TheChek News Flow

Consumer goods group suffers hit to sales volumes but maintains profitability outlook

Unilever raised its prices by more than 8 per cent in the first quarter, cutting into the volume of products it sold as it said it expected inflation to accelerate in the second half of 2022.

The maker of Magnum ice creams and Dove soap said underlying sales growth, a key metric for the sector, was 7.3 per cent in the three months to March, entirely because of price increases of 8.3 per cent. Volumes of goods sold declined 1 per cent.

In home care, inflation was especially high: Unilever, which makes Cif cleaners and Domestos bleach, pushed prices up 12.5 per cent, resulting in a 2.89 per cent drop in sales volumes. Prices in beauty and personal care rose 7.4 per cent.

Unilever was also substituting some ingredients, such as oils, for cheaper options “with exactly the same ingredients benefits” to avoid passing on the full impact of price rises to consumers, said Graeme Pitkethly, chief financial officer. Cooking oils have been especially affected by the war in Ukraine, a major sunflower oil producer.

The London-based company is the latest global group to report steep consumer price rises. However, rivals such as Procter & Gamble and Nestlé have managed to increase prices without causing a decline in sales volumes.

Pitkethly said Unilever was “more exposed to certain elements of commodity inflation than a number of our peers are” but that the volume decline was smaller than the group had expected given the “unprecedented” cost rises.

Spending behaviour was adjusting, he added: “We are starting to see consumers down-trading and looking for value. We offer . . . many value propositions within our portfolio,” he added.

The FTSE 100 group said it expected €4.8bn of input cost inflation during the year, with some €2.7bn of that in the second half.

But it maintained its outlook on profitability for the year, saying its operating margin would now come in at the lower end of the 16 to 17 per cent range.

“We read this as a positive update given extreme bearish sentiment [on Unilever] and low relative valuation,” said Martin Deboo, analyst at Jefferies.

The latest price increases follow a turbulent period for Unilever in which it made three bids for the consumer health division of GlaxoSmithKline late last year, only to face anger from shareholders when the offers were made public.

The Financial Times revealed in January that Nelson Peltz’s activist fund manager Trian Partners had bought a stake in Unilever after completing an almost four-year engagement with Procter & Gamble.

Ahead of Thursday’s results, Unilever’s shares had shed 12.5 per cent of their value since chief executive Alan Jope took over at the start of 2019, and were trading at a 15-year low in relation to rival Nestlé, according to analysts at Jefferies.

Fully 30-35 per cent of the 750 cases involving frozen accounts referred so far in 2022 to the Financial Ombudsman Service (FoS), the main complaints investigator, have been resolved in the customer’s favour. That is far too many.

Often, clients are given no reason why they have aroused a bank’s suspicions. But it seems that interventions are frequently triggered by unusual behaviour — such as a large deposit arriving into an account, especially when coming from abroad. Or by apparently trivial breakdowns in communications, such as a customer changing their address and failing to inform a financial company in good time.

Every week, I hear from readers caught out by having their bank accounts closed or frozen. They range from a young student who could not pay his tuition fees or accommodation costs to successful business people who do not know how they have fallen foul of bank algorithms to detect suspicious transactions. 

Judging by reader complaints, customers are left without access to their money and no means to pay their bills. Direct debits and standing orders do not get paid.

I don’t deny that banks have a vital job to do preventing money laundering under the Proceeds of Crime Act 2002. They have to watch for suspicious transactions and block criminals paying stolen money into their own or other people’s bank accounts.

Clearly they are working hard. On Financial Conduct Authority (FCA) data, 761,437 customers were “exited” from banks and other financial firms in 2019-2020, the latest year for which figures are available. The numbers have more than doubled since 2017 when the information was first collated, with retail lending and banking accounting for most customers terminated.

But are the banks doing enough to help innocent customers resolve issues? 

The pandemic has made it more difficult for clients to respond quickly to bank queries. A typical request is to ask customers to visit a branch of the bank with proof of their identity. Reduced banking hours and the inability to return to the UK from many countries during the pandemic stopped customers from complying. With Covid interfering with travel, FT readers working abroad or with second homes outside the UK appear to have had particular problems.

One FT reader, working in Australia, found it impossible to travel to the UK. He was left without access to his money for months. In other cases, customers with paperless banking were sent letters by their banks asking for ID. The post went astray and the customers did not know anything was required.

Once an account is frozen, it is not always easy to have it thawed or to open a new account subsequently. It is better to pre-empt closure by reporting any unusual transactions in advance. UK Finance, which represents UK banks, says. “We would suggest that people should contact their bank if they know they will be receiving a large sum of money.”

At the same time, banks must adhere to legal requirements which may stop them from sharing information with the customer, lest they inadvertently tip off a fraudster. This means you may not be told why your bank has blocked you.

UK Finance says: “Any decision to close an account is only taken after extensive review and analysis of the account.” But that’s a small consolation if your funds are in limbo.

Together with the FCA and individual banks, UK Finance has worked on improving how banks communicate with customers when they stop providing banking facilities. 

But this is not enough. Martyn James of Resolver.com, the online financial complaints service, says your bank what is happening “in almost every set of circumstances. But because of a fear of anti-money laundering penalties most people are left with no explanation”. 

If customers lose money or are inconvenienced by the freezing of an account the FoS may order compensation. It says: “In most cases, we’ve found banks have acted correctly in freezing the account but have taken too long or caused their customer detriment that could otherwise have been avoided.” In such cases, it often asks the bank to pay compensation.

Where the bank has acted “unfairly by freezing the account in the first place”, the ombudsman says it asks the institution “(where appropriate) to put the customer back in the position they would have been had the account not been frozen in the first place.”

 But after-the-event compensation can be little help for people who have had their personal or business lives turned upside down. It’s for banks to do more to keep clients informed — and to do so much sooner. 

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