Unilever reports 2.4% drop in FY'20 net profit, expects sales to rebound

Unilever PLC on Feb. 4 reported a 2.4% drop in net profit for full-year 2020 and said it expects 3% to 5% sales growth in coming years as it seeks to recover from the impact of the COVID-19 pandemic.

The maker of Dove soap, Magnum ice cream and Lipton tea reported underlying earnings of €6.53 billion, down from €6.69 billion in 2019 but ahead of the mean consensus estimate compiled by S&P Capital IQ of €6.48 billion. Underlying EPS fell to €2.48 from €2.55. Revenue also fell 2.4% to €50.72 billion from €51.98 billion but underlying sales growth was 1.9%.

In 2020, Unilever was forced to scrap its target of 3% to 5% underlying sales growth for the year in response to the disruption caused by the pandemic. But performance rebounded in the fourth quarter with underlying sales growth of 3.5%, driven by hand and home hygiene products, laundry and in-home food and refreshments.

In late morning trading on the London Stock Exchange, Unilever's shares declined 4.4% to 4,147 pence.

In a call with analysts, Unilever executives said that on a multiyear basis, they expect annual underlying sales growth of 3% to 5% compared to the 3% average level achieved during the 2017-2019 period. They also expect profit growth to be ahead of sales growth on a comparable basis. Unilever said it expects to achieve savings of €2 billion per year and to make restructuring investments of about €1 billion in 2021 and 2022.

"[In 2020] we completed the unification of our legal structure under a single parent company and we continue to work on separating out the tea business as we evolve our portfolio," said CEO Alan Jope. "We begin the year in good shape and are confident in our ability to adapt to a rapidly changing environment."

Unilever has set its sights on expansion in five key consumer-product areas — hygiene, skin care, prestige beauty, functional nutrition and plant-based foods. "That is where our investment focus will be in the years ahead," said Jope. Of the €16 billion the company spent on M&A from 2015 to 2020, over 70% was in those five categories, Jope said. In particular, the prestige beauty business, including REN skin care, and functional nutrition, including malted drink Horlicks, are expected to "contribute disproportionately to our growth in the future," he added.

The packaged-goods company said the U.S., India and China are responsible for 35% of its growth and "the plan is to accelerate growth in those markets," according to Jope. Currently, the U.S. market contributes €9 billion, or 18% of Unilever's overall revenue. India contributes 9% of sales and China contributes 6%.

In 2020, emerging markets grew 1.2% after lockdowns and other restrictions were eased in China and India. Developed markets grew 2.9%, led by the performance of the in-home foods business in North America. Europe declined for the full year but grew in the final quarter.