寶潔 (PG) 2002 Q1 法說會逐字稿

At this time, I would like to turn the call over to Chris Jakubic, the Vice President of Investor Relations. Please go ahead.

Thanks, Jeff. Good morning, and thank you for joining us on this conference call. I'm the Vice President of Investor Relations. Also present on the call are Chuck Cramb, our Chief Financial Officer, John Manfredi, the Senior Vice President, Corporate Affairs, and Eric Kraus, Vice President of Corporate Communications. During this call, we may make forward-looking statements about the company's performance. These are based on management's estimate, projection and assumptions as of today and therefore contain an element of uncertainty. Although actual results may differ materially, due to risks and uncertainty, the company assumes no obligation to update these segments. Please refer to the cautionary statements contained on the on the company's 10-K and 10-Q items for a more detailed explanation of the inherent limitations on some forward-looking statements. We will review Gillette's first quarter, 2002 results. All of the quarterly earnings this year will be based on comparisons of the 2001 results that reflect the declassification of EITF 25. All 2002 earnings information, as well as 2001 comparative that we released during the year will reflect these changes. Let me start by saying that the first quarter marked continued progress in the turnaround of the Gillette Company. We are encouraged by gains made at the sales line and by strong trade and consumer acceptance of important new products. Overhead and other costs are down as a percent of sales. Savings from the 2000 restructures are zero overhead growth or ZOG effort and our strategic surfing initiative and working capital performance continues to improve. Let's now turn to the numbers. On a reported basis, net sales for the first quarter were $1.73 billion. Seven percent above those of the previous year. Unfavorable foreign exchange, primarily in Argentina, Europe and Japan reduced sales by three percent. While volume mix added 10%. Pricing for the quarter -- please note with the adoption of EI-25, various EITF 25, variances and sales promotion spending are reflected in pricing. Continuing on through, the gross profit margin for the first quarter declined 170 bases point to 59.9%. That's from the December 200 restructuring and our strategic sourcing initiative were off set by the clients in Duracell. In Duracell, together with the ongoing shift and product mix from Premium Ultra to [INAUDIBLE] has adversely impacted both sales and gross margins.

Moving to marketing, total spending on a reported dollar bases grew [INAUDIBLE] in the first quarter. Within marketing, advertising was up as a percent of sale. 7.9% and 7.2% last year, driven by higher investments behind new and established products. Moving down the income statement to sales promotion, most of what remains after the EITF 25 adjustment are the costs associated with displays and selling material. With that in mind, sales promotion was up slightly as a percent of sales from 3.8 to 4.1 percent. Mainly due to heightened in store display activity behind our world cup promotion in the European AMI and Asian region. Turning to overhead and other expense, as I said earlier, this was down as a percent of sales from 30.8% to 29% reflected savings from the December 2000 restructuring and our ZOG efforts. Profits from operations grew three percent in the first quarter, it declined as a percent of sales to 18.9 percent from 19.7% last year. Please note that the adoption of FAS-142 has been the lower goodwill charge of $9 million versus last year. However, this benefit was more than offset by higher pension expense in the quarter. Below operating profits, our charges continued to decline, decreasing from $55 million in the first quarter of 2001 to $5 million this quarter. This was primarily the result of lower interest expense. Itself a reflection of significantly lower rates year-over-year and to a lesser extent our strong cash flow. In addition, transactional gains, due to dollar-based assets held in countries whose currency deteriorated including Argentina and Venezuela in the exchange line from expense to income. Pretax income was $323 million. 12%] higher than last year's first quarter. Net income rose 23% to $223 million. As the tax rate was unchanged at 31%. Our fully diluted earnings per share were 21 cents off 24% from 17 cent the prior year. Now, let's look at the first quarter by product line. Sales claimed 13%, 17% in constant currency, lead by gains in Europe and AMI along with the ongoing worldwide success of our premium system. European blade razor sales showed a strong double-digit gain, due to unmatched stocking activity in 2001. Consumer growth, triggered by our World Cup promotional activity and limited forward buying ahead of an April 1st price increase. The sales gain should be the most meaningful variances in 2002, across all of our businesses, due to last year's deloading activity. MI, solid gains by Mach-3 and Venus, together with strength of disposables in Russia led to a double-digit increase in sales. On a global basis, our blade and razor value share increased 1.3% [INAUDIBLE] points to 72.2% year-over-year during the latest Neilson reporting period. Mach-3 in particular continues to drive sales and shared growth around the world. Retail sales of Mach-3 blades and razors in the latest period climbed 20% worldwide in constant currency. Mach-3 global dollar shares maintain a strong upward trend gained three percentage points to 25%. In the UK, Mach-3 blade value share reached 33.5% in February, just under the record high achieved in December of 2001. In the US, Mach 2 gained 3.1 points of value share to 26.6%. With the end of March launched of Mach-3 in the US, we expect Mach-3 to continue with strong growth in the blade and razor category. Our disposable razors continued on the path to recovery. Delivering stable unit share performances versus a year ago. Turning to profits from operations, first quarter blade razor profits searched 24% and margin rose 340 basis point to 37.4%. This was attributable product mix, favoring our top of the line systems, Mach-3 strength and relatively flat overhead costs, which more that offset a stronger double digit increase in markets.

Now, we move to the Duracell business. In constant currency, net sales were one percent below those of the year before. Volume gains in North America and Europe were offset by year-over-year promotional expenditures and the ongoing shift and product mix from Ultra to Coppertop. In North America, Duracell gained both unit and dollar share for the consecutive quarter. I would note, here, that the benefits of comparison with our first quarter of 2001 in North America were mostly off set by this quarter's clearing of SKU's prior to the rollout of our new Pack One trade-merchandising vehicle. We expect our Pack One design to reach efficiencies in merchandising and more appealing in store display n Europe, Duracell gains point unless the latest reading. Achieving 36.9 dollar share of the general-purpose market, its high effort share, ever. Turning a quarterly profit, Duracell posted a loss of $1 million in the first quarter. This was due to stronger promotional support but heavier category promotional levels during the second half of 2001 carried into the first quarter of 2002. Unfavorable sales mix, and incremental costs related to slow moving and object sleet products also negatively impacted performance. This included a self initiated withdrawal of certainly sizes of hearing aid batteries that did not meet our performance standards. Well, Duracell's profit performs were disappointed. We remained committed to our goals in the profit margin and the return to have the battery category to advantage growth status. However, the timetable for delivering on this goal is dependent on the categories of your term competitive dynamics and our ability to manage promotional expenses, both of which remain uncertain. Moving to the oral care segment, sales in the first quarter climbed eight percent, excluding exchange, sales grew 11%. In power oral care, double digit growth reflected sustained gains in several areas. They included our top of the line 3-D Excel, incremental battery share as our rollout continues in North America and Europe and strong rechargeable in Asia. In manual oral care, sales particularly in Russia with our [introductory] level Exceed tooth brushes as well as consumer acceptance of our new Roar Oral-B stages line of children's tooth brushes in North America and Europe. Oral care profit from operations in the first quarter was up six percent to $53 million. Operating more margins fell 43 basis points reflecting higher year-over-year advertising expenditures. Let's now turn to Braun, which consists of male and female hair removal, household and hair care appliances and personal diagnostic devices. In the first quarter, Braun sales grew two percent in constant currency; sales were up six percent. This reflected very strong performance in the important Japanese shaver market for our newly introduced {Flax} XT, the first Braun washable shaver number one unit share, which, in turn, drove a two point increase in dollar share to 31.3%. Female hair removal in the Asian and AMI market also delivered strong growth. As the EverSoft epilator continued to gain momentum. In addition, sales of our household appliances benefited in the quarter particularly in Europe and AMI, from the bankruptcy and related product line rationalization of Molonex, a key small appliance competitor in these regions. At the profit line, Braun's profit of $3 million was down 82%. A significant growth in marketing spending behind several new products and a greater proportion of sales from lower margin household appliances off set lower overhead costs. Profit as dampened by unfavorable currency movement in the Yen. Specifically, Yen depreciation adversely affecting product costs in the large Japanese market where a significant amount of Braun products is important. Turning to personal care, reported sales in the quarter were up five percent, worth seven percent in constant currency. Growth was driven by a sharp sales increase in North America, where we introduced Power Strip deodorants and anti-perspirants as well as a reformulated and redesigned men's products. Partially offsetting these gains were lower sales in North America and a struggling economy in Argentina and increased competitive products in Brazil affected volume and pricing. Personal care profits in operations for the quarter. Growth 42% and margin was 46 basis points above that from a year ago. Profit gains were driven by higher volume, together with savings from our strategic initiative partially offset by advertising and promotion to support new product. Now, let's look briefly at our business by geographic region. In North America, first quarter sales rose two percent. With the razor -- with continued strength of the Mach-3 franchise, strong gains were also generated by both power and manual oral care due to the 3-D Ultra rechargeable. Our new battery powered tooth brush and the wash of the state design of tooth brushes for children. Personal care also contributed to the growth with missed February shipments of deodorants and antiperspirants. These gains were partially offset by lower sales where heavier promotional spending and unfavorable mix results from the shift from Ultra to Coppertop impacted year-over-year comparisons in. In Europe, reported sales were up 11% or 13% in constant currency, growth was driven by the blade raise segment, primarily to favorable comparisons with our stocking activity in 2001. Gillette's World Cup Kick for a $1 million promotion also provided sales leverage across all business segments in the region. In Latin America, first quarter sales were up one percent in reported dollars or 14% in constant currency. Razor showed strong gains with some benefit from unmatching stock activity in 2001, while the Argentina from unmatched destocking activity in 2001. While the Argentina economic prices continued to reduce results across all business segments. In the AMI region, comprising of Africa, and East Europe. In constant currency, all segments posted gain. Blade was [INAUDIBLE] sales in the quarter climbed 21% in reported dollars and 26% in constant currency. In constant currency, all segments posted gain. Glade raise was in Russia and continued momentum in the Mach-3 and Venus franchises throughout the Mid-East and the Mediterranean. In addition, continuing gains from the Ever Soft epilator saw growth contributed significantly. Finally, Asia Pacific's reported sales were up 11% in the first quarter, excluding exchange, sales drew 16%. Mach-3 and Cool Blue showed gain, while Braun in Japan and strong gains in power oral care contributed to stronger overall growth, continued deterioration of the Yen somewhat offset gains in sales and regional profits. Reviewing the balance sheet for the first quarter. Receivables were down 11% from last year's first quarter at $1.2 billion. State sales outstanding substantially, following 13 days from a year ago from 75 days to 62 days. Progress was also made on inventory, which were down 20% versus last year's first quarter, decreasing to $1.1 billion. Our day's inventory on hand was 121 days, a 35 day improvement versus last year's first quarter. We also continued to make progress with our SKU rationalization program. To date, we have eliminated approximately 95% of the 17,000 SKU's that were identified as slow moving or object sleet. Moving on. Capital expenditures were lower for the eighth consecutive quarter. During the first quarter, it decreased 50% from $167 million, to $78 million. Pretax of nearly $200 million in April a reduction in that of $62 million or two percent compared with year in 2001. Importantly, free cash flow was net of a $200 million increase in pension funds. Finally, our ZOG initiative is on track and we should continue to see the benefits as we move through 2002. To summarize our results for the quarter, operating performance was in line with our expectations and our initiatives are beginning to deliver. Sharp performance continued to improve in the key area of blades and razors, advertising investments increased significantly, working capital and cash flow through and our cost to financing fell dramatically. That concluding our discussions. We'll now take your questions. I'll turn the call over to the CONFERENCE OPERATOR who will explain the procedure if you do have a question.

Thank you, today's question and answer session will be conducted electronically. Please press the star key followed by 1. We will take as many questions as time permits, press star 1 if you have a question. We will pause for a moment to assemble the roster. PAUSE] We'll take our first question from Carol Wilke of Merrill Lynch.

Two quick questions. In the European business, you didn't mention in your remarks, but in the press release, it talked about forward buying. How much of a benefit do you think that added to the European business in the quarter?

It was not as significant as we saw in the US. It would have been less than a week.

And on the battery business, can you give us an idea of volume was up in batteries in North America?

Yes, volume was up in North America.

And can you give us an idea of how much sales were down at batteries North America?

Carol, we wouldn't get into that level of detail on the business.

One quick follow-up on that. Are you still expecting that business to post a profit for the year, the battery business? I mean, because this came as a bit of a surprise for me that there was a loss in this business. I'm assuming you guys wouldn't expect that either. Has it gotten that much more promotional?

We think our strategy is working in this business. Our strategy is refocusing on Coppertop. We have generated share growth in four consecutive quarters. We intend to maintain our share going toward. Profit was impacted in this quarter and certainly, a seasonal low quarter in terms of profit, but there were three things that worked there. Ultra to Coppertop, which we have seen in previous quarters. We would expect to see it in the next quarter or two. We had increased promotional spending and, as I mentioned in my opening comments, it's uncertain, at this time, how long that will last, but we had product obsolescence cost higher product obsolescence cost related to our proactive withdrawal of certain hearing aid batteries.

That is that done for the quarter or something that will hit next quarter, the withdrawal of the battery?

We think we have conservatively accrued expenses against that.

Thanks a lot.

We'll take our next question from Sally Dessloch with JP Morgan.

Good morning, I guess I wanted to stick with the topic of the Duracell margins. If I look at last year, your June quarter, you made, I guess, about $40 million of operating profit, which is about what you made in the March quarter of last year. We just had a $1 million operating loss. What is the prospect that the June quarter can be profitable for Duracell?

I think we really wouldn't want to get into guidance, specifically, Sally, but I think if you looked and try not to compare second quarter to our first quarter, because you do have quite a bit of seasonality there.

Last year's June quarter was depressed by destocking.

Last year, we had quite a bit of destocking in the quarter, yes.

Can you quantify the product of costs.

Yeah, the costs were just over a penny a share.

On the obsolescence alone?

Yes.

Just turning to Braun, you know, also a bit of a surprise to see it barely break even this quarter. Can you kind of through how confident you are that that's a one time event? What should we be expecting, going forward?

You look at the products we made last year and what we continue to do. We like our strategy there particularly from the perspective that over the last year, we have sort of rebalanced the portfolio there in the sense that we were too broad across geography and product lines. We are more focused with the full line of electric shaves. What you saw at work this quarter were two things. You had the mix to household appliances because of the Molonex bankruptcy, which increased the proportion of sales from lower margin household pro products and secondly, was the shift in -- the deterioration in the end and the way that impacted the profits was from the perspective of the currency impact dampening the sales value and therefore depressing the margin, because much of the product that we sell in Japan is, in fact, imported.

It doesn't sound to me like either of those two things is going to change in the next quarter or two.

Well, we'll have to see. I mean, what you have at work is seasonality to that business, particularly, with respect to the male shaving part of that business, very seasonable, cued toward second quarter and [INAUDIBLE] quarter.

You would expect household products to continue perhaps a little stronger than they had in the past because Molonex has a picture but you are going to see a bigger pickup in men's shaving.

Yeah, that would be a fair comment.

On the Yen exposure, is there anything you can do about that? It was my impression that you hedged that, I was surprised to hear about that.

Hi, Sally, Chuck. From time to time, we have looked at whether we should hedge them or not. From our current hedging view, based on cost and exposure, we decided not to this year. It still appears to have been the right decision. I think on the financial side, we continue to look it he way we manage our liabilities, that is our borrowing some net hedging by borrowing in the end, but basically, it didn't make a lot of sense from the cost point of view to take out a contract.

You are going to stick with that strategy for now?

We look at it periodically. It's probably within the next few months when we sit down and take a look at what the opportunities are.

Okay, thanks.

Moving on to Wendy Nicholson from Salomon Smith Barney.

Two questions. If you can walk me through the moving pieces because blade margins are up higher than I expected in the first quarter. I thought with the pipeline, the fact that you would have more raise shipping, how much of the pipeline fill is down? Is that going to negatively impact margin unless the June quarter and how much of an impact would advertising for turbo be in the June quarter?

I think, first of all, we are not going to give you guidance on that, but, I think from the perspective of how things are likely to play out for the year for the entire business, I think what you are looking at is more impact from deloading in the first half of the year versus the second half as much as our shipping below consumption last year happened in the first half of the year, and with regard to the Turbo launch, Turbo did launch later than Venus would have launched last year and in fact, Turbo launched sort of the last week of March and, in fact, the advertising is just hitting, now. I think if you would have watched TV last night, the first Turbo advertising would have been on prime time. So, there was a bit of a timing difference and certainly, the Zenith launched would have been much more raise oriented than the Turbo launch, now.

Okay, so it's fair to say, probably, that the margin gain or margin expansion in the first quarter isn't going to be quite as great?

I wouldn't give you guidance safely, but as I said in my opening comments, we did have some from the first quarter.

The other thing, I'm sorry if I missed it, you said at the end of the December quarter that you had two weeks of excess blade inventory at retail as retailers bought ahead of the price increase. Where are you, now?

That has been resolved, yes.

So no excess inventory. We wouldn't hear of blade restocking again.

Would not anticipate it.

Let's hope. And the very last comment or question. When I look at IRI and I know it's not that well event for the battery business in particular, but your market shares were up 10 bases points in Duracell in the fourth quarter show basically flat, yet, are you losing money because you are spending so much on the promotion line, the advertising line. I'm wondering at what point, strategically do you say profits are more important than market shares? Because it doesn't look like the increased spending is having that much impact.

I can't give you guidance in terms of what we are going to do on a going forward basis, but I think if you look at it, we are quite pleased with our strategy of refocusing on Coppertop and we have seen market share benefits because of that. We remain committed to the category. We think it's an advantage growth category. As I said in my opening, Tom and Terry, the near term is uncertain.

But we are -- we have had some share gains. Coppertop strategy is working. It's our position, our strategy to main maintain the gains that we have achieved and that means we will be competitive in terms of the activity and market. Just in terms of that loss in the first quarter, remember, that we did have the significant charge that was related to the hearing aid battery retrieval program that we undertook and remember first quarter is disproportionately low quarter in terms of battery sales overall, which we are thinking about the future. The overall objective is going to main maintain the share that we have achieved to today.

Do your market shares at Wal-mart look better or different than the other shares?

We don't comment on any specific retail customer.

Okay, thanks, bye.

As a reminder, if you would like to ask a question, press star 1 on your telephone pad. We'll take our next question Amy Chosen of Goldman Sachs.

Thanks, a couple of things. First of all, on the blade razor business, can you just walk us through maybe in a little more detail what the factors were that actually drove the margin improvement in the first quarter?

Sure, what you had at work -- I think the thing to focus on was the top line growth and the share development, which are very strong. Mach-3's remains on fire and particularly, if you look at the mix of the business, Mach-3 and Venus continue to drive strong category growth and accounted for one-third of consumer sales in the US shaving category. I think you have got quite strong product mix there. I think that would be the lion's share of what happened with the margin.

Okay, and yet you did launch Turbo with being negative mix because that's razors, now?

From a year-over-year perspective, I think if you compare the Venus launch to the Turbo launch, it was really more of a matter of Venus being an entirely new platform and being much more raise oriented. Turbo is not as heavily razor oriented as our shipments came later in the quarter.

So, will all of the selling in the US complete in the first quarter or will they still be in the second quarter?

No, it continues. The rollout will continue into the second quarter.

On the European business, can you talk about the price increase? Can you tell us how much it was? Can you talk about the price increases since you normally do them in January? Can you give us a sense of how that should impact second quarter sales?

If you look at the price increase, the magnitude of it was effective April first. Three percent of systems, 1.5 percent of disposable and really, you didn't get -- I wouldn’t emphasize it too much because it really was buyout in less than a week.

Can you talk about the timing April and January as you normally do?

The introduction of the euro January first. We didn't want to add complications to the system there.

Okay, and then, just two things on batteries. Can you just talk about who is driving, you know, what's going on there? I think in the press release, Chuck said that the battery category was troubling. That suggested that it's not necessarily you guys that are stepping up the levels of promotion, but rather you doing it in response to someone else. Is that true or is it really you guys driving this because you want to drive a recovery in your market shares.

I think from our perspective, we want the category to go back to being an advantage growth category and focus on the consumer side. We are looking -- that said, we are looking to maintain our jets.

And then can you just talk a little bit about whether you have had any thoughts on the cash flow, Chuck, your cash flow seems to be very strong. Inventory dates seem to be improving much better than you guys said. Is it happening as fast as you guys expected, as well?

We are pleased with our cash flow. There is no question about it and the working capital initiative, whether it's inventories, receivables are all improving. In terms of utilization of that cash, we are focused on debt reduction, as the year goes on. We'll take a look at other things, including the program. Right now, it continues to be let's get it down. In terms of the pace, we are pleased with the pace. Nothing there that has been a surprise. We have the programs in place and we have delivered against them.

Those that came out on inventory.

Inventory, yes.

Did you say the results of the quarter were in line with the expectations?

Yes, I think from our perspective. We are on the right path to deliver on our objective from an operating perspective, absolutely, we did benefit a bit from lower interest rates.

Okay, thank you.

We'll move to Andrew of UBS Corporate.

Thanks very much. Just a couple of questions. Chuck, could you talk about the increase your pension funding? What was that for and is there any more money that needs to go in?

Yes, the pension programs, we are kind of unique. Not only do we fund our North American program, which all North Americans do, but we send funds to our international programs, particularly in the UK but especially in Germany, large population and as we look at our overall cash flow being very strong. We looked at the markets and the funding level, we felt it would be appropriate to increase the funding, primarily of our international funds and within that, primarily, the German fund. It was the simplest in terms of an equity bases and speaker liability. If you looked at some of our pier groups, would you find they don't fund those programs as they go? We feel we should fund them and keep a good solid base for them.

you mentioned that the income statement impact is pension funding which is something more than nine million in the first quarter. Should we expect that to continue throughout the year?

In terms of the increments we picked up, and also, what we are using for our rates of return and discount rates, we figured about a three cent net impact unfavorable.

Thanks, and any -- can you comment on how large the ethics gain in Argentina was and if you expect any in June.

Almost all of the that you saw in the exchange line is really -- not quite all of it, but two-thirds, would be set and that's something you can't count on continuing. In fact, that could swing against you, as well, based upon currency movements and what's your balance sheet. If it were surprised in terms of our performance, it would be that gain. You know, that was in transaction gain.

If you can talk about your Duracell packaging initiative. Can you describe this, what the benefits to the retailer is?

And really, with Pac 1, it's an innovative merchandising system where there is a secondary packaging from shipment. Really, what it is, you can set up displays quickly. You are effectively shipping it within this display.

Terrific, maybe one more and I'll stop. If you can talk about SAP implementation. Where are you and what are the benefits you have seen to date?

We are about 85% of the way implemented and that's pretty much as far as we are going to take it in the near term. Chuck wants to add on that.

Yes, it's 85% of it fail is covered. I think if you looked a some of our working capital gains, you will have to look at FCC as being one of the enablers. If you look at the cost reduction program, which is our strategic sources. So, we are expected to see some material returns from the investment. We still have a ways to go in terms of really leveraging that investment, but we are getting the gains now that we hope to get.

Thank you very much.

We'll take our next question from Katherine Lewis of Morgan Stanley.

Just in terms of blaze division, last year and you had focused a little bit on the [INAUDIBLE] into male shaving business and how there was some real opportunity to pick up the returns. Can you give us an update as to what you are doing with other priming product launches, capital [INAUDIBLE] and what it's going to mean for the return of the blade division.

Very encouraged by the gains that Venus is seeing. Part of our new product program this year. We will have our Crystal Clear Venus, which to should be on the shelves. We are very concerned by those strong gains. We continue to put money behind the entire line of shaving products, often perspective advertising and we were very pleased with their advertising up 16% and that was mainly behind new product activity, as well as increased support behind established [INAUDIBLE].

Are you putting more capital mind the business or are you allocating projects differently?

No, I think from a perspective of Mach-3 are behind us.

In terms of long-term sustainability. The Dow's growth in blades and razors. What's your expectation? We saw some real growth this quarter. Is this low? Will this be a double digit grower? What do you think?

We are committed to three and five percent tax line growth, we think that's the right range for the entire company. As far as what we will continue to do with Mach-3 and Venus, we have some very strong momentum. You saw it from Mach-3 with sales up quite significantly. So, we think we still have quite a bit of mileage to the parts that are already out there and as you see, we are supporting it with new products like Turbo.

Then on batteries again. Years ago, everyone thought the battery business, the industry growth in units was high single digit growers.

the way we look at the battery business over the long-term is we continue to look at the advantage growth category. The way we define that is two-times the average growth rate that you would see from other consumer staple categories.

Okay, so Gillette continues to believe this is going to be like a six percent type unit?

I wouldn't put a point estimate on it. I think a lot of the figures that you see out there from industry groups will say something like five to seven, so include your six, we take a little more conservative approach.

Lastly, Chuck, thinking for strategically about your businesses. Return on investments and return on capital. Can you talk about how Braun and Duracell fits into the equation and if you would word it so that it makes sense to reassess those businesses, potentially send those out to drive returns higher.

Well, first, our total portfolio business is we are constantly looking at evaluating anticipate assessing and reevaluating to make sure we get returns. There is for question in our mind that Braun and Duracell fit those business. In the Duracell business, it's very competitive. However, we believe that that business, as we develop and get to market leadership margins, that it will return what we need from a shareholder perspective. In the case of Braun, there is no question that the shaver business, both the male shaver and female shaver have high returns for the business and our challenge is to continue to remove the returns on the appliance and household business upwards, which we will do. We believe in the not too far distant future, they will more than return their cost of capital and be creative to the company. We are well pleased with your overall portfolio businesses.

Okay, great, thank you.

We'll take our next question from Jim Gengrich.

Good morning, could you give us a sense as to what you think your consumer growth was in the blade business, the battery business? Year on year?

I think the consumption growth we saw was very similar to what you would see from a US Perspective from your IRI data. I don't think there would be a significant change there. You have seen a bit of shift to the battery business to the non-measure channels, which would include clubs and specially sort of hardware chains and what not. But by and large, I think from a North American perspective, quite similar to what you would see.

I'm talking worldwide, Chris, because what I'm trying to sort through, there is so many moving pieces here compare where I was trade destocking and miss shifts and in Duracell that you mentioned and I'm trying to sort through my mind here how I should be interpreting these sales numbers. And I thought maybe the best way is to think about it is if you are year on year consumer growth in both of those businesses.

There are too many pieces to go through right now.

INAUDIBLE] rather ask you to break out what each piece were if you would give the consensus to what the worldwide consumption growth was.

I'll have to get back to you on that. I don't have the figure in front of me.

Maybe one area that would be useful, as I calculate in batteries, you were between a price mow motion and mix that was a minus seven year on year.

Something like that. The problem is that the promotion is up within sales.

I understand that.

I guess my question is how much of the minuses that we are seeing there is mixed versus pricing slash promotional activity?

I'll have to get back to you on that from the sales one line, so I'll have to get back to you on that.

Real pricing versus mixed shift is really the question. And lastly, on the CAP-X spending it that we are seeing, right now, as you pointed out, it's down significantly year on year. If you were to continue with this type of run rate, you would end up well below a type of seven percent of sales that you had talked about. How should we be interpreting this at this point?

I actually was hoping you could break out the 13% from the moving part or at least give us an indication from blazing razors or give us an indication of the price increase, world cup and the.

What I will tell you is out of the 13% of blade razor, just over half was due to the comparison with the D stock.

Okay and the World Cup?

World cup wouldn't want to quantify. It's not material.

Okay and any shipments for Turbo and Venus ahead of the launch in this quarter?

I think from a global perspective, there would have been maybe a basis point impact from the difference unfavorable, but I'll have to get back to you on that. It wasn't that significant.

All right, and then jumping to batteries, what was the contribution from the hearing aids withdrawal, the top line?

To the top line was $5.6 million. Most of it hit costs and goods in product obsolescence.

I'm looking at the working capital year-over-year progress and it looks like current liability is beginning to slow. We don't get that breakout until you file your cue. I'm wondering if there is anything in the current liability.

Within that, accounts payable will actually go up, which means the overall accruals will go down. Also, we are clearing out the remnants of the restructuring liability that we have from the 2001 program, where we have cash payments yet to come and we have finally finished everything and settled up net with divestiture. The only other thing in there which does swing quarter to quarter is the current deferred tax accounting. So part of that as well.

Okay, and there wasn't any effect on current liability for the pension funding?

Okay and then clarification, you talked about a non-operating gain in the press release. That's the Argentina one that you described to us.

We will take our next question from Alec Peterson.

Patterson. That's okay. Two things, I wanted to get a little more color -- you had a quick comment on increased competitive I think it was in Latin America. Can you speak to what that is, what you are seeing and then I had a question on Duracell.

A bit of increased competitive activity. I don't have any more -- any further detail on that, but I could follow up on that with you if you like.

I guess I was under the impression of increased pricing going on down there.

I think within that business and those markets, there is increasing price competition. What we are -- I think if you look at the rest of our Latin America business, we are rather encouraged by our ability to price up off set some of the devaluation.

On the Duracell business, information for all ears to hear about troubling. Capital versus cost capital, has got to be, I would assume, not very attractive. That probably speaks to what your competition is seeing, if not worse, do you have a sense or a perspective on the competitive set in terms of the returns just being generated in the category and how unsustainable or sustainable they are at these levels?

I can't speak to what other people's margins are. You have to ask them. From our perspective, there are things that we can do to pursue our objective of leading industry margin and we talked about a [INAUDIBLE] in the sense that we have taken out capacity. We will continue to do that, more in the form of taking outlines of production within North America and certainly from a SSI and SAG initiative perspective, there is more we can do that.

There is more that you can do, there, but what about the sustainability or the unsustainability of the returns in the category?

I think over the long-term, we are still committed to the category and we like the prospects. We like our prospects in the category, but in terms -- their term is still a bit uncertain.

Okay.

We'll move onto Connie Benini.

I have a question on European blade and razor sales. You say they increased double digits, but it seems to me they must be upwards of 20% because they would be than the average, right?

They would be than the average.

Can you give us a breakdown of the reason of the breakdown? The sales of razors?

No, we wouldn't be able to do that. Generally, that would be pretty accurate.

And then over to Duracell, two of the three things depressing march engines are going away because they are both in your control. One is the make-shift to the Coppertop and the second is the hearing aids battery, you have chosen to get out of. Nobody forced you out of it. The only thing that is going to be negative is whatever is sold non-competitively.

First of all, let me correct you. We didn't get out of the hearing aid business. We proactive withdrawal certain sizes of our hearing aid batteries. Two out of several sizes that we carry. Let me correct that, first of all, secondly, in terms of the unfavorable mix, we have said that we will continue to be a feature, certainly over the first half and we will begin the anniversary during the third quarter.

Right. Chuck, you said that foreign exchange gains and losses could be volatile and we shouldn't look at the first quarter, maybe, as being what we see for the rest of the year, but at this point, do you know of any gains or losses that you will be booking in the second quarter?

No, and really, that transaction gained a loss that we are able to take in the first quarter is based upon where are your assets and what is the exchange rate. As of now, everything is neutral slightly unfavorable.

What's going on for you guys in Argentina, right now? We have read in the newspaper that things are closed indefinitely. So, what's your business like down there?

It continues to be challenging. Something in a way we can't necessarily control. But we are doing everything we can to deal with the situation. We mentioned in the fourth quarter conference call that the impact would be one to two cents for the year, we currently expect that still to be applicable.

Generally, business is pretty slow. We have the advantage of very strong market shares, particularly in the blade business, we have been aggressive on pricing, although we have not made up the devaluations. We haven't operated in Latin America for many, many years. We operated in hyper inflationary areas where you do see this. I think we are quick off the mark in terms of reducing our overall costs, but the business is depressed, no question about it, for everyone.

But when we read that banks are closing indefinitely, doesn't that mean that business is going to grind to a halt at some point because businesses can't be processed?

I guess that would be the dooms day view of it. Yes.

Are you getting any sense they are going to this bank holiday or whatever it is anytime soon?

No, but we are probably not the best people to talk to. I think the banks are the people you should talk to on that.

We'll move onto Craig of Oppenheimer Capital.

If we could take one more question, that would be great.

I'm actually going to let mine pass. My question has been answered. Thank you.

That's it.

That concludes the question and answer session at it time, we'll turn the call back over to you.

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