10th Feb 2022 15:01
(Alliance News) - Unilever PLC's fastest annual underlying sales growth in nearly a decade was not enough to restore investor faith in the consumer goods company's strategy, a pressure begins to mount on Chief Executive Alan Jope.
Thursday's annual results came amid a backdrop of activist investor pressure and as the dust settles on a failed attempt at acquiring a GlaxoSmithKline PLC unit. Unilever owns brands such as bleach products maker Domestos, household cleaner Cif and Ben & Jerry's ice cream.
In a sign the market does not have confidence in Unilever's strategy, its share price growth has largely lagged peers as well as the wider FTSE 100.
Unilever shares were 1.3% lower at 3,780.46 pence each in London on Thursday afternoon. The stock has fallen 4.0% over the past 12 months, while he FTSE 100 has advanced 18% over the same period.
Procter & Gamble Co has risen 24% in New York over the past 12 months. Nestle SA has climbed 18% in Zurich. Fellow London listing Reckitt Benckiser Group PLC has fallen 6.2%, however.
"The promise of share buy backs and a softly-softly approach to acquisitions won't give Alan Jope much of a break from the mounting criticism over the way the business has been run," Hargreaves Lansdown analyst Susannah Streeter commented.
Trian Partners has built a stake in Unilever, turning up the pressure on the FTSE 100 company after its failed pursuit of GlaxoSmithKline's consumer health business, the Financial Times reported in January.
Citing people familiar with the matter, the newspaper said Nelson Peltz's activist hedge fund had taken an unspecified position in the Unilever shares. The FT said people with knowledge of the stake building did not provide details on its size or when precisely it began.
The company's revenue amounted to EUR52.44 billion in 2021, up 3.4% from EUR50.72 billion the year prior. The figure topped a consensus forecast of EUR52.11 billion.
Underlying sales growth was 4.5% in 2021, beating the consensus estimate of 4.3%. It was the strongest underlying sales growth since a 6.9% hike in 2012.
"Despite the fastest underlying sales growth in nine years, coming in at 4.5%, the fall in the underlying operating margin is already painful. Input costs are rising dramatically and prices are being pushed up as a result by 4.9% in the fourth quarter," Streeter added.
Unilever said it will conduct a share buyback programme of up to EUR3 billion over the next two years, which it expects to commence in the first quarter. This matches the amount of share buybacks the company completed in 2021.
Despite the strong underlying sales growth, AJ Bell analyst Russ Mould questioned the quality of Unilever's annual results.
"But are these results really cause for celebration? First, a big chunk of its sales growth has come from putting up prices which every product manufacturer seems to be doing. Volume growth paints a different story with a mere 1.6% gain – that's not good when you consider Unilever is meant to own some of the world's most prized brands. Are these names less relevant to shoppers in a world with increased choice? Profit margins are under pressure which is a big worry. Again, Unilever's brands are meant to be world-class, so if a company with its assets cannot defend margins, something is very wrong," Mould explained.
"Then there is the issue of Unilever's future priorities. It wants to focus more on health, beauty and hygiene than food and drink, yet this could be a big mistake. The food and drink division is the strongest growing part of the business so why would the company lose interest in its best player? A month ago, it said major acquisitions should be accompanied by the sale of lower growth brands and businesses. That's confusing logic given that its lower growth divisions are where it wants to focus.
"All this would suggest Unilever has got itself tied in knots and the shareholder backlash means the clock is ticking for chief executive Alan Jope to properly decide on a long-term strategy to generate sustainable growth otherwise he will be out of a job very soon."
By Eric Cunha; [email protected]
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