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Unilever reports profit boost as emerging markets recover

By Caroline Scott-Thomas+

21-Jan-2014
Last updated the 21-Jan-2014 at 15:46 GMT

Unilever said it would focus on turning around its spreads business in 2014
Unilever said it would focus on turning around its spreads business in 2014

Unilever has reported a 9% increase in profit in 2013, as emerging markets recovered from slower growth in the third quarter.

The Anglo-Dutch consumer goods giant said net profit for the year was up 9% to €5.3bn. Turnover was down 3% for the full year to €49.8bn, but underlying sales rose 4.3% as emerging markets improved in Q4.

In the fourth quarter, the company reported 4.1% underlying sales growth, fuelled by 8.4% growth in emerging markets – which account for more than half of its business – well above the 5.9% growth it saw from emerging markets in the third quarter.

In a conference call with investors, CEO Paul Polman said the company’s European business was stable, having grown 1% in two of the past three years. In 2013, European sales were down 1%.

“It is not a drag on the business anymore,” he said.

Pricing in Europe and other developed markets is likely to be lower in 2014, as retailers are under pressure to appeal to consumers with less disposable income. In developing markets, Polman said there would be “limited” pricing up and some pricing down, as competitors are entering at a lower price to gain a foothold.

Another 10% SKU reduction

Polman reiterated that the company would be reducing SKUs by 30% by the end of the year, and added: “After that, we will go for a further 10%.”

He said there would be a reduction in the number of units in its ice cream business in particular, mostly in the United States, where ice cream has struggled to compete against lower priced competitors. However, he pointed out that the ice cream category was still growing in emerging markets.

Spreads

Spreads have weighed on the company’s results in Germany and the Netherlands – although they grew for the 25th successive quarter in the UK – and spreads volumes were also down in the US.

“Our food business is actually building share,” Polman said. “The spreads business is the one we need to focus on to turn around.”

With that in mind, the company has said it will launch a new marketing strategy for spreads in 2014.

Commenting on the US food business, he said: "On the food side, we're... addressing our spreads business, which is dragging us down. I don't expect the U.S. to show significant changes in the market in 2014, if I may be honest."

London-based analyst Graham Jones from Panmure Gordon said Unilever had shown "good resilience in difficult markets". But he added: "Its performance in Foods and Refreshments has again been very disappointing in 2013."

Unilever has targeted €500m of savings this year through a range of cost-cutting strategies, including cutting jobs, and “sharpening our marketing function”.

The company’s shares were up 4% in morning trading.

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