Unilever Management Discusses Q3 2011 Results - Earnings Call Transcript

Nov. 3.11 | About: Unilever NV (UN)

Unilever Plc (NYSE:UN)

Q3 2011 Earnings Conference Call

November 3, 2011 4:00 AM ET

Executives

Jean-Marc Huët – CFO

James Allison – Head, IR

Analysts

Michael Steib – Morgan Stanley

Celine Pannuti – JP Morgan

Marco Gulpers – ING

Jeremy Fialko – Redburn

Martin Deboo – Investec

Robert Waldschmidt – Merrill Lynch

Alan Oberhuber – MainFirst

Jean-Marc Huët

Thank you very much and good morning to everybody. Welcome to the presentation of Unilever’s Trading Statement for the Third Quarter of 2011. I will set the context for my presentation by spending a bit of time reviewing the business environment. I will then look at our overall sales performance before looking at our categories in a bit more depth.

In particular, I will discuss some of the innovations and new market launches that are the key drivers of our growth. I will then hand over to James who will describe our performance in the different geographies and review progress in the key area of M&A. Finally, I will conclude with some more reflections on our outlook for the year 2011.

But first of all let me draw your attention to the usual disclaimer relating to forward looking statements and non-GAAP measures. Having read that, let’s start, as we’ve been saying consistently these are unique challenging times in which to be doing business. This year we have faced substantial input cost inflation, continued intense competition and low continued consumer confidence as disposable incomes fall throughout the developed world. It is against this backdrop that the sales performance that we have just announced is reassuring evidence that the transformation of Unilever is firmly on track.

In markets that growing between 5 to 6% plus or minus globally, we have delivered underlying sales growth of 7.8% in the third quarter. We are growing ahead of our markets and in many cases also outperforming some of our formidable competitors and which there are many. We are also happy with the quality of our growth with volumes clearly positive despite price being increasingly permanent.

In 2008 as you will remember, the last time prices increased significantly on the back of huge commodity cost inflation. We were not able to maintain volume growth. In 2011, year-to-date, we have now seen positive price and volume growth in each over the three quarters.

I should be clear at this point, that the sales of the Group and volume growth figures are flatted by around 80 basis points by the impact of the major systems change in North America. We have upgraded our SAP system to the new regional platform, and sales were brought forward into the third quarter to ensure no disruption to customer service. This effect of course will reverse out again in the fourth quarter.

With this implementation, we are now close to completing the rollout of our core regional SAP systems. This is important progress, leading to a common process and systems landscape that allows, for example, the rapid integration of new businesses such as Sara Lee. This we achieved in less than five months as you know.

But we are also importantly pleased that our growth was broad based, double-digit in the emerging markets, but also positive in the developed world. Emerging markets represented 53% of our turnover in the quarter. Underlying, once again are positioned as the – an underlying the emerging market consumer goods company. So in summary, this is being requalify a good quarter.

The Unilever of today is now capable of performance, but a few year ago, we would have struggled to deliver, certainly in conditions as tough as those that we see this moment. Our claim to now be fit to compete has been sharply tested this year and so far we are encouraged by the results that we have seen.

Let’s now look at this in a little bit more detail. Turnover for the quarter was EUR12.1 billion, that’s up 4.9%. Foreign exchange was negative by just shy of 5%, 4.8% which reflects the relative weakness of the non-euro currencies in the quarter compared with the same period last year.

If ForEx rates remain at current levels throughout the remainder of the year, we would expect the full year impact on turnover to be around minus 3%.

Underlying sales growth for the quarter was at 7.8%. This is the highest quarterly figure for three years. Volume growth also robust at 1.9%. The price growth of 5.8% for the quarter was in line with our expectations.

The pricing in quarter was also positive but much, much more modestly so reflecting the fact that most of the pricing actions planned for 2011 are now largely complete. We expect underlying price growth in the fourth quarter to be around the same level as we’ve seen in Q3.

Another very pleasing aspect of our third quarter sales performance was the 2.2 positive – percent – positive contribution from M&A. We are now on the front foot. With brands such as TRESemmé, Simple, Nexxus, and Redox now fully integrated into our portfolio. This was the first quarter of significantly positive M&A impetus for more than a decade

James will return to this topic a little later in the presentation.

On the next slide, we see on a year-to-date basis, there are turnover with EUR34.9 billion, that’s up 4.4%. Foreign exchange negative at 2.7% and M&A positive at plus 0.8%. Underlying sales growth was at 6.5% with pricing at 4.3 and volume growth at 2.1%.

This is a clear step in our top-line performance. The growth mindset, we’ve instilled in the business has taken root and the numbers are starting to reflect this. We are starting to built the track record of consistency that it’s so important to us, but we also know it’s so important to so many of our shareholders.

Let me now review the progress in each of our categories, and focus in particular on the innovations. The new markets launches and market development initiatives that are driving this performance.

I’ll start with our largest and fastest growing category, that’s Personal Care. In Q3, we saw a strong performance throughout Personal Care portfolio. Underlying sales growth north of 11% with a very good balance of volume at 6.2 and pricing at 4.8%. With the year-to-date turnover of more than 11 billion, Personal Care is now a third of our business. Year-to-date, our underlying sales growth in Personal Care was at 7.5% and again split evenly between volume and price.

Growth was strong throughout the portfolio. Double-digit growth in Deo’s, skin cleansing as well as hair, where we’re seeing a re-launch of Clear across Asia and innovations under the Dove brand such as Damage Therapy and weightless Nutri-Oils which are performing very well. We also saw a balanced performance across the geographies underlying sales growth in this category at around 15% in the emerging markets and mid single digit at around 5% in the developed world.

Value share performance reflected this strong growth. In deodorants and skin cleansing we see consistent gains in a number of major markets. In hair our performance has improved significantly. We are not yet gaining share on a global basis but the trend is a good one. We are seeing gains in Western Europe and also China, but there are continued losses in area such as Brazil and Russia areas that we are focused on.

Our growth in personal care continues to be driven by the quality of our innovations and the speed with which we roll them out in new markets. So I will give you some examples, but you should know that the third quarter was quite quiet in terms of new launches instead we were focused on the building of the foundations that we’ve led over the last 12 months.

There are many examples, let me give you a couple. Dove Men for Care this is a significant part today of our skin cleansing and deodorants business, Dove Nutrium with its unique moisturizing technology. Let me turn to oral care. The Close Up Fire Freeze variant or the whitening technology of our White Now range. Or back to deodorants the motion sensor technology of Rexona for women. These are just some examples.

Most of these innovations have been built on our R&D capabilities, as we look to drive a step change in product quality. This is a simple winning formula where we launch brands they clearly outperform competition we see consistent evidence of strong growth and share improvement.

Turning to Home Care, here our underlying sales growth for Q3 was 9.2%, volume at 2.3, and pricing at 6.7%. The emerging market laundry business was again the main driver behind this performance and we saw a very good double-digit performance in many markets, China, India, Brazil, Indonesia and South Africa to name a couple.

Laundry in Western Europe also grow, but that was at more, more modest levels, the volumes were positive, particularly in the UK, but the growth in the region overall was held back by negative price as levels of promotional activity rose sharply. Our year-to-date sales growth in Home Care is now 7.5% and that’s around the same level as Personal Care. Price is a slightly higher component than volume and this reflects the input costs pressure in this category that hit the business over the course of the year.

Turning to the value shares, in Laundry they are showing good momentum. They have overall gains with some very good performances in China and India and here we benefited from technology advances such as the patented shading dye used in our whiteness brand Rin, launched also across South East Asia under the Radiant brand. This is a great example of how technology-backed innovation can enhance our performance in the marketplace.

In Household Care, our shares are overall flat good performances in India, South Africa and especially in the U.K where we –whether launch of the new Domestos Extended Germ-Kill range has driven good performance.

Continuing with household care, we have also seen significant progress in taking our existing brands into new markets, white spaces particularly in the emerging markets. We have been expanding sunlight Domestos and Cif brands over the last year. And this continued in the third quarter, examples are Domestos being launched in Thailand as well as Cif in Peru.

Although individually modest, excuse me, these launches add to the eight that we completed in the first half of the year, creating a momentum that is starting to become material as a good driver for our growth in household.

Turning to Savoury, Dressings & Spreads, the underlying sales growth here in the third quarter was at 6.2%. Volumes slightly declining at minus 1%.

Our business in the emerging markets continued to grow strongly including food solutions. But this was partly offset by more modest performance in the developed world.

Volumes in Spreads and in Dressings were down in both the US and Western Europe as price increases triggered by input cost pressure, were not always followed by our competitors. Year-to-date sales growth in the category is at 5.4%, all from price volumes stable.

Value shares are slightly down in Spreads as competitors lagged the price increases, but our shares are up in the Knorr meals and dishes, and in Dressings where performance in the Americas continues to be particularly strong. Although, we focus heavily on innovation and new market launches is the key drivers of our growth, we’ve also seen some significant benefits here from our efforts to drive market development.

The example here is our Inspire campaign in dressings. It’s a great example. It’s one of the main factors behind the strong share performance we’ve achieved, up more than 80 basis points in the last 12 weeks across the Americas. The idea is a simple one, inspiring consumers to use Hellmann’s in a variety of new ways, giving them ideas to try such as those you can see on this chart here. Outrageously, Juicy Chicken, as we call it, to quote just one example.

The Inspire campaign on Hellmann’s has been successfully rolled out across the whole of Western Europe and Latin America. And it’s go on live in the US with print and television advertising support. The evidence of success here is building steadily. We see it in the data from the campaign itself, for example use of Hellmann’s in target recipes such as Mash, quite popular here in the UK has doubled since the start of the campaign. But more importantly, we see it in our share data with gains of around 40 basis points in the UK and more than a 100 basis points in both Brazil and Argentina to quote just a few examples.

Finally, let me turn to Ice Cream and Beverages, our refreshment area. We saw underlying sales growth in the quarter of 4%. 4.6% came from price. Volume slightly negative at minus 0.5%. We are not in the business on focusing on one-offs, but I must say that the performance here was significantly impacted by the poor weather in July in Western and many of you will know this and remember this.

To give you just a sense of perspective, we think that for the ice cream and beverages category, as a whole, this weather factor had a volume and sales growth impact of around 200 basis points and for Unilever, as a whole, around 40 basis points.

But quickly turning to our year-to-date growth, the growth is now around 5.5% with 2.5 coming from volume and 3% from price. So a pretty good balance over the nine months.

Emerging markets actually delivered strong double-digit growth here fueled by Ice Cream in market such as Brazil, Turkey and Indonesia, where we are seeing very quick growth from the recently launched Magnum range. But also from the rest of the portfolio all impulse brands up minimum of 25% this year-to-date. Value shares globally are up for Ice Cream gains in nearly all major markets except for here in the UK where pricing moves have not yet been fully followed by competitors.

Turning to Tea, the performance in Tea was more balanced across the geographies; mid single-digit in both the emerging markets and the developed world. There was standout performance, however, in areas such as South Asia where we had double-digit growth in Pakistan as well as in India, where the Taj brand in particular is growing very nicely helped by the recent launch of Green Tea.

Shares of rolling tea are stable. We are pleased in some areas in Western Europe especially in France where green tea and fruit and herbals are performing strongly. But overall we aspire to achieve more than flat market shares. With the strength of our brands and our portfolio in tea we should be seeing consistent share gains and there is more work for us to do before we reach this point.

We have indeed a well established track record of successful innovation in ice cream. We got example such as Magnum temptation and Cornetto Enigma. In Tea we are also starting to see innovation playing an important role in driving our growth. Earlier in the year we introduced the taste technology in the U.K market with our PG Tips brand. This involves the extraction at source of Tea essence that is later released back onto leaves prior to the packing. This allows us to enhance the taste profile of Tea so important giving a greater essence of freshness.

We are now also introducing the same concept into our Russian Tea business with the Lipton brand backed by powerful TV and press advertising featuring the world know P. S. Brojanan. This leaves us well-placed to drive the rejuvenation of our Tea business in the large and important Russian market.

Let me now handover to James. He will look at our performance across the regions starting with the important Asia, Africa, CEE under the leadership of Harish Manwani my colleague.

James Allison

Thank you, Jean-Marc, and good morning, everyone. Asia, Africa and CEE continues to be the powerhouse of Unilever’s growth. Underlying sales growth in the third quarter was 12.4% ahead of the market and underpinned by strong double-digit growth in many countries. Example includes large market such as India, China, South Africa and Indonesia, but we also saw similar growth in many smaller markets such as Bangladesh Korea and Ghana.

This brings underlying sales growth for the year so far in daily markets to 10.2 – sorry in Asia, Africa, CEE to 10.2% almost equally split between volume and price. This is outstanding performance, strongly driving the growth of the Group as a whole and achieved against the backdrop of continuing volatility in the external environment and immense competition.

Let’s not forget that 2011 has been a year in which the regions consumers have lived through this tsunami in Japan, geopolitical turmoil in North Africa and the Middle East and more recently the severe floods we have seen in Thailand and the Philippines. These parts of the world have often experienced volatility, but this year has seen more volatility than most, and yet our growth has still been impressively resilient.

This strong performance is built on a foundation of technology led innovation and rapid rollout of brand into new markets. But it also reflects our in-market development more broadly. For example, we’ve been developing the male skincare market across Asia, be it the introduction of Vaseline face care for men in Southeast Asia, Ponds male facial cleansers in China or be it Fair & Lovely face wash for men in India.

We have also been investing in our infrastructure, for example, in our business systems. A regional SAP platform has been implemented in multiple markets in 2011, North Africa, Vietnam, Pakistan and Bangladesh to name just a few. Now, region has divested this, we cannot expect every single market to flourish, and at the moment it’s in Central and Eastern Europe where we find conditions the most challenging.

Russia is the key market and here we see mid single-digit sales growth mostly from price with volumes flat. Alongside, the Lipton tea innovation mentioned by Jean-Marc, there are also ambitious plans in the Dressing category. And in the Personal Care category, both Hair and Skin Care will be transformed by the acquisition of Concern Kalina, and I’ll say a little bit more about this in a few moments.

In the Americas region, underlying sales growth in the third quarter was 9.1% with 6.9% from price and 2.1% from volume. As you heard earlier, these numbers are flattered by the impact of the systems change in North America. Adjusting for this and more representative view of underlying sales growth in the region is a little below 7% with volumes broadly flat. Year to-date growth in the Americas is 6.6% with 5.6% coming from price and 0.9% from volume.

Despite competition continuing to intensify in Brazil, we saw Latin America deliver underlying sales growth in low double-digits. This was especially driven by Argentina and Mexico and was the best growth we have seen in Latin America for more than three years.

Performance has also improved in Brazil with growth in the quarter, returning to high single-digits after more subdued growth in the first half of the year, when sales were impacted by trade destocking as we made important changes to the structure of our trade towns.

Ice-creams is worth a special mention here, as we celebrated 70 years of the Cabon brand by reaching a new high in market share. Underlying sales growth in North America was modestly positive in the third quarter even after adjusting for the forward buying associated with the SAP implementation.

We continued to see strength in the Personal Care business driven by share gains in hair and deodorants with Dove Men+Care and (inaudible) both performing strongly. In food, conditions overall remained more difficult with volumes lower as prices have risen in category such as spreads and dressings. At the same time we’ve seen our innovations and new launches in ice-cream continued to perform strongly.

Magnum has been the key driver of share gains, but we’ve also seen strong performance from the Ben & Jerry’s and Klondike brands.

Let me now turn to Western Europe, where our performance was more encouraging than the numbers might suggest. Markets here continue to be difficult with the trends if anything showing further signs of slowdown with the very disappointing summer season for ice cream on top the environment for our business in Western Europe was certainly challenging. In this context underlying sales growth of minus 0.5% in the quarter is reasonable performance. Our value shares are now positive. The UK and French businesses continue to be the main drivers of market share with gains across most of the portfolio in both cases.

In category terms tea, laundry and deodorants are all achieving strong market share gains. In deodorants we continue to see innovation as the catalyst with an improved formulation driving Rexona for Men and variant such as Go Fresh leading strong performance for the Dove brand.

Our business in Western Europe is stable and is well placed for improve performance in the future. Our team in the region are offbeat and energized by these early signs of success and we are confident that we are taking the right actions for the long-term.

Let me now move to M&A. Now our intention is to supplement our strong organic growth with bolt-on M&A activity, which reshapes and improves our portfolio, and to continue building on the momentum established over the last couple of years. A few weeks ago we announced the acquisition of Concern Kalina, the leading local personal care company in Russia.

This transforms our portfolio in this important market and will double the size our HPC business taking it from a distant number six player to number two in the market.

In Skin Care, we will become market leaders and in Hair Care we will become a strong number two. We anticipate completing the acquisition of an issue 82% stake in Kalina by the end of this year. This will give us management control over the business, but we will look to further increase our stake through a mandatory tender offer in early 2012.

So, this is an acquisition that will significantly strengthened our portfolio in Russia, adding both scale and growth momentum. But it is also a financially attractive deal with sensible multiples and good synergy opportunities.

Jean-Marc explained earlier, the M&A is now contributing significantly to our overall turnover growth for the first time in many years. Kalina will add further to this, as we move into 2012.

But just as important is the speed with which we integrate acquired businesses, how quickly we start to tap into the potential of the newly acquired brands. Here too we are pleased with the progress we are making.

First, the operational integration of Alberto Culver is proceeding well in all the key markets, including the US and UK Secondly, we’ve recently launched the flagship TRESemmé brand into the Brazilian market, less than six months after the completion of the acquisition.

This is important, firstly because it’s a big step forward in one of the biggest and most competitive hair care markets in the world. But secondly, because it’s another example of the speed of action we’re determined to display throughout the business. To be clear, we did not inherit existing plans for this launch when we acquired the business.

From Deo completion, to having product on shelf in an entirely new market in just a few months, is something Unilever would have struggled to do a few years ago. Shipping has only just started in Brazil and we will continue to expand this important brand into other markets.

Let me now hand back to Jean-Marc, who will conclude with a few comments on our outlook for the final quarter and the year as a whole.

Jean-Marc Huët

James, thanks a lot. So you’ve heard that we’re continuing to make good progress with the transformation of Unilever into, what we would like to call, a sustainable growth company. The results, I believe, give clear evidence of this. We are growing ahead of the market just as we set out to do. With three consecutive quarters of broad-based volume and price growth in, what we call, an increasingly tough environment.

Let us not lose sight the scale of the challenges we have faced during the course of 2011. Commodity cost inflation has been substantial, as you know. It’s reached almost the levels that we saw in 2008. It’s adding around EUR2.5 billion of extra cost to our business this year.

Many of our peers have faced similar challenges, but few of any to the same extent. But with our highly productive savings program and our measured pricing actions, we’ve managed this well. But it’s clearly been a burden in a challenging year. At the same time, we’ve also seen continued weakness and uncertainty in the global economy.

Our consumers find that disposable income under increasing pressure, especially in the developed markets Western Europe and North America.

Let me just take the UK as an example, Asda’s Income Tracker report has made this point shockingly clear. We highlighted this in our half-year results in August, since we have seen no improvement. Since then, with household disposable income still around 8% down year-on-year.

These trends have been exacerbated by the pricing actions that higher input cost have driven, with market volumes increasingly under pressure, and in the emerging markets competition has remained intense as peers attempt to challenge our strong market positions. We are determined to remain competitive in these conditions and indeed we have been.

You can see that in the underlying sales growth of 13% this quarter, clearly faster than the markets, and to cap it all, we cannot together recall a year when we have seen natural disasters and geopolitical turmoil on such a scale, especially in our AAC region, as James mentioned earlier. The point is clear though, we have faced many challenges in 2011, but our response has been unequivocal. Two things in particular, I believe are worth highlighting.

The first one is that we have used these challenges as a catalyst to further accelerate the change program we are driving through Unilever. Second, the tough business climate of today makes us more determined than ever to manage the business with the long-term in mind.

Let me address the first point in the variety of ways in which we are accelerating change at Unilever. Firstly, we are taking our cost more aggressively, targeting all costs that the consumer is not willing to bear. We need to do this. We are using the pressure created by the external climate to push harder still in a pursuit of the lowest possible cost base. Just as an example, we are learning how to run the business more effective with fewer people. In my own area of finance head count is now down approximately 20% over the last three years and there is more to do as we changed the emphasis from checking and stopping towards enabling actions to drive growth.

At the same time, we are making agility a key feature of how we do business, the new Unilever is capable of moving faster and more decisively allocating its resources more dynamically and responding with greater flexibility to changes in the competitive environment. There is always much more that we can do.

But let me give you some examples, our recent change to a more category driven organization with good balance is driving speed and alignment, especially, in how we innovate and roll our brands into new markets. With far fewer management touch points in the business, decision making involves many fewer compositions than it did before and this will accelerate.

We also driving our enterprise support organization to deliver better service, lower cost and improve transparency. To give one simple example and I spoke about it in Singapore last year, we have quickly consolidated the management reports that we use in the business to drive decisions. But we’ve removed several thousand that we once believe what irrepressible may sound trivia, but in fact it’s significant, we could not be truly agile whilst drowning in such a sea of data.

Let me now turn to the second point, managing the business with the long term in mind. In practice, this means continuing to invest behind our brands that are so vital to our future, but to be absolutely clear, we will not take short term actions that could damage the health of our brands over the long-term. Nowhere, we slowed down in our pace of innovation or in our new market launches, it’s working and we are happy with the progress that we are making.

At the same time, we sought to mitigate naturally the impact of commodity cost inflation on our cost – on our consumers, recognizing the tough position in which many of them find themselves. And so, this has been an exceptional year-to-date.

As Paul indicated in our announcement this morning, we now expect that full year underlying operating margin will be flat to slightly down. Over the long-term, we continue to focus on the achievement of volume growth ahead of our markets that does not change, strong cash flow and also again modest, but steady margin expansion.

And with that let’s now move to the questions.

Question-and-Answer Session

Operator

Thank you Mr. Huët. (Operator Instructions) Our first question is from the line of Michael Steib from Morgan Stanley. Please go ahead.

Michael Steib – Morgan Stanley

Good morning. It’s Michael Steib from Morgan Stanley here. I have two questions please. Jean-Marc, if I could just follow-up on the last remark you made in terms of the margin guidance, everything you said, sounded very consistent with what you said before in terms of investing behind the brands, yet you are now saying margins to be flat to slightly down, is this largely a result of just simply lower operating leverage in the business due to weak volumes in Europe and in US or do you actually see the need for more promotion as you look forward?

And then secondly, you made many references to pricing throughout the year and this quarter in particular, I’d be interested in what mix – what the mix contribution is within that? Do you see a positive or a negative mix effect at the moment at the Group level? Thank you.

Jean-Marc Huët

Michael, thank you very much for the question, obviously a very important one. And let me just briefly remind when giving you the answer on margins that we have had commodity costs this year of around 2.5 billion more than the prior year in our raw and pack costs. And as you know, Michael, pricing always lags the commodity costs. So we’ve been pricing to recover absolute cost increases.

I’ve mentioned in the speech that the consumer environments, the natural disasters, the political issues and this really is the backdrop to what we see as good performance. And it’s in this context that we believe the right thing is to say today that our margins will be flat to slightly down and it’s very much a message to consensus, which increased somewhat since the second quarter.

But related to your second point, we have seen some impact on the weak consumer environment on our mix and that’s inevitable. On the one hand, we are seeing some downtrading in some of the developed markets. If I just see Rama or serve some of the discount channels. But also there is the difference between the growth taking place in D&E versus D, and this obviously has an adverse impact as well. So there is some mix, which is weighing on our performance.

And more strategically, mix is probably going to be one of the areas of most focus in the next 12 to 24 months as we become more vigorous in that line item. So I would just summarize by saying, commodity costs, weak environment, a lot of things happening, and obviously mix having an impact on our performance.

Michael Steib – Morgan Stanley

Okay. Thank you.

Operator

Your next question comes from the line of Celine Pannuti from JP Morgan. Please go ahead.

Celine Pannuti – JP Morgan

Yes, good morning. My first question in on Western Europe, could you shed some light on – in order the sharp volume decline, how much of this was from Ice Cream, and overall with – you had – you’ve seen that there was a deterioration in the market since H1? And that’s my first question.

My second question would be on input cost, you have said 2.5 billion, I presume that is around the 550 basis point guidance you gave on the margin head. At this stage, however, input costs progressed into the year-end, are you starting to see some stabilization, effectively even some decrease in input cost that would make sure actually for 2012 – ne better on that front? Thank you.

Jean-Marc Huët

Yes, good morning Celine. Let me just take the second question first, this is a quarterly trading statement, so normally, we wouldn’t talk about the type of the P&L details, but just given the importance whether the actual 2.5 billion is absolutely in line with the 500 to 550. There has been some decline in the spot markets of some of our important raw materials, but I will just remind you that crude oil remained stubbornly high at a $110. It’s around the 117 on average for the year. So, there has been some easing, but it’s still high and it’s still volatile. So, very difficult to predict what’s going to happen in the future.

You also need to take into account the impact of currencies, so net, net while we’re seeing a decline overall, it’s not to the same extent from a P&L perspective. We do not anticipate in any single way the types of increases next year that we’ve seen this year. It’s obviously early days. It’s not our business to forecast where commodities will be. We sell shampoo and peanut butter. But from our advantage point today, the comparisons are just going to improve as we enter and progress through 2012.

Coming back to your first question on Western Europe, the overall market is probably stable to down in terms of volume pricing up. But I would just take a step back. In terms of our own Unilever business, which is run by Jan Zijderveld, who’s come from South East Asia, I think that we are pleased with the progress that we are making and implementing our strategy.

We are more focused on innovation. The leadership has improved, as it continuously does. We’ve strengthened the portfolio through Sara Lee having a better balanced. And there are some markets, including yours, the French market that has actually done very well year-to-date. But the UK is also doing well. So, I wouldn’t say we are happy, but we are pleased with the progress that is taking place.

Overall, more from a financial perspective, if you look over a longer term, I would say that our performance is stable and best. Let us not forget how weak the consumer environment is. I’ve made visits to the markets and you’re really starting to see it hurt in the purses of our consumers that we served.

We’re doing well in some of the categories. Hair care is actually gaining momentum after a long time of a period of issues. Deo’s continues to do well and laundry also in the UK. So there are some real categories that are doing well. On the other hand, the other areas where we need to really focus on bit it Hand & Body, skin cleansing, which was relatively weak.

On your point of Ice Cream, again I always feel foolish talking about the weather when we have a EUR45 billion business, but it really did impact our business and it was the worst July in decades, as I am told. The overall impact to the Group from this Ice cream, we estimate is around 40 bps. I think that the overall impact is around 7% in underlying sales growth for Ice Cream in Western Europe itself. So, the shares are good. They’re up around 20 bps, but overall the adverse impact has been 40 basis points to the company.

Celine Pannuti – JP Morgan

Okay. And just a follow-up on the remarks you’ve done in terms of the consumer environment. And, have you seen a deterioration in that environment or – because as Andy said that the market is stable.

James Allison

Yeah. When I talk about our business its stable, I think that you read the newspapers as well as do. We see actually a deterioration. We’ve been – I think we were told that we were actually conservative to prudent 12 to 18 months ago. What we’ve been, sort of, saying actually is reproducing itself. There is a lot of uncertainty. It’s a depressed consumer environment. So, that’s the way we’re managing our business. I wouldn’t say it flattened out in any single way. We just see a depressed environment. One point that I did want to make to give you a more clarity on the number the impact of these ice cream sales for Western Europe is around a 150 basis point on our West European business.

Celine Pannuti – JP Morgan

Thank you.

Operator

Thank you. Your next question comes from the line of Mr. Marco Gulpers from ING. Please go ahead.

Marco Gulpers – ING

Yes. Gentlemen, good morning. Two questions on my side. First one, may be you could address again one line in your press release where you are basically highlighting pricing to recover costs rather than maintaining margins and explain a bit more in detail what your meaning that and just to recover costs rather than maintain margins?

And the second question I have is related to that, is again on the difficult retail environments, we know that earlier this week some of your competitors have highlighted that you are stepping up the promotional efforts amongst others in the UK, but you are also talking about the US, what risk is there on your view that next year some of the price increases will start to reverse as promotions are needed? Thank you.

Jean-Marc Huët

Okay. Well let me take the first one and I’ll ask James to answer the second one on the retail environment. We are taking pricing judiciously. We are taking it where it’s strategic. We are taking it where we are the leader and we are taking it where there is innovation and where there we really think there is a proposition. But what we are trying to say is we are not going to increase prices demonstrably. It would not be the right thing for the consumer and as a result what we want to do is we want to drive as many different levers in the model. We are not going to increase the prices to cover the margin.

We are going to do it with the absolute cost increases and then use different levers. The two levers, I’m referring to for example, supply chain savings being one, the second one being increasing the effectiveness in terms of our returns on marketing investments. We do not believe in this uncertain environment that we should go too far in the pricing, and that’s again when you see the 5.8% underlying price growth this is a reflection of what we’ve done over the last 12 months much certain less so what we’ve done over the last three months, because right now we are close to stable in terms of in quarter pricing.

On the second part of the questions James.

James Allison

Hi, Marco, yes. I think you were asking questions, particularly, about the promotional environment, and some comments that were made by the UK environment and also the US.

Well, I think it’s fair to say that we’ve seen a tough promotional environment for quite some time now so it’s certainly not a new thing. Probably in more general terms, I think we see that whilst the level of the number of promotions continues at very high levels in some cases the level of promotional discounts are not quite as heavy, as they had been in the past. And of course that is – that is driven by such commodity costs inflation that we’re seeing. Specifically to the UK there were remarks, I think, made both level of promotional activity in Laundry. This is indeed a category that is promoted significantly. It’s a very important category for the consumer. It’s also important for the retailer. In the UK market the dynamic is that – tends to be that we have the promotional slots one quarter, and then the next quarter, our major competitor has the promotional slots, and then what you see in these situations is that if you look at any particular quarter the percentage that we are selling on deal is higher than others. So I think that there is nothing really ordinary there. And I would stress again I think as we look forward, I don’t think we see signs of the promotional intensity is going to continue, it probably take a while before it comes down, but now there is going to exacerbate or get worse.

Marco Gulpers – ING

And in terms of A&P spending maybe it’s not the right time to ask, but would you say it’s fair to assume that at this time in the market there is a little bit more P than A?

Jean-Marc Huët

Yeah. In actual fact Marco, it’s back to me, if – as I analyze each and every months that the mix of advertising and promotion, I am very pleased with the trends on where we are spending our A&P. And it’s usually two-thirds, one-thirds and it hasn’t really changed over the last 12 months. Importantly, we’re driving more effectiveness, so we are getting more of a bank for our buck, but I am pleased with the balanced between A&P.

Marco Gulpers – ING

Perfect, thank you.

Operator

Thank you. Your next question comes from the line of Mr. Jeremy Fialko from Redburn. Please go ahead.

Jeremy Fialko – Redburn

Hi good morning Jeremy Fialko, Redburn here, couple of questions. Firstly just following up on the A&P question, you are still looking at the A&P to be kind of broadly flat in absolute terms in 2011 that’s what I recall your guidance being?

Then secondly, more specific question on your pricing in emerging market Home Care, you spoke about the pricing in developed market so euro being down does that only imply you had pricing of kind of 15, 20% or something like that within the emerging markets? Thanks.

Jean-Marc Huët

Yeah, thanks a lot Jeremy and good morning to you. I don’t want to go through each and every level of the P&L, but I think the most important point here that we are stressing is that we investing in the long-term and behind in our brands and there is really not much changed to what we’ve said in the second quarter, we are trying to increase the quality, we are trying to get better, bigger, faster innovations into the marketplace and that just continues, but I think that what’s been working for us up until now is investing in the long-term and that’s what we are continuing to do.

And in terms of the pricing in laundry the second part of your question in D&E, it’s up around I would say 8 to 10% something like that.

Jeremy Fialko – Redburn

Okay. Thank you.

Operator

Thank you. Your next question comes from the line of Martin Deboo from Investec. Thank you.

Martin Deboo – Investec

Good morning gentlemen. Jean-Marc, it’s Martin. I just want to follow-up on Michael’s first question on market and I just want to be crystal clear on this margin guidance, I mean the way I am saying your commodity inflation is in line with guidance, your pricing is ahead and yet you’re very slightly downgrading margin guidance.

Can I ask you to alternatives here, is this simply a question of risk we take, because pricing is more strong than you expect, there is a natural dilution affect on margin or it’s something going on in the cost lines that is more adverse than you expected? That’s first.

Can I ask the follow-up question on Personal Care, very strong result this quarter, six percentages points up on the previous quarter maybe half of that is a soft comp affect in the fair share of the US benefit, but it’s still looks like a strong result, could you give some more color on Personal Care. That’s all. Please. Thanks.

Jean-Marc Huët

Sure, well, let me start with the second one in terms of Personal Care, it indeed has been broad based and it’s been a great performance. There are one or two areas where it’s being somewhat inflated. Let me just give you an example in China, Personal Care same period last year, we did our SAP implementation there. So the growth is a little bit better than on an ongoing basis.

The same goes for the US where we had our SAP implementation, which we have highlighted. Having said that if we just look throughout the different categories we see good momentum in Hair. We see some very good momentum in Deos, which has continued as well as skin cleansing. And so, I really think that this is a pleasing performance of Personal Care. I would not extrapolate. If you are growing a 5% plus in Q1, Q2 and then a 11%, this is also again just to remind that it’s over a three month period of time.

But as we see the trends, we are very enthused and happy with the progress and with the share gains. And I would mention Deos just as a story over a long period of time that just continues its performance. And I’ve mentioned, Hair that in places like Western Europe, we are really starting to see some trends – positive trends in the momentum of our business.

Coming back to the first part of your question in terms of the margin, the pricing is as expected. We’ve said that we have taken largely our pricing in the first half and that is indeed the case. But I think that you just have to be very cognizant of the backdrop that we are in, be it commodity costs, consumer environments, natural disasters and the like. And we think this is the right thing to do. We are investing in our long-term brands and that’s what we will continue to do within and between quarters, and so we will continue to do that.

Let me just give you one tiny point to put this in perspective. We’re talking about a relatively small amount of money versus our total underlying operating profit. 10 basis points is around 40 million. So let me just give you some perspective. We could have cancelled one launch, one brand extension into a new market. Let’s just take TRESemmé in Brazil. We are very happy with this because Alberto Culver both in the developed markets, using the right distribution platform of Unilever, boom in a very competitive intense area like Brazil, where you know we’ve been very focused on Hair doing well in Dove, less so in Sunsilk and the like. And as a result within five months we launched TRESemmé.

Now, we could have cancelled or delayed that by a quarter, and then we would have not changed our guidance. That’s what we are talking about here, just to give you some perspective, so I would not pinpoint it on anyone single point. I think given the back drop, given the fact that we are increasingly confident in our long-term strategy, we’ll continue to invest in the business, and the margin as we talk about it today is just an outcome of that.

Martin Deboo – Investec

Okay. Thank you.

Operator

Thank you. Your next question comes from the line of Robert Waldschmidt, Merrill Lynch. Please go ahead.

Robert Waldschmidt – Merrill Lynch

Good morning, gentlemen. Two questions, one, you’ve given an outlook for pricing into fourth quarter, given what we’re seeing in terms of volumes particularly or the SAP impact on the detergent consumer, what is your view in terms of the volumes growth in fourth quarter. And then secondly, in terms of margins, assuming your pricing to recover input cost at absolute level, if we get a further increase in input cost in next year and then recognize its early days, does that imply potentially, you could have margin pressure again in 2012, so margin is down? Thank you.

Jean-Marc Huët

Okay. I can be very short on both of these. If you just look at the commodity costs, between 500 to 550 bps this year that’s around an increase of, let’s say, 15%. I do not assume that that this is going to happen next year. So the like-for-like comparables will be easier, and I would be quite shocked, but then you would as well if that were not the case for 2012.

On your first question I am not going to get into the details of volume or pricing on a quarterly basis. The point on pricing is a strategic one in terms of what we are doing which is right in the marketplace for our consumers. I think most importantly again strategically as we can close our books for the year, the most important test for Unilever in 2011 is that we have a good balance between pricing and volume and that’s our expectation.

Robert Waldschmidt – Merrill Lynch

Thank you very much.

Operator

Thank you. Your next question is from Alan Oberhuber, MainFirst. Please go ahead.

Alan Oberhuber – MainFirst

Good morning, gentlemen. I have a one question about rollout on SAP and which markets could be impacted in the next couple of quarters and where we have to be and make some cautiousness or look at which markets concerning the growth rate then?

Jean-Marc Huët

Absolutely let me just start off by saying that we’ve done a huge amount and it’s a very strategic focus for ourselves and we’ll increase to around 99% by the end of next year let me pass over to James.

James Allison

Hi, Alan. You certainly shouldn’t anticipate any big SAP implementations the likes of which we see in North America. That’s very big and that’s why it’s something that we call at the Unilever level. The – what remains is a little bit more work to do on U2K2, SAP implementation in Asia, Africa, CEE. And in 2012 we’ll implement the system change in Russia and in Central Africa and then that will then be completed. So there is really not very much left Alan.

I think that’s our final question, over to you Jean-Marc.

Jean-Marc Huët

James, thank you very much. And thank you to everybody who has joined us this morning. And I would like to thank you all for your questions and engagement.

So just in summary and in closing comments you’ve seen that our performance in the third quarter was good. Underlying sales growth at 7.8% with a particularly strong performance again just over a three-month period of time, but in any case in personal care and continued performance in emerging markets. Growth was driven by market development, technology-led innovation and the rollout of our brands into new markets. There will be no letup in the pace of our activity in these areas.

We are also pleased with the balance in our growth; pricing strong at 5.8%, but volumes holding up well at 1.9%. Our long-term priorities, let me just remind everybody, remain the same; volume growth ahead of our markets, steady sustainable improvement in our underlying operating margin and importantly strong cash flow.

With that, I wish you all a good day. And I look forward to seeing many of you at our investor event in Turkey in the few week’s time. Thank you very much.

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