Unilever chief executive said the consumer goods manufacturer is facing its fiercest inflationary pressures in a decade as the cost of raw materials, packaging and transport rises.
Alan Jope’s warning came when candy maker Domestos, Hellmann mayonnaise and Ice Magnum reported that their underlying operating margin in the six months to June fell 100 basis points to 18.8 percent after cost inflation accelerated in the second quarter.
“We’re facing very material cost increases,” Jope said. “Our first thought is to look for savings in our company to offset these costs, but these are of a magnitude that forces us to continue to take some price increases.”
The company, which said investment in advertising had also weighed on margins, is the latest in the industry to announce an expression from prices of transportation and raw materials that have affected materials from the market. palm oil to plastics.
British mixer maker Fever-Tree said Tuesday it expected success at year-round margins from rising costs. Jon Moeller, chief financial officer of Procter & Gamble, said last month that higher commodity and transportation prices had added $ 600m to the company’s costs this year.
Jope said the price of palm oil, used in several Unilever personal care products, was up 70 percent from the first half of last year, while soybean oil now costs 80 percent more, crude oil 60 percent more, and shipping 40 percent to 50 percent more.
“Those are reaching inflation levels that we haven’t seen since 2011,” he said.
“It’s hard to avoid price increases across the portfolio when there’s a wide range of commodity prices.”
With the coronavirus also affecting costs, Unilever said it expected its underlying operating margin to be flat by 2021. The Anglo-Dutch group’s shares had fallen just over 5 percent in the past. trading afternoon Thursday.
Marginal pressure came as Unilever faced the repercussions of a decision by its Ben & Jerry brand to stop selling its ice in the occupied Palestinian territories, a move that sparked an angry phone call from Israeli Prime Minister Jope this week.
Jope said the decision to remove the West Bank and East Jerusalem was taken “by Ben & Jerry’s and its independent council,” a body whose role was written off when Unilever acquired the dessert brand in 2000.
The decision was made “in line with the acquisition agreement we signed 20 years ago and Unilever has always recognized the importance of that agreement for the ongoing health of Ben & Jerry’s business,” Jope said.
“I want to highlight Unilever’s continued commitment to Israel,” where the multinational has four factories and 2,000 employees, he said.
After the council chair criticized Unilever’s approach to the announcement, in part over the question of whether Ben & Jerry’s will continue to sell its products in Israel at all, Jope said there was “a dialogue together with Ben & Jerry’s and the rest of Unilever ”.
Alongside the warning about costs, Unilever said underlying sales growth was 5.4 per cent, slightly ahead of expectations, bringing the turnover to 25.8 billion euros, in slight growth. from the previous year. Net profits fell to € 3.4 billion, from € 3.5 billion a year earlier.
Rising prices have boosted sales by 1.3 percent, the company said, with the rest up to higher sales volumes for its products, ranging from hand detergent and disinfectant to tea. .
Martin Deboo, an analyst at Jefferies, said the margin pressure was “the likely taste of the season.”