View from City Road: The brand is dead yet

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The Independent Online
'Brands are dead' was a useful war cry for bears determined to have a go at the top-line consumer companies this summer. Unilever, suffering under the added burdens of a downturn in its important Continental European markets and threats of discounting by the big supermarkets, saw its shares underperform the stock market by 25 per cent between March and the end of July.

Its share price is still sensitive, despite clawing back 10 points of underperformance since then, demonstrated by a 16p fall to 1,086p yesterday, in the wake of slightly below par third-quarter figures.

But a 5 per cent increase in third-quarter pre-tax profits to pounds 613m and a 6 per cent rise for nine months to pounds 1.6bn, both at constant exchange rates, tend to suggest Unilever's performance has been pretty resilient in grim trading conditions in Europe and North America. The rest of the world, about a quarter of group sales, is offsetting the downward drag from richer countries. But, excluding acquisitions, overall operating profit rose only 2.5 per cent.

In Europe, at least, Unilever can blame the weather rather than a collapse of brand strength for a continued slide in profits. A downturn in ice-cream sales, typically at a high margin, during the wet European summer, cost the company pounds 20m, and more than accounted for an pounds 8m fall in profits.

In North America the vicious price war between Unilever and Procter & Gamble to establish supremacy in the super-concentrated detergent market does not suggest the brand is dead yet.

This week's controversial decision from the Monopolies and Mergers Commission on the supply of perfume, including Unilever's Elizabeth Arden and Calvin Klein, confirms that consumers are keen to attach value, if occasionally irrationally, to brands.

Unilever is scarcely involved in own-label products, which are currently getting it in the neck in supermarket discounting. After a 17 per cent increase in the interim dividend to 6.08p, in line with currency-inflated net profits, a more modest rise in the final indicates an attractive 3 per cent yield.