Unilever has signalled further price rises are ahead for shoppers as the company behind brands from Marmite to Dove forecast its own input costs would rise by as much as €3.5bn (£3bn) this year.
The FTSE 100 consumer goods company said that after significant supply chain cost inflation last year it expected a further increase in the price of raw materials, freight and packaging in 2022, which was ultimately likely to result in consumers paying more for its products in supermarkets and other retail outlets.
“The major challenge of 2021 has been the dramatic rise of input costs,” said Alan Jope, the Unilever chief executive. “We responded with pricing actions. In 2022 we will manage a significant input cost inflation cycle.”
Also known for brands such as Hellmann’s mayonnaise and Ben & Jerry’s ice-cream, the company expects “very high” cost inflation of €2bn in the first half of this year although it said that may moderate to €1.5bn in the second half.
“There is currently a wide range for this that reflects market uncertainty on the outlook for commodity, freight and packaging costs,” the company said.
Jope described the surge in costs this year as “unprecedented”, an ominous sign for shoppers. “We are managing the inflationary shock 2022 brings,” he said. “The biggest challenge is navigating the unprecedented input cost inflation.”
Unilever also ruled out pursuing any more big deals after the failed £50bn offer for GSK’s consumer healthcare division, as it beat expectations in the fourth quarter with sales revenue growth boosted by price rises.
The embattled consumer products company, which is facing increasing pressure from shareholders to restructure, including potentially splitting its businesses or shaking up its board, also announced a €3bn (£2.5bn) share buyback scheme.
“We have engaged extensively with our shareholders in recent weeks and received a strong message that the evolution of our portfolio needs to be measured,” said Jope. “We therefore do not intend to pursue major acquisitions in the foreseeable future.”
However, Jope said the company would continue to seek smaller, “bolt-on” acquisitions to build its luxury beauty, health and wellbeing sectors.
The company, which has already announced a structural overhaul to give five business divisions more control, reported a 4.9% rise in underlying sales growth in the fourth quarter – well ahead of the 3.8% City consensus. Full-year sales grew by 4.5% to €52.4bn, the fastest underlying growth in nine years, with 2.9 percentage points of that attributable to price increases, and 1.6 percentage points to growing sales.
“The acceleration of Unilever’s operating performance continues,” said Jope.
Earlier this week, a top 10 shareholder, the asset manager Flossbach von Storch, said Unilever should seriously consider splitting the company, which operates three divisions for beauty, food and household products.
Jope ruled out selling its nutrition and ice-cream businesses after speculation about a potential deal. “Both are great businesses,” he said. “They have some of the strongest brands that can thrive within Unilever. I see a bright future ahead for both the nutrition and ice-cream businesses inside Unilever.”
The leading Unilever shareholder Terry Smith, the founder of Fundsmith, has described the failed attempt to takeover the GSK business as a “near death experience” and said management should focus on improving the core operation – or step down.
Last month, Unilever announced plans to cut 1,500 management jobs globally – a move Jope said would result in the loss of a “handful of jobs in most countries” – as the company tried to respond to calls for an improvement in operating performance.
“We have a lot more we can do with the portfolio we have,” said Jope. “I am impatient to see that starting to come through. There was a moment in time we felt, still feel, a transaction around GSK could have created value. However, our shareholders, while supporting the general strategic direction, felt it was too much at the wrong time.”
Last month, it emerged the US activist investor Nelson Peltz had built a stake in the company, although he has not as yet said publicly what changes he is pushing for.
The share price fell as much as 3% in early trading as analysts focused on a forecast that its operating margin would be down between 1.4% and 2.4% to between 16% and 17%. Last year the company abandoned its operating margin target of 20%.
