Taking Western brands to emerging markets provides the long-term growth opportunity for Unilever (LON:ULVR). The focus recently though has been on margin pressures and how economic conditions will affect volume growth. In the first half of the year Unilever has seen volume growth while also pushing through price increases.
For Unilever 2010 was the year of strong volume growth with the 5.8% increase in products sold the highest increase in more than thirty years. This followed growth of only 0.1% in 2008 and 2.3% in 2009 serving to illustrate the recovery made last year.
Against this backdrop it is no surprise that volumes for the first half of 2011 have fallen back to levels more in accordance with historic norms with an increase of 2.2%. This was driven by the Asia, Africa and CEE (Central and Eastern Europe) which collectively saw volumes jump by 5% on last year.
The other two geographic divisions at Unilever are the Americas and Western Europe with volumes growth at 0.3% and 0.2% respectively. Encouragingly Western Europe, the laggard for Unilever, has shown signs of turning around in Q2 with volume growth of 2.9%. Despite this growth remains very much driven by emerging markets serving to mitigate weakness elsewhere.
A key investor concern has been margin pressures as the weak pricing environment and commodity price inflation continue. Unilever saw negative pricing growth for five quarters up to Q4 last year where it saw prices remain flat however the group looked set to see positive pricing momentum going forward which has been the case with underlying pricing growth of 3.5% in the first half of 2011.
Taking into account currency affects, sales grew by 4.1%. In the first half Unilever saw a higher underlying sales growth than last year as price increases offset lower volume growth.
Turning to margins and - despite increasing prices in the first half and cutting costs - the underlying operating margin for the group fell by 0.2% due to commodity price inflation. This contrasts to an increase in operating margins of 0.2% in 2010 as cost cutting more than offset lower prices and inflationary pressures.
Turning to the overall financial position and the solid sales increase produced profits growth despite a small fall in operating margins.
Operating profits rose by 8% and earnings per…
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