The company predicts it will not be able to fully pass on the surge in costs for things like ingredients and shipping as it reveals a leap in sales and profits for 2021 and rules out further shopping sprees after a backlash over a failed takeover bid.
Unilever, the consumer goods giant behind brands including Marmite and Magnum ice creams, has signalled that shoppers face further price increases as its own costs continue to rocket.
The company, which said it was to cut 1,500 jobs in a global reorganisation just last month, used the publication of its annual results to estimate that it faced €3.5bn (£2.95bn) of higher input costs over the course of 2022.
Unilever told investors that it had been unable to fully pass on the additional cost of some core products to customers, including grocery chains, over the course of the COVID-linked supply chain crisis to date that has seen prices for commodities and shipping soar.
While it is up to stores to set the prices they charge for goods, the company’s remarks clearly place upwards pressure on till prices as supermarket chains are unlikely to fully swallow increases despite strong competition for customers.
Higher food costs are already a factor behind UK inflation hitting a 30-year high though much of the increase is being driven by surging energy costs.
Unilever said that it expected €2bn of higher input costs during the first half of its current financial year – easing to a further €1.5bn for the final six months but admitted the situation was difficult to predict.
Despite the challenges, underlying sales growth during 2021 was 4.5% higher – the strongest performance for nine years – and was also aided by an 18% operating margin. That was up from 10% in the previous year.
Net profits rose 9% to €6.6bn.
The firm forecast higher sales, but lower margins, this year as it grapples the inflation problem.
It released the update as a survey by the British Chambers of Commerce warned that three quarters of firms are raising their prices to help account for rising costs.
Unilever, which launched and then promptly abandoned a move on GlaxoSmithKline’s consumer health business, said it had listened to investor feedback and ruled out further large acquisitions ahead.
Chief executive Alan Jope, who has been under pressure to raise performance for shareholders, said: “We have engaged extensively with our shareholders in recent weeks and received a strong message that the evolution of our portfolio needs to be measured.”
Shares fell 3% at the open.
Freetrade’s senior analyst, Dan Lane, said Unilever faced a delicate balancing act ahead.
“The prices of raw materials, packaging and distribution are soaring and there’s only so much of that extra cost Unilever can add to a tub of Marmite before consumers skip the spread altogether,” he wrote.