No new dawn at Unilever despite return to growth
London - Unilever's European business has returned
to growth for the first time in three years, but the group's shares
slid last week after heavy investment in the consumer giant's recovery
led to slipping profit margins, and new growth targets disappointed
the City. The stock fell 5.8 per cent to 1214p.
The Anglo-Dutch group achieved a 3.9 per cent
rise in sales in the second quarter, better than analysts had expected,
and marking the seventh consecutive quarter of growth after a shock
profit warning in 2004. Pretax profits climbed 28 per cent to sterling
But the recovery came at a price – heavy
spending to promote brands ranging from Dove soap to Lipton tea
and Ben & Jerry's ice cream ate into the group's underlying
margins. Combined with rising energy costs, this pushed margins
down 1 percentage point in the quarter.
Rising commodity prices have hit Unilever, with
the cost of tea up 10 per cent, aluminium up 20 per cent and olive
oil 20-30 per cent higher. But the group has put up its own prices
and implemented cost savings under a sterling 750m programme this
year, sterling 400m of which has already been achieved.
The chief executive, Patrick Cescau, declared:
"I am satisfied we have completed the first phase of restoring
our competitiveness, and now we are looking to grow ahead of our
markets with sustainable margin improvement."He denied that
Unilever's new targets of 3 to 5 per cent sales growth and an operating
margin of 15 per cent by 2010 were "timid" compared with
the company's failed "path to growth" strategy, which
called for 5 to 6 per cent growth and 16 per cent margins by 2004.
"In the end we had zero growth," Mr Cescau said. "It's
more important to me that we deliver what we said."
Unilever's European business posted underlying
growth of 1 per cent in the three months to June, driven by a strong
performance from the Netherlands, while the UK and Italy saw "modest"
growth; sales were still down in Franceand Germany.
Ice cream sales failed to capitalise on the heatwave
that swept across the continent and were behind last year.
Unilever still has a long way to go to catch up
with its two bigger rivals, Procter & Gamble and Nestle, which
have reported sales growth at around twice Unilever's rate.
"There is not enough in these results, we
believe, to suggest that there is a brave new dawn at Unilever,"
said Charlie Mills at Credit Suisse.
Unilever has earmarked the bulk of its advertising
spend for promoting personal care products and strengthening its
presence in Asia, Africa and the US. Its main focus is on healthier
products like the AdeZ soya-based fruit drink range, which has just
been launched in the UK.