Unilever expects flat profit for the year after being hit by rising costs | Unilever

The consumer goods giant Unilever has said cost increases could hit its profits, despite a rise in sales during the first half of 2021.

The maker of Marmite, Persil and Dove said underlying operating profit margins in the first six months of 2021 fell by one percentage point compared with last year, to 18.8%. Unilever said this was due in part to investment spending, but also warned of “input cost inflation”.

Unilever said it expected profit margins to be flat over the full year, having previously forecast a small increase, even as it seeks to raise prices to make up for higher costs.

Economists around the world are on the lookout for signs of inflation, amid disruption from the coronavirus pandemic. Other consumer goods companies have also said they are being hit by higher prices on everything from transport, to raw commodities and packaging.

Unilever, whose vast product portfolio includes Domestos bleach and Magnum ice-cream, said margins were down by 2.2 percentage points in beauty and personal care products, while margins in home care also fell by 1.3 percentage points.

Alan Jope, Unilever’s chief executive, said it was a “strong first half”, but warned that margins would remain flat during 2021 compared to 2020 because of cost increases.

“We have seen further cost inflation emerge through the second quarter,” he said. “Cost volatility” and the variable timing of when price rises will reach the company meant there was higher uncertainty than usual over the expected margin for the full year.

Underlying sales grew by 5.4% in the first half compared with 2020, with turnover of €25.8bn (£22.2bn).

Unilever’s share price dropped by 4.3% on Thursday to its lowest since April after the announcement, making it the worst performer on London’s blue-chip FTSE 100 index.

Graeme Pitkethly, Unilever’s chief financial officer, indicated that a strong jump in prices of commodities including crude, palm and soya bean oil could prevent the company from raising its profitability. The commodity price increase hit margins in its personal and home care business, he said.

The results statement came as Unilever deals with a row over the decision of one of its brands, Ben & Jerry’s, to stop ice-cream sales in the Israeli-occupied West Bank and East Jerusalem. The brand retained a large degree of independence to follow its “culture and social mission” when it was bought by Unilever in 2000.

The decision has provoked fury from Israeli politicians, including the far-right prime minister, Naftali Bennett, who promised “serious consequences” for Ben & Jerry’s and Unilever after speaking to Jope. Unilever’s leaders declined on Thursday to answer questions about the decision.