Unilever's path to growth is rocky

Superscape pins hope on phone play; More left in St James's recovery

It is time for Niall FitzGerald, Unilever's chairman, to re-assess the strict training schedule he put his household products on four years ago. The marathon restructuring programme, Path to Growth, has left the Anglo-Dutch group gasping for breath.

Efforts to slim down, by paring 110 businesses from its portfolio, mean that Unilever's 400 top brands now represent 92 per cent of its sales. This is meant to make driving top-line growth easier. But yesterday's third-quarter results, coming hot on the heels of last week's second sales warning of the year, were not encouraging.

Poor sales of its SlimFast diet products, Calvin Klein perfumes and a plethora of frozen food and home-care products mean sales of its leading brands will struggle to hit 3 per cent this year - a far cry from the original 5 to 6 per cent target. Given the savage trading environment in the United States, and the group's tough fourth-quarter comparatives, it is far from certain that Unilever will escape further injury before its five-year transformation programme is complete. Its top brands such as Dove soap and Magnum ice cream grew by just 3.2 per cent during the past three months although pre-tax profits were up 10 per cent at €1.4bn (£1bn).

The market no longer trusts the ebullient Mr FitzGerald, despite his successes elsewhere along his chosen path. His plans to cut promotional spending as the year runs its course hardly leave the group best placed to deliver sales growth of 5 per cent next year. Once more the company is betting on a recovery.

Unilever did not waste any energy on detailing what might follow Path to Growth but analysts were speculating that delivering value would feature in its next training programme. Its double-digit increases in earnings per share and stronger operating margins and cash flow will help, but investors will be looking for more after a disappointing 2003. Luckily, yesterday's hints of share buy-backs and bigger dividends, now that debt is a manageable €14.4bn, were a start. Hang on to the shares, down 8.5p to 487.5p, until Mr FitzGerald proves he has the group back on track.

Superscape pins hope on phone play

The 3D technology company Superscape has transformed its business to cash in on what it believes will be the next big thing on mobile phones - 3D games. It has an excellent partner in ARM Holdings, which also owns about 12 per cent of the company's shares, and has also signed up deals with big names including Siemens, Samsung and Motorola.

But the company has a long road to travel. Yesterday it turned out a pre-tax loss of £4.1m in the six months to 31 July, compared with a loss of £4.9m in the same period a year ago. Revenue was just £94,000 for the half year, down from £510,000.

Its broker is forecasting revenues of about £1.5m this year which, it believes, is within reach, although the company is not expected to reach break-even until the early part of 2005.

Based on those forecasts, yesterday's £10m fund raising should ensure the company has enough cash to get to profitability comfortably with a reasonable margin for error. The real test will be whether consumers start playing games on their mobile phones en masse and that is far from certain. Given that risk and that the shares have rallied since March, to 33p, the stock remains, at best, a hold.

More left in St James's recovery

Even the rich suffered from the crisis of confidence that increasingly gripped investors as the bear market progressed. Mike Wilson, the chief executive of wealth management group St James's Place Capital, is the first to admit that this time last year he was still calling the market wrongly, hoping for an upturn in investment.

Only now is he seeing genuine signs confidence is returning. The decline in long-term savings handled by St James's has at last been reversed: the figures were down 20 per cent in the first quarter, 14 per cent in the second and 2 per cent in the third. The crucial point is that the recovery is continuing.

This side of the business was marginally ahead in September and has been better still so far this month. Behind the improving figures is a dramatic rise in protection business - by which Mr Wilson means products such as life, critical illness and loss of income insurance - up 65 per cent in the latest quarter.

As Mr Wilson says: "Last year we didn't anticipate a third year's fall in the stock market and we kept on pushing investments. With hindsight, we realise we can sell protection policies through good and bad times."

The real star, though, is wealth management. Gross fees of £5.6m in the latest quarter are 65 per cent higher than a year ago and St James's now has £7.2bn funds under management, 22 per cent more than at the start of this year.

The shares fell along with the financial sector to a low of 75p in March but they have since doubled, including a gain of 18.5p to 153.5p yesterday. Even so, they are only back to where they were a little over a year ago, just like the stock market. Buy for further recovery.

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