Stmnt re Business Progress

Unilever PLC
Unilever NV.
20 December 2000


UNILEVER TELECONFERENCE PRESENTATION

 
The following is the presentation text for the Unilever pre-close
teleconference, given by Howard Green, head of Investor Relations, at 1400
hrs GMT today (December 20). 

The purpose of this conference call is to update the market on the progress
of our business based on the first two months of trading in the quarter. This
is as a pre-cursor to our 'close' period, ahead of the quarterly results
announcement. This is an approach we are adopting for the first time to
improve our overall communication to the investment community and other
interested followers of Unilever.
For all future quarters we will be adopting this same approach. The timetable
for future announcements has been released earlier this week.
This teleconference will cover two key issues:
 
Firstly, it will provide a progress report on where we stand against the
sales and earnings guidance we have previously communicated to the market. It
will also deal with the impact that the acquisitions of Slim.Fast, Ben &
Jerry and Cressida, together with the disposal of European Bakery have on
this. 

Secondly, it will provide the necessary information to translate the
Bestfoods figures from US GAAP to UK GAAP and, within this, the changes to
meet Unilever reporting conventions.Reflecting on the key themes of Q3 and
how they are developing in Q4:
 
Firstly, up to Q3 we have seen an increasing momentum in the growth of our
leading brands and we now expect this to continue. This is being driven by
continued strong revenue growth in Asia Pacific, Home and Personal care in
Western Europe and in North America, and good volume growth in Central and
Eastern Europe. In Q4 we are also seeing strong growth in our Foods and
Beverages operations in Western Europe driven by innovation, particularly in
the Spreads category.We have also continued to support our innovation and
market positions with competitive levels of Advertising and Promotions spend,
and for the year we expect to be around 70 bps ahead of 1999, consistent with
the Q3 cumulative position.
 
Secondly, pricing in leading brands is showing a further positive move
compared to Q3. However, overall for Unilever we expect pricing for the year
to continue to be negative 50 bps with the key driver being the pass through
of lower edible oil prices. 

Thirdly, gross margins continue to be strong, driven by improved mix, and
savings in procurement and supply chain costs. 

Finally, tail attrition of consumer brands is continuing whilst in the
non-priority businesses attrition is at a slightly faster rate for reasons
given later. However we continue to manage both these features within our
overall profit targets. Together these themes are expected to deliver an
improvement in operating margin, before exceptional items and goodwill
amortisation, of around 70 bps for the quarter, the same improvement as in
Q3.
 
As a result, we are confident that growth in EPS before exceptional items
will be towards the top end of the range of 8-10% for the full year.
This excludes the impact of recent acquisitions and disposals.
These acquisitions, namely SlimxFast, Ben & Jerry and Cressida and the
disposal of European Bakery dilute earnings per share before exceptional
items for the year by just over 8 Euro cents and by just under 5 Euro cents
for Q4
 
Sales Growth
So where are we going to end up with respect to sales growth? Our leading
brands continue to grow well and in Q4 we expect this to be at a faster pace
than in Q3.

Offsetting this there are a number of factors where we underestimated their
impact as we started the year. These are:
 
the pass through to consumers of lower edible oil prices which we have
subsequently done whilst improving margins; 

the rate of attrition of tail brands, which has been managed whilst
maintaining absolute levels of profit; and 

the speed with which we could manage the profitable downsizing of our
non-priority businesses.These three factors have all been successfully
managed without undermining the quality of profit delivery, overall business
health or the integrity and execution of the Path to Growth strategy. This
has certainly been fully demonstrated in the results we have produced for the
second and third quarters.

In Q4 we see the further effects of our continued determination to take the
right decisions to improve our competitive position and to take action on
business that do not form part of our future. Firstly, we have further
reduced prices to reflect lower edible oil costs and secondly, we have ceased
the sale of imported fertilisers in India. Together these reduce Q4 planned
sales by some euro100 million, but have no impact on either profitability or
the quality of the expected improvement in our top-line, indeed the latter
improves the overall quality of our sales mix consistent with Path to Growth.
Taking all these factors into account we now expect sales growth to come out
at a rounded 2%. This is before including the contribution from the
acquisitions of Slim.Fast, Ben & Jerry and Cressida, and the impact of the
disposal of European Bakery.
 
Regional Performance 
In Europe we expect to see significant improvement in volume growth in the
quarter, to mid single digits, driven by innovations in West European Foods
and HPC and further recovery in Central and Eastern Europe. This will be
partly offset by a continuation of the lower pricing in CEE and the pass
through of lower edible oil prices. Sales in Europe will also be impacted in
this quarter by the disposal of European Bakery partially offset by the
acquisition of Amora Maille. We expect operating margin for Q4 to be slightly
below the prior year reflecting investment in Advertising and Promotions.
In North America the rate of underlying revenue growth will be slightly below
the cumulative Q3 position, with operating margins flat in the quarter
reflecting investment in launch activities. Overall revenue growth will
continue to benefit from the acquisitions of Slim.Fast and Ben & Jerry, which
are continuing to perform to expectations.

In Africa and the Middle East we expect revenue to grow at around mid-single
digits in the quarter with a strong performance in Africa partly offset by
weak trading conditions in the Middle East. Around half the revenue growth is
expected to come from price. Operating margin is expected to move ahead
strongly in the quarter leaving the annual figure around 100 bps ahead of
last year.
 
In Asia Pacific we continue to see strong growth in our key consumer markets.
However, the additional impact of the withdrawal from the trading of Indian
fertiliser imports will hit overall growth by euro70m in the quarter. In the
quarter operating margin is expected to move ahead by around 250 bps. We
continue to invest strongly in Advertising and Promotion with the percentage
rate of spend in line with previous quarters.

Finally, in Latin America we have a mixed picture. Recovery is picking up in
Brazil and we continue to have good momentum in Mexico. However, trading
conditions have worsened in Argentina and Chile. We have continued to see
underlying volume growth in Laundry and in Ice Cream we are seeing revenue
growth in mid-single digits. For the region we expect revenue to move ahead
in line with the cumulative rate, primarily driven by acquisition. In
operating margin we expect Q4 to be slightly behind last year with the full
year being in line.
 
P & L Account 
Turning now to the other key lines in the profit and loss account. This will
include the relevant impact of Bestfoods, for example in interest and in
goodwill amortisation.
 
Associated costs taken in operating profit before exceptional items are
estimated at euro50 million for the quarter thus giving euro90 million for
the full year.
 
Goodwill amortisation is estimated to be euro310 million in the quarter of
which euro255 million is for Bestfoods. In respect of Bestfoods goodwill we
are using an estimated value as the 'fair valuation' of assets will not be
completed until the New Year. For the full year, goodwill amortisation is
expected to be around euro380 million. The goodwill amortisation for
Slim.Fast, Ben & Jerry, Cressida and Amora were given with the Q3 IR speech.
It should be remembered that under UK GAAP goodwill is amortised over 20
years.

We remain comfortable with a blended pre-tax interest cost of 6.75%. We
expect net debt at the year end to be in the range of euro27 to euro28
billion based on an assumed year end exchange rate of euro0.9 to the dollar.
Exceptional items for the year will be euro1.8 billion. This includes nearly
euro100 million for exceptional items related to the Bestfoods synergy.
Disposal of Elizabeth Arden is included within the exceptional item.
We expect the underlying tax rate in the quarter to move to 41 to 42 %,
reflecting the non-deductibility of the Bestfoods goodwill amortisation.
The tax rate to be applied to the euro1.4 billion of exceptional items in the
quarter is expected to be between 12 and 13%, reflecting the
non-deductibility of the Elizabeth Arden goodwill write back.

Income from fixed investments is expected to be in line with level seen in Q3
of this year.

The number of shares for calculating EPS is 990 million NV equivalent share
units or 6.6 billion, taking the PLC equivalent share units.
 
Bestfoods 
The integration of Bestfoods is proceeding according to plan. We have:
 
Appointed the next level of the new foods organisation, being the country
heads and will have made country board appointments by the end of the year.
These appointments include a strong team from both businesses. We are pleased
with the level of retention that we have achieved. 

Synergy, at the planned level, will be delivered in 2001. We are confident
of achieving the full amount previously indicated and to the planned
timetable. In respect of Bestfoods operating performance, Q4 trading is fully
consistent with the consensus earnings per share forecast for the full year
as given on First Call as of 4 April 2000. This was for a fully diluted EPS
of $2.73 per share. Underpinning this outlook was an operating profit,
operating income in US parlance, before goodwill amortisation of $1.45
billion. This number is based on Bestfoods accounting conventions and US
GAAP.

Cumulatively to Q3, under Bestfoods accounting conventions and US GAAP,
Bestfoods had reported sales of $6,615 million and an operating profit before
goodwill amortisation of $1,085 million.

However, to bring Bestfoods results into line with UK GAAP and Unilever
accounting conventions, the following changes will need to be made for the
reporting of Q4 results:
 
Firstly, we will be treating the Bestfoods Baking company as a trade
investment given our intention to sell it. The results of the Bestfoods
Baking company will not be shown in our consolidated accounts with any profit
earned under our ownership being taken as a reduction of acquired goodwill.
Furthermore, the difference between the disposal proceeds and the fair value
of the Baking business will also be deducted from the acquired goodwill. We
will not disclose these numbers until the disposal has been completed. The
Bestfoods Baking Company had sales of $422 million and made an operating
profit of $42 million in Q4 1999. 

Secondly, we will eliminate the current Bestfoods practice of having a
lagged quarter within their quarterly results reporting. The profit from the
lagged quarter will be deducted from the acquired goodwill. The adjustment
for this will be made once all other components of the goodwill calculation
are known which will be completed in Q1, 2001.  

Thirdly, we will not consolidate joint venture arrangements. The
appropriate proportion of operating profit will be taken to income from
associates. This change will reduce revenue in Q4 by around $260 million and
operating profit by just under $20 million. Income from fixed investments and
associates will increase by $10 million.  

Fourthly, certain costs that were included in cost of goods sold under the
Bestfoods accounting convention will be netted off sales under Unilever
accounting conventions. These relate mainly to distribution costs and have no
impact on profitability. The change to the sales line is to reduce it by $50
million for the fourth quarter. 

Lastly, we need to put Bestfoods results onto constant exchange rate
reporting in Euros, that is average 1999 rates.Making these adjustments means
that we expect, under Unilever accounting conventions including constant
exchange rates and under UK GAAP, sales for Bestfoods to be around euro1.7
billion for the quarter with an operating profit before goodwill amortisation
of euro310 million. This represents an operating margin before goodwill
amortisation of just over 18%.
None of these changes affect the overall financial case for the acquisition
of Bestfoods nor do they impact the targets within Path to Growth as updated
for the acquisitions and disposals made in 2000.
 
 
December 20 2000 
 
SAFE HARBOUR STATEMENT: This presentation may contain forward-looking
statements (within the meaning of the U.S. Private Securities Litigation
Reform Act 1995). Any forward-looking statements are based on current
expectations with respect to important risk factors. It is important to note
that the actual results could materially differ from the results anticipated
in any forward-looking statements which may be contained in this
presentation. Factors which might cause forward-looking statements to differ
materially from actual results include, among other things, the overall
economic, political, social and business conditions, the demand for our goods
and services, competition in the market, fluctuations in interest rates and
foreign currencies, the impact and other uncertainties of future acquisitions
and disposals and any changes in the tax laws and other legislation and
regulation, in the jurisdictions in which we operate. 
 
We do not undertake any obligation to update any forward-looking statements
contained in or incorporated in this presentation to reflect actual results,
changes in assumptions or in other factors which may affect any
forward-looking statements.