Unilever rules out major acquisitions, warns of hit to profit margins from inflation

Unilever has ruled out big acquisitions following its failed pursuit of GlaxoSmithKline's consumer health business, and warned of a hit to profit margins this year as it struggles to pass on higher costs to consumers.

Unilever reported a 4.9% rise in Q4 underlying sales, beating analysts' forecast of 3.8% growth as people continued to dine at home.

For the whole of 2021, the company posted underlying sales growth of 4.5%, the biggest in nine years, with 2.9% from higher prices. Underlying operating profit increased by 2.9% to £8.09 billion (€9.6 billion).

Unilever added that it expects "very high input cost inflation" in the first half of over £1.68 billion (€2 billion). This may moderate in the second half to around £1.26 billion (€1.5 billion), although there is currently a wide range for this that reflects market uncertainty on the outlook for commodity, freight and packaging costs.

Alan Jope, Chief Executive Officer, Unilever, said in a statement: "The acceleration of Unilever’s operating performance continues. We delivered our fastest underlying sales growth for nine years – 4.5% for the full year, with 1.6% from volume.

"The major challenge of 2021 has been the dramatic rise of input costs. We responded with pricing actions, delivering underlying price growth of 2.9% for the year, accelerating to 4.9% in the fourth quarter, with full year underlying operating margin down 10bps and underlying earnings per share up 5.5%.

"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. We therefore do not intend to pursue major acquisitions in the foreseeable future and will conduct a share buyback programme of up to €3 billion over the next two years."

In January 2022, Unilever announced major changes to its organisation to make it simpler under five category-focused business groups, each responsible and accountable for their strategy, growth and profit delivery and running their businesses in all geographies.

The new organisation, which will be fully operational from the middle of the year, is expected to generate around £506 million (€600 million) of cost savings over two years.

Looking ahead, the company expects underlying sales growth in 2022 to be in the range of 4.5% to 6.5%.