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Unilever Announces Third Quarter and Nine Month Results 2006 and Interim Dividends

Posted on: Thursday, 2 November 2006, 03:00 CST

THIRD QUARTER AND NINE MONTH RESULTS 2006 AND INTERIM DIVIDENDS

Broad-based growth. Margin development in line with our expectations.

 FINANCIAL HIGHLIGHTS (unaudited)     Third Quarter 2006     EUR million              -------------------------                                       Current   Current Constant                                       rates      rates    rates                                                                 Continuing operations:               10 122        2%       4%  Turnover                              1 501       (3)%     (2)% Operating profit                      1 128      (20)%    (19)% Pre-tax profit                          779      (22)%    (21)% Net profit from continuing operations     812      (45)%    (45)% Net profit from total operations                                                                           0.25      (24)%    (24)% EPS from continuing operations (Euros)   0.25      (47)%    (47)% EPS from total operations (Euros)      EUR million                                   Nine Months 2006                                         -------------------------                                         Current Current Constant                                           rates   rates    rates Continuing operations:                                            Turnover                                 29 915      4%       3%  Operating profit                          4 346      7%       5%  Pre-tax profit                            3 789      4%       2%  Net profit from continuing operations     2 787      5%       4%  Net profit from total operations          2 915   (10)%    (11)%                                                                   EPS from continuing operations (Euros)     0.90      5%       4%  EPS from total operations (Euros)          0.94   (11)%    (12)%   KEY FEATURES -  Underlying sales growth of 4.8% in the quarter and 3.9% in the     first nine months. -  Operating margin of 14.8% in the quarter and 14.5% in the first     nine months. -  Increased investment in advertising and promotions behind key     mid-year innovations. -  Pricing actions and productivity gains fully offset cost increases. -  Provision of EUR300 million taken for possible compensation     payments relating to the 2005 conversion of preference shares,     issued by Unilever N.V. in 1999. -  Interim dividend of EUR0.23 for NV and 15.62p for PLC. -  EUR750 million additional one-off dividend (EUR0.26 for NV and     17.66p for PLC), replacing 2006 share buy-back of EUR500 million.     Share buy-back programme of EUR1.5 billion planned to commence in     2007. 

GROUP CHIEF EXECUTIVE'S COMMENT

We continue to see good progress with another quarter of broad-based growth. All categories and regions grew, with a notable contribution from Europe. Stronger innovation and additional investment behind our priorities are driving the growth of our brands.

Pricing actions and continued productivity gains fully offset higher than expected input costs. The 'One Unilever' programme is making a substantial contribution to our cost competitiveness drive. Our global capability programme, now also extended to research and development, is progressing well.

During the quarter we announced the sale of frozen foods businesses in Europe at a good price and expect to complete it shortly. Also we have announced today an increase in the cash to be returned to shareholders in 2006 and plans for additional returns through share buy-backs, starting in 2007.

I am pleased with the sustained improvement in the top line, maintaining the momentum of the first half. Looking ahead our priority is to improve our operating margin, while delivering our growth ambitions. We are confident we will achieve this through a combination of savings, mix improvement and appropriate pricing actions.

Patrick Cescau, Group Chief Executive

2 November 2006

In the following commentary, sales growth is stated on an underlying basis at constant exchange rates and excluding the effects of acquisitions and disposals. Turnover includes the impact of exchange rates and acquisitions and disposals.

Unilever uses 'constant rate' and 'underlying' measures primarily for internal performance analysis and targeting purposes. Unilever believes that such measures provide additional information for shareholders on underlying business performance trends. Such measures are not defined under IFRSs or US GAAP and are not intended to be a substitute for GAAP measures of turnover, profit and cash flow.

TURNOVER

Turnover increased by 4.4% in the first nine months, with 3.9% underlying sales growth. Favourable currency movements added 1.4% with disposals accounting for the remainder of the change in turnover. In the third quarter underlying sales grew by 4.8%.

Pricing has made an increasing contribution with 0.9% in the first nine months and 1.2% in the quarter. All regions and categories grew in both the year to date and the quarter. A strong third quarter for European ice cream added 0.4% to overall third quarter growth and made up for a relatively weak start to the ice cream season.

OPERATING MARGIN

The operating margin for the first nine months at 14.5% was 0.3 percentage points higher than a year ago, while the quarter at 14.8% was 0.8 percentage points lower. Before the impact of restructuring, disposals and impairments, the operating margin would have been 0.7 percentage points lower for both the first nine months and the quarter.

Investment behind our brands has been stepped up in priority categories and regions. Advertising and promotions as a percentage of turnover increased by 0.6 points in the first nine months and by 0.8 points in the third quarter.

Gross margins were in line with last year in the first nine months. Higher commodity costs were fully offset by savings programmes, the benefits of volume growth and mix, and a positive contribution from pricing.

NET PROFIT AND EARNINGS PER SHARE

Net finance costs benefited from a lower level of net debt, an improved mix between countries and the effect of a higher asset base in our pension funds.

Finance costs for the quarter also included a EUR300 million provision relating to preference shares. In September 2006 investigators appointed by the Dutch Enterprise Chamber published their report into the issuance and subsequent conversion of Unilever N.V.'s 1999 Preference Shares. The Unilever Board established a Committee, chaired by Professor Wim Dik, to consider the Company's response. The Committee has explored the possibility of a settlement. It is expected that the Board, which has as yet made no decision on this matter, will consider the Committee's recommendation shortly.

The tax rate was 26% for the first nine months compared with 28% last year. The lower rates this year include a better country mix and other improvements. In the third quarter the tax rate was 31%, which is adversely affected by a relatively low assumed rate for the tax credit on the preference share provision.

Share of net profit from joint ventures was ahead of last year due to continued growth in the partnerships between Lipton and Pepsi for ready-to-drink tea.

Net profit from continuing operations increased by 5% in the first nine months and decreased by 22% in the quarter, following the preference shares provision. Net profit, including discontinued operations, was down by 45% in the quarter, additionally reflecting the profit on disposal of UCI in the third quarter of last year.

EPS from continuing operations increased by 5% in the first nine months.

CASH FLOW

Net cash flow from operating activities was EUR0.3 billion higher than last year in the first nine months. Lower tax payments more than offset higher cash payments to pension schemes in the period. The seasonal outflow of working capital was in line with last year. Capital expenditure has been increased behind our innovation programme.

Net debt has been reduced by EUR1.3 billion since the start of the year.

BALANCE SHEET

The Euro strengthened against a number of currencies, most significantly the US dollar, reducing balance sheet values.

DIVIDENDS AND SHARE BUY BACKS

The sale of European frozen foods businesses is now expected to complete very shortly and for a price at the top end of our expectations. We have not invested any significant amounts in acquisitions. We have therefore decided to return an additional EUR250 million to shareholders this year over and above the originally planned EUR500 million share buy-back. The simplest way of achieving this is through a one-off dividend of EUR750 million to be paid at the same time as the normal interim dividend. Looking forward, we plan a share buy-back programme of EUR1.5 billion, commencing in 2007.

PERFORMANCE BY REGION

EUROPE (38% OF SALES)

Underlying sales grew by 1.4% in the first nine months, and by 3.5% in the third quarter. Growth is mainly volume driven and in aggregate across categories we are growing in line with our markets.

A key driver of the overall improvement has been the impact of Vitality-led innovation in savoury, spreads and leaf tea. Ice cream grew for the season overall, with a strong third quarter adding 1.4% to European growth in the quarter. This made up for lower ice cream sales in the first half year.

Personal care grew well through innovation and consumer activation. We have lost some share in laundry in competitive markets.

There were improvements in a number of key countries in the third quarter. The UK has returned to growth and France and Germany also performed better. The Netherlands continues to move ahead strongly and Russia is growing well.

The theme of Vitality runs clearly through the innovation programme. AdeZ drinks, combining the goodness of soya with the refreshment, taste and health of fruit juice have been launched in the UK, building on success in Latin America. A range of Knorr bouillon cubes with selected natural ingredients and a better, richer taste has been rolled out across the region and Vie 'one shot' fruit and vegetable drinks are now available in ten countries. 'Fresh' soups in pouches with premium ingredients and tasty recipes have been rolled out to a further seven countries.

Product launches in Home and Personal Care with clear functional or emotional benefits are being rolled out rapidly across the region. Dove 'Summer Glow', offers gentle self-tanning from a trusted brand and the latest Axe fragrance 'Click' is being introduced. New Cif Power Cream combines convenience with high performance.

The operating margin for the first nine months at 15.0% was 1.8 percentage points lower than last year. This includes the impact of input cost increases, competitive pricing, higher net costs for restructuring and disposals, and higher investment in advertising and promotions. These were only partly offset by savings programmes.

THE AMERICAS (35% OF SALES)

Underlying sales growth has accelerated progressively through the year, with 3.5% in the first nine months and 4.1% in the third quarter. This is mainly driven by volume gains with price increases adding 1.4% in the first nine months. Markets in the US continue to grow solidly. In the rest of the region Home and Personal Care markets are buoyant, with Foods somewhat slower.

Sales in the US have grown by around 3% in both the quarter and the year to date. We have gained market share in Foods, including further gains in ice cream and the continued success of Bertolli frozen meals and Country Crock side dishes. Lipton ready-to-drink tea has also achieved a substantial share gain, which is not consolidated in turnover but shows through in the profit from joint ventures. There has been good innovation-driven growth and share gains in deodorants and hair care, with sales of the newly launched Sunsilk on plan.

Sales in Brazil picked up in the third quarter with strong growth in personal care categories and laundry. Foods sales in Brazil grew only modestly in the face of slow markets and strong local price competition.

In Mexico, sales were below last year in both the quarter and the year to date. Home and Personal Care returned to growth in the quarter but Foods declined in sluggish markets.

There was strong growth elsewhere in the region with a number of countries growing more than 10%.

Products introduced this year in the US include further development of the Bertolli premium frozen meal range, Wishbone salad 'spritzers', with one calorie per spray, and Lipton pyramid tea bags. Launches under the Breyers ice cream brand include more creamy varieties of 'double churn'.

New Knorr soups and bouillons across the region cater for local flavour and tastes while sharing common product platforms. The highly successful AdeS nutritional drink has been extended with a 'light' variant, new fruit flavours and the launch of Soymilk in Brazil and Mexico.

We have strengthened our hair portfolio in the US. Sunsilk, with ranges tailored to tackle individual hair 'dramas', was launched in the middle of the year. This followed the successful relaunch of the Suave 'Professionals' range with improved margins. The Dove skin range has been further extended throughout the region including the 'glow' and 'no white marks' products which meet clear consumer needs. In Brazil, the Omo laundry brand has been further strengthened with a new top performance product and 'baby' and 'foam control' variants.

The operating margin for the first nine months, at 15.5% was 3.8 percentage points higher than last year which included the impairment charge for Slim Fast in the second quarter. Before this, the operating margin was in line with last year. Price increases and savings programmes fully offset the impact of increased investment in advertising and promotions and higher input costs.

ASIA AFRICA (27% OF SALES)

Underlying sales grew by 8.0% in the first nine months and by 7.5% in the third quarter. While growth remains mainly volume driven, there was a further step up in price in the third quarter, to 2.3%, as we took action to mitigate the effects of higher input costs.

Markets remain generally buoyant and our aggregate market shares across the region remain stable, as we delivered good growth from strong positions across all categories.

India has sustained double-digit sales increases across almost all categories. A mix of global, regional and local brands are driving growth, notably Surf, Wheel, Lux, Lifebuoy and Clinic. Tea rebounded strongly after a weaker first half.

China has been very strong this year with another quarter of excellent growth. We have gained share in most categories through better distribution and innovation behind brands such as Omo, Zonghua, Lux and Pond's. Lipton teas also performed well. Indonesia, Vietnam and Turkey have all sustained very good momentum through the year. Sales in South Africa slowed in the third quarter through low price competition in laundry, but Foods and personal care continued to move ahead well.

In the developed markets, an improved performance in Australia has been sustained, while Japan remains difficult.

Increasingly, innovation activity has been driven globally and regionally rather than locally. The new Sunsilk range has been introduced in most major markets and in laundry the global 'Dirt is Good' positioning is now in place across the region. The latest Axe/Lynx fragrance, 'Click' has been introduced in Australia and New Zealand. Lux 'Super Damage Repair System' for hair has been launched in Japan and China.

In Foods, low unit priced Knorr bouillon cubes, already successful in Latin America, have been brought to the region and Green Tea innovations are being rolled out extensively. In South Africa, the new Rama brand communicates the healthy oils in the product, a theme being used elsewhere around the world.

The operating margin for the first nine months at 12.6% was 0.8 percentage points lower than a year ago, due to increased investment in advertising and promotions. Price increases and savings programmes offset the impact of higher input costs.

SAFE HARBOUR STATEMENT: This announcement may contain forward-looking statements, including 'forward-looking statements' within the meaning of the United States Private Securities Litigation Reform Act of 1995. Words such as 'expects', 'anticipates', 'intends' or the negative of these terms and other similar expressions of future performance or results and their negatives are intended to identify such forward-looking statements. These forward-looking statements are based upon current expectations and assumptions regarding anticipated developments and other factors affecting the Group. They are not historical facts, nor are they guarantees of future performance. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including, among others, competitive pricing and activities, consumption levels, costs, the ability to maintain and manage key customer relationships and supply chain sources, currency values, interest rates, the ability to integrate acquisitions and complete planned divestitures, physical risks, environmental risks, the ability to manage regulatory, tax and legal matters and resolve pending matters within current estimates, legislative, fiscal and regulatory developments, political, economic and social conditions in the geographic markets where the Group operates and new or changed priorities of the Boards. Further details of potential risks and uncertainties affecting the Group are described in the Group's filings with the London Stock Exchange, Euronext Amsterdam and the US Securities and Exchange Commission, including the Annual Report and Accounts on Form 20-F. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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SOURCE: Unilever

Source: MARKET WIRE

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