聯合利華 (UL) 2005 Q3 法說會逐字稿

Welcome to the Unilever’s 2005 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. [OPERATOR INSTRUCTIONS]. This conference is being recorded and will be available for a period of two weeks. [OPERATOR INSTRUCTIONS]. We will now hand you over to Mr. Rothenberg.

Thank you. Good morning everybody and welcome to Unilever’s Q3 conference call. As usual, I draw your attention to the disclaimer relating to forward-looking statements, which is included in chart one and will be posted with the text of this presentation on Unilever’s website.

Turning to chart two, this is the fourth quarter since we announced a change in strategy aimed at restoring our market competitiveness to improve our top-line growth. You will have gathered from Patrick’s comments with this morning’s results announcement, that we are encouraged by our progress to date, and that overall, we are pretty much where we expected to be at this stage of our recovery plan.

Certainly, we see an increased and more consistent weight of marketing investment being rewarded by better market share performance. Our aggregate market position has been stable since the start of the year, with some gains in priority areas.

We continue to see strong growth in our businesses in Developing and Emerging markets and in Personal Care, both key drivers of Unilever’s long-term growth potential. We have also seen a steady improvement in growth in North America since the beginning of the year. Vitality-inspired innovation is now making a significant contribution to growth across both Foods and HPC.

To date, we have had considerable success in containing the impact of significantly higher input costs on our margins, through our savings programs, through better mix, and by taking price increases where we have the market power to do so. At the same time, we have reduced prices in other parts of our portfolio, as competitive circumstances require.

And we continue to press ahead with embedding the new organization and implementing our ‘One Unilever’ program. Both these initiatives will provide further improvements in competitive performance, through faster roll-out of bigger, better innovation, improved customer management and the freeing up of funds to invest behind our brands.

In short, there are signs across a broad front of an improvement in our competitive position. That said, we are still some way short of achieving consistently good growth across all parts of the business. This is particularly true of Western Europe, which I will touch on later.

Turning to chart three, our sales performance in Q3 needs to be seen in the context of the current market environment. Here, we see little change from previous quarters, with overall market growth in our regions and categories at between 3 and 3.5%, but with a heavy skew by region.

That is to say, buoyant in D&E Markets, steady growth in North America but continued stagnation in Western Europe. If anything, market growth in Western Europe weakened slightly in Q3 due to a downturn in the ice cream market.

Overall our underlying sales growth of 3.5% is in line with our markets, and similar to Q2. This is being borne out by our market shares. In aggregate, these have held steady since the beginning of the year, slightly ahead in the Americas, but slightly softer in Europe. We are pleased as much by the quality of our growth as by the quantity.

Firstly, it is volume-driven, and the fourth quarter in a row of volume growth. This is the surest sign that our brands are winning with consumers. Secondly, it is broadly based, with almost all categories growing so far in 2005.

Thirdly, innovation is a key driver of the improved growth performance. Across a wide range of brands and categories, we can point to more successful innovation delivering incremental growth to our business.

Many of these innovations will be familiar stories, such as Flora/Becel ProActiv in Europe, Axe in the U.S. and elsewhere, and the continued success of Dove across the world. There are also new examples emerging where faster roll-out of a more tightly focused innovation program is bearing fruit.

Thus, the Lipton brand is benefiting from a range of market activities such as the anti-oxidant platform in the U.S., flavored teas in Central and Eastern Europe, and green and herbal teas across the globe. These have helped drive up Unilever’s growth in tea during 2005.

Other examples include Sunsilk in Europe, where the new color-enhancing range is now in seven countries and Rexona, where strong growth is being generated across the world by innovations such as Rexona for Men and Rexona Teens. We have also seen growth in the quarter of our main Household Care brands, Cif and Domestos, driven by stronger innovation at the core of the brands.

Looking at the underlying sales growth of 4.2% for the nine-month period, please remember that this benefits from the five extra days in the first quarter. We estimate like-for-like sales to be around 2.7% for the year-to-date. This days effect will reverse in the fourth quarter where there are six fewer days, which are expected to reduce sales in that quarter by about 5.5%.

Turning now to our 2005 business priorities on chart four. The first of these is to build on our strengths - in D&E markets, in Personal Care, and in Vitality. Here the business is responding well.

Our D&E businesses continued to grow strongly in the quarter, with faster growth in Asia compensating for a slightly weaker performance in Latin America. As before, growth is broad-based across markets and across categories.

In Personal Care, momentum has, if anything, strengthened during the quarter, with sales up nearly 10%. Growth is being driven by successful innovation behind global brands such as Lux and Pond’s in Skin, Rexona and Axe in Deodorants, Sunsilk in Hair, and of course Dove across all of these categories.

Vitality continues to give shape to our category strategies and our innovation plans, both in Foods and in Home and Personal Care, which includes many of our most successful innovations in 2005, such as Knorr Vie shots in Europe, the Ades soya drinks in Latin America, Lifebuoy soap in India, and Lipton tea innovations across the world.

In short, as expected, the parts of our business where we had less to do to restore market competitiveness are responding faster to the increased investment.

Looking now at our European performance in chart five. A significant part of the 2% sales decline in Europe was down to a very disappointing end to the summer ice cream season, coming after a strong start in the second quarter.

In some respects, the weak Q3 masked the progress that we had made in ice cream. Taking the year as a whole, we have achieved modest volume growth in a flat market. Our market shares are up slightly in both ‘Out of Home’ and ‘Take Home’ channels, and our competitive position at the lower end of the market, where we had been losing share, has been strengthened by pricing actions and product introductions.

Elsewhere, growth in our other major categories is still below where we want it to be. So far this year, we have continued to sharpen the pricing of many of our products, increased our marketing investment and improved the quality and quantity of our innovation. We have also been working on specific initiatives to improve our Go to Market capabilities in certain key markets.

In some areas, these actions are starting to produce results. For example, in Q3, we have seen a better performance in Savories and Dressings, and some volume growth in Frozen Foods, while in HPC we are seeing slightly improved volume growth in a number of categories.

Nevertheless, achieving a turnaround in sales in Europe is taking longer than in other parts of the business. This is partly because of the lack of market growth in Europe. But it is also the case that we face a greater challenge in Europe than elsewhere to improve the competitiveness of our product offerings and our Go to Market execution.

It is clear there are going to be no easy wins in Europe to bring us quickly back to growth. Rather, it is going to need a consistent and determined focus on price competitiveness, on innovation and marketing and on better customer management, which is what we continue to do.

Turning to our third business priority, Funding for Growth in chart six. Our savings programs are essential for funding the increased investment we are making in our market competitiveness. This is even more so given the considerable headwind that we are facing from higher input costs.

We continue to capture incremental savings from supply chain restructuring, while our global procurement program remains highly effective in securing substantial cost reductions on both production materials and other goods and services.

Our ‘One Unilever’ program is also progressing satisfactorily, with work continuing on consolidating business units into a single operating company per country.

Within the program, we are pursuing a number of outsourcing initiatives which have now reached the due diligence stage. These include global human resources administration, European financial services, and the management of our European IT infrastructure and ERP systems.

‘One Unilever’ is about leveraging Unilever’s scale across Foods and HPC in the widest sense, for example with our retail customers, and creating an organization that is simpler and more fleet of foot.

At the same time, simplification inevitably reduces costs, and the program is now yielding meaningful savings quarter on quarter.

Turning to chart seven, we can see how this is contributing to the resilience of our operating margins. Operating margin of 15.6% is 1.4 percentage points below the same period last year, with no distorting swing in net restructuring.

Within this, our savings programs and better mix have once again fully compensated for input cost inflation, which accelerated slightly in Q3. Thus, increased A&P more than explains the margin reduction in the quarter. This incremental investment is somewhat higher than in the first half of 2005, as we move to a more consistent level of marketing support across the year.

So far this year, we have substantially increased our investment in all aspects of our market competitiveness, in advertising behind our brands, in consumer promotions, in in-store activation, and in the price competitiveness of our products.

For the first nine months of the year, the operating margin is 14.4%, 1.3 percentage points below last year. This includes the Slim-Fast impairment in Q2 of this year, lower restructuring costs and higher profits on disposals.

Excluding these items, the change in margins would have been 70 basis points down, all of which is due to increased A&P.

Looking forward, we will continue to invest to secure our market competitiveness, while looking to increase prices to recover rising input costs, where we are in a position to do so. We also expect our savings programs will continue to deliver, with One Unilever savings making a progressively larger contribution.

Turning now to chart eight and the key financials for the quarter. Earnings per share were up 25% in the quarter. This includes a €448m profit after tax on the UCI disposal shown under discontinued operations.

Earnings per share on continuing operations were down 13% in the quarter. The main drivers were operating profit, which was down 4% in the quarter, and a higher tax rate, which at 29.5%, was just below our long-term guidance of 30%, but substantially higher than the 24% rate in Q3 2004, which included substantial one-off credits.

The interim dividend has been set, following our normal policy, at 35% of last year’s total dividend in the stronger of our two reporting currencies, which for the first nine months of 2005 is the euro.

Net cash flow from operating activities was strong in the quarter at €1.4b, while the out-flow from share purchases was €0.5bn. Net debt at the end of the quarter was €10.4b.

Back in February of this year, we announced a review of Unilever’s legal structure, as well as our intention to commence a share buy-back program, following the replenishment of Treasury stock to be used for the preference share conversion.

This review of Unilever’s legal structure is now well underway, and the team is on course to conclude the study in time for any proposals to be presented at the AGMs in May 2006.

As yet, no decisions have been made as to what, if any, changes are to be recommended to shareholders. On the share buy-back program, we have completed the replenishment of our ESOP hedges, with the buying in of 14.2m NV shares, and have therefore starting buying back shares as planned. As at the end of October, we have bought shares during 2005 for a total outlay of close to €1b, of which nearly €200m is part of the share buy-back program.

I would now be happy to take your questions.

[OPERATOR INSTRUCTIONS]. Our first question is from Mr. Andy Smith of Citigroup. Please go ahead.

Yes, good morning John.

Morning, Andy.

John, the first question is on the reconciliation between gross and operating margins. In reading the press release, am I right in assuming that you’ve broadly held your gross margins in Q3, and if so, can you tell us what the input cost pressure was, as you disclosed at the half-year stage?

And secondly, when you work down through to the operating margin level, can I just be clear about the guidance that you’ve given on A&P spend in terms of being less volatile and more consistent looking forward? Are you trying to smooth out the A&P to sales ratio across the whole year, and therefore have a more consistent basis for 2006 versus 2005?

Okay, let’s take those one at a time. As far as gross margins and operating margins are concerned, we said very clearly, Andy, that our savings programs and better mix have more than compensated for input cost inflation and that that accelerated slightly in Q3 so it’s very clear that the margin change is due in Q3 entirely to A&P.

Within the savings programs, there are savings both in gross margin and in overheads, but I think you can take it from that that we’re generally pleased with the progress on gross margin.

As far as the input cost pressure is concerned, yes, it has accelerated somewhat, and clearly we were not forecasting the oil price, and as you know, the oil price has had a greater effect on HPC brands and on generally those things coming from mineral oils. There has been some softening or some easier markets on the food input costs.

So overall, we’re still seeing pressures increasing. It’s more on HPC than it’s on foods but we are, at this moment in time, offsetting that, and we’ve given no guidance as to what goes forward, because clearly I’m not going to predict where the oil price is going to go over the next few months.

As far as the A&P is concerned, as Patrick, I think, said at the half year, A&P is driven predominantly by our activities and by the level of market competitiveness. We’ve said that we’re going to continue to do what’s necessary on market competitiveness, and we are looking to a more consistent spread across the year.

That does not mean that we start with a percentage which we then allocate across each. It means we start with the activities and what’s needed in the markets, but we’re looking to a more consistent pattern as the year goes on. It would be weighted to our business priorities, at the level that’s appropriate for the market, and maintained more consistently period-to-period, but that’s not the overriding driver.

Just one final question if I may, John, in terms -- can you give us a breakdown between the North American growth rate, like-for-like in the quarter, and LatAm, and why LatAm was weaker slightly?

Let me answer that in terms of North America first of all. In North America, we’ve said that we were encouraged by the progress. We have growth in North America close to 3% and it’s been growing faster in Q3 than it was in the first half year, so we are encouraged by what’s happening in North America.

In Latin America, growth is still strong. We’ve said that we have good growth in both HPC. It has slowed a little bit in Foods. We’ve said also that this is partly as we adjust prices in relation to some of the lower cost competitors, but overall, we are pleased with LatAm growth. As we look at D&E, Asia has accelerated a bit, LatAm has slowed down a bit, but it’s good volume, good on growth.

Thanks John.

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

Yes, good morning. Just a clarification on the last point. You quoted North American growth at 3%. Was that for the third quarter or year-to-date, John?

That was actually year-to-date and the third quarter was somewhat better than that, John.

Okay, thank you.

And it’s a like-for-like comparison. We’ve taken what we estimate as today’s effect out of the first quarter.

Okay, thanks. And just a question, a couple of questions –- you talk about net restructuring costs being about the same level as last year. Are you –- is behind that a gross restructuring cost that’s higher, and some profits on disposals as we saw last year in the quarter? Can you give any guidance to whether that’s the net figure, and what lies behind the net figure?

The answer is that the net figure is both the gross restructuring and the profits on disposals. In the quarter, there is a little bit less business disposal profit in the year, but this is not a major influence on the figures either, so the total of the net is not much difference. Within that net, there is a bit less disposals this year than last.

Okay, thanks. And you say that net restructuring is up in Europe, and given that it’s flat overall, I guess it’s down elsewhere in the Group. Is that both the other regions?

John, as you know, we’re trying not to analyze quarter-by-quarter which region and which markets. We believe that there will be an ongoing level of restructuring, and it will come where it comes, and where it’s most sensible to do it, and we will prioritize it according to the return we can get.

Okay, thank you, and just finally, you said at the half year that emerging markets growth was over 10%. Can you give us a corresponding figure for the third quarter for emerging markets in aggregate?

Well, we haven’t given an absolute number, but if I tell you that it was very similar, and we’ve said it was made up of a slightly stronger performance in Asia, continuing good performance in CE Africa and slightly less in Latin America, that gives you a good figure for that.

Thank you very much.

Thank you. Your next question comes from Mr. John McMillan of Prudential. Please go ahead.

Good morning everybody.

Morning John.

At least from my standpoint, the top line came in just fine and the bottom line was a little bit light, and clearly your priorities this year have been to regain market share, stabilize the top line. And as you look to ’06, and I know that you’re not going to give official guidance, do you see that general strategy changing, and you’re talking about a pricing to offset input costs, are there any specific examples of you implementing it?

Well, as you say, I think this is a third quarter call rather than any view as to what our plans and strategies are for next year, so you won’t be surprised if I go into little detail on that. What we have said is that where we have the market position and where our costs are rising then clearly there will be opportunities to move prices.

We have already implemented significant prices in laundry, for instance, in some of our D&E markets, which is an example of where costs are hurting and where there is the opportunity still to give good value to consumers, and to make sure we’re competitive.

As far as input costs for next year, we are still working through some of the price rises this year. I mentioned that before, particularly on HPC. We don’t see increasing pressure from commodity-related cost inflation at this stage with what we know at the moment, looking forward with our current position. But clearly, I’m not going to make a prediction on what’s going to happen to the mineral oil price, and we’ve been caught out already this year by a couple of natural disasters which clearly nobody can predict. But as of this moment, that’s how we see the world.

Okay, that’s fair enough. And the exceptional items, I had last year at about €65m. Are you going to give the number? You just said it was similar.

John, I don’t have, quarter-by-quarter, exactly, and region-by-region, but I know that the team will look and will try and do everything we can to make clear exactly what’s happened, year-to-date. We have no difficulty with trying to help you with that. Rather than going, though, into detail now, but it’s broadly similar. The third quarter, to be honest, I haven’t focused on because the numbers net come out just clear and it’s not an influence on the figures.

Great, thank you very much.

Thank you. Your next question comes from Miss Victoria Buxton of Lehman Brothers. Please go ahead.

Good morning John. I’ve got a couple of questions. Firstly you say in the statement that market shares are stable year-to-date. Could you clarify whether they’re still down year-on-year, and also give some more flavor into which categories may have gained -– you may have gained or lost market share?

And my second question is on cash flow. I note that free cash flow is €600m lower at the nine-month stage, of which you attribute €400m to working capital outflow due to the low 2004 base. Can you explain this in more detail and also explain what you would expect –- whether you’d expect working capital to stabilize in ’06?

Okay, let’s tackle the market share question first. We said that they’re stable on aggregate since the end of 2004. They are, however, still slightly down against a year ago, but we’ve also made some gains in some of the key battlegrounds, so it’s a mixed picture. Examples where we’ve gained share is ice cream in the United States, for instance, in ice cream in Europe, as I mentioned on the speech.

We’ve gained some share back in laundry in India since this time last year, and we’ve gained some share in hair in Asia, which are, for us, important battlegrounds. We’ve more work to do in laundry in Europe and I mentioned that we’ve got some work to do in foods categories in Latin America and we have a plan to do just that.

Okay, thank you, and the cash flow question?

Basically, Victoria, we were asked the same question at the half year, and the answer is the same, because cash flow in the quarter was very strong. Our trading working capital continues to develop exactly as planned. We had a very low working capital position at the year end.

I suppose my question is how did that come about, and can you give any more detail on that?

It was just a –- it was a combination. We’re pleased we’re driving working capital down strategically year-on-year, and that program continues. The year end produced on any one day, and it depends exactly on when quarters end and so forth, produced a very strong cash flow and we pointed out that that was very strong.

Our cash generation this year looks fine, and as I said, the €600m shortfall was there in the half year. It’s still around the same. It’s for exactly the same reasons and I’m not going to predict at this moment exactly what it’s going to be on December 31, but our cash generation position remains absolutely sound and stable.

Do you think that the working capital outflow this year has given you a base for next year where you’d expect working capital to be broadly neutral?

We are striving for continued efficiency improvements in working capital. They’re coming through. We don’t measure them on a particular day. We measure them across the year. We’ve been getting them this year. We got them last year and we would plan to continue to do that.

Thanks very much.

Thank you. Your next question comes from M. Arnaud Langlois of JP Morgan. Please go ahead.

Good morning John, it’s Arnaud of JP Morgan.

Morning Arnaud, bonjour.

I have a question regarding Europe. I’m a bit surprised by the comment you made in the presentation about Europe being stagnant. I think like-for-like sales were down 2% in the quarter and you were already down 5% in the third quarter of last year.

That’s quite a significant contraction of your business in Europe and I would really appreciate if you could give us some color on the reasons for this sharp contraction, and basically 7% contraction of your sales is more than €700m in sales disappearing at Unilever, and could you elaborate a bit on this please?

Okay, let’s break that into two points. When we said the markets are stagnant, we were talking about the markets in Western Europe, not our performance. Our performance was clearly down 2% and we are not pleased with that.

A significant part of that, as we explained, was due to a poor ice cream performance in the third quarter and that explained a part of that -2%, a significant part of that -2% and that doesn’t make us happy, but we have explained a little bit around the market position on that, and that’s, I think, covered in the speech.

As far as other markets are concerned, clearly there were some ups and there were some downs and at this moment in time, we have not got our business going again, and that is what we are working on as importantly as any priority, and we’ve made that a priority for the year, and it continues.

Within that, we have a better performance in Savory, for instance. We have over the year had ups and downs in spreads, but we’re up overall. We continue to sharpen prices where prices are necessary. We’ve seen -- and frozen food prices have needed to be brought down a bit, but we’ve been able to gain some volume with that. In laundry, we remain down, and that’s part of our losses.

Can I ask about the spreads business, because spreads in the quarter was down 0.7%. My impression was that the U.S. was all right and you seemed to imply that Europe was actually okay, so where is the decline coming from?

Okay, if we –- I think overall let me confirm that I think that it wasn’t a great quarter for Europe but Europe was okay. We are not comfortable with our position in the U.S. in the quarter and we’ve lost some share there which we are intending to get back, and we are regretting that so just to give you a feel of that. And there is still some non-branded oils and fats businesses within the figures which is also having a negative impact, but we’re not looking to break it out and get back to saying moving brands and non-moving brands, so I’m not going to use that, but that is in fact a factor in the quarter.

Okay. All right, okay, thank you very much.

Thank you. Your next question comes from Mr. James Edwardes Jones of Execution Limited. Please go ahead.

Morning John. Can you give any sort of indication of how your additional revenue investment is split between promotions, permanent price reductions and other marketing expenditure? And in addition, I think at the end of the second quarter you said that your emerging markets business in aggregate was up about 10% on an underlying basis. How does that figure look for Q3?

Yes, I think I answered that question earlier when somebody said are you going to give an absolute number for the D&E?

Oh sorry, I missed that.

Yes, and we said broadly similar, so I think I’ve answered that one.

Right.

As far as the responding is concerned, let me just make one comment which perhaps I haven’t made yet but should be made, and that is that, of the increase in A&P, the significant share of that is advertising, rather than promotions. Your question, however, I think is a bit more detailed, asking between A&P and what goes into price above the line.

Yes.

And we continue to invest differentially in that, so in some places it’s going up, in some places it’s going down, depending on market conditions. And as I said, the vast majority in the third quarter, and the majority in the year-to-date of the A&P increase is in fact in advertising rather than promotion.

Okay, and one other, if I may, are you seeing any sort of benefits yet from your tighter focus on R&D, and particularly the trend in the percentage of sales from new products starting to move ahead?

I think we’ve said that we are seeing benefits from the focus on innovation as much in the speed of roll-out of our successes as in terms of bringing more to market. That takes time. We’re working on it. The new organization on innovation is up and running, but it takes a little time for that to come through.

We do measure, as you know, internally, our innovation rate. We don’t publish this because everyone has a different measure and we find it invidious to start explaining the measures rather than talking about what’s happening to the business. And we see ourselves at the top end of the range for the last couple of years, so yes, small movement, but I’m not yet saying that there is a significant move up in our innovation measure.

Okay, thank you.

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

Good morning, John.

Morning Tim.

A question on the tenor of the statement, at the half-year stage it was mentioned that the Company’s gaining traction and now you’re saying it’s going to take some time to gain full traction. Are you asking us to rein back our timeframe for the full recovery of the Group?

I’m saying that we’re talking about full traction, and, or rather Patrick was, and we aren’t there yet. On large parts of our business we’re making good progress, and we’re pleased with where we are, and encouraged anyway. We want more. In other bits, we’re not there yet, and I think that’s what Patrick was trying to say, and there is work to do.

But is it a change from the position from the half year, though, John?

No, I think what he is saying is that the organization change will take time to gain full traction. I think Patrick said that at the half year as well, and if not, then maybe we just made it clearer in the way it’s been phrased now.

Okay, thank you. A question on A&P, it’s been prioritized, as you’ve been mentioning. Does that mean that now, you’re beginning to move the A&P budget across all of the Group, whereas before it might have been across just part of the Group?

I don’t want to talk about whether it was across part of the Group, but it is across all of the Group now, so if you’re asking where the A&P improvements came by region or by category, the answer is that it’s across all regions. It is managed by the [Eurex] on a global basis, behind our priorities, and we are putting it behind those areas where we said we would put it. I don’t know if that answers your question, or maybe I’ve missed it.

Well, I just got the impression perhaps that because you were prioritizing D&E, Personal Care and Ice Cream, that perhaps it was more limited spend in the Group and now it’s broadening out to other divisions within the Group?

I don’t think that’s the case. I think the, as I said, the A&P investment is up across all regions in most categories, but we are spending differentially behind those areas of focus, and behind those innovations that we believe will give us the biggest bang for our buck.

Okay, thanks, and a clarification question on the buy-back.

Sure.

I notice you’ve been buying back during closed periods. Presumably you have special dispensation for that. Could you just remind us the background to the buy-back and what timeframe you expect to complete the €500m?

Well, the answer to your question is yes, we have obviously had to organize ourselves to be able to do that in the closed period, and we’ve done that because we want to buy evenly, and we don’t want to get ourselves into very small windows of opportunity to buy. As far as our program is concerned, we’ve said all along that we are intending to buy up to 500m by the year end, and that remains our plan.

This calendar year?

This calendar year.

Okay, thanks John.

Thank you. Your next question comes from Mr. James Amoroso of Helvea.

I’ve got to go. Hello?

Hello James.

Yes, sorry, I was on the other line! I’m trying to triangulate a little bit here and when I look at the categories I see where you’ve had good underlying sales growth, like savories and dressings is where you’ve probably been spending a lot more. Ice cream I understand.

You seem to be spending quite a lot on home care to stand still, and then of course, regionally, the big negative on the profit side is Europe. Is there –- can you name the categories where you haven’t cranked up dramatically spend or cut prices, where you’ve also grown?

Well, I’m not sure if I -– first of all, I’m just picking up on your spending on home care to stand still. I’m not sure that’s quite how I would characterize it, unless you are looking at Europe rather than the globe, but –-

But if I look at the category as a whole, you’ve got 2.3% underlying sales growth.

Yes.

But your operating profit is down 14% on current rates?

Yes, but I –- okay, let’s not go into a detailed discussion, but I think our D&E growth in home care is driven, and we’re spending behind it, just so that we don’t misunderstand that. So we have said that our investment behind laundry across D&E markets and this is showing results.

As far as other areas, we’ve talked about the personal care growth and we’ve seen substantial additional investment behind personal care, both in hair and skin. We continue to invest behind deodorants.

Yes, what I -- I’m sorry John, I probably wasn’t clear enough. What I’m trying to get at is, if you look on a regional basis which -- are there categories where -- that are growing strongly and where the margins haven’t gone down? I’m trying to compare this to the path to growth period when it was boom and bust. You’d spend a lot of A&P and your volumes would go up but your margins wouldn’t. And then you’d stop spending and the opposite would happen.

Well let me just say, our spend is broad based. The growth is broad based. We are spending behind our priorities and I think Patrick’s made it very clear that we spend -- to continue to do what is necessary to return the business to growth.

Okay. Well, just specifically on Europe then, the decline there, is that mainly food driven or is that home and personal care driven or is that equally split?

The -- if we take out the ice cream in the third quarter which we talked about separately, then we will see that personal care is okay and the rest is broadly based.

Okay. Thanks.

Thank you. Our next question comes from Mr. Christian Andreach of Manning & Napier Advisors. Please go ahead.

Hi John, how are you?

Good morning Christian. Good early morning.

Yes, very. Just a couple of quick questions, both at the half year and then again now, you’ve made comments referring to looking for a more stable progression in terms of A&P. Looking at the third quarter of last year there was, of course, a very weak comparator where I think spending was down about 70 basis points. In the fourth quarter it was up quite significantly.

With the increase in A&P driving the margin decline this quarter, looking at the fourth quarter would you expect a net smoother A&P spending to result in a year-on-year comparator of A&P that is, perhaps, more favorable to margins?

Christian, I think you’re not expecting me to answer that quite the way you’ve phrased it because that would be giving a view as to the spend in the fourth quarter which I wouldn’t do for competitive reasons, let alone from having said we’re not going to give an A&P figure for the year.

But as far as the consistency is concerned, you’re absolutely right that clearly last year was -- the third quarter was down and this year we have seen an increase. And we have said that it’s likely that this -- the plans that we have got will reflect a more consistent weighting of investment across the quarters.

Fair enough. And secondly, do you expect, as far as you currently see it, and understanding that raw material prices can be volatile, do you currently expect a continuation of your ability to offset raw material cost increases from cost savings initiatives?

All I can say is that we have done -- we have done just that for the first nine months. We continue to strive extremely hard against the headwind of cost increases. And clearly pricing is -- and mix are the other variables in there. I’m not going to give a prediction going forward as to exactly how that mix will work out. But we will be doing everything we can to make sure that we can continue to give a competitive value to our consumers.

Okay. And just lastly, you mentioned that the A&P increase was much more in the A category than the P category. Is that a trend that you would expect to continue?

It’s a trend that we’ve seen. We determine it by what is needed. And that is where the money has been spent to date.

Good enough. Thank you.

Thanks very much, Christian.

Thank you. The next question comes from Mr. Michael Steib of Morgan Stanley. Please go ahead.

Good morning John.

Morning Michael.

I’ve got two questions. One is a follow-up question really on Europe. You said in your introductory remarks that you are facing greater challenges there than elsewhere to improve the competitiveness of the product offering and the go-to-market execution. Could you explain to us what that means? Is it a question of category exposure, of marketing support, of distribution challenges or what exactly does that mean?

And then my second question would be when can we expect an update on the review of the frozen foods business?

Okay. Let me take the first one -- the second one first. We said when we announced at, what, mid-September that it would take a few months and it will do. There won’t be a report until we’re ready to report. So that’s the answer to that one.

As far as Europe is concerned, clearly we’ve got a lot of work to do in Europe and we’re doing it. We’ve talked about the areas and you just repeated, and it’s all of those areas. And because it’s all of those areas it’s a major task and it’s taking time for the new organization to bed in. We’re going as quickly as we can. We’re keeping control of the business. We’ve got a lot of changes to make and we’re making them.

But we always expected that this would take some time and work and it is, indeed, taking time. And it’s not one issue. It’s not the go to market. It’s not the pricing. It’s not the organizational changes. It’s the combination of all these things which are needing to be done and needing to be done in a controlled manner. So it’s not any one item. It’s the fact that we are working on all of them and doing it in an environment where we need to maintain a very large business.

Okay. Thank you.

Thank you. Your next question comes from Mr. Olivier Lebrun of Natexis. Please go ahead.

Good morning John. Olivier from Natexis Bleichroeder, Paris. I have two questions, if I may. About Slim-Fast, could you give us an update on this activity?

About Asia and Africa, is it possible to get a breakdown of the pricing impact between food and home and personal care please?

Okay. Let’s start on Slim-Fast. And let me make the first comment which is that Slim-Fast developed in line with our expectations in the third quarter which is why we hadn’t talked a lot about Slim-Fast. The weight management category is continuing to decline at a slightly less steep rate than it was a few months ago. So whether that will continue or not, we don’t know. And we have continued to pick up a little bit of market share in that continuing declining business. We haven’t yet reached the point where the business is growing. So we aren’t, by any means, out of the woods yet.

We’ve got some new products which are in the market and are being well supported by the trade. They’ve gone in well. High-protein products which we believe will help to continue to establish our market position. We’ve got new communication which appears to be going well. I have to say it online because it’s “hello yummy, goodbye tummy”, but when you see it on air it’s a very resonating advert. And we continue, as the market leaders, to try to drive the category back to growth. So that’s the Slim-Fast situation.

In terms of Asia and Africa, first let me say that the cost pressures are greater on HPC as they are elsewhere, and therefore that is where we are looking along with obviously the market and where the market allows us to be able to recover those input pressures on HPC. So that’s where the pricing opportunity is being taken.

Across the food and the HPC, I don’t think there’s, apart from the raw material input prices, major differences in what’s going on in the two businesses.

Okay. Thank you. A follow-on question about A&P. Compared to the path to growth period, is your present effort higher or similar?

Across the path to growth period, we actually spent more on A&P across the period than we had been before. I can’t remember exactly the number, but it was about 140/150 basis points in 2004 compared to 2000 when we started, or ’99, I can’t remember exactly what the base we took for that was. But, since then, as we have seen, we have increased support this year. So I don’t know whether that answers your question.

Yes. Yes. Okay. Thank you very much.

Thank you Olivier.

Thank you. The next question is from Mr. David Lang of Investec. Please go ahead.

Morning John.

Morning David.

Were the profits in the American ice cream business higher? You were talking about strong sales.

David, I’m not sure I’m going to go into the detail of what the profits in a particular country in a particular category are on the call.

Yes, it’s a basic business. I’m just trying to get at the magnitude of the hole you’ve got in European ice cream. Is it quite a lot larger than the €39m drop in profits of the ice cream and frozen food division?

I can honestly say, David, I don’t have the numbers in my head. What I can tell you is that our ice cream business in the States continues to grow and it continues to be profitable.

In Europe then John, in the last quarter, was there significant end-of-season discounting to clear excess inventory, and have there been write-downs?

Without answering no to the questions, I don’t know of anything of that kind that had any material impact on our figures in the year.

Great. Well, I’ll move onto something else then. John, how about food service. Just you haven’t mentioned that. I was wondering what the performance was like, particularly in the States.

I haven’t mentioned food service and, what we call, food solutions. And it was an okay quarter for food solutions. I don’t have the market positions in such detail because we don’t have the measures that we have for the retail trade. But the business is growing. It’s growing across the world. It’s growing slower in the States. That’s not an area where we have yet got the growth that we’re looking for.

Right. And last, by the sound of things, life might be getting slightly better in Japan. Could you just tell us what’s going on there?

I haven’t been to Japan myself recently, and my experience of Japan is that I never make predictions about Japan because I always get them wrong, having lived there for four years. Basically, there’s no major changes in Q3 in Japan. Business remains, as always, highly competitive. Our shares are about stable in the quarter. Some movements within hair brands up and down, but overall, and we know that there is re-launch activity in the market and we don’t expect that to stop.

Thanks very much.

Thank you. Our next question comes from Mr. Ian Kellett of Blue Oak Capital. Please go ahead.

Morning John.

Morning Ian.

The usual couple of questions, if that’s all right. U.S. hair care also had troubles a couple of years ago and you’ve been working to improve it. Could you talk about how that’s going and whether or not Suave’s moving into positive territory yet in terms of growth numbers?

And secondly, in frozen foods in Europe, I think you mentioned that it had a positive volume development. Was that a significant number in terms of trying to strip out how that ice cream feature was in Europe and was there any pricing -- any significant pricing either way in frozen foods to try and strip out that ice cream number?

Yes, let me take them separately because there’s very little similarity between our U.S. hair business and our European frozen food business, so I will try and separate those two questions.

In U.S. hair, the position on Suave specifically, which is our number one brand, our biggest brand, is pretty stable actually. I can’t remember exactly what the market share movements are month by month over the last quarter. But I know that we’ve basically got a stable position on Suave.

To our hair range we’ve added this year a styling range and that’s going fine. And in our other brands we have a few weaker brands and they are not getting any stronger. That’s the hair position in America.

And in Suave, I hear that your market share is fairly stable. But does that mean that the brands actually grew, do you know?

Yes, the markets are growing.

Okay.

So that does mean that.

Thanks.

The frozen food question, the situation on frozen foods is that in the -- let me just not misspeak, because I did talk earlier about the volume, and I know that in the U.K. what was -- I remember looking at the volumes were indeed up but the prices were down which, I think, was your question. We have had volume growth in frozen foods overall, driven by Italy and the U.K. But there have been, as I said, in the U.K. some pricing declines to make sure we’re competitive.

The innovations, Steam Fresh in the U.K. business, [fish in tray] format and the -- and I love saying this, the Quattro Salti in Padella pasta dishes in Italy have been going well and continue to grow.

Does that mean overall that underlying sales growth was promising in frozen foods by the time you take the prices increases and -- price decreases, sorry, and net them off from the volume growth.

I’m not sure I can be as bullish as that. I think the volume growth was certainly positive but I’m not sure we made up all the price that -- pretty close my guess is. It’s not a number that comes and hits me.

Okay. Thanks very much.

Thank you. The next question comes from Mr. Arjan Sweere, Petercam. Please go ahead.

Yes, good morning.

Morning.

I have a question on the project simplification. Can you give an idea of what the run-rate was in the quarter and is the impact of outsourcing initiatives, is that substantial? And I guess that the contribution of that will mainly come in 2006.

Right, well the answer is that the contribution will come in Europe later. The first question is that we have said it’s picking up and that we are now getting a benefit from the program. The program is wide-ranging. It’s across the world. And we have already made a number of moves to move to one operating company in a number of countries, both in Europe and outside Europe. And the benefits of that will start to come through and will continue to grow.

We’re not going to give a breakdown quarter-by-quarter of what the numbers are. We will tell you what our total savings are doing, but we won’t break it down quarter-by-quarter and program-by-program. We haven’t found that to be a very useful way of spending our time talking to the market.

We have some outsourcing activities around the world that have already commenced. What we have -- what I mentioned in the speech was the investigations we are doing currently in Europe and those clearly haven’t started because we are still investigating. We haven’t yet made any decisions.

Okay. And on the A&P increase, was -- I guess that this was more at the back end of the quarter and, as a result, do you expect a positive impact still of that A&P spend in Q4?

Well, it was across the quarter, first of all, it wasn’t in the back end or the front end, or at least not to my knowledge. The A, we don’t expect advertising to have an instant effect. The theme part is part of a long-term building of our brand position. So I don’t think we have models that will give us an instant response. Promotions clearly have a faster response.

But I don’t want to be saying that the A&P spend was towards the back end of the quarter or the front end of the quarter. It was across the quarter and didn’t have any specific intent to drive a particular month or a particular quarter. It was activity by activity.

Okay. Thank you.

I will take one more question I think and then we probably ought to break off and take any further questions offline.

Okay. Your last question comes from Mr. Jeremy Fialko of ABN Amro. Please go ahead.

Thank you. Just snuck in under the wire there.

Hi Jeremy.

Hi there. I’ve just got one question for you on ice cream. Now clearly you’re saying that your shares were up slightly year-to-date. But I must say it came as a bit of a surprise that the category was quite so weak in the quarter, especially given the comparative that we had. I wonder whether you can give us a bit more detail of some of the dynamics in the category of why it’s been so weak, why we haven’t seen any sort of recovery given the situation last year. And also whether as, I suppose, category leader whether you feel that your performance was in some way responsible for the category being down so much.

Yes, fine Jeremy. I’ve managed to avoid mentioning the weather throughout the call and you’ve now actually provoked me to have to say the weather word. But the basic problem was the season started well. We had good progress both of our own sales and of the market through June and July. And August came in with an absolute thump. And the ice cream market in Europe this year was, in August, was not good. And if you lose August you basically, whatever happens in September can’t make up for it.

And the season ends -- if it’s a strong August, the season goes on into September. And if you have nice weather in September, that’s great. If you have a lousy August, it doesn’t really make a lot of difference what happens in September because people stop ordering and just sell out what they’ve got. And it’s just one of those things.

I’ve seen seasons where we’ve been awful until the end of July and we’ve had a good August. And August and September have recovered everything. This was one of the other ones. That’s in Europe, by the way, I wasn’t talking about the States where it’s been steady.

No, the question was just referring to Europe. And you say it was literally nothing else but that. You didn’t see any other dynamic in the category?

No, the weather in total, taking the year as a whole in Europe not materially different from last year. This was really a timing thing and, as you rightly said, it was disappointing. It was more than disappointing, but that’s what happened.

Okay.

Okay. Thanks everybody for the questions. Let me just try and summarize some of the things I heard and make sure that I’ve managed to portray correctly the main messages to you from your questions.

Major parts of the business were encouraged by our sales development in Q3, D&E, personal care, North America but, as we have discussed in some degree, Europe remains difficult, of which part was ice cream, but that’s not the whole part.

Overall, our market shares are stable and they’re starting to move in the right direction in a number of our key battlegrounds.

Operational margins you are not happy with and we are not happy with, but it’s not a function of the savings programs not coming through. Savings and mix have, to date, offset cost inflation and, indeed, more than offset it in the quarter. We have spent more money on A&P and the greater part of that is A. And that’s in support of brand-building.

On pricing, overall flat. Some rises in some places. But some sharpening of cost price positions in others. HPC is where the cost increases are coming through. Food’s a little bit easier. And overall, in total, we are encouraged by progress to date and I hope I’ve been able to explain to you just why.

Thank you very much everyone. And if there are any further questions we look forward to answering them offline. Thank you.

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. An audio archive webcast will also be available on Unilever’s website at www.unilever.com. Thank you very much.