The Unilever Group's strong revenue and profit performance in the second quarter of 2020 is a sign that it has nimbly adapted key parts of its product portfolio to meet new consumer demands while adjusting its supply chain and employee workflow to cope with the disruption triggered by the COVID-19 pandemic.
The Anglo-Dutch consumer company's shares jumped 8% on July 23 after it reported better-than-expected revenue for the second quarter and 6.4% growth in first-half underlying EPS. Those results are in sharp contrast to the downbeat assessment provided April 23. In those early days of the pandemic, Unilever reported flat first-quarter sales and withdrew its 2020 growth and margin guidance.
"We've unlocked new levels of agility as we responded to ... record levels of decline in some countries and categories all at the same time," said CEO Alan Jope on a call with analysts, providing an instructive behind-the-scenes look at how Unilever has coped so far amid the pandemic. "Our supply chain has shown that it can switch off, switch on and adapt at pace."
Crucial to Unilever's performance in the first half was the ability to keep all of its 221 factories running despite stringent lockdowns in many countries. The company redeployed 8,300 of its 155,000 employees to focus on products and services that saw a surge in demand, such as hand sanitizing and home delivery of ice cream.
It cut large chunks out of its vaunted innovation pipeline to focus only on what it considered to be essential, and it successfully persuaded employees to alter work patterns and react quickly to the company's tactical shifts.
"We've seen a 41% increase in overall productivity, a 20% increase in internal collaboration time and, interestingly, a 19% increase in external meeting time," Jope said. "Use of our learning system has increased by 150%. We've had over 1,000 leadership town halls, including a weekly global town hall open to everyone. And I think as a result of all of that, we've seen record levels of employee engagement. In fact, our employee wellbeing score is up by 14%."
While many companies now produce hand sanitizer and a higher volume of other cleaning products, Unilever's expertise in this area has given it an edge. For example, the company said it had launched its Lifebuoy soap brand in over 50 new markets in 100 days.
Before COVID-19, the company had only two manufacturing sites and a small business in hand sanitizer. It now has over 60 sites producing hand sanitizer and launched sanitizers in 65 new markets. The company said it has stepped up capacity across multiple brands by a factor of 600 times in five months. "By the end of the first half, our hand hygiene business is already larger than that of the market leader last year in the whole of 2019," Jope said.
In low-income countries, and as part of a broader plan to promote its Lifebuoy and Domestos cleaning products, Unilever is collaborating with "hygiene and behavior change" groups. "The first phase of the program will reach 330 million people, including more than 100 million health care workers in around 40 countries," Jope said.
These changes have boosted the bottom line. The company's hygiene portfolio, which is made up of home cleaning and skin cleansing goods, had revenue of €4 billion in the first half. It grew 17% in the half and 26% in the second quarter, which was the first period to capture the full impact of the pandemic.
Another Unilever tactic has been to reduce the complexity of its innovation program. "During this crisis, we're focusing on the innovations that bring higher incremental turnover, for example, in hygiene, in driving healthy in-home eating, offering better value products," said Jope. "We've already cut over 20% off the tail of innovations, and we've reassessed all of our innovation plans in the light of COVID."
Nonetheless, Unilever faces challenges particular to its geographic exposure. For example, while underlying sales growth in the first half was led by developed markets, which grew 2.4%, emerging markets declined by 1.9%. The company derives about 60% of its sales from emerging markets and, as the coronavirus expands in Africa, Latin America and parts of Asia, Unilever's overall revenue prospects could be at greater risk.
"While the search for a vaccine goes on, we will perhaps all need to be prepared for a sort of two-steps-forward, one-step-back dynamic in the months ahead," said CFO Graeme Pitkethly.