Unilever turns up the volume

But achieving this has brought the difficulties faced by the Anglo-Dutch giant into stark focus - tackling consumer price sensitivity in particular. And Mr Polman admitted that a lack of superior performance over rival products had seen the ability to command a brand premium slip away. So, after it became clear in earlier quarters that raising or holding prices steady saw volumes dip, deeper than expected price cuts to drive volume growth shouldn't have come as much of a surprise. Prices were cut 3.1 per cent in the fourth quarter, when the market had been expecting a 2 per cent reduction - that was the second largest component in a 5 per cent drop in quarterly sales to €9.7bn (£8.5m) behind currency movements. In fact, underlying sales grew 1.8 per cent, as strength in emerging markets offset weakness in Europe, where price cuts of 3.6 per cent still couldn't deliver volume increases.

However, Unilever said that even after hefty cuts, prices were still higher than two years earlier. But management admitted that this remained subject to competitor price moves and, with pressure on consumer spending expected to mount this year, competitors are still likely to turn up the heat on heavy promotional activity to lure value-conscious shoppers. Unilever boosted its own advertising expenditure by 240 basis points in the fourth quarter, but was still able to improve underlying operating margins by 20 basis points as a result of tight controls.

Broker Evolution expects pre-tax profits of €6.1bn for 2010, EPS of 147¢, but notes that confusion over the rebalancing of the dividend calendar to quarterly payments may have hit the shares. Strong cashflow means shareholders will receive a higher equivalent dividend for 2009 than they had in the previous year. 

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