Unilever profit rise comes "at a price"


Consumer goods giant Unilever has claimed that the group has succeeded in restoring its competitiveness after reporting a rise in second quarter and half year profits.

The maker of Sunsilk shampoo and Hellmann's mayonnaise, which delivered a shock profit warning in 2004, said that pre-tax profit for the second quarter to June 30th rose by 29 per cent to £351 million, based on a three per cent increase in turnover to £258 million.

Half year profit was up 19 per cent to £661 million, with turnover across the period rising by six per cent to £793 million.

The Anglo-Dutch company said sales over the second quarter of the year increased by 3.9 per cent, following a disappointing 2.9 per cent rise during the first three months of 2006. Underlying sales growth during the first half was 3.4 per cent.

But analysts claim that Unilever's sales-led recovery has come at a high price, with the company's underlying margins down in the second quarter following heavy spending to bolster its performance.

The company's second quarter operating margin rose two percentage points to 14.0 per cent, but stripping out all restructuring charges, the underlying figure was down one percentage point to 14.6 per cent as a result of Unilever's spending to support its top brands such as Dove soap and Knorr soups.

Credit Suisse analyst Charlie Mills said Unilever's second quarter growth had come "at a price"

"There is not enough in these results we believe to suggest that there is a brave new dawn at Unilever," he said.

However, Unilever chief executive Patrick Cescau stressed that the firm expected to achieve its outlook for the year of sustained growth and a higher operating margin.

"This is in spite of a harsher than expected commodity cost environment which has impacted margins in the first half," said Mr Cescau.

"The first half year results give me confidence that we have largely succeeded in restoring competitiveness," the Unilever chief insisted, saying that he was "particularly encouraged" by the resumption of growth within the company's European market.

Mr Cescau added that he was confident of achieving sustainable underlying sales growth of between three and five per cent, and an operating margin in excess of 15 per cent by 2010.

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