business in Brazil will be coming in to work alongside Rohit in managing that. So they're just a couple of examples of how we're going to manage the risk. Richard Williams: Thanks, Graeme. Thanks, Celine. Our next question comes from James Edward Jones at RBC. James Jones: A couple of questions, please. Do you see the need for cultural reboot to coincide with the reorganization you've announced? And secondly, your return on capital has fallen over the last 5 years from, I think, a bit over 19% to 17.2%. You've emphasized your acquisitions have performed well. So does that mean the preexisting business is seeing its capital efficiency deteriorating? Alan Jope: James, culture is an ephemeral issue to deal with. It's hard to put your arms around it or define it. We've done a lot of work over the years to define how we want Unilever's culture to show up. And it is as a business that is human, purposeful and accountable. And if I'm honest, I think we're long on the human. We're definitely long and the purposeful. And the design of this organization is single mindedly to step up the sense of accountability in the organization. Our people feel very accountable today for their responsibilities, but our matrix tends to diffuse that responsibility. Our big business unit leaders and the -- sorry, business unit general managers and the business group leaders, it will be absolutely unambiguous who is accountable for what. And so if there is going to be a cultural shift, it will be to dial up that sense of accountability. And we literally, in our materials, define Unilever's culture as human, purposeful and accountable, and I think I've been crystal clear which of those three dimensions this organization is designed to amplify. Graeme, ROIC? Graeme Pitkethly: Yes. So your numbers are bang on. Throughout this period of significant change that we've had around the bolt-on acquisition strategy and the divestment of €5 billion of turnover from Foods, the sort of 90% that Alan took you through from 2017 that's been focused in building Prestige Beauty, our health and wellbeing business and in Personal Care, 90% in that very focused and almost 100% being in the slower-growth areas of our Foods & Refreshment portfolio, that caused a reduction in ROIC from 19% to 17%. I should say that, that still means that the ROIC in Unilever is high and attractive, but we've been very careful about managing that. Now to your specific question, yes, our acquisitions have broadly performed well, as Alan said. Not all of them, DSC, Blueair, Carver, challenges within those, and Alan has been very clear on those today. But the reality is that when you do acquisitions, because you're bringing all of the goodwill and intangibles in, acquisitions tend to be dilutive to your ROIC. The way that we've managed that is by the underlying operational performance of the business being so good. One of the earlier charts that Alan put up showed the progress that we've made on our margin, and then we're going to go back on that in 2022 and recover in '23 and '24. But that progress in margin, the diligence of investing, finding the savings, restructuring our business in a healthy way and creating the margin, that operational performance of top line, which has been disappointing at 3% -- don't get us wrong, but 3%, combined with the progress that we've made in operating performance of the business, has been the thing that's mitigated the impact. So we've been able to rotate the portfolio significantly, find ourselves in a situation where the capital that we've deployed and that we have harvested through the divestments we've made have added 70 basis points and an estimated 40 basis points, respectively, to the 4.5% growth that we're reporting now, and we showed you in the charts how that's built up. That judicious repositioning of the portfolio, aligned with strategy, is securing faster growth for us. And we've been able to mitigate the impact of that on the ROIC through the operating performance of the company. It does not mean, just to answer your question directly, that the pre-existing businesses are deteriorating ROIC. Richard Williams: Okay. Thanks, Graeme. Next question, from David Hayes at SocGen. Go ahead, David. David Hayes: Sorry if this has been covered, but I had a bit of a connection issue. But I'll go with it anyway and you can tell me whether I've missed this exciting bit. So just firstly on strategy and then one on the outlook. So on the strategy side, just coming back to the sort of GSK situation, now clearly the Board and the ExCo, which are all well experienced in CPG management, have got the best insights to trends and so forth, all thought that got that deal, that change, and dropping Food as part of that, which you talk about, was the right way to go, but the shareholders clearly didn't give you that support. So I guess the question is, are your hands tied and that there's a frustration there because that actually is option A, but you just can't do it because you didn't get the sponsorship? Or have you genuinely changed your minds about what the best direction is for Unilever? And what's changed in that? Or I guess is GSK a unique proposition that's the only option? And then what was unique about it, if that's the case? And the second question, on the '22 outlook. I just wondered whether you can give details on aUL Ratings Summary
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Related Analysis
Bank of America Double-Upgrades Unilever to Buy, Shares Rise
Unilever (NYSE:UL) shares rose more than 2% intra-day today after Bank of America double-upgraded the stock from Underperform to Buy, citing improved growth prospects and market positioning. The investment bank projects Unilever's organic growth to achieve a compound annual growth rate (CAGR) of 4.6% from 2024 to 2027, driven by a favorable product mix and increased market share.
This growth trajectory is expected to boost Unilever's EPS CAGR to 10% for 2023-2026, compared to just 1.5% between 2020-2023. A key element of this upgrade is the anticipated separation of Unilever's Ice Cream business by 2025, which Bank of America sees as a catalyst for Unilever to focus on higher-growth categories, enhancing both returns and cash flow.
The Ice Cream division is forecasted to trade at around 10 times its estimated 2025 EBITDA, and the separation could also reduce risks if the business underperforms. Meanwhile, Unilever's remaining operations, dubbed "RemainCo," are expected to outperform industry averages with superior margins, higher growth rates, and a 250 basis point advantage in EPS CAGR.
Bank of America also underscores Unilever's focus on its "power brands" and innovation-led strategies as key drivers of future volume growth and improved performance across its portfolio.
Bank of America Double-Upgrades Unilever to Buy, Shares Rise
Unilever (NYSE:UL) shares rose more than 2% intra-day today after Bank of America double-upgraded the stock from Underperform to Buy, citing improved growth prospects and market positioning. The investment bank projects Unilever's organic growth to achieve a compound annual growth rate (CAGR) of 4.6% from 2024 to 2027, driven by a favorable product mix and increased market share.
This growth trajectory is expected to boost Unilever's EPS CAGR to 10% for 2023-2026, compared to just 1.5% between 2020-2023. A key element of this upgrade is the anticipated separation of Unilever's Ice Cream business by 2025, which Bank of America sees as a catalyst for Unilever to focus on higher-growth categories, enhancing both returns and cash flow.
The Ice Cream division is forecasted to trade at around 10 times its estimated 2025 EBITDA, and the separation could also reduce risks if the business underperforms. Meanwhile, Unilever's remaining operations, dubbed "RemainCo," are expected to outperform industry averages with superior margins, higher growth rates, and a 250 basis point advantage in EPS CAGR.
Bank of America also underscores Unilever's focus on its "power brands" and innovation-led strategies as key drivers of future volume growth and improved performance across its portfolio.
Unilever PLC: Leading Growth in European Consumer Staples
Unilever PLC: A Beacon of Growth in the European Consumer Staples Sector
Unilever PLC (UL:NYSE) stands out as a beacon of growth and resilience in the European consumer staples sector, as underscored by Barclays' recent analysis. The company, renowned for its diverse portfolio including household names like Cornetto ice cream and Persil laundry detergent, is on a promising trajectory towards revitalizing its market position. Barclays' projection of a 3% organic sales growth (OSG) for Unilever, aligning it with the performance of industry giant Procter & Gamble, underscores the company's robust sales momentum. This optimism is further bolstered by Unilever's ambitious €1.5 billion share buyback program, aimed at enhancing shareholder value post the first quarter, showcasing the company's commitment to financial stewardship and investor confidence.
Despite facing headwinds in key markets such as Indonesia and India, and challenges within the deodorant segment, Unilever's strategic focus on high-growth areas like Latin America and the Prestige & Health/Wellness sectors is a testament to its agile market positioning. This strategic pivot is not just about navigating immediate challenges but is a forward-looking approach to tap into emerging consumer trends and preferences, thereby fueling long-term growth. The anticipated 3.8% OSG for the full year of 2024, coupled with a trading operating profit margin increase to 17.0%, reflects a clear path to improved profitability and operational efficiency. Such projections are indicative of Unilever's robust business model and its ability to adapt and thrive amidst market volatilities.
The recent quarterly financial report of Unilever further cements its status as a powerhouse in the consumer staples sector. With a staggering revenue growth of nearly 99.12% and a gross profit growth of 550.54%, Unilever demonstrates not only its market dominance but also its operational excellence in translating sales into profitability. The parallel growth in net income and revenue, both at approximately 99.12%, highlights the company's effective cost management strategies, ensuring that increased sales directly contribute to the bottom line. Moreover, the robust operating income growth of 96.21% underscores Unilever's strong operational performance, reinforcing the company's ability to generate substantial profits from its core business activities.
Despite a negligible decrease in asset growth, Unilever's financial health remains strong, as evidenced by the impressive growth in free cash flow and operating cash flow, both at approximately 96%. This remarkable cash generation capability is crucial for Unilever's strategic investments, debt repayment, and sustaining its share buyback program, thereby supporting its growth trajectory and shareholder value enhancement. The minimal growth in book value per share and debt, at about 1.07% each, indicates a stable financial structure, balancing equity value enhancement with prudent debt management.
In summary, Unilever's strategic focus on high-growth sectors, coupled with its impressive financial performance, positions the company as a compelling investment opportunity within the European consumer staples sector. The company's ability to navigate market challenges, coupled with its strong growth in profitability and cash generation, underscores its resilience and potential for sustained growth. As Unilever continues to execute its strategic initiatives and capitalize on emerging market opportunities, it remains a key player to watch in the evolving consumer goods landscape.
Unilever's Strategic Restructuring Plan for Enhanced Growth
Unilever's Restructuring Plan: A Strategic Shift for Growth
Shares of Unilever (NYSE:UL) have been struggling to gain momentum in the stock market, with a 13% decline over the past five years and a 3.5% drop in the last 12 months. This underperformance has prompted Unilever's management to take decisive action by announcing a comprehensive restructuring plan. The plan aims to streamline operations and focus on core business areas by dividing the company into four distinct units: beauty and wellbeing, personal care, home care, and nutrition. This strategic shift is designed to enhance operational efficiency and drive growth in these key segments.
A significant aspect of Unilever's restructuring strategy is the decision to spin off its ice cream division, which houses iconic brands such as Ben & Jerry’s and Magnum. This division has been a strong performer within Unilever's portfolio, generating impressive sales of $8.57 billion in 2023 and contributing to 13% of the company's total revenue. The spin-off is part of a broader initiative to streamline Unilever's operations and focus on its core business areas. Despite the division's success, Unilever believes that separating it from the main business will allow both entities to pursue more focused growth strategies.
The restructuring plan also includes a significant cost-saving component, with Unilever aiming to eliminate 7,500 jobs. This move is expected to contribute to annual cost savings of approximately $850 million by the end of 2025. The job cuts and the focus on operational efficiency are critical steps in Unilever's effort to improve its financial performance and shareholder value. By reducing costs and focusing on its most profitable segments, Unilever aims to reverse its recent stock performance trend and position itself for future growth.
However, the announcement of the restructuring plan and the ice cream division spin-off has yet to make a notable impact on Unilever's stock performance in the consumer discretionary sector. This could be due to investor skepticism about the effectiveness of the restructuring plan or concerns about the potential challenges of executing such a significant transformation. Nevertheless, Unilever's management is confident that these strategic moves will enhance the company's competitiveness and drive long-term shareholder value.
As Unilever (NYSE:UL) continues to navigate through its restructuring process, investors and analysts will closely monitor the company's progress and the impact of these changes on its financial performance. The success of the restructuring plan, including the spin-off of the ice cream division and the achievement of the targeted cost savings, will be crucial in determining Unilever's ability to improve its stock performance and regain investor confidence.
Unilever Stock Gains 3% on Ice Cream Unit Spin-off News
Unilever (NYSE:UL) shares rose around 3% intra-day today after the company announced plans to spin off its ice cream business, including famous brands such as Ben & Jerry’s and Magnum, as part of an extensive restructuring plan affecting 7,500 jobs.
The company stated that this restructuring would lead to approximately 1.2% of its turnover in costs over the next three years, an increase from the previously estimated 1%. The spin-off process is beginning immediately, aiming for completion by the end of 2025. Unilever's strategy is to achieve mid-single-digit sales growth and slight margin improvements following the division's separation.
Additionally, the company is embarking on a cost-saving scheme that is expected to save around 800 million euros ($869 million) within three years. CEO Hein Schumacher, since last October, has been focusing on streamlining operations towards 30 key brands, which account for 70% of Unilever's sales.
Unilever Stock Gains 3% on Ice Cream Unit Spin-off News
Unilever (NYSE:UL) shares rose around 3% intra-day today after the company announced plans to spin off its ice cream business, including famous brands such as Ben & Jerry’s and Magnum, as part of an extensive restructuring plan affecting 7,500 jobs.
The company stated that this restructuring would lead to approximately 1.2% of its turnover in costs over the next three years, an increase from the previously estimated 1%. The spin-off process is beginning immediately, aiming for completion by the end of 2025. Unilever's strategy is to achieve mid-single-digit sales growth and slight margin improvements following the division's separation.
Additionally, the company is embarking on a cost-saving scheme that is expected to save around 800 million euros ($869 million) within three years. CEO Hein Schumacher, since last October, has been focusing on streamlining operations towards 30 key brands, which account for 70% of Unilever's sales.
