Baker Street, London -- There was some bounce in the market today. Following the late revival in share prices on Wall Street, many London stocks also recovered some of the ground they have lost recently. Exchanges in the Far East were worried by a threatening article in the official China Daily, which said that, in the worst case scenario, the People's Liberation Army was preparing for a war with Taiwan and was confident it could take the island if need be. This sent the Nikkei and Hang Seng down sharply but didn't dent the holiday mood in London too much.
Cadbury Schweppes(LSE: CBRY) led the London revival this morning. The confectionery-cum-soft drinks maker, together with the Carlye Group, might acquire US subsidiary the Dr Pepper Bottling Company. Although the group already owns the Dr Pepper brand, it want to gain closer control of its bottling plants. To this end the parties are currently in talks. This fizz sent Cadbury's shares up 20.5p to 407p.
A change in sentiment towards Hanson (LSE: HNS) sent the brick-maker's shares up 15p to 524.5p. Broker ABN Amro thinks the stock has been sold too much recently and re-iterated its buy advice to its clients. The group has over exposure to the US and its shares have consequently subsided during the recent correction in the US stock markets.
The biggest news this morning came from Cable & Wireless(LSE: CW.). The refocused group announced the sale of its One2One mobile phone joint venture with MediaOne to Deutsche Telekom for £8.4b. This was more than analysts were expecting. This leaves C&W virtually debt free and could see the group hunt for acquisitions again. At lunch analysts' applause had lifted C&W shares 10p to 743p.
Tech shares received a boost as the Nasdaq composite index finished in positive territory last night for the first time in over a week. Misys (LSE: MSY) was up 18.5p to 569.5p. Games maker Eidos (LSE: EID) soared 112.5p to 3280p.
Following Freeserve (LSE: FRE), up 4.5p to 205.5p, the next Internet flotation started trading this morning. At midday Wise information provider the eXchange(LSE: EXC) enjoyed an opening premium of 12.5p to its 200p initial price. This was sharply down from early quoted prices of almost 240p. Almost half the shares were traded in heavy volume. Underwriter to the 17 times oversubscribed issue, Warburg Dillon Read, will "greenshoe" the issue and exercise its option to place a further 12.26m shares. Fools might like to discuss these topics on the new Internet Flotations board.
In the wake of Cable & Wireless's canny manouvere this morning many rival telecom stocks fell. News that the BBC might scrap its digital broadcasting service didn't help cable operators either. Telewest (LSE: TWT) dropped 8.25p to 245p. BT (LSE: BT.A) was off 17p at 938p. And Vodafone AirTouch(LSE: VOD) shed 9p to 1159p.
Food producer Unilever (LSE: ULVR) fell 10.5p to 605p. The Anglo Dutch company released interim results this morning. Despite a rise in earnings, analysts thought chairman Niall FitzGerald's accompanying statement was "not as bullish" as it might have been. The details are covered in today's Lunchbox.
Baker Street, London -- How do you grow when you already have annualised sales of £27 billion? Read that number again, for it is not small. To give it some perspective, it is the same as the market capitalisation of Barclays (LSE: BARC), the most familiar brand in the UK.
The company I'm referring to is Unilever (LSE: ULVR), the Anglo-Dutch branded consumer goods business. Measured by sales, it is one of the very biggest companies in the world. Today they reported second quarter (and half year) results.
The very informative press pack, downloadable from the excellent company website, starts with the words "Unilever is a complex business." They are not joking. And, they're not talking about their accounts either, which are forever complex.
Back to the question at the top of this article -- the answer is "with great difficulty". Cost-cutting and growth by acquisition are the only two options for half-decent growth. And, they are hitting their cost base with great gusto, as shown by their second quarter 18% pre-exceptional item growth in operating profit. That was achieved on sales growth of just 3%.
Just before moving on, it would be remiss of me not to make comment on Unilever's 'exceptional items'. Although they are not broken out or specifically commented upon in today's release, you can assume a fair chunk of the £47m second quarter exceptional charge is for recurring restructuring costs. Unilever are in a constant state of change, and have actually stated they fully expect this state to continue almost ad infinitum. 270,000 worldwide employees says it all -- they take a lot of managing, a lot of paying, and a lot of restructuring. The upshot of all this is that when trying to get a measure of Unilever's underlying growth, you should not strip out exceptional items. On that basis, Unilever's operating profit grew 11% in the second quarter, which is admirable, but not 18%.
The operating margin improvement, from 9.2% to 9.9% in this quarter, is impressive, and comes as a result of a more focused product portfolio and cost cutting. The third piece of this particular jigsaw surrounds marketing spend. Unilever are one of the biggest and most innovative advertisers in the world, spending £3.5 billion in 1998. Those brands obviously don't invent themselves! Promotional spending is purely discretionary, and can be turned on or off completely at will, so it would be nice to know if any of that margin improvement came about because they cut marketing spend.
Now we've got that out of the way, we've still got Unilever's problem to solve -- how do they grow? Those margins can be stretched yet further, as the far-reaching product portfolio gets further rationalised. A realistic long-term aim for the company could be an operating margin in the region of 14%, meaning there's plenty of growth for them in that respect. After that however, further growth may have to come down to acquisitions.
Having just returned £4 billion to shareholders via a special dividend, it appears Unilever are struggling to find the right acquisition fit. They've been rumoured to be interested in Reckitt & Colman(LSE: RCOL), but if they were, Dutch compatriot Benckiser beat them to the punch. Patience is a virtue, and whilst they can get away with margin growth for the time being, sales growth is the ultimate long term aim.
Although the Unilever results were at the top end of expectations, after an initial jump, the shares finished the morning down 9.5p to at 606p. Analysts were apparently disappointed that the company weren't more bullish with their outlook statement, saying they expect sales growth for the second half to be at least 3%. An Internet company Unilever certainly ain't, but for those looking for steady, reliable and unexciting growth, they fit the bill.
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