Unilever Q3 Profits Plunge 48%

03 November 2006

LONDON: Unilever, the world's second largest advertiser [after Procter & Gamble/Gillette], on Thursday announced a 48% dive in third quarter profits - posting €737m ($941.88m; £493.44m) versus €1.42 billion in the same period last year.

But comparison between the two quarters is misleading, given a one-off windfall in the year-ago period of $800m from Unilever's sale of its cosmetics assets to Coty.

Net profit was also eroded by another unique factor - the provision of €300 million for possible compensation linked to the conversion of preference shares in 2005.

Moreover, the fmcg giant's latest figures exclude revenues from its European frozen foods businesses, sold earlier this year to private-equity investor Permira Group [WARC News: 28-Aug-06].

Price increases and better ice-cream sales in Europe boosted sales by 1.9% to €10.12bn from €9.94bn last time, while underlying sales (excluding asset sales and currency fluctuations) rose 4.8%. Higher advertising and promotion costs, however, drove down margins and operating profit fell to €1.50bn from €1.55bn.

Promised ceo Patrick Cescau: "Looking ahead our priority is to improve our operating margin ... through a combination of savings, mix improvement and appropriate pricing."

In bullish mode, he continued: "The UK has returned to growth and France and Germany also performed better. The Netherlands continues to move ahead strongly and Russia is growing well."

Cescau cited the success of new products including AdeZ health drinks, Knorr bouillon cubes and Axe deodorants - all of which helped boost underlying sales by 3.5%. This growth was driven by higher volumes, not price increases.

Stateside sales also rose, albeit by a slightly lower margin of 3%. The growth was led by Bertolli frozen meals and Country Crock side dishes.

The US and Europe together account for more than two thirds of Unilever's global revenues.

Data sourced from Wall Street Journal Online; additional content by WARC staff