Unilever: “Strength of brands” combats price hikes as H1 profits rise

By Shane Starling

- Last updated on GMT

Related tags Food giant unilever Cost Investment Price

Profits are up 10% at Unilever
Profits are up 10% at Unilever
Food giant Unilever saw net profits grow 10% to €2.235bn in the first half of 2011, with its brand equity allowing it to weather severe raw materials price hikes in some cases.

The company was forced to revise its forecasts earlier in the year after cost hikes in crude oil and vegetable oil and other raw materials, with global media relations director Trevor Gorin observing the price increases it was forced to pass onto the consumer had been well accepted.

“The pricing we have put through demonstrates the strength of our brands such as spread brands where we took pricing action pretty quickly,” ​said Gorin. “These results demonstrate a healthy price-volume ratio.”

Overall sales rose 4.1% to €22.1bn but were higher at 7.1% if acquisition and division sales were extracted form the process.

The divisional figures presented no compelling argument backing speculation emanating from an investment house this week that Unilever was set to sell of its Savoury, Dressings and Spreads division for €14bn, with its H1 sales growth coming in at 5% to €6.834bn.

This was only marginally the lowest growth among the company’s four “mega-categories”​, with Personal Care notching €7.236bn (5.5% growth); Home Care €4.018bn (6.7%) and Ice Cream and Beverages (6.4%).

But at 7.9%, Savoury, Dressings and Spreads grew the most in Q2.

"In the second quarter we saw volumes recovering in Spreads as markets stabilised at higher price levels," ​said CEO Paul Polman. "Flora Pro.Activ Buttery is performing ahead of expectations and liquid margarines continue to do well."

Selling up?

In their recent assessment of Unilever, Liberum Capital’s Pablo Zuanic and Lisa Hau wrote: “We expect Unilever at some point to implement a large accretive acquisition in the HPC (household and personal care) space and to partly fund it by selling it’s the Food unit (excluding ice cream and beverages) which we estimate can be sold at about one times sales (or €14bn).

“Selling this lower growth component would improve the company’s growth profile but at the same time, a deal in HPC would likely increase the company’s franchise strength in the category (potential targets: parts of Clorox; Colgate; Beiersdorf; and or a cosmetics company).”

They said flatlining spreads sales in Europe and North America were also prompting sale potential.

In today’s H1 statement CEO Polman acknowledged the situation across all its division by saying: “Market conditions remain sluggish in the developed economies but emerging markets continue to deliver strong growth. All categories are managing significant input cost increases which, despite pricing actions and savings initiatives, have not been fully recovered in the first half…”

Related topics Business Fats & oils

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