Emerging markets driving growth in the third quarter
Today, Unilever announced its results for the third quarter of 2017, which show emerging markets driving growth and good progress against the strategic objectives we set out for 2020.
- Turnover increased by 3.1% in the first nine months, including a negative currency impact of 0.6%
- Turnover decreased by 1.6% in the third quarter, including a negative currency impact of 5.1%
- Underlying sales growth was 2.6% in the third quarter, with price up 2.4% and volume up 0.2%
- Growth in the quarter was adversely affected by poorer weather in Europe and natural disasters in the Americas
- Emerging markets underlying sales growth was 6.3% in the third quarter, with volume up 1.8%
Commenting on the results, CEO Paul Polman says: “The transformation of Unilever into a more resilient, more competitive and more profitable business continues and we are making good progress against the strategic objectives we have set out for 2020. The ‘Connected 4 Growth’ change programme is beginning to make our business less complex and more responsive to fast-changing consumer trends. The new organisation is delivering increased innovation speed and our savings programmes are allowing us to step up investment behind new growth opportunities. We expect to reap the benefits over the coming quarters.
“While conditions in our developed markets remain challenging, we are starting to see signs of improvement in some of our biggest emerging markets including India and China. Growth in the third quarter was adversely affected by poorer weather in Europe compared with last year and natural disasters in the Americas.
“For the full year, we continue to expect underlying sales growth within the 3–5% range, an improvement in underlying operating margin of at least 100 basis points and strong cash flow.”
In the third quarter, underlying sales increased 2.6% driven by emerging markets growth of 6.3% while developed markets decreased 2.3%. All categories grew, with improving volumes in Personal Care, Home Care and Foods. After two good years, Refreshment volumes declined as a result of lower ice cream sales in Europe and North America. Turnover decreased 1.6% to €13.2 billion, which included a negative currency impact of 5.1% as a result of the stronger euro. Acquisitions net of disposals added 1.1% to turnover.
Strategic review progress
Our accelerating Connected 4 Growth (C4G) programme is continuing to make good progress against the objectives we have set out:
The new Country Category Business Teams (CCBTs) are fully in place, helping to make our innovation pipeline stronger. They are beginning to enable us to roll out global innovations faster, and be more agile in responding to local trends.
The savings programmes – which are an integral part of C4G – are delivering faster than expected and putting us well on track towards our savings target of €6 billion, and a targeted underlying operating margin of 20% by 2020. The faster delivery is enabling us to step up the level of reinvestment behind our brands. The holistic ‘5S’ gross margin improvement programme is being rolled out from Home Care into all categories and realising savings across the supply chain. Zero based budgeting (ZBB) is improving our productivity in brand and marketing investment as we reduce the cost of advertising production. ZBB is also eliminating waste in those areas where we have over-saturated traditional channels, as well as reducing low-added value costs in overheads. The plans for the integration of Foods and Refreshment into a single business are advancing well.
We are continuing to evolve our portfolio at an accelerated pace to ensure we have the platforms in place for long-term growth in attractive market segments and sales channels. In the last three months, we announced the acquisitions of Weis ice cream in Australia, Pukka Herbs tea in the UK, Carver skin care in Korea, and Mãe Terra organic food in Brazil. The preparation for the exit from spreads via a sale or demerger is fully on track. In September, we announced the sale of our South African spreads business as part of a transaction in which we will buy out the minority interest in Unilever South Africa.
The review of the dual-headed legal structure is progressing well. With the launch of the offer for all preference shares in Unilever N.V. we are also taking important steps to simplify our capital structure and improve corporate governance. In the first nine months, we have bought back shares to the value of €3.9 billion, putting us on track to complete the announced €5 billion programme by the end of the year.
Personal Care showed improved volumes but price growth was moderated by easing commodity cost increases, leading to lower underlying sales growth in the third quarter. We continued to grow the core with a strong set of new product launches while expanding the portfolio in higher-growth segments.
Growth in skin cleansing was supported by innovations such as Dove shower foam, a new format that delivers an improved sensorial experience, which is now available in North America, Europe and Japan. Baby Dove has been introduced to 26 markets, while Hijab Fresh, a new brand, was launched in Indonesia to provide a solution to the specific needs of the Muslim consumer.
In hair care, growth was driven by Sunsilk, helped by the expansion into natural propositions that has driven increased penetration among millennials.
Sales in deodorants were flat in the quarter with growth in the Americas offset by declines in the challenging markets of Europe and South Africa.
The prestige business performed well, driven by Dermalogica and Kate Somerville. The subscriber base of Dollar Shave Club expanded further, enabling another quarter of double-digit growth.
Growth in Home Care accelerated, enabled by continued market development and benefit-led innovations that address emerging needs.
In laundry, growth was driven by strong performances of the fabric conditioner Comfort and the value brand Brilhante, as well as the roll-out of Omo into Iran. Persil Powergems, with 100% active ingredients delivering superior stain-removal, care and intense freshness, have been introduced in the UK.
In household care, Domestos continued the global roll-out of toilet blocks, which have now reached 27 countries, and the new Sunlight dishwash range drove growth in Central and Eastern Europe.
The acquisitions of Seventh Generation with its naturals proposition and Blueair, our air purification brand, performed strongly and will contribute to underlying sales growth from October and December respectively.
Foods continued to modernise the portfolio while building its presence in emerging markets and sustaining a strong performance in the food service channels.
Knorr grew strongly by responding to key needs such as naturalness and time-saving cooking products. Knorr Mealmakers with 100% natural ingredients have now been extended into 100% natural seasonings and 100% natural soups.
In dressings, Hellmann’s has relaunched the brand with strengthened naturalness claims in 25 markets while the organic variants have been rolled out from North America into Europe. However sales growth was moderated by high promotional intensity in the quarter, particularly in North America.
In spreads, new margarines with specialty oils and dairy-free variants performed well. Spreads declined 2.0%, a further improvement on previous quarters.
Refreshment grew in both ice cream and leaf tea, despite weaker volumes for ice cream in the third quarter due to poorer weather in Europe in the latter stages of the quarter and new entrant competitive activity in North America.
Innovations behind our premium brands continued to perform well. These included Magnum pints that deliver the ultimate chocolate and ice cream experience in a tub, as well as Magnum double raspberry and coconut variants. We launched seven low-calorie, high-protein ice cream variants as Breyers delights in North America to meet the growing consumer demand for these propositions.
Leaf tea showed good growth as we are increasingly seeing the benefits of our innovations in specialty and premium tea segments. Lipton was launched in Brazil and Argentina, and is successfully extending its presence in the faster-growing green and matcha segments, while Pure Leaf was introduced to the UK after the launch in the US.
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