Unilever margins fall as marketing spend increases

By Ahmed ElAmin

- Last updated on GMT

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Unilever yesterday reported a decline in second-quarter operating
margins, as the company continues to spend on marketing in a bid to
boost lackluster sales.

The company's operating margin was 14 per cent in the second quarter and of 14.4 per cent for the first half year. The margin decline from 14.8 per cent in the first quarter is a sign that the company has so far not managed to increase both sales and operating profit at the same time.

The operating margin for the first half year was one percentage point higher than a year ago, and two percentage points higher in the quarter.

Unilever blamed the margin crunch on increased spending on advertising, promotions in emerging markets, personal care businesses, along with higher commodity costs.

Consumer-goods companies such as Unilever, Nestle and P&G have struggled to boost sales in generally flat markets in Western Europe and the US. Supermarkets have been cutting prices, forcing producers to hold back on raising theirs in response to rising input and commodity costs.

Unilever's increased marketing spending is beginning to pay off. Underlying sales rose by 3.9 per cent in the quarter, compared to the same period last year. Revenues rose by three per cent to €10.2bn.

Patrick Cescau, Unilever's chief executive, put a positive face to the company's results. He expects to achieve targets set for this year our outlook for this year and an operating margin above that of last year.

"The first half year results give me confidence that we have largely succeeded in restoring competitiveness,"​ he said in a statement. "All regions and categories contributed to growth and we continue to maintain market share in aggregate."

The company's targets are to achieve an underlying sales growth of between three to five per cent and an operating margin in excess of 15 per cent by 2010. The company is increasing its efforts to cut costs. It is also increasing prices and developing new products to add to the its portfolio, he said.

Turnover increased by 5.8 per cent in the first half year, with the 3.4 per cent underlying sales growth including a 0.7 percentage point increase from price.

In the second quarter underlying sales grew by 3.9 per cent, which included an 0.8 percentage point contribution from pricing.

The food sector accounts for 49 per cent of the Anglo-Dutch group's sales, drinks eight per cent and home and personal care for the rest. As the largest consumers products group in the world the company had a turnover of €39.1bn in 2004. Europe accounts for 43 per cent of sales and the US 32 per cent. Asia and Africa accounts for 25 per cent of turnover.

Procter & Gamble, a Unilever competitor reported underlying sales growth of eight per cent in the second quarter.

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