Unilever PLC — FY2018 Form 20-F summary
Reporting period and scope. Annual report for the year ended December 31, 2018, filed March 11, 2019. The financial statements are consolidated for the Unilever Group—Unilever PLC, Unilever N.V. and controlled companies—and prepared under IFRS. This is not a standalone fourth-quarter filing; the supplied filing text does not provide a clear set of Q4-only financial results.
Business and financial performance
Unilever sells consumer goods in more than 190 countries, with 58% of turnover from emerging markets. It reported through three divisions in 2018: Beauty & Personal Care, Foods & Refreshment, and Home Care. The spreads business was sold in July 2018, affecting comparisons.
| Metric | FY2018 | FY2017 |
|---|---|---|
| Turnover | €50.982bn | €53.715bn |
| Underlying sales growth | 2.9% | 3.1% |
| Underlying volume / price growth | 1.9% / 0.9% | 0.8% / 2.3% |
| Underlying operating profit | €9.359bn | €9.400bn |
| Underlying operating margin | 18.4% | 17.5% |
| Operating profit | €12.535bn | €8.857bn |
| Net profit | €9.808bn | €6.486bn |
| Diluted / underlying EPS | €3.48 / €2.36 | €2.15 / €2.24 |
| Operating cash flow / free cash flow | €9.047bn / €4.962bn | €9.456bn / €5.355bn |
| Net debt | €20.781bn | €20.343bn |
Reported operating profit and net profit rose sharply, principally because of a €4.331bn gain on the spreads disposal. Underlying operating profit was nearly flat year over year, while underlying margin improved 90 basis points. Turnover fell 5.1%, including a 6.7% adverse currency impact and the effect of disposals.
Divisions
- Beauty & Personal Care: turnover €20.624bn; underlying sales growth 3.1%; underlying operating margin 21.9%, up 80 basis points.
- Foods & Refreshment: turnover €20.227bn; underlying sales growth 2.0%; underlying operating margin 17.5%, up 80 basis points. Turnover fell 9.9%, mainly reflecting the spreads disposal and currency.
- Home Care: turnover €10.131bn; underlying sales growth 4.2%; underlying operating margin 13.0%, up 80 basis points.
Cash, debt and liquidity
Cash and cash equivalents were €3.230bn at year-end; current financial liabilities were €3.235bn and non-current financial liabilities €21.650bn. Free cash flow declined €0.393bn, with management citing currency devaluation and higher working capital, including €0.4bn related to the spreads disposal. The Group repurchased €6.020bn of shares and paid €4.066bn in ordinary dividends during the year.
Unilever reported undrawn committed bilateral credit facilities of $7.865bn and stated that its financing arrangements were adequate for foreseeable working-capital needs. Long-term debt contractual obligations were €24.428bn, including €2.950bn due within one year. Cash of €154m was held in countries with restrictions that limit its availability for general Group use. The Group’s long-term credit ratings were A+/A1.
Changes, outlook and key risks
- Outlook: management expected challenging market conditions in 2019, underlying sales growth in the lower half of its 3–5% multi-year range, continued underlying margin improvement and another year of strong free cash flow. It remained on track for 2020 targets: 20% underlying operating margin and cumulative savings of €6bn by 2019. These are forward-looking statements, not guarantees.
- Portfolio and capital allocation: the spreads disposal was completed and after-tax proceeds were returned to shareholders through a €6bn buyback. The proposed simplification of the dual-headed corporate structure was withdrawn after shareholder opposition. The announced GSK health-food drinks acquisition, estimated at approximately €3.3bn, was expected to complete in Q4 2019, subject to approvals.
- Leadership and shareholder returns: Alan Jope became CEO on January 1, 2019, succeeding Paul Polman. The Board reported an 8% increase in the 2018 dividend.
- Unusual items and accounting: operating items included €914m of restructuring costs, €201m of acquisition/disposal-related costs and €317m of impairment and other one-off charges; these were more than offset by the spreads disposal gain and a €277m Blueair contingent-consideration credit. A €208m Blueair intangible impairment was also recorded. Argentina was treated as hyperinflationary under IAS 29 from July 2018, and relevant price growth was excluded from underlying sales growth; Venezuela price growth was also excluded.
- Risks and contingencies: key exposures include foreign exchange and emerging-market instability, commodity inflation, supply-chain disruption, customer relationships, cybersecurity, product safety, climate change, plastic packaging, and execution of transformation and acquisitions. Total contingent liabilities were €3.658bn, predominantly Brazilian tax matters (€3.177bn); the Group said the likelihood of authorities prevailing in its largest Brazilian tax dispute was low, but there can be no guarantee of success. Provisions and contingent liabilities are assessed separately.
- Future accounting: IFRS 16 was expected to increase reported assets by about €1.7bn and financial liabilities by about €1.9bn, with estimated annual operating profit up €80m and finance costs up €90m; cash flows are reclassified between operating and financing activities without changing total cash flow.
Most important facts for investors to verify
- Reconcile reported profit growth to the €4.331bn disposal gain and compare it with underlying operating profit, margin and EPS.
- Review the spreads disposal’s effects on turnover, working capital, cash flow, segment comparability and the €6bn shareholder buyback.
- Assess net debt, upcoming debt maturities, refinancing access and the extent to which cash is available across jurisdictions.
- Track the status, consideration, approvals and integration of the GSK health-food drinks acquisition, alongside stated savings and 2020 margin targets.
- Examine the €3.658bn contingent-liability disclosure, especially Brazilian tax cases, and the assumptions underlying provisions and tax exposures.
- Check the basis and reconciliations of non-GAAP measures, including exclusions for hyperinflationary markets, and monitor IFRS 16’s impact on reported comparisons.
The auditors issued unqualified opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2018.