Higher prices, bigger profits for buoyant Unilever

Unilever's back-to-basics approach of raising its prices has helped half-year operating profits rise by 8%, to 3.3bn Euros.

by MT Staff
Last Updated: 19 Aug 2013
Among a deluge of doom across global markets, Unilever’s half-year results show the company’s often contrary approach to growth is more than keeping it afloat. It’s doing rather well, considering the economic climate - so maybe it’s time the City took note?

In its latest results, posted yesterday, Unilever reported first-half operating profit of EUR3.3bn (£2.9bn), up 8%, with underlying sales growth of 5.7% for the same period. The sales include a price increase of 3.5% to keep up with the rocketing value of commodities, a move it managed to pull off by capitalising on previous market share growth.  

So one of the main drivers of growth seems to be the tenet ‘raise prices to make money’ – simple. Granted, this is a somewhat counter-intuitive approach, given recent consumer depression and belt-tightening, but it has clearly served the FMCG giant well over the past six months.

The surprising measure chimes with CEO Paul Polman’s habit of doing things his own way. The Polman way rests in a key belief in long-termism, which has seen him consistently eschew a focus on short-term shareholder value and abolish quarterly financial reports in favour of half-year updates since taking up tenure.

In MT's Interview with Polman in March, he stressed, ‘To drag the world back to sanity we need to know why we are here. The answer is: for consumers, not shareholders.’ The latest figures suggest that both consumers and shareholders are being served.
    
Historically, Unilever has consistently underperformed, with its stock perpetually lagging behind its competitors in the sector, rising and falling in decidedly counter-cyclical fashion. But growth across all areas of the business speaks for itself, and analysts are making positive noises today. Polman was more reserved in his statement, referencing ‘difficult’ European and US markets, but he is bound to breathe a sigh of relief. Any CEO ultimately has to deliver – the City demands it, no matter what level of bravado he displays.

With goals to double its size in the next ten years, while reducing its environmental footprint, and a significant restructure completed, it’s not for nothing that Unilever was voted top of MT's Most Admired Business awards for the first time last year, beating its competitors to the sector top spot by more than nine points. We don’t want to say it, but our research told you so.

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