Nov 3, 2011
Raoul Jean-Marc Sidney Huet
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'll 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 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 have 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 are 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, of which there are many. We are also happy with the quality of our growth, with volumes clearly positive despite price being increasingly prominent.
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 of the 3 quarters.
I should be clear at this point that the sales of the group and the volume growth figures are flattered by around 80 basis points by the impact of a 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 5 months, as you know.
But we're 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, our position as the, and I underline the, emerging market consumer goods company.
So in summary, this has been we qualify a good quarter. The Unilever of today is now capable of performance that a few years 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 EUR 12.1 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 3 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 the underlying price growth in the fourth quarter to be around the same level as we have 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 Radox 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 that our turnover was EUR 34.9 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%.
This is a clear step up in our top line performance. The growth mindset we've instilled in the business has taken root and the numbers are starting to reflect this.
We are starting to build the track record of consistency that is so important to us, but we also know is so important to so many of our shareholders. Let me now review the progress in each of our categories and focus, in particular, on the innovations, the new market launches and market development initiatives that are driving this performance.
I'll start with our largest and fastest-growing category, that's Personal Care. In Q3, we saw strong performance throughout our Personal Care portfolio, underlying sales growth north of 11%, with a very good balance of volume at 6.2% and pricing at 4.8%.
With a year-to-date turnover of more than $11 billion, Personal Care is now 1/3 of our business. Year-to-date, our underlying sales growth in Personal Care was at 7.5%, and again, split evenly between volume and price.
Growth was strong throughout the portfolio. Double-digit growth in Deos, Skin Cleansing as well as Hair, where we've seen a relaunch of Clear across Asia and innovations under the Dove brands, such as Damage Therapy and Weightless Nutri-Oils, which are performing very well.
We also saw a balanced performance across the geographies, underlying sales growth in this category at around 15% in the emerging markets and mid-single digit at around 5% in the developed world. Value share performance reflected this strong growth.
In Deodorants and Skin Cleansing, we see consistent gains in a number of major markets. In Hair, our performance has improved significantly.
We're not yet gaining share on a global basis, but the trend is a good one. We're seeing gains in Western Europe and also China, but there are continued losses in areas such as Brazil and Russia, areas that we are focused on.
Our growth in Personal Care continues to be driven by the quality of our innovations and the speed with which we roll them out to new markets. So I'll give you some examples, but you should know that the third quarter was quite quiet in terms of new launches.
Instead, we were focused on the building of the foundations that we've laid over the last 12 months. There are many examples.
Let me give you a couple, Dove Men for Care. This is a significant part today of our Skin Cleansing and Deodorants business.
Dove Nutrium with its unique moisturizing technology. Let me turn to Oral Care, the Close Up Fire Freeze variant or the whitening technology of our White Now range, or back to Deodorants, the MotionSense technology of Rexona for Women.
These are just some examples. Most of these in innovations have been built on our R&D capabilities as we look to drive a step-change in product quality.
This is a simple winning formula. Where we launch brands that clearly outperform competition, we see consistent evidence of strong growth and share improvement.
Turning to Home Care. Here, our underlying sales growth for Q3 was 9.2%, volume at 2.3% and pricing at 6.7%.
The emerging market laundry business was again the main driver behind this performance, and we saw very good double-digit performance in many markets: China, India, Brazil, Indonesia and South Africa to name a couple. Laundry in Western Europe also grew, but that was at more modest levels.
The volumes were positive, particularly in the U.K., but the growth in the region overall was held back by negative price as levels of promotional activity rose sharply. Our year-to-date sales growth in Home Care is now 7.5%, and that's around the same level as Personal Care.
Price is a slightly higher component than volume, and this reflects the input cost pressures in this category that hits -- that's hit the business over the course of the year. Turning to the value shares.
In Laundry, they're showing good momentum, they're overall gains with some very good performances in China and India. And here, we benefited from technology advances, such as the patented shading dye used in our whiteners brand, Rin, launched also across Southeast Asia under the Radiant brand.
This is a great example of how technology-backed innovation can enhance our performance in the marketplace. In Household Care, our shares are overall flat.
Good performances in India, South Africa and especially in the U.K., where we -- where the launch of the new Domestos Extended Germ-Kill range has driven good performance. Continuing with Household Care.
We've also seen significant progress in taking our existing brands into new markets, white spaces, particularly in the emerging markets. We've been expanding Sunlight, Domestos and our Cif brands over the last year.
And this continued in the third quarter, examples are Domestos being launched in Thailand, as well as Cif in Peru. Although individually modest, excuse me, these launches add to the 8 that we completed in the first half of the year, creating a momentum that is starting to become material as a good driver for our growth in Household.
Turning to Savoury, Dressings and Spreads. The underlying sales growth here in the third quarter was at 6.2%.
Volumes slightly declining at minus 1%. Our business in the emerging markets continue to grow strongly, including Food Solutions, but this was partly offset by more modest performance in the developed world.
Volumes in Spreads and in Dressings were down in both the U.S. and Western Europe, as price increases, triggered by input cost pressure, were not always followed by our competitors.
Year-to-date sales growth in the category is at 5.4%, all from price, volumes stable. Value shares are slightly down in spreads as competitors lagged the price increases, but our shares are up in the Knorr meals and dishes and in Dressings, where performance in the Americas continues to be particularly strong.
Although we focus heavily on innovation and new market launches as the key drivers of our growth, we've also seen some significant benefits here from our efforts to drive market development. The example here is our Inspire campaign in Dressings.
It's a great example. It's one of the main factors behind the strong share performance we've achieved, up more than 80 basis points in the last 12 weeks across the Americas.
The idea is a simple one, inspiring consumers to use Hellmann's in a variety of new ways, giving them ideas to try such as those you can see on this chart here, outrageously juicy chicken, as we call it, to quote just one example. The Inspire campaign on Hellmann's has been successfully rolled out across the whole of Western Europe and Latin America, and it's just gone live in the U.S.
with print and television advertising support. The evidence of success here is building steadily.
We see it in the data from the campaign itself. For example, use of Hellmann's in target recipes such as mash, quite popular here in the U.K., has doubled since the start of the campaign.
But more importantly, we see it in our share data with gains of around 40 basis points in the U.K. and more than 100 basis points in both Brazil and Argentina to quote just a few examples.
Finally, let me turn to Ice Cream and Beverages, our refreshment area. We saw underlying sales growth in the quarter of 4%.
4.6% came from price. Volume, slightly negative at minus 0.5%.
We are not in the business on focusing on one-offs, but I must say that the performance here was significantly impacted by the poor weather in July in Western Europe, and many of you will know this and remember this. To give you just a sense of perspective, we think that for the Ice Cream and Beverages category, as a whole, this weather factor had a volume and sales growth impact of around 200 basis points and for Unilever, as a whole, around 40 basis points.
But quickly turning to our year-to-date growth. The growth is now around 5.5%, with 2.5% coming from volume and 3% from price.
So a pretty good balance over the 9 months. Emerging markets actually delivered strong double-digit growth here, fueled by Ice Cream in markets such as Brazil, Turkey and Indonesia, where we're seeing very quick growth from the recently launched Magnum range.
But also from the rest of the portfolio all impulse brands up minimum of 25% this year-to-date. Value shares globally are up for Ice Cream.
Gains in nearly all major markets except for here in the U.K., where pricing moves have not yet been fully followed by competitors. Turning to tea.
The performance in tea was more balanced across the geographies, mid-single digit in both the emerging markets and the developed world. There was standout performance, however, in areas such as South Asia where we had double digit growth in Pakistan, as well as in India, where the Taj brand, in particular, is growing very nicely, helped by the recent launch of Green Tea.
Shares overall in tea are stable. We're pleased in some areas, in Western Europe, especially in France, where Green Tea and fruit and herbals are performing strongly.
But overall, we aspire to achieve more than flat market shares. With the strength of our brands and our portfolio in tea, we should be seeing consistent share gains, and there is more work for us to do before we reach this point.
We have indeed a well-established track record of successful innovation in Ice Cream. We got examples such as Magnum Temptation and Cornetto Enigma.
In tea, we're also starting to see innovation playing an important role in driving our growth. Earlier in the year, we introduced the teas technology in the U.K.
market with our PG Tips brand. This involves the extraction at source of tea essence that is later released back onto the leaves prior to the packing.
This allows us to enhance the taste profile of tea, so important, giving a greater sense of freshness. We're now also introducing the same concept into our Russian tea business, with the Lipton brand backed by powerful TV and press advertising, featuring the well-known Pierce Brosnan.
This leaves us well placed to drive the rejuvenation of our tea business in the large and important Russian market. Let me now hand over to James.
He will look at our performance across the regions starting with the important Asia, Africa, CEE, under the leadership of Harish Manwani, my colleague.
James Allison
Thank you, Jean Marc, and good morning to everyone. Asia, Africa and CEE continues to be the powerhouse of Unilever's growth.
Underlying sales growth in the third quarter was 12.4%, ahead of the market and underpinned by strong double-digit growth in many countries. Examples include large markets such as India, China, South Africa and Indonesia, but we also saw similar growth in many smaller markets such as Bangladesh, Korea and Ghana.
This brings underlying sales growth for the year, so far, in D&E markets to 10.2 -- sorry, in Asia, Africa, CEE to 10.2%, almost equally split between volume and price. This is outstanding performance, strongly driving the growth of the group as a whole and achieved against the backdrop of continuing volatility in the external environment and immense competition.
Let's not forget that 2011 has been a year in which the region's consumers have lived through the tsunami in Japan, geopolitical turmoil in North Africa and the Middle East and, more recently, the severe floods we have seen in Thailand and the Philippines. These parts of the world have often experienced volatility, but this year has seen more volatility than most, and yet our growth has still been impressively resilient.
The strong performance is built on a foundation of technology-led innovation and rapid rollout of brands into new markets, but it also reflects our in-market development more broadly. For example, we've been developing the male Skin Care market across Asia, be it the introduction of Vaseline face care for men in Southeast Asia, Pond's male facial cleansers in China or be it Fair & Lovely face wash for men in India.
We've also been investing in our infrastructure, for example, in our business systems. Our regional SAP platform has been implemented in multiple markets in 2011: North Africa, Vietnam, Pakistan and Bangladesh to name just a few.
Now in the region as diverse as this, we cannot expect every single market to flourish, and at the moment, it's in Central and Eastern Europe where we find conditions the most challenging. Russia is the key market, and here, we see mid single-digit sales growth, mostly from price with volumes flat.
Alongside the Lipton tea innovation mentioned by Jean Marc, there are also ambitious plans in the Dressing category. And in the Personal Care category, both Hair and Skin Care will be transformed by the acquisition of Concern Kalina, and I will say a little bit more about this in a few moments.
In the Americas region, underlying sales growth in the third quarter was 9.1% with 6.9% from price and 2.1% from volume. As you heard earlier, these numbers are flattered by the impact of the systems change in North America.
Adjusting for this, a more representative view of underlying sales growth in the region is a little below 7%, with volumes broadly flat. Year-to-date growth in the Americas is 6.6%, with 5.6% coming from price and 0.9% from volume.
Despite competition continuing to intensify in Brazil, we saw Latin America deliver underlying sales growth in low double digits. This was especially driven by Argentina and Mexico and was the best growth we have seen in Latin America for more than 3 years.
Performance has also improved in Brazil with growth in the quarter returning to high single digits after more subdued growth in the first half of the year when sales were impacted by trade destocking as we made important changes to the structure of our trade towns. Ice Cream is worth a special mention here as we celebrate its 70 years of the Kibon brand by reaching a new high in market share.
Underlying sales growth in North America was modestly positive in the third quarter, even after adjusting for the forward buying associated with the SAP implementation. We continue to see strength in the Personal Care business, driven by share gains in Hair and Deodorants, with Dove Men+Care and Suave both performing strongly.
In food, conditions overall remain more difficult with volumes lower, as prices have risen in categories such as Spreads and Dressings. At the same time, we've seen our innovations and new launches in Ice Cream continued to perform strongly.
Magnum has been the key driver of share gains, but we've also seen strong performance from the Ben & Jerry's and Klondike brands. Let me now turn to Western Europe, where our performance was more encouraging than the numbers might suggest.
Markets here continue to be difficult with the trends, if anything, showing further signs of slowdown. With a very disappointing summer season for Ice Cream on top, the environment for our business in Western Europe was certainly challenging.
In this context, underlying sales growth of minus 0.5% in the quarter is reasonable performance. Our value shares are now positive.
The U.K. and French businesses continued to be the main drivers of market share, with gains across most of the portfolio in both cases.
In category terms, tea, Laundry and Deodorants are all achieving strong market share gains. In Deodorants, we continue to see innovation as the catalyst, with an improved formulation driving Rexona for Men and variants such as Go Fresh leading strong performance for the Dove brand.
Our business in Western Europe is stable and is well placed for improved performance in the future. Our team in the region are upbeat and energized by these early signs of success, and we are confident that we're taking the right actions for the long term.
Let me now move to M&A. Now our intention is to supplement our strong organic growth with bolt-on M&A activity, which reshapes and improves our portfolio, and to continue building on the momentum established over the last couple of years.
A few weeks ago, we announced the acquisition of Concern Kalina, the leading local personal care company in Russia. This transforms our portfolio in this important market and will double the size of our HPC business, taking us from a distant #6 player to #2 in the market.
In Skin Care, we will become market leaders and in Hair Care, we will become a strong #2. We anticipate completing the acquisition of an initial 82% stake in Kalina by the end of this year.
This will give us management control of the business, but we will look to further increase our stake through a mandatory tender offer in early 2012. So this is an acquisition that will significantly strengthen our portfolio in Russia, adding both scale and growth momentum, but it's also a financially attractive deal with sensible multiples and good synergy opportunities.
Jean Marc explained earlier that M&A is now contributing significantly to our overall turnover growth for the first time in many years. Kalina will add further to this as we move into 2012.
But just as important is the speed with which we integrate acquired businesses, how quickly we start to tap into the potential of the newly acquired brands. Here, too, we are pleased with the progress we're making.
First, the operational integration of Alberto Culver is proceeding well in all the key markets, including the U.S. and U.K.
Secondly, we've recently launched the flagship TRESemmé brand into the Brazilian market, less than 6 months after the completion of the acquisition. This is important.
Firstly, because it's a big step forward in one of the biggest and most competitive hair care markets in the world, but secondly, because it's another example of the speed of action we are determined to display throughout the business. To be clear, we did not inherit existing plans for this launch when we acquired the business.
From deal completion to having product on shelf in an entirely new market in just a few months is something Unilever would've struggled to do a few years ago. Shipping has only just started in Brazil, and we will continue to expand this important brand into other markets.
Let me now hand back to Jean Marc, who will conclude with a few comments on our outlook for the final quarter and the year as a whole.
Raoul Jean-Marc Sidney Huet
James, thanks a lot. So you've heard that we're continuing to make good progress with the transformation of Unilever into what we would like to call a sustainable growth company.
The results, I believe, give clear evidence of this. We're growing ahead of the market, just as we set out to do, with 3 consecutive quarters of broad-based volume and price growth in what we call an increasingly tough environment.
Let us not lose sight of the scale of the challenges we have faced during the course of 2011. Commodity cost inflation has been substantial, as you know.
It's reached almost the levels that we saw in 2008. It's adding around EUR 2.5 billion of extra cost to our business this year.
Many of our peers have faced similar challenges, but few, if any, to the same extent. But with our highly productive savings program and our measured pricing actions, we've managed this well, but it's clearly been a burden in a challenging year.
At the same time, we've also seen continued weakness and uncertainty in the global economy. Our consumers find their disposable income under increasing pressure, especially in the developed markets, Western Europe and North America.
Let me just take the U.K. as an example.
Asda's Income Tracker report has made this point starkly clear. We highlighted this in our half-year results in August since we have seen no improvement since then, with household disposable income still around 8% down year-on-year.
These trends have been exacerbated by the pricing actions that higher input costs have driven, with market volumes increasingly under pressure. And in the emerging markets, competition has remained intense, as peers attempt to challenge our strong market positions.
We are determined to remain competitive in these conditions. And indeed, we have been.
You can see that in the underlying sales growth of 13% this quarter, clearly faster than the markets. And to cap it all, we cannot, together, recall a year when we have seen natural disasters and geopolitical turmoil on such a scale, especially in our AAC region, as James mentioned earlier.
The point is clear though. We have faced many challenges in 2011, but our response has been unequivocal.
Two things in particular, I believe, are worth highlighting. The first one is that we have used these challenges as a catalyst to further accelerate the change program we are driving through Unilever.
Second, the tough business climate of today makes us more determined than ever to manage the business with the long term in mind. Let me address the first point in a variety of ways in which we are accelerating change at Unilever.
Firstly, we are taking out cost more aggressively, targeting all costs that the consumer is not willing to bear. We need to do this.
We are using the pressure created by the external climate to push harder still in our pursuit of the lowest possible cost base. Just as an example, we're learning how to run the business more effective with fewer people.
In my own area of finance, headcount is now down approximately 20% over the last 3 years, and there's more to do as we change the emphasis from checking and stopping towards enabling actions to drive growth. At the same time, we're making agility a key feature of how we do business.
The new Unilever is capable of moving faster and more decisively, allocating its resources more dynamically and responding with greater flexibility to changes in the competitive environment. There's always much more that we can do.
But let me give you some examples. Our recent change to a more category-driven organization with good balance is driving speed and alignment, especially in how we innovate and roll out brands into new markets.
With far fewer management touch points in the business, decision-making involves many fewer conversations than it did before, and this will accelerate. We're also driving our enterprise support organization to deliver better service, lower costs and improved transparency.
To give one simple example, and I spoke about it in Singapore last year, we have quickly consolidated the management reports that we use in the business to drive decisions, but we've removed several thousand that we once believed were irreplaceable. May sound trivial?
But in fact, it's significant. We could not be truly agile whilst drowning in such a sea of data.
Let me now turn to the second point, managing the business with the long term in mind. In practice, this means continuing to invest behind our brands that are so vital to our future.
But to be absolutely clear, we will not take short-term actions that could damage the health of our brands over the long term, nor will we slow down in our pace of innovation or in our new market launches. It's working, and we are happy with the progress that we are making.
At the same time, we sought to mitigate, naturally, the impact of commodity cost inflation on our costs -- on our consumers, recognizing the tough position in which many of them find themselves. And so this has been an exceptional year-to-date.
As Paul indicated in our announcement this morning, we now expect that full year underlying operating margin will be flat to slightly down. Over the long term, we continue to focus on the achievement of volume growth ahead of our markets.
That does not change. Strong cash flow and also, again, modest but steady margin expansion.
And with that, let's now move to the questions.
Operator
[Operator Instructions] Our first question is from the line of Michael Steib from Morgan Stanley.
Michael Steib
It's Michael Steib from Morgan Stanley here. I have 2 questions please.
Jean Marc, if I could just follow-up on the last remark you made in terms of the margin guidance. Everything you said sounded very consistent with what you said before, in terms of investing behind the brands, yet you're now saying margins to be flat to slightly down.
Is this largely a result of just simply lower operating leverage in the business due to -- in a weak volumes in Europe and in the U.S.? Or do you actually see the need for more promotion as you look forward?
And then secondly, you made many references to pricing throughout the year and in this quarter in particular. I'd be interested in what mix contribution is within that.
Do you see a positive or a negative mix effect at the moment at the group level?
Raoul Jean-Marc Sidney Huet
Michael, thank you very much for the question. Obviously, a very important one.
And let me just briefly remind, when giving you the answer on margins, that we have had commodity costs this year of around EUR 2.5 billion more than the prior year in our raw and pack costs. And as you know, Michael, pricing always lags the commodity costs.
So we've been pricing to recover absolute cost increases. I've mentioned in the speech that the consumer environment, the natural disasters, the political issues and this really is the backdrop to what we see as good performance.
And it's in this context that we believe the right thing is to say today that our margins will be flat to slightly down, and it's very much a message to consensus, which increased somewhat since the second quarter. But related to your second point, we have seen some impact on the weak consumer environment on our mix, and that's inevitable.
On the one hand, we're seeing some down trading in some of the developed markets, if I just see Rama or Surf, some of the discount channels. But also, there's the difference between growth taking place in D&E versus D and this, obviously, has an adverse impact as well.
So there is some mix, which is weighing on our performance. And more strategically, mix is probably going to be one of the areas of most focus in the next 12 to 24 months, as we become more rigorous in that line item.
So I would just summarize by saying commodity costs, weak environment, a lot of things happening and, obviously, mix having an impact on our performance.
Operator
Your next question comes from the line of Celine Pannuti from JPMorgan.
Celine AH Pannuti
My first question is on Western Europe. Could you shed some light on the sharp volume decline?
How much of this was from Ice Cream and overall, with the -- you had -- you've seen that there was a deterioration in the market since H1? That's my first question.
My second question would be on the input costs. You have said EUR 2.5 billion.
I presume that's -- is around 505 -- 550 basis point guidance you gave on the margin hit. At this stage, however, input costs progressed into the year-end.
Are you starting to see some stabilization and, effectively, even some decelerating, decreasing input costs that would make your outlook for 2012 be better on that front?
Raoul Jean-Marc Sidney Huet
Yes, Celine. Let me just take the second question first.
This is a quarterly trading statement, so normally, we wouldn't talk about the type of P&L details. But just given the importance, the actual EUR 2.5 billion is absolutely in line with the 500 to 550.
There has been some decline in the spot markets of some of our important raw materials, but I will just remind you that crude oil remains stubbornly high at $110. It's around $117 on average for the year.
So there has been some easing, but it's still high and it's still volatile. So very difficult to predict what's going to happen in the future.
You also need to take into account the impact of currencies. So net-net, while we're seeing a decline, overall, it's not to the same extent from a P&L perspective.
We do not anticipate, in any single way, the types of increases next year that we've seen this year. It's obviously early days.
It's not our business to forecast where commodities will be. We sell shampoo and peanut butter.
But from our vantage point today, the comparisons are just going to improve as we enter and progress through 2012. Coming back to your first question on Western Europe.
The overall market is probably stable to down in terms of volumes pricing up. But I would just take a step back.
In terms of our own Unilever business, which is run by Jan Zijderveld, who's come from Southeast Asia, I think that we are pleased with the progress that we're making in implementing our strategy. We're more focused on innovation.
The leadership has improved as it continuously does. We've strengthened the portfolio through Sara Lee having a better balance, and there are some markets, including yours, the French market, that has actually done very well year-to-date.
But the U.K. is also doing well.
So I wouldn't say we're happy, but we're pleased with the progress that is taking place. Overall, more from a financial perspective, if you look over a longer term, I would say that our performance is stable at best.
Let us not forget how weak the consumer environment is. I've made visits to the markets, and you're really starting to see it hurt in the purses of our consumers that we serve.
We're doing well in some of the categories. Hair Care is actually gaining momentum after a long time of -- and period of issues.
Deos continues to do well and Laundry, also, in the U.K. So there, some real categories that are doing well.
On the other hand, there are other areas where we need to really focus on, be it Hand and Body, Skin Cleansing, which was relatively weak. On your point of Ice Cream, again, I always feel foolish talking about the weather when we have a EUR 45 billion business, but it really did impact our business, and it was the worst July in decades as I am told.
The overall impact to the group from this Ice Cream, we estimate, is around 40 bps. I think that the overall impact is around 7% in underlying sales growth for Ice Cream in Western Europe itself.
So the shares are good. They're up around 20 bps, but overall, the adverse impact has been 40 basis points to the company.
Celine AH Pannuti
Okay. And just to follow up on the remarks you've done in terms of the consumer environment and -- have you seen a deterioration in that environment or not?
Because on the other hand, you said that the market is stable.
Raoul Jean-Marc Sidney Huet
Yes. No, when I talk about our business, it's stable.
I think that -- you read the newspapers as well as we do. We see actually a deterioration.
We've been -- I think we were told that we were actually conservative, too prudent, 12, 18 months ago. What we've been sort of saying actually is reproducing itself.
There is a lot of uncertainty. It's a depressed consumer environment, so that's the way we're managing our business.
I wouldn't say it flattened out in any single way. We just see a depressed environment.
One point that I did want to make to give you a more clarity on the number. The impact of this Ice Cream sales for Western Europe is around 150 basis points on our West European business.
Operator
Your next question comes from the line of Mr. Marcus -- Marco Gulpers from ING.
Marco Gulpers
Yes. Two questions on my side.
First, Jean Marc, maybe you could address again one line in your press release, where you're basically highlighting pricing to recover costs rather than maintaining margins, and explain a bit more in detail what you're meaning there than just to recover costs rather than maintain margins. And the second question I have is related to that.
It's again on the difficult retail environment. We know that earlier this week, some of your competitors have highlighted that you're stepping up the promotional efforts amongst others in the U.K., but you're also talking about the U.S.
What risk is there on your view that, next year, some of the price increases will start to reverse as promotions are needed?
Raoul Jean-Marc Sidney Huet
Okay. Well, let me take the first one, and I'll ask James to answer the second one on the retail environment.
We are taking pricing judiciously. We're taking it where it's strategic.
We're taking it where we're the leader, and we're taking it where there's innovation and where there -- we really think there's a proposition. But what we're trying to say is we're not going to increase prices demonstrably.
It would not be the right thing for the consumer. And as a result, what we want to do is we want to drive as many different levers in the model.
We are not going to increase the prices to cover the margin. We're going to do it with the absolute cost increases and then use different levers.
The 2 levers I'm referring to, for example, supply chain savings being one. The second one being increasing the effectiveness in terms of our returns on marketing investments.
We do not believe in this uncertain environment that we should go too far in the pricing. And that's, again, when you see the 5.8% underlying price growth, this is a reflection of what we've done over last 12 months, much set -- less so what we've done over last 3 months.
Because right now, we are close to stable in terms of in-quarter pricing. On the second part of the question, James?
James Allison
Marco, yes, I think you're asking questions particularly about the promotional environment and some comments that were made about the U.K. environment and also the U.S.
Well, I think it's fair to say that we've seen a tough promotional environment for quite some time now. It's certainly not a new thing, probably in more general terms.
I think we see that whilst the level of -- the number of promotions continues at very high levels, some -- in some cases, the level of promotional discounts are not quite as heavy as they have been in the past. And of course, that is driven by such commodity cost inflation that we're seeing.
Specifically to the U.K., there were some remarks, I think, made about the level of promotional activity in Laundry. This is indeed a category that is promoted significantly.
It's a very important category for the consumer. It's also important for the retailer.
In the U.K. market, the dynamic is that it tends to be that we have the promotional slots one quarter, and then the next quarter our major competitor has the promotional slots.
And then what you see in these situations is that if you look at any particular quarter, the percentage that we're selling on dealer is higher than others. So I think that there's nothing really out of the ordinary there.
And I would stress again, I think, as we look forward, I don't think we see signs that the promotional intensity is going to continue. It'd probably take a while before it comes down, but not that it's going to exacerbate or get worse.
Marco Gulpers
And in terms of A&P spending, maybe it's not the right time to ask, but would you say it's fair to assume that at this time in the market, there's a little bit more P than A?
Raoul Jean-Marc Sidney Huet
No. In actual factor, Marco, it's back to me.
If -- as I analyze each and every month's, the mix of advertising and promotion, I'm very pleased with the trends on where we're spending our A&P. And it's usually 2/3-1/3, and it hasn't really changed over the last 12 months.
Importantly, we're driving more effectiveness so we're getting more of a bang for our buck, but I'm pleased with the balance between A&P.
Operator
Your next question comes from the line of Mr. Jeremy Fialko from Redburn.
Jeremy Fialko
Jeremy Fialko, Redburn here. A couple of questions.
Firstly, just following up on the A&P question. You're still looking for A&P to be kind of broadly flat in absolute terms in 2011.
That's what I recall your guidance being. Then secondly, a more specific question on your pricing in emerging market Home Care.
You spoke about the pricing in developed markets or Europe being down. Does that imply you had pricing of kind of 15%, 20% or something like that within the emerging markets?
Raoul Jean-Marc Sidney Huet
Yes, Jeremy. I don't want to go through each and every level of the P&L, but I think the most important point here that we're stressing is that we're investing in the long term and behind in our brands.
And there's really not much changed to what we've said in the second quarter. We're trying to increase the quality.
We're trying to get better, bigger, faster innovations into the marketplace, and that just continues. But I think that what's been working for us up until now is investing in the long-term, and that's what we're continuing to do.
And in terms of the pricing in Laundry, the second part of your question in D&E, it's up around, I would say, 8% to 10%, something like that.
Operator
Your next question comes from the line of Martin Deboo from Investec. Martin John Deboo - Investec Securities (UK), Research Division Jean Marc, it's Martin.
I just want to follow up on Michael's first question and Marco's. I just really want to be crystal clear on this margin guidance.
I mean, the way I'm seeing it, your commodity inflation is in line with guidance. Your pricing is ahead, and yet you're very slightly downgrading margin guidance.
Can I offer you 2 alternatives here? Is this simply a question of arithmetic, that because pricing is more strong than you expect, there is a natural dilution effect on margin?
Or is something going on in the cost lines that is more adverse than you expected? That's first.
Can I ask a follow-up question? On Personal Care, very strong result this quarter, 6 percentage points up on the previous quarter.
Maybe half of that is a soft comp effect and the fair share of the U.S. benefit, but it still looks like a strong result.
Could you give some more color on Personal Care as well, please?
Raoul Jean-Marc Sidney Huet
Sure. Well, let me start with the second one.
In terms of Personal Care, it, indeed, has been broad based, and it's been a great performance. There are 1 or 2 areas where it's been somewhat inflated.
Let me just give you an example. In China Personal Care, same period last year, we did our SAP implementation there.
So the growth is a little bit better than on an ongoing basis. The same goes for the U.S., where we had our SAP implementation, which we have highlighted.
Having said that, if you just look throughout the different categories, we see good momentum in Hair. We see some very good momentum in Deos, which has continued, as well as Skin Cleansing.
And so I really think that this is a pleasing performance for Personal Care. I would not extrapolate.
If you're growing at 5% plus in Q1, Q2 and then 11%, this is also, again, just a reminder, that it's over a 3-month period of time. But as we see the trends, we are very enthused and happy with the progress and with the share gains.
And I would mention Deos, just as a story, over a long period of time, that just continues its performance. And I've mentioned Hair, that in places like Western Europe, we're really starting to see some trends, positive trends in the momentum of our business.
Coming back to the first part of your question, in terms of the margin. The pricing is as expected.
We've said that we had taken largely our pricing in the first half, and that is indeed the case. But I think that you just have to be very cognizant of the backdrop that we're in, be it commodity costs, consumer environment, natural disasters and the like, and we think this is the right thing to do.
We are investing in our long-term brands, and that's what we will continue to do within and between quarters. And so we will continue to do that.
Let me just give you one tiny point to put this in perspective. We're talking about a relatively small amount of money versus our total underlying operating profit.
10 basis points is around 40 million. So let me just give you some perspective.
We could have canceled one launch, one brand extension into a new market. Let's just take TRESemmé in Brazil.
We're very happy with this, because Alberto Culver bought in the developed markets, using the right distribution platform of Unilever, boom, in a very competitive intense area like Brazil, where you know we've been very focused on Hair, doing well in Dove, less so in Sunsilk and the like. And as a result, within 5 months, we launched TRESemmé.
Now we could've canceled or delayed that by a quarter, and then we would've not changed our guidance. That's what we're talking about here, just to give you some perspective.
So I would not pinpoint it on any one single point. I think given the backdrop, given the fact that we are increasingly confident in our long-term strategy, we'll continue to invest in the business.
And the margin, as we talk about it today, is just an outcome of that.
Operator
Your next question comes from the line of Robert Waldschmidt, Merrill Lynch.
Robert Waldschmidt
Two questions. One, you've given an outlook for pricing into fourth quarter.
Given what we've seen in terms of volumes, particularly with the SAP impact and the deteriorating consumer, what is your view in terms of the volume growth in fourth quarter? And then secondly, in terms of margins.
Assuming you are pricing to recover input cost at absolute level, if we get a further increase in input cost in next year, and I recognize it's early days, does that imply, potentially, you could have margin pressure again in 2012, so margins down?
Raoul Jean-Marc Sidney Huet
Okay, I can be very short on both of these. If you just look at the commodity costs, between 500 to 500 bps this year, that's around an increase of, let's say, 15%.
I do not assume that, that is going to happen next year. So the like-for-like comparables will be easier.
And I would be quite shocked, but then you would as well, if that were not the case for 2012. On your first question, I'm not going to get into the details of volume or pricing on a quarterly basis.
The point on pricing is a strategic one in terms of what we're doing, which is right in the marketplace for our consumers. I think most importantly, again strategically, as we close our books for the year, the most important test for Unilever in 2011 is that we have a good balance between pricing and volume, and that's our expectation.
Operator
Your next question is from Alain Oberhuber, MainFirst.
Alain Sebastian Oberhuber
I have a one question about rollout on SAP and which markets could be impacted in the next couple of quarters and where we have to be and make some cautiousness or look at which markets concerning the growth rate then.
Raoul Jean-Marc Sidney Huet
Absolutely. Let me just start off by saying that we've done a huge amount, and it's a very strategic focus for ourselves.
And we'll increase to around 99% by the end of next year. Let me pass over to James.
James Allison
Alain, you certainly shouldn't anticipate any big SAP implementations, the likes of which you see in North America. That's very big, and that's why it's something that we call out at the Unilever level.
The -- what remains is a little bit more work to do on the U2K2 SAP implementation in Asia, Africa, CEE. And in 2012, we will implement the system change in Russia and in Central Africa, and then that will then be completed.
So there's really not very much left, Alain. I think that's our final question.
Over to you, Jean Marc.
Raoul Jean-Marc Sidney Huet
James, thank you very much, and thank you to everybody who has joined us this morning. And I'd like to thank you all for your questions and engagement.
So just in summary and in closing comments. You've seen that our performance in the third quarter was good.
Underlying sales growth at 7.8%, with a particularly strong performance, again, just over a 3-month period of time, but in any case, in Personal Care and continued performance in emerging markets. Growth was driven by market development, technology-led innovation and the rollout of our brands into new markets.
There will be no letup in the pace of our activity in these areas. We're also pleased with the balance in our growth.
Pricing strong at 5.8%, but volumes holding up well at 1.9%. Our long-term priorities, let me just remind everybody, remain the same: volume growth ahead of our markets; steady, sustainable improvement in our underlying operating margin; and importantly, strong cash flow.
With that, I wish you all a good day, and I look forward to seeing many of you at our investor event in Turkey in a few weeks time. Thank you very much.