Unilever said today that it made a net annual profit of €5.3bn in 2008 – that’s a 28% increase on the previous year, despite the difficult trading conditions. Customers continued to splash out on its snacks, shampoos and washing powders, producing top-line sales growth of 7.4% for the year as a whole (emerging markets were particularly strong). But even if some credit-crunched British punters are starting to trade down from their favourite restaurant to a night in with a lukewarm Pot Noodle, Unilever seems less than confident about repeating these numbers in 2009...
In fact, Unilever admitted today that trading went slightly pear-shaped in the last quarter of the year. Although underlying sales were up by 7.3%, actual volume sales (which were otherwise more or less flat throughout the year) fell by 1.6%, while its profit margins have been steadily squeezed by rising input costs. The worry is that as times get tough, more and more customers will start trading down to cheaper supermarket own-brand labels.
Still, the good news is that commodity prices have since come down, so this should be less of an issue in the next few months. And Unilever managed to offset most of the damage to its bottom line by hiking its prices (as much as 9% in the fourth quarter) and by flogging lots of 'non-core' assets, including the Bertolli olive oil business (sold to Spanish firm SOS for £500m).
However, the worrying news for investors is that new Unilever boss Paul Polman (who took over from Patrick Cescau last year) is now refusing to provide an outlook for 2009, or even to reaffirm its targets for 2010 – he argued today that it was ‘inappropriate’ to do so ‘given the current economic uncertainty’. He also insisted that the group was ‘well placed to meet the challenges ahead’ – but it’s the absence of a forecast that investors have seized upon.
It’s not that shareholders were short of good news today. As well as the impressive profit figure, Unilever also reported €1.1bn in cost savings, falling advertising costs and a €3.8bn cash return to shareholders during the course of the year (including an 18% hike in its final dividend). But that didn’t stop the share price sliding 6% this morning – in these turbulent times, uncertainty over profits is the last thing the market wants to hear…
Polman is on a bit of a hiding to nothing here. He can’t claim any particular credit for today’s results, because he only arrived from Nestle at the start of the fourth quarter. And now he’s lumbered with the most difficult trading environment that Unilever has faced for many a year, which is going to make it pretty tough to deliver higher profits in the coming year. Maybe Cescau got out at just the right time...
In today's bulletin:
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