Unilever half-year results show profitable growth ahead of our markets
Unilever half-year results show profitable growth ahead of our markets
Unilever announced its results for the first half of 2017, which show profitable growth ahead of our markets, driven by our Connected 4 Growth change programme.
Commenting on the results, CEO Paul Polman says: "Our first-half results show continued growth well ahead of our markets and a substantial step-up in profitability despite the persisting volatile global trading environment. It once more shows the validity of Unilever's long-term compounding growth model. Our change programme 'Connected 4 Growth' (C4G), which started in the autumn of 2016, is delivering ahead of plan.
"The transformation of Unilever into a more resilient, more competitive and more profitable business is accelerating. C4G is making our business even more agile, less complex and increasingly responsive to fast-changing consumer trends. The resulting increase in innovation speed and effectiveness will allow us to grow ahead of market. We see this as a proven way of delivering long-term shareholder value. C4G also enables a further step-change in margin expansion and cash flow delivery, as we secure efficiencies from the roll-out of our savings programmes and benefit from the investments we have made over the last few years.
"The actions we are taking keep us on track for another year of underlying sales growth ahead of our markets, in the 3-5% range. We anticipate accelerating growth in the second half of the year driven by the phasing of our innovation plans and a step-up in brand and marketing investment. We now expect an improvement in underlying operating margin this year of at least 100 basis points and strong cash flow."
Market conditions have remained challenging. In the markets in which we operate volumes were virtually flat in aggregate. The economic crisis in Brazil continued to present a significant headwind. In India, trade stock levels thinned in the second quarter ahead of the implementation of the Goods and Services Tax, while markets in Indonesia were adversely impacted by fewer trading days due to public holidays.
Underlying sales grew 3.0%, ahead of our markets, with growth in all our categories and sub-categories except for spreads. Turnover increased 5.5% to 27.7 billion, which included a positive currency impact of 1.7% and 0.8% from acquisitions net of disposals. Gross margin improved by 40bps to 43.1% driven by margin-accretive innovations and acquisitions as well as our discipline in driving savings programmes. Brand and marketing investment contributed 130bps to margin progression. This reflects: a recalibration of advertising spend in the overall market; strong savings delivery from our zero based budgeting programme; and innovation and support plans which are weighted towards the second half of the year, particularly in Personal Care.
Connected 4 Growth
We are making good progress against the objectives we have set out:
The new Country Category Business Teams (CCBTs) are fully in place and helping to make our innovation pipeline stronger. CCBTs enable us to roll out global innovations faster and be more agile in responding to local trends.
The savings programmes – which are an integral part of C4G – are delivering faster than expected, with savings of more than 1 billion in the first half year. This puts us well on track towards our savings target of 6 billion, and a targeted underlying operating margin of 20% by 2020. The faster delivery seen in the first half of the year enables a step-up in the level of reinvestment behind growth in the remainder of this year and beyond.
The holistic '5S' gross margin improvement programme is being rolled out from Home Care into all categories and realising savings across the supply chain. Zero based budgeting (ZBB) is improving our productivity in brand and marketing investment as we reduce the cost of advertising production. ZBB is also eliminating waste in those areas where we have over-saturated traditional channels, as well as reducing low added-value costs in overheads.
The new organisation is simpler and more agile, and we are progressing plans for the integration of Foods and Refreshment into a single business.
At the same time, we have been active in managing our portfolio to ensure we have the platforms in place for long-term growth. In the first half of the year, we announced the acquisitions of Hourglass in prestige Personal Care in the US, the Quala home and personal care brands in Latin America, and a joint venture with Europe & Asia Commercial Company Ltd to build our operations in Myanmar.
The preparation for the exit from spreads via a sale or de-merger is well underway. The review of the dual-headed legal structure is also progressing well and we expect the Board to decide the outcome before the end of the year. In the first half of the year we have bought back shares to the value of ?1.4 billion, putting us on track to complete the announced ?5 billion programme by the end of the year.
Personal Care continued to grow the core while expanding in high-growth segments and building in premium positions. Challenging market conditions in some of the key markets – such as India, Brazil and Indonesia – weighed on the overall growth rate.
Oral care performed well, supported by innovations in premium segments such as the new Signal Enamel Repair and Signal White Now Care Correction range with blue light technology in France.
In skin, Baby Dove has now been introduced to 19 markets, while the new Lifebuoy with Activ Silver formula for enhanced germ protection was rolled out across Asia. In Indonesia, we are launching Hijab Fresh, a new brand that provides a solution to the specific needs of the Muslim population.
Continued growth in deodorants was driven by new variants of dry sprays in North America and Dove antiperspirants with an improved, particularly skin-friendly formulation that have been rolled out to 65 countries.
In hair, growth was driven by Sunsilk, helped by the expansion into natural propositions that has driven increased penetration among millennials.
Dermalogica performed well and our recent acquisitions Dollar Shave Club and Living Proof, which will contribute to underlying sales growth from next quarter and next year respectively, continued to grow strongly.
Home Care delivered good growth despite a strong comparator, enabled by continued market development and benefit-led innovations that address emerging needs, including the growing trend towards natural products.
In laundry, growth was driven by strong performances of the fabric conditioner Comfort in our Asian markets and the value brand Brilhante in Latin America. The roll-out of Surf into Central and Eastern Europe continued to perform well, while in the UK we introduced Persil Powergems, the laundry detergent with 100% active ingredients delivering superior stain-removal as well as care and intense freshness.
In household care, Domestos grew strongly helped by the successful roll-out of toilet blocks, which have reached 25 countries, and by Cif's premium sprays with improved formulation now in more than 20 countries.
The air purification brand Blueair grew strongly in China, while Seventh Generation with its naturals proposition, was introduced to the UK.
Foods continued to modernise the portfolio while building its presence in emerging markets and sustaining a strong performance in the food service channels. However, the overall growth was adversely affected by declines of some of our non-core brands in Europe.
Knorr, our largest brand, performed well by responding to key needs such as nutrition deficiency or time-saving cooking products. The successful Knorr Mealmakers with 100% natural ingredients have now been extended into 100% natural seasonings.
In dressings, Hellmann's relaunched the brand with strengthened naturalness claims while the organic variants have been rolled out from North America into Europe.
In spreads, the new margarines with specialty oils and the roll-out of the dairy-free variants are performing well. The rate of decline in spreads has slowed to 3.7% as sales growth in emerging markets partially offset the continued market contraction in developed countries.
Ice cream delivered strong growth driven by margin-accretive innovations behind premium brands, such as Ben & Jerry's pint range 'Topped', that takes ice cream indulgence to a new level, and the 'Wich sandwich. Magnum grew at double-digit rates, helped by the new Magnum pints that deliver the ultimate chocolate and ice cream experience in a tub, as well as the coconut and raspberry variants. Unilever have extended the less than 50 calories offering under Solero and launched vegan and gluten-free variants under Cornetto.
Leaf tea showed good growth as increasingly seeing the benefits of innovations in specialty and premium tea segments. Lipton was launched in Brazil and Argentina, and is successfully extending its presence in the faster-growing green and matcha segments, while T2 continued to show strong growth.