聯合利華 (UL) 2006 Q3 法說會逐字稿

Welcome to Unilever's Third Quarter 2006 Results Presentation. This conference will begin with a presentation by Mr. Rudy Markham, Chief Financial Officer, Mr. John Rothenberg, Senior Vice President of Investor Relations and also joined by Mr. Charles Nichols, Vice President of Investor Relations, concluding with a question and answer session.

[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 Unilever's website. An audio webcast and podcast of the teleconference will also be available on Unilever's website, www.unilever.com. We will now hand you over to Mr. Markham.

Good morning everybody and thank you for joining us on this call. As always, I draw your attention to the usual disclaimer relating to forward-looking statements which appears in chart 1 and will be posted with this presentation on Unilever's website.

I'm here today with John Rothenberg and Charles Nichols from IR. But before I hand over to John I'd like to give you my perspective on the results that we announced this morning.

The key message to leave you with today is that Unilever is continuing to make real progress, both in terms of business performance and our transformational agenda.

We've had another quarter of consistent, broad-based growth contribution from both price and volume. Our investment priorities, personal care, developing and emerging markets, vitality, are all contributing strongly to this growth. The turnaround in Europe continues.

We have a tight grip on our cost base, despite significant commodity cost inflation, and we're finding opportunities to increase prices while maintaining steady volume growth.

One Unilever is delivering concrete benefits in terms of savings, simplicity and agility, all of which are feeding into our results. And we're confident that we will achieve our growth and margin ambitions.

I'd also like to make a specific comment relating to the provision we've taken this morning with our Q3 results relating to the 2005 conversion of NV preference shares.

In September 2006 investigators appointed by the Dutch Enterprise Chamber published their report into the issuance and subsequent conversion of Unilever's NV -- Unilever NV's 1999 preference shares. The Unilever Board established a special Board committee, chaired by Professor Wim Dik, to consider the Company's response.

The Company has explored the possibility of a settlement. It is expected that the Board, which has, as yet, made no decision on this matter, will consider the committee's recommendation shortly. Consequently, in the light of these circumstances and in the light of legal advice, we have taken a EUR300m provision in the third quarter.

Given the situation I've just described, I cannot say any more at this point in time. We will, of course, come back to the market as and when there are any further developments.

I will now ask John to take you through the main features of our operational performance. John?

Thanks Rudy and good morning everybody. Let me start with our top-line performance.

Our underlying sales growth was 4.8% in the quarter and 3.9% in the first nine months of the year. Total turnover was 2% ahead in Q3, including 2% adverse currency movement caused by the strengthening of the euro against other currencies in the quarter. In contrast, currency had a 1.4% favorable impact on total turnover for the first nine months.

We said with our half-year results that it was the quality of our growth as much as the quantity that gave us confidence that we had largely restored our competitiveness. Our sales performance in the third quarter underlines this.

First, our growth remains broad-based across the business, with all regions and all major categories contributing in the quarter and over the nine months. This includes another quarter of improving growth in Europe, even allowing for a strong quarter in ice cream.

Second, this is the fourth successive quarter in which we have seen an increased contribution from price but without loss of volume momentum. This is the direct consequence of the determined but selective approach we are taking to increasing prices, protecting our growth margins but always with an eye to maintaining our market competitiveness. This is especially true in categories where we face significant commodity-related cost increases, such as Laundry, Tea and Olive Oil.

Third, our performance in the priority areas that we set out at the beginning of the year shows that our business strategy of focusing resources on our strong leadership positions and on high growth spaces is bearing fruit.

Consider Personal Care. Personal Care growth was 7% in the quarter and is 6.5% year to date, with good growth in all categories and especially in Deodorants and Hair. The key drivers remain unchanged. High quality innovation, rapid roll-out, globally inspired brand communication complemented by excellent in-market activation. And all of this supported with carefully focused investment behind key brands and in key markets. Around two-thirds of our additional A&P investment so far this year has been in personal care.

We've had outstanding success with Dove Summer Glow on both sides of the Atlantic, driving growth and share gain in the Hand and Body segment. We have also seen good growth in skin cleansing with innovative products such as Dove cool moisture and cream oils.

Our Deodorants business gained further share, driven by global initiatives such as the new Axe Click fragrance and Dove Invisible Clear that promises no white marks, the biggest unmet consumer need in women's deodorants. This variant now accounts for over one-third of Dove deodorant stick sales in the United States.

So far this year all three of our main deodorant brands, Axe, Rexona and Dove, are growing at 10% or more.

In Hair our innovation activities also reflect a globally driven approach. Our biggest brand, Sunsilk, has grown by 9% this year. The launch of Sunsilk in the United States and Canada has got off to a good start with initial sales in line with our plan.

At the same time, the steps we took to strengthen Suave, with a new line-up for Suave Professionals, is having a positive effect on both sales and margins. Dove hair is also benefiting from the introduction earlier in the year of new products caring for colored hair. All this adds up to a significantly stronger hair portfolio and we are now gaining share in aggregate in the United States hair care market.

Aside from the U.S. market, we have also introduced a new Sunsilk range across Asia, which is doing well, closely followed by the launch of a damaged hair variant in several key markets. Similarly, in Latin America, the Sunsilk color range continues to grow as we add new variants for straight, curly and wavy hair.

There are of course some areas where we still face challenges. Again in hair we have a sizeable business in Japan, an especially tough competitive environment. There have been two major competitor brand launches in the past couple of years and an intense amount of innovation activity and support investment by the main players.

Against this background, Lux Super Rich remains the leading brand in the market, with stable shares and growing sales, thanks to consistent investment and innovative new variants. However, our other hair brands, Dove and Mods, are faring less well and we have work to do to get these brands back to growth.

Across the world our Personal Care business continues to deliver strong growth and good margins.

Now coming to D&E markets, which are now over 40% of our continuing sales. Here consumer markets remain generally buoyant. And there is fierce competition for a share of this growth from international companies and local players. Against this background, growth of our D&E businesses continues to run at around 8%. Growth in foods is as strong as it is in HPC and remains widespread across geographies.

We have had excellent growth in India and China across almost all categories. Most of our other large markets also performed well. Indonesia, Turkey, Russia and Brazil all grew at 7% or more.

We have seen a slowdown in South Africa, largely due to low price competition in Laundry. Also food sales in Brazil and Mexico remain sluggish and Thailand had a weak quarter, partly due to lower market growth, but also because of stiff competition in some HPC categories.

Innovation is playing a key role in our D&E growth and a few themes are worth commenting on.

First, affordability. This is the route to accessing the 3b or so consumers at the base of the income pyramid. We've seen good growth, for instance from low-unit-priced Rama margarine sachets, which are making the nutritional benefits of good oils accessible to consumers in Africa.

Second, roll-out of global propositions. Our 'Dirt is Good' laundry brands are also growing at over 8% in Asia and Africa, driven by product innovation and imaginative activation, such as the Surf 'Back to School' program in Indonesia.

Third, vitality. Lifebuoy continues to grow in double digits across Asia thanks to a new and improved range of bar soaps, with new iconic branding and unbeatable protection from germs. In addition, we are rolling out a range of liquid hand wash products which combine effective protection with an appealing fragrance.

Vitality is a big opportunity for us in D&E markets but it is also having a visible impact on the turnaround we are seeing in Europe.

Underlying sales growth in Europe was 3.5% in the quarter and now stands at 1.4% for the year to date. This is in line with the growth of our markets, which we estimate to be running at between 1 and 2% so far in 2006.

Hot weather during July led to a strong quarter in European ice cream, boosting Q3 sales by around 1.4% in Europe and 0.4% for total Unilever. However, this came after a dreary start to the season in the first half, so that there is no overall weather effect in our year-to-date sales figures.

We spoke at the half year about some of the drivers of this turnaround. First, innovation in new vitality areas with rapid roll-out across markets. For example Knorr Vie, first introduced in 2005, is now selling in 10 countries in Europe and we have sold over 100m bottles since launch.

We expect mini-drinks, including Vie and Pro-Activ, to generate sales of around EUR100m this year. We've just introduced Flora Omega 3 in the U.K., packed with more Omega 3 than any other spread or mini-drink. Good for the heart, good for the brain and good for your joints too.

A second driver is rejuvenating the core of our brands. Soups in pouches, originally introduced in the Netherlands, are now available in 10 countries under the Knorr brand. Cif Power Cream sprays and Domestos '5x' bleach are other examples.

A third driver is increasing the value we offer our consumers. We've made strategic price corrections in a number of categories and markets. These are largely behind us. We also continue to improve product quality. Our nutritional enhancement program is enhancing many of our food products and is supporting the roll-out of the My Choice front-of-pack logo. Similarly, recent re-launches, as diverse as Magnum ice cream and Comfort fabric conditioners, have incorporated improved product and packaging quality.

Meanwhile, we continue to work on building critical capabilities and improving execution. Our 'Win with Customers' initiative, which started last year in the Netherlands, is being rolled out in France, Germany, Belgium, Greece and the Czech Republic. Of course 'Win with Customers' is not a uniquely European initiative. We are also taking it to China, Turkey and Indonesia, with Mexico to follow shortly.

Our One Unilever program is also contributing to improved go-to-market execution in Europe and elsewhere. It not only delivers substantial cost savings but is also ensuring that we bring Unilever's full scale to bear in market, supported by fast on-the-ground decision making.

The benefits of One Unilever can be clearly seen in the United States where the 2006 Cannondale survey will show improvements in all our key ratings, as measured by our retail customers.

To give a sense of how we are progressing with One Unilever, if we look at our top 20 countries, all but one already have one top team and we have plans for the remaining country. 65% are already located in one head office and most of the rest have announced that they will be moving. The most recent of these was the United States, announced last week.

Three-quarters have one sales account management team, 60% have integrated sales forces, with a further 10% announced. Almost all have single back-office operations for finance, human resources and IT. Half have already migrated to regional shared service centers and the other half will do so. Many of these are being outsourced.

So, as you can see, One Unilever is a major transformational program and we have already made significant progress.

Turning now to operating margin. For the first nine months our operating margin is 14.5%, which is 30 basis points above the same period last year. Before the impact of restructuring, disposals and impairments, the operating margin is 70 basis points lower than last year, both for the year to date and in the third quarter.

Advertising and promotions is up by 60 basis points in the first nine months. As expected, there was a big increase in the third quarter, up by 80 basis points. This reflects the strong weight of advertising in the middle of this year behind key launches such as Sunsilk in the United States, Dove Summer Glow across Europe and AdeZ in the U.K., as well as the usual seasonal weight behind ice cream and ready to drink tea.

Our savings programs continue to deliver at a high level, with over EUR600m in the first nine months. This includes our ongoing buying initiatives, other supply chain savings and One Unilever. We are well on our way to delivering the EUR1b of savings from One Unilever by the end of 2007.

I talked earlier about price increases which have resulted in price growth of 1.2% in the quarter and 0.9% year to date. But we have also seen a sharp increase in costs in the first nine months of the year.

General inflation in wages, salaries and other costs is running at normal levels. Commodity costs, however, have had a significant impact on raw materials and packaging. These have added around EUR500m to our cost base so far this year, with the largest increase in the third quarter.

We have been particularly affected by mineral oil and petrochemicals, but also by edible oils, tea, tomato paste and aluminum. While spot prices for some of these have eased recently, it will take some time for these to work through the supply chain and into our costs of goods sold.

Also, in the first nine months, we have spent more on market research and development costs than last year. This is largely a timing issue and we expect a significantly easier comparator in Q4.

Turning to our outlook for the year, we expect to deliver an operating margin in excess of 13.4%. This is after a step up in restructuring in the fourth quarter to take full-year restructuring to over 100 basis points. Please bear in mind that we have a relatively soft comparator for operating margin in the fourth quarter, given the phasing issues mentioned above. This is despite the one-off credits in the fourth quarter last year, to which we have previously referred.

Turning to other aspects of our financial performance. Earnings per share from continuing operations grew by 5% in the first nine months. In Q3 EPS from continuing operations fell by 24% as it included the EUR300m provision for possible compensation payments relating to the preference shares mentioned earlier. This provision is shown as a one-time charge to net financing costs.

There have been some important structural improvements to earnings below operating profit. These include an in increase in net profits from joint ventures, most notably the excellent performance of the Pepsi-Lipton partnership. Sales of Lipton ready to drink tea have risen by a third in North America although, as a joint venture, this is not reflected in our underlying sales growth. Financing costs are also benefiting from lower net debt and higher pension asset values.

The tax rate at 26% in the first nine months is lower than last year through a better country mix and other improvements. This leaves us well placed against our guidance for this year of around 26%.

And finally, net cash flow from operating activities in the first nine months is EUR0.3b higher than last year, with higher cash payments to pension schemes offset by lower tax payments.

With that, I'm now going to hand you back to Rudy.

Thank you, John. To conclude let me just cover our plans for returning cash to shareholders.

We said at the beginning of the year that we planned to buy back EUR500m of shares during 2006 and that we might review this in the light of bolt-on acquisitions, proceeds from disposals, including Frozen Foods, and the development of our credit metrics.

As we stand today, we've not made any significant investment in acquisitions and we now expect the frozen food disposal to complete imminently at a sale price at the upper end of our expectations. Our credit metrics are developing as we expected.

We have therefore today announced that we will increase the amount of cash to be returned to shareholders in 2006 from EUR500m to EUR750m. We've decided to execute this in the form of an additional one-off dividend to be paid at the same time as our normal interim dividend.

Additionally, we've announced that we plan to return a further EUR1.5b to shareholders via a share buyback program which will commence in 2007. This is consistent with our commitment to a competitive balance sheet, which for us means a strong single A rating.

So in summary, a good quarter, broad-based and with a development in operating margin that is in line with our expectations. John, Charles and I will now be happy to take your questions.

[OPERATOR INSTRUCTIONS]. Okay we have our first question. And it comes from Tim Potter from Goldman Sachs.

Thank you. Good morning gentlemen. Despite your confidence about achieving your sales and margin targets, is there a trend that you're having to invest at a higher rate of A&P and in other drivers of top-line growth in order to meet your top-line aspirations and which could eventually have some impact on your margin goals?

Tim, thank you for the question. We said at the beginning of the year that we were putting -- that we were putting our investment again behind our priority areas with a view to at least sustaining the growth of the momentum that we saw in 2005 and that we were working to improve our margin. We've seen this year, as you know, a significant cost increase which we have compensated specifically this quarter with a savings program that we have.

We've also continued to invest behind our core areas of our business and particularly behind personal care and D&E markets and our vitality initiatives, as John has outlined. We are seeing the outcome of that as our growth momentum continues and we -- and our plans, as we've executed them through this quarter, continue to be in line with the basis on which we had planned for this year. And therefore, as John has said, we continue to expect to achieve our targets that we've outlined for this year.

Thank you. And could I have another question if I may? You mentioned in particular the input costs going up. Is it possible to give an idea of what percentage of your portfolio is exposed to those higher costs?

Yes, Tim. Certainly. We can give you a split, I think, between foods and HPC. I'll give it another way while we just position ourselves.

About 9% of our commodity costs are in packaging, which is one of the areas that's probably had the largest impact of cost increases this year on our business. And that applies of course to foods and home and personal care.

On the chemical side, so petrochemical side, about half of our HPC costs are in petrochemicals and about 30 in agrochemicals. Now why do I make that distinction? I think it's because petrochemicals clearly derive from the mineral oil price and that's been one of the main drivers of our higher commodity costs this year, whereas agrochemicals have shown a mixed -- a mixed picture.

You'll also note in packaging, one of the drivers of packaging has been, for example, metal-based packaging because of the very high increase in commodity costs of metals.

So, overall, if I may, of our costs about -- we have material costs in raw materials about 30% of our Home Care, about 14 in Personal Care and about 25% in Foods. That's raw materials. Just to give you a feel for the -- for, if you like, the input cost sensitivity of our major category groups, Tim. Hope that helps.

If I can just add perhaps a few facts, Tim, to that. Tea, which is something which is important for us, tea price is up about 35%. Olive oil, which is a small part of our business, but the price movements are more rapid both in the up and down direction there. Olive oil prices are up about 25%. Rapeseed oil, an important oil for our European business up 15. Aluminum is up about 30.

So what we have in this year are some very significant movements. The good news is, as Rudy said, that we have a wide spread across HPC and Foods of raw materials. So in any one quarter we normally have them moving in different directions. This year there's been a lot in one direction.

Thanks very much.

Thanks, Tim.

Thank you very much indeed. Okay, we now have our next question which comes from Julian Hardwick of ABN Amro.

Morning gentlemen.

Morning Julian.

Two questions. One just staying on the cost -- commodity cost side of things. Assuming prices stay where they are at the moment, at what point would you start to see your commodity costs moving down again? And is Q4 likely to be up on Q3 or how do you see the trend moving, going forward?

And my second question relates to the share buyback next year. I just wondered how firm a commitment is this, i.e. are you still leaving yourself scope within that to undertake bolt-on acquisitions? Or if you do buy bolt-on acquisitions next year do they effectively have to be funded out of the share buyback program?

Right, thank you, Julian. Taking the commodity costs first. I think our experience this year has been that the commodity cost rises have continued to be stronger than we have expected. And we've had to work much harder to deliver savings to offset that. Going forward, while I see some easing in some commodity prices, particularly dairy, many of them are in categories that don't immediately apply to us. So we are cautious in our assessment of commodity prices going forward.

I just register the point that John made, which is this has been our heaviest quarter of cost -- input cost increase this year and it takes time for these benefits to work through to the business. So we are not planning on any significant easing for the present.

With regard to the share buyback, I don't really have anything to add to the statement that we've made which is that the Board have authorized a share buyback program of 1.5b, commencing in 2007. I hope that indicates our commitment to sustaining a competitive balance sheet, which I would just stress is in line with our longer-term guidance in terms of our free cash flow and the use of surplus funds as we go forward.

Right.

I'd rather not speculate on any bolt-on acquisitions.

No, but 1.5b would pretty much exhaust your cash flow next year. So are you saying that you're comfortable seeing your level of net debt rise from here to fund acquisitions?

Well I don't really think I can add anything to what I've said, Julian. We will go through the year with the program that we've put in place.

Okay. And for Q4, do you expect your commodity costs to be greater than Q3?

I am not making a prediction on that, Julian. I note that some of our competitors are sort of sensing a slight easing and I note that some others are sensing a slight increase. And I'm just staying cautious and assuming why would it get better and when it does I'll be pleased to report it.

Right. Presumably you have a good idea now what you're going to face in Q4. So you should be able to give us some sense of where you stand?

As I said, we're taking a cautious view on the development of commodity costs as we go into -- as we go forward.

Okay. Thank you.

Thanks Julian.

Thank you very much indeed. Okay, we now move to our next question which comes from John Parker at Deutsche Bank.

Yes, good morning. I'd like to ask a couple of questions on the U.S. performance. You haven't mentioned SlimFast, as far as I'm aware, and that's been showing better progress in the first two quarters of this year. Could you say whether SlimFast sales are ahead in Q3 compared with a year ago?

And I don't know whether you can give us any more indication on U.S. Hair Care? I'd be interested to know what share Sunsilk has achieved and how your overall Hair Care share has moved as well.

Yes, thanks John. I'll just give the two headlines and then John will fill in with a bit of the details. SlimFast first. Just to remind everybody, it's now, sadly, only a percent of our overall turnover. So it's relatively small in the context of the whole.

I have to report that the weight-management sector in the U.S. continues to be in small decline. The market has not yet turned around. Our sales, year to date, in SlimFast in the U.S. are up about just under 10%, I think about 9% at the moment although we were slightly down, I think, in the quarter. So no real strategic progress yet, I would say, with SlimFast.

As far as U.S. Hair Care goes, I'm very happy to report that our hair share -- our aggregate share is up two points this year on the back, amongst other things, of Sunsilk. The strengthening particularly of our Suave and the re-launch of our Suave brand, and Dove continues to make good performance there, John.

Okay. Thank you very much.

Thank you, John.

Thank you. Our next question comes from Michael Steib of Morgan Stanley.

Good morning.

Hello, Michael.

I have two questions. Morning. The first one relates to pricing. You made a comment that pricing has gradually increased over the past, I think, four quarters now. Yet it's still somewhat below what many of your competitors pushing through. So my question is is there any scope for price increases at a higher rate over the next few quarters to obviously offset the commodity cross-headwinds?

And secondly, just a question on the restructuring charge. In the quarter it was 74m. Are you still guiding for the full year of in excess of 100 basis points of sales? I think that was the comment you made at the half-year stage, but that would obviously imply a very significant step-up of the restructuring charge in Q4. Thank you.

Michael, let me take the second question first. The answer is yes, we will be expecting that. On the pricing, if you take the evolution of last three quarters, 0.5, 0.8, 1.2, clearly that's moving in the right direction. And we've seen price growth in all quarters -- in all regions in the last quarter.

We will only take prices where we, as I said in the speech, have space to do so in competitive terms. Clearly in some places that is where we're leaders, and other places we will be followers. I think it links very much to the questions we had about commodity prices, and what's happening there. The particular mix compared to a competitor's, as I said, will depend on our competitive position, country by country.

Thank you.

Thanks, Michael.

Thank you very much indeed. Okay, we now move to our next question which comes from John McMillan of Prudential.

Congratulations on the sales.

John, thank you. Good morning.

You said third quarter margins -- operating margins were in line with your expectations. It seems to be a little bit below ours. Is that correct, did I hear you right?

Yes, indeed they're with the --with the expectations we've set ourselves as we go through the phasing of our plans through this year. That's correct.

And I guess we're all waiting for you to walk and chew gum at the same time, where you grow top line and margins. I know you're not giving specific timetables on -- you're just hitting 2010. But is there any idea when we could hit that point where both go together?

You'll note for our full year, we're expecting that our operating margin for the full year is in excess of the 13.4 that we achieved last year. And that is the target that we continue to work towards. That implies an improvement in operating margin as we go through Q4. I'm not going to speculate on the details of our plan going forward, but I would just reiterate what we've said in the call at the half year.

I think Patrick outlined it, which is we're looking for sales growth and over time -- and margin has to contribute to the development of our business, in order to achieve our longer-term operating margin targets. We're very focused on that, John.

Great. Now the share -- basically when you sold the Frozen Food business you paid tax.

Sorry, John, just to correct any misunderstanding in the way I expressed it, or we expressed in the speech. The sale has not yet completed. The sale is -- the sale process is imminent. At that point in time, of course, we will receive the proceeds and then we'll deal with the necessary consequences.

Yes. It seems like this year you're issuing this dividend, but you're not buying back the EUR500m of share repurchase this year. Is that correct?

Correct, yes.

I just try to get into the conceptual aspect of paying taxes when you sell Frozen Foods, giving money to us where some of us have to pay taxes when we get it, versus buying back stock where there is no tax implications. When -- to get to month 11 and tell us, in month 11, that you're not going to repurchase shares you have been committed to doing for the 10 months of the year, why not pay a smaller dividend and buy back the stock you said you were going to buy back?

Thank you, John. We've said in our statement that we -- and I think I said it a little earlier, that we've always had to balance flexibility, operational interest and constraints as we go through the year. As things now stand, we've increased our addition -- our original commitment from EUR500m to EUR750m. And we're returning EUR750m to shareholders in a way that is simple, quick and low cost, in order to complete our commitment to the market this year.

I see your point.

And I'd add, if I may, sorry John, that we've announced or the Board have approved a share buyback plan of EUR1.5b next year. So I do not want people to take out of this that we see the future of returning cash to shareholders as being only means of dividend. We have said in the past that we will do it as a combination. We will distribute surplus funds to shareholders as a combination of dividends and share buyback.

I just want to gauge, as the previous question did, this commitment to do the EUR1.5b, because I think there's much better tax efficiency in buying back stock, rather than these dividends. Which really when you sold the chemical business, the dividend really didn't do anything for people longer term. It's just my point of view, but thank you.

Thank you, John.

Thank you very much indeed. Okay, we now move to our next question which comes from Arnaud Langlois of JP Morgan.

Yes, good morning.

Good morning.

Three questions. Given what you said about the exceptionally strong performance of ice cream in Q3 in Europe, is it fair to assume that Europe is likely to return to a slightly slower growth of around, let's say, 1.5% in Q4? That's what you're implying by our statement?

Well, what we said was we had a very good ice cream quarter in Q3. And that has, of course, stands in part behind the stronger growth of our European Foods business. We've not made an outlook for -- specifically for Ice Cream for Q4. Clearly it's not an ice cream season.

Of the 3.5% in the quarter, Arnaud, 1.4% was ice cream, just to give you a feel for that.

Okay. As a second question, regarding your provision. This provision you announced in the third quarter I guess is a tax-related provision. And I'm wondering why you didn't book it within the tax line. And could you give me your perspective on this?

And in addition, looking at your tax rate of the past three years, it's been exceptionally low and often well below your cash tax rate. And I think you've given a long-term guidance of around 28% for the tax rate. Is it something you think we should be using for the year 2007?

And also maybe one last question. Looking at your CapEx sales ratio, it's well below in the 3% average, at around 2%, 2.2%. And obviously as you return to more positive volume growth, I was wondering whether actually this was a sustainable CapEx ratio? Whether actually you would have to basically step up spending to support your expansion going forward?

Fine. Thank you for those. Let me just deal with them quickly and separate two things. If you're referring to the provision that I specifically commented on of EUR300m, in connection with the preference share matter in the Netherlands, that has been included in our accounts under financing costs, and we've taken an appropriate and cautious view on tax.

With regard to the long-term -- the tax rate development. We have indeed, as you rightly point out, been successful in reducing our effective tax over a number of years. And from that we've seen a benefit again this year. And from that we've also concluded that our longer-term guidance on tax rate should be around 28%, and that's where we're sticking.

As far as CapEx on sales go, you need to be careful in making comparisons with other competitors. But I'll let Charles just comment on the specifics.

Yes. Hi, Arnaud. Some time ago we said that we felt that the sustainable level of capital expenditure was around 2.5% of sales. It's been tracking a little bit below that over the past couple of years, it's been closer to 2%, 2.1%. I think last year we saw around EUR800m in total of capital expenditure. You'll have seen it kicked up slightly in the quarter, behind some of our innovation activities. But I think it would be reasonable to use a 2.5% of sales figure as a reasonable long-term indicator.

Okay. Thank you very much for your answers.

Thank you.

Thank you very much. Okay, we now move to our next question which comes from Marco Gulpers of ING.

Yes, good morning gentlemen. The question I have -- a lot of them have been answered. Thanks for that. But still on the Laundry markets, maybe you can shed a little bit of light on your Home Care business, and especially on Laundry in the U.S. and in Europe. Thanks.

Yes. Thank you for that. You've seen, or you can see from our Home Care figures, the overall performance of Laundry in the quarter, which was a contribution to growth, because much of what we have under the Home Care category is, of course, our Laundry business.

We've seen, if I just look quickly across the world and then if you, John, maybe you give a bit of color to particular geographies. But in our D&E markets generally we've had good growth across the -- with one or two country exceptions. I think we commented on South Africa. We've seen in Latin America again a good performance. In Europe our performance is rather more modest, and in North America I think we've seen a slight decline in sales in this quarter.

So mixed picture if you like. Strong in D&E markets with one or two country exceptions. Slight positive in Europe, and slightly down in North America. John, do you want to add any comments?

No. The only thing I should add is that I'm glad to say that we've stabilized our U.S. Laundry recently, albeit it's down year on year, as Rudy said. And we have now reached $100m sales with All Small & Mighty. And it's good to see that good innovation can work even when you are not in as strong a market position as we are in some other parts of the world.

Okay, and one final question on clarification. So on the restructuring charges of more than 1%, you are looking at 13.4% for the year at least to be beaten? That is including the step up in restructuring, right?

That's correct.

Okay, thanks.

Thank you.

Thank you very much indeed. Okay, our next question is from Olivier Lebrun from Natexis. Thank you.

Good morning. I have two questions --

Morning Olivier.

-- if I may. The first question's about the Laundry. You say you have lost some share in Laundry in Europe, could you explicit a little?

The second question's about the top-line growth in Europe in Q3. Can we have an idea of the split of this performance between Food and HPC? Thank you.

Right. In Laundry in Europe we, as I said, have flattish sales on the quarter. I'm not aware of any significant share movements in individual countries in Europe. I know that we've had a good performance in a number.

In terms of top-line growth in Europe we are, as you've seen, fairly broadly spread between Foods and HPC. Remember that three-quarters of our business in Europe is Foods. So with a top-line growth in the quarter of 3.5%, I think you can take it that Foods is at least that sort of number.

I hope that gives you the color you were looking for, Olivier.

Yes, and if we exclude the impact of the Ice Cream performance?

Well, the impact of Ice Cream we estimate in the quarter as being 1.4 percentage points of that 3.5% growth. So that would leave you with, without that growth if you wished, at over 2%.

I think the important thing, Olivier, is to recognize that whilst it was a good quarter in the third quarter for Ice Cream, it was a recovery from the second. And that if we look at the nine months we have a very normal year.

Okay. Thank you very much.

Thank you.

Thank you very much. Okay, our next caller is Alex Molloy from Credit Suisse.

Good morning. A quick question on A&P. You said at the beginning of the year that you hoped to make your spend, your A&P spend, more even through the year. So the first question is how's that going?

The second question is, how do you guys look at A&P going forward? You -- do you look at it on a top-down basis, i.e., percentage of sales ratio, or more on a bottom-up basis, measuring it by whatever metrics you use, driving trial, share of voice, etc.?

I'll take the second one. Charles will comment on the first. The straight answer is we look at both. We design our strategy around our priority investment areas that Patrick has outlined. That gives us an indication of where we need to invest for share growth and share gain, and where we have the best leverage of the capabilities we have. Both innovation, advertising creation and capability in the marketplace to deliver.

All of that feeds into an estimate of what we require to put in the market in order to grow. We set that as a development strategically in the center. We then translate those plans into actuals, if you like, actual plans at marketplaces where, of course, the money is made. And then we have to bridge those two. And if we find there are gaps we have to make priority decisions between them. That's the role of the Executive as Patrick has now laid it out.

With regard to the A&P development over the course of this year, Charles, you want to just pick that up?

Yes. It is -- we did indeed say earlier that we wanted to get a more even weighting of our A&P across the year. But remember that A&P is, at the end of the day, activity driven. And we also said that, certainly during the course of this year, we had a lot of our innovation activity loaded into the middle of the year. Sunsilk in the U.S. A lot of activity on Deodorants, Hand and Body in Europe, etc.

And, as a consequence of that, we have seen a greater weighting of A&P in the middle of the year than compared with last year.

Thank you very much.

Thank you.

Thank you very much. Okay, we now move to our next question which comes from Christian Andreach of Manning & Napier.

Hi, good morning.

Good morning, Christian.

Could you just comment very briefly on the pricing environment in Western Europe?

Yes. I think you've seen that we have higher price growth which reflects, in part, having put the strategic price adjustments behind us, which we started in 2004 and are largely through.

You'll remember also we've talked in the past of the competitive tension in pricing, with markets that are growing very slowly. And the market growth in Europe is still very, very modest. So, if you like, the climate for that has not radically changed.

Thirdly, you'll remember there is a change in law in France which has -- affects the pricing of products in that market. And therefore, there also there is, if you like, a pressure on pricing.

For the rest, I think the environment continues to be driven by the strength of innovation and market position and the cost development, the input cost development one needs to at least find back in the margin.

Would it be your expectation that the pricing environment for you guys would evolve -- continue to evolve more favorably, given the time that it'll take for the spot prices in raw materials to be reflected in your P&L?

I wouldn't want to speculate on the environment. What I would just put the focus on is we're taking a lot of steps to strengthen our price competitiveness in the market. And we will operate against that backdrop.

Sorry, Christian, it's Charles here. Just a couple of comments. First of all you will have seen that our pricing has eased upwards in Europe, over the period. But I think the other important thing to remember is that innovation itself gives opportunities to move pricing.

And certainly in categories like, for example, soups in Europe, some of the innovations we've been doing in soups, in effect, is allowing us to move our price points. So it's not just about raising list prices, it's also about innovating and using that as opportunities to build value.

And your mix effect is captured in volume, is it?

That's correct, yes.

Okay, that's helpful. And also, congratulations on the good sales growth and on the commitment to share buybacks in 2007.

Thank you, Christian.

Thanks.

Thank you very much. Okay, we now move to our next question which is from David Lang of Investec.

The Brazilian and Mexican food businesses still seem to be a bit of a drag on Latin American performance. I was just wondering if you could update us on what's going on there at the moment, and perhaps talk about the way forward?

Morning David. Yes, indeed. We've seen slower performance in both of those markets. I would say in headline they were partly trade related in the case of Mexico, where we're seeing shifts in the trade structure and competitive dynamics as a second. And we're working hard to improve our competitiveness in both of those markets.

Moving on, at the interim, Patrick was saying that there was -- he was rather unhappy with the way things were going in France and Germany. In the third quarter this year there seems to have been an improvement there. I was just wondering if the new, go-to-market organizations are starting to bed down and deliver the results that you're expecting?

Definitely we're seeing the bedding of our changes to One Unilever in France. We've -- and in Germany, I should add. But in France we've further to go to get the full benefit of it. This is a thing that takes a cycle of at least one negotiating year in pricing.

But, more importantly, the benefits of bringing the One Unilever together is delivering the savings in both of these countries. We are seeing a speedier, more agile business operation in these two countries. And we're working more simply. Put another way, I think they're responding very quickly to Patrick's directives.

Yes. So the execution's improving?

Indeed.

Yes, thanks.

Thank you very much. Okay, we now move to our next question which is from Andrew Wood of Bear Stearns.

Hello, this is Andrew Wood.

Andrew, good morning.

Morning. I'd like to revisit two of the questions that have been asked before, but I'm not sure we got a totally satisfactory response. Firstly, in relation to your rather strange decision to change your buyback plan into dividends. In my experience, at least, this is the first time that this has happened at such a late stage in a year. And I'm really just trying to understand exactly why you decided to undertake that switch.

And am I being just a little bit too cynical, to say that this really is a mechanism by which you can meet your TSR bonuses for 2006 -- or achieve your TSR bonuses for 2006, by giving the cash back through dividends?

And secondly, in relation to the buybacks in 2007, which is clearly good news, I'm just a little bit concerned about the sustainability of that in 2007 perhaps, but certainly in 2008 and beyond because you clearly are now giving a 100% of your cash back to shareholders, which obviously is good. But the question is how sustainable is that. And if any M&A comes up, are we then faced with a cut in buybacks or taking [your let] up over time? Thanks.

Thank you Andrew. I can deal with the first one very quickly. The TSR position has played absolutely no role in any decision. And I would also note that the TSR targets, to which the business is also held, are the rolling three-year TSR. So please don't take that linkage.

I think with your -- with regard to your major question, the share buyback and the sustainability of it, you'll note that we have indicated that we expect to be maintaining a competitive balance sheet, to distribute surplus cash through dividend and share buyback as we go forward. And we've indicated for 2007 what we see that number as being.

You'll also note that we expect, as we go forward, to see a step up in our growth rate because we expect to see selective gain in share. And we expect to see an improvement in margin. Those two together, of course, deliver more cash flow. And that underpins our confidence in the sustainability of our ability, excuse me too many abilities, to deliver a continuation of our performance.

Okay. So we are -- you are committing that the EUR1.5b can be sustained beyond 2007. And secondly, okay, if my TSR cynicism is inappropriate, can you perhaps explain the reason why you decided to change at such a late time, the mechanism for giving cash back to shareholders?

Well, I'd hoped that I'd indicated the main reasons why we have made this decision at this time. I've noted that we have increased the amount of money we're returning to shareholders in the light of the imminent closure of the Frozen Foods transaction. I've noted that we've not done any acquisitions to date this year in our accounts. And I've noted that our credit metrics continue now to develop broadly as we like them.

And, on that basis, we've decided to return this larger sum of money quickly to shareholders within this year, and this is the route that we've followed. And it's because we -- the timing together with the interim dividend makes that a quick, efficient and cost-effective process.

So it's speed and efficiency that -- I'm just trying to get the reasons for the change not the extent, it's the reasons for the change. You're saying speed and --

As I've indicated, it's more money, it's speed and efficiency at this point of the year.

Efficiency in terms of what, sorry, tax? It doesn't seem very tax-efficient to me. What do you mean by efficiency?

Efficiency of the process of distributing money to shareholders, Andrew.

Okay. I'll leave it there. Thanks.

Thank you.

Thank you very much indeed. That was the last caller and we will now pass back to Rudy Markham for his closing comments.

Thank you very much for you attention on this call, and I hope you've been able to cover the questions that were most burning in your minds.

Let me repeat, as always, that the IR team stand ready to answer any further or follow-on questions which emerge from your further review of our results. And thank you very much for giving us the time this morning. Thank you.

Thank you very much. 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 and podcast will also be available on Unilever’s website, www.unilever.com.