Recent news that Unilever (LSE: ULVR) (NYSE: UL.US) is to lose its head of Personal Care, Dave Lewis, as he takes the reins of Tesco on 1 October 2014 will probably shake up succession plans at the consumer-products leviathan — some thought it likely that Mr Lewis would one day head Unilever.
The best managements run their businesses as active organisations, constantly responding to market changes and evolving to optimise their shifting opportunities. Dave Lewis has a rich pedigree in such active strategies within Unilever’s various business units, and his turnaround credentials appealed to Tesco’s headhunters. Tesco flashed the cash, and Dave Lewis seized the opportunity to top-out one of Britain’s biggest companies.
Business as usual
Precisely because Unilever is so flexible and adaptive to change and opportunity, the loss of a key member of its management team won’t hold the firm back. About 57% of Unilever’s revenue came from up-and-coming markets last year and, if high single figure growth rates continue, it won’t be long before results in fast-growing emerging markets dominate the firm’s share-price performance.
Latin America, Asia and Africa are all important regions for Unilever and, long term, the outlook for those economies remains compelling despite short-term jitters. Unilever’s CEO reckons the firm is making sound progress transforming itself into a sustainable growth company despite on-going trading headwinds and fierce competition in both developed and emerging markets. Forward underlying sales growth and strong cash flow looks strong as Unilever’s focus on costs and product development seems set to drive higher growth rates if the worldwide macro-economic environment continues to improve.
Trading progress reflects in dividend escalation:
| Year to December | 2009 | 2010 | 2011 | 2012 | 2013 |
| Dividend per share (euro cents) | 41.06 | 81.9 | 93.14 | 97.22 | 104.49 |
Strong cash flow
Last year’s dividend payment cost Unilever €2,993 million, which seems covered nicely by the firm’s cash flow, generated by a stable of brands across the personal care, foods, refreshment and home care sectors. Names such as Lipton, Wall’s, Knorr, Hellman’s, Omo, Ben & Jerry’s, Pond’s, Lux, Cif, Sunsilk, Sunlight, Flora, Bertolli, Domestos, Comfort, Radox and Surf , all with rock-solid repeat-purchase credentials, keep the cash taps flowing.
It’s cash that pays the dividend and Unilever’s record is encouraging:
| Year to December | 2009 | 2010 | 2011 | 2012 | 2013 |
| Net cash from operations (€m) | 5,774 | 5,490 | 5,452 | 6,836 | 6,294 |
Judging by the strength of the firm’s cash stream, it looks likely that dividend progression will remain on track.
What now?
At a share price of 2633p, Unilever’s forward dividend yield is running at about 3.7% for 2015 and the forward P/E ratio is just over 18. City analysts expect earnings to grow by about 9% that year, so there seems to be quite a lot in the price for future improvements in the firm’s growth rate.
