Unilever struggles in the economic gloom

By Guy Montague-Jones

- Last updated on GMT

Related tags Euro United states dollar Stock market Unilever

Falling sales volumes, rising commodity costs and the strong Euro colluded in the second quarter to drag down Unilever’s profits.

The Anglo-Dutch company, whose brand stable includes Dove, Lux and Ben & Jerry’s, reported a 21 per cent fall in net income to €909m.

Pressures on profits

Commodity costs increased €600m in the quarter but that was not the only factor contributing to the drop in profits. A bigger tax bill and higher restructuring costs played their part at the lower reaches of the profit and loss account.

The company is in the midst of making major organisational changes including the fusion of Home & Personal Care and Foods into a single category structure and the axing of 20,000 jobs or 11 per cent of its workforce across all divisions.

These tough measures are designed to radically improve margins in the long-run but for the moment the cost of implementing them is squeezing profits.

Turning to the top end of the accounts, turnover fell 1 per cent to €10. 37m under the negative influence of the strong Euro.

Higher prices behind growth

Sales at constant exchange rates rose 6 per cent but this growth was achieved thanks to 7.4 percent price increases rather than higher sales volumes.

Despite concern that higher prices are putting a brake on demand the company is sticking with its forecast for underlying growth, a measure that strips out currency effects and the impact of discontinued operations, of between 3 and 5 per cent for the year. Underlying growth for the first half of the year was 7 percent.

Looking across the divisions, Savory, Dressing and Salads was the top performer with 1.6 per cent growth.

Meanwhile Ice Cream and Beverages fell 2.6 per cent in the quarter and Personal Care suffered the biggest drop with sales falling 3.5 per cent. However, with a high proportion of operations in international markets personal care sales suffered more than most from currency effects.

The stock market has reacted nervously to the Unilever results; shares in the company fell 7.55 per cent in morning trading.

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