Unilever finals

A manufacturer and supplier of fast moving consumer goods, with more than 400 brands focused on health and wellbeing, 14 of which generate sales in excess of €1 billion a year. I have a holding in my income portfolio (epic code: ULVR).

Unilever announced their full year results today, with few surprises.  Full year Turnover was down -3.0% to €49.8bn, although foreign exchange contributed a negative effect of -5.9% and the net result of acquisitions & disposals reduced revenue by a further -1.1%.  Consequently underlying sales growth was +4.3%, with volume contributing +2.5% and price +1.8%.


Core operating margin for the year was up 40bps at 14.1%, due to gross margin up 110bps. Core EPS increased by 3% to €1.58 for the full year and fully diluted statutory EPS was up 11% at €1.66 (this included the profits on disposal of the Skippy and Wish-Bone brands partly offset by a provision for competition investigations).


A final dividend of €0.269 (22.22p) was declared, making €1.076 (91.05p) for the full year a 10.7% increase (15.4% increase in sterling) and covered 1.54x by statutory earnings, although only 1.23x by free cash flow (FCF).  FCF at €3.9bn was 11% below last year mainly due to a lower cash inflow from working capital.


Net debt at €8.5bn was €1.1bn higher than last year, the result of increasing the Company's stake in Hindustan Unilever Limited from 52% to 67% for an outlay of €2.5bn.  Gearing is 59%, with a comfortable debt/EBITDA of 1, operating cash flow at 70% of debt and interest covered 14.2x.  


Although Unilever's emerging markets had underlying sales growth of 8.7% for the year, this was down from last year's 11.4% due to the poor third quarter, so it was good to see the fourth quarter showing growth of 8.4%, up from the third quarter's 5.95%.


Europe continues to be problematic with what appears to be strong price competition, so although volume was up by 0.4% price declines of -1.5% pulled down the overall sales performance to a -1.1% decline..


In a limited outlook statement CEO Polman stated "...Looking forward, we anticipate ongoing volatility in the external environment and are positioning Unilever accordingly..."  In his presentation he states "...Slow market growth expected to continue in 1st Half..." and "...late Easter will shift volume from Q1 to Q2..."  


Shares are up 2% to 2485p and on an historic P/e of 19 and the cautious outlook comment, there is unlikely to be further upside until their markets improve.  This has though been an excellent inflation beating income share and despite the lower FCF this year, it is nowhere near a level that might constrain a growing pay-out.