聯合利華 (UL) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Unilever's 2004 third quarter results conference call. This conference will begin with a presentation by Mr. John Rothenberg, senior vice-president of Investor Relations, followed by a question and answer session by Mr. Rudy Markham, Financial Director of Unilever, and Mr. John Rothenberg. [Operator instructions]. This conference is being recorded and will be available for a period of two weeks. Details of the replay numbers and access codes can be found on Unilelver's website, and an audio webcast of the teleconference will also be available on the Unilever's website at www.unilever.com. We will now hand you over to Mr. Rothenberg.

Ladies and gentlemen, good morning and welcome to Unilever's third quarter 2004 results presentation.

A transcript which contains the formal disclosure, as to forward looking statements within the meaning of relevant US legislation can be accessed via our website at unilever.com, and this presentation and discussion are conducted subject to that disclaimer.

I will not read out the disclaimer, but propose we take it as read into the record for the purpose of this presentation and conference call. 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 2003 rates.

Firstly, I'd like to introduce myself, as I know that there are a few of you on the call whom I've not yet had the opportunity to meet. I'm John Rothenberg, and I've recently taken over as Head of Investor Relations here at Unilever following my previous position as Senior Vice President Finance of our North American HPC business.

In keeping with usual practice, I'd like to take you through a brief overview of our Q3 results before taking questions with Rudy Markham who is here with me on this call.

The fact that our Q3 numbers are in line with, and in some respects, slightly ahead of what we had anticipated when we issued our trading update on September 20 is no cause for satisfaction here at Unilever.

Put simply, our sales performance is just not good enough. We will not sustainably deliver the level of shareholder returns that you require from us unless we re-ignite growth in our business.

So let us turn briefly to the numbers, which are set out on Chart 2.

Turnover was 4% in the quarter down, including the impacts of disposals which lowered sales by 270 basis points. Underlying sales therefore declined by 1.3%.

Operating margin before exceptional items and goodwill amortization are slightly ahead of last year at 17.4%.

Net borrowing costs were down by €19m or 10% in the quarter, benefiting from both lower debt and interest rates.

Net FRS17 pension financing cost was down €21m reflecting slightly higher asset values, and the impact of increased cash contributions into our funded schemes.

Net debt at quarter end exchange rates was €11.8b down by €2.5b over the past 12 months. Our key financing metrics continue to improve. EBITDA interest cover of nearly 12 exceeds our target minimum, thanks in part to the benign interest rate environment while funds from operations to lease (ph) adjusted net debt rose to 38%, equivalent to 31% based on the recent SEC guidelines. This compares to our 40% target minimum.

The effective tax rate, beia in the quarter was 27% in line with our expectation for the year as a whole. EPS beia was 3% ahead in the quarter. This is somewhat better than indicated in our trading update. As September sales was slightly ahead of expectation and A&P slightly lower.

Exceptional items amounted to a €71m charge in the quarter made up of €106m of restructuring costs and €35m profits on disposal. Also in the quarter were a number of minor restructuring activities and disposals that were not part of our Path to Growth program. As such these do not qualify for exceptional treatment. While these affect margins in certain segments of the business, in aggregate they have no material impact on operating margin beia in the quarter.

The interim dividend has been set following our normal policy at 35% of last year's total dividend in the stronger of the two currencies, which for the first 9 months was sterling.

Looking at the top line in a little more detail, let me turn to Chart 3.

Underlying sales were down in both foods and HPC in the quarter, although with different contributions from price and volume. The decline in foods was driven primarily by the sharply lower volume in Western European Ice-Cream and Ready to Drink Tea. Pricing was positive, mainly in the Americas. In contrast, HPC delivered modest volume growth with a strong contribution from D&E markets, partly offset by declines in developed markets. However prices declined, reflecting our response to the market and competitive environment across a number of our main HPC markets. With leading brands now accounting for over 95% of total sales in the quarter, a 9% decline in the tail diluted underlying sales growth by only 40 basis points.

Turning to margin development as summarized in Chart 4.

Gross margin is 40 basis points down in Q3. The main features were as follows.

Firstly, lower sales of Ice-Cream in Europe accounts for a 30 basis points reduction in Unilever's Q3 gross margin.

Secondly, restructuring savings and an improved mix from disposals together increased the gross margin by 130 basis points.

And thirdly, against the background of flat overall pricing, increased input costs reduced the gross margin by 140 basis points.

Procurement savings continued to accrue, but these were offset by commodity price increases of some 4% year on year or around €150m in the quarter. We are seeing some increases in packaging, chemicals and transport costs due to the higher mineral oil price, although these have been partly defrayed in Europe by the weaker US dollar. At the same time, edible oil prices have eased somewhat, although our hedging arrangements mean these have yet to feed through fully into gross margins.

In line with previous quarters we continue to channel our brand investment towards improving the availability, visibility and promotional footprint of our brands at the point of sale. Thus, while advertising and promotions fell by 70 basis points, in store promotional expenditure, which is reflected in the flat pricing, rose by 180 basis points. Overheads were 10 basis points higher as the impact of lower sales, including the dilutive impact of disposals, was largely offset by restructuring and other savings initiatives.

At this point, rather than going into details of the performance of each of our individual categories, I would like to take a slightly different approach and focus directly on the challenges that Unilever currently faces as a business, and what we intend to do about them. For those of you who are interested, further details on leading brand growth by category can be found on our website with this presentation.

Turning to Chart 5, the first thing I want to do is to distinguish clearly what is working well and where our challenges lie.

Firstly, nobody should doubt our commitment to shareholder value. Unilever has a long track record of placing the interests of its shareholders as the driving force behind its business decisions, even if this means making difficult and painful choices. Neither is our problem one of control of costs or capital. Through Path to Growth we will have delivered around €5b of savings in annual operating costs. Over the same period we have reduced capital employed as a percentage of sales by 860 basis points, and considerably reduced our tax costs. We have an efficient balance sheet and are committed to keeping it that way. In the past 4 years Unilever has delivered over €16b of free cash flow. By any standards this is a good performance.

Furthermore, we believe that we have ample capacity to deliver further savings and reduce capital requirements going forward. We have identified savings of some €700m per annum from our simplification programme across Unilever, and we are now looking to accelerate delivery.

We are also confident that our global procurement program will continue to yield savings in both production and non-production items for some time to come.

Our challenge is getting the business back to acceptable levels of sustainable growth. So turning to Chart 6, it is clear that we need to address market competitiveness across a number of our categories.

Certainly some parts of the business stand out as areas where we must move quickly to reverse our poor performance, and we are doing just this. We have also spoken on several occasions about our under-performing businesses and I'll say more about these in a minute.

In our September trading update we identified the challenges we face in Europe and Asia. As you can see, these regions are having a significant impact across our categories. Europe, because it accounts for over 40% of Unilever sales, with a strong weighting in almost all categories. And Asia, because it has historically been a major driver of our top line growth, most especially in Home and Personal Care.

But before going into the actions we're taking in these regions, we should recognize that there are many parts of the business that are delivering good growth. Some of which are illustrated in Chart 7.

In aggregate, our D&E markets continue to deliver volume growth in excess of 5% in Q3, in spite of the competitive battles being waged in HPC Asia. Latin America in particular stands out as a region where the steps we took to protect the business health in the face of economic crises and competitive entries have been rewarded by profitable growth - over 6% underlying sales growth in Q3 and for the year to date. Our global Deodorants business grew by high single digits in the quarter notwithstanding the weak market conditions in Europe and North America. Axe and Rexona continued to set the pace in this category across the world.

In the US market we now vie for Deodorant category leadership having come from a distant third position as little as four years ago. The picture in Ice-Cream outside Europe is similar with share gains and sales growth across our businesses in North America, Latin America and Asia. We remain the clear number one Ice-Cream business globally. Our Spreads business is making good progress. This is a highly profitable category for Unilever, which we are finding ways to grow in very tough markets. Becel and Flora, our heart health brands continue to go from strength to strength, recording high single digit growth in the quarter driven by innovations such as Pro-Activ milk, yoghurt and yoghurt drinks as well as progress in the core spread categories.

Meanwhile our move into non-dairy cream is helping our family brands to grow again. Our large Knorr and Hellmann's brand, acquired with BestFoods continued to deliver solid growth, with Knorr in particular proving its potential in the D&E markets.

There are many other examples around the world where we are demonstrating our ability to win in the marketplace. But what about the parts of the business that are performing less well? When we fail to grow sales it can mean only one thing, that our brands are becoming less popular with our consumers. This might be relative to other brands and products in the category, in which case we're losing share. Alternatively it might be that the categories in which we compete are losing their share of the consumer's wallet, in which case we see decline in the market value.

Either threat requires a response. To stimulate demand in our brands we need to improve the value they offer to our consumers and we are doing this in three ways.

Firstly, we are adjusting price points of our products where this is necessary to align them more closely to the consumer's perception of value.

Secondly, we are improving our product offering through innovation to boost the functional and emotional benefits of our brands.

And thirdly, with the right products at the right price, we can focus on improving availability, visibility and awareness of our brands through increased investment in media advertising, promotions and other brand activation activities. This seems straightforward, although in practice each market situation requires its own specific response. As we have said, we will do what it takes to improve the market competitiveness of our offerings and we will do so in a way that is carefully targeted and sustainable.

Turning to Chart 8, I would like to address those areas of the business that we have indicated as priorities for our attention.

Firstly Europe, where we have experienced a 5% decline in underlying sales across Foods and HPC in Q3. In Foods the poor summer weather certainly influenced a double digit decline of Ice-Cream and Ready to Drink Tea sales in the quarter, which together accounted for around two thirds of the sales decline in Europe. But we also suffered share loss in take home Ice-Cream and in some other Food categories, primarily to own label products and hard discounters.

In Frozen Foods we continued to make progress in reducing the cost and asset basis of the business with margins increasing once again in the quarter. Our strategy of repositioning the brands towards a 'fresh and natural' platform is underway, starting with Bird's Eye in the UK. But this has not yet been translated into an acceptable sales performance.

In HPC there were declines in both Homecare and Personal Care markets in the quarter. Year to date the Homecare market is down 3% and Personal Care up a meager 1.5% compared with the 4% plus growth rate that we normally see in European HPC. Our market shares are more encouraging. Although we have lost some share year on year in Laundry to both own label and branded competitors, there has been modest improvement in recent months. Household Care continues to disappoint. While markets are weak we have also suffered some share loss. In Personal Care, however, we have in fact gained share in Europe in 2004.

So turning to chart 9, what actions are we taking in Europe?

Firstly pricing. To adapt to the new realities we have already acted to adjust our pricing in a number of areas. In Spreads we reduced pricing on our family brands in Germany and Poland, where we have been rewarded with a turn up in volumes. In Laundry we are strengthening our coverage of price positions. For example with the recent relaunch of our Surf Smart Shopper brand in the UK and Ireland, and the launch of a new low price Skip variant in Portugal. Further actions will follow.

We are also driving harder on innovation. For example following early success with the extension of cholesterol lowering technology into milk and yoghurts, we've accelerated the launch of a range of 'one a day' yoghurt drinks, which are now on the shelves in the UK, Portugal and Belgium. We see this as an exciting opportunity, and one which will receive much attention in coming months.

Another example can be drawn from Fabric Conditioners, where in the UK, Comfort Pearls has been launched as the first unit dose fabric conditioner in a convenient capsule.

We are also putting greater weight behind brand activation programs across both Foods and HPC. For example in Fabric Cleaning we are putting even more impetus behind the 'Dirt is Good' brand activation that has proved so successful in a number of markets around the world. We've also strengthened programs in support of our Hair brands, which are performing well across Europe, and on various Knorr activities.

Coming to Asia, the situation is somewhat different. These are large and growing markets where we have excellent positions and have understandably attracted the attention of several of our competitors. We have already made substantial moves to protect our market positions against a specific threat in India, and these are bearing fruit. Our volume shares in both Laundry and Hair are now increasing again. However, we are determined to move away from the defensive and onto the offensive in these markets. We are doing this with an aggressive and well- supported innovation program incorporating a whole raft of activities. These are either already in the market or will be brought to the consumer within the next few months.

Amongst these, some of the more important already announced can be seen on chart 10.

In the Japanese hair market, where we have already strengthened the Mods brand, we are coming to market in November with improved formulation, packaging and communication for our leading Lux Super Rich brand. In India we are launching Rin Advance laundry powders, promising superior whitening to augment the Surf Excel innovations already in the market. Other innovations targeting the large anti-dandruff shampoo segment include Clinic All Clear in India, Hazeline in China and Clear across South East Asia.

We are confident that these and other initiatives will help to restore top line momentum. Of course, opportunities to accelerate growth are not limited to Europe and Asia. We are committing additional resource behind key brands and priority projects in North America and elsewhere, where we scope -- where we see scope to drive harder.

And finally, turning to Slim Fast and Prestige on chart 11. We have completely revamped the Slim Fast range in the US, and our market share has stabilized at around 25% in recent months securing our brand leadership in this attractive market. Press and outdoor advertising behind the new Optima range starting in October and media support will ramp up in the fourth quarter as we approach the peak New Year season.

Similarly in Prestige, the benefits of our restructuring are now apparent, with margins well ahead. We have a well supported program behind our Calvin Klein Eternity Moment launch in both Europe and North America and initial signs are positive. It will be a while yet before we can assess whether these activities are having the desired long term effect, although the combined impact of these two businesses is no longer a significant drag on Unilever's top line.

Turning to Chart 12, the short term impact of our more aggressive marketing program is reflected in our reduced 2004 earnings guidance to low single digit EPS growth.

The turnaround in our top line performance will not happen overnight. Going forward, we will need to manage the business flexibly in order to respond, respond competitively, and to protect and build our market positions. In this context we expect EPS in Q4 to be affected by the step up in support expenditure. There will also be a substantial increase in exceptional restructuring in the quarter.

Looking forward, we have announced our intention to review the assumptions that underpin Unilever 2010 in the light of current market trends and our recent business performance.

We will communicate our conclusions from this review with our 2004 full year results in February 2005.

In the meantime, I want to leave you with the reassurance that we remain fully committed to growing, free cash flow and increasing return on invested capital. We cannot deliver this without growth, and we will not shy away from any decisions or actions that we consider to be necessary to deliver on this commitment. We know what it takes to win, we are making the necessary adjustments and we are absolutely clear that re-igniting profitable growth in the business is our number one priority. That completes my presentation, and I would now like to invite questions to Rudy and me.

Thank you, Mr. Rothenberg. We will now poll questions from analysts. [Operator instructions]. The first question comes from Mr. Andy Smith of Citigroup Smith Barney. Please go ahead.

Good morning, Rudy. Good morning, John.

Good morning, Andy.

Can you give us some guidance on A & P spent in the fourth quarter, and in particular any guidance for the outlook for 2005? That's the first question. And secondly, can you please give us the actual numbers for the decline in Ice-Cream sales and Ready to Drink Tea sales in Europe in the third quarter, please?

Thanks, Andy. Let me say first a comment on 2004 A & P. You will have seen the performance to date. We said in the trading update, which we did in September that we were stepping up the level of marketplace aggression, and that we will be increasing also our level of A & P spend in the fourth quarter. And I said that looking at it then we would expect it to be about at or above the level, a little above the level that we had in 2003.

In terms of 2005, we'll come to that when we talk about the outlook for 2005 in February. With regard to Frozen -- to Ice-Cream and Ready to Drink tea in Europe in Q3, clearly you'll recollect that we are comparing this year, which was a very poor summer for us, with a very good summer in 2003. And the loss of sales which was partly weather, partly share in Q3 was double digit of the order of -- above double digits, so the order of 10% to 13%. In terms of Ready to Drink tea sales, they were well down in the quarter, also reflecting that. John, you possibly have got the number.

They were somewhat more than the Ice-Cream figures, and that is not unusual.

Just one final question if I may. John, you indicated that there’ll be -- a major pick up in exceptional spending in the fourth quarter. Can you perhaps quantify that and tell us where that will be spent? Is it part of the Path to Growth initiative or is it more significant than that?

As we said with our second quarter results, we will be spending up in the second half and we will be completing the Path to Growth. But we will also be carrying on with our restructuring program and with the simplification program, which we announced in the second quarter. And that will start to bite already in the fourth quarter and will be an exceptional item in the second half of the year.

Can you exclude any potential asset write downs in the fourth quarter, is that being considered?

Our restructuring program as you know, Andy, deals with factory closures, it deals with supply chain rationalization, it deals with overhead reduction, and where we make disposals of tail businesses, for example. If there is a negative difference between the carrying value of that business and the sales price, we also include that in our restructuring cost. And that mix, we've seen as we've been through Path to Growth, and will continue as it were to the completion of the program this year.

Okay, thank you.

Thank you, Andy.

Thank you. Our next question comes from Miss Celine Panutay of J P Morgan, please go ahead.

Yes, good morning.

Morning, Celine.

I would like to come back on one comment you made into the implementation that you said that you will do what it takes to foster topline growth into 2005. And you have said that you will do more A & P spending and more pricing investment. Could you be a bit more specific on that, and what should we expect in terms of the profitability in that?

And my second question as well as regard to profitability, could you tell us what are your expectation in terms of raw material impact for 2005?

Yes, Celine. The statement that John has just read deals with the activities that we're undertaking to step up growth performance and to re-ignite the growth in the business for 2004. And that has led us to change the earnings guidance for 2004 reflecting higher levels of A & P spend. We also announced that we were increasing the speed of delivery of the savings on our simplification project. And we hope to see that momentum build up as we go through the quarter. I'm not going to speculate now on the impact for 2005, we'll come and deal with that in the context of the 2005 outlook with the year end results.

In terms of raw material costs, I think John gave you a picture on how we see raw material costs moving at the moment, and that clearly guides us through to the end of this year. Thank you, Celine.

Thanks.

Okay, your next question comes from Mr Ian Kellett of Dresdner Kleinwort Wasserstein. Please go ahead.

Morning, gentleman.

Morning, Ian.

A couple of questions. Firstly margins in Latin America. Could you talk to us a little about what happened there? Secondly, how Prestige grew in the third quarter. Did it grow, did it decline, what was the number? And thirdly, what the associated costs of restructuring are in the EBIT line, year to date if you have that number, that would be great. Thanks.

Thanks, Ian. Let's deal with the Prestige quickly. We have growth in Q3 just double digit, I think.

Yes, just over 10%.

As we launched into the market Eternity Moment. The question on EBIT, maybe John will tackle in a second. Margins in Latin America, let me talk about the Latin America perfomance. We've had good sales growth this year in Latin America quarter on quarter, so first, second and third. We've had a good gross margin performance. We've seen the operating margin fluctuate during the year, and I'm quite confident as we go through the rest of the year that we will continue good performance in Latin America.

Sorry, what's causing the fluctuation in the Latin America operating margin, ‘cause we --

Sorry, Ian. We have seen some fluctuations in market research, the phasing of costs, if you like. We also react -- we'll have to react to changes in tax legislation, which can often come at very short notice. But there's nothing significant as we look at it in the development of our margin performance in Latin America this year against the good growth that we're seeing, which is quite widespread across the region.

And the associated costs of restructuring to date on the EBIT are --?

Sorry, John, you have that?

The associated costs year to date are €55m, Ian, with €24m in Q3.

Thank you very much.

Thanks, Ian.

Thank you. Your next question comes from Mr. James Edwards, James of Execution. Please go ahead.

Morning, guys.

Good morning, James.

A couple of quick questions, if I may. First of all can you give some indication how the Suave launch has gone in the US? I think that was one of the areas you'd earlier identified as having problems.

Second, can you expand a bit more on the areas where you think you need to step up a level of price investment? In particular [indiscernible] more an issue than your smaller, more local brands than it is for large global brands. And finally, I might have missed it, but Ian's question -- or was it Andy's question, sorry, on the exceptional restructuring costs in Q4. Did you quantify that?

Let me take the last one first. We didn't quantify it, and we said that we'd spend something close to a billion when we started the year. We will have a significant step up in the fourth quarter, but we will not get all the way up to that. What we will clearly do is spend significantly more in the fourth quarter than we have in the quarters to date.

And then to your question on price investment and areas of insuring that our [inaudible] remain very competitive. We have differences across the world. The key -- the big area where we have -- which has impacted our performance this year is Europe, and then within that particularly Western Europe, but not only. And in Europe we see across a number of categories the need to ensure that our brands remain price competitive. And they are both regional, local jewels, if you like, and also our international properties.

In Asia we have a different situation in which we are responding, if you like, to the value proposition of our key competitors or a couple of a key competitors in a number of countries there. And that concentrates itself primarily on Laundry, and to a lesser extent on Personal Care business. And again, that's a mix of both international brands and local brands. The key point I'd like to leave you with, it's all the time about the value offering in individual marketplaces that we give to our consumers and where we've felt that's out of line then we've made adjustments to it. And in terms of the Suave re-launch, John, you have just come back from the States.

On Suave, James, as we said, we are making sure that we strengthen the Suave property. As you would imagine, it's the largest shampoo brand by volume by quite a long way. It clearly has lost a little bit of share with all the activity that's been going on. I'm glad to say that in the third quarter we arrested those losses and stabilized the business, and in fact we are confident that going forward we have a program for Suave that will continue to put it where it rightfully belongs.

Thank you very much.

Thank you. Your next question comes from Mr. Tim Potter of Goldman Sachs, please go ahead.

Good morning.

Good morning, Tim.

Morning, Tim.

The question regarding the [indiscernible] costs, and whether you can be a little bit more specific about oil related costs and the impact that might have on the HPC division.

Right, let me take that. Clearly oil is the -- mineral oil is the major raw material source for many of the chemicals we use in our products, and also plastics and packaging. And the latter of course also feeds into our foods business. We also have an oil cost impact from distribution costs. Including the rise in oil costs, mineral oil barrel costs has led to an increase in distribution costs in a number of countries, particularly those that are dollar related. So the US or countries that track that currency very closely. Less of an impact in Europe. And John has commented in the speech on the general impact that raw material costs have had on our gross margin performance to date.

Can I follow-up with an additional question on the increase in A & P in Q4. Can we also take it that the significant increase in trade spend as well?

We have as we've gone through this year, as we have commented both in previous quarters and also in the trading updates, seen a rise in trade spend allocation, particularly in Europe in response to the very significant competition both from retailers amongst themselves, the hard discounter format and amongst ourselves and our major competitors. That has led us to strengthen our support in that area and that will continue. At the same time we've recognized that the support that our brands need in terms of direct contact with consumers also requires strengthening to match the true need for aggression in the market place, and that is what we're stepping up in Q4.

Okay, thank you. And finally, a question on the level of the cost savings that you refered to an acceleration in this. Can you give us an idea of what the run rate is compared with previously?

Tim, the simplification project was the one we announced in July. And we are gearing up rapidly to the execution of that project. We said at the time we expected a modest contribution to 2004, and I'm comfortable that we will continue to get that. But that we see the acceleration of that program as we go into next year in scale and in time frame.

Okay.

Thanks, Tim.

Thank you. Your next question comes from Mr. Albert Reckford of Kelper Equities, please go ahead.

Yes, good morning, gentlemen.

Good morning, Albert.

Two questions, if I may. The first one is Skincare in the US. Could you tell us a little bit what's going on there, and also in relation to the Dove brand.

And secondly on Europe, the press releases mentioning that olive oil sales have been disappointing. Is this largely like a private label effect, or the private label competition you're suffering? Or -- could you tell us a little bit about that?

Let me just deal with the olive oil one first. Olive oil is a category, which is very heavily influenced by raw material price movements up and down. And therefore that is -- it is, when you're simply selling olive oil you see quite a lot of volatility year on year depending on raw material prices, because they feed straight into consumer prices. And what we're seeing is indeed year on year comparison, the impact of price changes, if you like, in the raw material base. In terms of Skincare in the US, John, do you want to comment on Dove?

Yes. Our Skincare picture in Dove in the third quarter was not as strong as it had been earlier in the year, and that's reflected in some of the shares, and we have a program to correct that.

Okay, thank you.

Thank you. Next question comes from Mr. John Macmillan of Prudential Equity Group.

Good morning.

Good morning, John.

These numbers are all better than I feared, both on the top line and the bottom line. And Rudy, I know you're reluctant to kind of get into 05, but as you kind of review targets, one target that I think --

We've -- hello, John?

We've lost you, John.

Can you hear me now?

Yes, we can. We missed your question John.

Just on the sales target, I know you're reluctant to talk about 05, but can you just address the willingness to look at top line target, and kind of onerate (ph) that and take the pricing component out of it?

I think the best response I can give you, John, is what we've said both during -- when both Chairmen were with me when we made the trading update, and again repeated by both in the Chairman's statement today and the comments that John has made. Which is that re-igniting the top line growth to competitive levels of growth is the top priority for our business, and that we're stepping up our commitment to the marketplace in terms of resources in order to keep that.

We expect to see that effect as we go through this year and into next. At this stage I'm not going to quantify, as you wouldn't expect me to, exactly where we'll end up. Also, we have to recognize that this takes place against the backdrop of developments in the market size in which we're operating. So it's very much about the competitiveness of our offerings, which are the things which we are addressing. To recover some of the share that we've lost, to ensure that our products are priced where they represent real value from consumers, and that they're adequately -- there's a consumer attention. And we'll see then next year where that takes us.

Could you just also, I guess there is quite a talk about the large Personal Care was much --

We've lost you again, John, sorry.

Okay, I'll call back.

Terribly sorry, there's something with the line, John.

Your next question comes from Mr. Julian Hardwick of ABN AMRO. Please go ahead.

Good morning. I wonder if you could just talk about whether you're seeing material changes in the competitive environment? I know it's obviously a case of different circumstances and different markets, but across the piste would you say that the competitive environment is getting worse for you, or is it no different compared to a quarter or so ago. I was interested that you've now highlighted Indonesia as being a new area where you're seeing low price competition and I wonder if you could talk about that as well for us? Thank you.

Yeah, I'd say generally the competitive dynamic in Europe is very tough, and we are having a really tough time this year in Europe, that's manifest from the performance that we've delivered and the examples we've shown where we've conceded or yielded share. In terms of Asia, which is the second big area, then we are seeing of course a very heavy price competition in India, and selectively in other markets, partly from our major competitor and partly from local competitors. They, I would have to say, come and go. They're a reminder of the need all the time for proper competitiveness of your offerings in the marketplace. That is the thing that we are very actively and urgently addressing as we announced in -- four weeks ago.

Is your sense of things -- are no different? Getting worse? Getting better?

I think in terms of the environment that we saw when we made the trading update four weeks ago, that we see no real change. I mean Q2 has shown the market developments that we've commented on, and that hasn't done any better nor any worse.

And Indonesia in particular?

Well we don't comment on individual subsidiary results and performance, but I would say that the general features that I’ve commented on, which is consumer interest in very highly focused on value. Even in markets like Indonesia it remains true also for that market, and secondly we have of course significant competition from a number of our international competitors in our Personal Care categories there.

Thanks for that.

Thanks very much.

Thank you. Your next question comes from Mr. David Lang of Investec.

Good morning, Rudy. I'm wondering whether there's been any material impact on the promotional spend, particularly in Europe from the lower sales levels, whether that's been a material factor in the lower A & P for the quarter. And then I've got a follow-up on Food service.

Okay, well let me address the A & P in Europe. You'll have seen from the results package that our A & P levels in Europe are down, as they are -- in the quarter, as they are for the whole business. The majority is in fact in Europe. A significant chunk of that relates to Ice-Cream. You would expect advertising to fall somewhat against a very poor weather environment. Plus also we have lost some share there. We have seen a step up in trade spend support in the market in Europe in the second -- in the third quarter both in Foods and in our Home and Personal Care business. That is one of the drivers, of course, for the decline in the rate of category growth that we've seen both in Personal Care, which is much lower, and the negative development of the category in Homecare.

Rudy, basically the above the line spend then has been materially affected by the weather. And the below the line spend is more of the same that we've been talking about all year, and last year.

No, sorry that wasn't clear then.

David, some of the above the line and some of the below line, or in the A&P numbers that promotions wise are variable, but there have been other things going in various directions which offset that. But your basic assumption that there is some volume effect, both above the line and below the line is true, and it's reflected in the fact that the lower ice cream sales leads to somewhat lower promotional and somewhat lower trade spend.

Thanks very much. So far the discussion hasn't mentioned Food Service, which was one of the areas which was expected to grow at above market rates, when you acquired Pet Foods in 2000. I was wondering what the current situation is with Food Service, both in North America where it's largest and also in Europe where there's meant to be a lot of synergy.

Thank you David. The growth of Food Service is positive this year. If I look across the geographies we have excellent growth in Food Solutions as we call it in Asia, and in Latin America. We have a reasonable performance in a very tough environment in Europe and our performance in North America is flattish.

What's the story there?

In terms of the America? Sorry the background to that. We have had, you will remember in 2003, a poorer performance in North America with a number of our customers. We have addressed that. We have also made some changes to management, and we are looking for the recovery as we go through the remainder of the year. But, it remains a very tough and competitive market for us just at the moment.

Thanks Rudy.

Your next question comes from Mr. John Parker of Deutsche Bank. Please go ahead.

Yep, good morning. I've got a couple of questions. The first is concerning the Unilever 2010 target. In your statement of September 20 you said that you were committed to the long-term financial targets of return on invested capital and growth in free cash flow, i.e. the 2010 targets that you've given us. In this statement you've said you're committed to growing free cash flow and increasing return on invested capital. You've dropped the commitment to those specific targets. Am I being a little bit too subtle here or am I being correct in seeing this as a shift in your commitment to the 2010 targets?

What we have said John, both in the September statement and in today's statement, is that against the backdrop of a significant change in our markets in a number of geographies across the world, many of them with differing circumstances, and where we have seen some markets go backwards in value terms, we've seen some reduce in growth overall. We have said we need to reassess the implications of that, although whether that has any impact on the framework that we outlined for 2010 going forward; we also have to take into account the performance of our business in the last few months. Because, you'll recollect in 2010 one of the assumptions we have is about maintaining our market share performance in competitive terms.

So, these are the assumptions that we are re-looking at in terms of assessing whether there is any implication on our plans and strategy and thinking going forward and whether we need to make any changes in order to react to that. We also then said, to reassure our investors that we remain completely committed to shareholder value, expressed in the context of 2010, through our ambition for competitive performance in terms of TSR levels. And, we said that performance level we set as an ambition at top third TSR. And, secondly we said the expression of that top third performance is characterized by an improvement in free cash flow, and secondly by an improvement over time and the return on invested capital. Neither of those objectives have changed. What we have said is we'll review those assumptions, as you would expect us to do, and we will come back in February with the outcome.

Okay. Thank you. Could I have a second question? In terms of your cost savings, you've given us this £700m figure for the simplification program, but in isolation that's kind of meaningless from this side of the fence, because you also have procurement savings and you're talking about other supply chain savings.

It would be really helpful to have the totality of the savings you're making this year or targeting this year. Because that figure of £700m in isolation doesn't really mean very much. Are you able to give some sort of guide to the totality of savings through these various programs which you're expecting to achieve in 2004?

Thank you John. And, I'm sorry if we have created some confusion with the numbers that we put out.

Let me first of all address the One Unilever simplification project, that brings savings; largely to overheads, because that's the nature of the activity, which we expect to come over the next couple of years, that's point one. So, that flows into - into a little bit into this year as I already said, but predominantly into next year and the year after. That's a discreet activity, if you like, around the business. And, that is about putting our Unilever businesses together in each country around the world so that we have one much stronger operation and a simpler structure and a quicker more market responsive structure.

The second group of savings that we have are those that we've had throughout the period of Path to Growth, which are about restructuring; it's about the Best Foods integration savings, and it is of course about procurement savings. And, what we did is over Path to Growth we tracked all of those, and we said as we came towards the end of Path to Growth we were conscious in response to much of the input we've had, also from you, that we were overloading the market with targets. So, we then said fine, we will then adopt a much simpler framework, and that was the basis for the statements that we've also made in the context of 2010, i.e. we expect to see continuing momentum in things like buying savings etc. going forward.

We expect to see also in the future a level of productivity savings or restructuring savings going on as a sort of ongoing business. And, we quantified that in terms of expected impact in the context of 2010, and that too is - of course one of the assumptions we would just revisit and reconfirm as we go through the process.

So, I hope that's helpful in terms of understanding the way we're thinking about these cost savings and the way they feed into our results?

Thank you.

The next question comes from Mr. Robert Jan Vos of ING Financial Markets. Please go ahead.

Yes, hello good morning gentlemen. I have [many] questions if I may. The first one you may have already answered, but just checking. What precisely was the reason for the rather huge decrease in the A&P to sales ratio? I thought you said something about a big chunk from that was Ice Cream related. Could you perhaps comment on that?

Sure, I can tell you that straight away. The lower A&P this quarter, compared with previous, with the same quarter last year, is largely in Europe. And, within Europe is to a significant extent in Ice Cream. And that reflects responding to the poorer weather that we've seen.

Okay, thank you. Then my second and third question. Perhaps can you quantify organic sales development of Slim.Fast in the third quarter? And, related to that, what is the frequency at which you do asset impairment tests?

Fine they're two separate questions, I'll take them separately.

The first is the sales performance. We have seen over - as you will know we have gone through a significant period of refurbishment and relaunch of the SKUs and the brand and the range under Slim.Fast and the big - the sort of third part of that jigsaw, the big part came in Q3 with the delivery to the market in the United States of the Slim.Fast Optima range. So, we have seen as a consequence of this activity, I would say a stabilization of our market share in Slim.Fast in the US and, basically a stabilization therefore of our sales.

We have seen some decline in the rate of growth of category sales as we've been through this year. But we will see as we go through the fourth quarter the impacts that the many initiatives we've made has now on consumer demand, and the attractiveness of the brand going forward. That's the situation of the brand.

In terms of your second question, which is when do we review the carrying value of assets that we hold in the balance sheet? Of course, every year. And, in the case of goodwill and intangibles, we do that also at the half-year, and that is a routine process with a prescribed methodology which we follow and execute.

Okay. Thank you.

Your next question comes from Mr. Andy Brown of Cedar Rock Capital. Please go ahead.

Good morning.

Good morning.

Good morning.

Sacrificing the health of your business in a vain attempt to hit unrealistic earnings targets, was the sign of a company in disarray. Now abandoning your earnings targets last month was a sensible step. And, I want to ask today whether you are prepared to make the next difficult and painful choice, which is to appoint a single chief executive.

Now, shareholders and employees, and indeed your newly and franchised non-executive directors need one chief executive to be accountable and to provide clear and consistent leadership. Please be clear that I'm not asking at this stage about unifying Unilever's capital structure, I'm only asking if you will appoint one chief executive within your existing structure.

You will recollect that we made changes to our governance system, which we proposed to our shareholders last May. Which were designed to respond to changes in the governance system, both in the UK and in the Netherlands, the two domiciles of our parent companies. That reinforced both the unitary board structure of the company and formally the inclusion of our then advisory directors as non-executive directors of the business and the majority.

We adhered to the principle of having a dual chairman/CEO that was proposed at the time, or confirmed to the shareholders, and agreed by them, and that is the structure that we have. We have - we continue to monitor developments in terms of governance around the world as we go forward.

Your next question comes from Mr. Andrew Wood of Bernstein. Please go ahead.

Good morning, a couple of questions.

Good morning Andrew.

Morning. Firstly, now in the consumer space the reaction of many companies who have been struggling seems to be to increase their investment behind A&P and innovation. And, clearly the strategy of companies that's been successful is to continue making increased investment behind A&P and innovation.

My first question is, what makes you so confident that this increase in your A&P and innovation is going to have a material impact on your business in the market place? Are you doing anything different than any of your competitors that have out-performance relative to them?

Secondly, slightly rated to Andy's question previously. Could you talk about the impact the new CEO or co-CEO is adding on the business, if any? Thank you.

Thank you Andrew. Let me, just address your questions of A&P and innovation. Our first task, as we said in the trading update in September, is to increase our market competitiveness across the world, particularly addressing weaknesses that we have seen in a number of areas in terms of share and price relevance in the market place.

So, the three levers to strengthening our - to recovering our share and regaining momentum are the combination of value pricing for our consumers. So, pricing at levels where they recognize the value, of supporting it adequately with our customers and ensuring - with our customers and our consumers. And, thirdly ensuring that we have an innovation stream which supports and sustains that value generation going forward. That is the key challenge that we are addressing with increased urgency as we go forward.

I can't comment on what others are doing, but I am clear that the activities we are doing are designed to be competitive and that is the bar on which we set our performance objectives.

In terms of the second one; the impact of the new CEO. Patrick formally took over at October 1. He is the leader of the company today and has written the statement that you've seen in the result statement today. He has been, of course in his previous roles, an integral part of the strategy development of the business.

Has there been a marked change in the management style of the business over the recent months would you say?

You have seen the business performance and you've seen the comments that we've made on our business performance. And, you've seen from both our chairman and CEOs the determination they express, which they did on the conference call in September, to deal with the need to step up our aggression in individual market places across the world. And, you should take it from me that they're both utterly committed to ensuring that happens and achieves impact in the market place.

Okay. Thank you very much.

Thank you. That was the last caller. We will now pass back to John Rothenberg for his closing comments.

Right, well thank you everyone for the questions and for listening to our call. As we've said we were not happy with our sales performance and our focus and our priority will be on fixing that as we go into the fourth quarter and into next year. Thank you everyone and good bye.

Thank you. Ladies and gentlemen this conference has been recorded, details of the replay number and access codes can be found on Unilever's website and an audio archive webcast will also be available on Unilever's website at www.unilever.com. Thank you.