Unilever expecting input costs to rise £3bn meaning higher prices for shoppers

Food giant Unilever has forecast that its input costs will rise as much as £3bn this year, meaning shoppers can expect to pay higher prices for its goods.

This follows last month’s announcement that the company would be axing 1,500 jobs globally as part of a structural overhaul.

The consumer goods giant, famous for brands including Marmite and Dove, said that it expected a further increase in the price of raw materials, freight and packaging in 2022 because of supply chain cost inflation last year. The likelihood of this would be the higher costs being passed onto consumers.

Unilever Chief Executive Alan Jope was quoted in the Guardian saying: “The major challenge of 2021 has been the dramatic rise of input costs. “We responded with pricing actions. In 2022 we will manage a significant input cost inflation cycle.”

Reportedly, the company is expecting cost inflation of €2bn (£1.68bn) in the first half of this year, but they also said that may moderate to €1.5bn (£1.26bn) in the second half.

After the company failed in an offer to purchase GSK’s consumer health division, Unilever has also ruled out going after any more big deals.

Unilever also announced its fourth-quarter results, which saw an increase in net profit for 2021, beating market expectations for the year. Net profit was €6.05bn (£5bn) for the year compared with €5.58bn (£3.7bn) for 2020.

Adjusted operating profit was €9.6bn compared with €9.4bn in 2020, whilst turnover rose to €52.44 billion in Q4 2021, up from €50.72 billion in Q4 2020, which was driven by a positive impact of acquisitions despite currency exchange headwind. Turnover was expected to rise to €52.11 billion for 2021.

The board declared a fourth-quarter dividend of €0.4268 a share, the same as the previous year.

With shareholders demanding structural changes, a €3bn (£2.5bn) share buyback scheme was also announced.

Commenting on Unilever’s recent announcement, Roberto Rivero, Market Analyst at Admirals, said: “Frankly, these positive results are surprising, although the dim outlook for profit margins in 2022 will not be welcome news to investors. Whilst total revenue for 2021 was expected to increase, net-income was widely touted to have declined due to inflationary pressure forcing Unilever’s Operational costs to rise. However, thanks to price rises throughout the year, Unilever has managed to recoup some of these higher costs.

“Unilever has been particularly susceptible to inflation for two reasons. Firstly, it operates a big food business and many of the raw materials required to produce these goods have been hit particularly hard by rising prices. Secondly, around 60% of Unilever’s revenue is generated in emerging markets, where inflation is at its most rampant. However, it has managed to overcome these difficulties and provide a strong performance in the fourth quarter.

“These results come at a convenient time for Unilever, who will hope that they help placate shareholders who are becoming increasingly restless regarding the leadership and direction of the business. Investors will be hoping that these positive results can serve as a stepping stone to a better future and will be feeling encouraged by news of activist fund Trian Partner’s acquisition of a stake in the company.

“Fund Co-founder Nelson Peltz has a strong track record of helping enact positive change at big consumer goods companies, such as Unilever’s rival Procter & Gamble (P&G), and shareholders will hope he can replicate this here. Looking forward, input cost inflation will continue to be a problem for Unilever in 2022, with the company warning that profit margins will continue to fall this year. Consumers can expect further price rises throughout the year to tackle these increasing input costs.”