26th Jan 2017 10:33
LONDON (Alliance News) - Unilever PLC on Thursday reported growth in profit in 2016, but revenue slipped as the Anglo-Dutch consumer goods giant continued to battle adverse movements in foreign exchange rates and tough conditions in two of its largest markets, Latin America and India. Unilever also said it expects a slow start to 2017.
Shares in Unilever were trading down 4.5% at 3,197.00 pence on Thursday, the second worst performer in the FTSE 100.
Unilever, which makes brands ranging from Domestos bleach to Ben & Jerry's ice cream, said pretax profit in 2016 grew to EUR7.47 billion from EUR7.22 billion in 2015, but revenue decreased to EUR52.71 billion from EUR53.27 billion.
Revenue was hit by negative movements in foreign exchange rates, Unilever said, although underlying sales at constant currencies rose by 3.7%, thanks to a 2.8% rise in prices and 0.9% growth in volume.
Despite underlying sales growth, the 3.7% figure came in lower than Unilever's initial expectation of "middle of the 3% to 5% range", which implied growth of 4%.
Unilever has been battling against negative movements in foreign exchange rates for some time, the results of which have weakened consumer demand and increased input costs in some of the markets in which Unilever operates.
Latin America has been particularly affected by this, where prolonged currency devaluation has pushed up the cost of living for many citizens, leading to declines in sales volume for Unilever's products as it increases prices to try to offset higher input costs.
In 2016, revenue in Latin America decreased to EUR8.0 billion from EUR8.5 billion in 2015, although underlying sales grew by 11%. Unilever said the underlying sales result was underpinned by higher pricing to offset the higher input costs.
On top of its Latin American woes, Unilever also suffered a tough performance in India, not just because of rising commodity costs, but because of a demonetisation programme announced by the Indian government in November.
Under the programme, the government immediately replaced the INR500 and INR1000 notes with new INR500 and INR2000 notes as part of a crack down on so-called 'black money' and tax evasion in the country.
India accounts for 7% of Unilever's revenue and 17% of its Asia, Africa, Middle East & Turkey, Russia, Ukraine & Belarus division.
Unilever said on Thursday growth in India was "below historic levels", particularly in the fourth quarter. It didn't provide a sales figure for India alone, but revenue in the Asia, Africa, Middle East & Turkey, Russia, Ukraine & Belarus division remained flat in 2016 at EUR22.4 billion, as underlying sales rose by 4.6%.
Unilever said underlying growth was driven by volume gains in Asia and price-led growth in Turkey, Russia and Africa. Sales in China were slightly down due to price competition from local brands in laundry and de-stocking related to its channel shift to e-commerce.
Meanwhile in Europe, revenue slipped to EUR13.2 billion from EUR13.6 billion, as underlying sales fell by 0.7%. Unilever said European markets remained challenging with subdued volume growth and continued price deflation in many countries, which has made it difficult to raise prices.
This is starting to change, however, as the recent fall in the pound following the UK's vote to leave the European Union means input costs are rising in Europe too, which will likely see industry players across the sector passing this on through higher prices.
Better results came from North America, where revenue in 2016 grew to EUR9.1 billion from EUR8.8 billion as underlying sales rose by 0.9%. Unilever said this was a result of strong innovations in some of its products and improved economic conditions, despite an "intense" promotional environment.
By product category, Unilever said deodorants, Sunsilk and TRESemme hair products, and Dove body cleansing products were the strongest performers within the personal care division.
Within the food division, dressings and cooking products under the Hellmann's and Knorr brands delivered "another year of strong growth" through modernisations of their ranges and extensions into organic variants. Sales of spreads continued to decline, however.
In home care, Surf washing detergent grew by double-digits, Unilever said, while Comfort fabric conditioner, Cif cleaning spray and Domestos toilet blocks also performed well.
Finally, ice cream brands Magnum and Ben & Jerry's were top performers within the refreshment division.
Unilever will pay a quarterly dividend of EUR0.3201 per share for the fourth quarter, up from the EUR0.302 paid in the fourth quarter of 2015.
"Our priorities for 2017 continue to be volume growth ahead of our markets, a further increase in core operating margin and strong cash flow. The tough market conditions which made the end of the year particularly challenging are likely to continue in the first half of 2017. Against this background, we expect a slow start with growth improving as the year progresses," Chief Executive Paul Polman said in a statement.
By Karolina Kaminska; [email protected]; @KarolinaAllNews
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