UNILEVER PLC annual report, Q4 FY2022

Unilever PLC — FY2022 Form 20-F summary

Reporting period: Fiscal year ended December 31, 2022. Although the request metadata refers to 2022 Q4, this filing is an annual report and the supplied text does not provide standalone fourth-quarter financial results. The consolidated statements are prepared under IFRS.

Financial performance

MetricFY2022FY2021
Turnover€60.1bn€52.4bn
Underlying sales growth9.0%4.5%
Underlying price growth / volume growth11.3% / (2.1)%2.9% / 1.6%
Operating profit€10.8bn€8.7bn
Underlying operating profit€9.7bn€9.6bn
Operating margin / underlying operating margin17.9% / 16.1%16.6% / 18.4%
Net profit€8.3bn€6.6bn
Diluted EPS / underlying EPS€2.99 / €2.57€2.32 / €2.62
Cash flow from operating activities / free cash flow€10.1bn / €5.2bn€10.3bn / €6.4bn
Closing net debt€23.7bn€25.5bn

Turnover rose 14.5%, including a 6.2% favorable currency impact; underlying sales growth was broad-based across the five Business Groups. Higher pricing substantially offset input-cost inflation, but volumes declined. Management reported material-cost inflation of €4.3bn. Underlying operating profit increased slightly, while underlying operating margin fell 230 basis points, mainly because of higher raw-material, packaging, processing and distribution costs.

Reported operating profit included a €2.3bn gain on the sale of the global Tea business and €1.2bn of other non-underlying items, including €0.8bn of restructuring costs. The sale generated €4.6bn cash proceeds. The reported net profit and EPS therefore include significant disposal-related effects; underlying EPS declined 2.1%, reflecting higher finance costs and tax, partly offset by the lower share count after buybacks.

At year-end, cash and cash equivalents were €4.3bn and total liabilities were €56.1bn. Unilever reported undrawn committed facilities of $5.2bn and €2.55bn and said its financing arrangements were adequate for short- and long-term requirements. Dividends paid were €4.3bn; €1.5bn of a planned €3bn share buyback was completed in 2022.

Material changes versus FY2021

  • Underlying sales growth accelerated to 9.0% from 4.5%, driven by price increases; underlying volumes shifted from 1.6% growth to a 2.1% decline.
  • Reported operating margin improved to 17.9% from 16.6%, largely reflecting the Tea disposal gain, while underlying operating margin declined to 16.1% from 18.4%.
  • Free cash flow fell to €5.2bn from €6.4bn; operating cash flow was broadly stable, with working-capital movements, higher tax and capital expenditure weighing on cash generation.
  • Net debt decreased to €23.7bn from €25.5bn, supported by free cash flow and disposal proceeds, partly offset by dividends, buybacks and currency movements.
  • The Compass Organisation took effect July 1, replacing the prior matrix structure with five Business Groups: Beauty & Wellbeing, Personal Care, Home Care, Nutrition and Ice Cream.
  • Unilever sold ekaterra, its global Tea business, and acquired a further 67% of Nutrafol, bringing its total ownership to 80%.

Outlook, commentary and risks

Management described 2023 as likely to remain challenging: inflation was expected to ease later in the year but remain historically high, with potential pressure on consumer confidence and spending and a possible global recession. Priorities were to drive organic top-line growth, continue competitive investment in brands, R&D and capital expenditure, and balance pricing and savings against volume and competitiveness. The filing text does not provide a clear quantitative 2023 sales or margin outlook.

Principal risks include changing consumer preferences and competition; input-cost and commodity volatility; supply-chain disruption; economic and political instability, including effects of the Russia-Ukraine war; climate change and water scarcity; plastic packaging; business transformation; product safety; cybersecurity and data privacy; and legal, tax and regulatory matters. Unilever identified increased risk in business transformation, climate change and economic and political instability.

Notable items and contingencies include a €192m impairment of Dollar Shave Club, €89m relating to a Laundress product recall and market withdrawal, and €42m of asset write-downs related to Russia and Ukraine. The Russian business represented 1.4% of Group turnover and 2% of net profit and had approximately €900m of assets at year-end; management noted risks to continued operations and asset values.

Total disclosed contingent liabilities were €5.0bn, including €4.36bn of Brazilian tax matters. The largest item is a €3.29bn assessment relating to a 2001 corporate reorganisation. Unilever considers the likelihood that Brazilian authorities will ultimately prevail to be low, but acknowledges there is no guarantee of success. KPMG identified this matter as a critical audit matter. The financial-statement audit opinion was unqualified; the internal-control audit excluded Nutrafol, representing 1.6% of assets and 0.3% of turnover.

Climate targets and related disclosures are subject to estimation and evolving Scope 3 data. The company reported a 2% rise in emissions within the scope of its net-zero target, despite reductions in operational emissions, and cautioned that its emissions data may change as measurement improves.

Important facts for investors to verify

  • Reconcile reported profit and EPS to underlying results, particularly the €2.3bn Tea disposal gain and other non-underlying items.
  • Assess the sustainability of pricing-led growth, the volume decline, and the extent to which inflation and pricing continue to affect margins in 2023.
  • Review free-cash-flow conversion, working-capital and inventory trends, capital expenditure, and the use of disposal proceeds for debt reduction, dividends and buybacks.
  • Track the outcome and potential cash or collateral requirements of the Brazilian tax disputes, especially the €3.29bn corporate-reorganisation assessment.
  • Monitor execution and costs of the Compass reorganisation, portfolio changes, and integration and performance of Nutrafol and other growth businesses.
  • Evaluate exposure to Russia-related impairment, commodity and supply-chain risks, and progress against climate, plastic and nutrition commitments, noting the stated data limitations.