Unilever Final

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 reported their results for last year on Tuesday and given the economic backdrop were generally good.  Underlying sales growth in the fourth quarter was the same as the third quarter at 2.1%, with volume declining -0.4% and price up 2.5%.  Full year sales were €48.4bn a reported decline of -2.7%, although underlying growth (using constant exchange rates and excluding acquisitions and disposals) for the year was 2.9%, with volume & price contributing 1.0% and 1.9% respectively.

 

Core operating margin was up 40bps to 14.5% at current exchange rates; reported operating profit was up 6.2% to £7,980m and covered interest 16.7x. 

 

By category the results were:

 

 

Click on chart to enlarge

 

Although there was double digit growth in Indonesia, India, Turkey and the Philippines, emerging markets growth generally continued the trend of much lower increases:

 

 

 

 

EPS was up 7.8% to €1.79 and core EPS increased 1.9% (11% at constant exchange rates) to €1.61.

 

Free cash flow (FCF) was below last year's €3.9bn at €3.1bn, due to €0.8bn payments on tax for disposals.  Net debt increased by €1.3bn to €9.9bn, due mainly to paying out of FCF €3.2bn in dividends and €0.9bn for the Estate shares.  Gearing has increased to 72.5%, the result of the increasing debt and a €0.6bn reduction in equity.  This reduction in equity (or net book value) was primarily caused by dividends, pension deficit increases and the effect of buying out the Estate shares and other shares, exceeding the profit earned in the year.  Net debt is 1.1x EBITDA and operating cash flow is 52% of net debt.

 

A dividend of €0.285 (a Sterling equivalent of 21.77p) was declared for the quarter, making €1.14 (90.20p) for the year an increase of 5.9% although a decrease of 0.9% in terms of Sterling.  The dividend was covered 1.57x by earnings, although represented 106% of FCF, 84% if the tax payment on disposals is excluded.

 

Unilever is generating a return on capital employed of over 33% and over the last 3 years its FCF has generated a return of 16.3% on capital employed, these compare to their weighted average cost of capital of 6.7%, demonstrating the company's strong ability to add value - the result of the wide economic moat their brands enjoy.

 

Polman in his outlook states - "...We do not plan on a significant improvement in market conditions in 2015. Against this background, we expect our full year performance to be similar to 2014 with the first quarter being softer but growth improving during the year. We remain focussed on competitive, profitable, consistent and responsible growth..." which places Unilever on a P/E of 22.5x 2015 earnings and a prospective yield of 3.3%.  Expensive, so worth waiting for any weakness during the year, before I add to my position in what is a high quality business.