Unilever has reported a rise in half-year profits and a smaller-than-expected fall in sales as heightened levels of demand for its cleaning and in-home food products during the pandemic helped off-set significant drops in revenue from its foodservice, out-of-home ice cream, and non-hygiene personal care products.
Over the six months to 30 June, the group’s underlying sales declined 0.1%, with developed markets up 2.4% and emerging markets down 1.9%. Analysts had been forecasting a drop of over 4% during the second quarter when the coronavirus crisis escalated, although the fall was only 0.3%.
Underlying operating profit excluding currency impacts rose 3.8%, with margin increasing 50bps to 19.8%.
“Performance during the first half has shown the true strength of Unilever,” said Chief Executive Alan Jope.
“We have demonstrated the resilience of the business – in our portfolio, in a continued step up in operational excellence, and in our financial position – and we have unlocked new levels of agility in responding to unprecedented fluctuations in demand.”
While Unilever benefitted from consumers buying more groceries during the lockdowns, the closure of restaurants, schools, cinemas and outdoor venues heavily impacted demand for other products. For example, impulse purchases of its ice cream brands such as Magnum and Ben & Jerry’s typically account for a large proportion of its sales in May and June.
Unilever revealed that over the first half of the year foodservice sales had declined by nearly 40% and out-of-home ice cream was down almost 30%. The group highlighted that shoppers moved from offline to online channels, driving e-commerce sales up 49%.
With fewer people going to work or socialising, Unilever saw a decline in demand for its skincare, deodorants and hair care products. However, underlying sales in its Beauty & Personal Care unit were down only 0.3% as demand for washing brands such as Lifebuoy and Dove increased.
The Home Care division saw underlying sales grow 3.2% as consumers brought more of its household cleaning products such as Cif and Domestos.
Meanwhile, underlying sales declined 1.7% in Unilever’s Foods & Refreshment unit due to the closure of out-of-home channels. However, the group saw double-digit growth in its retail foods business with its Knorr and Hellmann’s said to have performed strongly.
In response to coronavirus lockdowns, Unilever reduced marketing spend in some channels and geographies. This, combined with a deflationary environment in media rates, led to a reduction in brand and marketing investment by 100bps during the period. In the second half of the year, Unilever stated that it expects to see higher brand and marketing investment as lockdowns ease and it supports brand campaigns and product innovations tailored to the new consumer environment.
Meanwhile, Unilever revealed the results of its strategic review of its €3bn a year tea business, which makes brands such as Lipton, Brooke Bond, Pukka and PG Tips. The group has decided to keep its operations in India and Indonesia and partnership interests in ready-to-drink tea joint ventures.
However, the rest of the tea business, which controls the main retail brands, will be separated into an independent entity by the end of next year. The operations being hived off generated revenues of €2bn in 2019. “The balance of Unilever’s tea brands and geographies and all tea estates have an exciting future, and this potential can best be achieved as a separate entity,” it said.
Shares in Unilever jumped as much as 8% in early trading this morning as analysts welcomed the news that overall results had been impacted less than expected by the pandemic.
“Overall, Unilever’s strong performance in the period and an increasingly focused strategy has led to a sigh of overdue relief from investors,” said Richard Hunter, head of markets at Interactive Investors.
However, the group remained cautious on its outlook, with Chief Financial Officer Graeme Pitkethly highlighting the rapid rise in coronavirus cases around the world. Some of the worst affected are key emerging markets for Unilever, such as Latin America, Africa and India.
Jope concluded: “Our focus for the rest of 2020 will continue to be volume led competitive growth, absolute profit and cash delivery as this is the best way to maximise shareholder value.”
