Unilever PLC — 2019 Form 20-F Summary
Business context and reporting period. This is an annual report for the year ended December 31, 2019, not a standalone fourth-quarter filing. Unilever is a global consumer-goods group operating in Beauty & Personal Care, Foods & Refreshment, and Home Care. Financial statements are prepared under IFRS; comparative figures were restated for IFRS 16 lease accounting.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Turnover | €52.0 billion | €51.0 billion |
| Turnover growth | 2.0% | (5.1%) |
| Underlying sales growth | 2.9% | 3.2% |
| Underlying volume growth | 1.2% | 1.9% |
| Operating profit | €8.7 billion | €12.6 billion |
| Net profit | €6.0 billion | €9.8 billion |
| Basic earnings per share | €2.15 | €3.49 |
| Underlying operating margin | 19.1% | 18.6% |
| Operating margin | 16.8% | 24.8% |
| Cash flow from operating activities | €10.6 billion | €9.6 billion |
| Free cash flow | €6.1 billion | €5.4 billion |
| Dividends paid | €4.2 billion | €4.1 billion |
| Net debt | €23.1 billion | €22.6 billion |
The reported declines in operating profit, net profit, and EPS mainly reflect the prior-year €4.3 billion gain on the sale of the Spreads business. Underlying operating profit increased to €9.9 billion from €9.5 billion. The 2019 operating margin also included €1.2 billion of non-underlying operating costs, primarily restructuring.
At year-end, cash and cash equivalents were €4.2 billion; current financial liabilities were €4.7 billion and non-current financial liabilities €23.6 billion. Unilever reported undrawn committed credit facilities of $7.865 billion and said its financing arrangements were adequate for foreseeable working-capital needs. Total liabilities were €50.9 billion and total equity €13.9 billion.
Material changes versus 2018
- Underlying sales growth eased to 2.9% from 3.2%, below the company’s multi-year 3%–5% range; volume growth slowed to 1.2% from 1.9%.
- Underlying operating margin improved by 50 basis points, supported by gross-margin improvement and savings programmes. Free cash flow rose €0.7 billion; operating cash flow increased €1.0 billion, principally due to working-capital improvement.
- Home Care was the strongest-growing division: underlying sales growth was 6.1% versus 4.7%, and underlying operating margin increased to 14.8% from 13.3%. Beauty & Personal Care growth slowed to 2.6% from 3.4%; Foods & Refreshment growth slowed to 1.5% from 2.2%.
- Foods & Refreshment turnover fell 4.6%, largely because of the Spreads disposal. Its 2018 reported operating profit included the sale gain, making the year-on-year reported comparison particularly uneven.
- Unilever completed nine acquisitions and sold the Alsa baking and dessert business. The proposed Horlicks and Boost portfolio acquisition was expected to complete in the first half of 2020.
Outlook, commentary, risks and unusual items
- Management said it expected to restore underlying sales growth to its 3%–5% multi-year range; this is an aspiration, not precise year-specific financial guidance. The Board said plans were in place to accelerate growth in 2020.
- Management identified Beauty & Personal Care and Foods & Refreshment as areas requiring greater growth acceleration. Priorities included faster innovation, e-commerce and other growth channels, brand investment, and further cost savings.
- Unilever began a strategic review of its global tea business, citing exposure to slower-growing black tea and its effect on growth and margin. Management intended to share conclusions by mid-2020.
- The filing identified COVID-19 as an emerging risk. Management anticipated a significant short-term impact on its Chinese business, particularly food service, and said effects in other countries were possible but unclear. The filing does not provide a quantified estimate of the overall financial impact.
- Other principal risks include consumer preference and competition, customer relationships, supply-chain disruption, commodity and foreign-exchange volatility, climate change, plastic packaging, cybersecurity, transformation execution, regulatory and tax matters, and economic and political instability. The company noted heightened risk in plastic packaging, customer channels, and business transformation.
- Contingent liabilities were €4.21 billion, including €3.42 billion of Brazilian tax matters. The largest Brazilian matter was €2.24 billion; management considered the likelihood of the authorities prevailing low but could not guarantee the outcome. A UK tax assessment of €141 million was included in other contingent liabilities; the filing states maximum exposure could reach €600 million.
- Restructuring costs were €1.159 billion, up from €914 million, for supply-chain optimisation and organisational change. The transition to IFRS 16 brought lease assets and liabilities onto the balance sheet and reclassified lease cash payments; the company said it did not change total cash flows.
- The 2019 audit opinion was unqualified. KPMG also concluded that internal control over financial reporting was effective; the assessment excluded three recently acquired businesses representing approximately 0.25% of assets and 0.03% of turnover.
Important facts for investors to verify
- Whether underlying sales growth returns to the 3%–5% range, and whether improvement is led by Beauty & Personal Care and Foods & Refreshment.
- How much of margin and cash-flow improvement is sustainable, including the contribution from savings, working capital, and non-GAAP adjustments.
- The resolution, timing, and potential cash or collateral requirements of Brazilian and UK tax disputes, and any changes to contingent-liability estimates.
- The outcome and financial implications of the tea-business review and completion and integration of the Horlicks and Boost acquisition.
- The eventual COVID-19 impact on Chinese food service and other markets; the filing’s estimate was not yet clear.
- Debt maturities, refinancing needs, and liquidity, including the use of committed credit facilities and the company’s ability to maintain its targeted credit standing.