Unilever cleans up its act The Investment Column

Unilever has had a torrid couple of years, highlighted by the group's humiliating withdrawal of its "new improved" Persil Power washing powder. But trading has hardly been inspiring either, reflected in a share price that has underperformed the rest of the market by 11 per cent since the beginning of 1994.

The hope is that things are now going to change, spurred by the root and branch management shake-up being instigated by Niall FitzGerald, set to take over as chairman of the UK side of the Anglo-Dutch group later this year.

The fruits of that could take another three years to come through, so yesterday's first-quarter results showing a 10 per cent rise in pre-tax profits to pounds 509m reflected actions taken by the previous regime. On the face of it, that looks a respectable result, given that sales were up only 7 per cent to pounds 7.69bn in the same period.

But the figures were distorted by a number of one-offs. Fingers crossed, there should be no repeat of the pounds 15m charge at Birds Eye Walls to cover the cost of the BSE scare. There was also a pounds 30m adverse swing on exceptionals, more than offset by a change in the treatment of stocks in the Liptons tea business in the US, which added pounds 40m to profits.

Stripping that lot out, the picture is more mixed. Past cost savings are starting to show up in Europe, where margins would have been ahead but for the BSE hit, but they still have a long way to go. The US operation is holding its own against powerful competition, but the real potential for Unilever lies in its operations in Latin America and Asia. Boosted by acquisitions, the former showed underlying profits growth of 30 per cent in the latest three months, with volumes up 9 per cent. Even Asia managed volume growth of around five times that of the US market, which was up just 1 per cent.

Unilever has trailed its rivals in recent years, highlighted by strong first-quarter sales figures from Nestle yesterday. Profits of pounds 2.45bn this year would put the shares, up 6p at pounds 12.10, on a forward p/e of 15. It requires something of an act of faith to believe Unilever will get it right this time, but on balance a risk worth taking. Hold.


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