Unilever lifts margin target as returns rise

Anglo-Dutch major said expects underlying operating margin to grow by at least 100 basis points this year

Unilever lifted its fullyear margin target yesterday after seeing a big improvement in the first half, underlying its ability to boost returns as an independent firm after rebuffing a $143 billion (Dh525 billion) takeover bid earlier this year.

The Anglo-Dutch conglomerate whose products range from Hellmann’s mayonnaise to Dove soap said it expected underlying operating margin to grow by at least 100 basis points this year.

Its previous target was least 80 basis points.

The company’s profit margins became an area of investor scrutiny when February’s aborted takeover bid from Kraft Heinz forced Unilever into a deep business review aimed at improving performance on its own.

Its margin improved 180 basis points to 17.8 per cent in the first half of the year, helped by an acceleration of its cost-savings and productivity at programmes, and a 130 basis point drop in brand and marketing spending.

Analysts welcomed the margin improvement, but voiced concern that it was largely driven by reduced marketing spending, which can hit sales. “Quantity good ... quality less so,” RBC Capital Markets analysts wrote.

Unilever said marketing spending would rise in the second half, as new product launches were skewed to that period. It said full-year brand and marketing spending should be about flat with the figure year ago. Unilever Chief Executive Paul Polman yesterday was to ask British Prime Minister Theresa May to give businesses more time to adapt to Brexit.

“We will be talking about the possibility of a longer transition period,” Polman told reporters ahead of a visit to 10 Downing Street. He said that a lengthy transition for Britain’s exit from the European Union was “becoming more realistic now”.