LONDON — Challenging market conditions in Brazil, India and Turkey weighed heavily on Unilever’s earnings during 2016, and Paul Polman, chief executive officer, said such troubles may hinder the company in 2017 as well.
|Paul Polman, c.e.o. of Unilever|
“After the unpredictable events in 2016, this year promises to be more of the same,” he said Jan. 26, during a conference call to discuss the company’s 2016 results. “The upheaval and accelerated change I talked about before that is actually shaping the environment that we operate in will continue: subdued economic growth, geopolitical tension, the resultant backlash against globalization and technology, a planet under increasing environmental stress, and the fragmentation of consumer trends, shopping channels and media. Brexit and the U.S. elections, in my opinion, have further added, in the medium term, to these uncertainties.”
Unilever’s net income for the year was €5,370 million ($5,734 million), equal to €1.94 ($2.07) per share on the common stock and a slight increase compared with the previous year when net income was €5,210 million ($5,562 million), or €1.78 ($1.90) per share.
Sales during 2016 were €52,713 million ($56,266 million), down 1% compared with 2015.
“Global G.D.P. growth was downgraded to an estimated 2.3%, the weakest since 2009,” Mr. Polman said. “Consumer confidence dropped further in most major geographies. The number of markets, where we have some of the largest businesses, saw the effect of unique country-related shocks. We had the unexpected and immediate demonetization in India, the deepening economic crisis in Brazil, sharp currency devaluations in the U.K., Turkey, Egypt and many others.
“But the big picture is that the global market growth in our categories in terms of volume was flat for the year. Including pricing, value market growth was between 2% and 2.5% for the year.”
In Unilever’s two foods-related business units — Foods and Refreshment — results were mixed. Within the Foods business, the company experienced growth in dressings and savory, particularly from its Hellmann’s and Knorr brands. Sales in the company’s spreads business declined due to weakness in developed markets.
Refreshment, which consists of Unilever’s ice cream and tea businesses, experienced a strong performance during the year, according to the company.
“(Refreshment) made good progress against its goals whilst delivering a U.S.G. (underlying sales growth) of 3.5% on the back of a very strong year in 2015,” Mr. Polman said. “Our return on invested capital in ice cream has increased by more than 300 basis points over the last two years and is now 15%. Over the same period, cash flow has also stepped up. We have strengthened our portfolio with one-third of our ice cream sales now in premium positions.
“Tea had another year of solid growth as we extend into the more attractive premium segment where we outpaced segment growth to particularly compensate for the low growth in the bulk of our business, which is still the regular black tea segment of the market.”
As for Unilever’s spreads business, which it separated into a stand-alone unit within Foods in 2015, it was down mid-single digit for the year, Mr. Polman said.
“ … With the new organizational structure, we’ve been able to improve absolute cash profit by about ($80 million),” he said. “In America, we’ve actually seen the market pick up a little bit, and there are signs in Europe, with the increase in the milk prices now and related butter prices, that the attention that we’ve had, which was really unprecedented in the history of spreads, that attention is becoming a little bit less.“We’ve become faster; we’ve introduced the plant-based products; we’re seeing really some benefits behind that. But at the same time, we maintain our responsibility to look at other options where they’re needed. But the conclusion right now is that, for our shareholders, it’s better that we continue to manage this business in the way we’re doing.”