Unilever: Things will get worse before they get better
Investec analyst Martin Deboo said it was “abundantly clear that it is going to be difficult six months for Unilever".
He added: “The market has reacted badly to a second quarter which, despite being only a narrow miss to expectations, has triggered fears that rising input costs and an intensifying competitive climate, not least in Unilever’s traditional playground of developing and emerging markets, will contrive to strangle the [Paul] Polman [chief executive] turnaround at birth.
“Meanwhile the top line is decelerating, margin progression remains positive, but anaemic, and Europe is declining again. So Unilever's chilly summer looks set to persist into an equally chilly autumn.”
Unexpected cost savings
However, things should improve in 2011, he predicted: “P&G aggression should moderate and input cost inflation should cycle out in the second half, assuming current spot prices persist.”
Unilever had also claimed that it could capture an extra €1bn of cost savings in 2011 without incurring significant costs in the form of restructuring, he added.
“This further year of cost savings was a surprise to us and puts some useful margin gas in the tank to resist further assaults.”
Meanwhile, the P&G threat, while serious, was finite, he argued. "Hot competition with P&G is confined to about 20% of Unilever's sales and incremental pricing and A&P [advertising and promotion] actions from P&G are set to last for a further two quarters only.
“Finally 2011 should see some big ticket Unilever Genesis innovation hitting the market. So, against downbeat expectations, there are reasons to be positive.”
Genesis: Disruptive technology
Unilever is understood to be working on up to 15 ‘breakthrough’ innovation projects as part of its 'Genesis' research and development programme.
When the initiative was launched in 2009, the company said the first products emerging from it would hit shelves in late 2010/early 2011.
In a recent interview, however, Polman was vague on timings, adding that products would “come in progressively over the next few years”.
