UNILEVER: 2015 was ‘challenging’ — 2016 will be ‘tougher’

A competitor crawls beneath barbed wire during the Tough Guy event in Perton, central England February 1, 2015.REUTERS/Phil NobleA competitor crawls beneath barbed wire during the Tough Guy event in Perton, central England February 1, 2015.

Unilever — the consumer goods giant that makes everything from Ben & Jerry’s ice cream to Dove soap — had a solid 2015.

Here are the highlights of its full-year results, released on Tuesday:

  • Turnover up 10% to €53.3 billion (£40.5 billion, $57.9 billion);
  • Underlying sales up 4.1% — a 2.1% growth in volume and 1.9% jump in price;
  • Operating profit down 5.8% as a result of profit from sell-offs in 2014, but core operating profit up 12%;
  • Net profit of €5.3 billion (£4 billion, $5.7 billion).

The results beat analysts forecasts. All in all not bad, during what CEO Paul Polman calls “a challenging year with slower global economic growth, intensifying geopolitical instability, and high currency and commodity volatility.”

But Polman has a stark warning for investors — things are about to get even worse. He says in the statement (emphasis ours):

We are preparing ourselves for tougher market conditions and high volatility in 2016, as world events in recent weeks have highlighted. Therefore it is vital that we drive agility and cost discipline across our business. We are further strengthening our innovation funnel while shortening innovation cycle times, stepping up our digital capabilities and rolling out a global zero-based budgeting programme. Our priorities continue to be volume-driven growth ahead of our markets, steady improvement in core operating margin and strong cash flow.

2016 has got off to a terrible start for businesses and investors. Falling oil prices and rising geopolitical tensions have sent stock markets around the world tumbling, with the S&P 500 in the US suffering its worst ever start to the year. Royal Bank of Scotland recently recommended in a note that investors should “sell everything.”

Oil prices, which seem to be at the heart of all the chaos right now, don’t look like stabilising anytime soon either, with Iran on Tuesday ordering a ramping up of production as sanctions prepare to be lifted.

Unilever outlines neatly in its full-year results just why low oil prices, a good thing in the West, are bad for business. The company says (emphasis ours):

Consumer demand remained fragile and volume growth was barely positive in the markets in which we operate. Many emerging markets continued to be weak, particularly those dependent on oil and other commodity exports and those where currency devaluation is pushing up the cost of living for our consumers. Market growth in developed markets was negligible.

The new post-financial crisis consumers in the West are more thrifty, meaning consumer-focused companies like Unilever have to look for growth elsewhere.

Up until now they found it in emerging markets but a global oil and commodity price slowdown is hitting many emerging economies. Get your tin hats ready for 2016.

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