Q1 results: flat sales reflect unprecedented impact of Covid-19
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Today, Unilever announced its results for the first quarter of 2020, which show flat underlying sales with developed markets growing 2.8% whilst emerging markets declined 1.8%.
- Underlying sales were flat with volume growth of 0.2% and negative price of 0.2%
- Developed markets underlying sales growth was 2.8% and emerging markets declined 1.8%
- Turnover increased 0.2% including a positive impact of 0.6% from acquisitions net of disposals and negative impact of 0.4% from currency
- Quarterly dividend maintained at €0.4104 per share
A statement from CEO Alan Jope
“Covid-19 is having an unprecedented impact on people and economies worldwide. Unilever has moved at speed to support our multiple stakeholders and maintain our operations through the crisis, and prepare for growth in a new normal. We have structured our immediate response into five areas: supporting our people; protecting supply; serving demand; contributing to society; and maintaining our financial strength.
Our people are our priority and we moved quickly to ensure the safety of our workforce as well as to protect incomes and jobs. We are now focused on redeploying people to those parts of the business that are seeing high demand.
We have been able to maintain the supply of product and we are keeping our factories running through the many unpredictable challenges in local operating environments across our value chain. We are also opening up new capacity where it is most needed, such as in hand hygiene and food.
Demand patterns are changing. As the crisis hits countries around the world, we see upswings in sales of hygiene and in-home food products, combined with some household stocking, and near cessation of out of home consumption which is particularly affecting our food service and ice cream business. We are adapting to new demand patterns and are preparing for lasting changes in consumer behaviour, in each country, as we move out of the crisis and into recovery.
The crisis highlights the importance of our commitment to use our scale and brands as a force for good in society, throughout the pandemic and beyond. We are supporting communities through donations and partnerships, while our Lifebuoy and Domestos brands are leading the way on hygiene education programmes.
We take these actions in the knowledge that we enter the crisis with a strong balance sheet and cash position. We are systematically reviewing all areas of cash generation and usage and re-evaluating all costs in the light of the current circumstances, so that we can continue to invest in our brands and reallocate funds towards the best opportunities.
We will continue to adapt throughout this crisis. However, the unknown severity and duration of the pandemic, as well as the containment measures that may be adopted in each country, mean that we cannot reliably assess the impact across our markets and our business. We are therefore withdrawing our previous growth and margin outlook for 2020.
Our portfolio, our financial stability and the quality of our leadership teams around the world mean that Unilever is well-positioned during this crisis and for the changing world that will come afterwards. The fundamental drivers of growth continue to be the key principles driving our execution as we remain focused on delivering superior long-term financial performance through our sustainable business model.”
The spread of Covid-19 has led to extensive changes in the operating environment in our markets. The lock-downs and restrictions that have been implemented in many countries have varied in severity, but all have had some impact on consumer demand patterns and many have also had a significant impact on the supply of goods.
At an individual market level, most lock-downs have required closures in out of home channels, resulting in little out of home consumption of ice cream and food. Initial household stocking of both hygiene and food products has led to increased volume in some markets.
Most major markets, outside China, saw normal sales patterns in January and February with Covid-19 impacting in March. The Chinese market slowed significantly during the lock-down period, which began in January, whilst Europe and North America, saw a positive impact of household stocking in March. The Indian market had slowed even before the strict lock-down began at the end of March. Conditions in Latin America remain challenging, as they were before Covid-19, although we have seen some household stocking at the end of the quarter.
Unilever overall performance
Underlying sales growth was 0.0% with 0.2% from volume and negative 0.2% from price. Developed markets grew 2.8% whilst emerging markets declined 1.8%. China declined as a result of the downturn in food service, out of home ice cream and retail sales during the lock-down. Growth in India was impacted by both the slowing market and the lock-down implemented at the end of March, which stopped production and shipping for a number of days. Latin America grew 4.9% whilst South East Asia was mixed, following the introduction of strict restrictions in the Philippines. North America and Europe benefitted from household stocking, despite a decline in food service and ice cream. E-commerce grew as shoppers moved from offline to online channels.
Turnover increased 0.2%. There was a positive impact of 0.6% from acquisitions net of disposals and a negative impact of 0.4% from currency.
Covid-19 support measures
During the quarter Unilever introduced a to support global and national efforts to tackle the Covid-19 pandemic. We are contributing €100 million through donations of soap, sanitiser, bleach and food as well as leveraging our procurement network to acquire much-needed medical equipment for organisations around the world.
Strict protocols for hygiene and physical distancing have been put in place for Unilever’s sourcing units and distribution centres, and all Unilever office-based employees have been working from home. Unilever has also committed to protect its workforce in the short-term from sudden drops in pay, as a result of market disruption or being unable to perform their role.
We are making available €500 million of cash flow relief for our most vulnerable small and medium sized suppliers and small-scale retail customers whose business relies on Unilever.
In addition, we are working with the UK’s Department for International Development to fund a global programme to urgently tackle the spread of coronavirus. The programme aims to worldwide, raising hygiene awareness and changing behaviour.
On 1 April 2020, Hindustan Unilever Limited, Unilever’s listed subsidiary in India, successfully completed the merger with GlaxoSmithKline Consumer Healthcare Limited. The transaction is in line with Unilever’s strategy to evolve the Foods & Refreshment portfolio into higher growth segments. In early April we also entered into agreements to buy out the minority shareholders of our subsidiary in Malaysia.
Beauty & Personal Care
Beauty & Personal Care underlying sales grew 0.3%, with volume growth of 0.7% and negative pricing of 0.5%. Growth in key categories was driven by both consumption and household stocking.
Skin cleansing saw mid-single digit volume-led growth as we responded to the critical need for hygiene products to prevent the spread of Covid-19. Through our Lifebuoy hygiene brand we continued to raise handwashing awareness, introducing lifebuoy products to 43 new markets, as well as working quickly across brands to expand our range of formats to support the pandemic response.
Skin care declined, as travel restrictions impacted the Carver portfolio and India was impacted by lock-down conditions. Vaseline continued to perform well, with mid-single digit growth, and we launched anti-bacterial hand cream in the UK as well as a new Pro Derma Clinical range in China. The Prestige portfolio was impacted by health and beauty channel closures in many markets.
Whilst hair grew in the US, the lock-down impacted the portfolio in China and in India. Deodorants grew mid-single digit, with strong performances from our Rexona Clinical range and Dove deodorants. Oral care grew, with growth from natural toothpastes and bamboo toothbrushes. Negative pricing was primarily driven by India following price reductions in the previous quarter.
Home Care underlying sales grew 2.4%, with 2.6% from volume and negative price of 0.2%.
Our home and hygiene brands, including Cif surface cleaners and Domestos bleach, benefitted from increased demand for household cleaning products, with double digit underlying sales growth. In China, we accelerated the launch of the new germ-killing Botanical Hygiene range, addressing demand for natural cleaning supported by advanced and effective technology.
Format premiumisation continues to be a driver of volume-led growth in fabric solutions, with liquids and capsules both growing double digits. Clean and green home care brand Seventh Generation also saw double digit growth.
Foods & Refreshment
Foods & Refreshment underlying sales declined 1.7%, with volumes down 1.8% and positive pricing of 0.1%.
The largest volume decline was in ice cream, as the seasonal sell-in for out of home consumption in key markets such as Europe, Turkey and Latin America were heavily impacted by lock-down measures and the reluctance of distributors to commit to buying ice cream stock with an uncertain holiday and tourism season.
There was also a sharp decline in food service, as restaurants in China and elsewhere closed due to Covid-19 mitigation measures. This was offset by increased in-home consumption and household stocking in some markets, particularly the US and Europe, leading to volume-led growth in savoury and dressings. Knorr saw low single digit growth, while Hellmann’s grew double digits as our brands helped to feed the many families at home.
Tea declined low-single digit, impacted by India and out of home channel closures. The strategic review of our tea business is ongoing.