Unilever boosted by higher prices in emerging markets

Unilever, the Anglo-Dutch consumer goods group that fended off a $143bn takeover bid from Kraft Heinz this year, reported better than expected first-half profits that showed the group is on track with its promise to boost returns.

The company behind Dove soap and Persil detergent set a target in April of raising its underlying profit margin to 20 per cent by 2020, from 16 per cent, helped by €6bn of savings.

It forecast on Thursday a faster rise in margin improvement this year, of 1 percentage point instead of 0.8 previously, after producing faster delivery of savings in the first half. That helped to boost underlying operating margins to 17.8 per cent, up from 16 per cent last year.

Paul Polman, chief executive, said the first-half results showed “a substantial step-up in profitability despite the persisting volatile global trading environment”.

Pre-tax profits rose by 27 per cent to €4.6bn in the six months to June 30, and by 24 per cent at constant exchange rates.

Revenues increased by 5.5 per cent to €27.7bn and by 3 per cent on an underlying basis — excluding M&A and at constant currencies. This was at the bottom end of the group’s 3-5 per cent target, but Mr Polman said he expected growth to accelerate in the second half, driven by more new products backed by higher marketing spend.

Once again, the rise in sales was driven entirely by higher prices in emerging markets — where Unilever makes 57 per cent of its sales. Volumes overall were flat and were 0.4 per cent lower in developed markets, especially Europe, where “consumer demand remained weak and the retail environment challenging”.

Sales were strongest in the refreshments business — mainly ice cream and teas — with an underlying 6.1 per cent rise thanks to strong demand for Ben & Jerry’s ‘Wich sandwich ice cream and Magnum tubs.

Personal care sales, including Sunsilk shampoo, Lifebuoy and Dove soaps rose by 2.6 per cent, having been held back by factors that include Brazil’s economic crisis and the introduction of an Indian goods and sales tax this year.

The foods business, which includes Hellmann’s mayonnaise and the declining spreads and margarines unit, grew by 0.6 per cent. Unilever has promised to sell spreads as part of its April review of measures, which also include a €5bn share buyback this year.

The sales memorandum for spreads is expected to be issued in the autumn.

Andrew Duncan, analyst at Killik & Co, described the results as “reassuring”. Eddy Hargreaves, analyst at Investec, said underlying sales growth in the second quarter of 3 per cent, against consensus expectations of 3.1 per cent, “was modestly disappointing, notably in Home Care and Personal Care, impacted by Brazil and India. However, this has been more than offset by a strong underlying margin performance in the first half.”

The shares rose by 1 per cent in early London trading to £43.49. They are 22 per cent higher than 12 months ago, having risen strongly after the aborted Kraft Heinz bid and the promises of higher profitability that followed.