Unilever the maker of Dove deodorant and Hellmann’s dressings, said it was preparing for tough trading conditions this year with tighter cost controls and more new products.
Paul Polman, chief executive of the consumer goods group, warned of “high volatility in 2016”, citing wide-ranging challenges including falling commodity prices, Chinese stock market fluctuations, political instability in the Middle East and greater incidence of hurricanes and flooding.
“This volatility is here to stay,” he said.
The caution came as the Anglo-Dutch company on Tuesday reported slightly better than expected full-year sales growth and profitability, boosted in part by favourable currency movements. Higher price rises in Latin America and a 7 per cent increase in ice-cream sales, which include the Magnum and Ben & Jerry’s brands, also helped lift group revenues by 10 per cent.
Weakening emerging markets, in which Unilever makes 58 per cent of its sales, had hit the company hard in 2014. But sales in these regions recovered last year, rising 7.1 per cent, up from 5.7 per cent in 2014.
There was no growth in developed regions, however. Mr Polman attributed this in part to a polarisation of the market and a squeezed middle class.
Citing an Oxfam report released on Monday showing that the richest 1 per cent of people owns as much wealth as the other 99 per cent, he said: “This sad statistic shows you the world is pulling apart — there is a premium segment and you have to be competitive on the mass segment. If the billionaires are getting more money but not the bottom, then the middle of society is under pressure.”
Sales of spreads, including Flora, which the group spun off last year as a standalone unit, fell again, this time by 5 per cent. This weighed on the food business, where sales rose 1.5 per cent and operating profit margins fell.
Polman confirmed that the senior management at the spreads unit had changed, adding that if sales did not improve this year “we’ll have to think about other things and we are obviously looking at all options”.
He declined to say whether the group had received offers for the business, which analysts value at about €5.5bn and which Unilever says is important for its profitability and cash flow.
“I can get rid of this business tomorrow bygiing it away to someone, but that’s criminal,” said Mr Polman. “From the part of the Netherlands I come from, we don’t do those things. We need to be sure that we build shareholder value.”
Polman also stressed the need for cutbacks, having launched a €1bn cost-cutting programme late last year.
Unilever is adopting zero-based budgeting — with managers justifying budgets from scratch each year — which has been popularised by 3G, the private equity group that has been buying up US food businesses, including Kraft and Heinz.
Martin Deboo, analyst at Jefferies, said Unilever had a good record of cutting costs but “relatively little of the gross savings have found their way to the bottom line”.
Mr Polman said it would take two years to roll out the new method of budgeting across the group.
Unilever’s revenues were €53.3bn last year, compared with €48.4bn the year before. Pre-tax profits fell 6 per cent to €7.2bn but this was distorted by the previous year’s exceptional gains on sales at its food business.
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