The following is the presentation text for the Unilever pre-close teleconference, given by Howard Green, head of investor relations, at 1400 hrs GMT yesterday (March 26, 2001).
The purpose of this teleconference 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 precursor to our “close” period, ahead of the quarterly results announcement on April 27, 2001. The timetable for future updates remains unchanged from that previously announced.
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There are three principal issues to cover:
- Firstly, how we intend to report our results in 2001.
- Secondly, how we see our business progressing towards our Path to Growth targets and the key themes within our expected Q1 performance.
- Thirdly, our progress with the Bestfoods integration including sales development and the delivery of the synergy benefits.
We remain comfortable with our outlook for the year of low double digit earnings per share growth, before exceptional items and goodwill amortization, and with continued momentum in the growth of our leading brands.
Reporting of our results in 2001
Our restated results for 2000 at average 2000 exchange rates can be downloaded from the IR section of www.unilever.com.
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By GlobalDataWe have decided not to change our segmental reporting for 2001 except to move Turkey from Europe to Africa & Middle East. Slim.Fast will continue to be reported in Oil and Dairy Based Foods.
We do intend to fully review segmental reporting through 2001 but have decided that it is best to make any change against a more stable portfolio background and once we have fully integrated Bestfoods.
We have introduced Total Turnover into our reporting. Until now, Unilever has reported group turnover and operating profit excluding the share of joint ventures and associates on the basis that they were not material.
The acquisition of Bestfoods, having a significant number of JVs, increases the contribution from JVs as a % of group turnover to more than 1% and it is therefore now necessary to change our reporting.
This means bringing both the Bestfoods and Unilever JV sales into the frame. The latter principally include the Pepsi Lipton Partnership in the USA and our JV in Portugal.
As a consequence of integrating profits from JVs into operating profit, the income reported under fixed investments drops to a lower level.
Finally we will augment our IR presentations from Q1 to highlight sales on a “continuing business” basis.
Progressing towards our Path to Growth goals.
As usual we have put together our plans by region and country, leveraging upon our local market knowledge and skills. These plans are designed to give us the flexibility to react to changing economic and competitive trends, at the same time as delivering our targets. We should also not forget the kind of markets we operate in – we provide the necessities of life and as such we are less sensitive to changes in economic circumstances. There are challenges, for example Argentina or Turkey but we manage them.
Now to the key items in the profit and loss account.
Firstly let’s look at the sales line:
- Revenue growth in the leading brands, before acquisitions and disposals, is expected to show a further increase in momentum on a moving annual total basis to produce growth well in excess of 4%.
- Including acquisitions and disposals we expect sales to grow by around 19%.
- Before acquisitions and disposals we expect sales growth for the first quarter to be ahead by around 4% including a small positive price effect primarily driven by HPC.
We expect the key drivers of like for like revenue growth in the quarter to be:
- Our innovations in spreads and cooking products particularly driven by Europe, through Pro.Activ and Culinesse.
- Continuing progress with higher added value product growth for Frozen Foods in Europe through the launch of Enjoy in the UK.
- In Latin America through strong volume growth of Ice Cream in Brazil including the restaging of Cornetto and from the launch of Sedal in Mexico.
- In Asia, Pacific through the growth of Annapurna, the launch of the partnership with Suntory to accelerate the growth of Ready to Drink Tea in Japan and the continued strong and broadly based growth we continue to see in East Asia.
- Throughout the Unilever world by the progress of Dove and in the US also through the growth of Suave in Hair and Caresse in Personal Wash. Furthermore in the US we launched Laundry Tablets
Laundry price increases have been implemented in the US and are now on-shelf.
Investment in additional advertising & promotion, on the business before acquisitions and disposals, is expected to increase at, or just above, the average rate of increase for the whole of last year. However, overall advertising and promotion on the total business will be flat reflecting the mix effect of the lower historical spend rate for Bestfoods.
Gross margins in the quarter are expected to be ahead of the previous year driven by supply chain and procurement savings. This improvement has been partly offset by the higher investment in advertising and promotions referred to earlier and investment in associated costs of some Euro110 million above the previous year, leaving overall operating margin before exceptional items and goodwill amortization ahead by around 30 bps.
Before getting to other items in the P&L account, a very short tour of our regions starting first with Europe.
In Europe we expect sales to be ahead by just over 15% with nearly 11 percentage points coming from net acquisitions and disposals. Operating margin is expected to fall some 30 bps below last year, reflecting increased investment in A&P.
In North America sales are expected to be more than 27% ahead of last year of which 25 percentage points is expected to come from net acquisition and disposal effect. We see a very small negative price from competition in Olive Oil and Culinary products. Operating margin is expected to move ahead by around 140 bps, reflecting the benefits of portfolio change and restructuring.
In Africa and the Middle East, which you will remember now includes Turkey, we expect to see sales moving ahead by around 14% with just under 10 percentage points coming from net acquisitions and disposals. Operating margin is expected to move ahead by over 260 bps reflecting improved gross margins and the benefits of portfolio change.
In Asia Pacific sales are expected to move ahead by some 8% with acquisitions and disposals accounting for less than 1 percentage point of this. Operating margin is expected to be nearly 180 bps below last year as we continue to invest in growth.
Finally in Latin America sales are expected to grow by just over 40% with just over 35 percentage points coming from net acquisitions and disposals. Operating margin is expected to be ahead by around 160 bps reflecting the benefits of acquisitions and easier comparatives with respect to South Latin America Laundry.
Finally in this section let me turn to the other elements of the P&L account.
Goodwill amortization is estimated to be Euro360 million in the quarter with Euro300 million attributable to Bestfoods.
Net interest is estimated at Euro440 million and we remain comfortable with a blended annual pre-tax interest cost of 6.6% as given with our Q4 2000 results announcement.
Exceptional items for the quarter are forecast to be around Euro200 million. Whilst this is lower than originally projected for the quarter we can confirm the original annual target of Euro1.7 billion for the year.
This is prior to taking into account the profit on disposal of the merger task force remedies.
We expect the underlying tax rate to be around 34%. Bestfoods goodwill is not tax deductible, thus giving an effective tax rate for the quarter of around 65%. For the year we remain comfortable with our guidance for an underlying rate of 33 to 34%.
The number of shares for calculating EPS is 990 million NV equivalent share units or 6.6 billion if you take the PLC equivalent share units.
Progress with the integration of Bestfoods.
In North America sales are expected to move ahead in mid-single digits with gross margins also showing good growth against the prior year. In Europe sales are expected to grow in the range of 2 – 2.5%.
We continue to make good progress with integration.
Our overall cost synergy target by 2003 is US$750 million with half that target – US$375 million – to be delivered in 2001. We are on track to achieve that and we have confirmed that the synergy will develop in line with the mix of cost types and geography, as we announced at the time of the acquisition.
The manufacturing synergy is coming earlier than we expected – we are already actioning procurement savings with a full year benefit of US$200 million – and we are taking more care with the delivery of the marketing and R&D synergy to ensure that we do not disrupt the innovation flow. We have however taken immediate advantage of media buying and agency scale.
We are making good progress with `go to market’. In the US we are already going to market as one company in Foodservice and have put together detailed plans which we are starting to implement for Retail Sales for North America and Europe. Operations have been integrated in a number of countries such as Chile, Belgium, Argentina and Turkey.
Merging of corporate offices in Europe and the US is in progress with identified savings of over US$100 million on a full year basis.
Let me finally turn to the progression of earnings per share before exceptional items and goodwill amortization. Firstly let me confirm, as I said at the beginning, that we remain comfortable with our outlook for the year of low double digit growth. However, Operating Profit beia in Q1 2001, as in Q1 2000, represents a below average proportion of the annual operating profit. This, coupled with the interest charge and associated costs, have a significant impact on EPS beia in Q1, taken in isolation. As we move through the rest of the year our plans show that earnings per share will benefit from:
- the build up of Bestfoods synergy and the contribution from the Path to Growth restructuring;
- the full effect of pricing actions in gross margins;
- operating cash flow and the disposal program on the interest line.
These factors combined mean that whilst we expect to see a Q1 decline in EPS beia of up to 18%, it will be more than compensated in the remaining 3 quarters.
Path to Growth further reinforces our continuing confidence in our ability to carry on delivering momentum in the growth of our leading brands and to hit our earnings target as it is all about focus on strength:
- We have selected our winning brands and we have focused our creative resources behind them;
- We have focused our innovation capability behind fewer, bigger hit innovations that are rooted in consumer understanding and we know that even in more testing business times consumers want and will pay for innovation;
- We have made acquisitions that enhance our growth and margin profile;
- We have been getting out of the businesses that drag our performance down and we have swiftly dealt with the disposals post the acquisition of Bestfoods, at attractive prices;
- We are executing an aggressive restructuring and procurement program that provides the margin space and enhancement to fund increased investment behind our brands and improved operating margin;
Finally, from the 1st of January we have put in place our new organization with its clear focus on execution and speed of decision making – a vital capability in any business as it enters what may be a more testing business environment.
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.
UNILEVER BACKGROUND: Unilever is one of the world’s largest consumer products companies with annual sales of approximately $46 billion in 2000. It produces and markets a wide range of foods and home and personal care products. Unilever operates in 88 countries around the globe and employs approximately 300,000 people.
In the United States, Unilever sales were approximately $11 billion in 2000. It employs some 28,000 people and has 80 offices and manufacturing sites in 26 states. Some of their major products are: Unilever Bestfoods -North America: Lipton teas, soups, recipe products and side dishes; Wish-Bone salad dressings; Lawry’s seasonings and specialty sauces; Imperial, Promise, Country Crock, “I Can’t Believe It’s Not Butter!”, Brummel & Brown spreads and sprays; Ragu pasta and pizza sauces; Five Brothers premium pasta sauces; Knorr soups, sauces and bouillons; Hellmann’s mayonnaise and dressings; Skippy peanut butter; Bertolli Olive Oil; Klondike, Good-Humor, Popsicle, Breyers and Ben & Jerry’s ice cream products; Gorton’s frozen seafood products and Slim?Fast nutritional and health snack products. Unilever Home and Personal Care – North America: Wisk, “all” and Surf laundry detergents; Snuggle fabric softener; Sunlight dish detergents; Lever 2000, Caress, Dove, Degree, Pond’s and Vaseline skin care, deodorant and soap products; Q-tips cotton swabs and cotton balls; Mentadent oral care products; Finesse, Salon Selectives, Suave and ThermaSilk hair care products; and Calvin Klein, Nautica and Lagerfeld cosmetic and fragrance products. In addition, DiverseyLever, a global professional cleaning business, operates in North America, supplying professional cleaning materials and services to institutional and industrial markets.
