Developing and emerging markets are once again a key driver of growth for Unilever, with strong sales in buoyant markets. Conditions in Western Europe generally remain difficult for the company,which said it must improve its competitiveness there. The company was hit hard particularly in the UK, France and the Netherlands, mainly in home and personal care products and in its frozen foods division. Meanwhile sales in central and eastern Europe grew strongly, particularly in Russia across all home and personal care categories and in the savoury and dressings categories. Consumer-goods companies including Unilever, its rival Nestle, which is the world's biggest foodmaker, and have struggled to boost sales as consumers rein in spending. The EU's supermarkets have beencutting prices, forcing producers to provide goods for less at a time when input and commodity costs have been rising. Cost pressures will continue and opportunities to pass these on through price increases are likely to remain limited, group chief executive Patrick Cescau stated yesterday in releasing thecompany's second quarter results. "We do not expect significant change in the market environment in the rest of the year. Input costs and investment behind our brands will increase the pressure on margins," Cescausaid. The cosmetics and personal care sector accounts for around 26 per cent of the Anglo-Dutch group's sales. As the largest consumers products group in the world thecompany had a turnover of €39.1bn in 2004. Europe accounts for 43 per cent of sales and the US 32 per cent. Asia and Africa accounts for 25 per cent of turnover. The company's five year program to cut about 1,200 under performing brands did not work to generate the six per cent sales growth it had forecast in 2004, when sales grew by 0.9 per cent. Sales ofits SlimFast diet products fell dramatically as consumers turned from meal-replacement products in favour of other weight- loss methods such as the Atkins high-protein diet. In the personal care category Unilever has been hard-pushed by biggest competitor P&G, which has continued to threaten its position as the biggest consumer goods business in the world. P&G continue to go from strength to strength, after it announced this week that its second quarter sales were up 10 per cent, with profits rising by nine per cent. The strenght of its current financial results, combined with its merger with Gillette this fall, should see P&G topple Unilever's leading position in the global market. This year the company has refrained from making predictions. In February, Cescau said his priority was to return the business to growth through improving competitiveness marketplace, and reversethe market share losses suffered by the Anglo-Dutch conglomerate during the latter half of 2003 and through 2004. For him this meant increasing marketing spend, price cuts, organisational changes and a management shakeup. Unilever's strategy seems to have at least kept the company in a holding position as it figures out what to do next. The company is still suffering in its main European market, where sales fell by 0.6 per cent in the second quarter, compared to a two per cent decline in the first quarter this year. "We are no longer losing share in Europe, but neither have we regained the share we lost during 2004," Cescau stated. He noted that western Europe remains a difficult market for the company, with weak consumer demand and no let up in the price competition between retailers. The company estimate the growth rate ofthe categories and regions in which is growing at between three per cent and 3.5 per cent. Within this, the European markets are flat, North America is growing at around 2.5 to three per cent, withthe Rest of the World making up the difference. Performances in the European home and personal care division were earmarked as being disappointing, althought the company has maintained market share for its brands. However the company is losing market share as consumers continue to shift towards the commodity end of the category where the company is not represented. In the European home and personal care sector sales continue to be heavily impacted by the share the company lost during 2004 and in the first quarter of this year. The company is responding to the Europe problem by consolidating its regional supply chain management into a single organisation that will manage sourcing activities from procurement through toprimary distribution. Overall the group's sales grew by 3.3 per cent by volume, turnover from continuing operations grew only one per cent. Before the effect of a €353m write off relating to the value of the company's Slim Fast business, operating profit increased by five per cent in both the quarter and the half year. With thewrite-off Unilever suffered an 18 per cent decline in operating profit. The company's global market shares in both foods, and home and personal care products have stabilised since the beginning of the year, Cescau said. "We take this as a clear indication that we have indeed improved our level of competitiveness compared with 2004," he told journalists. Operating margin continued to fall. It was 12.4 per cent in the quarter. The figure includes a reduction of 3.4 percentage points from the SlimFast writedown. Operating margin in the half year was13.7 per cent, 1.4 percentage points lower than last year, including the impact of the SlimFast write-down. Restructuring costs in the half year were lower by €124m, while profits on disposals andasset sales were higher by €47m. The writedown is in addition to a €791m charge already taken for SlimFast earlier in the year. "The reason for this additional charge is that the meal replacement category in the US has continued to decline, and at a faster rate than we anticipated," he said. "Year-on-yearsales in this category are down by around 25 per cent. Although our market share is increasing again, the sales base from which we project future growth is now considerably lower than we previouslyassumed." "We are improving the quality and quantity of our innovation and our Go to Market activities, especially in key markets such as the UK and France," he added. One of the highlights in the personal care segment was the launch of Sunsilk Styling in ten European countries which has helped the Sunsilk brand to grow by nearly 20 per cent so far this year. "These products are uniquely positioned to offer women accessibly priced styling products that solve their daily hair battles, whether it be sad flat hair, hairstyles that don't hold, or hair that is prone to kinks or frizz. As a result of these and other market initiatives, our European HPC market shares have started to turn up, but we still have a long way to go before we are back on track." As part of efforts to concentrate its personal care on its core activities, Unilever announced last month that it had sold its fragrance busines, Uniliver Cosmetics International to US player Coty. The deal will leave Unilever to concentrate its efforts on hair and skin care.