聯合利華 (UL) 2002 Q3 法說會逐字稿

Welcome to Unilever's third-quarter 2002 results conference call. This conference will begin with a presentation by Mr. Howard Green, senior vice president, investor relations, followed by a question and answer session. At any time during the presentation, you may indicate your desire to ask a question by pressing the number 1 on your telephone touchpad. Should you wish to cancel your question, simply press the pound or hash button. This conference is being recorded and will be available up to and including November 13th, 2002. Details of the replay numbers and access codes can be found on Unilever's website. An audio archived copy of the teleconference will also be available on Unilever's website at www.Unilever.com. We will shortly hand you over to Mr. Green.

Ladies and gentlemen, good morning and welcome to this presentation of Unilever's third-quarter results. A transcript of this presentation can be accessed via our website at www.Unilever.com.

That transcript contains the usual formal disclaimer as to forward-looking statements within the meaning of relevant U.S. legislation, and this presentation and discussions are conducted subject to that disclaimer.

I propose not to read the disclaimer, but that we take it as read into the record for the purpose of this presentation, and conference call.

So now, let me turn to our results for the third quarter.

Can I remind you that unless otherwise stated, the financial numbers used in this presentation are in Euros at constant rates of exchange. That is, average 2001 rates.

On chart 1, you will see the quarter's key features. Firstly, the planned step-up in marketplace activity accelerated the growth of leading brands to 5.4% in the quarter. On a moving annual total basis, growth of the leading brands was 4.5%. Underlying sales growth for the quarter was 4.5%.

Secondly, our operating margin before exceptional items and goodwill amortization moved ahead by 50 basis points to 16.2% in the quarter. Within this, advertising and promotions have risen by 180 basis points.

On a moving annual total basis, operating margin before exceptional items and goodwill amortization is 15.1%.

Thirdly, net interest of 319 million Euros is 24% below last year, reflecting the combination of lower rates, the benefits of strong cash flow from operations, and proceeds from our disposal program.

As a result of the further increase in operating profit and lower interest, earnings per share before exceptional items and goodwill amortization advanced by 18% in the quarter and by 27% for the year-to-date.

The quarter includes a favorable prior-year tax adjustment of 37 million Euros, equivalent to 4 Euro cents of EPS BEIA. With a continuing advance in profitability, we now expect EPS BEIA growth for the full year to be in the high teens.

Let me turn to chart 2, where I show the buildup of our sales growth for the quarter. Underlying sales grew by 4.5%, with 2.3% from price and the balance from volume. Leading brands growth was 5.4% for the quarter with foods growing 4.6% and HPC growing 6.5%.

Volume growth in the leading brands is a little over 3%.

On a moving annual total basis, home and personal care leading brands growth is 5.6%, and that of foods 3.7%, giving 4.5% for total Unilever.

In the balance of the business, we continued to manage the tail for value. This has two aspects to it. Firstly, a deliberate trade-off between price and volume as we extract value from our harvesting strategy. In this quarter, we saw an underlying sales decline of around 250 basis points which has impacted total sales growth by some 30 basis points.

Secondly, realizing value through the sale of businesses. In this quarter, this effect is to reduce sales by the equivalent of 640 basis points or some 800 million Euros.

Acquisitions add around 70 basis points, to give total sales of 13.1 billion Euros, a decline of 1.2% on the prior year.

Let me quickly look at the trend in the leading brands which is shown on chart 3. The chart shows, on a moving annual total basis, firstly the growth of the HPC leading brands. The red line, if you're looking in color, or the line with triangles if you're looking in black and white. Secondly, the growth of the foods leading brands excluding ice cream. Again, the green line if you're looking in color or the line with squares if you're looking in black and white. And thirdly, the growth of ice cream, the dotted line.

We separate the latter to try and remove its seasonality from the trends.

Total leading brands growth is the blue line in color or the line with circles when looking in black and white.

Two points are clear. Firstly, we see growth of home and personal care moving back to its historical level with the growth of - in Q3 of 6.5%, bringing the moving annual total back to approaching the rate needed to achieve the path of growth target.

Secondly, in foods we see the benefits of the best foods integration and the creation of the firm platform on which to leverage innovation and marketplace activity. There is a clear upward trend.

As with the last two quarters, let me now show you how we're implementing our path of growth strategy by looking at performance in some of our key businesses.

As we have said previously, the pursuit of sustainable, profitable growth is our internal watch word, and it means that at this stage of the path of growth strategy, we can have different priorities as we optimize the levers of value creation. Those priorities are, however, all consistent with the building blocks of our strategy, and in combination we remain confident that they will get us to our 2004 targets.

Let me turn to chart 4 and try and go behind the numbers to show you what I mean.

This chart shows the annualized sales for our key reporting segments with the growth numbers relating to the third quarter. Let's first look at home and personal care.

Firstly, our personal care business had an underlying sales growth of well over 9% in the quarter. Leading brands account for 95% of sales and are growing at 10%. Within the total, a near 10 billion Euro annual turnover skin, hair, and deodorant mass market businesses grew by a little over 14% in the quarter, and by nearly 9% per annum over the last three years.

With average personal care underlying sales growth over the last three years of approaching 7% per annum, and an average increase in operating margin of 170 basis points per annum over the same period, we feel we have a good example of superior value creation.

As an aside, six of our personal care brands - Dove, SunSilk, Lux, Rexona, Pond's, and Axe - represents some 50% of total personal care sales.

Secondly, our laundry business grew by 1% in the quarter. Our immediate emphasis continues to be the improvement of profitability, and for the year-to-date, we have improved operating margins by almost 300 basis points.

It is margin that provides the fuel for growth, and we're determined to get this right within a regionally differentiated strategy. Leading brands represent 95% of total sales.

In developing an emerging markets, which account for 55% of our laundry sales, and where we are clear leaders, we have seen underlying sales growth of 4% and an improvement in profitability as we recover devaluation driven cost increases.

In western Europe, we have regained share compared to a few years ago while we have improved profitability by building on our market strengths and through innovation.

Even in a very competitive markets of this year, we have seen Q3 volume growth of over 4%, which is only partially offset by negative pricing of around 3%.

In the United States, we have improved margins and we're supporting a number of activities in the marketplace. Our strategy is to be a profitable number 2 with investment and innovation focused in areas of strength.

Incidentally, our total laundry business has grown an average of 4% plus over the last three years, and we have the plans to grow at this same rate, particularly as the rest of our World Markets turn back towards growth.

I now turn to foods on chart 5.

Firstly, spreads and cooking products were our leading brands account for sales of around 4 million Euros or some 65% of the total grew by more than 4% in the quarter. The emphasis is on continuing to prove that we can sustain growth on the back of our proven track record of generating attractive margins. We continue to see good growth in proactive and (inaudible) and through the roll-out of creme bonjour in several and eastern Europe. We have a a good innovation pipeline which will further capitalize on our strong brands and technology and which we can use to broaden our business to deliver a range of higher health benefits against categories.

The second part of our strategy is about finding value-enhancing strategies to exit from our tail businesses. The sale of refineries in Europe, the ma Zola brand in North America, businesses in Latin America, the agreed sale of (inaudible), our international specialties business, and the start of a sale process for our pond plantations in Malaysia are all good examples of what we're doing.

I now turn to savory and dressings, which includes olive oil. Underlying sales growth is just over 5%. [Canola], Hellman's and Bertolli represent nearly 50% of total sales, and altogether, leading brands are some 90% of total sales.

We've seen underlying sales growth in the leading brands of approaching 7%. We start to see the benefits of a successful best foods integration, which has ensured that we have created the firm foundations on which to leverage a regular flow of innovation.

In savory, we have seen underlying sales growth in strong mid-single digits, in particular driven by the [Canola] brand. Progress is broad-based in terms of geography and is driven by a strong innovation program.

Examples include the launch of Ramen noodle cups - soups, sorry, in Poland and Mexico, cook it easy recipe mixes in southeast Asia, a launch of bullions and cooking aids in a a number of developing emerging markets, [Refoga Cafera] in Brazil further contributed to growth.

In the U.K., we launched [Canola] V, Healthy Lifestyle soups, and saw continued strong growth in pot noodle.

Elsewhere in Europe, [Canola] soup makers are now available in Germany, the Netherlands and Poland and we further added to the range of sauces under both the [Canola] and Bertolli brands.

In the U.S., the raunch of Ragu rich and meaty had a promising start, while growth in Lipton's side dishes was driven by Asian and dual-chamber side dishes.

In dressings and olive oil, we've seen growth in mid-single digits as we start to see the benefits of our innovation program, the leveraging of Unilever technology and of our distribution strength in developing emerging markets. Growth has been broad-based with innovations such as Hellman's flavored mayonnaise and the continued strong performance from the new wishbone dressings and marinades range in the United States.

Outside the U.S., we introduced new olive oil variants in Latin America and Europe, successfully relaunched the PET format in Mexico, and adapted to the economic situation in Argentina with new packaging formats.

Australia was welcomed to the world of Hellman's with the launch of dressings and mayonnaise. In Brazil, we have just made our first deliveries of Hellman's sauces and dressings to McDonald's. Hellman's has maintained or grown its share in all key markets.

Now to tea-based beverages where the Lipton brand is approaching 70% of the total business.

We saw a small increase in underlying sales, with strong volume growth in the high/mid-single digits, partially offset by price declines driven by lower commodity prices. In ready-to-drink tea, we saw growth of nearly 8%, driven by volume, as we continued to expand the brand into the 350 billion Euro soft drink market, notwithstanding the poor weather in Europe.

In North America, there's also been a particularly positive response to the earlier launch in the year of our Lipton brisk lemonade. In leaf tea, we saw strong volume growth more than offset by negative pricing as we adjust our prices to reflect lower commodity tea costs.

Within this performance, we see two facets of path of growth in action. Firstly, we continue to see strong growth in central and eastern Europe, particularly in Russia, as we extend the reach of our leading brands. Secondly, however, this growth has been offset by a deliberate reduction of unprofitable volume in our business in India, as we continue to focus on improving margins.

Lastly, ice cream and frozen foods grew underlying sales by close to 2% in the quarter, and also moved operating margins ahead by 50 basis points. Leading brands are 96% of total sales. In ice cream, with underlying sales growth of nearly 2%, we continued to make good progress in both Latin and North America, whilst in Europe our businesses have performed well, notwithstanding the constraints of a poor summer.

Healthy operating margins reflect the robustness of our underlying business system and the efforts we have made to reduce fixed costs.

This also means we've been able to step up investment in advertising and promotions by over a hundred basis points in the year to date.

In frozen foods, we have seen a small positive sales growth in the quarter, with a flat operating margin. We're still not satisfied with our ability to deliver consistent top-line growth. Our quality convenience meals continue to make excellent progress, but we need to bring the same level of innovation and consumer value to the rest of our frozen foods portfolio.

Within the overall foods growth number, our foods solutions business is growing in mid-single digits as we see the benefits of integration and the leveraging of the Unilever brands through the former best foods business model.

I hope this gives you a flavor of the different aspects of path of growth as it gets implemented in our businesses around the world.

Before we move our sales growth, let me also try and shed some light on the relationship between price and volume as we manage through the impacts of devaluation in a number of developing and emerging markets.

This provides a relevant context for understanding our approach in these countries, and also its consistency with enhancing the long-term health of the business.

Chart 6 shows the relationship between price, volume, and underlying sales growth in those markets that suffered significant devaluations in 2001, which included Brazil, Chile, Indonesia, Thailand, South Africa, and Turkey.

On the chart, we see a strong confirmation of both our historical experience in these markets and the fruits of our proven experience in managing through challenging times.

Underlying sales growth in quarter 3 is 9.5%, with 7.7% in volume and the rest in price.

The key features are, firstly, a resumption of volume growth to historical levels following four quarters of decline. Secondly, a compensating reduction in the impact of price increases as we lack the original devaluations. Thirdly, relatively consistent underlying sales growth over the period.

In addition we have seen a restoration of our operating margins in these countries from just under 14% at the start of 2001 to just over 15% in quarter 3 of this year, and with market shares maintained or improved.

I think this performance reinforces our proven track record of managing through the economic cycle and the impact of devaluation. To remind you, in the last 10 years, we have grown the size of our developing emerging markets business from 7 billion Euros to 18 billion Euros, with an underlying sales growth in Euros of around 9% per annum, and in operating profits of 11% per annum.

Let me now turn to how we've continued to drive forward our operating margin.

This is shown on chart 7.

The basis points quotes are all expressed in effect on total Unilever operating margin.

Gross margins moved ahead by a hundred basis points in the quarter. The key drivers of the improvements in gross margin have been, firstly, continued benefits from our path of growth procurement and supply chain restructuring programs which contributed some 120 basis points of gross margin.

Secondly, improved mix contributed 40 basis points through disposals and a larger proportion of higher-margin categories.

We also reached our path of growth procurement savings target of 1.6 billion this quarter. The first tick in the path of growth completed column.

Additional procurement savings are therefore to be reported within the cost changes line, which we expect to benefit from the ongoing contribution from our global buying operations.

It remains a shortfall between cost increases and price of some 60 basis points as we saw the impact of increased costs from devaluation in Argentina and a further weakening of the real in Brazil.

As you would expect, we are taking the appropriate steps to manage this consistent with the experience which I referred to earlier.

As expected, we saw a step-up in advertising and promotions, which was 180 basis points ahead in the quarter, as we invested behind our second half-year innovation and market activity program. This brings our cumulative spend rate to 60 basis points ahead of last year.

Lower associated costs add 30 basis points to the operating margin progression, with an additional benefit of a hundred basis points from lower overhead.

Let me turn to chart 8, to highlight the other key financial indicators for the third quarter.

Operating profit before exceptional items and goodwill amortization rises to two one two one million Euros. Net exceptional charges for the quarter were 125 million Euros, which includes 215 million Euros of restructuring, with the balance being the net of profits and losses on disposals and settlement of a legal case in our favor.

Associated costs included in operating profit before exceptional items and goodwill amortization were 41 million Euros in the quarter. Interest payable is 319 million Euros, 24% lower than last year, through the combination of cash flow from operations and disposals and lower rates.

Cash flow from operating activities was 2.2 billion Euros in the quarter, and if we look at this on a moving annual total basis, it has gone from 5.6 billion in Quarter 4 of 1999 to 8 billion in this quarter.

Net debt at the quarter end at current rates of exchange was 18.8 billion Euros compared with 22.2 billion - 22.9 billion Euros a year ago. Net gearing is 67%.

EBITDA before exceptional items, which is in current money, is 2.3 billion Euros in the quarter, and EBITDA interest cover is 8.4 times.

The underlying tax rate for normal trading operations and excluding goodwill amortization is 30%, including 2% from a prior-year adjustment.

This relates to the completion of a tax review in the United States. This was finalized after our pre-close conference call on 23rd of September, and compared to the guidance we gave at that time, adds 4 percentage points to the EPS BEIA growth in the quarter or 1 percentage point of growth on a full-year basis.

The effective tax rate for the quarter was 35%. This reflects the non-tax deductibility of best foods goodwill amortization and the release of provisions on the resolution of a number of outstanding tax matters.

Now let me turn to chart 9, which shows how our reporting currencies have developed in the quarter and shows the impact of - on the EPS of currency exchange rates. Chart 9 shows the currency exchange rate EPS and EPS before exceptional items and goodwill amortization, and the percentage change for the Euro, pounds Sterling, and for the U.S. dollar.

When expressed in current rates of exchange, EPS before exceptional items and goodwill amortization grew by 11% in the quarter, and by 21% for the year at current rates.

In the quarter, at an average rate, the pounds Sterling and the U.S. dollar weakened against the Euro by 2% and 9%, respectively, while the Argentinian peso and Brazilian real devalued by 75% and 25%, respectively.

Averaged across the year to date, we have seen a weakening of the pounds Sterling against the Euro by 1%, and of the U.S. dollar by 3% compared with last year.

The average exchange rate for the year to date also reflects a 66% devaluation of the Argentina peso and a 16% devaluation of the Brazilian real.

When expressed in current exchange rates, we see sales growth in Euros for the quarter lowered by 8%. Of this, the weaker U.S. dollar accounts for around 2 percentage points, and the weaker currencies in Argentina and Brazil account for a further 3 percentage points.

EPS before exceptional items and goodwill amortization growth is lowered by 7%.

I will now review the quarter's results and performance by region, beginning with Europe, on chart 10.

Underlying sales growth was 2.6%, with 140 basis points from price. Impact of the poor summer on sales of ice cream and ready-to-drink tea was to reduce underlying sales growth by 80 basis points in Europe and for total Unilever by 30 basis points.

Our ambient stable foods businesses grew underlying sales by 4.5%, whilst in home and personal care, our growth was 2.8%.

The impact of disposals was to reduce sales growth by the equivalent of 590 basis points, to give a reported sales decline of 350 basis points.

Key highlights in the development of our business have been, in western Europe, underlying sales growth of 5% in branded spreads and cooking products, driven by a sustained progress of our innovations. Good growth in savory and dressings of close to 5%, fueled by marketplace activity behind Amour a, Hellman's, Bertolli, [Canola], and pot noodle. Year-to-date, growth in Hellman's is in the high/mid-single digits and for [Canola] is approaching 4%.

The roll-out of Slim-Fast has continued with strong growth performance.

Ice cream has performed well, notwithstanding the poor summer weather. Whilst underlying sales declined a hundred basis points, our innovations such as come net toe soft, where we now have 80,000 machines in place, smack size ice cream and take-home packs have all made good progress.

In our home and personal care business, we've seen good growth in hair and deodorants, with the key drivers being did you have, recollects own a and Axe. Dove shampoo and conditioner is now available in 16 markets and it is achieving good repeat purchase.

In laundry, volume growth of just over 4% has been only partially offset by pricing in a competitive environment, and market shares have been maintained.

In central and eastern Europe, we've seen growth in high single digits driven by particularly strong growth in Russia, in tea, savory and dressings, household care and personal care, and in spreads, household care and personal care across the rest of the region.

Operating margins are 90 basis points ahead of last year, reflecting the benefits of supply chain restructuring and best foods synergy, partly reinvested in advertising and promotions, which is ahead by 150 basis points.

I'll now turn to North America on chart 11.

Underlying sales growth of 2% was more than offset by the effect of disposals to give sales 6.7% lower in the quarter. Underlying price was flat. In foods, underlying sales grew 2.7%, with good volume growth, partly offset by a negative pricing impact of 20 basis points. Slim-Fast and ice cream continue to grow strongly, and we have also seen good growth for Wishbone, [Canola], and Skippy. We continue to roll out our innovation program and have stepped up advertising and promotion by a hundred basis points in the quarter.

There was good progress with our innovations with Lipton brisk millennium on Canadian, Ragu rich and meaty sauces and a steady start for Hellman's flavored mayonnaise. However, overall sales growth was held back by continuing promotional price competition in the spoonables category, the exit of hell Marchness in the pourables category and low butter prices that have impacted our margarine sales.

In combination, these three factors have reduced food sales growth by the equivalent of 110 basis points.

In home and personal care, underlying sales advanced by 100 basis points, with good growth in personal care, partially offset by declines in home care. Whilst much has been written about our share development and where we believe the conclusion is to be unduly negative, it is true that a light innovation program in the first half of the year has flattened off our previous share progress in skin, deodorants and hair. We've also seen some loss of our - of our laundry market shares as we focused on getting our margin structure right.

However, as we move through the third quarter and into the last part of the year, we've seen the planned step-up in activity and the corresponding increase in support levels.

This has given us good growth in skin, prestige fragrances, oral care, and deodorants. In the latter, the launch of Axe is proceeding well.

We also have a more active program in laundry that has picked up momentum through the quarter.

We have a strong forward innovation plan to build on our proven success in skin, hair, and deodorants, and in household we now have a stronger margin platform on which to fully support future innovation and marketplace activity.

For total North America, operating margin is ahead by 120 basis points, which is after a 220 basis points increase in advertising and promotions.

I now turn to Africa, Middle East, and Turkey, on chart 12.

Underlying sales growth of 7.9% is driven by a - by an underlying volume growth of 8.5%, partially offset by negative pricing. The net of acquisitions and disposals has been to increase sales growth by the equivalent of 280 basis points.

South Africa performed particularly strongly, with good sales growth across savory, spreads, and personal care. SunSilk was successfully launched, building on our experience from Latin America.

In Turkey, we continue to see consumer down-trading and declining markets reflecting a difficult economy. Whilst market shares in key categories were maintained or grown, we have seen an underlying sales decline of nearly 13%. Elsewhere in the region, activities behind Sun silk, Dove, [Canola], and Lipton all made a good contribution to growth and strengthened our market position particularly in Israel, Saudi Arabia and the Gulf States, (inaudible) Algeria and Morocco. Operating margin is ahead by a hundred basis points after an additional investment in advertising and promotions of 80 basis points.

I knew turn to Asia-Pacific on chart 13. Underlying sales growth of 4.5% is driven by underlying volume growth of 390 basis points at a price of 60 basis points. The impact of disposals was to reduce sales growth by the equivalent of 290 basis points to give a sales increase of 150 basis points.

In home and personal care, underlying sales growth was 5.7%, with 6% in the branded consumer business, whilst in foods it was 1.8%. In home and personal care, the growth was broad-based in terms of both category and country. Most notably, we saw growth in Indonesia, Philippines, and Vietnam in the mid to high teens, and double-digit growth in both hair and skin, where innovations in Dove and life boy fueled the growth. In India, we saw mid-single digit growth with both fair and lovely, wheel, and Pond's contributing strongly. In Japan, following a first half, we saw a flat performance in the quarter, reflecting tough comparators due to the launch of Dove shampoo in the previous year.

In foods, we saw a continuation of the excellent growth in southeast Asia as we start to leverage the best foods brands through the Unilever distribution system, introduce innovations in [Canola], and further strengthen both the [Bango] and (inaudible) brands in Indonesia.

This strong performance was partly offset by declines in tea in India, as we adjust our pricing to reflect lower commodity prices and the focus on improving profitability.

This impacted foods' underlying sales growth by just over 200 basis points.

Operating margin increased by 60 basis points, after an additional 260 basis points in advertising and promotions.

I now turn to Latin America on chart 14. Underlying sales growth was 13.9%. Pricing is still the main driver as we recover devaluation led cost increases, although the rate of underlying volume declined at 80 basis points is significantly lower than in the first half of the year. If we exclude Argentina, then we see a positive underlying volume growth of 460 basis points, and positive price of 630 basis points.

Mexico continues to show very good growth, particularly in personal care through say call, which now has reached a share of over 10%, through Axe and Dove, and in savory, following the successful launch of [Canola] (inaudible) last year and [Canola] (inaudible) in this quarter. Ice cream also grew in double digits with the launch of a new magnum variant, and further expansion of distribution.

We also see good growth in [Andina] led by the launch of [Sadaul]. In Brazil, underlying sales moved ahead strongly, deodorant through Rexona and Axe, and hair through [Sadaul] and the launch of Dove shampoo both grew at more than 20%. In foods, the continued success of innovations behind [Canola] were further reinforced by the good growth of Hellman's and [Arisco].

The current economic environment in Argentina has severely reduced consumer demand and volumes have been affected as a result. However, our experienced local management have taken the appropriate actions to preserve the long-term value of the business. Market shares are firm in declining markets.

And laundry market shares in Brazil, Argentina and Chile remain firm.

Operating margin was 170 basis points below last year, with an increase in advertising and promotions of 190 basis points. We have made good progress in recovering devaluation led cost increases in Brazil, but have seen the expected effect of the devaluation in Argentina and further currency weakness in Brazil impacting margins in this quarter.

That completes my review of the regions, and I'll now be happy to take your questions.

Thank you, Mr. Green. We will now poll for questions from analysts. If you have a question, please press the number 1 on your telephone. If you are listening to the conference call on a speakerphone, please use the handset while asking your question. Should you wish to cancel your question, please press the pound or hash button.

Our first question is from Mr. Carl [Kuwaja] of Capital Research. Please ask your question at this time, sir.

Hello, Howard.

Hi, Carl.

Congratulations. These results are fabulous, so well done.

Thanks.

I was wondering if you could talk a little bit more about shifting the priorities in path to growth that you presented in your presentation. I was wondering if you could elaborate on that in terms of what it means vis-a-vis A and P spending or disposals or regional strategies. I didn't know if I fully understand what you meant by that comment.

Yeah, sure. I mean the - the emphasis, as we move through the first part of path to growth has obviously been on executing the key parts of the restructuring program, executing the procurement savings, active portfolio management to get us out of some of the underperforming business. And we're seeing the benefits of that in - in terms of the margin progression.

And we also saw, through 2000 and into 2001, a steady pickup in the rate of - of the leading brands growth.

The first part of 2002 was influenced by two factors. One was that as we went through the best foods integration, we wanted to make sure that we actually had a firm foundation for leveraging innovation, and therefore we ended up with a very light innovation program in that particular area in the first part of the year. And also, in developing emerging markets, as we were recovering the devaluation-driven cost increases, it's difficult to - to get new ideas on the shelf when you're trying to negotiate significant pricing activities.

So we had a - a light - a light innovation program, which was then - if you add to that the light innovation program in home and personal care North America, it gave us a relatively light program in the first half of 2002. And that is why, when we - with our midyear statement, we sort of told - we talked about sustaining the growth of leading brands at between 4-and-a-half and 5 percent, because as we move into the second half of path to growth, we've created the firm foundation in foods and I think the quarter 3 results start to show that, and we're also able to actually step up the rate of advertising and promotion spend because we've actually created the - the fuel for growth.

In terms of where we are through the - sort of the 200 basis points of A and P that we talked about in path to growth, then we're around about 60 basis points in total of that through, and we've created the margin momentum and we've got the programs going forward that will enable us to realize that 200 basis points of incremental investment that we articulated at the start of path to growth.

And it's those that - that would - it's those issues that we're talking about, as we enter that second half. It's about now making sure that we use the fuel that we have created to drive the top-line growth in path to growth, so that we actually get our 5 to 6% growth in the top line by 2004 that we have - that we clearly communicated to the market.

The - the margin story and the progress with the savings, progress with best foods, the completion of the target in procurement and what else that we can do gives us good confidence about the margin side of the equation, and now we - now we turn to sustaining and lifting up the growth rate to that target. Does that clarify it for you, Carl?

That's very helpful and I guess this quarter showed some evidence of it with, you know, the higher A and P spending but coming through on the top line. And an additional question I had, if I may, is: The raw materials price environment seems to have improved for several companies, and I wonder if that improvement is masked by what's happened in Brazil and Argentina in your numbers and whether we might see a little bit of relief on that front in 2003.

Yeah. I mean I would describe the general sort of raw material environment as - as relatively benign. However, we have got a fairly significant usage of edible oil in our businesses. And edible oil prices have been on the - on the rise recently.

Now, I mean that's just a normal factor of our business that we have managed since the - the roots and foundation of Unilever, but if I actually look at it on a year-to-date basis, then we've seen sort of a non-cost in edible oil prices in our foods business of in excess of 150 million Euros.

Otherwise, it's a relative set of swings and roundabouts that we actually see, and we also have a variety of mechanisms in place that allow us to actually manage that, whether it's by hedging, whether it's by contractual arrangements, whether it's via formulation management, whether it's by intelligent use of alternative sourcing arrangements and configurations.

So the - you know, as I say, the only real negative we see is in the edible oil area. Otherwise, those - those other issues are coming through in terms of margin.

Where we have got large what I would call businesses such as tea in central Asia, where you have got low tea prices, that tends to get passed through almost immediately to the consumer. I mean, you have a branded product but the - the - you've got to make sure that you actually maintain the price-relative position to the - to the competition. Otherwise, you become very quickly priced out in the market. So that would be one where we would actually see some - some pricing - pricing moving down, but where we'd actually be looking to make sure we maintained the profitability in terms of Euros or dollars per ton.

Okay. Thank you. And thanks for all the disclosure you've provided in this release. It's very helpful.

Okay Carl. Thanks.

The next question is from Mr. John McMillan of Prudential Securities. Please ask your question at this time, sir.

Congratulations, Howard.

Thanks, John.

The guidance for the fourth quarter, I guess, is for a slightly - a flat to slightly down quarter. You know, given the fact that it does look like cost saves are coming in higher than expected, I mean, to get to that number you'd really have to spend a lot of - on A and P. Could you be conservative with that guidance?

On the guidance, John, it's always based on the business plan that we actually have within - within the business, and that includes - I mean, your modeling is correct, in so far as the - the EPS is flattish, and within that, there is a significant step-up in advertising and promotions, but it goes behind some pretty specific marketplace activities as well.

So I wouldn't describe the guidance as conservative. It is a product of the back-end loading of our innovation program and we are resourced appropriately.

I have to say that there is - there's never been a record within Unilever of us standing at the - the windows and throwing money out of the windows in a (inaudible) way. What we're actually doing is that we properly support those initiatives. I think we have to wait and see what the fourth quarter ends up with, and - and I look forward to talking to you at that stage.

Okay.

I think that's the best I could say on that.

Sure. That's fair enough. And these third-quarter numbers were very good with a couple of exceptions and certainly the ice cream issue is understandable. I'm just trying to get a little more comfort around the home care business, you know, particularly in the United States. When you talked about improvements expected in the fourth quarter, a lot was said, I think, on personal care, but I'm not sure as much was said on home care. Can you just go over, particularly in North America, those areas of specific weakness? Obviously part of it is laundry and a lot of it has been talked about, but can you just add a little more color in terms of what improvements or at least less declines you're seeing in that area? Or you expect to see in that area?

Yeah, sure, let me - let me provide some context.

I mean, I think the - one of the sort of first things that provides context is that the laundry business in the U.S. actually accounts for only around about 3% of Unilever, and so whilst I understand that it actually generates a lot of interest, that has to be taken into account in the overall balance of things.

We have seen some - some giving up of share in the year-to-date figures as we look at them and we have shed just over a hundred basis points of laundry share. We had innovation in 2001, in particular in tablets, which was not as successful as we had hoped in terms of generating growth in the category or, indeed, in terms of creating changes in the category. We've ended up with a disproportionate share of the - of the tablets category, something around about 45% market share, if my memory serves me right. But that category is far smaller.

Now, that produced a ripple in our plans, and in our thinking, and the need to make sure that we actually got the business system properly sized to then concentrate on areas of strength.

And we've got innovation out in the marketplace in terms of the launch of you'll know a brand called All. We got All fabric conditioner, we've got new packaging in Wisk, we've got a new variant in Wisk for sort of the washing and cleaning of sports clothing, for all those active people out there, and the laundry strategy is about concentrating on our areas of strength, but making sure that we've got that margin structure right to properly support those. And the margin structure wasn't right in the first half of the year, and maybe the last quarter of last year, to properly support them. And what you can see in the numbers is that we've improved laundry profitability and that these initiatives that I've just described are now getting the - the right kind of - right kind of support in the marketplace.

So laundry, of course, is an important business, but it also has to be seen in the context of total Unilever, and in the context of North America, you know, it's - it's the categories such as skin care, the daily hair care, and deodorants where you can see the focus of our strategy and the real creation of gains that we've made in market share over a sustained period of time.

Great. Thank you very much.

Okay, John. Thanks.

Before we continue with the question and answer session, we'd like to once again remind analysts if you have a question, please press the number 1 on your telephone. You may cancel your question by pressing the pound or hash button.

Our next question is from Mr. Jason Gear, also from Prudential Securities. Please ask your question at this time, sir.

Congratulations, Howard.

Thanks, Jason.

Hi. Actually, I have two small questions. One, I guess I wanted to get a little more color on the frozen food business. I know that you exited Gordon's about a year ago, and it still looks like the - the trends there are not maybe as stellar as some of the other categories and I was wondering if you could provide a little color on that. And I'll ask my second question afterwards.

Yeah. Okay. I mean one of the things that we've been doing in frozen foods is that we've essentially regrouped that business into - into its European heartland. As you say, we have - we disposed of Gordon's. We exited businesses in - in Latin America. We exited businesses in Spain and Hungary, and we have also, within Europe, made sure that we've actually got out of more of the commodity end of the - of the business.

In 2001, we saw an increase in operating margins of around about 300 basis points to get them into the low double digits, and to give us a return on capital employed of over 30 percent.

In 2002, we've further improved the margins and moved them ahead again by around about 130 basis points, so we're happy with the - the margin structure.

What is not there yet is the growth side of the equation, and that's why I say in the - in the presentation we've done a lot on the profitability, but growth is not there. Part of the portfolio, what we call the - the quality convenience meals, are growing extremely rapidly, in the low double digits growth that we're getting for these high convenience - high-quality convenient meals. What we're not offering at the moment to the consumer and the rest of the business is the right value equation, because that - the other part of the business which I guess would still amount to 60% of the business, is dragging down the overall growth rate and we've got to get that right.

Now, in quarter 3, following two quarters of decline, in quarter 3 our frozen foods business has grown underlying sales by 1%. Now, we're not - we're not claiming instant victory and sort of pack up our bags and go home. It's moving in the right direction, and what we've got to do is we've - having, as we call it internally, earned the right to grow - i.e., got the margins right - we've got to continue to focus the portfolio, make sure that we've actually got the innovation behind the real consumer trends in the business, or in the marketplace.

So meal solutions, hand-held snacks, kids' nutrition, what we would call foods with integrity, what might be described as "real food," it might be frozen but it's real, all built around a growing trend towards convenience and great tasting, easy to prepare, good quality, natural ingredients.

And those are the plans that we actually have got in place at the moment and which we are going to be supporting strongly in the market in the rest of this year and going forward.

So we've got the margins there. We've got the innovation plans. We've now got to demonstrate that we can actually deliver the - deliver the results.

When you talk about some of these new items like hand-helds, frozen items, is this something internally you're talking about, or would you con - even though path to growth, you know, you are trying to scale back and focus on the 400 leading brands, but would you be in the marketplace to look at businesses that would complement your frozen foods?

We're - we're very happy with both the technology that we have within the business and the - and the brands that we have within the business. We think there are other brands within our portfolio that are able to actually carry frozen foods into - into both the retail market and into the out-of-home market, food solutions or food service, but - but those plans are at a relatively sort of embryonic stage. So we're certainly not looking at - for acquisitions. This will be a case of organic growth, and we don't see anything within our capability, within our distribution, within our brands, within our knowledge base, that really would justify looking outside of our own capability.

Okay. And then the last question I've got is I - you know, I understand that Axe is actually, you know, doing well and since it's been put to the market in Wal-Mart, and I was wondering, are there any other opportunities or anything that you might have in the pipeline, any other products from overseas that you might want to introduce in the U.S. market and get your feedback on that.

Yeah. I think one of the - one of the real benefits that has come from path to growth and the divisional organization has been that we have got the focus on this fewer number of leading brands, and that enables us to leverage innovation and brand mixes much more rapidly across the - the Unilever world.

And what you will see is, as with Axe, that ideas that have worked well in - in other markets being leveraged across geography just as - just as Dove, for example, has been able to leverage and extend itself outside of its American homeland into - into the 80-plus countries that it is now operating in and giving us the great rates of growth.

So without getting into the specifics, I think that that is one of the - one of the great - the great sort of discontinuities that you've got within path to growth that separates our historic performance from what we can actually achieve into the future. It's ability to take great ideas from wherever they may come and leverage them rapidly across - across geography and particularly into the largest consumer market in the world, which is your country.

Well, thank you very much.

Thanks, Jason.

This concludes the question and answer session. We will once again hand over to Mr. Green for closing remarks.

Let me summarize. We've seen the planned step-up in growth of our leading brands and we have good momentum going into the fourth quarter. Our savings programs continue to deliver and provide the fuel for growth. The fuel that allows us to invest in increased levels of support and the fuel to drive our operating margin.

In combination with our strong cash flow and the positive impact this has on interest, we now see our earnings per share before exceptional items and goodwill amortization growth for the year, full year, being in the high teens.

Thanks for your interest in Unilever, and your questions. The IR team is, of course, available on the usual numbers to answer any additional questions you might have. Thanks very much. Good-bye.

This conference has been recorded and will be available in one hour. Details of the replay number and access codes can be found on Unilever's website. An audio archived copy of the teleconference will also be available in two hours on Unilever's website at www.Unilever.com. Thank you for participating.