Unilever's first-half profit falls on inflation worries

Spiralling costs of raw materials are forcing the UK consumer goods company to raise prices

Unilever says costs for raw materials that go into shampoo, detergents and ice cream are increasing at the fastest pace in more than a decade. Reem Mohammed / The National

Unilever warned that costs for raw materials that go into shampoo, detergents and ice cream are increasing at the fastest pace in more than a decade, forcing it to scale back profitability goals for this year.

The maker of Cif cleaners and Dove soap lowered its guidance for profitability on Thursday, forecasting 2021 margins near last year’s level as improvement becomes more difficult. The shares fell as much as 4.6 per cent.

The UK consumer goods company's underlying profit margin narrowed to 18.8 per cent from 19.8 per cent a year earlier in the first half of 2021.

Unilever is joining rivals such as Procter & Gamble in warning of rising price pressure. Higher raw material costs have become a growing concern for manufacturers as economies emerge from Covid-19 lockdowns. More expensive crude oil, palm oil and US freight costs are forcing Unilever to raise prices on shampoo and ice cream, although the company has to move slowly to avoid shocking shoppers, said Graeme Pitkethly, Unilever’s chief financial officer.

“This is something that a business like Unilever is able to handle, but it takes time,” he said.

Unilever is raising prices faster in markets such as Brazil, while remaining more cautious in Europe to limit the impact on consumption.

Higher crude prices make it more expensive to produce home care products such as detergents, while shower gels and soap products are made with palm oil derivatives. Unilever is still struggling to achieve the 20 per cent margin it had aimed to reach by 2020, having approached the target just before the pandemic struck.

P&G is implementing price increases on diapers. or nappies, and feminine-care products by percentages in the mid-to-high single digits.

Unilever’s sales rose 5 per cent in the second quarter of this year on an adjusted basis. The company’s chief executive Alan Jope said he is confident that underlying sales growth will be in its 3 to 5 per cent range this year, even as comparisons become more challenging.

That builds on a strong start earlier in the year, when brands such as Lipton tea and Hellmann’s mayonnaise benefited from workers staying home.