Belfast Telegraph

Unilever warns of squeeze in profits due to rising cost of oil

By Peter Cripps

Household goods giant Unilever has warned that its profits are being squeezed as it struggles to pass soaring commodity costs to cash-strapped consumers.

The maker of Persil and Marmite said sales increased by 7% to €10.9bn (£9.7bn) in the first quarter of 2011, as strong demand in emerging markets such as China made up for declining volumes in western Europe.

But the group said it is not increasing its prices as fast as its costs, which are being driven up by the soaring cost of oil.

As a result, its profit margins are set to fall in the first half of 2011, although it expects to claw back some of the falls in the second half of the year.

Volumes in western Europe, including the UK, were down 2.8% in the quarter, although price rises meant its sales increased by 0.1%. The UK market was "resilient", however, helped by strong sales of tea, including PG Tips.

Shares in the Anglo-Dutch company, which is listed on the FTSE 100 Index, were down more than 2% following yesterday's update.

Chief executive Paul Polman said Unilever had put in a good performance against a backdrop of rising commodity costs, weak consumer confidence and very competitive markets.

Underlying sales to emerging markets in Africa, Asia and central and eastern Europe, which account for almost half of the group's revenues, increased 8.9%. This helped push the group's underlying sales up by 4.3% in the quarter.

But Mr Polman conceded that the group's volume growth had slowed as a result of rising prices and "sluggishness" in developed markets.

Sales of margarines and other spreads were particularly badly hit by the rising cost of vegetable oil, which is a key ingredient, and has followed crude oil upwards. As a result, the group's savoury, dressings and spreads division saw volumes decline by 0.4%, while sales increased 2.6%.