Ice-cream boosts Unilever sales as profit margins suffer

Unilever managed to ramp up sales growth in the third quarter but profit margins suffered as the consumer goods company spent more on marketing.

Analysts pointed out that the company was not yet delivering both top-line and bottom-line growth, two years into its "One Unilever" restructuring programme.

Operating profit was down 2 per cent at €1.5bn (£1bn), as the company absorbed extra input costs and spent more on promotion. However, the City welcomed the greater momentum behind sales.

Group underlying sales increased by 4.8 per cent in the third quarter to £6.7bn, bringing the growth rate for the first nine months of the year to 3.9 per cent, which delivered £20bn of sales.

Ice-cream in Europe did particularly well, as new flavours and packaging of brands such as Magnum and Cornetto drove sales - Magnum sales in the UK jumped by 20 per cent in the third quarter. In the first quarter, group sales had been up by 2 per cent, followed by 3.9 per cent in the second quarter.

The chief executive, Patrick Cescau, admitted the company still had to show that it was not just buying growth through promotional expenditure. "Looking ahead our priority is to improve our operating margin, while delivering our growth ambitions. We are confident we will achieve this through a combination of savings, mix improvement and appropriate pricing actions," Mr Cescau said.

Advertising and promotional costs have grown by 60 basis points in the year to date, and by 80 basis points in the third quarter, as a proportion of sales. Last year, Unilever's marketing costs were 12.8 per cent of sales, implying that the company had spent £2.6bn on promotions this year.

Unilever brands that had big advertising campaigns behind them in the third quarter included Sunsilk hair products in the US, and, in the UK, Dove Summer Glow "gentle" self-tanning lotion and AdeZ soya-based fruit drinks.

Richard Workman, an analyst at Oriel Securities, said: "In 2005, Unilever lost market share, they are now maintaining share. I hope to see market share gains next year."