Unilever Sees First-Half Profit Growth But Slowdown in Emerging Markets -- Update

By Peter Evans 

LONDON-- Unilever PLC is battling to sell its deodorants, laundry detergents and ice creams in the worst conditions since the start of the financial crisis, the company said Thursday.

"The external environment is as tough as any we've faced in the last five years, and probably for many years before that," Chief Executive Paul Polmansaid on a call with analysts.

The maker of Magnum ice cream and Axe deodorant Thursday said sales slipped 5.5% to EUR24.10 billion in the first half of the year, as ongoing currency weakness, political unrest and barely growing economies combined to sew uncertainty among consumers.

Still, Unilever posted a first-half net profit of EUR2.82 billion ($3.8 billion), compared with EUR2.43 billion in the same period last year, on the back of a number of disposals. In the last six months, Unilever has sold its Ragú and Bertolli brands in North America, as well as its Slim Fast dietary range.

But that couldn't lift Mr. Polman's mood. Painting a bleak picture, the CEO pointed to downgrades in growth forecasts in Brazil, the U.S. and Indonesia, as well as escalating conflicts in the Middle East and Ukraine as reasons not to expect much improvement in the near term.

Unilever also flagged a further slowdown in emerging markets, where it makes nearly 60% of its sales. Sales growth in emerging markets was 6.6% in the first half, down from 10.3% in the year-earlier period. Chief Financial Officer Jean-Marc Huët said China had been particularly weak.

"The consumer is not in great shape," Mr. Huët said in an interview, referring to emerging markets in general. "We just have to be competitive and that's the most important thing."

Unilever said there had been a negative currency impact of EUR413 million on operating profit during the first half. Like other consumer-products companies, Unilever has suffered from the devaluation of emerging-market currencies in the past year, reducing the value of its sales when translated back into its home currency.

Under Mr. Polman, Unilever has shifted its focus toward personal-care products that appeal to customers in developing economies, and away from low-margin food brands which don't sell in markets like India and China. The personal-care division, Unilever's biggest, accounts for 36% of total sales, up from 28% in 2008.

The plan is a long-term one, which Mr. Polman hopes will push Unilever toward EUR80 billion in annual sales, meaning the company intends to ride out any blips in emerging markets.

"The lesson is, always continue to invest" in emerging markets, Mr. Huët said.

Unilever shares were up 0.1% to 2,686 pence in morning London trading.

Write to Peter Evans at [e-mail]

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