Unilever sales rise but miss forecasts, expects 'slow start' to 2017

26th Jan 2017 08:16

(ShareCast News) - Unilever reported that revenue grew but missed expectations as the Anglo-Dutch consumer goods giant was affected by economic woes in Brazil and demonetisation in India, two of its largest markets, and expects the difficult market conditions to continue in 2017.Unilever, which makes Hellman's mayonnaise and Marmite, reported that turnover for calendar 2016 fell 1% to €52.7bn, compared to the previous year, which was slightly lower than analysts' forecasts of €52.83bn.Sales in the fourth quarter rose 2.2%, which was lower than analysts' expectation of 2.8%.Chief executive Paul Polman said he expects a "slow start" to 2017 as the "challenging" market conditions will likely continue.He said: "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."The company said that in India, growth was below historic levels, particularly in the last quarter when demand was adversely impacted by the removal of the Rs.500 and Rs.1,000 notes. In November, the Indian government announced the demonetisation measures in a bid to root out 'black' money - cash earned illegally or legally and not declared to tax officials.Brazil has been experiencing an economic recession since, 2014, its worse on more than three decades, which affected sales. Unilever also said that it has a number of open legal proceedings related to indirect taxes in the country and intends to appeal a ruling.Sales for the year increased by 4.3% at constant exchange rates and underlying sales growth rose 3.7%, with price up 2.8% and volume up 0.9%.Emerging markets underlying sales growth increased 6.5% with price up 5.4% and volume up 1.1%.The company has free cash flow of €4.8bn, and constant core earnings per share were up 7%, or 3% at current exchange rates.George Salmon, equity analyst at Hargreaves Lansdown, said that the weaker than expected sales growth, depressed by a disappointing performance in Europe and Latin America, is not good news, but Unilver's long term record should not be hastily discarded.He said: "Unilever has been able to deliver solid, if not spectacular, growth in margins, sales and dividends for years. Much of this can be attributed to its €8bn advertising budget, which funds the relentless promotion of its everyday products, and helps to ensure that its products feature regularly on consumers' shopping lists, regardless of regular price increases."Salmon said that Marmitegate - when the company raised prices to compensate in the sharp fall in sterling after the Brexit vote which made Tesco remove the spread from its shelves - highlighted the strength of this strategy."For all the bluster that accompanied the story, it's worth remembering that the net effect of the dispute with Tesco was a chunky increase in prices. In all but the very worst of conditions, Unilever should be able to keep its growth going."Shares in Unilever were down 4.59% to 3,194.78p at 0848 GMT.