聯合利華 (UL) 2003 Q1 法說會逐字稿

Good morning ladies and gentlemen, welcome to Unilever's 2003 first quarter results update conference call. This conference will begin with a presentation by Mr. Howard Green, Senior Vice President Investor Relations, followed by a question and answer session. At any time during the presentation you may indicate your desire to ask a question by pressing ' 1' on your telephone touch pad. Should you wish to cancel your question your question simply press '2'. This conference is being recorded and will be available for a period of two weeks. Details of the replay number and access codes can be found on Unilever's website. An audio webcast of the teleconference will also be available on Unilever's website at www.unilever.com.

We will now hand you over to Mr. Green.

Ladies and gentlemen, good morning and welcome to this presentation of Unilever's first quarter results. I hope you will excuse me if I have to take the occasional pause, as I am coming to the end of a bad cold, and breathing and talking at the same time are a bit difficult.

That said, a transcript of this presentation, which contains the usual formal disclaimer as to forward-looking statements within the meaning of relevant US legislation, can be accessed via our website at www.unilever.com and this presentation and discussions are conducted subject to that disclaimer.

I will not read out the disclaimer but propose we take it as read into the record for the purpose of this presentation and conference call.

So now let me turn to our results for the first quarter. Can I remind you that, unless otherwise stated, the financial numbers used in this presentation are in Euros at constant rates of exchange, that is average 2002 rates.

On Chart 1 you will see the quarter's key features.

Firstly, on a moving annual total basis growth of the leading brands was 5.5% whilst in the quarter it was 3% with a sustained performance in HPC but with a slower start to the year in Foods.

Secondly, our operating margin before exceptional items and goodwill amortization was 14.6%, 30 bps above the prior year and after a 180 bps increase in advertising and promotions. Within this the Path to Growth savings programs are delivering to plan.

Thirdly, net interest of €305m includes €48m related to the financing element from the adoption of FRS-17 for pension accounting. Interest on net debt is €257m compared to €294m in the prior year, a reduction of 13%, reflecting the combination of lower rates, the benefits of cash flow from operations and proceeds from our disposal program.

Lastly, the underlying tax rate is 30% benefiting from a structurally lower rate as we described with our 2003 outlook statement. In combination this means that earnings per share, before exceptional items and goodwill amortization, grew by 4% in the quarter.

Let me turn to Chart 2 where I show the build up of our sales growth for the quarter.

Leading brands have grown by 5.5% over the last 12 months, with HPC at 7.5% and Foods at 3.8%. Within the 3% growth in the quarter there was a flat performance in Foods and growth of 6.8% in Home & Personal Care. Underlying volume growth in the leading brands is some 1%. The growth in the quarter has been impacted by a limited number of factors that reduced growth by some 300 bps, a little higher than our expectations of six weeks ago. Specifically the key impacts are firstly, the combination of one less trading day in the quarter and a later Easter. These calendar related phasing impacts reverse later in the year and indeed we have already seen a strong start to April from the Easter effect.

Secondly, in March month we saw a number of retailer driven events in key markets including a spike in the general trend of trade de-stocking and with some retailers and distributors experiencing financial difficulties. Also events in the Middle and Far East reduced sales growth in our out of home and travel retail businesses by a small amount, equivalent to 20 bps of growth.

By way of illustration; in the three categories most impacted by these two effects, namely Savory & Dressings, Spreads & Cooking products and Ice Cream, leading brand growth for the first two months of the year was 4%. In March we saw a decline of nearly 6%. Indeed it is because the nature of these effects is largely phasing related or of a short term nature that we remain comfortable with our full year target for 2003 of between 5% and 6% leading brand growth. As we will show shortly this is underpinned by continued investment behind our brands in line with our operating plan for the year and as an integral part of the Path to Growth strategy to build the platform for sustainable profitable growth into the future. But first let me finish off the analysis of sales performance.

Underlying sales grew by 1.7% with 2 percentage points coming from price. The difference between this growth rate and that for the leading brands derives from our strategy of managing the tail for value. This has two aspects to it. Firstly, extracting value via a harvesting strategy. In the quarter we saw an underlying sales decline of 10% which has impacted underlying sales growth by some 100 bps. Secondly, realizing value through the sale of businesses. In this quarter the effect is to reduce sales by the equivalent of 590 bps or around €700m. Acquisitions add €60m or some 50 bps. Altogether this gives total sales in the quarter of €11.1bn, a decline of 3.7% on the prior year.

The trend in the growth of the leading brands is shown on Chart 3.

The chart shows, on a moving annual total basis, firstly the growth of the HPC leading brands, secondly the growth of the Foods leading brands, excluding Ice Cream and thirdly, the growth of Ice Cream. We separate the latter to try and remove its seasonality from the trends. Two points are clear. Firstly, in our HPC business with growth of 7.5% we continue to grow at or above the Path to Growth target. Secondly, in our Foods business excluding Ice Cream we continue to see a step-up in growth to 4.8%. Ice Cream is flat.

To get behind these numbers and understand the progress we are making it is appropriate to look at our performance in the context of our strategy which will be measured over the period of Path to Growth and not a single quarter.

On Chart 4 I remind you of the key drivers to get us to our 2004 growth target.

In the leading brands we had to firstly, sustain the performance that we had achieved in 2002 in Personal Care, Health & Wellness, Spreads, Savory & Dressings and in our Ice Cream businesses in both North America and Developing and Emerging markets. Secondly, move from the phase of establishing a more profitable base to pursue profitable growth in both our Tea and Home Care businesses thereby returning them to their historical growth rates. Thirdly, bring more innovation to our Frozen Food portfolio, and broadening the relevance of our consumer offering in our European Ice Cream business. Finally we aim to reduce the tail to 5% of total Unilever.

So where do we stand category by category starting with our Personal Care business on Chart 5.

In 2002 our Personal Care business grew 9% with the Hair, Skin and Deodorant categories growing 11%. In Q1 2003 we have sustained the overall growth rate at just over 9%, notwithstanding a weak performance from Prestige because of soft demand in travel channels, and with Hair, Skin and Deodorants also continuing to grow at 11%. Given the one fewer trading day the underlying performance is even more impressive.

Looking on a moving annual total basis we see growth for total Personal Care of 10% - a further gain in momentum. We have a number of initiatives in the market driving this performance.

Firstly in Hair, the further roll-out of Dove shampoo to important markets such as the US and Germany; the introduction of new variants under the Dove brand; the launch of Sunsilk in Europe and the introduction of new Sunsilk variants across Latin America; and in the US launches under the Suave brand.

Secondly in Skin, the introduction of the Dove Silk range in Europe with further roll-out in the second quarter, the success of Pond's double whitening and sun block products in Asia and Latin America and growth of Dove Body Wash in the US. Other initiatives under the Lux, Dove and Pond's brands will carry momentum into the second quarter.

Lastly in Deodorants, a range of activities under the Axe brand including new fragrances in the US and in key countries in Latin America, extension to shaving foam and cream in India, and shower gels in Europe; a continued strong drive behind Rexona; and finally the further extension of Dove in Deodorants with the introduction of mini sizes in France and sensitive skin variants in the UK.

Looking forward it is more of the same; strong brands with a virtuous circle of growth, investment and a superior margin structure, benefiting from Unilever's scale, to deliver exceptional value; consumer insight and innovation; the organizational ability to roll new ideas and concepts across the Unilever world; and the strength of our position in developing and emerging markets.

Let me now turn to our Laundry business on Chart 6.

In 2002 our Laundry business grew 1.8% and by 2.3% in Q1 2003. On a moving annual total basis underlying sales growth in Q1 is 2.6%. We are still short of the historical growth rate of above 4% but we are starting to see our strategy working.

In terms of profitability, gross margins have continued to show an improvement particularly in Europe, North America and Asia Pacific, whilst we still see the impact of devaluation driven cost increases reducing margins in Africa, Middle East and in Latin America. We expect pricing and other cost effectiveness measures to continue to claw back the margin position in Developing and Emerging markets.

Within the regionally differentiated strategy the pattern of growth is very similar to that previously described. Volume growth in Western Europe in a very price competitive market to give a small positive overall growth; in North America actions taken over the last year to focus on segments and brands that will provide profitable growth means we are showing underlying sales declines as we come up against higher comparators but we now have a more competitive portfolio. And encouragingly, a pick up in the growth rate Developing and Emerging markets.

Developing and Emerging markets represent some 55% of our Laundry sales and we are the clear market leaders, so the Q1 performance is important in terms of its contribution to the overall strategy in Laundry. With an improving margin structure, advertising and promotions have been stepped up by 200 bps in support of a more active innovation program such as ”All” fabric conditioners in the US, aloe vera variants behind key brands in Europe, various initiatives and new concepts in fabric conditioners including new benefit claims and new perfume varieties, and also a wide range of activities behind the OMO brand in developing and emerging markets. We expect to carry this momentum forward through 2003.

I now turn to the Foods categories starting with Spreads and Cooking Products on Chart 7.

We have seen sustained growth in our leading brands throughout the last 2 years at over 4%. Overall underlying sales growth has however been constrained by harvesting of the tail which represented some 30% of the category at the end of 2002.

In the first quarter of this year we have seen underlying sales decline by a little over 3%. Within this we saw firstly, leading brands growth on a like for like basis of 4%. This is after adjusting for the impact of Easter, which is most pronounced in this category, and one less trading day. This performance is consistent with last year and at the level required to achieve our overall target. Innovations such as ProActiv, Crème Bonjour, Culinesse and Becel de Capullo in Mexico continue to perform well and their rollout continues. For example ProActiv into Brazil, whilst in Q1 in Japan we launched their first cholesterol lowering margarine under the Rama brand. Rama vitality has been launched in Russia and Culinesse Cooking Oil has recently been launched in the US.

Secondly, a continuation of underlying sales decline in the tail of business of over 9%. This planned decline is driven by the exit from third party oils contracts in Europe and harvesting of our commodity oils business in Central Asia and Latin America. These actions combined with disposals have resulted in the tail of business reducing to 25% of the category by the end of the quarter.

Looking ahead to the rest of the year, we will see the impact of the Easter effect reverse in the second quarter and we are developing new initiatives that capitalize on our strong brands and world-class technology. We intend to broaden our business to deliver a range of heart health benefits across new categories. As an early example of this we have launched Becel cholesterol free mayonnaise in Turkey.

I now turn to our Savory & Dressings business, which is shown on Chart 8.

Underlying sales growth was a little over 4% in 2002 with acceleration through the year as we moved from a focus in the first half on integration to innovation in the second half. Leading brand growth in 2002 was just over 5%. In Q1 2003 underlying sales growth was 1% with leading brands at over 2%.

The Q1 performance has been particularly affected by the timing of Easter for Dressings and Oil. Our Food solutions business has also seen short-term disruptions to its business from developments in the Middle and Far East and in its US distribution channel.

Again it gives a better sense of overall progress to look at growth on a moving annual total basis with our Savory and Dressings category having grown over 4%, and within this the leading brands having grown well over 5%.

The focus of innovation around Knorr continues to be about firstly, reaching out to new consumers, occasions and channels - for example the extension into frozen formats in parts of Europe; the launch of the brand into Arabia, Egypt and Eastern Europe; and the launch of salad dressings in Germany.

Secondly, reaching down to drive growth through affordability and availability, particularly important in D&E markets. In the quarter we have launched a number of initiatives across Asia, including seasoned flour in Indonesia, the launch of bouillons in China and in Latin America we have extended bouillons and soups into Ecuador.

Thirdly, reaching up to offer nutrition, fresh, ethnic and high quality convenience foods such as the rollout of meal kits and Vie vegetable rich soups across Europe.

In Dressings our innovation program continues to focus on extending our offering into salad dressings and cold sauces. In the US we have launched Wish-Bone Ranch-Up! Dressings and further extended Hellmann's beyond mayonnaise with the launch of Dippin' sauces. In Germany we are launching Knorr liquid dressings and Bertolli Vinaigrette and elsewhere in Europe we have started the launch of a range of four Italian style salad dressings. Also in Europe we have launched spicy ketchup in Russia and Dippin' sauces in the Czech Republic.

In Food solutions we have introduced new variants of Hellmann's in the US, gastro-bouillons and deli sauces in Germany, and in Latin America we have launched a range of gourmet sauces under the Knorr name. We have also extended the soup bar concept and have 3000 placed across Europe with a wider rollout planned.

Thus, whilst the growth rate for the first quarter shows a relatively slow start we remain comfortable with the overall momentum within this important part of our Foods portfolio. It is some 35% of our total Foods business and we plan that our brands will be capable of sustaining growth in the 5% to 6% range.

This will be achieved by continuing to build momentum in our Food solutions business, revitalize Hellmann's in a number of regions, continue to develop the strength and breadth of the momentum we are building behind Knorr and of course the opportunity the acquired brands give us for accelerated growth in Developing and Emerging markets. The latter will be further strengthened from the acquisition of Ajinomoto's interest in the South East Asia JVs and their full consolidation from 1 April of this year.

And now for Tea based beverages on Chart 9.

In 2002 Tea based beverages had underlying sales growth of a little under 2% with leading brand growth of just over 3%. In Q1 2003 underlying sales growth for the category has doubled and within this leading brand growth is around 5%. With continued progress on exiting from low margin, low growth commoditized business particularly in Asia Pacific, innovation and strong brand activation for Lipton and our focus on faster growing segments such as Ready to Drink formats we are starting to see a pick up in momentum. On a moving annual total basis underlying sales growth for the category is nearly 3% with leading brands growing at just over 4%.

In India, the re-launch of Lipton Yellow Label packet tea and the launch of Brooke Bond boilable tea bags helped return leading brands to growth in the quarter. Other innovation in leaf tea included the launches of Lipton Premium and Herbal teas in Japan. Lipton's "paint the world yellow" campaign has delivered good growth in Eastern Europe and particularly in Russia where Lipton grew by 28% in the quarter. "Paint the world yellow" is also proving very successful in Arabia, a large driver behind the 14% growth of Tea in the Africa, Middle East and Turkey region.

Ready to Drink has seen growth of 10% overall, with growth broad based. In Japan where we already have a share of over 20% in the Ready to Drink market, our position was strengthened with the launch of Sparkle, a carbonated lemon Ready to Drink tea, and the re-launch of Cool Peach. In North America there was broad based growth of the Lipton RTD business further boosted by RTD Brisk Lemonade with growth in mid-single digits.

Looking ahead, the focus will remain on extension of "paint the world yellow", continuing innovation behind both leaf tea and RTD and through expansion of our RTD business into other countries.

Which brings me to Ice Cream on Chart 10.

In Ice Cream we are still at too early a stage of the year to judge progress against our plans as Europe accounts for nearly half of our global business.

Underlying sales declined by a little over 2.5% in Q1 but this was against a near 8% positive growth in the prior year and 4% underlying sales growth for the whole of 2002. The difference is largely due to calendar effects including the timing of Easter and an extremely strong first quarter 2002 for our North American business where we saw growth of 15%.

We have continued to see further progress in our Developing and Emerging market businesses and against the strong 2002 comparator Good Humor Breyers continues on plan. Ben & Jerry's is also in good shape although the parlor business has been slow in line with other short-term trends we have seen in out-of-home channels in March.

The challenge for our business continues to be in Europe. But hopefully you will also have seen and heard that we are dealing with this through the re-launch of the "Heart brand" and with an exciting range of product and point of sales innovations as well as continued support for last years initiatives. As an example we are adding a further 30,000 Cornetto Soft Ice machines to the existing installed base and in support of the Cornetto brand which grew by 17% in Europe in 2002.

Within our strategy we have created a more flexible business model, with an operating margin structure approaching the group average on an annual basis and where in the first quarter of 2003 we have increased advertising and promotions by more than 10% relative to last year. We have a plan, we are investing behind it, but we will have to wait to see the results.

Equally we still need to prove ourselves in Frozen Foods, which is on Chart 11.

Underlying sales grew by 1% in 2002 and were down by around 1% in Q1, which is the equivalent to flat if you adjust for the one fewer trading day in the quarter. Innovation, use of a broader set of brands and focusing our efforts on the fastest growing segments of the market are at the heart of our plan. Taking Knorr into frozen meals, which is making good progress in Spain and France and with a test market with Bertolli in the US. Continuing to build on the success we have had in high quality, convenient meal solutions such as Quatro Salti in Continental Europe, and for example by the launch of new pasta based dishes in Italy or a range of Steamed Vegetables in the UK and Belgium. LastleyLastly focusing innovation on areas such as kids nutrition, convenience meals and snacks, and products based on fresh and natural ingredients.

With a return on capital employed of 30% we have a competitive margin and asset structure - we have created the "fuel for growth" but we need to apply it to produce more consistent growth to satisfy our own ambitions.

So finally to Health and Wellness on Chart 12.

The key brand within our €1.3bn category is SlimFast with sales in 2002 of some €1.1bn.

This has been a disappointing quarter for SlimFast with sales well below the prior year, which has reduced Unilever's growth rate by some 40 bps. Whilst part of this is to do with a tough comparator in the prior year as we expanded to new geography, the larger part comes from changes we have made to promotional plans and timing and through competition. The latter particularly relates to the current fad for low carbohydrate diets. It has been particularly felt in North America and the UK.

This type of challenge is not new to SlimFast, but has occurred at a time when we have also had a relatively as we focused on rapid geographic rollout, consolidating new market positions and as we brought new Ready-to-Drink manufacturing capacity on-stream.

We have already addressed the promotional planning issues with a new scheme introduced from the beginning of April. In addition we have an aggressive innovation program for the rest of the year and within this we have already launched SlimFast ice cream in the US market and extended the reach of the brand into the foodservice channel.

Most importantly we will continue to build on the clinical proof and broad based medical support for the SlimFast weight management program - something that differentiates it in this large and fast growing market. We are confident that this approach, in combination with our innovation program, will rapidly get us back on track. However, compared to the year-end position, this is the one part of our business that has gone backwards.

So how does that look in the context of our growth ladder? Chart 13 looks at our Q1 2003 report card starting with our leading brands.

I hope that I have shown you that in respect of Personal Care and in the underlying performance of Spreads, Savory and Dressings, and US and developing and emerging market Ice Cream we have indeed sustained performance. These represent nearly 60% of our total business and in combination grew by some 5% in the quarter. To get at the like-for-like comparison we should adjust for the calendar and Easter effects which would add around 200 bps to this growth and take it just above 7% - the same as we achieved in 2002.

In Health and Wellness we have seen a stall in the historical rate of growth. We are disappointed to be where we are and we have made a couple of mistakes, but we have already put in place the plans to bring us back on track. Given the first quarter we do not expect to repeat double-digit growth in 2003, but we do expect to be back at that running rate at the end of the year and for it to continue into 2004.

In Home Care, which includes Laundry and in Tea based beverages, which in combination represent a little over 20% of our business, we are starting to see an underlying improvement in performance in terms of both profitability and growth. The challenge is to sustain it.

In European Ice Cream and Frozen Foods, together a little under 10% of Unilever, we have the programs to improve performance in place but this needs to translate itself into better numbers and we also need to show that we can get a consistent level of performance by broadening the consumer appeal.

Finally we continue to make good progress with harvesting the tail. It should be remembered that this in its own right is the single largest contributor to raising the overall Unilever growth rate. We will continue to seek value-creating disposals and we still expect that part of our business outside the leading brands to be around 5% by end 2004.

In summary, I hope the category section of this presentation has given you a flavor for how the different aspects of Path to Growth are getting implemented in our businesses around the world. In aggregate we see an improving trend. Our innovation and market place activities have been and continue to be implemented in accordance with our overall plan for the year. Whilst the specific one-off issues related to Q1 have used up some of our "degrees of freedom" that are part of any prudent planning process we continue to remain comfortable that we will deliver our leading brand target for the year in growth of between 5% and 6% and that the proportion of leading brands will move above 90%.

But perhaps our confidence is best demonstrated by the continuing investment we are putting behind our brands as you can see in the analysis of operating margin that is shown on Chart 14.

The basis point quotes are all expressed as an effect on total Unilever operating margin. In the quarter we continued to see the "fuel for growth" coming through strongly with pre Advertising & Promotion operating margin moving ahead by some 210 bps, reflecting the continuing benefits of our savings programs.

The key drivers of the 60 bps improvements in gross margin have been firstly, continued benefits from our Path to Growth restructuring programs which contributed some 40 bps. Secondly, improved mix contributed 60 bps through disposals and a larger proportion of higher margin categories. There remains a shortfall between cost increases and price of some 40 bps. This includes around 40 bps from the year on year impact of increased costs from devaluations - notably those in Argentina in the first half of 2002, and in Brazil in the second half of the year.

It is also worth noting that within the gross margin development higher commodity prices have been successfully recovered in absolute cash terms through pricing action. However, the effect of the higher turnover with the same gross profit had a negative impact on gross margins equivalent to around 30 bps. Investment in A&P is 180 bps ahead of the previous year and 50 bps ahead of the average for last year. Lower associated costs at €27m, add 10 bps to the operating margin progression. Overheads are 140 bps lower than last year reflecting the benefits of the Path to Growth program. So in total operating margin is 30 bps ahead of the prior year and this has been achieved after the increase in A&P investment. It also reflects the loss of marginal profit contribution from the short-term sales disruptions in March month as we have maintained our brand investment at planned levels.

With the Q4 2002 results presentation we showed the drivers of margin improvement to reach our 2004 Path to Growth targets. That showed we were creating sufficient margin headroom to allow us to respond to changes in the economic and competitive environment whilst continuing to invest behind our brands. With a marginally lower operating margin in Q1 than expected, as we have maintained brand investment on a lower sales base for the reasons previously given, we have used up some of that headroom. However, with our savings programs continuing to deliver as planned we remain comfortable with our profit delivery for the year.

Let me turn to Chart 15 to highlight the other key financial indicators for the first quarter.

Operating profit before exceptional items and goodwill amortization is €1.6bn. Net exceptionals in operating profit are a gain of €78m with profits and losses on disposals of €150m partially offset by restructuring costs of €72m. Cash flow from operating activities was €823m in the quarter mainly reflecting the impact of currency movements on operating profit (beia) and the execution of our restructuring program. Net debt at the quarter end, at current rates of exchange, was €16.3bn compared with €23bn a year ago. EBITDA, before exceptional items, which is also in current money, is €1.8bn in the quarter and EBITDA interest cover is 7 times. The effective tax rate for the quarter is 32% and reflects the non tax deductibility of Bestfoods goodwill largely offset this quarter by a net tax credit on exceptional items from the mix of restructuring charges and profits on disposals. EPS grows by 61% through higher profits on disposals and lower restructuring charges than last year.

Now let me turn to Chart 16, which shows how our reporting currencies have developed in the quarter and shows the impact on EPS of current exchange rates.

Chart 16 shows the impact of exchange rate movements by comparing percentage changes at constant exchange rates with those in Euros, £ Sterling and US$ at current exchange rates. When expressed in current rates of exchange, EPS before exceptional items and goodwill amortization declined by 7%. It should be remembered that the Euro strengthened progressively against a basket of currencies through the course of 2002, so the first quarter of last year represents a particularly high comparator at current rates. For illustrative purposes, and without making any forecasts, if exchange rates in the first quarter were to remain in place for the rest of this year, then growth in EPS beia for the year would be around six percentage points lower at current rates than at constant rates.

At this stage I would normally review regional performance. However, since many of the brand growth drivers have already been covered in the category section I intend to only review the key sales and operating margin numbers. These are shown on Chart 17.

The regional review sections including a fuller description of performance drivers can be accessed via our website.

In Europe turnover is 7.4% lower than last year primarily reflecting the disposal of businesses as part of reshaping the portfolio within the Path to Growth program. Underlying sales were 90 bps below the prior year with positive pricing of 100 bps. The timing of Easter and the impact of one less trading day have been important in the context of European sales with a particular impact from the later Easter on our Spreads, Dressings and Ice Cream businesses. Operating margin at 16.1% is 270 bps ahead of last year reflecting the benefits of savings programs partly reinvested in Advertising & Promotions, which were ahead by 80 bps.

In North America turnover was 8.6% lower than last year mainly reflecting the impact of disposals. Underlying sales were 1.7% lower with positive pricing of 50 bps. As well as the phasing effects including the later Easter we saw some short-term disruptions to the operating environment. These included sharp trade de-stocking, the impact of financial difficulties experienced by some retailers and distributors, and weak out-of-home markets. Operating margin at 13.1% is 220 bps behind last year but is after a 370 bps increase in Advertising & Promotions.

For Africa, Middle East and Turkey underlying sales growth of 9.4% includes price of 450 bps with the rest coming from underlying volume growth. The net of acquisitions and disposals has been to increase sales growth by the equivalent of 180 bps to give total sales growth of 11.4%. Operating margin at 11.4% is ahead by 270 bps with investment in Advertising & Promotions at the same rate as in the prior year.

In Asia Pacific underlying sales growth was 4.6% with underlying volume growth of 620 bps partially offset by price declines driven by India where we have taken some decisive action to enhance our competitive position. The impact of disposals was to reduce sales growth by the equivalent of 270 bps to give a reported sales increase of 1.7%. Operating margin at 15.5% was 120 bps below the prior year reflecting a 250 bps increase in Advertising & Promotions.

Finally, Latin America where underlying sales growth was 10.3%. Pricing at 13.5% continues to be the main driver as we recover devaluation led cost increases. Disposals equivalent to 410 bps reduced reported sales growth to 5.8%. Operating margin at 13.5% is 100 bps below last year after an increase in Advertising & Promotions of 170 bps.

That completes my review of the regions and I will now be happy to take your questions.

Thank you Mr. Green. We will now poll for questions from analysts. If you have a question, please press '1' on your telephone. If you are listening to the conference call on a speakerphone, please use your handset while asking your question. Should you wish to cancel your question, please press '2'. Our first question is from John McMillan from Prudential. Please go ahead sir.

Hello Howard.

Hi John.

It's probably already been a long day for you.

My voice is holding up at the moment.

Well you know you say business is okay, but then you look at the stock market and people are just a little worried that things aren't. I guess what worries people the most based on my long morning, not as bad as your long day, is just how you can come out on March 24 and talk about 4% to 5% growth with only a week to go in the quarter and pretty good information systems that Unilever is sort of known for. And then sort of come in on the top line 1 to 2 points below that and to the extent there was so much weakness in late March, what that signals down the road. First of all, were you trying in this pre-close call to be less conservative that you have been accused of in the past. Was there any effort just to be less conservative?

No, not at all. I mean we have always and we have always made clear that when we do pre-close, we do that on the basis of two month's actual results and a forecast from the business of the last month of the quarter. We run a full financial model; we have discussions and dialogues with each of the business groups; we do all the analysis that you would expect to test the reality and look at the reasonableness of the gap in GAAP to be achieved or the unreasonableness of the GAAP to be achieved in the March month. A balance decision is made and it reflects all the best inputs that we can get from around the business. So it is our best estimate of what the outcome is going to be.

Sure. I'm not accusing you any anything. I am just saying past estimates have tended to be conservative. I just wondered if there was a change. So where were you most surprised with the March numbers where you saw it? I mean based on what you saw in the two months, where were you most surprised?

I think there were and I have to say that I mean, the sort of things that I am going to talk about are the things that we are paid in business to actually manage and certainly to manage, prediction is one thing but managing them is definitely what we are paid to do. The sorts of things that were going on were a number of issues, there was certainly an impact as I said in the speech from events in Iraq and the immediacy of the impact of SARS, both of those on out of home business. Now I mean the impact in a business like Food solutions is very quick, because the supply chain, the customer's supply chain consists of the larder, I mean it is what they've got on the premises and there is a replenishment cycle that is very, very short.

In the longer term, of course, we have a much bigger retail business. So we have seen a hit in so-called out of home channels. But in the longer term you would expect if that continued and we will wait to see whether it does continue, that that sort of thing is picked up in the whole of one's portfolio.

There were definitely issues to do with retailers and distributors facing financial difficulties that we did not fully know about and did not fully factor in the de-stocking effect during March month. I don't really want to name the names of the people because they are partners who we are working with and I am sure you understand that we have to work through those things. It had an effect and by the way, it has also had an effect in the way that we actually have to provision from some of the receivables. But that is in the normal cut and thrust as they say as well.

There was another issue again with the Food solutions business. One of our major distributors in the US, we had been seeing a consistent pattern of reductions in our business with them, because we had refused to enter into agreements for paying them terms which we found to be uneconomic and we were not willing to enter into those. It happened that in March month, the actual rate of decline was double that which we had seen in the previous two months.

Lastly, I would say that there had been very clear and again this is specifically related to the US, there has always been a steady process of what I would call trade de-stocking. The half percent a year that comes out just by more efficient supply chains. What we saw and it picked up notably again in March, was what I called a "spike". That there was specific determined action to actually take inventory out. Part of that might have been triggered by people as they looked at the balance sheets of other retailers; part of it might have been influenced by thinking about what was going in other parts of the world. But it definitely had an impact on our business.

Now as I say, all of those are things that we are paid to manage. We will manage them. When we described the growth ladder for Unilever to take it through to the Path to Growth targets, we actually said that we had created what we call degrees of freedom. The charts in Q4 and that we used in the roadshowroad show added up to more than the 6% growth rate for the business. That is what the degrees of freedom are meant to cope with, these short-term types of things. That is why we remain comfortable with the 5% to 6% target for leading brands in the year because we will manage these things. It so happens and this is why, I guess I am taking so long to explain it, that we did have this difference that happened between pre-close and the final accounts for the month and yes, it has come and surprised us. We are disappointed but we will manage it.

You have obviously seen April's numbers to some extent?

Yes, absolutely. As I said in the speech, we have seen a couple of weeks because we actually did it via a special collection and that sure enough shows a strong start to April from the Easter effect. I have not seen April's full numbers. We will see those in a week and a bit's time. So I wouldn't want to comment on the April month. We certainly saw the pick-up prior to Easter that we would expect. That is why when we look, I guess it is easy for me to say, but when we look at the performance of Q1, we are looking at these 3% underlying sales growth for the leading brands, the timing issue is to do with the number of days and Easter are real. Therefore we are looking at an underlying performance of 3 added back the phasing difference, 5% on a like for like basis and in line with our targets for the year.

Just in terms of the mistakes that you are citing at SlimFast, the mistakes that were done. Can you be more specific?

Yes, sure. Let me try and help you. The record of SlimFast just to say has been superb. I mean it is actually ahead of the acquisition proposal that we pulled together. So the brand equity and all the rest of it we have no concerns about. We have got, I guess, two principle reasons or what I would call the areas where we could have done better. If you remember back to the original acquisition, there are two spikes in the year when the sales level of SlimFast peaks and those are related to the sorts of times when everybody comes back from Thanksgiving and Christmas and they take a look at themselves in the mirror in the second half of January they say "gee, I don't really like what I am looking at" and they tackle their weight.

SlimFast had matched in promotional plans to coincide with that peak. Equally there is another one in sort of August, September, once everybody starts going back to school and comes back from vacation.

We introduced a new promotional planning and timing system, which did not work. It did not produce the sales pick-up that we would expect at that time of year. We have missed out on those sales.

And that has nothing to do with the go to market, that is separate?

That is completely separate, completely separate. So we had a promotional planning scheme and the timing of that and it didn't deliver. We have withdrawn that, we have introduced a new scheme with effect from April 1. The second issue is that SlimFast has been, as I have said before, very, very successful. We have had a concentration on geographic rollout, consolidating those positions. We have had too light an innovation program. That likeness in our innovation program has happened at the same time as there has been a strong competitive move by low-carbohydrate diets.

The responsibility of the market leader and we sit there with 50% of this particular market is to innovate and lead the market. We had too light a program. It was always back-end loaded but the consumer went somewhere ahead of us. None of the equity, the brand equity of what SlimFast means and all the rest of it is in any way damaged, but we lost the consumer's attention. The launch of SlimFast Ice Cream and later rollouts of things like SlimFast pasta, SlimFast soups, a range of new bars, those are the innovations that we have got coming down the road that will get us back into the consumer's mind and further support growth of the brand.

We have lost some sales, they have gone because we have missed a promotional season. We did not get the right timing or the right chronology of our innovation efforts.

Well I hope you and the stock look better down the road.

Thanks very much.

Thanks, bye.

Thank you. Our next question is from Karl Kawasha(ph) from Capital Research. Please go ahead.

Hi Howard. Thanks for that extended discussion. I was wondering if you could talk about the A&P spend which was very significant in the quarter. Are you sort of happy with the advertising that you are doing? Can you give us some highlights of where you are spending the money and the kind of things you are hoping it will lead to?

Yes, sure. I think we must make sure that we also get the 180 bps in context. I mean you will remember that in the first half of last year we actually had a relatively light innovation program as we particularly went through the final stages of the Bestfoods and integration. So there was in the first quarter an A&P spend rate that was below the average for 2002. We are coming up against a lighter comparator. That is why I said in the presentation that we are 180 bps up, but it is 50 bps up against the average for last year.

In terms of the areas that we are actually investing in - then that is pretty broad based across the business. We have got around about 200 bps going into our Home Care business; we have got the same sort of amount going into our Personal Care business; we are investing in our North American and D&E Ice Cream; we have got a sound investment going into European Ice Cream business. In total Ice Cream A&P is 10% above last year.

The only areas where we have in fact got A&P that is reduced against the prior year, or not reduced, is Savory and Dressings where it is marginally down, but that has got more to do with the promotional season, to do with Dressings in Western Europe and the timings of innovations in the US.

Then in Tea, in Tea we have come up against a very tough comparator. Now the types of things, the innovations that those are going behind are the types of things that I described through the presentation.

How is the Axe launch going in the US?

It's going very well. I mean it has strengthened our position in the Deodorant or the Anti-Perspirant and Deodorants market in the US. We have got a share of a touch over 3% on the information that we have seen. We are now moving into the next phase of the rollout and the strategy which is we bring new fragrances to the consumer. So yes, it is proceeding very well. As is the rollout of Dove shampoo in the US as well. Our Personal Care growth in the United States was over 5%. So Personal Care is doing extremely well in the US, with good support from Dove and Axe and a number of other initiatives.

Okay. Can you give us a feel for how large or significant the markets of Central Europe and Russia are for Unilever, because that is becoming a growth driver for some of your peers?

Yes, it is one of my old stomping grounds, Central Europe. It would be a pleasure to talk about that for a bit. We have got a business of about €1.4b, €1.5b, I am grossing up from Q1 numbers. I am getting the full-year numbers in front of me hopefully. But is about €1.4b, €1.5b. In the quarter, we have seen very good growth in Home and Personal Care. We have seen a decline in Foods, primarily because of the Easter and the one-day effect. So that has flattened growth for the quarter.

In the last two years, our Central Eastern European business has grown at or around 10%. In terms of Russia, we have got a business that is now a little over €200m. It is growing extremely rapidly. We have had times in the past when that business has been larger when we had a significant margarine business and then there was the collapse in the currency towards the end of the 1990s. We had been sourcing that market from offshore prior to committing assets, manufacturing assets on-shore. So definitely in the case of margarine or spreads had taken a step-backwards. But that business now is growing nicely. We have just had, as I said in the presentation, the launch of Rama Vitality. That is looking promising as well.

We have got a particularly strong Personal Care business as well in Russia. So the balance between Foods business that is based around what I would call European habits, spreading of margarine on bread; the use of mayonnaises and the like in terms of salads; and again as a kind of spread; drinking of tea. It is, I think, the second largest Tea market in the world, maybe the third largest Tea market in the world. The use of Savories, bullion cubes, dry mix sauces in cooking. They are all essentially European habits and therefore lend themselves very well to Unilever's product range and enhance our growth prospects there.

And one if I may sort of bookkeeping question? What was the net debt number in constant currencies, because currency obviously benefited?

Net debt in constant currencies? Well do you know, we don't even measure that Karl.

I was just wondering what was the impact of the change in currency and reducing your debt?

We had a net debt at the end of the year of €17b. We have come down to €16.3b and I would guess that around about €300m, I'm just looking - it is on page 5 of the announcement text. So net debt decreased by €685m in the quarter, €300m of it was from cash flow and the balance was from currency effects.

Okay. You don't know what the year over year change impact from currency is do you? I can follow-up with you after.

We would have to do a sum. I don't have that immediately available. We will get back to you Karl.

Thanks.

Thank you. Our next question is from Daniel Paris from Federated Investors. Please go ahead.

Good morning Howard. Really a small question in regard to everything that is going on today, but how large is the Fragrance business and is it viewed as one of the strategic brands or is it in the tail?

No. The Fragrance business is within the leading brands. Just as every brand in the leading brands has to perform, so we expect the Prestige business to perform. It is around about €800m in size. It has had a flat performance, flat sales growth in the first quarter. That is made up of two effects - there has been some good growth from new launches, such as Vera Wang and Crave. However that has been offset by softness in the travel retail channel, which I guess you would notice from your own travels. If we are not getting people in airplanes and airports, then the travel retail channel, which is pretty important for the Prestige business, tends to hold us back.

And is the profitability there, if you don't want to get too granular but at least provide some degree of how profitable that business is? Any dramatic change if there is in level of profitability in the last quarter or two?

Let me just scrabble around. The current level of operating margin is below the Unilever average. My guess is it is around about, hold on I am getting the exact numbers in front of me, on an annual basis around about 9% or 10%. So it is high single digits, 10% would be, I think that might have been achieved in 2001.

Is there a significant split between Europe and North America, or other markets, or is it generally throughout?

No, it is primarily a US and European based business.

Okay. Thank you very much.

Thanks Daniel.

Thank you. Our next question is from Anne Gillan from Lehman Brothers. Please go ahead.

Hi Howard.

Hi Anne.

I just wondered if we could go back to the second reason for the decline in revenues in terms of the retailer driven events. What are your folks telling you that they are seeing currently in terms of the cycle? Do they feel like it was mostly March or is it still lingering into April?

No, what we actually saw was, what I would call the spiking type issue, actually started earlier in the quarter. There was a pick-up in momentum through March. It looks to us as if that is very much a one-time off correction. There has been a consistent story of trade de-stocking in the US market running over many years that has averaged anywhere around about half a percent of sales, which we just manage in the normal way. This was, as I say, a spike and I think it is more conditioned by people looking at balance sheets. Some of the problems that there have been in retailers and the need to actually meet whatever they have got to meet has led people to take a much more cautious approach with inventory. I think that you then had a reduction that was related to managing possibly through an expectation of events in the Middle East.

There is no indication that this is a spike that is extended and it is going through into April. We have definitely seen a large amount of inventory come out. We still expect the normal ongoing level of inventory reduction. What I would call the normal improvement of supply chain efficiency to continue to be a feature of our business. In fact, it is something that benefits the consumer, it benefits overall productivity in the economy and that we work positively together with retailers. It is good for everybody at the end of the day, but spikes aren't, especially when they catch you by surprise.

Just from you comments, it sounds like it was mostly Food products. I am just struck that you didn't see it in other shelf stable products. Was it channel specific or--?

It was also across Home and Personal Care. We have got a very similar effect across Home and Personal Care and Foods. I wouldn't really discriminate between them. It was in what I would call normal retail channel. There is nothing I would say that is specific to a small part of the market. The other issue for us was in the Food solutions market, but that was much more to do with the financial problems that some of these people have had. We have had to adjust accordingly.

Okay, thanks. That is very helpful Howard.

Thanks Anne.

Thank you. That was the last caller. We will now pass back to Howard Green, for his closing comments.

Thanks very much for the questions. Let me just summarize. Our performance in the quarter confirms the underlying progress we are making with improving the growth profile of our business with leading brands growth adjusted for current phasing differences of some 5%. The first two weeks of April have shown the expected pick-up in growth due to Easter and we have plans for strong innovation and marketplace activity program for the rest of the year, particularly in Foods. Importantly, our savings programs are delivering as planned and we have continued to invest behind our brands.

It is the combination of this fuel for growth and an improving growth profile that means we remain comfortable with our full-year outlook of leading brands growth of between 5% and 6% and low double-digit growth in earnings per share before exceptional items, notwithstanding the slower than expected start to the year.

I do know that if any of you have additional questions, you will be after us on the telephone. We are available and looking forward to those calls on the normal numbers. Thanks very much and thanks for your interest. Bye bye.

Ladies and gentlemen, this conference has been recorded. Details of the replay number and access codes can be found on Unilever's website. An audio archive webcast will also be available on Unilever's website at www.unilever.com. Thank you very much for your participation today.