Unilever Profit up, but Reports Slowdown in Emerging Markets
24 Jul 2014 --- Unilever has reported underlying sales growth of 3.7% with emerging markets up 6.6%, with underlying volume growth 1.9% and price up 1.7%. Turnover decreased by 5.5% to €24.1 billion with currency down (8.5%). Core operating margin stable at 14.0% at current exchange rates, up 30bps at constant exchange rates. Operating profit up 13% reflecting profits on disposal. Core earnings per share up 2% to €0.78. In the second quarter, underlying sales growth 3.8% with underlying volume growth 1.9% and price up 1.9%.
Paul Polman: Chief Executive Officer statement: “The first half again shows consistent top and bottom line progress despite significant headwinds. Our markets have been challenging and we have experienced a further slow-down in the emerging countries whilst developed markets are not yet picking up.”
“We continued to grow ahead of our markets driven by strong innovations such as Ben & Jerry’s Cores, compressed deodorants in Europe, REGENERATE Enamel Science in oral and Skip Dual Action capsules. At the same time we continue to invest for the long term with our programme to take our brands into new countries with the launches of Lifebuoy in China, Omo in Arabia and Clear in Japan.”
“We made further progress in strengthening our portfolio with the acquisition of a majority stake in Qinyuan, the Chinese water purification business, and the disposals of the Ragu and Bertolli pasta sauces brands in the United States and, more recently, the Slim.Fast business.”
“In a tougher cost environment, project Half is on track and is enabling us to drive cost savings and simultaneously increase organisational agility.”
“We remain focused on achieving another year of profitable volume growth ahead of our markets, steady and sustainable core operating margin improvement and strong cash flow.”
“Market growth continued to slow in emerging countries, particularly in Asia, as macro-economic pressures weighed on consumer spending in our categories. Developed markets remained weak with little sign of any recovery in North America or Europe.”
“Unilever delivered another quarter of growth ahead of our markets. Emerging markets grew 6.6% with price up 4.4% and volume growth of 2.1%. Developed markets grew by 0.3% in the second quarter, with positive volume growth partially offset by declining price. All categories grew with good performances from Home Care, Personal Care and Refreshment.”
Gross margin for the half year increased by 10bps to 41.5% at constant exchange rates primarily due to our focus on higher margin products and continued discipline around savings programmes which more than offset higher commodity costs in local currencies in emerging markets. Brand and marketing investment was up by 10bps. Overheads improved by 30bps and core operating margin was up 30bps in constant exchange rates. In current exchange rates, core operating margin was flat at 14.0% impacted by currency headwinds. Core operating profit was down by €209 million at €3.4 billion after a negative currency impact of €413 million. Core earnings per share was up 2% at €0.78.
Foods growth in the second quarter reflected the impact of the late Easter and improved market shares but the markets in North America and Europe remained challenging whilst emerging markets continued to grow in mid single digits.
Savoury grew on the back of the ‘What’s for dinner tonight?’ market development campaign and good progress in emerging markets. Dressings growth stepped up and we saw good performances from Hellmann’s with Olive Oil in the United States and the extension of the new squeezy packaging in Brazil. “Whilst we gained share in margarine, spreads performance reflected the decline of the market. We continued to improve the taste of our products, to roll out the successful ‘It takes a village’ campaign for Pro.Activ and to introduce blends of vegetable oil and butter, such as Gold by Flora and Bertolli with Butter in the United Kingdom, to meet a broader range of consumer taste preferences.”
Core operating margin was up 50bps in the first half with higher gross margin partially offset by higher brand and marketing investment. Core operating profit was down at €1,097 million, primarily due to currency.
In Refreshment, ice cream performed strongly in the quarter. Magnum benefited from a strong programme of activities including its 25th anniversary, the launch of Magnum Infinity in the United States and Indonesia, and the launch of Magnum Mini in Brazil. Ben & Jerry’s grew well supported by innovations such as Cores and the introduction of a mini cup format in Japan whilst Cornetto responded well to re-launches in North Asia and Europe.
The performance of leaf tea was mixed. “We saw good growth in India and Turkey, and also in the United States driven by the success of Lipton K-Cups and new liquid concentrate. Sales in Russia and Saudi Arabia were soft. Ades soy drink continued to recover from the impact of last year’s product recall in Brazil.”
Core operating margin was down 100bps with lower gross margin as a result of pricing and savings programmes lagging higher commodity costs. This together with adverse currency resulted in core operating profit of €509 million.
