The main sources of disappointment are India, Ghana, Nigeria and North America. Category growth has slowed in India, Unilever’s largest EM, from c.10% to c.5% over the course of 2019. In West Africa, liquidity has become more of an issue. And in N America, the market remains unsurprisingly competitive, though this is a slight reversal of the Q3 commentary (when Dressings had returned to growth). Coming on the back of an upbeat CMD and sustainability webcast last week, today’s announcement hurts the credibility of management.
Having spoken to the company, it is clear that near term plans are little changed as a result of today’s warning. Management feels it has the right level of investment in place to deliver the (very) bottom end of the 2020 range for both sales and margins. We believe many investors feel otherwise, and would welcome greater investment.
Investment view. We like Unilever’s market positions around the world, but agree that growth has been disappointing and a new strategy is needed. Longer term, we expect Unilever to continue shifting towards Beauty as a category, and anticipate further disposals. Near term, however, we see Unilever as being between a rock and a hard place: needing to deliver on its 2020 objectives as the market has become more challenging and also under pressure from shareholders to ignite growth. The challenges Unilever has had in meeting its 2020 targets mean CEO Jope may have greater leeway to make more significant changes in time.
