Unilever has said that it expects its margins to improve during the rest of 2011 after the consumer goods giant reported a fall in margins in the first half of the year.
Earlier today, the company said its underlying operating margin had dipped by 20 basis points in the first half of the year, although the fall had been less than analysts had expected.
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CFO Jean-Marc Huet told analysts today (4 August) that Unilever’s moves to increase prices over the first six months of 2011 to try to cover rising commodity costs would benefit the Ben & Jerry maker’s margins.
Huet said Unilever’s underlying prices had grown by 5.2% in the second quarter, which equated to a 3.5% increase over the first half of the year.
Looking ahead, he said he sees “more stability” with most of the company’s pricing actions now in the market.
The comments came today (4 July) as he attributed better-than-expected first-half margin declines to efforts the company has made in reducing costs.
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By GlobalDataThe fall in underlying operating margin to 14.7% was better than the expectations of analysts, who had expected a margin of 14.5%.
Commenting on the results, Panmure Gordon analyst Graham Jones said the results gave the market “confidence that full-year margins will rise modestly.”
Huet said at times of rising commodity costs, cost-saving initiatives become “ever more important”. Unilever, he said, had managed to save some EUR600m in the first half and expects full-year savings to be in excess of EUR1.3bn.
He said Unilever’s commodity costs were “broadly stable” since its last update at the end of April with some “minor softening in some commodities, particularly, edible oils, but further increases in others, particularly sugar”.
He highlighted efforts the company is making to manage rising commodity costs, saying that it now has much better visibility about its exposures throughout the business.
“In 2008, we had examples where we were long on palm oil in one part of the world and short in another. Today this cannot happen. When we make a call on a market dynamic, we do so in a co-ordinated way, through the whole of Unilever,” he said.
He added that the company is “much more responsive” and better able to “react with speed to changes in market conditions” after splitting physical buying from risk management activity. This means that the company can make a purchasing or online decision within a day “rather than the weeks or even months it used to take us a couple of years ago”.
However, as Huet described Unilever’s efforts to increase prices, he emphasised that the company would not make the same mistakes it made in 2008 when it increased prices too much. Unilever, Huet said, would “remain competitive” in the marketplace and remained focused on “profitable volume growth”.
