Paul Polman, the chief executive of Unilever, said today (5 August) that developing markets will drive the group’s expansion and admitted that Western Europe will only enjoy modest growth in the years ahead.
Polman, addressing analysts after Unilever reported its second-quarter and half-year results, was open with his thoughts about the prospects for Western Europe after the company saw underlying sales in the region fall during the three months to the end of June.
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The Unilever boss said Western Europe remained “tough”, particularly in Greece and Spain but he insisted the company was growing in the Benelux, France and the UK.
However, the Dutchman cautioned that the region would only enjoy “modest growth” and that the emerging markets of Asia and Africa would drive Unilever’s expansion.
“You have to be realistic about the environment. There is no doubt that the growth for this company and many others is going to come from the emerging markets,” Polman said.
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“We are very blessed by having over 50% of our business and very strong positions there. For a long time to come, Western Europe is going to show very low growth. That’s just the reality. I think there is modest growth. I just don’t want Europe to drag us down and be negative like we have had for a long time. But, it is only 350m people; the world is heading to 8.5bn. This region is shrinking and there is less population. You have to be realistic.”
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By GlobalDataPolman said Unilever would look to new products to grow its business in Western Europe, where the company, he said, had innovated less than elsewhere.
“Europe had an innovation level of around 10% [of sales] when we first started looking at it because we were managing Europe more for money – and then it became a perpetual restructuring story,” Polman explained.
“Where we innovate, we grow in Europe. We grow our deodorant business, we grow our body wash business, we grow our tea business, we grow our ice cream business shares. The market has been soft because of the climate … but we grow these businesses because we innovate.”
Shares in Unilever fell by more than 5% today. Earlier in the day, Investec analyst Martin Deboo said the company’s “weak sales performance” in Europe during the second quarter would “trouble the market”.
“We think that the combination of undershooting European sales performance and overshooting Asia African performance will put Unilever’s European business under renewed scrutiny,” Deboo wrote in a note to clients.
Meanwhile, Andrew Wood, an analyst at Sanford Bernstein, had highlighted the “disappointing” performance of Unilever’s food business, arguing that “food growth was weaker than expected and the full cause of the top-line under-delivery in Q2”.
However, speaking to just-food, Deboo said the performance of Unilever’s food business had been “respectable” given the tough economic climate and food deflation during the quarter.
