Soap war dilutes first-quarter profit at Unilever: Company closes plant and changes marketing mix to stem decline

UNILEVER, the company behind the multi-million pound relaunch of Persil soap powder, is suffering from another kind of soap war in the US, where the continuation of fierce price competition in detergents contributed to disappointing first-quarter profits.

A price war between Unilever, number two in the US with about a fifth of the market, and Procter & Gamble, which has about half, erupted last July when Unilever introduced a liquid concentrate. Unilever added to its problems by withdrawing the traditional, full-size product at the time of the concentrate launch, although that has now been reintroduced.

The impact of the battle is demonstrated in a halving of the first-quarter operating profit in the US to pounds 10m on sales that increased from pounds 1.2bn to pounds 1.3bn. That was despite a strong performance from other parts of Unilever's US business, including personal products and food.

Unilever has been taking action to stem the decline in profits. It has closed a manufacturing plant in Los Angeles, cut indirect costs and changed the marketing mix of the products.

Overall, Unilever's first-quarter profit was pounds 294m, down from pounds 295m last time, on sales 4 per cent ahead at pounds 6.7bn. That was lower than the market had expected and the shares dropped 57p to pounds 10.23 as analysts downgraded their forecasts. Earnings per share were 15.74p, down from 15.8p last time.

The decline was partly due to exchange fluctuations. Excluding these, profits would have been 2 per cent ahead. The group made a number of acquisitions, which added 1.5 per cent to sales.

In Europe, operating profits rose pounds 21m to pounds 303m, although that was partly because of a profit on selling a business. Sir Michael Perry, chairman, said that trading conditions remained difficult, particularly in the consumer businesses.

Persil Power, the new-formula washing powder launched in Britain last week, is now available in 10 countries. Unilever is taking legal action against P&G after it claimed that the new powder damaged clothes. A spokesman said the consumer response had been good.

Unilever continued to make progress in other parts of the world, where profits rose from pounds 159m to pounds 167m. The group said that South-east Asia and Latin America were particularly good, although Brazil was disappointing.

The results were hit by a 77 per cent jump in the interest bill to pounds 55m. That was partly due to the redemption of pounds 273m of preference shares, as well as high interest rates due to hyper-inflation in Turkey. The interest bill was, however, offset by a pounds 13m profit on the sale of some offices.