Unilever half-year results

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 interim results today that showed underlying sales growth 3.7% with volume growth of 1.9% and price up 1.7%; similar to the first quarter emerging markets were up 6.6%.

 

Turnover on a reported basis decreased by 5.5% to €24.1bn with the currency effect reducing sales by 8.5%.

 

Core operating margin was stable at 14.0% using current exchange rates, although up 30bps at constant exchange rates.  Core EPS was up 2% to €0.78; reported EPS (including the profit on disposal of the Ragu and Bertolli pasta sauces brands in the United States) was up 16.9% to €0.97 and up 29% in constant currency.

 

An interim dividend of €0.285 (22.53p) has been proposed, making €0.57 (45.91p) for the half-year an increase of 5.9%, but a decline of -0.3% in Sterling due to the strength of the Pound.

 

Free cash flow was weaker than last year, with a €0.5bn decline to €0.8bn.  Net debt increased by €0.8bn to €10bn to a gearing level of 72%.

 

The much highlighted lower growth in emerging markets continues, but as in the first quarter Latin America was still growing strongly at 9.5%.  The chart below shows the emerging market trend in half-year growth over the past four years:

 

Click on chart to enlarge

 

Underlying sales growth by major geographic areas were:

Asia/AMET/RUB +6.1% 

The Americas +4.3%

Europe -0.4%

Considerable pricing pressure was the cause of the decline in Europe along with weak trading in Central Europe; the other two geographic areas show an improvement on the first quarter, although The Americas was bolstered by Latin America's strong growth.

Underlying sales growth by product categories were:

Personal Care +4.5%

Foods -0.5%

Home Care +6.8%

Refreshment +5.1%

Despite the headwinds of lower growth from emerging markets and weaker operating currencies compared to the Euro, management remain positive stating that "...We remain focused on achieving another year of profitable volume growth ahead of our markets, steady and sustainable core operating margin improvement and strong cash flow..."

In the short-term UK investors will suffer two hits - some softening in the share price and reduced dividends due to the strength of Sterling.  Still a strong hold though, due to its wide economic moat generated by its strong brand portfolio, size and cost advantages that will provide superior returns to investors over the long-term.