An uphill Path to Growth

THE idea that a diet fad could knock the stately ship Unilever off course seems slightly preposterous. But the Anglo-Dutch consumer products group is no longer the monolith it once was, with a (fish) finger in every pie.

In pursuit of its Path to Growth strategy, the group slimmed down its own brand offering, dumped wholesale businesses such as starches and speciality chemicals, and put all its efforts into 400 core brands.

That, one might think, was enough for any company, even one with such grand credentials as Unilever. But there is a great deal of trendiness in the new portfolio including Slim-Fast.

The diet product line may have been endorsed by a medical study, but it has none of the freshness and celebrity-infused momentum left by the late Dr Atkins.

Moreover, as a long-term proposition it may yet face challenges from a pharmaceutical industry well on its way to discovering magic pills to combat obesity. It is not only Unilever's food lines that are out of fashion. So are some of the higher profile perfumes with designer names from Calvin Klein to Lagerfeld.

It is easy to blame this particular slump on hard times in the luxury goods market. That does not explain why other luxury goods firms, including Burberry, are enjoying record sales of toiletries.

Despite two lots of missed targets, Unilever is delivering at the bottom line with higher thirdquarter profits and a lift in the divi.

This has been done through improving its margins - not a surprise given the amount of rationalisation that has taken place in recent years.

Unilever needs now to start recognising that it cannot live off the fat of existing prices forever.

The global marketplace is changing. Bargaining power is shifting from manufacturers to the big retailers such as Wal-Mart and Tesco. Lower costs of production in China are forcing goods prices down across the board.

Unilever's competitors such as Procter & Gamble - closer perhaps to the American debate about China and deflation - have been fleeter of foot. Even Cadbury Schweppes this week recognised the new cost and pricing realities.

For now, investors are sitting on their hands, no doubt counting on the multi-talented Niall FitzGerald to steady the ship. But more mistakes with a portfolio heavily weighted to trendy brands might stretch patience too far.

Lloyds debate

THE new American chief executive of Lloyds TSB, Eric Daniels, is elliptical on the subject of dividends. No-one could fail to notice that with a yield of 8.2% Lloyds TSB shares (in which I am an investor) offer the best return in the Footsie, and more than twice many of its competitors. The scale of the dividend and what to do about it has sparked high-level debate in the bank.

The traditional view is that although the payout is only just about covered by earnings, the group can afford to maintain it and keep shareholders sweet.

It can use the cash it has recently gathered from sales of its New Zealand and Brazilian operations, which netted £3bn. But distributing it via dividends is not necessarily the American way. In the US there is a preference for buying back shares, which is seen as more tax-efficient.

Daniels should not be surprised if he finds some resistance to this in Britain. BP has embarked on ambitious share buybacks.

A glance at its price graph does not suggest there have been real long-term gains to investors.

Indeed, buybacks also raise suspicion among the broader body of investors that certain brokers and institutional favourites are likely to benefit more than the general body of shareholders. It may well be that Lloyds TSB's dividend can no longer be justified now that the group is ex-growth. But substituting share buybacks may not be the right answer.

Brown's blushes

ON first blush, the European Commission's latest forecasts for Britain's economy may look disappointing. The growth predicted this year has been trimmed to 2% from 2.2%.

But compared with what is happening in Germany and France, where growth rates have been cut to zero and 0.1% respectively, the UK is positively dazzling.

What really pleases the Treasury is the EC's observation that Britain is well-placed to keep within the Maastricht rules over the economic cycle. Perhaps, but in 2004 and 2005 it estimates that the debt-to-GDP ratio will rise to 40.5% and 41%.

By my reckoning, that breaks one of Gordon Brown's own fiscal rules. So it is not all good news.