U.S. October auto sales were reported Thursday; Ford reported its 12th straight monthly decline, GM and Toyota posted year-over-year gains, and sales of Nissan vehicles surged.Complete Story »
Ron Harunisubmits:Navios Maritime Holdings Inc. (NM) is a worldwide leader in theTrans-Ship industry and one of the leading global brands with avertical integration as a seaborne shipping enterprise. The company is based in Piraeus, Greece.Complete Story »
Unilever NV (UN)Q3 2007 Earnings CallNovember 1, 2007 6:00 am ETExecutivesJim Lawrence - Chief Financial OfficerJohn Rothenberg - Senior Vice President of InvestorRelationsCharles Nichols - Vice President of Investor Relations AnalystsJohn Parker - Deutsche BankMarco Gulpers - INGJulian Hardwick - ABN AmroRobert Jan Vos - FortisGraham Jones - Panmure GordonArnaud Langlois - JPMorganThomas Rousseau - Rousseau GardnerJeff Stent - CitibankPolly Barclay - CazenoveSimon Marshall - Bear StearnsPresentationJim LawrenceGood morning, everyone. It is a great pleasure to be hostingmy first quarterly results call as CFO of Unilever. I have now been working atUnilever for two months. What I have learned so far reconfirms the duediligence, which I did before joining the Company.Now is a great time to be a part of the Unilever team.There's a lot of hard work still to be done. But there's great opportunity tocontribute to a business that has already started to unlock its true potential.Some of you who are listening today I have already met. Most of you, however,not yet.Over the next few weeks, I hope to meet many more of you.Our forthcoming investor event in India will provide one opportunity. And Iwill also be taking some additional days to meet shareholders later this monthand into early December, just before we go into our next blackout.I cannot promise universal coverage straightaway, but I dohope that by the end of the year that most of you will know me a little bitbetter. In any event, I look forward in the near future to meeting all of youin person. Today I am joined by John Rothenberg and Charles Nichols of our IRteam. I am sure you know each of them quite well.As John will explain, our results in the third quarter arevery much a continuation of the momentum established during the first half of2007. Sustained organic top-line growth was at the upper end of our 3% to 5%range, delivered in a quality way.We're focused on our growth priorities and we're supportedby stronger innovation, improved speed to market and better in-marketexecution. This all results in the third consecutive quarter of underlyingmargin improvement despite a significantly tougher input cost environment.And we'll have more on that in a moment. And these resultsare against the background of our accelerating change program, change in termsof organization simplification, supply chain restructuring and portfoliodevelopment.With this brief introduction, I now turn it over to John.John?John RothenbergThanks, Jim, and good morning everyone. As usual, I drawyour attention to the disclaimer relating to forward-looking statements andnon-GAAP measures.Our sales in the third quarter were ?10.2 billion, which is1.2% ahead of last year. This was after 0.9% impact from disposals and anadverse currency effect of 2.3%. The latter reflects the strengthening of ourreporting currency, the euro, against a wide range of currencies.Many of these currency movements date back through 2006. Iftoday's exchange rates were to remain unchanged, the full year currency impactwould come down from the 3% year to date to around 2.5%.Underlying sales growth in the third quarter was 4.5%. Butfor the previously announced systems implementation in the United States, whichmoved ?70 million of sales out of Q3 into Q2, underlying sales growth in thethird quarter would have been 5.2%.This means that growth momentum across all three quarters in2007 has been pretty steady, at just over 5%. Within this, there has been asteady increase in pricing, from around 1% in the first quarter to just over 2%in the third.Turning to our growth performance by region. Underlyingsales growth in Europe for the first nine months stands at just under 2%. Theperformance across Southern European markets and in Central and Eastern Europeremains strong, with Russia, in particular, continuing to grow in the highteens.Performance in our main Northern European markets has beenmore varied, with some underlying improvement in France and Germany, butcontinued weakness in the United Kingdom.Sales in the third quarter in these markets were especiallyimpacted by a sharp decline in Ice Cream caused by poor weather across NorthernEurope. This lowered underlying sales growth in the whole region by around 200basis points in the quarter to 0.7%.Volumes in Europe are up by around 2.5% year to date, butpricing remains negative. We have raised prices in a number of categories, mostnotably in Spreads, Dressings and Savory, and we have more increases in thepipeline.However, at the same time, we have responded to a step-up incompetitor promotional activity in a number of markets. This, together withsubstantially lower olive oil prices, has led to a small overall pricereduction so far this year.The Americas region grew by 4.2% year to date and 2.8% inthe quarter, the latter impacted by the ?70 million of sales pull-forward inthe United States. Without this, Americas growth in Q3 would have been 4.8%.The U.S. grew by 3.6% across the nine months, a number that is unaffected bythe sales pull-forward.There is, as yet, little sign of a significant slowdown inU.S. consumer demand affecting our business. So far this year, we have seengood growth in the U.S. across our foods categories other than Ice Cream, inPersonal Care and in Laundry.In recent months, we have been taking some aggressivepricing action in some of our categories. This has had some impact on volumes,most notably in Personal Wash and Ice Cream.Latin America grew by 5.1% year to date, with a slightlystronger third quarter driven by better growth in Mexico. Brazil continues tobe a difficult market for us this year, where we face challenges from localcompetition in several categories, especially tomato products.Also in the third quarter, we raised prices in Hair, whichtriggered some trade de-stocking. Other Latin American markets continue to growstrongly.Asia/Africa remains a major driver of Unilever growth. Theregion grew by over 11% in both the quarter and year to date. This includes asignificant contribution from pricing of just over 3%. Growth remains broadbased, with all our large categories growing strongly and with double-digitgrowth in most key markets, including India, China, Indonesia, South Africa andTurkey.The growth across Asia/Africa is a reflection of ourportfolio strategy, which is focusing resources on markets, which offer thebest growth opportunities and where we have competitive advantage. Overall,developing and emerging markets around the world now represent 44% of our totalsales, growing at 10%.Moving from the regions to categories. We have benefitedfrom a strong innovation program in 2007, which is directed to our growthpriorities, leverages our global brands and technology with more rapid rolloutsacross markets, and targets Vitality opportunities in both the developed andthe developing world.This, together with carefully targeted marketing investment,is giving us a much more balanced growth profile across our categories in 2007,ranging from just under 4% in Ice Cream and Beverages to 6.5% in Personal Care.Looking at each category in turn. Savory, Dressings andSpreads grew by nearly 5% year to date and over 6% in the quarter. This wasdriven by consistent investment behind priority brands, such as Knorr andHellmann's, both delivering growth of 7% year to date.Important recent innovations, including the continuingsuccess of Hellman's Extra Light in Europe, cholesterol-lowering mini-drinks inthe United States under the Promise Activ Heart Health brand, and new andimproved Knorr bouillons and soups in many markets. For example, an entirelynew type of bouillon gel under the Knorr brand in China.Ice Cream and Beverages grew by nearly 4% year to date, butwas slightly down in the quarter. Although in the quarter European ice creamdeclined sharply, our market shares are up this year, driven by innovationssuch as Frusi, a low-calorie frozen yogurt, and new Magnum variants, ColombiaAroma and Ecuador Dark.In the U.S., the steps we have taken to strengthen ourbusiness by shifting to a less promotionally driven marketing strategy andraising prices to protect margins have led to flat sales in the quarter after adecline in the first half. Elsewhere, ice cream growth and share performancehas been strong across Asia, Africa and Latin America.In tea, Lipton has grown by over 7% so far this year, helpedby innovations in pyramid tea bags, the introduction of Lipton Linea, slimmingteas in Europe and the extension of milk tea products across South East Asia.Our existing Pepsi-Lipton businesses continue to growstrongly although, being joint ventures, these are not captured in our growthnumbers.Home Care grew by over 6% year to date and 7% in thequarter. This includes continued strong performance in household cleaners,driven by innovations such as Cif oven sprays and Domestos Zero-Limescale.Laundry is also performing well. All three of our globalfabric cleaning brands, Dirt is Good, Surf and Radiant are growing in midsingle digits. 'Small &Mighty' concentrated liquids are performing well inmarkets across North America, Latin America and Europe.We have stabilized or improved our Laundry market shares ina number of key markets where we have been under competitive pressure,including South Africa, the Philippines and India.However, we have still to see a turnaround in our twobiggest Laundry markets in Europe, the U.K. and France. Personal Care grew by6.5% year to date but by just under 4% in the quarter. Growth was slower in Q3due to the phasing of innovation, weighted towards the middle of 2006 withactivities such as Sunsilk in the United States and Dove Summer Glow in Europecompared with a heavy first half program in 2007.In addition, there was the systems effect in the UnitedStates and there have also been one or two markets where we have seen someshort-term volume impact from price increases taken in the third quarter, mostnotably in Hair Care in Brazil and Personal Wash in North America.The global innovations introduced in the first half of 2007are performing well. These include Clear anti-dandruff shampoo, launched inChina, Russia, Brazil, the Philippines, Egypt and Arabia and re-introduced inTurkey and Indonesia.Axe in Japan, now with a 10% share in male deodorants anddriving development of this market segment. Dove Proage, a cross-category rangeof skin care, hair care and deodorant products, launched in both Europe andNorth America. Let me now turn to operating margin.I'll start with the year-to-date position and then go on tolook at the third quarter. Our reported operating margin in the first ninemonths of 2007 was 13.7%, 0.8 percentage points lower than 2006, due to higherrestructuring costs and lower proceeds from disposals. Before these items,there was an underlying improvement in operating margin of 0.3%.We have continued to spend competitively behind our brands,and increased our investments in advertising promotion inline with salesgrowth. This means that, year to date, the combined benefits of volume mix,positive pricing and cost savings were more than sufficient to offset rising commodityprices and other cost increases.Coming to the third quarter the operating margin at 13.7%was 1.1 percentage points lower than last year, but with a 20 basis pointsunderlying improvement before restructuring, disposals and impairments.Absolute spend on advertising and promotions was maintained against a sharpincrease in the prior year. The significantly lower Ice Cream sales in Europehad an adverse impact on operating margin in the quarter.However, the more important factor for margin developmentgoing forward is the impact of commodity costs and the extent to which wecontinue to counter these through pricing, savings and operational leverage. Asexpected, we have seen a sharp increase in commodity related costs in Q3,equivalent to an on-cost in the quarter of ?260 million or 250 basis points.There have been some reductions, for example olive oil andmore recently tea. But these are small in comparison to the increaseselsewhere, most notably for edible oils and fats and for dairy products. Theprice of mineral oil has also increased sharply in recent months, now exceeding$90 a barrel.The acceleration seen in Q3 will not ease off in Q4, so wenow expect the full-year impact to be around 200 basis points. We continue tomitigate this impact through a combination of pricing action, forward covers,product reformulations and savings.I?ve already mentioned the accelerating contribution frompricing. With more price increases in the pipeline, we will continue to see asignificant pricing component through the rest of 2007 and on into 2008.Our savings programs are also accelerating. Having deliveredat a fairly consistent level of around ?200 million per quarter over recentquarters, savings in Q3 reached ?260 million, with increased contributions fromboth buying savings and overheads reductions.?234 million of restructuring was charged in the thirdquarter, bringing the year-to-date total to nearly ?475 million. This signalsthe substantial progress we are making with this element of our change programand gives us confidence that we will continue to benefit from a sustained levelof savings over the coming quarters.In terms of organizational simplification and restructuring,we?ve announced during the third quarter plans for three new multi-countryorganizations, the U.K. and Ireland, Germany, Austria and Switzerland, andCentral Africa, the integration of our North American Ice Cream business intothe existing 'One Unilever' organization, reorganized our businesses in SouthAfrica and Israel with our joint venture partner, and the streamlining and/orclosure of 10 factories in four European countries.We have also been active in the area of portfoliodevelopment. We?ve completed the sale of our margarine brands in Brazil,acquired the Buavita fruit drinks brand in Indonesia and announced ourintention to sell the Boursin cheese brand, and agreed an extension of oursuccessful ready-to-drink tea joint venture with Pepsi Cola to cover 11 newcountries.So, a significant step-up in activity, designed tostrengthen the business, improve its growth potential and increase itsresilience to short-term pressures, such as commodity costs. Turning now toother aspects of our financial performance.Earnings per share from continuing operations for the ninemonths were up 20%. In Q3 last year, a ?300 million provision was taken tocover compensation payments relating to the conversion of the NV preferenceshares. This charge in the prior year accounts for 8% of the year-to-date EPSgrowth.Operating profit was down 5%, as the benefits of salesgrowth and underlying margin enhancement were offset by the increasedrestructuring charges, lower proceeds from disposals and adverse currencymovements. Below operating profit, we see structural improvements in a numberof areas having a substantial positive impact on our EPS growth.Net financing costs, excluding the preference shareprovision, were 42% lower, through a reduced level of net debt and a betterfunding position on pensions. Our share in net profit from joint ventures hasincreased by 60% to ?82 million for the year to date, mainly driven by thestrong growth in the partnerships between Lipton and Pepsi for ready-to-drinktea.The ?88 million for associates and non-current investmentswas boosted by a gain in the first quarter in one of our venture capital funds.The tax rate of 21% in the first nine months benefits from abetter country mix and the favorable settlement of tax audits in a number ofcountries, some of which fell in the third quarter. As a result, we now expectthe tax rate for 2007 to be closer to 23%, rather than the 24% previouslyindicated. Our long-term tax rate guidance remains unchanged, at 26%.Discontinued operations for last year included acontribution from frozen foods, sold in the fourth quarter. This is partlyoffset by performance-based payments in the first half of this year relating toUCI. Net debt at the end of September was ?8.2 billion, down ?0.9 billion fromthe same period last year but up ?0.7 billion over year-end 2006.This includes the impact of ?1.1 billion of share purchases,as part of our ?1.5 billion share buyback program for the year. Our net pensionliability at end September was ?0.8 billion. This is down from ?3.1 billion atthe start of the year, driven by higher asset valuations and a higher discountrate applied to long-term liabilities. Cash flow from operating activities was?3.5 billion in the first nine months.This compares with ?3.8 billion in the same period lastyear. This reflects higher cash outflows on restructuring and on workingcapital, the latter a consequence of the low level of working capital withwhich we exited 2006.The fundamentals of our cash flow generation remain strong.Consistent top-line growth, underlying margin improvement and a tight controlon working capital and capital expenditure.And with that, I'll hand you back to Jim.Jim LawrenceThank you, John. Perhaps, as a newcomer to Unilever, I mightoffer you my take on the quarter's results. I believe that we're demonstratingmomentum in the business. We?re delivering top-line growth and translating thatinto structural improvement in operating margins.I am confident that we?ll deliver our outlook for this yearfor organic revenue growth around the top end of our 3% to 5% range, with anunderlying improvement in operating margin. We?re in the midst of a majorchange program. This is aimed to raise the bar for innovation, restructure toreduce our cost and asset base, and shape our portfolio more aggressively.We are pressing ahead rapidly on all three fronts. At thesame time, we are not losing our focus on consumers, on our retail customers oron the competition.I believe that skilful delivery of this total program willbuild a faster growing, more profitable and even more resilient business. Weare not yet where we want to be. But, from my point of view, just coming onboard, this is a very good place from which to build.Therefore I feel comfortable about our longer-term goals todeliver an operating margin in excess of 15% by 2010 and organic top-linegrowth in the 3% to 5% range along the way.And so, with that, we are now happy to field any questionsthat you may have.Question-and-Answer SessionOperator(Operator Instructions) Okay. We now have our firstquestion, which comes from John Parker of Deutsche Bank. Please go ahead.John Parker - Deutsche BankYes. Good morning. I've got a question on the cost price miximpact on the margins, which you give as a 2.6% negative in Q3. I wonder if youcould detail the components of that a little more, because you've given us a2.5% negative impact from raw materials and a 2.1% positive impact on price,which more or less net out.So, the 2.6% negative impact on cost, price mix, is that abig mix negative effect and if so why? What lies behind that? Or are thereother negative cost effects in there as well, other than raw materials?Jim LawrenceI'm going to turn that one over to Charles.Charles NicholsThanks, Jim. Yes. As you said, the operating, we mentionedon the call, I think, the impact of the commodity costs, which in the thirdquarter was some 250 basis points. That's about ?260 million. And indeed,that's a considerable step up from what we saw in the first half of the year,which was running at around 160 basis points for the first half.As far as savings are concerned which is, if you like, oneof the offsets in that, our savings also showed a step up during the quarter.We're talking again about ?260 million, which was up quite sharply from thefirst half of the year.Jim LawrenceAny more, John?John RothenbergYes. John, I think to get underneath your question, I thinkyou're looking at the chart with the 260 cost price mix over and above thesavings. And within that we've got, of course, costs on other areas that havecontinued to go up. But there's also the effect of mix within the categoriesand we've had clearly a reduction from Ice Cream.On the other hand, Savories is up. So, there is a differentmix effect in the quarter, which is coming through in that. And I think, by andlarge, that would be the thing. Our general mix across the business is normallyslightly positive and in this quarter, it's affected by the European Ice Cream,which goes the other way.John Parker - Deutsche BankOkay. I thought that would probably be it. Thanks. And can Ihave one other question?Jim LawrenceSure.John Parker - Deutsche BankAre you able to give us some, I don?t think, you gave us aRussian growth figure on indication, how does Western Europe and EasternEurope, can you give us the figures for those, the European region split,Western Europe and Eastern Europe?Jim LawrenceGive us one moment.John RothenbergIt's a very much continuation of the trends that we've seenbefore. In terms of Western Europe, we still have a small positive in WesternEurope cumulatively and obviously it's a significant positive within EasternEurope.John Parker - Deutsche BankOkay. Thanks.Jim LawrenceThank you, John.OperatorThank you very much indeed. Okay. We now move to our nextquestion, which comes from Marco Gulpers of ING.Marco Gulpers - INGYes. Good morning. Marco Gulpers from ING. A couple ofquestions, if I may. You mentioned further pricing actions still about tohappen in the remainder of the year. Could you share with us the magnitude ofthose price increases relative to the first half and to Q3?The second question is on disposals. You've stated thatyou're going to sell the Boursin brand. You've also highlighted U.S. Laundry.Could you provide us, perhaps, with an update on the interest so far thatyou've seen on these two assets?And whilst Jim, is on the line, I would like to ask you aquestion with respect to your first impression on the balance sheet and on thegearing that you're currently seeing. Would you agree with my line of thinkingthat the balance sheet is under geared and, if so, what would you be willing todo about this? Thanks.Jim LawrenceMarco, thanks for the three questions. I'll take the thirdand the second, in that order. And then I'm going to turn over to one of mycolleagues for your first question about pricing.First of all, my first impressions of Unilever are acompany, which is undergoing a tremendous change, moving in the rightdirection. I would not characterize our balance sheet as under levered. I wouldcharacterize our balance sheet as strong. We maintain a A+ rating. It's a strongbalance sheet, which gives us the opportunity to have lower cost of capital andgives us the opportunity of financial flexibility.As to disposals, we do have the two businesses up for salethat you've mentioned, the U.S. Laundry business and Boursin. Interest has beenvery keen in both of them. The sales process is underway. And I think that'sabout all I'll say at this point on them.Now, over to Charles on your first question.Charles NicholsYes. Hi, Marco. On pricing, you will have already seenthere's been quite an acceleration in the contribution of price during thecourse of the year. And indeed, we've been taking some fairly significant priceincreases in HPC categories across Asia or Africa. We've started to see someprice movements in foods in North America.In terms of going forward and looking at the magnitude andwhat we might expect going forward, I think the first thing to say is that inEurope, where we haven't so far seen a positive contribution to price, therehave been some, if you like, some; although we have been putting priceincreases in, and some fairly significant price increases on categories likeSpreads, Savory, Dressings, etc.We've also had this offset from the price decline in oliveoil. And at the same time, we've also seen an increase in the promotionalintensity in a number of markets in Europe. And I guess, to some extent, that'snot surprising at a time when ourselves and quite a few of our competitors and,indeed, retailers are trying to push price increases through that you will finda little bit of an increase in trade activity.So, areas where we would expect to see more of a pricecontribution going forward, Ice Cream in the U.S., where we've only recentlyput in prices. We'll see that starting to work through and, indeed, in severalcategories in Europe.Marco Gulpers - INGA final question, if I may, is on the launch of AdeZ. How isthat proceeding? Proceeding sorry.John RothenbergWe've launched in the Netherlands, as you probably know,Marco, given where you're from, and we're very happy with that. We've haddifficulties in the U.K. and it is not meeting our expectations. And that'sreally where we are. So, we've got more to do and we still believe that this isan opportunity, which will produce this.Marco Gulpers - INGOkay. Thanks. Congratulations.Jim LawrenceThank you, Marco.OperatorThank you very much indeed. Okay. We now move to our nextquestion, which comes from Julian Hardwick of ABN Amro. Thank you. Please goahead.Julian Hardwick - ABN AmroHi, good morning. Can I ask, just following on the issue ofthe balance sheet, can I just clarify; is your view that an A+ rating is theappropriate credit rating that you would want for the balance sheet? You wouldnot want to go??Jim LawrenceYes. Let me reiterate. Unilever is committed to an A+ ratingon our long-term debt. We are in the middle of the pack, if you compare peoplelike P&G or Nestle who are higher rated and take other competitors who havelower ratings. With that rating, we have a low cost of debt. We have greaterresilience, something, which frankly was very helpful during August, September.And it provides flexibility, so we're quite happy with that. Julian Hardwick - ABN AmroAnd does the size of your pension deficit influence anythingyou might do in terms of future buybacks?Jim LawrenceYou're absolutely right that when looking at the balancesheet you have to also consider your state of your pension. We're pleased thatactually we've improved on that front through this year, as John mentioned inhis remarks.But that's something, which obviously has to be kept in mindas part of the total financial picture.Julian Hardwick - ABN AmroOkay. And on the commodity cost picture, we've clearly seena significantly rising trend through the course of this year. Could you do alittle bit of crystal ball gazing for us?If you look out to next year, presumably the first half ofnext year it's lapping relatively easy comparatives from the first half of thisyear, so are you expecting a bigger than 200-basis-point increase in the firsthalf of next year?Jim LawrenceJulian, thank you very much for that question because itgives me a good opportunity to say we're not going to be giving guidance todayfor 2008. As you rightly said, we're going to be lapping a different level ofprice rises next year.That's a fact. We've given you guidance for the balance ofthis year. And, quite frankly, given our forward purchasing, we have a verygood idea of what our costs will be in the fourth quarter.And my final remark is we don't see any early easing off ofthis commodity cost pressure. But beyond those observations of fact, I'm notgoing to give any guidance for '08 in this call.Julian Hardwick - ABN AmroOkay. Thank you very much.Jim LawrenceThank you very much.OperatorThank you very much. We are now going to our next question,which comes from Robert Jan Vos of Fortis.Robert Jan Vos - FortisYes. Hi. Good morning, gentlemen. I have a couple ofquestions. When looking at the restructuring costs until the third quarter of?475 million, do you still stick to your guidance for the full year of between?700 million and ?1 billion, or can you narrow down that range a bit?And I have a follow-up question on the divestment program.Is it fair to assume that there will be some announcements still this year ondivestments?And a second question on that and during what period of timedo you expect to close the divestment program of ?2 billion? In other words,how long will it take, do you assume?Jim LawrenceYeah. I'll take your questions, Robert, in reverse order. Asto divestments, we will divest a business when we can realize a price, which isgreater than the value of the business to our shareholders.So I should just say that if, in our view, we don't get aprice, which is greater than our own view of the value to us, we won't sell.So, in that sense, the answer is we might never sell the business.On the other hand, I'll stick with what I said about the twobusinesses, which were asked about earlier, Boursin and U.S. Laundry. We've hada substantial amount of interest for both of those.I'm not going to predict when we will be able to make anannouncement on any of those, because you never know until you've actuallystruck a deal. So I'm not going to give any time forecast on that.As to the restructuring in this fiscal year, we're not,again, going to give quarterly guidance. We're going to stay with the annualguidance that we gave at the mid-year. And so, we stick with the guidance thatwe gave on restructuring, with one comment that I'd make that you just don'tknow until you actually have taken the actions and that's when it triggers theaccount.So thank you very much for the two questions.Robert Jan Vos - FortisThank you for the answers.OperatorThank you very much indeed. Okay. We now go to our nextquestion, which comes from Graham Jones of Panmure Gordon.Graham Jones - Panmure GordonMorning, Gents. Welcome on board, Jim. I've got twoquestions, one about European margins and one about Brazil. Firstly, in termsof Europe, you delivered a clean margin improvement in Q3, if I calculatecorrectly, from 16.2% to 17.6%.And I just wondered whether you could run us through whatthe drivers of that are, because clearly the pricing has been negative inEurope in Q3. I would have thought the Ice Cream mix effect would have beennegative.And you've also commented about the increased promotionalactivity from competitor activity. So, if you can just run me through howyou've managed to get such a positive margin result in Europe.And then my question on Brazil is how long do you think it'sgoing to take to return the business to more normal levels of growth and whatare you doing to reinvigorate growth against what's clearly a tough competitiveenvironment?Jim LawrenceWell, first of all, thank you very much for the welcome. Asto Brazil, we do have a program underway. Actually, I'll be visiting Brazil atthe beginning of December, so I will look myself. I'd rather not give anyparticular forecast on that.And I'll turn your first question over to Charles.Charles NicholsYeah, hi. As far as European margins are concerned, you'requite right. If you strip out the effect of restructuring, disposals andimpairments, you're seeing an underlying improvement in operating margin.And you're also correct in saying that having had a weak IceCream season in Europe, we have actually lost a margin contribution of IceCream that we would have otherwise expected.A couple of things to say about that. First of all, we'vealso had a particularly good quarter in Savory, which is a high-margincategory.So, to some extent, we've had the benefit of that.Advertising and promotional spend as a percentage of sales in Europe is down inthe quarter. Interestingly, it's down more in promotions and actually slightlyup in advertising year to date.And I think I referred to earlier the fact that we've seenan increase in promotional intensity in a number of European markets. And, tosome extent, there is a bit of a switch between consumer promotional activity,which is in our A&P number, and trade promotional activity, which is takenas a deduction of price.Graham Jones - Panmure GordonOkay. Could you just one follow-up. In terms of the minus0.7% pricing in Europe in Q3, could you quantify how much of that was relating toolive oil?John RothenbergJust over half that is olive oil related.Graham Jones - Panmure GordonOkay.Jim LawrenceThank you.Graham Jones - Panmure GordonThank you.OperatorThank you very much indeed. Okay. Our next question comesfrom Arnaud Langlois from JPMorgan.Arnaud Langlois - JPMorganYes. Good morning, everyone. I have a couple of questions.The first one is on the Personal Care business. Looking at your third quartermargin, actually your margin year to date, it seems to be down by roughly 100basis points.I understand this number may be impacted by a restructuringcharge. So, could you actually give us a clean number for the operating marginin Personal Care and maybe tell us what sort of evolution you've seen there?My second question is related to pricing and actually priceelasticity. Looking at the third quarter, we've seen a very strong increase inpricing in the Americas. And there I think, unlike what we saw in the previousquarters, volumes actually turned negative to minus 1%.So, I was wondering to what extent you felt comfortable withpushing prices further, given what appears to be a relatively negativeexperience in the Americas.And the last question is on working capital. We've seen anincrease in working capital year to date. I would like to ask you, Jim, whetheryou see any room for improvement in that field going forward. Thank you verymuch.Jim LawrenceWell, thank you, Arnaud. I'll take your last question first.Yes, I do see an opportunity for improvement in working capital. We're going toget to work on it right now in the fourth quarter and see what we can do inthat dimension.On price elasticity, I'm going to give a general answer frommy experience in consumer products and then I'm going to turn it over to Johnfor any additional comments he has. And then finally, we'll turn your firstquestion over to Charles.So, as to price elasticity, we have actually, across ourportfolio in the third quarter, not seen really signs that the pricing actionsthat we're taking are significantly dampening our volume. We feel good aboutour volume in the third quarter. We feel good about our consumer off-take inthe third quarter.In the Americas we had some particular issues where wesubstantially raised price as the market leader in the face of commodity costs.So, we had some retailers who basically dug their heels in and de-stocked. Butthat's not price in the consumer price elasticity. That's the normal give andtake between manufacturers and retailers.Going forward, is there some possibility that the level ofprice increases which will be necessary to hold margins will have some impacton volume? It is conceivable. But we have not, in fact, seen that in our ownbusiness through the third quarter.John, anything to add on that?Charles NicholsI think that is obviously the effect of the pull-throughaffects the volume in the third quarter in the U.S. And over the year-to-date,we've got around 2% volume growth in the States, which is not showing majordeviation.Arnaud Langlois - JPMorganBut it was minus 1% in Q3 after growing by 2% in Q3 is.Great, that?s helpful. Thank you.Charles NicholsBut you've got to add back the volume effect of thepull-forward to that minus 1%.Arnaud Langlois - JPMorganOkay. And in which category did you take such big priceincreases in the Americas?Jim LawrenceHair Care in Brazil.Arnaud Langlois - JPMorganOkay. That's the only one, really?Charles NicholsSorry, there was also -- we've put in some fairlysignificant price increases on Personal Wash in the U.S. and more recently inIce Cream as well.Arnaud Langlois - JPMorganOkay.Charles NicholsI think, if I could just come back to your first question, Ithink was about category operating margins, particularly Personal Care.Arnaud Langlois - JPMorganThat's right, yes.Charles NicholsI mean the first thing to say is that it's much easier tolook at operating margin movements over year-to-date rather than individualquarters, because there are swings and to-and-fro in the quarter.But the first thing to say is that actually, if we look atPersonal Care year-to-date and we strip out the effect of higher levels ofrestructuring, we actually arrive at an underlying improvement. And, in fact,all our major categories with the exception of Ice Cream are showing anunderlying improvement in operating margin so far this year.If we now look at the specifics of the third quarter, therewas indeed a higher level of restructuring charges taken against Personal Care.There was also a step-up in some promotional pricing in Europe. I referred tothat earlier.So, underlying the margin was slightly down in the quarter.But, as I've said, I wouldn't put too much against that. I think the key issueis that year-to-date we are in fact up.Arnaud Langlois - JPMorganOkay. That's very useful. Thank you very much.Jim LawrenceThank you, Arnaud.OperatorThank you very much indeed. Okay. We now go to our nextquestion, which comes from Thomas Rousseau of Gardner Rousseau &Gardner.Please go ahead.Thomas Rousseau - Rousseau GardnerMorning, Jim.Jim LawrenceHey, Tom. How are you?Thomas Rousseau - Rousseau GardnerGood, good. Thank you. It's early here, but congratulations.It's early in your run at Unilever. Congratulations for your?Jim LawrenceTom, thank you very much and I appreciate you getting upearly to take the call.Thomas Rousseau - Rousseau GardnerThat's right. Talk a bit about the share buyback. What wasyour price paid thus far and what are your plans going forward with continuingthe program?Jim LawrenceI'm going to turn that over to one of my colleagues, who Ithink has to actually make a calculation to answer that. And if we can't makeit now, we'll get it to you later.Thomas Rousseau - Rousseau GardnerThank you, Jim. And then, Jim, the progress towards the 15%operating margin by 2010, to what extent are you building in the effectiveplanned divestitures on the overall operating margin?And to what extent are you building in any plans for thepossibility of acquisitions lifting those forward-looking operating margins?How do you calculate, what are you basing the 15% on?Jim LawrenceYes. We are definitely basing and I should say it's 15%plus, Tom.Thomas Rousseau - Rousseau GardnerOkay.Jim LawrenceWe're definitely basing that on expected divestitures. Andanother piece of guidance we've given is ?25 billion to ?30 billioncumulatively of cash flow by that period of time, which is a governor of that.Thomas Rousseau - Rousseau GardnerYes.Jim LawrenceSo, but we're not counting on any acquisitions. This iswe're going to do it with the existing business, less whatever we divest. And Ijust also remind you that that's a net operating margin in 2010.Now, do we have the answer to the question or do we?Charles NicholsWe have an approximate answer, Tom. The answer is that we'vebought back, as you know, all NV shares at the moment, which is the cheaper oneat the moment. And we've paid an average, which is pretty close to ?22year-to-date.Thomas Rousseau - Rousseau GardnerThank you. And the funding plans for forward share buybacks?Jim LawrenceWhat we have said is we're going to do ?1.5 billion of sharebuybacks in this year. We have not commented on whether we'll do a sharebuyback program beyond. And what we're going to do is when we give guidance fornext year we'll have what we have to say about returning cash to shareholders,either through share buyback or through dividend.Thomas Rousseau - Rousseau GardnerThank you. And then last, Jim, the question about thepension and the impact on value in the balance sheet. What steps do you have interms aside to the fees or to somehow immunize forward-looking growth in thoseliabilities in light of today's low -- high interest rate, which affects thediscount, and your asset growth that's helped you narrow it year-to-date?Jim LawrenceTom, I have not really gone into great detail on ourpensions, other than to assure myself that we're in good shape.Thomas Rousseau - Rousseau GardnerRight.Jim LawrenceFirst of all, the accounting -- the IFRS accounting isdifferent from U.S. GAAP, so I've got to get used to that. But what I can tellyou is that across the Board some of our pensions are in deficit.But, actually, many of our pension plans are in surplus andthe -- so, you have an accounting calculation, which is provided here, and Ifeel comfortable with it. I don't have any plans to change policy from what yousaw today.Thomas Rousseau - Rousseau GardnerGood luck and thanks for your updates.Jim LawrenceTom, thank you.OperatorThank you very much indeed. Okay. We now go to our nextquestion, which comes from Jeff Stent of Citibank.Jeff Stent - CitibankHi, good morning, everyone. Two questions, if I may. Thefirst one's on Ice Cream, whether you'd be willing to quantify the impact onthe margin from the drop in sales in the quarter.And secondly, on developing and emerging markets you'vequantified that sales are now -- sales, it's now 44% of the Group. I waswondering if you'd be able to give us a steer on the profits contribution.Jim LawrenceLet's take these in the order that you gave them. Ice Cream.Charles NicholsYes. Jeff, hi. It's Charles here.Jeff Stent - CitibankHi.Charles NicholsYes. Sales of ice cream in Europe were down about ?70million in the third quarter versus the last year. And, as you will probablyremember, ice cream is a category with a high variable margin and a significantfixed cost base.So, I think you can work out from that that it's quite a fewtens of millions of euros of margin impact in the quarter.Jeff Stent - CitibankSo, probably on Group something like 10, 20 basis points?Charles NicholsTo be honest, I haven't got a precise number in front of me,but it is clearly a significant figure.Jeff Stent - CitibankIf I recall correctly, back in Q3 when we had the bumpersummer I think it was 10 bps then. Anyway, okay. Thank you.Jim LawrenceOn the D&E question, obviously developed markets willhave a higher contribution to margin than D&E markets. I don't know ifwe've guided precisely beyond that.Charles NicholsNo, we -- but I think it's fair to say that we don't have asignificant difference. Our profitable D&E markets are as profitable as ourprofitable developed markets.We are obviously investing in a couple of places, and we'vehighlighted China and Russia before as being areas where we are operating atbelow Unilever average margins.And that's basically it, I think. But overall, not a majorinfluence.Charles NicholsI think the key point, Jeff, is that when you look at thegross margin level our gross margins in places like China and some of the othercountries in which we're investing are as good as, if not better, than they arein developed markets.So, growth is incrementally profitable.Jeff Stent - CitibankOkay. Thank you. One final one before you go for me. At thehalf-year stage, Patrick said that he expected that the margin developmentthrough the second half would be more back-end weighted. Does that continue tobe your expectation?Jim LawrenceWe think that -- at the time of the mid-year, I think wesaid it might be a little bit better in the fourth, a little bit -- not quiteas good in the third. We've actually done a little bit better in the third thanwe thought. So, I'd say about even improvement across the two quarters now.Jeff Stent - CitibankOkay. Thank you.Jim LawrenceThank you.OperatorThank you very much.Charles NicholsI think we've got time for two more questions, so.OperatorOkay. Certainly. And we'll put our next question through,which comes from Polly Barclay of Cazenove.Polly Barclay - CazenoveHi. Yes. It's Polly Barclay from Cazenove. Two quickquestions, please. I appreciate you've touched on this in earlier questions,but any more color on European pricing would be appreciated, also lookingforward.And the second question is just housekeeping on the taxguidance. I appreciate that you've maintained the long-term tax guidance of26%, but perhaps you could just explain that in the context of the new guidanceof 23% for this year. Thanks.Jim LawrenceI'll take the second one. Then I'll turn it over to ourEuropean pricing expert, Charles here, for the first question.The -- what has happened in the third quarter is we have hadtax audits come back in various countries and the tax authority has said youwere right; you don't have to pay these taxes.And we then have taken off provisions that we'd made forthem. And this is something, which you can't forecast. You do what you think --you pay what you think is right in terms of taxes, but you protect yourself bymaking accounting provisions and you wait until you're audited.And then, when you're audited and it comes good, you reversethose provisions. And that happened to us in the third quarter. And then theother thing is we pay different tax rates in different countries and dependingupon the mix of our business it will be slightly different.At this stage, we know where we sit for the quarter justpast. We have a pretty good idea, although you never know for the fourthquarter. We believe structurally at this time the 26% is the right way toguide. My own experience has been, though, that actual tax ratesquarter-by-quarter are quite a bit choppier now than they ever used to be,given the accounting requirement that you take things straight through and youdon't smooth it.So, with that our European pricing expert.Charles NicholsWell, thanks for that, Jim. Pricing in Europe. I think Johnreferred to earlier that the impact of olive oil price was about -- is somewhatmore than half of the price decline that we've seen year to date.So, we're talking about a 0.7% price decline year to date.So, somewhat over half of that is down to olive oil. So, by and large, where weare at the moment, our pricing is net flat across Europe.Now, within that, I said earlier that we are already puttingthrough some fairly significant price increases, which are coming through inSpreads, in Savory, in Dressings, and indeed a number of HPC categories.But at the same time, we've also seen a step-up inpromotional intensity. And this is often the case in a market like Europe,where it is difficult to get price increases through, that there is, if youlike, a phasing period when there's some to-ing and fro-ing in the market.What I would say about going forward is that clearly thepricing environment in Europe is moving. We've seen comments by a number of ourpeers in the context of European pricing. We've also seen comments by somelarge European retailers, including some retailers who haven't talked about theneed for price increases for many years.So, I think that there's no doubt that, where commoditycosts are at the moment that we do expect to see a positive contribution frompricing from Europe as we go forward.Polly Barclay - CazenoveThanks.Jim LawrenceThank you, Polly. I guess, we have the last question comingup now, coming towards the end of our hour.OperatorYes, indeed. Our final question comes from Simon Marshall ofBear Stearns. Please go ahead.Simon Marshall - Bear StearnsYes. Good morning, everybody. Just a couple of finalquestions and coming back to your A&P spend on the quarter, which was down40 basis points. Your margins were up 30. How can you square that with thecontinued increase of focus on your new product launches?I'm just a little bit concerned that your A&P has comeback. I appreciate some of the comments you made on the decline in yourpromotional spend, but how would you see the rest of the year?And would you expect this A&P factor to remaininflationary mid-term, as you roll out more innovations?Jim LawrenceWell, first of all, I should say we are very pleased withthe productivity of our A&P spend in delivering the kind of sales growththat we've gotten. I should remind you all, though, that while it's been veryproductive we have not cut A&P.In fact, we've invested ?130 million more. Over the courseof the three quarters, the growth in A&P has broadly been in line with thegrowth in sales. There have been different timings this year versus last yearin terms of innovation.Our Personal Care innovation was skewed towards thebeginning of this year, whereas last year our big activity, Sunsilk in theUnited States, Summer Glow in Europe, was in the middle.Simon Marshall - Bear StearnsOkay. My second question is really regarding theexceptionally strong growth rates you showed in Savory and Dressings, and alsoin Home Care products in the third quarter. Would it be fair to say, looking atit from a positive perspective, that was mostly driven by the new products thatyou've been launching over the previous quarters?Or are there really other factors that we should be takingaccount of at this stage?Jim LawrenceWell, certainly we have had success from our new productlaunches. Charles, anything more?Charles NicholsYes. Again, Simon, I mean, whilst it's tempting to point tothe 7% in the third quarter, I think looking at the year-to-date numbers isprobably more realistic and where we see growth in both Hellmann's and Knorr?sof around 6%.So, that is clearly a significant step up in growth in thesetwo big brands compared to what we've seen in previous years. And I thinkinnovation has a very significant role in that. We talked about the importanceof globally inspired innovation rolled out more rapidly across markets, and Ithink that's exactly what you're seeing.With Hellmann's, for example, we've seen some fairly simpleconcepts backed by technology, rolled out to multiple markets in a relativelyshort space of time.With Knorr we're beginning to see, again, some of theformulation work that we've been doing on bouillons, upgrading the quality,etc., not just landing in one market, but landing in multiple markets in arelatively short space of time.And I think John mentioned in passing in the earlier on thecall, wehave just launched a novel format for bouillons in China. Again,recognizing that Knorr is?Jim LawrenceNovel to China, but the point is that it is a formulationthat we were using on a worldwide basis.Charles NicholsSo, I think -- and, again, it's very much a case of lookingat this as a major opportunity across developing and emerging markets, andbringing global resources to bear on a local market opportunity.John RothenbergI think, it is true also to say that we're getting goodgrowth on both Foods and HPC in the D&E world and we're finding that that'shelping to drive, as we take our Food businesses outside of strongholds inEurope and North America, that we're starting to see growth in Foods comingthrough at the same sort of levels in the D&E world as we're getting on HPCand that's also very encouraging.Simon Marshall - Bear StearnsAll right.John RothenbergAnd that's got to be a combination of both the innovationand rolling out in existing operations.Simon Marshall - Bear StearnsThanks very much for that. If I may, just one finalquestion. Jim, you didn't want to sort of pin your colors to the mast inrespect of timescales of disposals. Maybe could you give us an indication interms of the restructuring program and the ratcheting up of that restructuringprogram announced with H1 results?Could you give us some indication, maybe, in the third -- inthis third quarter in terms of numbers of plants, how much are you down? Hasthere been any action on the reduction of numbers of plants? Same thing on headcount,maybe can you update us on that, or is it too early to do so?Jim LawrenceWe don't release the headcount numbers. As to numbers ofplants, we've announced how many?John RothenbergWe've announced that we're looking -- yes, at 11 plantsaround Europe in the last quarter.Simon Marshall - Bear StearnsRight.John RothenbergAnd we continue working on things that were done beforethat. So, there is an -- as you see, a step-up in the savings that we'reactually getting now but more importantly, also an acceleration to make sure weget more savings going forward.Simon Marshall - Bear StearnsWell, thank you very much for the answers and Jim,congratulations on joining at an auspicious time.Jim LawrenceSimon, thank you very much. And thanks to everybody whoparticipated today. I'm sorry we have to close it off, but we're actually pastour scheduled hour.However, the IR team here at Unilever House is ready to takeany questions, so feel free to ring us up.I look forward to meeting those of you who are coming out toIndia week after next and otherwise where I get a chance to meet you. And untilthen, thank you all. I appreciate your being with us this morning.OperatorThank you very much indeed, Mr. Lawrence. Ladies andgentlemen, this conference has been recorded. Details of the replay number andaccess codes can be found on Unilever's website. An audio archive webcast willalso be available on Unilever's website, www.unilever.com. Thank you and goodmorning.Copyright policy:All transcripts on thissite are copyright Seeking Alpha. However, we view them as an importantresource for bloggers and journalists, and are excited to contribute to thedemocratization of financial information on the Internet. (Until now investorshave had to pay thousands of dollars in subscription fees for transcripts.) 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