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The Guardian - UK
The Guardian - UK
Julia Kollewe

Comfort food and cleaning products: no wonder Unilever’s doing so well

Close-up of a green cardboard tub of Ben & Jerry's
Unilever’s Ben & Jerry’s brand is branching out into vegan food. Photograph: Hannah McKay/Reuters

A vast portfolio of food and household brands has allowed the consumer goods giant Unilever to navigate its way through the pandemic.

The maker of Domestos bleach, Dove soap and Cif cleaner benefited from a surge in demand for cleaning products in the initial stages of the health crisis. Its shares rose, and Unilever briefly became the most valuable company in the FTSE 100 index last year. And the company behind Marmite, Colman’s mustard and Magnum ice-cream benefited from the forced shift to eating out less and cooking at home, which some analysts think could be a long-term change.

Unilever’s chief executive, Alan Jope, believes that higher demand for soap and cleaning products is another trend that will persist, as people stick to more frequent hand-washing and improved hygiene at home.

With China and other economies around the world recovering from the pandemic, consumers are spending more again. When Jope presents Unilever’s first-half results on Thursday, he is expected to reveal underlying sales growth of 5.3%, including 4.8% growth in the second quarter, and an underlying operating profit of €4.8bn (£4.1bn), slightly below €5.1bn in 2020. Sales growth will have slowed from 5.7% in the first quarter but the expected 4.8% would still be a decent number. Overall turnover is likely to be flat at €25.7bn due to currency effects.

The dividend will be of particular interest to shareholders. Analysts are looking for 148p a share for 2021, which would make Unilever the fifth-biggest dividend payer in the FTSE 100 in cash terms.

Despite the upside, Unilever will have to contend with other challenges coming down the line, not least higher costs from rising global food prices, commodities, freight and crude oil – as well as what could be the world’s first taxes on sugar and salt going into food production in the UK (although the company notes that the UK is only 5% of its business).

The UN World Food Price index, which tracks monthly changes in a basket of major food types, has roughly doubled since the start of the pandemic. This will be felt most acutely in the developing world, where consumers are more likely to cook from scratch. Analysts expect Unilever to pass on food price inflation in most cases.

Tapping into trends towards healthier and sustainable eating and living, the firm plans to launch more plant-based ice-creams after the success of its vegan versions of Magnum and Ben & Jerry’s. In one of its new strategic priorities, it laid out plans in February to expand its vegan food ranges into a €1bn-a-year plant-based foods business in five to seven years’ time, compared with €200m at present.

Unilever also wants to grab a larger slice of the upmarket beauty and nutritional supplement markets – another fast-growing area – and recently acquired Paula’s Choice, an American online skincare brand founded by Paula Begoun in 1995, known for its jargon-free ingredient dictionary.

Unilever will also give an update on its plans to sell the bulk of its tea business, which has annual sales of €2bn.

Steve Clayton, head of equity funds at Hargreaves Lansdown, which holds Unilever shares, said: “We’re seeing lots of companies beginning to highlight the strength of recovery being witnessed in many economies around the world. Will Unilever be another to flag this? Maybe, but the group’s strong exposures to emerging markets could hold it back, given nations like Brazil and India have had pretty severe issues with the pandemic in recent months.

“But the group has plenty of positives going for it too. There seems to have been a sustained shift to preparing more meals at home in western nations and this can only help. Maybe we have seen ‘peak sanitiser’ already, which could create a headwind for the home care division. But growth trends in the first quarter were strong and, on balance, we’re hoping for a decent print from Unilever when they report.”

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