Sales from D&E markets currently account for just over half (52%) of group sales, although this will be diluted slightly by the acquisitions of Sara Lee and Alberto Culver, noted Panmure Gordon analyst Damian McNeela.
To achieve the 70% target in 10 years would require D&E sales to grow from c.€21bn to c.€56bn, a compound annual growth rate (CAGR) of just over 10% a year, said McNeela.
This was a faster growth rate than Unilever had historically delivered, but was not unrealistic, given the predicted rise in population in emerging markets and the potential to roll out existing brands into new markets (160 such opportunities have been identified, with potential sales of €2bn), he said.
Indonesia: Jewel in the crown?
For example, Indonesia, considered by many analysts to be the jewel in Unilever's crown, is now generating €1.3bn in sales, has an historic CAGR of 16% and at 23%, has the highest operating margins in the entire business, observed McNeela.
“The market cap of this business alone is $14bn. The field trip was, in our view, hugely impressive, combining wide-ranging product innovation with excellent execution with customers.”
In Greater China, meanwhile, Unilever's business has grown at a CAGR of 19% since 2005 and now has sales of €1.2bn. Its objective is to increase sales five-fold over the next decade to €6bn.
While Unilever's initial development in China was “hamstrung by its initial structure of 14 joint venture companies”, it has now established critical mass and is targeting seven brands to have sales of more than €500m by 2020, revealed McNeela.
Finally, Vietnam, which Unilever entered in 1995, is now a €500m business, while sales in Bangladesh have reached €200m after a decade of 20% CAGR.
Group sales on course to double
The rapid growth of Unilever’s business in emerging markets would be key to helping chief executive Paul Polman deliver his objective of doubling group sales, said McNeela.
“After virtually two decades of sales being stagnant at around €40bn, Paul Polman reiterated his challenge for the group to double sales to €80bn. While he refused to put a time frame on it, it seems clear that the aspiration is to do it over the 10-year period to 2020.”
The key question, he said, was how quickly Unilever could translate this exposure to D&E markets into “consistently superior growth in earnings per share”.
However, the outlook was good, he said: “What was clear to us is that Paul Polman's more assertive, performance driven culture is pervading through Unilever, and is in the process of creating a faster moving group.”