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Sales growth at Unilever slowed to 5.2% in the third quarter as pricing eased and volumes remained in decline.
Reporting sales for the three months to the end of September, Unilever said its underlying sales growth eased back to 5.2% from 7.7% in the year so far, with pricing up 5.8% and volumes down 0.6%.
The group noted that underlying volumes were positive in beauty & wellbeing, personal care and home care, but were dragged down by volume drops in nutrition and ice cream.
The percentage of the group’s business winning market share on a rolling 12 month-basis fell to 38% and remains impacted by significant net SKU reduction, pricing dynamics, and consumer shifts in certain markets.
Beauty & wellbeing delivered 7.4% underlying sales growth with a balance of price and volume growth, with prestige beauty and health & wellbeing continuing to grow strongly. Personal care grew 8% with 4% from price and 3.9% from volume driven by double-digit growth from deodorants.
Home care underlying sales were up 5.3% as volume turned positive to 0.4% and price grew 4.8%. Nutrition underlying sales growth was 5.6% with price growth of 9.8% but negative volume of 3.8% as the European market remained challenging. Ice cream underlying sales declined 2.8% with a volume decline of 10.1%, due to consumer downtrading and unfavourable weather, particularly in Europe.
On a regional basis, developed markets grew just 0.8%, driven by price growth of 6.3% with a volume decline of 5.2%. North America and Europe grew low single-digit, driven by price. Pricing remained elevated in Europe with higher exposure to nutrition and ice cream, which remain inflationary and are more impacted by consumer downtrading and resulted in double-digit volume decline in Europe.
Emerging markets grew underlying sales 8.3%, with volume growth improving to 2.6% and price growth of 5.6%.
Latin America delivered underlying sales growth of 14.0% with volumes improving further at 6.2% growth while price growth slowed to 7.4%. South Asia grew mid-single digit with price growth slowing as we reduced prices in Skin Cleansing and Fabric Cleaning.
Overall turnover declined 3.8% to €15.2bn, which included a negative currency impact of 8% and 0.6% from disposals net of acquisitions.
The group’s 2023 outlook remains unchanged, with underlying sales growth above 5% and a modest improvement in underlying operating margin.
CEO Hein Schumacher commented: “Unilever is a company with strong fundamentals: a portfolio of great brands used by 3.4 billion people each day, number one or two category positions across 80% of its turnover, an unrivalled global footprint, and a team of talented people.
“Despite these strengths, our performance in recent years has not matched our potential. The quality of our growth, productivity and returns have all under-delivered.
“Today we are setting out our action plan to close this gap. We will drive faster growth by stepping up innovation and investment behind our Power Brands; we will drive simplicity and productivity, leveraging the full strength of our operating model; and we will sharpen our performance culture through strong leadership and stretching goals.
“I am excited about what we can achieve by delivering on these three priorities, as we focus on unlocking Unilever’s full potential in the months and years ahead.”
This action plan will see it focus on 30 core brands, representing 70% of turnover, drive innovation, increase brand investment and focus on portfolio optimisation with no transformational acquisitions.
Additionally it will look to build back gross margin by shifting from gross savings to net productivity.
In the first strategic major strategic news under its new CEO it has announced the sale of Dollar Shave Club for an undisclosed amount.
It will sell the personal care business to US PE house Nexus Capital Management and will retain a minority shareholding of 35%.
Meanwhile, the group has announced the appointment of a new CFO.
Fernando Fernandez, currently president of Unilever’s beauty & wellbeing business group,will replace Graeme Pitkethly, who announced his decision to retire from the company earlier this year.
His appointment is effective from 1 January 2024 and he will join the board with effect from this date.
Unilever shares are down 2.4% to 3,918.5p on the update.
Morning update
French dairy giant Danone has said its ‘renew Danone’ programme has started to deliver results as it raised full year guidance following a solid third quarter.
The group’s net sales reached €6.9bn in the third quarter, up 6.2% on a like-for-like basis, supported by a sequential improvement in volume/mix (down 0.3%) driven by dairy and plant-based.
On a reported basis, sales decreased by 5.8%, mainly due to the strong negative impact from forex (–7.4%), reflecting the depreciation of the majority of currencies against the euro.
Reported sales were also down 6.2%, affected by the deconsolidation of its Russia dairy and plant-based operations starting from July 2023. Finally, hyperinflation contributed positively to reported sales by 1.8%.
The group said it saw good momentum across the portfolio, with further progress on Renew Danone agenda.
Its dairy and plant-based transformation in Europe has started to deliver results, with volume/mix sequentially improving, giving confidence for next quarters.
Meanwhile, it benefited from continued solid dynamics in China led by medical nutrition and infant milk formula driving robust growth during peak season.
It also saw resilient performance in North America, supported by coffee creations and yoghurts, and strong broad-based growth in AMEA and Latin America.
Due to the solid third quarter performance it raised its 2023 guidance, with like-for-like sales growth now expected between 6% and 7% (from between 4% and 6% previously) and moderate improvement in recurring operating margin confirmed.
CEO Antoine de Saint-Affrique said: “Eighteen months after the launch of Renew Danone, the benefits of our strategy are starting to show. This quarter is the seventh consecutive quarter of delivery, with sales up 6.2% on a like-for-like basis, notably supported by the sequential improvement in volume/mix.
“We maintain our focus on addressing our underperformers and investing with discipline behind our winners. In China, Mizone is now posting several quarters of strong competitive growth. With EDP Europe, we continue to make sequential progress with the significant transformation we initiated in Q3 last year. This is now starting to generate results. In Medical Nutrition we have made several investments which expand our capacity and increase the reach of our portfolio.
“We continue to view our future with confidence, despite a challenging environment. We raise our full year guidance and now expect to deliver like-for-like sales growth between +6% and 7%. We will also keep deploying consistently our business model and will further increase our reinvestments behind brands and innovation.”
Elsewhere this morning, DS Smith has issued a pre-close trading update for the half year ending 31 October 2023.
It said trading continues in line with expectations, with like for like corrugated box volume performance improving quarter on quarter, albeit remaining below the prior year.
Pricing has remained more resilient than expected, reflecting the group’s strong customer relationships, ongoing innovation and high service levels. Reduced input costs and cost mitigation efforts have broadly offset the price declines.
The group said it continues to invest in its business, including the recently opened group-wide innovation hub, R8. The UK-based facility will enable it to accelerate the research and development of new packaging solutions.
Overall trading remains in line with expectations, with adjusted EBITA for the six months to 31 October 2023 expected to be approximately £360m.
CEO Miles Roberts said: “Overall, I am pleased with our robust performance during the first half. Despite an ongoing weak macro-economic environment, we expect volume performance to improve, with second half volume performance anticipated to be better than the first half.
“We continue to invest behind our customers, focusing on providing them with value added solutions and this, together with our strong operational performance, means we are positioned well for the remainder of FY24.”
Finally this morning, drinks producer and distributor C&C Group has posted a 34% drop in EBITDA and a 1.2% decline in revenues in the first half after disruption hit its Matthew Clark and Bibendum distribution arms.
Reporting figures for the six months to 31 August, C&C Group said net group revenue broadly in line with last year despite one-off disruption of the ERP System implementation, helped by strong performance in branded revenues which increased 6.9%.
Operating profit of €30.5m was down €22.8m, principally driven by a one-off €22m ERP impact. The group’s GB distribution business was breakeven in the half year despite these challenges.
Operating profit in the branded business was up 4.6% to €25.2m, with branded margins solid at 14.5% as pricing actions offset most of the inflationary impacts on the group’s cost base.
In GB the implementation of the complex ERP system upgrade in its Matthew Clark and Bibendum business had a material impact on the performance on GB distribution.
Net revenue of the Group’s GB distribution business was down 4.4% compared to the prior period, with operating profit down €24.2m.
However, the branded business performed well, with net revenue up 6.6% and operating profit up 3.9% to €10.7m, delivering an operating margin of 9.6%.
In Ireland, net revenue increased by 8.0% to €161.8m, with operating profit up 5.3% year-on-year to €19.8m. Operating margin decreased slightly by 0.4ppts to 12.2% as inflationary cost pressures outweighed the benefit of pricing actions in the branded business.
The group said overall service levels have been restored to pre-ERP implementation levels and its priority in the second half will be ensuring it delivers “outstanding service to our customers, win back customers and improve operating efficiency”.
Operating environment challenges are expected to persist with continued cost pressure over the next 12 months, before some easing in 2025, following which it is targeting an increase in branded margins as it continues to take pricing and cost actions and improve operating efficiency.
CEO Patrick McMahon commented: “Set against a difficult market backdrop we are pleased with the strength of the performance of our branded businesses in Ireland and Scotland in the period. We have made significant progress in restoring customer service levels following the ERP system implementation issues in our GB distribution business within our planned timeframe.
“Delivering outstanding service, winning customers, continued business simplification and improved operating efficiency remain our top priorities and focus for the second half. We are also pleased to announce today our intention to distribute up to €150m to shareholders over the next three fiscal years through dividends and capital returns, while maintaining leverage within our target range of 1.5x to 2.0x.”
On the markets this morning, the FTSE 100 is down 0.7% to 7,365.5pts.
Risers include Bakkavor, up 5.3% to 91.8p, Naked Wines, up 4.7% to 45p and DS Smith, up 2.2% to 274.9p.
Fallers include Just Eat Takeaway.com, down 2.8% to 908p, Kerry Group, down 2.8% to €73.52 and B&M European Value Retail, down 2% to 542.6p.
Yesterday in the City
The FTSE 100 ended the day up 0.3% to 7,414.3pts yesterday.
On a day of some heavy online fallers, Virgin Wines was down 12.2% to 36p and Naked Wines fell 5.6% to 43p.
Ocado was also down 9.4% to 460p, Just Eat Takeaway.com, down 6.1% to 934p and THG down 4.2% to 63.7p.
Other fallers included Fevertree, down 3.5% to 1,003p, Pets at Home, down 2.9% to 282.6p, SSP Group, down 2.3% to 181.1p, Bakkavor, down 2.2% to 87.2p, Greencore, down 2.2% to 87.8p and WH Smith, down 2.1% to 1,196p.
Risers included Kerry Group, up 3.7% to €75.62, Tate & Lyle, up 1.2% to 630p, B&M European Value Retail, up 1.2% to 553.6p, Premier Foods, up 1.1% to 115.8p, British American Tobacco, up 0.8% to 2,463p, Britvic, up 0.8% to 844.5p and Diageo, up 0.8% to 3,143.5p.
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