Rising costs of raw materials weigh on Unilever's margins

Unilever has performed above expectations in the past six months. However, the company is concerned as raw material prices are rising and margins are being squeezed.

Price increases inevitable

In the first half of the year, the British group achieved a turnover of 25.8 billion euros. Excluding acquisitions, disposals and exchange rate fluctuations, this is an increase of 5.4 per cent. Unilever not only saw its sales increase (+4 per cent) but also raised its prices by 1.6 per cent, writes Belgian newspaper De Tijd.

Meanwhile, raw material inflation is increasingly affecting the FMCG giant. Especially crude oil and soybean oil have become much more expensive in the past months. Partly due to this, the operating margin fell from 19.8 per cent to 18.8 per cent on an annual basis. CEO Alan Jope expects this margin to remain stable for the rest of the year. This means that he has to backtrack on an earlier promise, in which he stated that the profit margin would increase.

According to Financial Director Graeme Pitkethly, the group has no choice but to increase prices further. In doing so, it follows the example of competitor Procter & Gamble, which raised its prices for nappies and hygiene products by 5 per cent.

Unilever has almost completed the demerger of its tea division. The whole operation is expected to be completed in the autumn. Lipton derives the majority of its turnover from black tea, but its popularity in Europe and the United States is declining in favour of coffee, water and other tea varieties.