Unilever sees tough year as markets slow

Consumer goods group Unilever said 2012 will be a difficult year as growth in emerging markets, which accounts for more than half its business, slows and demand in Europe and North America stays flat at best.

The gloomy outlook sent shares in the Anglo-Dutch group sharply lower early on Thursday after it broadly matched 2011 sales growth and profit margin forecasts.

Unilever, which pushed up the prices of brands such as Dove, Hellmann's, and Knorr to offset higher commodity costs, said growth in emerging markets had now slowed due to these price rises and weak consumer confidence.

Finance director Jean-Marc Huet said growth in emerging markets such as Africa, Asia and Latin America stayed strong but the company needed to do better in Russia and eastern Europe where its performance was sluggish.

"We have seen a deceleration in some markets and one or two are now more difficult, so our focus is on Russia and eastern Europe where we need to improve," he told reporters.

The world's third-biggest consumer goods group reported underlying sales in 2011 rose 6.5 per cent in line with forecasts of 6.4 per cent, with four-quarter growth of 6.6 per cent compared to rival Procter & Gamble which saw a four per cent rise.

Unilever shares were the biggest faller on London's FTSE 100 index, down 3.5 per cent at 2,013 pence by 0900 GMT. They had outperformed European markets by 20 per cent in 2011 and the European food and beverage stocks by 4 per cent.

"The cautious market outlook will be the focus as emerging market volume growth slows," said Citi analyst Robert Dickinson, adding that fourth quarter volume growth in its Asia, Africa and central and eastern Europe region was just 2.8 per cent.

Emerging markets, which make up 54 per cent of Unilever's business, grew 11.5 per cent in 2011. In product terms, its personal care goods like Lux and Sunsilk were the fastest growing at 10 per cent while its foods grew just over 3 per cent.

"We expect the macro-economic environment to remain difficult in 2012 and input cost headwinds will persist although to a lesser extent than in 2011," said Chief Executive Paul Polman said in a results statement.

Unilever raised prices after its commodity costs rose 15 per cent last year adding €2.5 billion to its 2011 costs, but many raw materials like vegetable oils have now fallen and the group sees input inflation of around 5 per cent this year.

The group offset the extra input costs by hiking its prices and slashing costs by over €1.3bn in 2011, and managed to hold its profit margins largely steady at 14.9 per cent after 2010's 15 per cent.

The group which sells Lipton tea, Ragu sauces and Blue Band margarine, reported 2011 core earnings per share rose 4 per cent to €1.41, below forecasts of €1.46.

Overall annual turnover rose 5 per cent to €46.5bn, and it paid a quarterly dividend of €0.225 a share compared to €0.208 the same time in the previous year.

European food rivals report later this month with France's Danone on February 15 and Swiss Nestle on February 16.