Fool's Eye View

[ May 10, 2000 ]

Unilever grows by 1%

By Rob Davies (TMFEssex)

Carburton Street, London. The internal debate in the office about long-term returns from the stock market may be re-ignited by first quarter results from Unilever (LSE: ULVR) today. This large international, well-managed company with a superb portfolio of consumer brands only managed to grow its sales by 1% in the first quarter. Even the core portfolio of 400 so-called power brands only managed 3% revenue growth, and they presumably benefited from increased advertising and management input.

Although operating profit was 13% higher the net profit actually declined by 3%. Earnings per share showed a 16% gain to 9.1p as a result of the share consolidation last year. One reason for the negative return at the net level was the strength of sterling. At constant exchange rates the company would have reported a modest rise of 4%. Nevertheless, international companies like Unilever have to live with fluctuations in exchange rates. The following table shows how wide spread the company is.

Turnover by Region (euros m) and percentage change.

 Europe                     4,246   (3)%
 North America              2,138    3 %
 Africa and Middle East       531   (1)%
 Asia and Pacific           1,721    9 %
 Latin America              1,056    1 %

This wide spread of activities does of course give the company great defensive qualities. If any one area does have a tough time its effect on the group will be diluted by sales elsewhere. That said this little table does illustrate the importance of Europe effectively the home market for the group.

No one would pretend that Unilever is a high tech stock. Indeed it is about as far removed from technology as it is possible to get. It makes a very good living from selling the basic products that consumers in the developed world need to sustain themselves these days.

The table below details the operating profit, before exceptionals, from each of its major product areas and the change on last year.
(euros m)

Foods                                    403   19 %
Oil and dairy based foods and bakery     202   13 %
Ice cream and beverages                   59  301 %
Culinary and frozen products             142   (2)%
Home Care and Professional Cleaning      236   11)%
Personal Care                            444   34 %
Other Operations                           5  (79)%
OPERATING PROFIT                       1,088   13 %

This table clearly shows the importance of ice cream to the business, and that will increase after the purchase of Ben & Jerry's.

For cautious investors one of the great attractions of this company is its debt free balance sheet, although that would change if it manages to buy Bestfoods, and its cash generation capacity that in the first quarter threw off £600m. That will support a good dividend payment and/or a strong corporate acquisitions programme. Either way that should provide good returns to shareholders, it just won't be very fast growing.



• Link to TMF Mayn's article on Unilever for the Qualiport

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