British consumer goods company Unilever announced its results for the first half of 2021, which showed a strong performance, with underlying sales growth of 5.4 percent driven by its continued focus on operational excellence.
The operating environment across Unilever’s markets has seen some improvements but remains volatile. Restrictions on daily life continue around the world, impacting channel dynamics, sales mix and consumer behaviour. Although renewed restrictions in India impacted the market in the second quarter, they were less severe than in the same period last year.
In China, normalisation has continued, but market growth is still below pre-Covid-19 levels. The North America and Europe markets declined in the second quarter as we lapped the surge in demand for in-home food and hygiene products in the same period of 2020. In difficult macroeconomic conditions, markets are growing in Latin America but market conditions in South East Asia remain challenging. In Indonesia, large parts of the country have entered lock-down following a sharp rise in Covid-19 cases.
Unilever continues to be guided by its five strategic choices:
- develop portfolio into higher growth spaces
- win with brands as a force for good, powered by purpose and innovation
- accelerate in the US, India and China and leverage its emerging markets strength
- lead in the channels of the future
- build a purpose-led, future-fit organisation and growth culture
In North America, food solutions and Prestige Beauty contributed to growth as the out-of-home eating and health and beauty channels reopened. It is seen that a relative decline in food consumed at home and flat growth in hygiene products, as it lapped the spike in demand in the prior year. In Europe, volume growth was supported by a recovery in out-of-home ice cream. Price declined in Europe as we lapped a period of lower promotional intensity in some markets. E-commerce grew 50 percent and is now 11 percent of sales.
Turnover increased 0.3 percent including a positive impact of 1.4 percent from acquisitions net of disposals and negative impact of 6.1 percent from currency related items.
Unilever continues to develop portfolio into higher growth spaces. In Prestige Beauty, it signed an agreement in June to acquire the digital-led skin care brand Paula’s Choice, which has pioneered jargon-free science, high performing ingredients and cruelty-free products. Underlying sales in functional nutrition grew high single digit in the second quarter, which includes vitamins, minerals and supplements brands OLLY and Equilibra and our South Asian nutrition brands Horlicks and Boost.
The operational separation of its tea business is substantially complete and is due to conclude in October 2021. It is now focused on the next phase for this business, which is expect to be either an IPO, sale or partnership. This business generated revenues of around $2.3 billion in 2020 and excludes its hot tea businesses in India and Indonesia and partnership interests in ready-to-drink tea.
In April, a number of smaller beauty and personal care brands have been separated with a dedicated management team under the name Elida Beauty. The brands include Q-Tips, Caress, Tigi, Timotei, Impulse and Monsavon with combined revenues of around US$706 million in 2020. It is exploring options for these brands with a focus on maximising value creation.
Underlying operating margin declined by 100bps to 18.8 percent. After conserving spend at the peak of the global pandemic in the prior year, Unilever has stepped up investment in its brands and marketing campaigns, increasing spend by 80bps. Gross margin was 60bps lower, impacted by an increase in raw material, packaging and distribution costs globally. There was a slightly negative incremental impact on gross margin in the first half from adverse mix related to Covid-19. Overheads improved by 40bps. Productivity programmes and ongoing Covid-19 related savings in areas like travel and facilities continued.
Oral care grew mid-single digit, led by volume from South Asia and Africa. Closeup’s freshness innovation is driving growth in Brazil. Prestige Beauty brands grew double digit, with higher in-store footfall. It increased pricing in response to commodity inflation across categories, particularly in Latin America and South Asia.
There was good growth in dishwash in emerging markets, while household cleaners declined as it lapped a prior year spike in growth. It expanded Lifebuoy brand into home hygiene products in the UK and Germany, launching the new BotaniTech range of cleaning products with naturally derived ingredients.
Price declined overall as it lapped a period of lower promotional intensity in some markets and as the impact of rising input costs was more muted in fabric cleaning through the first half. Pricing was slightly positive in the second quarter as we started to take pricing action in markets including Brazil and Turkey to respond to rising input costs.
SEE ALSO : Unilever acquires Paula’s Choice
Food solutions grew double digit. Sales in China were above pre-Covid-19 levels, however in most other markets, turnover has not yet recovered to 2019 levels as out-of-home channel restrictions remained in place. In-home foods grew low single digit even as we lapped a spike in demand in the prior year. Knorr and Hellmann’s grew double digit led by volume with campaigns such as Make Taste Not Waste by Hellmann’s and the rollout of innovations such as Knorr’s flavour rich, low salt bouillon. It took pricing action across food and ice cream to counter rising input costs.
Tea grew high single digit through both price and volume, with growth in North America, Turkey, Europe and India. Price was driven by India, following significant raw material inflation.