Unilever Reports Sales Up in Second Quarter; Raises Outlook

Growth of leading brands improved in the second quarter and with a strong marketing program, Unilever executives expect a further increase in the second half year. Sales of leading brands rose 4.4% during the quarter. Executives said these brands now represent 88% of the company’s business. This, together with a robust increase in profitability, enables Unilever to raise its earnings outlook for the full year.

“We have now reached the mid-point in the ‘Path to Growth’ strategy and we continue to be confident about delivering our program on time and in full,” said N.W.A FitzGerald, chairman, Unilever PLC. “Savings from restructuring and global buying are on plan and together with an improving mix, deliver excellent progress in operating margin. Brand focus continues apace with 88% of our turnover now attributable to leading brands. These brands are showing great resilience in a tough economic environment and will drive accelerating top line growth as we move into the second half of ‘Path to Growth.'”

Executives said the second quarter saw an expected increase, 3.3%, in the rate of underlying sales growth. The company expects leading brands to be 90% of the business by the year-end, and to sustain their growth for the year in the range of 4.5-5%, while managing through the economic cycle in some developing and emerging markets.

“Given the strong increase in profitability and while retaining the capacity for an increased level of marketing investment to support accelerating innovation in the second half, we are raising our outlook for the year’s EPS growth to the mid-teens,” said Mr. FitzGerald.

The impact of planned disposals, notably the sale of brands to secure regulatory approval for the acquisition of Bestfoods, and the sale of Gortons, Unipath and DiverseyLever to Johnson Wax Professional (on May 3, 2002) led to a small reduction in total sales. These particularly impacted European and North American sales. Executives said net proceeds from disposals includes $1 billion cash from the disposal of DiverseyLever.

Net profit declined 25% in the quarter and was flat for the half year, with strong growth in operating profit beia and lower interest offset by the higher exceptional profit on the sale of businesses in the previous year.

In Europe, underlying sales growth was 2% with a continuing strong contribution from Central and Eastern Europe. Sales were 3% lower than last year through the impact of disposals. Key highlights included growth of nearly 6% in personal care, driven by innovations behind Dove, Axe and Rexona in Western Europe. Dove shampoo and conditioner are now available in nearly all markets with a strong consumer acceptance and repeat purchase. Laundry volume in Western Europe grew more than 3% with a particular contribution from fabric conditioners. Central and Eastern Europe grew more than 10%, with particular strength in personal care, spreads, tea and ice cream and continued good progress in Russia and Romania.

In North America, executives said excellent profits growth with underlying sales maintained against a strong quarter last year. Overall sales decreased 4% due to planned disposals. Flat underlying sales continue to reflect a tough comparator as a result of the later phasing of innovation this year. Sales was also impacted by the effect of increased promotional investment in foods, decline in the tail of non-leading brands and the effect on trade stocks of the K-Mart store closure program. In the U.S., Unilever sales were approximately $11 billion in 2001.

Home and personal care the pattern of sales development was similar to that in the first quarter in North American. Overall sales declined 2.6% with the key drivers being phasing of innovation, the effect on trade stocks of K-Mart store closures and a focus on improved profitability in laundry. Dove and Degree made further progress in skin and deodorants and there was a strong performance from Snuggle in fabric conditioners. A step-up in innovation in the second half, including the already announced launch of Axe deodorant, new variants of all detergents and repackaging of Wisk, are planned to drive growth.

Underlying sales grew 4% in Africa, the Middle East and Turkey. Sales grew by 7% including the increase in ownership of the Robertson’s business.

Business conditions are tough in Turkey due to currency changes. Sales declined in the quarter, however, profitability was enhanced, and executives said Unilever is well placed to benefit from an improving economic environment. South Africa has continued to make excellent progress with broad-based growth. There were particularly impressive performances in skin, oral, deodorants, laundry and spreads, executives said.

In Asia and the Pacific, underlying sales grew 6%, reflecting the phasing of innovation activities. Sales, including the impact of disposals, grew by nearly 3%. Progress has been broad-based. Japan, Indonesia, China, Korea, Malaysia, Pakistan and Vietnam all had underlying sales growth of more than 10%, with the India consumer business and Australasia growing in mid-single digits. Home and personal care brands led the way with personal care making particularly impressive progress.

Underlying sales grew 12% in Latin America, with a strong contribution from price. Including the impact of disposals, sales rose 8%. In Argentina consumer demand is down and volumes have been affected as a result. However executives said Unilever’s experienced local management have continued to manage profits and cash in a manner which preserves the long-term health of the business. Elsewhere in Latin America, there was a return to positive volume growth in the quarter with volumes up almost 2%.

Innovation continues to drive growth in personal care in Latin America. Sedal grew strongly in Mexico, Venezuela and Ecuador, and Rexona was launched in Colombia. Market shares are firm in laundry in South Latin America with an improved level of profitability.

From Jan. 1, 2002 Unilever adopted U.K. Financial Reporting Standard 19 (FRS 19) ‘Deferred Tax’ which requires full provision to be made for deferred taxes.