UNILEVER delivered a sharp blow to government hopes that inflation will halve by the end of the year as it admitted costs of its staple of consumer goods will keep rising.
While it says it hopes inflation has “peaked”, in reality that just means prices will keep rising but less quickly, further putting strain on family finances and in turn the prospects for economic growth.
The Anglo-Dutch giant behind Dove soap, Domestos and Hellmann’s Mayonnaise says soaring prices of oil and grain leave it with little choice but to put up prices.
That will increase the pressure on the Bank of England to go for a 0.5 percent poise rise in interest rates when its Monetary Policy Committee meets next year.
But Unilever does hope that “peak inflation” has passed, so price rises may at least be lower from here at perhaps 9% down from 13%.
Unilever’s quarterly sales beat City estimates – the shares jumped 192p to 4210p.
New CEO Hein Schumacher said: “My early immersion in the business has confirmed my belief in Unilever’s strong fundamentals. The task ahead is to leverage these core strengths - supported by our simplified operating model - to drive improved performance and competitiveness.”
Sales in the first half jumped 9.1%, better than analysts had pencilled in. Operating profit rose 3.3% to e5.2 billion (£4.3 billion).
That may encourage critics who think big food companies are exploiting inflation to ramp up prices to have another look.
Supermarkets have been cleared of making excess profits, but watchdogs are now investigating supply chain firms, which includes Unilever.
Unilever has so much spare cash it is spending up to e3 billion on buying back its own shares. It said today it has done e750 million of that so far.
The company noted it is working in a “volatile and high-cost environment” though it hopes price growth will “moderate through the year”.
Unilever has long been regarded in the City as sluggish. Some critics say it has become too focussed on woke-like “corporate purpose” and not enough on growing the business and winning market share.
Terry Smith, a leading investor, complained a year ago that the company Smith complained that Unilever was “obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business”.
Charlie Huggins at the Quality Shares Portfolio at Wealth Club said:
“These results from Unilever are solid but uninspiring.
Despite significant price increases, Unilever has managed to maintain broadly flat volumes. This is a clear positive and suggests Unilever’s brands continue to attract a loyal following. The other piece of good news is Unilever upping its full year sales guidance to "above 5%" and reiterating that operating margins will improve slightly, despite cost pressures.
The question is - should Unilever be doing better? The answer is almost certainly yes. Margins remain well below pre-pandemic levels and below the bonnet of that robust underlying sales growth there are problems.”
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