The Investment Column: Betterware looks east

Peter Hartley, managing director of Betterware, the plastic housewares retailer, made the best of a disappointing set of figures for the half year to September which saw profit before tax drop nearly 18 per cent to pounds 5.5m in spite of a modest increase in sales.

Interest income fell after last year's special payout. The pounds 1.25m exceptional item, mostly repayment of VAT, which inflated last year's figures, has not been repeated. But operating profit grew by 6 per cent only because of a first-time contribution of pounds 515,000 from overseas businesses.

At home, sales grew by a disappointing 1 per cent and operating profit fell 6 per cent to pounds 5.4m. Mr Hartley blames poor sales performance on the death of Diana, Princess of Wales, two weeks before the half-year end, which led to salesmen getting the brush-off on the doorstep. It also discouraged the vital recruitment of new salespeople looking to earn pin- money for Christmas.

Recruitment is the group's greatest problem because most of the labour force consists of housewives working in the school-term time, students and casual workers who cannot find a full-time job. The average working span of a distributor delivering catalogues and collecting orders is no more than three months, although most return.

High hopes are pinned on the joint ventures with Avon, the cosmetics firm, in Mexico and Argentina, both of which are profitable after two years, and most recently Brazil.

The company now plans to move into Eastern Europe and Russia, where Avon has already been operating for up to five years and where the public is considered ripe for the Betterware message. Betterware is prepared to put up to pounds 5m into the region before it starts to pay back.

Analysts have scaled back forecasts for the full year from pounds 12m to pounds 11m, equal to 7.1p of earnings. The shares fell 11p to 88p yesterday. On 12.3 times prospective earnings, this is high enough.