Unilever Plc ( 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

Presentation

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%.

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