Emerging markets, innovation drive Unilever's 2017 results

by Keith Nunes
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Unilever food brands - Breyers, Hellmann's, Knorr, Lipton
Unilever's net profit in 2017 was a 17% increase compared with 2016.
 

LONDON — Strengthening emerging markets around the world combined with a revamped innovation process led to strong results for Unilever P.L.C. during 2017.

During the year Unilever delivered a net profit of €6.5 billion ($8.1 billion), a 17% increase compared with 2016. Sales for the year rose 2% to €53.7 billion ($67 billion).

Paul Polman, Unilever
Paul Polman, c.e.o. of Unilever

“We have delivered a good all-round performance with competitive growth, including an innovation-led improvement in volumes in the fourth quarter, and substantially increased margin, earnings and cash flow,” said Paul Polman, chief executive officer, during a conference call with securities analysts on Feb. 1. “This puts us well on track to deliver toward the strategic objectives set out for 2020 and demonstrates the progress we have made in transforming Unilever into a more resilient and more agile business.

“2017 has once more been a year of major change for Unilever with the acceleration of the ‘connected 4 growth’ program that we announced in 2016. With the implementation of a more agile, consumer-facing organization, we are seeing quality and speed of innovation further improve. At the same time, we have significantly stepped up the delivery from our savings program and continued the evolution of our portfolio with 11 acquisitions announced and completed in the year as well as the announcement of the disposal of the spreads business. All of this is making Unilever increasingly competitive in light of fast-changing consumer and technology trends.”

Knorr Natural, Hellman's Organic, Unilever
Recent Unilever innovation includes Knorr Natural and Hellmann's Organic.
 

The company’s Foods and Refreshment business units generated €19.4 billion in sales, excluding the company’s Spreads business that was divested toward the end of the year.

Mr. Polman said global market growth during 2017 was “stubbornly weak,” but added that a number of emerging markets showed strength toward the end of the year, including Brazil and India.

Despite the weak global environment, Mr. Polman said there are pockets of opportunity.

“ … One of the biggest opportunities, obviously, is leveraging digital, giving a new way of consumers to interact with our brands in real time,” he said. “Our global, local footprint means we can leverage technologies at scale, whilst pairing these with local insights in a connected and agile way, and that’s driving many of our brands. We increasingly see the consumers, particularly millennials, are looking for brands that serve a positive social purpose beyond pure product functionality. And the trends for more natural, organic, free-from authentic products is only accelerating.”

Unilever pull quote
 

To reach these new pockets of growth the company has changed the way it innovates, and Mr. Polman argued that Unilever’s innovation pipeline may be the strongest it has ever been.

“Our local teams are now empowered to deliver local innovations, allowing our global divisions and R.&D. team to fully focus on the bigger strategic global launches, leading to larger projects with more benefits,” he said. “Like Magnum pints, which delivered over €40 million of turnover in Europe and is now also launched in the U.S. … Knorr Natural, Persil Power Gels, Hellmann's Organic are other examples.”

In 2018, management expects Unilever to deliver sales growth in the 3% to 5% range, Mr. Polman said.

Magnum ice cream pint, Unilever
Unilever recently launched Magnum pints in the U.S.
 

“ … We expect this to include a greater contribution from volume than in 2017 and lower price growth, particularly in the first part of the year,” he said. “And we expect continued progress toward our 2020 underlying operating margin of 20%, fueled by our savings program.

“There will be more restructuring as we start to take out stranded costs from spreads and set up the new Food and Refreshment unit. We continued to maintain competitive brand levels of marketing and brand spend. And compared to 2017, this will once more be more weighted, in this case, toward the first half versus the second half. We also target another year of strong cash flow.”
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