Unilever Indonesia says profit margins to fall on oil

Unilever Indonesia says profit margins to fall on oil

Soraya Permatasari, Bloomberg/Jakarta

PT Unilever Indonesia, the local unit of Unilever NV, the
world's biggest producer of shampoo and detergents, said profit
margins may shrink for the first time in four years because
higher energy prices are driving up costs.

Unilever's packaging costs are rising as oil prices push up
prices of petrochemicals used to make plastic packaging, Muhammad
Saleh, a director at the Jakarta-based unit, told reporters in
Jakarta. Production costs are also higher after the government
raised fuel prices for industrial use several times this year,
Saleh said last night. He declined to provide a specific figure.

The company is aiming at higher sales as it competes with
Procter and Gamble Co., the largest U.S. household-product maker,
in a nation where consumer spending accounts for more than 60
percent of the US$258 billion economy. Southeast Asia's biggest
economy, with a population of more than 238 million, expanded 5.1
percent last year, the fastest in eight years, and is forecast by
the government to grow 6 percent this year.

Unilever Indonesia, which sells 33 brands in the Southeast
Asian nation, may not increase prices again after a 5 percent
rise earlier this year because it plans to maintain a target of
at least 10 percent sales growth this year and next, Saleh said.

"Price is a sensitive matter. We are taking measures to boost
efficiency to cut costs before taking any decision to increase
prices," Saleh said. Unilever is using cheaper alternative raw
material and is converting its energy source to gas, which is
cheaper than oil-based fuel, Saleh said without giving details.

Analysts such as Ferry Yosia Hartoyo are cutting forecasts for
the company this year and next on concern declining margins will
hurt profit.

"The combination of weak consumers and the company's lack of
pricing power meant that any price increase would only provide a
partial offset," Hartoyo, an analyst at DBS Vickers Securities,
said in a report today. "Given the margin compression, we have
revised down our net profit forecasts for 2005 and 2006 by 8
percent and 17 percent respectively."

This means earnings this year will decline by 3 percent from
last year, Hartoyo said in the report. He rates the stock a
"sell."

The maker of Lux soaps and Rinso detergents in Indonesia said
in June it was targeting an operating profit margin, which
measures profit from operations against sales, of 22.7 percent,
the same as last year. Operating profit margin was 21.5 percent
in 2003, 18.8 percent in 2002 and 19 percent in 2001.

Indonesia's state oil company PT Pertamina Oct. 6 raised the
prices of kerosene, gasoline and diesel sold to companies for the
fifth time in eight months because of increased oil costs.

Crude oil traded at $62.07 a barrel on the New York Mercantile
Exchange yesterday, 13 percent higher than a year earlier. The
price averaged $56.1 a barrel this year, compared with $41.4
average in 2004.

About 79 percent of Unilever's Indonesian sales come from home
and personal-care products and the remainder is from foods and
ice-creams.

In the six months ended June 30, Unilever Indonesia reported a
five percent increase in net profit to Rp 805.3 billion ($80
million) as sales rose 9.5 percent to Rp 4.89 trillion.

The Indonesian unit's shares have risen 29 percent this year,
outperforming the broader market's 7.8 percent advance. The stock
fell Rp 50, or 1.2 percent, to 4,250 at the midday break on the
Jakarta Stock Exchange.